John Mitchell on Oil and Gas Mismatches

Natural Gas Europe had the pleasure of interviewing John V. Mitchell - an associate research fellow at Chatham House, research adviser at the Oxford Institute of Energy Studies, and honorary fellow at the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee. We discussed his recent publication Oil and Gas Mismatches: Finance, Investment and Climate Policy co-authored with Dr Valerie Marcel and Beth Mitchell.

NGE: You mentioned that we need  a change in  an every aspect of economy -  is this a realistic scenario?  

JM: Well, it is not realistic in the short-term, but if the policy continues to be developed - and I think it will be - then this will happen eventually.

NGE: What are the key mismatches in the energy sector nowadays?

JM: The key mismatches in the short-term are the fact the list of projects that people were preparing a year ago does not match the finance available, whether the finances for the cash flow from companies or from the financial sector. I think this is one big problem. And therefore two things happen, 1) the list of projects is reduced 2) and they look for other ways of financing than the traditional ones.

Second mismatch is the prospect that interest rates will rise in the developed countries, when they rise, the rates of return which are offered to the developed countries are not sufficient cover political or other risks.

NGE: What categories of companies will be affected by new monetary limits the most? 

JM: I think the smaller companies, particularly those companies that don’t already have cash flow from production, which is in the smaller private sector and possibly some new NOC’s and companies that have been involved in new infrastructure projects.

NGE: Is the role of the US shale revolution as the catalyst for global change overestimated?

JM: At some level it is overestimated. I think that as far as the US is concerned the estimates for continuing production for some years are well based on imitating that revolution in other countries. I think it is easy to overestimate because the conditions for what happened in the US are unique to the US - private market, private ownership, capital easy access to infrastructure but these things are not present in China, Argentina, etc.

NGE: This year Russia’s credit rating was cut to junk by Standard & Poors. What are the chances the country will meet the global competition?

JM: I think it depends –this is my personal view- on the resolution of the Ukrainian question which leads to sanctions being missed against Russia.

NGE: Investment in export gas trade becomes more risky. What can be done to attract investments?

JM: I think the problem here is the structure of the power markets in the importing gas countries, because in almost every major importer of gas, the power market is defined by government policy towards renewables, nuclear and coal, I think that gas is left out. 

NGE: Talking about limbo oil and gas, do you believe that countries will obey strong policies in prejudice of their own needs?

JM: This is the key judgment. My own judgment is that we will not see strong policies soon. In other words, the Paris meeting will not go to the point of strong policy - there will be stronger policies than what we have today, but they will not be sufficiently strong to meet the various critical levels. So I think this is a slow moving target and the reason for my addressing the strong policies in the paper is the studies and arguments that have been put out in anti-fossil fuels books all use those figures as being the basis that there will be large amounts of oil in limbo. I don’t believe that these strong policies will come soon, I think in the paper we had some expected policies or new policies on the intermediate level that has less impact, but for the purpose of dealing with the arguments put forward but probably advocacy people are going to use their numbers.

Marina Zvonareva is a Natural Gas Europe analyst focused on Russia’s international energy relations. Follow her on Twitter: @ZvonarevaMar1na