New Rules in the Global Energy Market

12th Energy Industry Meeting

13/02/2015 Madrid


El futuro de la energía: ¿quién dicta las reglas del juego?

Desde el futuro del petróleo, las renovables y las fuentes de energía no convencionales hasta el papel de los consumidores en el sistema eléctrico... Estos fueron algunos de los temas analizados en el 12 Encuentro del sector energético del IESE, en el que participaron directivos, expertos, académicos y reguladores. ¡Inspírate! Suscríbete al canal de YouTube del IESE
(From left to right) Marcelino Oreja, José Luis López de Silanes, José Folgado, Gonzalo Escribano and Claudio Aranzadi, at the 12th Energy Industry Meeting / Photo: Javier Arias

The debate over the price of crude, the rise of new players, the challenge of lowering emissions, and the role of renewables ... These were just some of the topics covered during the 12th Energy Industry Meeting, organized by IESE in collaboration with Deloitte. Under the theme, The Future of Energy: Who Calls the Shots?, the meeting focused on the main trends that will shape the development of the sector in both the short and medium term.

Towards Decarbonization?

In December, Paris will host the 2015 United Nations Climate Change Conference. The event will outline important new projects and commitments for the reduction of greenhouse gas emissions. Teresa Ribera, director of the Institute for Sustainable Development and International Relations (IDDRI), insisted that it was essential to reduce CO2 emissions in order to develop the global economy and improve the quality of life of everyone on Earth.

Until now, Europe has led the fight against climate change almost single-handedly. But the situation has changed in recent years, thanks to the involvement of China and the US. "The transition to low-carbon energy means deep changes across the board. These two countries, for different reasons, have committed themselves to the path of decarbonization," noted Ribera. The US’s goal is to reduce CO2 emissions by 86 percent by 2050. China’s estimated reduction will be 34 percent. The Paris 2015 UN conference will lay the essential legal groundwork for a new era in global energy management.

The Second Petroleum and Gas Revolution

Hydraulic fracking and horizontal drilling have revolutionized the energy world order. The US’s investment in these methods of crude and gas extraction, in part generated by high petroleum prices, has brought about rapid strategic change around the globe.

Changes in technology, mineral rights, infrastructure, workforce mobility and regulatory models have contributed to this second energy revolution. For the first time in recent years, the US is a net exporter of combustibles (gas and distillates), with half of its production going to Latin American countries.

Jorge Piñón, director of the Center for International Energy and Environmental Policy of the University of Texas, predicted that the price of crude would range between $38 and $52 a barrel this year and that the average price for the next three to five years would be $77. Luis Travesedo, E&P Director of Cepsa agreed: "For 2015 the conditions are such that prices will continue to stay low."

According to Luis Aires, chairman of BP Spain and Portugal, the price "is going to depend on what OPEC does, especially Saudi Arabia." In any case, "a price of $50 a barrel is not sustainable; at that price everyone loses," especially countries like Russia, Venezuela or Saudi Arabia. Aires dismissed the idea that Europe would undergo a revolution similar to the one underway in the US, except for some possible "niches." He alluded to the importance of education in "the question of whether hydrocarbons are a blessing or a curse."

31 Percent Clean Energy by 2035

Renewable energies (wind, solar and hydroelectric) play a key role in the decarbonization process, as their weight in the energy mix increases. Estimates suggest that clean energy will account for 31 percent of the sector in 2035. Rafael Mateo, CEO of Acciona Energía, said: "Renewables are the future; they are the only forms of energy that return large dividends to investors." He pointed out that the technology behind renewable energy is the cheapest on the market. Mateo noted that private capital and large private investment funds are now investing in green energy and not in fossil fuels.

Meanwhile, José Miguel Villarig, president of the Association of Producers of Renewable Energies (APPA in Spanish), emphasized the contribution of wind and solar power to the Spanish economy: "Spain is a model for the market penetration of renewables," he stated.

For Union, Against Dependence

The plans for European Energy Union, one of the most important projects of the current term of the European Commission, are scheduled to be presented in Brussels in the coming days. The present situation of energy dependence, high supply costs and a lack of EU consensus on sensitive topics such as defense and energy, places the continent in a very delicate position.

Gonzalo Escribano, professor of the Real Instituto Elcano, sees European Energy Union as a "window of opportunity" for the EU. He made clear that European countries must reach a level of energy interconnection well above 15 percent by 2030 if they want to create a true single energy market.

Meanwhile, Red Eléctrica (which operates the Spain’s electric grid) and Enagás (which operates its gas system) welcomed the accelerated construction of interconnections between Spain and the rest of the continent. These links have become a high priority on the EC agenda, according to Enagás CEO Marcelino Oreja. "We believe that Spain can be the alternative to Russian gas. We can become the gateway for the gas that arrives from North Africa," he argued.

Spain’s Minister of Industry, José Manuel Soria, noted that electrical grid interconnection with France will begin next week. It will involve projects studied by the EU for the Gulf of Biscay plus three lines through the Pyrenees.

A New Kind of Consumer

"A well-informed consumer is essential for the market to run smoothly," said José María Marín Quemada, president of the National Committee on Markets and Competition (CNMC in Spanish). "The consumer is an agent of change in the sector. Consumers are taking a leading role; they are acting simultaneously as energy generators and consumers."

David Robinson, a researcher at the Oxford Institute for Energy Studies, reflected on the advantages that new technologies offer to customers. He noted that consumers are becoming the center of gravity for utility companies. "Today’s consumers have the right to change suppliers, produce their own solar power on the roofs of their homes, manage their electricity consumption and store electricity," he explained.

The Role of the US and China

The US and China are the two big emerging players on this new global energy field, at the expense of Russia and the Middle East. Where does this leave Europe? "The EU is in limbo. It has to find its place and give new direction to its energy policies if it doesn’t want to get left behind," warned Gonzalo Escribano. He noted the growing role of North Africa and the dangers this entails due to conflicts in areas such as Libya, the Sahel zone and Nigeria, which is Spain’s main supplier of crude.