Hill+Knowlton Strategies

In the last decade, the Brazilian economy enjoyed its largest growth in 70 years. More than 20 million jobs have been created since 2001 – an increase of 68% — due to business investments and increased production across several industries.

This recent growth was driven in part by the discovery of the pre-salt layer off the coast of Brazil. It is currently being explored by Petrobras, the world’s 5th biggest energy company, through partnerships with other national and international companies. Currently, the pre-salt layer (including Campos Basin and Santos Basin) has a total production yield of 230 thousand barrels per day, which represents almost 12% of the state owned company`s total production (1.94 million barrels per day).  In 2016, the pre-salt fields are expected to represent 31% of the country’s total production.

Exploration of Brazil’s pre-salt has also highlighted a lack of skilled labor in Brazil, which is needed to meet the demands of the energy industry. Obviously, the shortage of skilled labor is a global issue, not a Brazilian one, but there are some policies in this country that make everything a little harder. One of them is the local content law.

The local content law establishes that Brazilian people and services have hiring priority, but this varies according to each segment. The minimum percentage depends on a number of factors since the law is so complex. There are projects in which at least 50% of the individuals/companies hired need to be Brazilian, and other areas where demand is 70%. In the energy industry, this percentage is 65% and is one of biggest obstacles that hinder its development.

In the country, the oil and gas industry is expected to double its production by 2020, but the professionals who graduate every year are still very few and won’t meet the demand.

Some companies have already taken notice of this problem and have been investing in trainee and internship programs, partnering with universities and offering international opportunities for its employees, as well as great pay. These are moves that aim to attract what little manpower is available today, since these professionals are also being sought by other industries such as mining and infrastructure, both very heated markets in Brazil.

This lack of manpower in Brazil means the country is at risk of serious stagnation in productivity levels. Currently, only 7 percent of Brazilian workers hold a university degree. Other economies that are less developed than Brazil have a higher proportion of workers with university degrees. This is true in countries like Chile (24%), Russia (23%), Kazakhstan (18%) and South Africa (9%).

To solve this issue, some ideas have been proposed by industry experts: relaxation of work permit requirements for foreigners while still valuing domestic labor,  ensuring that foreigners who come to Brazil help train the local workforce; providing training for current workers; and more government investments in technical education and training courses for those who are interested in the opportunities generated by this period of growth in the country’s energy sector.

Hopefully the Brazilian government will address the situation shortly – it has already started public hearings about the relaxation of work permits – avoiding a collapse of the infrastructure sector and allowing companies investing in Brazil to continue growing and creating more jobs.

Petrobras Mexilhão jacket launched to the sea in Brazil - photo credit Petrobras News Agency

Following the Queen’s Speech, today the Government publishes its landmark piece of legislation to reform the electricity generation market in the UK. The draft Energy Bill contains the long-awaited Electricity Market Reforms, which are intended to provide the support necessary to balance future electricity generation over a mix of energy sources in order to reduce dependence on any one source and to meet carbon reduction targets. Against a challenging economic backdrop and with a fifth of existing generating capacity due to be retired from the grid in the next decade, these reforms are critical to ensuring the lights stay on while meeting our commitments to cut carbon emissions.

Overview

The key part of the Electricity Market Reform (EMR) are ‘market mechanisms’ designed to transform our generating capacity. The first of these is the introduction of Feed-in-Tariffs with Contracts for Difference (CfDs), long-term instruments designed to provide stable and predictable incentives for companies to invest in low-carbon generation. This will replace the system of Renewables Obligations (RO), which is due to end in 2017.  DECC has also committed to working with industry on Final Investment Decisions (FID) Enabling to enable some investment to begin in advance of the CfD regime coming into force. The second is an Emissions Performance Standard (EPS) that will limit carbon dioxide emissions from fossil fuel power stations by setting emissions standards for all new fossil fuel powered generation. This will prevent the construction of new coal plants which emit more than 450g/kWh.

Further support for the market mechanisms is the introduction of a Carbon Price Floor. This was announced by the Chancellor in the 2011 Budget and was introduced in the Finance Bill. This provides a clear economic signal to move away from high carbon technologies by increasing the price paid for emitting carbon dioxide. It places an initial value on the price of carbon of around £16/tCO2 (2009 prices) in 2013, which will rise to £30/tCO2 (2009 prices) by 2020. This will be complemented by a Capacity Market that will, if required, provide security of electricity supply by ensuring sufficient reliable capacity is available.

