By far the most interesting dynamic in the world of energy over the past 18 months has been the wholly unexpected cratering of the price of oil to less than $40 a barrel. Explanations abound, but clearly two major supply side dynamics have coalesced to effectively put the world awash in oil. One has been discussed ad nauseum – in less than a decade, the US fracking industry has literally unlocked huge pools of previously inaccessible oil, effectively turning the US from a mid-sized declining oil producer into a swing producer oil superpower. The other, more interesting development has been OPEC’s – and particularly Saudi Arabia’s – reluctance to cut production in order to maintain a price floor. To the converse, OPEC has tried to reverse the table on the new non-conventional producers by veritably flooding the market with oil.
Best wishes for a successful 2015. We’re overdue for an Allotrope kick-off blog for the year, with a little reflection and some looking forward.
While 2014 was filled with many surprises as we built out Allotrope Partners’ operations, perhaps my biggest new twist during the year was taking two trips to the Middle East. These trips were due to Allotrope’s interest in V4 Advisors, a company that is expanding from its base in Beirut, and is moving quickly into the halcyon business environments of the Gulf States. In December, I had the opportunity to be with the V4 team when they presented at a Clean Energy Business Council (CEBC) conference in Dubai. It was also the occasion of the 43rd Birthday Celebration of the founding of the United Arab Emirates (UAE).
As everyone who has ever been to one of these things would have unanimously predicted, the UNFCCC negotiations slogged into overtime last weekend in the 20th year of the search to negotiate a global climate change deal by consensus with 190 countries. As you might imagine, the going is glacial – particularly compared to the speed and scale at which we need to be reducing emissions. But we at Allotrope are cautiously optimistic. Since the Copenhagen Accords in 2010, the global discussion on addressing climate change has been slowly changing for the better. Rather than a few developed countries committing to reduce their emissions, the world is grappling with how ALL countries will take action to address climate change.
Make no mistake, the China-US climate agreement announced this past week is a very big deal. It was weeks after President Obama’s first election – at the vastly under-rated Poznan, Poland COP 14 – when we realized that the successor state to Bush-Cheney-Halliburton climate obstructionism was a new paradigm in which a China-US deal was the only conversation that possibly mattered. Which, in turn, meant that the other 15,000-40,000 people glommed onto the UN negotiation circus could just go home until that was done. They probably should have, given the last half decade’s track record of non-productive international negotiation. Six years later, the China-US emissions rapprochement has come to pass – or at least to begin – and we therefore have a new playing field. This alone is worth celebration.
Earlier this year, I was recruited as a mentor for a business plan competition, assisting Central American project developers in fully developing their business plans and helping them put their best foot forward in a series of presentations that will conclude with an event in Antigua, Guatemala in late October.
Did I say Lebanon? Isn’t that a country at war? Isn’t that a country where environmental concerns are but a distant priority to fundamental governance issues?
Well, as was reinforced to me over the last week of travel there, you might be technically right in asking those questions, but fundamentally wrong. But we’re biased. My partners have never shied from challenging geographies, and we have a significant investment interest in a Middle East group called V4Advisors, which provides technology and consulting services for companies and development agencies to account for environmental impacts. For as it turns out, companies operating in the Middle East – whether local industry in a place like Lebanon, or multinationals and large Gulf States’ enterprises – are actually quite interested in understanding their environmental impacts and in demonstrating that they are investing in mitigation and other initiatives.
“Dreaming” seems to be a theme espoused by pundits in the blogosphere who follow environmental markets, and by the various research analysts who have dipped their toes in the subject over the years. But in California, the dream has been colliding with reality for a number of years. Even though Allotrope is fundamentally focused on developing, acquiring and managing assets, we follow the pricing and policy fundamentals in the markets for renewable energy credits, low carbon fuel certificates, water programs, and carbon. In these areas, California isn’t dreaming at all. And since virtually all of us at Allotrope owe large parts of their DNA to these markets, we pay more than just lip service to these markets.
A couple of recent news items on biomass energy have forced us to do some thinking. Is biomass energy really worse than coal? That seems unlikely, but some folks, like the Partnership for Policy Integrity, don’t like it one bit. And there are broader coalitions arguing against EU biomass subsidies in general. And that coalition includes some friends of ours… (Dan K, let’s have lunch soon.)
I admit I was pretty distracted for several weeks after Malaysia 370 was reported missing. It’s no secret that I used to be a heavy consumer of the airline industry – my then 10 or 11 year old son once calculated that over a couple years I averaged spending more than a full calendar month per year in airplanes. As in more than 700 hours a year in the air alone, not even counting being caught in traffic going to the airport, sighing at counter agents, taking my shoes off, taxiing to runways and all the other uplifting parts of the global travel experience.
Continuing with the inaugural blog rolls here at Allotrope Partners, it’s time to turn to a theme that’s important to any investor in energy and the clean economy transition – whether they want to admit it or not. Namely, the theme is the twin meaning around “Policy Matters.”
First, there’s the meaning there are myriad noun-form policy matters, such as FITs, fossil fuel subsidies, environmental regulations, low carbon fuel policies and yes that favorite whipping post, carbon pricing. Second – and implicit in those matters – is that policy matters to one’s success in energy investing.