Friday, July 17, 2009


Tuesday, July 14, 2009

Emfesz and the Spider's web

To update you on the situation of Emfesz (the Hungarian gas provider and frequently remarked upon company) and the murky world of its operations in Hungary, I would suggest you check out this post on the Jamestown Foundation's website. The deal involves a $1.00 transfer of the company in Switzerland, $1 billion fraud and notably famous Russians like Alexander Medvedev and the Kremlin PR machine. While the story itself is noteworthy of underworld business dealings, and whether correct or not I don't know, but the results appear to be that Gazprom now holds a 20% share in the retail gas market in Hungary.

This later point is particularly important and needs a few remarks. If we go on the assumption that at least some parts of this story are true, then that would mean that at least people in Russia know where Hungary is and that very important people in Russia are interested in Hungary. Ok, a basic premises, but something that is important to establish before going foreword. My second point is that this lends credibility to the idea that there is a concerted effort by the Russian government and Russian companies to involve themselves in the downstream business affairs of the Hungarian retail market.

And why is this important to establish and hasn't it been obvious in the past? You may remark. The point is that while Russia and Russian associates bumble around and leave bread crumb trails to track their moves, if a concerted strategy can be detected from multiple events then we can begin to talk of a concerted Russian strategy to control downstream retail assets of energy companies.

The detection of a concerted Russian state and private strategy is important because then we are not relying solely on rumors of who owns Surgutneft (SNG's attempt to take over MOL) for example. Therefore if Gazprom, or some company closely associated with it, owns Emfesz now with 20% of the Hungarian gas market, then dramatic inroads have been in Hungary's newly opened competitive gas market. And competitive it may be, Gazprom's entrance into the UK market resulted in competition occurring and customers switching. We'll have to wait to see what the prices will be on offer. This should be shown in the near furture. In the more distant future is the ownership stakes Russian oil and gas companies will have in Hungary and whether they are taken over through similar tactics.

Wednesday, July 8, 2009

Are we Going the Wrong Way with Climate Policy?

If you are like me and are paying some attention to the climate bill debate in the US and around the world, then maybe you've also thought something is not right. Mainly the right part not actually solving any of our problems in greenhouse gas emissions.

Out now is a thoughtful report published by 13 academics about the need to change tack on the current policy of cap and trade. It focuses on carbon reduction as a means to achieve our aims.

For me this makes sense. It is actually a large part of what my current research is focused on, the role out of alternative energy sources to reduction carbon emissions in a future carbon free world. This EU Commission study, is therefore centred around the issue of carbon reduction not emmission reductions. Which of course holds some overlap. But I would suggest to read the report for more.

Friday, July 3, 2009

Africa begins turning Europe Green

I have been waiting for this:

Twenty blue chip German companies are pooling their resources with the aim of harnessing solar power in the deserts of north Africa and transporting the clean electricity to Europe.

The businesses, which include some of the biggest names in European energy, finance and manufacturing, will form a consortium next month. If successful, the highly ambitious plan could see Europe fuelled by solar energy within a decade (link to news story).

This is an important project that may turn out with similar risks as buying gas from Russia, it may reduce Europe's security of supply rather than boost it. And in some ways importing primary electricity from so far away may threaten the ability for Europe to handle its peak load.

I don't want to be a party crasher on this, and I'm not even going to talk about the technical requirements for the project, but my assessment comes out of my research into Europe's energy security of supply. But I hope I'm wrong here, or at least there are ways to mitigate the risks involved.

The main risk that is inherit in this project is the production and transfer of electricity from outside the EU and through some politically or potentially politically unstable countries. It is reported that Morocco, Libya and Algeria will be used as production sites. First, will the electricity go around through the planned North Africa/Mediterranean electricity grid or will it go under the Mediterranean? Now what is interesting the consortium is being lead by Munich Re, a reinsurer. Therefore, you would think that the risk premium attached to this project would be low - or at least it is certainly being taken into account in the price of €400 billion. And interestingly enough, the company says it is taking this step because of the mounting cost of global warming. Therefore you have the convergence of two risk premiums coming together, with the distant energy source having a lower rating. This may become a case of low risk premiums being priced into the price of electricity UNTIL the electricity is turned off, then it increases. Think oil and gas -oil the risk premium fluctuates daily, while gas only changes when it is turned off.

The projection of the project is that this can provide 15% of Europe's electricity requirements. This is certainly a sizable amount, but what must be asked is what percentage will need to be kept in reserve in case some or all of this electricity is turned off? Just as gas storage is seen as a way to buffer against supply disruptions, so to does electricity that is being used daily from North Africa need to have some type of reserve requirement.

This very project of importing solar electricity from North Africa is actually part of a question I'm currently asking people for a project. Most have said, yes it would be a good thing to bring more green energy into the electricity mix, but most have express reservation based on the security of supply. They equate it to importing gas from Russia. It should work great when it does work, but prepare for those rainy days which even the Sahara receives.