The measures are set to increase consumer bills, although the Government argues the rises will be less than if the UK carries on without reforms. The Department of Energy and Climate Change estimates the average bill will increase by GBP160 by 2030 instead of the GBP200 rise predicted if the market is left as it is. The costs of this investment will preoccupy media interest today and in the coming weeks, especially as consumer bills continue to rise and incomes tend to fall. One aspect of energy policy that will be critical to ensure that the cost increases stay within Government targets is the drive to improve the energy efficiency of the UK’s housing stock, and therefore reduce energy usage. The Green Deal is not part of the Energy Bill, but will be very important to achieving the Government’s affordability ambitions.

In addition to EMR, the Energy Bill also aims to ensure that Government and regulator Ofgem are aligned at a strategic level through a Strategy and Policy Statement (SPS). The Bill also establishes a new nuclear regulator, the Office for Nuclear Regulation, to regulate the building of new nuclear power stations. Finally, the Bill contains provisions that will enable the sale of the Government Pipeline and Storage System (GPSS). The Parliamentary Under Secretary of State for Defence Equipment, Support and Technology, at the Ministry of Defence provided a separate Written Ministerial Statement about this.

Gas

The Government have said that gas will continue to play an important role in the transition to a low-carbon economy, to provide flexibility and help maintain security of supply. A separate strategy on the role of gas will be published in autumn 2012. This is the subject of a public consultation and the deadline for submissions is 28^th June 2012. Also the Government announced earlier this year that the Emission Performance Standard for gas fired power stations in the UK that will allow them to continue to operate until 2045. Gas may well play a critical role in filling any gaps in supply created by a delayed roll out of the EMR.

Nuclear

The introduction of CfD for nuclear, together with other forms of low-carbon generation, is an important part of the Government’s plans to support the construction of new nuclear capacity. Some commentators have suggested that the EMR has been designed firstly to accommodate the nuclear consortia that are bidding to build new nuclear reactors, to the detriment of other energy sources. This is primarily because the Government have stuck to their no subsidy line for nuclear. This appears to provide very positive reading for nuclear and DECC appear very ready to engage with project developers in the short term before CfD comes into force. This will be welcomed by EDF Energy, who today suggested that they may apply to extend the life of their existing nuclear power stations.

Renewables

The CfD is seen by many commentators as favouring developers of larger renewables projects, but as an industry the EMR will be welcomed as a first step to providing the investment certainty required to build new capacity, especially the third round of offshore wind. For developers though the devil will be in the details and there remain some questions about issues like the tenure of CfDs, the details about contracting parties on CfDs, but perhaps most importantly around the proposed timeline for implementing EMR. The industry suggests these timelines look ambitious. The CfD must be in place to support investment decisions before the end of the RO, which currently expires in 2017.

Shadow Defence Secretary Jim Murphy said defence was the first responsibility of government, as he launched Labour’s consultation on the party’s vision for UK defence policy earlier this week.

The consultation laid out three key areas of focus: the current security landscape and threats to the UK; our strategic approach in terms of national values and international collaboration; and defence infrastructure including kit, equipment and capability.

Having never heard Mr. Murphy speak before, I have to say I was impressed. Speaking at Policy Exchange, he was supportive of the Afghanistan mission (noting though, that it is increasingly “calendar-led”, rather than “conditions led”) and agreed with Foreign Secretary William Hague’s recent comments that the Arab Spring will be as defining for the international security landscape as 9/11. However, when the inevitable criticism of Coalition policy came, it was delivered with a dry wit and he came across as an incredibly reasonable man.

Quick to position Labour as a defence-friendly party, Mr. Murphy was particularly critical of the Government’s cuts to the Ministry of Defence budget, saying “David Cameron has shown an ambivalence towards defence policy which lies in stark contrast to the commitment shown by previous leaders, including Tony Blair or even Margaret Thatcher… The government’s rushed review has been driven by savings not strategy. The government did not match ends with means, precipitated strategic shrinkage by stealth and has left us with dangerous capability gaps.”

