UK

Did you honestly think it had gone away? In the week that the U.K. government is set to announce article 50, formally notify its European partners that it plans to leave the E.U. within two years, we’re reminded of the ongoing political process which is likely to add significant volatility in the year ahead.

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The U.K.’s (or at least Great Britain’s, Scotland is vowing to hold its own referendum on staying in the U.K.) decision to leave the E.U. will have far-reaching consequences but, realistically, does not look likely to signal a breakup of the E.U. itself. Recent elections in the Netherlands saw a swing back to liberal pro-E.U. political parties and a rejection of more xenophobic and anti-E.U. sentiments as espoused by Geert Wilders and his Party for Freedom. Although she is likely to do well in the first round, the Dutch result does not bode well for Marine Le Pen in the upcoming French elections with pro-E.U. parties doing well in the polls. The E.U., politically, is currently showing a united front particularly in its pre-negotiating stance with the U.K.

Clean Break? Or Regulatory Cooperation?

Britain, on the other hand, is waging what can the politely be called an internal debate between those who are lobbying for a hard Brexit or clean break from all E.U. laws and institutions, and those on the other side taking a more pragmatic view that it could be in Britain’s interest (if it genuinely wants some form of open access to E.U. markets) to maintain compliance with many E.U. regulations and institutions. Read more

Democracy can be a great system, but it also has some risky aspects.

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One of them is the referendum, especially when it’s done in a period of instability. When people are unhappy, they look for what they think is a short-term solution to their problem, overlooking what’s really best for the country. The Brexit is a perfect example of this. The British people are unhappy because their economy isn’t doing so well, blaming foreigners that cross its borders as part of the European Union and the regulations imposed on member states by Brussels. Read more

For decades, the hospitality, retail, food and construction industries have taken particular advantage of the European Union’s rules allowing freedom of movement, meaning Europeans can work legally in any of the 28 countries that are members, even if they are unskilled laborers. Non-Europeans must obtain work visas under immigration rules that require graduate-level skills and a minimum annual salary of 20,800 pounds.

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Now that the U.K. has voted to leave the E.U., though, that could all change. When the U.K. does finally untangle itself from its E.U. member-state neighbors — a process that many are promising will be complete within two years — it’s likely to start requiring European citizens to clear the same visa hurdles as other foreign workers. Three-quarters of the 2.2 million people from other E.U. countries currently working in Britain wouldn’t make the cut, according to the Migration Observatory at Oxford University.

Migrants Take the Blame for UK Unemployment

The Leave campaign convinced a slim majority of U.K. citizens, 52%, that it has been too easy for “migrant workers” from Europe to waltz into the country and take British jobs.

Who would benefit from a Brexit? Not the EU. Source: Adobe Stock/Stephen Finn.

Now that the U.K. is officially leaving the European Union, what will happen to non-citizens with jobs on the island?  Source: Adobe Stock/Stephen Finn.

“We have absolutely no power to control the numbers who are coming with no job offers and no qualifications from the 28 E.U. countries,” former London Mayor Boris Johnson said in a speech before the vote. Read more

Drilling in the North Sea started in the ’60s but really took off after the 1971 oil crisis as higher oil prices supported massive investment in deep offshore drilling technologies and infrastructure required to exploit what was, at the time, one of the most challenging environments in the world for extracting oil and natural gas.

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The city of Aberdeen flourished as the beachhead for this campaign and for 50 yeas it has grown and matured as a world class center of excellence in support services and facilities developing technologies and competencies that have been applied in deep-water offshore environments like the Gulf of Mexico, the South Atlantic and in the Arctic ever since.

But the collapse of the oil price, high taxation and dwindling reserves have hastened the end of a region whose days were always numbered by the finite nature of the resource.

Source Financial Times

Source: Financial Times

Yet as oil majors ponder the timing of closing and decommissioning offshore oil rigs, the challenges are yet again driving innovation and technologies that will be of benefit in decades to come around the world for those companies active in the work. Read more

Yesterday, Stuart Burns examined how the UK exiting the European Union would affect the UK. In part two he looks at the effects of a Brexit on the EU.

A Brexit would have a wider political impact on the EU, both by disrupting internal political dynamics and because of the risk of political contagion if the “proof of concept” of leaving the EU encourages disintegrative forces in other member states.

If the UK Goes First, Who is Second?

