As the UK is going through torturous negotiations over the strike price with EDF which may be as high as £100 a megawatt hour, troche I was fascinated to read that in China the nuclear price per kilowatt hour has just been set this July at the wholesale level of  CNY 0.43 per kWh  or 7 US cents/kWh – for all new nuclear power projects. At current exchange rates, advice that equates to about £47 per megawatt hour or half what we will probably pay here and right in line with our current wholesale market price.

Obviously it helps if you are currently building 28 nuclear power reactors and want as much as 400 GWe by 2050 as opposed to one or two within the next 9 years. But it also shows that when it comes to delivering nuclear power on the cheap, the UK has a lot to learn.

If it was up to me, the cheapest way would be to lay a second interconnector cable across the channel and buy nuclear power forward from France over 10 years.  With France rapidly de-industrialising, I suspect there will be quite a lot to go around.

Rethinking the Unaffordable is co-authored together with KPMG and takes an inquisitive look at the assumptions underpinning the Green Transition plan. Whilst asking if we are paying the right amount it also considers the implications on the competitiveness of the UK economy  –  the need to re-open the debate on energy in the UK could not be more urgent.

Download from here.

Leaving aside environmental concerns around oil, I managed belatedly to find some grounds for optimism to balance my previous post. Ok, it’s only two reasons and they’re about the world in 2015-2025 or so, but that’s the best I could do !

1. Iraq – really surprised almost no one has picked up on this. Iraqi production is currently around 2.7m bpd but could well reach 9m bpd by the middle of the next decade. This will massively alter the balance of power in OPEC – the Saudis won’t be too thrilled – as Iraq is not part of OPEC’s allocation system. I picked this up in yesterday’s Wall Street Journal Europe in a section by IHS Cambridge Energy Research Associates – of Daniel Yergin fame.

2. Shale oil – the technology that revolutionised the US natural gas industry – hydraulic fracturing – is now coming to oil. Optimists are saying that shale oil production could cut US oil import needs by 20% within 5-6 years.

Oil prices are going up, the economy is slowing down and Andrew Sentance says interest rates should go up – deja vu anyone?

I don’t share the pessimism of many about the revolts in Tunisia, Egypt and Libya. So what if it is somewhat directionless and entirely unanticipated – that part of the world has tried foreign rule, autocracy, military and religous dictatorships and found them all wanting. Virtually none of these protesters are crying out for a return to or enhancement of any of those systems.

It’s not a fashionable view, but I’m increasingly convinced that Francis Fukuyama will be proven correct that the end of history – i.e. that all paths will eventually lead to the least bad system – liberal democracy – because everything else is deemed to have failed. It is a question of time, albeit a long one.

Having said that, I certainly don’t share the optimism which seems a little too prevalent on oil prices and here’s why;

Optimist argument No. 1 – Libya is only 1.7% of world output and Saudi Arabia can easily close the gap.

Wrong for the following reasons.

The cut of crude that comes out from Saudi is high sulphur and harder to refine. Refineries are built to refine a certain type of crude and they can’t easily switch over.

Although oil is a globally fungible commodity, this has a highly regional impact because most of Libya’s exported crude went to Italy, Germany and Spain.

Even if Saudi cranks up production the oil will still have to be extracted, refined and transported. That takes time and would require a change of existing agreements.

Optimist argument no. 2. The IEA will release up to 1.6 billion barrels of spare inventory which will keep prices down.

Wrong again. If you reduce the cushion for supply disruptions by lowering reserves the market will price in higher risk and higher prices. The real question is who can lift supply and immediately? Answer – no one really.

Optimist argument no. 3. OPEC are sensible enough not to drive the world economy into recession and will quickly agree to lift production.

Even more wrong. OPEC have a terrible record of controlling prices – they can’t – and they are not slated to meet to discuss new quotas until June 2nd 2010 in Vienna. And that’s assuming that they would agree in the first place about what an acceptable price is and not cheat on their quotas.

This unrest also has long-term implications for the investment risk models of the sorts of long-term fixed capital projects needed to meet future oil demand. Typically it’s a 10 year gap between oil discovery and bringing it to market. I wonder how much money is going to be written off in Libya?

Of course, this is a one-sided post meant to take issue with received opinion.

I’ll be balancing it with a grounds for optimism angle later in the week.