December 2, 2016

Comment
Clean energy wrecking ball slips from Trumps grasp
By Christian Roessing*
Carbon dioxide, sulphur dioxide, methane andDonald Trump? To the list of the big
environmental hazards facing our planet, it is tempting to add the US presidentelect. He has, after all, dismissed climate change as a hoax, threatened to ditch the
Paris accord on carbon emissions and promised to dismantle the Obama
administrations clean energy programme.

Yet while investors in renewables have been unsettled by Mr Trumps electoral

triumph, his victory is not a wrecking ball for clean energy.
The self-styled champion of fossil fuels will soon realise, as many of the USs states,
cities and corporations already do, that alternatives are destined to become a
significant feature of the energy landscape.
For one thing, the political hurdles to his plans are more daunting than he would
care to admit. Exiting the Paris accord, which was signed by 193 countries, is hardly
straightforward. The deals exit clause binds the US into the agreement until 2020,
which means the Trump administration would either have to wait three years before
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formally applying for withdrawal or take the geopolitically treacherous route of

extricating the country from the UNs Framework Convention on Climate Change.
Dismantling the domestic clean energy framework could also prove problematic.
Many US laws and regulations encouraging greater use of renewables are beyond Mr
Trumps reach, having been introduced by individual states. Among these are the
renewable portfolio standards, now in force in 29 states. They require electricity
suppliers to increase the amount of energy they source from alternative fuels such
as solar, wind and geothermal.
Renewable energy subsidies are, admittedly, a softer target. Yet here, too, obstacles
abound. Tax breaks enjoy bipartisan support and were renewed by US lawmakers for
a further five years last December.
And even if Trump proves to be up for the fight with Congress, there are other
factors for him to consider before battle is joined.
Having campaigned on a platform to boost employment, it is unlikely he would want
to damage industries with a strong record in job creation. Clean energy is one of
those.
According to the Bureau of Labor Statistics, roughly 2.5m people work in clean
energy in the US. Much of the recent job growth has been in solar, where the
workforce has expanded by about 20 per cent per year over the past three years.
Solar companies now employ about 300,000 people, more than the total number
working in oil, gas and coal extraction.
But, inevitably, the most powerful forces bearing down on fossil fuels are
technological and economic.
Thanks to technological advances, solar panel prices have declined by approximately
80 per cent over the past six years. That translates into a 65 per cent drop in the cost
of solar-generated electricity globally. In the US, solar electricity now costs $79 per
megawatt hour (MWh) compared with $125/MWh in 2010. That has made it more
competitive with coal, which costs $65/MWh, or $140/MWh for a modern plant with
carbon capture technology. The economics for wind energy are even better. Windgenerated electricity costs just $56/MWh, or $34/MWh including subsidies.
There is, however, more to the USs clean energy transition than advances in solar
and wind.
Improvements in the countrys energy efficiency are arguably becoming more
important.
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Of all forms of energy production, energy efficiency is the cheapest. In other words,
the cost of electricity generated from improved efficiency excess power that
can then be used for other purposes is lower than for every other energy source.
US states and cities were quick to recognise this, and a large number have
introduced laws and regulations to cut energy use. In doing so, they have also sped
up the adoption of energy-saving technologies across the country, including
sustainable building design, LED lighting, low-energy semiconductors and variable
speed industrial electric motors.
This distinctive aspect of the USs clean energy revolution should resonate with
investors for two reasons. It will be unaffected by Mr Trumps plans, and it can
hasten the countrys transition to an environmentally friendly energy mix.
So even in the unlikely event that Mr Trump manages to halt his predecessors
federal clean power drive, the transition to a sustainable energy system will not be
derailed.
The next president of the US may have defied the polls, but he cant defy the power
of technological progress and economics.
*Christian Roessing is senior investment manager at Pictet Asset Management. His
comment was originally published in the Financial Times of 28 November,2016

The Future of East Med Gas

By Charles Ellinas*
The future of East Med gas was the subject of a conference in Nicosia. It was
organised by the Atlantic
Council,
Friedrich-EbertStiftung,
Istituto
Affari
Internazionali, PRIO and
Strata
Insight.
The
conference considered both
the global realities and
trends, in terms of energy
supplies, supply security,
markets, demand trends,
prices,
availability
of
financing for projects, new technologies, but also geopolitical factors and risks.
The aim was to discuss how these have so far influenced offshore gas field
development in the East Med, and how they will do so in the future. The state of the
global oil and gas markets and prices and where these are going and their impact are
key issues for the development of East Med gas.
Global energy market
Global primary energy consumption is peaking. Even OPEC now says oil consumption
is expected to peak before 2030 and decline after that. Gas demand in Europe is now
at best stagnant, and is down 20% from its peak 10 years ago. Plentiful energy,
renewables, energy efficiency and climate change have driven oil and gas prices low
and they are expected to stay low.
The Paris Climate Change Agreement has now been ratified and COP22 currently in
progress in Marrakesh is putting it into action. It has altered energy production and
consumption globally and permanently, moving away from fossil fuels to cleaner
forms of energy. Donald Trumps election to the US presidency and his America first
policy will mean more shale oil and gas, impacting global prices even more. His
questioning of the Paris Agreement, though, may lead to a reality check.
In addition, coal is not going away in Europe or Asia. On average, it is about 50%
cheaper than gas. Also, renewable investment and market penetration are going
strong, with unit costs going down. There is no prospect for these factors to be
reversed anytime soon.
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Meanwhile, Russia is a formidable competitor, intending to remain the largest