A Brexit would probably encourage some less committed member countries or regions to consider renegotiation or even outright exit, particularly if the UK were seen to flourish. It would change the dynamic between Germany and France, possibly allowing them to dominate European policy even more than currently but possibly showing up flaws in their relationship which have remained masked by having the third party of the UK to play off.

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Germany would certainly miss the UK’s more liberal influence as a counterweight to France in policy debates. France, on the other hand, may welcome that. Read more

And boy will it occupy some column inches in the UK, Europe and, no doubt, the rest of the world in the coming four months right up to referendum day in June.

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If you had asked me a week or so back, I would have said it is almost inconceivable that Britain would have voted to actually leave the European Union. Most Brits are, by nature, Euro skeptics but they, like the Scots last year, were always going to take the pragmatic path and stick with the devil you know… or so I thought.

Leaders in Favor of a Brexit

Since then, arguably, the Conservative party’s brightest — Michael Gove — has come out for the Leave campaign and, duiring the weekend, the conservatives’ most charismatic — London Mayor Boris Johnson — has joined him. Boris, in particular, is doing it as a platform for his future bid for leadership, there can be little doubt about that, but he is popular with “the man in the street” and joining the out campaign will sway sentiment.

It has already swayed the markets, sterling nosedived on the news hitting barely more than $1.40, dollars to the pound, from $1.45 the week before.

Source HSBC

Source: HSBC

Needless to say, there will be much debate about whether a Brexit would be good or bad for the UK, but what may be of more interest outside of this little isle is whether it will be good or bad for Europe?

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Europe is once again in the news as a cause of fear in the financial markets. This time it’s not due to Greece or any of the Club Med countries but more due to the EU economy and the Euro as a whole.

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The value of the euro fell to its lowest level in years this week, hitting $1.19 a 15% fall from May and the lowest level since 2005, In response European stocks fell sharply amid uneasiness about whether the region is on the verge of a new economic and financial crisis.

Source NY Times

Source: NY Times.

Stock markets were already under pressure from falling oil stocks as Brent crude hit a 5-year low, interpreted by many as a sign that global demand has collapsed resulting in a glut of oil driving prices down. The markets are betting on the European Central Bank (ECB) introducing sovereign and corporate debt purchases at their next meeting on January 22, a form of “Quantitative Easing.”

Indeed, in the New York Times Jean Pisani-Ferry, an economist who serves as a policy adviser to the French government, is quoted as saying the markets have already priced in the introduction of QE and if the ECB fail to act, the consequences could be dire.

“Disappointing those expectations would bring an abrupt and damaging unwinding of positions: Long-term interest rates would rise, stock markets would sink, and the exchange rate would appreciate,” he wrote.

Read more

When we think of countries rich in energy production we think of the US and particularly Texas with its oil and gas industry. We think of Saudi Arabia and its oil, gas and, possibly one day, solar. Maybe we think of Canada and its hydroelectric and tar sands, but per capita the richest energy hub has to be Norway.

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Ah, Little Norway. In terms of population it has just 5 million people and a landmass of less than 150,000 square miles. Much less than Texas and only about the size of Montana. Yet with massive oil and gas reserves, 256 gigawatts of hydroelectric power production, sustainable forests and the potential for tidal power in its fjords Norwegians pretty much top the pile when it comes to global per capita income and ownership of energy resources.

Yet sitting on all that energy isn’t, in itself, terribly profitable. So, copper producers are not alone in hoping to see the country expand its power sharing network of undersea cables with the rest of Europe. Norway just agreed to a $2.4 billion/420-mile subsea cable to carry 1.4 GW of spare hydroelectric supply to the energy-starved UK market, said by some to be teetering on the edge of blackouts if its madcap race to low emissions by 2025 hinders investment in stable supply sources.

The UK is mandated by the Climate Change Act to reduce its 1990 CO2 emissions by at least 80% by 2050, the fourth carbon budget (2023-27) will therefore require that emissions be reduced by 50% from 1990 levels by 2025. Likewise, Germany’s inexplicable early shutdown of its nuclear capacity has left the country dangerously low on generating capacity and actually emitting more emissions than it did 4 years ago when coal-fired plants were brought online to keep the lights burning. Norwegian transmission company Statnett, which already has undersea interconnector links with Denmark and the Netherlands, is said by the FT to be working on a 300-mile subsea cable to Germany at a similar cost to the UK project.

