Energy Update 4 December 2013
Welcome to the final edition of Fieldfisher's Energy Update for 2013.
This month we consider: the recommendations in Sir Ian Wood's interim report on the offshore oil and gas industry in the UK. We report on the findings of the review by regulators into allegations of gas market manipulation and consider price transparency regulations in Europe. We examine the recent announcement of the cancellation of the Atlantic Array offshore wind farm and what this may mean for the UK's renewables target. Cyber attacks are increasing against corporations and we consider how they may affect energy companies. Finally, we consider the Council of European Energy Regulators (CEER) recent recommendations on gas storage.
As we approach the New Year, we look forward to Sir Ian Wood's final report and recommendations for the industry, how UK and European authorities deal with green energy and renewables policies in the face of the debate about their costs being passed on to end-users, the implications of new nuclear energy around the world and further developments in shale oil and gas both in the UK and globally.
We take this opportunity to wish you the very best for the festive season and look forward to updating you on energy issues in 2014.
UK Offshore Oil and Gas – Sir Ian Wood's interim report published
Sir Ian Wood, recently retired Chairman of the Wood Group, has published his interim report revealing the economic and energy security opportunities still available from the UK’s offshore oil and gas resources. The report entitled “UKCS Maximising Recovery Review” is the first of its kind in more than two decades. Sir Ian interviewed 40 active companies in the oil and gas industry, representing more than 95% of UK Continental Shelf ("UKCS") production, while compiling the report. He also spoke to key government figures and regulators from neighbouring countries such as Norway and the Netherlands.
Tim Bird, partner in Fieldfisher's Energy and Natural Resources Group commented: "Although shale gas may be around the corner, the offshore reserves in the UKCS are here and now as far as the UK oil and gas industry is concerned. We view the interim recommendations Sir Ian has put forward quite positively although it remains to be seen how effective the addition of another regulatory or arms length body in the energy sector will be. In any event, a strategy to maximise the recovery from the UKCS is of vital economic importance both to the UK and to the international companies operating here and we look forward to Sir Ian's final set of recommendations and how they may be taken forward by the government."
Click here for the key themes, findings and recommendations of the interim report.
Regulators find no evidence of gas market manipulation in the UK
On 7 November 2013, the regulators Ofgem and the Financial Conduct Authority (FCA) announced that after conducting their review they had found no evidence of gas market manipulation following allegations by a former employee of ICIS-Heren (an energy price reporting agency). The allegations of market manipulation related to trading activities in September 2012.
Click here for more.
UK's £4bn Atlantic Array wind farm project axed: renewables target still on track?
RWE Innogy the developer of the proposed Atlantic Array, a £4bn wind farm project off the north Devon coast in the UK, has withdrawn from the project, saying that it would have been uneconomic to proceed. The cost of overcoming technical challenges in the Bristol Channel, including the deep water and adverse seabed conditions, meant the project had become prohibitive. Atlantic Array would have been one of the largest wind farms in the world with as many as 240 wind turbines generating up to 1,200 megawatts (MW) of power, supplying 900,000 households.
Commenting on the decision, the UK Government's Department of Energy and Climate Change said the decision not to proceed was made on purely technical grounds. The UK is still expected to deploy significant amounts of offshore wind to meet the 2020 renewable energy target of 15 per cent introduced in the 2009 EU Renewable Directive. The government’s latest data show that in 2011 and 2012 an average of 3.94 per cent of energy consumption came from renewables, just below the 4.04 per cent target. Offshore wind energy generation was 46% higher and overall wind energy generation capacity was 37% higher in 2012 than the previous year.
For more information on the UK's National Renewables Statistics data click here.
Energy industry is on alert against increasing cyber attacks
Governments the world over have been ramping up their digital agendas in recent months, each seeking to instil the importance of cyber security on citizens and businesses alike. Attempts are being made to raise cyber security awareness, and essentially the message is that organisations must understand their networks, systems and data, and must take a proportionate, risk-based approach to keeping them secure. Resilient networks and systems must be in place.
This is especially important in the energy industry which has become increasingly vulnerable to cyber attacks by 'hacktivists', state-sponsored hackers and other cyber criminals who are all seeking to exploit network and system vulnerabilities. Olivia Harrisson in Fieldfisher's IP and Technology, Privacy & Information Law Group explores the implications of this for the energy industry.
Click here for more.
Council of European Energy Regulators (CEER) Interim Report on Gas Storage
The Council of European Energy Regulators (CEER) published an interim report entitled "Changing storage usage and effects on security of supply" on 21 November 2013. The CEER believes that the demand side is likely to recover, as the intermittent character of renewables means that gas fired power plants will serve as a backup fuel to balance the electricity grid. In its view, price will determine the competitive edge of storage flexibility. According to the CEER, current storage capacity is sufficient to meet European gas demand in next five years.
The CEER recommends that (i) the market for storage should be disturbed as little as possible; (ii) any interventions taken should be appropriate for the national and regional flexibility markets and should be transparent and proportionate, not charging network users with unnecessary costs, which would inevitably be reflected in the price paid by final customers; (iii) interventions should not distort the market and should be in line with the overall storage access regime as defined at a national level; (iv) no measures should be introduced unless there is clear evidence that market failure will occur (which in its view does not appear to be the case); and (v) any possible intervention should fit with the concept of improving security of supply in the EU.
The final report from CEER is due in 2014.
Click here for a link to the interim report.