While light on detail – perhaps to be expected from a shadow minister in a consultation document – there were three points that points in particular that stood out:

• BIOTERROR. I was expecting cyberterrorism to be pointed to as a key threat, but not bioterror. While I agree in the long-term, in the immediate future I’m of the mind-set that more damage can be done through cyberterrorism than with anthrax, small pox or virulent strains of bird flu
• The C-word: there’s not a politician in town that doesn’t use the c-word…cuts. What was interesting, though, was the language used by Mr Murphy, referring to a “coalition of cuts” when describing how countries – particularly those in Europe – should collaborate on defence policy in terms of budget
• Values, not just interests: refreshing to hear a politician acknowledge in plain English that defence policy is at least in parts driven by values – not just national interests; in other words, let’s be clear that we’re not in Afghanistan strictly to protect Britain from terrorism, but to also build a democracy.  Values usually get lumped with development policy, and Mr. Murphy and one of the other speakers, RUSI’s Malcolm Chalmers, both reiterated that defence and development could not operate in isolation. Maj. General Tim Cross also spoke, and he made compelling points about the need to consider the infrastructures of peace when entering in to conflict – this resonated with me in particular given my work with the Global Peace Index

I was expecting more meat on the policy bones, but I was nonetheless impressed by Mr. Murphy. Time will tell whether Labour is in fact the “party of defence” that it is trying to position itself as, but I certainly expect to see more from Mr. Murphy in the future.

It has been an age since my last blog and on the energy front things have been busy. The Statoil campaign in the UK has kicked into gear, we’ve had the Electricity Market Reform, release of strategic oil reserves (good blog from Platts yesterday), increased retail energy prices in the UK and continued debate about the future of nuclear in different parts of the world.

In the world of media too things have changed. Of course we no longer have the News of the World on our newsstands, but we have a new social network to play with in Google+ and apparently there are already 10 million users (for those interested I’m at http://gplus.to/chrispratt). We also had the launch of the Huffington Post in the UK, and the subsequent debate in the journalist twittersphere about unpaid content and commentary.

Personally speaking the pace of things at work and at home (moving into new house) has precluded much else, but the train journey has allowed me to make a start on the new book by Tom Bergin , Spills and Spin, about BP’s Macondo spill and the changes at BP under Lord Browne and Tony Hayward, which according to Bergin had created an environment more comfortable with risk than perhaps an oil company should be. It’s an interesting perspective and I look forward to the week off next week that will allow me some time to finish the book.

I’m also looking forward to reading more about the fallout from the EMR. One thing is clear about the reforms and that is that energy prices will increase to foot the bill for the investment in our national infrastructure. What the bill will be and how much the average energy consumer will have to pay, nevermind the extent to which heavy industry can afford to stay in the UK, will be the subject of much debate as the Government starts to provide the clarity required to make the calculations. From a communications perspective therefore much remains to be done as consumer groups, businesses, energy companies and Government line up for what will be a time of challenging messages. Something to think about on the beach? Probably not, but maybe when I get back.

Our team in Brussels will next week play host to the Director General of the European Commission’s Energy DG, Philip Lowe. The event is organised in conjunction with the British Chamber of Commerce and will take place on 5th April. It comes at an interesting time for European policy makers and energy business leaders.

People wishing to register can do so here, or contact our team in Brussels.

On a related note, saw some great infographics by European energy statistics. The navigation can be a bit frustrating and there’s no sharing tabs for the beautiful stats, but it’s a great way to present the data in an easy to understand format.

As the saying goes, ’Trust is hard to earn and easily lost’. Equally its value is hard to quantify until it is lost (see the impact of GOM on BP’s brand value), which can sometimes make it difficult to invest in.

However, just because something is difficult both to do and then to test, does not mean we shouldn’t do it. As David Prosser notes in The Independent this morning the big six power generators have earned themselves an ignominious reputation, being less trusted than banks at the moment. That should be seen as a problem that needs to be addressed, not as an inconvenient truth.

One of the things that Ofgem has suggested in its reforms is that the big six sell off 20% of their generating capacity to increase competition and this is where the lack of trust could become a serious business issue. Just because customers have shown a reticence to switch in the past does not mean that an organisation who is very effective at communicating with customers and winning their trust will not come along and start to take share from the big six operators in the future. PA Cover Ofgem Announcement

These firms have a plethora of communications and policy issues to overcome at the moment, but a good start would be to simplify customer propositions, provide greater clarity about their operations, explain and educate about complexities of their business and engage in a better dialogue with customers and prospects. The low-carbon energy challenge in particular is one that I think most people would happily be more active in addressing and new-nuclear must now engage with a much wider group of stakeholders than it has until now to avoid the NIMBY reaction of people after the disaster in Japan.

First things first will be some research to test what has impacted trust historically and what influences different stakeholders trust.

