The Energy World is Flat. Lacalle Daniel

      This edition first published 2015

      © 2015 Daniel Lacalle and Diego Parrilla

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      Library of Congress Cataloging-in-Publication Data

      Lacalle, Daniel.

      The energy world is flat: opportunities from the end of peak oil / Daniel Lacalle, Diego Parrilla.

      pages cm

      Includes index.

      ISBN 978-1-118-86800-3 (cloth)

      1. Energy security. 2. Energy consumption. 3. Petroleum reserves. 4. Petroleum industry and trade. 5. Energy industries. I. Parrilla, Diego, 1973– II. Title.

      HD9502.A2L3325 2015

      333.79–dc23

      2014044969

      Cover image: ©shutterstock.com/Madlen

      Cover design: Wiley

      Dedication

      From Daniel Lacalle

      To all my colleagues in the energy sector and decades of hard work looking for a better world, and in particular to those who passed away during geopolitical conflicts and terror attacks. We will never forget you.

      To Patricia, Jaime, Pablo and Daniel, my parents, my brother, and his family. To all my uncles, aunts, and cousins who give and share so much joy. To all of them, my never ending source of energy.

      From Diego Parrilla

      To my wife, Gema, and my children, Yago, Lucas, and Carmen. My life and purpose in life.

      To my father, Paco, and my mother, Nieves, my role models.

      To my brother Paco, the best brother I could have wished for. My inspiration.

      To my sisters Nieves and Marta, the geniuses of the family.

      And, of course, to our sister Belen, our Guardian Angel.

      Disclaimer

      The opinions expressed in this book by Daniel Lacalle and Diego Parrilla are strictly personal and do not in any way reflect the opinion, strategy or philosophy of the firms they work or have worked for, nor should be taken as buy or sell recommendations

      Chapter One

      The Mother of All Battles. The Flattening and Globalization of the Energy World

      There is nothing permanent, except change.

      At 2.46 pm on the 11 March 2011, the largest earthquake in the history of Japan triggered a giant tsunami wave that would change the energy world forever.

      I was on a conference call in my office when the prices of the Japanese yen started to swing wildly. Something had happened. Shortly after, the news was hitting the wires: “Massive 9.0 Earthquake Hits East Coast of Japan. Tsunami Warning Issued”. While Japan had a long history of earthquakes, such as the Unzen earthquake and tsunami in 1792 that left a death toll of over 15,000,1 a tremor of 9.0 on the Richter scale was at a whole new level, and would make this earthquake the largest in the history of Japan and the fifth largest globally since records began in 1900.

      Within minutes, a series of giant tsunami waves reached Fukushima Daiichi power plant. More than twice as high as the protective seawalls, the waves flooded the power station and damaged the back-up generation and cooling systems. The situation was out of control, and radiation was eventually released, making Fukushima the worst nuclear accident since Chernobyl in 1986, both rated level 7 on the International Nuclear Event Scale.

      Nuclear politics

      I immediately recognized Fukushima as yet another “black swan”, an event that has a very large impact that no one had anticipated before the fact, but that everyone viewed as obvious after the fact. The scale of the earthquake and the unfortunate series of events were unique to Fukushima, but lessons would be learnt and new processes and security measures would be put in place, as has always been the case when accidents and natural disasters have occurred.

      But within days, and despite decades of safe nuclear power, countries around the world were closing down nuclear plants and rethinking their plans of extending the life of existing plants and building new ones. Politicians had taken over and were reshaping the future of nuclear power.

      But not all countries reacted the same way. Fukushima did not change the position of France, which produces over 75 % of its own energy needs from nuclear power. And it did not change the position of China either, which maintained its plans to build up to 70 new nuclear plants by 2020.

      The nuclear world was polarized, but I was optimistic that common sense would prevail and that short-term knee-jerk reactions would give way to long-term constructive solutions and even safer power generation across the world.

      There is, however, no doubt in my mind that Fukushima was a critical milestone towards the end of OPEC's dominance. Let me tell you why.

      The sustained spike in natural gas prices

      The close down of all nuclear capacity in Japan left a large gap in power generation that had to be filled by coal, natural gas, and crude oil.

      The seaborne coal market was able to absorb the increase