supplier to Europe in the foreseeable future. Not only is Russian gas cheap, at
$4/mmBTU in 2016, but Gazprom can reduce the price further. It also has over
100bcm/y spare production capacity at marginal cost. This gives Gazprom flexibility
to supply more and reduce prices to defend this market. Gas price matters.
US LNG is trying to get in, but with limited success. There is also plenty of LNG
available globally, keeping prices low until at least 2025 and probably beyond. LNG is
becoming a commodity. These factors, and with the Paris Agreement in place, may
eventually mean that gas-fields sitting at the high end of the cost curve, and
dependent on exports to Europe, may remain stranded.
East Med time for realism
Cyprus and East Med need to find buyers for their gas, but low oil and gas prices are
making this increasingly difficult, with export options dwindling.
Egypt is moving forward, developing its internal market, expected to achieve selfsufficiency by 2020. Lebanon is stagnant, but with a new President in place, it might
start seeing progress in its hydrocarbons sector. Turkey may be the catalyst to
finding export routes for East Med gas.
There is a bright future for gas in Egypt, with Zohr at the forefront. There is also the
potential that Zohr will lead to new discoveries. ENI has embarked on a fast-track
programme to develop the project and produce 10 bcm/y by end of 2017, and
increase it to 27 bcm/y by 2019. Production from 13 projects already in progress will
add 62bcm/y to the existing production of 46bcm/y by 2020, with total gas
production possibly reaching 120bcm/y by 2035. This, together with increasing use
of renewables and energy efficiency, will enable Egypt to become an LNG exporter
by 2021. These developments are much needed to help Egypts economy to recover
from the challenges it faces now.
But these developments also impact the hopes of its neighbours Israel and Cyprus
and their plans to export their gas to Egypt. Not only is this commercially
challenging, but the markets for it may no more be available, with Egypt no longer
being a window of opportunity. A view was expressed that probably both Israel and
Cyprus missed the boat for gas exports by taking too long in decision-making.
The main, and preferred, market for Leviathan gas could be Turkey. The two
countries are now examining the feasibility of such a project. Meetings are in
progress. This could also affect development of Aphrodite, but it requires solution of
the Cyprus problem.

But there was scepticism that Turkey will need additional gas. It is aiming for future
energy mix diversification, with natural gas demand being revised downwards
through increasing use of coal, hydro, renewables, nuclear and LNG imports, and it is
already on the way to achieving this. In fact, gas imports this year may total 45bcm,
in comparison to 48.4bcm last year.
Turkish Stream is back on track and is a game-changer for the region. If a second
string is built, it will make gas imports to Turkey from other sources that much more
difficult. Depending on how this develops, Turkeys need for East Med gas may no
longer be an urgent priority.
Cyprus, meanwhile, is dominated by the negotiations for a peace settlement and, at
present, this issue over-shadows all others. Nonetheless, the results of the third
offshore licensing round are expected soon, with awards possibly during the first
quarter of 2017.

Total is planning to drill in Block 11 April next year, if its problems with access to port
facilities are finally sorted out, and prospects for gas discovery look reasonable. ENI
was bullish that, over the next few years, drilling may lead to new discoveries, which
will alter the prospects for Cyprus. Otherwise, gas exports from Aphrodite are stalled
due to the very low gas prices prevailing globally.

With East Med export options dwindling, marine-based developments, such as FLNG,
may gain prominence. FLNG is coming of age, proving to be a viable gas export
option even in the present low-price climate.
The EU is interested in the East Med through Cyprus, whose sovereign rights it
supports. The EU looks at the East Med for its own security, for diversification and as
a bridge for greater cooperation. But, mindful of price limitations, the priority for the
EU is to see the new gas opportunities turn into a blessing and not into a curse, and
wants to help the region and regional markets benefit.
Opportunities for the region to export its gas are, thus, becoming more challenging.
In the longer term, FLNG may become a serious option. In the meantime, the region
needs to plan with realism and pragmatism if it is to successfully develop its gas.

* Dr Charles Ellinas is a non-resident Senior Fellow, Eurasian Energy Futures Initiative,

Atlantic Council

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