Why have OPEC revenues plunged?
Last week, a report released by the US Energy Information Administration (EIA) found that, in 2015, OPEC members’ net oil export revenue declined 46 percent from the $753 billion earned in 2014.
These figures put OPEC members’ net oil export revenues at their lowest level since 2004. But is the decline in crude oil prices solely responsible for the drop in the petroleum exporters’ income?
In short, the cost of Brent crude has a lot to do with the OPEC members’ misfortunes, but there are other contributing factors. The EIA reports that the monthly average Brent spot price dropped from $112 per barrel in June 2014 to $38 per barrel in December 2015.
Earlier this year, the World Economic Forum predicted that the current drop in oil prices has been caused by both a glut in supply and a drop in demand. However, slowing growth in emerging markets, like China, has led to a global slump in commodity prices more generally.
Unplanned production outages are the other primary cause of falling OPEC revenues. Some of these shutdowns have been due to armed conflict, particularly in countries like Libya and Nigeria. The former has struggled to maintain oil production since the fall of Muammar Gaddafi’s regime five years ago and Libyan oil terminals have largely been contested ever since. Militant attacks in Nigeria have also damaged production there.
Production has been shut down in Iran and Venezuela due to respective sanctions and ongoing payment issues with the state-owned oil company.
The EIA reports that OPEC member countries which are already in good financial shape — particularly the Persian Gulf States — will be less affected by the revenue fall than others, like Iraq or Nigeria, which don’t have large financial reserves.
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.