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Energy Update 23 January 2014



United Kingdom

Welcome to this first edition of Fieldfisher's Energy Update for 2014.

New Year wishes to you and welcome to this first edition of Fieldfisher's Energy Update for 2014.  In this issue we look at developments in shale gas in the UK with energy major Total making a significant investment and the government announcing local authority revenue sharing measures in shale areas.  The Department of Energy & Climate Change (DECC) in the UK is consulting on the environmental report in relation to onshore licensing and we also look at the UK government's electricity market reform plans.  Further afield, we review proposals in India for the next auction round of its oil & gas exploration blocks.  Finally, we draw out highlights from BP's recently-released Energy Outlook 2035 report. 

We hope you find this to be of interest.

UK Shale: Energy major Total makes significant investment & PM David Cameron announces revenue boost for local authorities

French energy major Total has recently announced that it was paying $1.6m to acquire a 40 per cent stake in two exploration licences in the Gainsborough Trough, a geological basin in Lincolnshire, eastern England, that is thought to be rich in natural gas.  It will also commit to funding a $45m exploration programme in the two licence areas, which cover 250 sq km. The existing partners, eCORP of the US, Dart Energy and UK-listed IGas and Egdon Resources will remain in the licences but with reduced stakes.

On 13 January 2013, UK prime minister David Cameron announced measures to enable local authorities to be able to keep 100 per cent of rates they collect from shale sites – up from the usual 50 per cent – amounting to an estimated £1.7m for a 12-well site.  Mr Cameron said: "A key part of our long-term economic plan to secure Britain's future is to back businesses with better infrastructure. That's why we're going all-out for shale. It will mean more jobs and opportunities for people, and economic security for our country".

For more information click here

UK's DECC Consultation on the Environmental Report for further onshore oil & gas licensing

A Department of Energy and Climate Change (DECC) consultation seeks views on an environmental report on DECC's proposals for further onshore oil and gas licensing in areas of Great Britain. The report identifies, describes and evaluates the likely significant effects on the environment of DECC's proposals to invite applications for, issue new licences, of reasonable alternatives to that plan and how these effects can be reduced or offset.  DECC will take consultation responses into account and will then issue a “Post-Adoption Statement” which will summarise how the government intends to proceed in relation to further onshore licensing. The consultation is open until 28 March 2014.

For the consultation click here

UK Government publishes Electricity Market Reform (EMR) Delivery Plan

The EMR Delivery Plan provides a package of measures to incentivise the investment needed to replace the UK’s ageing electricity infrastructure with a more diverse and low-carbon energy mix.  Published following consultation, it provides two new mechanisms: the Contract for Difference (CfD) and the Capacity Market.  The EMR Delivery Plan contains the government's final decision on strike prices and terms for CfDs for renewable technologies 2014/15 to 2018/19 (subject to State Aid clearance) and potential deployment rates to 2020.  It is expected that the first CfDs will be awarded by the end of 2014.

A Capacity Market is also being introduced from 2018/19, also subject to State Aid clearance, which will provide for regular payments to capacity providers so that they produce energy when capacity is tight or face penalties.  The regulator Ofgem has approved National Grid’s request to develop new services to ensure sufficient capacity in the period before the Capacity Market is operational and this will see existing and mothballed facilities being available to generate power.  The government is committed to publishing an EMR Delivery Plan every five years.

For more information click here

New oil & gas exploration blocks ready to go on auction in India under NELP-X

India's Directorate General of Hydrocarbons is ready to offer investors 46 exploration blocks in the tenth round of the New Exploration and Licensing Policy (NELP-X).  Of these blocks 17 will be on land, 15 in shallow water and 14 in deepwater.  The number of blocks to be offered may go up to 60 after all inter-ministerial clearances are received.  The NELP-X auction round is expected to be launched by around February 2014 with a number of roadshows.

The Indian government has recently proposed the model for the launch of this auction round including an extended tax holiday (7 years or 10 years for deepwater) and a longer contract tenure to attract investors.  However, according to a draft note circulated by the government oil ministry, the new regime may discard one of the key features of the old system of allowing the explorer to first recover its entire expenditure in developing oil and gas fields before sharing profits with the government and replace it with a revenue-sharing model.  Most of the top national and international exploration firms are against any change to the model and say India must continue with the current system if it wants to lure investors.

For the official press release click here

BP releases Energy Outlook 2035 report

In this fourth annual edition of the Energy Outlook report released on 15 January 2014, BP sets out its view of the most likely developments in global energy markets beyond 2030 to 2035.  The report focuses on supply sufficiency, security and sustainability.

Highlights include:

  • Global energy demand will continue to increase at an average of 1.5% a year to 2035.  95% of this growth is expected to come from non-OECD economies, with China and India accounting for more than half;
  • Demand for oil and other liquid fuels will be nearly 19 million barrels a day higher in 2035 than 2012;
  • Production from new tight oil resources is expected to result in the US overtaking Saudi Arabia to become the world’s largest producer of liquids in 2014;
  • Natural gas is expected to be the fastest growing of the fossil fuels – with demand rising at an average of 1.9% a year;
  • Renewables are expected to continue to be the fastest growing class of energy and will rise at an average of 6.4% a year to 2035 (albeit from a small base);
  • Nuclear energy output is expected to rise at around 1.9% a year to 2035.  China, India and Russia will together account for 96% of the global growth in nuclear power.

The full report is available online and can be viewed by clicking here

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