Enterprising as the Norwegians are, they are not alone in driving the interdependence of Europe’s power grids. A joint venture between the UK’s National Grid and Elia, its Belgian counterpart called project Nemo will see an interconnector linking Kent in the UK and Zeebrugge in Belgium that is expected to add an additional 1 GW to the UK’s electrical grid. The UK already has an existing network of international connections between the UK and France, the Netherlands and Ireland. Further connections help the national grids even out the supply from variable sources like wind with demand spikes that rarely coincide across different European time zones.

Copper demand for undersea cabling and associated onshore transmission and facilities will run in the tens of thousands of tons. Local cable manufacturers are hoping much of the business will remain in the EU. As an alternative to investing in yet more wind farms and with the benefit of making more efficient use of existing generating capacity you have to say these projects are welcome and, indeed, overdue. Just a pity they are not being driven by the EU but left to commercial interests to make them happen, but, then again, left to the politicians they would probably still be on the drawing board.

With the exception of geothermal energy most forms of renewable electricity generation have an intermittency to their delivery. Even hydro-electric power can fall short in periods of drought or low rain fall as the Chinese can attest to on the Three Gorges dam across the Yangtze River.

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Hydro, though, is generally taken as the dream power source. Usually large, sustainable for long periods of time, non-polluting – apart from the millions of tons of cement used in the construction phase – and, once built, environmentally acceptable.

Wind in its various guises and solar have both received massive state funding, usually at the cost of consumer tariffs, and while the cost is coming down and the reliability is improving they are both inherently unreliable in terms of power delivery requiring back-up generation capacity which is expensive and fossil fuel-based. In addition, at least in the UK, there has been a massive public backlash to unsightly turbines dotting the countryside to the point where few onshore projects are now being approved.

Solar farms are also facing increasing opposition, termed a blight visually they are also criticized for taking up valuable farming land. There is one other form of power generation, however, which is as non-polluting, environmentally acceptable and potentially has even greater longevity than hydro and has potential to add leisure facilities if planned and coordinated properly – and that is tidal.

So having signed up in a moment of madness to ruinously expensive greenhouse gas emission targets, the British government is now welcoming a project that, if rolled out around the country, could generate some 8% of the UK’s power and last for 120 years.

Better still, the first stages of the project are being partially underwritten by private money in the form of the UK’s pension funds and insurance companies. Prudential is to be a cornerstone investor in an £850 million first stage Lagoon One tidal project in Swansea due to start construction next year and be operational by 2018 according to local reports.

Source: Tidal Lagoon Swansea Bay

Source: Tidal Lagoon Swansea Bay

The first phase of the project comprises a 6-mile horseshoe in the Swansea Bay, part of the Severn Estuary in South Wales, and will produce 320 megawatts of electricity, but subsequent stages will add 1.5 gigawatts and a further 1.8 Gw by 2025 with combined power costs below that of wind or solar on current estimates.

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Will the UK’s steel production ever come back?

That depends on one’s definition of “come back,” but one thing’s for sure: the UK, which accounted for two-thirds of global production during the height of the Industrial Revolution, now only produces a paltry 12 million tons of the 1.6 billion tons of steel made globally. Capacity and jobs have both plummeted over the past four decades, and this FT video sets the context for the “Why?”

What we find interesting: high energy costs and green taxes.

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According to the EEF, a British manufacturing association, by 2020, these climate-based costs will be about 50 percent higher in the UK than in the next-closest nation (Italy). The pricing for electricity and green tax is killing steelmakers there, such as Spain-based Celsa – just as EPA regulations are doing their part to hamper US steel producers – but, at the end of the day, the UK producers still are (read: have to be) optimistic.

A glimmer of hope exists for the landscape in the UK, as analysts are expecting a 2.4% increase in European steel demand. As Stuart wrote just last week, “Contraction has stopped in southern European states and has slowed in France, with economies continuing to expand in northern Europe; taken as a whole, with the signs of an upturn in Spain, modest growth this year is not expected to falter as previous green shoots have done.”

“Most folks, though, are looking to 2015 before there is a significant recovery,” he concludes. “For now, though, steelmakers will readily settle for 2% growth, even if they are struggling to get any improvement in prices.”

But the fact remains, unless the external costs lessen (which they most likely won’t) and UK producers find how to nimbly play in new markets, looks like there’s no real resurgence in the cards for the Industrial Revolution on the Isles – at least as far as the steel industry is concerned.

Agree? Disagree? Does it matter? Let us know – comment below!

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