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Energy Data Management:
Not a business luxury in a recession ...
By Richard Quigley
M
arkets thrive on uncertainty, as it brings risks, and It is not just the oil market that has suffered demand decay.
risks provide the opportunity for rewards. Well, this Winter gas demand in the UK is almost 5% below last year’s
used to be the case, but for most of this decade, levelsasaconsequenceofenergy-intensiveindustriesreducing
energytradingandriskmanagementhasbeenarguablymore production, which in turn pushed wholesale gas prices to their
conservative, with the notable exception of the investment lowest level for 16 months. Electricity demand is also
banks and funds. The catalyst for this conservatism was the comfortably below last winter’s levels and both gas and
implosion of Enron in 2001 and the subsequent erosion of electricitydemandwillcontinuetofallaslongastherecession
energy trading as a speculative profit making business. continues.Thesesameeffectscanbeseenacrossthedeveloped
This is unfortunate. We are in the midst of the most – and developing – world.
uncertain period faced by the energy market since it was first What makes the current removal of demand both more
openedtocompetitionalmosttwodecadesagoandshoringup interestinganduncertainisthatthedemandcurvehasshifted
profits should be a priority if future infrastructure investments downward on reduced demand, not on supply or price-related
are not to be delayed. factors. And a new report from management consultancy
Energy companies are facing a new market paradigm in Arthur D Little, The Beginning of the End for Oil, predicts world
2009 – an energy recession. One of the major consequences of oil demand will peak over the next decade as worries over
an economic downturn is the removal of energy demand as security of supply, extreme price swings and climate change
industrycutsbackoutput.Yetwhatisunknowniswhetherthis accelerate the development of alternative energy sources.
demand is merely being deferred until economic activity picks Commenting on the 70% slump in oil prices since last
up again or whether this demand has been permanently summer’s high, the report said: “The penny has dropped. To
removed.Thedebateovertheconsequencesforfuturedemand varying degrees, governments across the globe are
is not only interesting, it is vital for acknowledging publicly, many for the
future business planning as energy
Energy companies are facing
first time, that decreasing reliance on
prices move on either supply/demand
sentiment or actual physical
a new market paradigm in
importedoil–andquickly–isbecoming
an energy policy imperative.”
fundamentals.
2009 – an energy recession
Central to oil’s vulnerability, argues
the report, is the growth in new
Demand Uncertainty technologies and fuel efficiency across the automotive sector,
Demand destruction is an economic term that describes the as the transport sector has previously underpinned oil’s
permanent downward shift in the demand curve and is dominant position as an energy source. The report explains:
usually induced by either a period of high prices or “As the number of new policy measures implemented to
constrainedsupply.Itisinterestingtonotethatinthefirsthalf reduce reliance on hydrocarbons for transportation fuel
of 2008 when oil, and other energy products were relentlessly reaches critical mass over the next five to ten years, the world
increasingtowardsrecordhighs,therewasaviewthatatsome could see downward pressure on demand for oil and oil
point the high oil price would prove unsustainable and force products materialise much sooner than the industry would
down demand. But the demand curve did not shift currently concede.”
appreciably lower and prices finally came off on financial ArthurDLittlearguethatthedrivetoincreasefuelefficiency
considerations – strengthening of the US dollar, unwinding and reduce oil dependency will lead to a relatively rapid shift
speculation etc. – not a shift in demand. to alternative, non-oil-dependent modes of transport, with the
Similarly, the actions of OPEC to cut back the cartel’s tipping point at which oil demand peaks dependent on how
production targets has had limited impact on oil prices and quickly the transportation sector begins its migration away
demand. Although OPEC has significantly cut its targets since from oil dependence. Once this tipping point is reached,
the fourth quarter (and reporting an 80% compliance with predicts the report, the oil market will move into a period of
production target cuts in February) the price of front month long-term decline. To mitigate the impact of oil demand
crude oil futures remains around US$50/bbl (April 2009). And decline oil and gas companies should adapt their business
the International Energy Agency has also cut its global oil models to focus on alternative energy sources such as
demandforecasts,withconsumptionnowsettodeclinefortwo renewables and nuclear power, concluding: “We encourage
successive years for the first time in a quarter of a century. companies across the energy sector to build a revised concept
80 worldPower2009
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