Oil Market Report March, 2017

The thought that energy policy would play a major part in any election is fanciful at the best of times, and in this period of heightened political funk, it seems more unlikely than ever. Nonetheless, with an imminent French Election of unusually sharpened significance (not to mention this week’s triggering of Article 50), we thought it would be interesting to look at French Energy Policy and see how it compares to the UK.

Let’s start with oil, where unlike Britain, France has no indigenous production and is in fact the EU’s largest importer of crude – most of it coming from Russia, Saudi and Norway. When it comes to refining, France has more refineries than the UK (8 vs 6), but overall capacity (1.3m barrels per day) is about the same, meaning that UK refineries tend to be slightly larger. Of further interest is the fact that every refinery in Britain has a different owner (only 1 of them being British), whereas in France, 5 of the 8 refineries are owned by oil giant Total – who enjoy almost monopolistic power in France’s downstream sector.

To the laissez-faire capitalists of the Anglo-Saxon world, this lack of competitive diversity in the refining sector is an illustration of France’s opposition to free-market economics. Whereas the UK has welcomed foreign money across its entire oil infrastructure (think Spanish ownership of the Government pipeline system!), France has largely shunned foreign investment. For many voters in France though (and to most of the politicians who represent them), the fact that a French company dominates the downstream oil sector is eminently sensible – particularly when you consider their total dependence on imported supplies of crude. This same non-market approach to oil can also be seen in the emergency stock reserve (see last month’s report). In Britain, the oil reserve is made up of stock holdings from multiple independent oil companies up and down the supply-chain. But the French simply have SAGESS – a state entity that stores all the stock on behalf of the French Government.

Looking beyond oil and we soon see that a lack of diversity in the energy sector is a fairly common theme, once again in stark comparison to the UK’s deregulated, foreign investment heavy model. In France, the state owned utility company EDF generates more than 80% of the country’s electricity, whereas in Britain, no supplier has more than a 35% market share. But here again, the French electorate has always been more supportive of nationalised companies and so it is therefore no surprise that there exists a general political consensus on EDF’s continued public ownership. Only free market friendly Emmanuel Macron has put his head slightly above the parapet in the electoral campaign, by pointing out that EDF is hardly an efficient operation, with debts of €37bn! But he has stopped way short of calling for any material change to EDF’s ownership model.

In the same way that EDF dominates French energy markets, so too does one particular energy source – nuclear power, which generates an incredible 77% of French electricity (easily the highest level of nuclear dependency in the world – Ukraine is 2nd with 56%). One might think that in today’s environmentally pre-occupied world, there would be some debate on a source of energy that is so regularly demonised in other parts of the world (look no further than neighbouring Germany, where nuclear power was ditched entirely in 2011). Well don’t hold your breath, because the French it seems are happy not to debate the country’s nuclear addiction and every one of the Presidential Manifestos gives the “N” word a brief but approving mention.

And this universal acceptance of nuclear power is all the more surprising when you consider just how averse the French are to fracked gas – that other source of energy that generates such fierce opposition. 75% of the population oppose exploration by fracking and so it follows that once again, we have consensus right across the political spectrum. All but Presidential Candidate Fillon (who is as vague on fracking as he is on why his wife has received £750K of public money) have explicitly promised to maintain the existing ban on oil and gas fracking. Potential nuclear meltdown it seems is fine, but blowing rocks apart…certainement pas agréable!

Energy then will play a tiny part in this year’s French election process and is unlikely to ignite (boom-boom!) any passionate political debate. But with the ongoing seismic political shifts around the world taking centre-stage, this is perhaps to be expected. In fact, maybe the French are grateful that at least on energy policy, their Presidential Candidates are by and large, in agreement.

Check out Portland Trading Director, Steve Irwin and his recent appearance on BBC Breakfast; https://www.youtube.com/channel/UCqjnj7N-dp0TDt8SzljQvjQ/videos?shelf_id=0&view=0&sort=dd