Friday, 8 February 2013

Energy Economics and Politics with Professor Henry Lee

We had the pleasure today of a meeting with Professor Henry Lee from the Belfer Center for Science and International Affairs at Harvard. I was part of an exchange group at Boston College Irish Institute.

Professor Henry Lee at Hovey House, Boston College


Professor Lee is an expert on global energy and the geopolitics  and economics of energy.
The more interesting points I took away here (apologies in advance for any misquotes).

On Oil Prices:
  • Large oil discoveries have been found and from 2015 there could be a sustained period of lower oil prices, say something in the $60/bbl range.
  • Prices will continue to fluctuate dramatically from something like $45/bbl to $250/bbl over the next decades
  • Despite the twin influences of weak economic growth in developed economies and over-capacity in world oil supply, prices have maintained a high level at present. The main reason for this is geopolitics, in particular the Iran oil embargo.
On Climate Change:
  • Developed economies around the world have stuck their heads in the sand for the last 25 years and largely continue to do so. However pressure to act is increasing. Politicians get caught in current issues and don't have a long term horizon to arrest the effects of climate change.
  • The social and climate costs of energy are clearly not factored in. Suggests $125/t carbon equivalent would need to be added to fossil energy cost.
  • In the US there is very strong resistance to energy taxation. Tax on petrol has stayed static at $0.42/gal since 1992.
On Energy Policy Generally:
  •  Subsidising energy technologies (for example feed in tariffs for renewables) is twice as expensive as carbon taxation methods to provide market signals.
  • Best policy (according to Prof Lee) is to put a price on carbon and ratchet it up over time.
  • A sustained technical innovation effort in energy is required. Research teams need the ability to take on high-risk projects with game changing potential. Technologies can take 20 years to commercialise and a long-term view is required from funders, particularly government.
  • Energy efficiency is clearly a potential easy win on climate change, but we should not underestimate consumer reluctance to adopt energy efficiency technology. Consumers generally discount purchases at 30%. An example would be a consumer purchasing a new fridge - he/she only has a 2-3 year payback horizon on any operating costs savings from getting the most efficient fridge.
On China:
  • Chinese economic growth will slow to around 5% and drop occasionally to 1% over the coming decades. About 1/3rd of current Chinese growth of 9% is sustained by building projects.
  • China will have to invest massively in air and water quality. Already in 2013 Beijing has had air pollution above 700ppm on 8 occasions. In plain English this means you can only see a few feet around you.
  •  By 2020 we could see 80% of middle-east oil going to Asia. This will transform the politics of energy. Could we see a situation where China wishes to intervene in middle-east countries in the event of civil unrest? Literally will China send in troops?
  •  China has already become an importer of coal. Many smaller Chinese coal mines were pretty unsafe places to work and have been shut down. 

On Russia:
  • Russia generates 35% of national budget from oil. National finances are extremely exposed to a drop in oil prices. Around $100/bbl is needed to sustain this contribution to the state coffers.
On Japan:
  • Registered minus 3% economic growth in last quarter. Some of this contraction is attributable to Fukushima. Older power plants have had to be taken out of hibernation and put back in service.
  • There are few obvious solutions for Japan which has no offshore shelf to speak of, limited land and a massive population.
  •  There is some prospect of import of LNG and in more bluesky thinking, interconnection to neighbouring regions with land resource.

1 comment:

  1. Professor Henry Lee is nothing short of an authority on the subjects of energy economics and politics. It must have been an honour to meet him.

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