H&K were fortunate enough to have the opportunity to host a very interesting event by the Confederation of British Industry (CBI)yesterday morning. The event was not only one of the first outings of new Director General, John Cridland, but also featured Secretary of State at the Department for Energy and Climate Change, Chris Huhne MP in one of his first outings since the launch earlier this week of his government’s Carbon Plan. The CBI used this event to share some insights about consumer attitudes toward ‘low carbon economy’ products and initiatives and from a communications perspective the conclusions gave some food for thought. First though some really useful stats from the CBI report entitled ‘Making the Consumer Case for Low Carbon’:

•  Three quarters of the UK’s greenhouse gas emissions are either directly or indirectly attributable to consumer actions (Sustainable Consumption Institute)
• Seven out of ten people feel a sense of responsibility to do something about climate change (Ipsos MORI, March 2010)
• 39% of respondents to Ipsos MORI said that ‘clear evidence of reduced running costs’ would change their purchasing attitudes toward more energy efficient products
• 83% of respondents either strong agreed or tended to agree with the statement that ‘companies have a responsibility to give consumers as much information as they can about the energy efficiency of the products they sell’.
• When asked about which sources of information they trust to provide reliable information about energy efficiency or climate change, 40% said Which? Magazine, 30% Government or Government agencies, 28% scientists, 16% action groups like Greenpeace, 16% manufacturers, 12% trade associations. 9% newspapers, 9% TV and 9% retailers/shops. There were striking differences between different age groups too.

So what was so interesting from a communications perspective? Well one of the overriding messages that Mr Cridland was sharing with the audience and his members was that they had a challenge to communicate better with consumers if they were to convince them that low carbon products were worth their consideration.

When the leadership of an organisation like the CBI starts to make statements like this it can feel like manna from heaven for a communications specialist, especially when they conclude by saying that this is about more than spin and offering worthy but premium priced alternatives, it is about creating compelling price points and standards that consumers can trust. I couldn’t agree more and so look forward to working with our clients to define compelling low-carbon propositions for consumers. With the launch of the government’s Carbon Plan, policy appears to at last be providing a relatively clear path for more investment by business in the low carbon economy. Let’s hope the joined up approach continues.

Forgot to mention on our January energy round-up that we have welcomed a new colleague to our office in Houston, none other than former Bloomberg Bureau Chief Kimberley Jordan.

Kimberley joins as a Vice-President in our energy practice after more than 17 years in journalism and said:

“I am delighted that my energy knowledge and journalism background can provide clients with valuable insights that will keep them informed and prepared regarding policy decisions and industry shifts.”

Here’s hoping we can have her come and guest blog for the Energy & Industry blog very soon.

Speaking of which we will try to have Glen Hodgson’s view on the Heads of State Summit in Brussels tomorrow. The agenda was set to focus on energy, although Egypt is bound to come up.

Happy New Year! It’s that time of year when everyone gets out their crystal balls and starts predicting what the big trends will be and what will have the biggest impact on our lives. My prediction (and I hate to admit this) is that electric vehicles will be a big talking point in 2011.

With hikes in fuel duty and VAT already pushing up petrol prices to record highs and bumper increases in buses, tubes and trains fares, people are going to seriously consider other options. Whilst some cities in the UK already offer eco-alternatives such as biking schemes, many commuters and families will be looking at their car and how they can save money by switching to a less gas-guzzling version.

Now I’ve never been a big fan of electric vehicles but I think if the car makers can get it right, I may be swayed and with support from the Government increasing, the day when electric vehicles become mainstream may be getting closer.

On 1^st January, the UK Government’s new scheme came into effect, offering grants – of up to £5,000 – for electric and ultra-low emission cars. Now that amount of money is not to be sniffed at! Will it work? Will 2011 be the year of the electric car?

I remain unconvinced for now until a car manufacture makes a stunning, long-distance electric car. I would prefer to see investment in high-speed rail links, improvements in road conditions and development of a more pleasant and affordable public transport system. Surely if public transport was more reliable, cheaper and efficient, people would use it more and that in turn would reduce the number of people driving and lower emissions. Sounds simple I know, but it could just work.

According to the No Hot Air Blog the Department for Energy and Climate Change has today launched an inquiry into the future of shale gas in the UK.

Full details over at NHA, but in brief the DECC are looking for written submissions before Thursday 13 January 2011, in the following areas:

• What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources?
• What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
• What are the risks and hazards associated with drilling for shale gas?
• How does the carbon footprint of shale gas compare to other fossil fuels?