A Natural Grid for the Eastern Mediterranean

Transition through Gas

Chris Cook

23 April 2013

21st Century problems cannot be solved with 20th century solutions.........

Introduction - Resilience

Resilience - the enduring power of a body or bodies for transformation, renewal and recovery through the flux of interactions and flow of events

Resource Resilience – Natural Grid

Financial Resilience – Open Capital

Natural Grid – Resource Resilience

Since 1980 Denmark's GDP rose 78%, while energy use has been stable and carbon fuel use declined

How?

Mandate - minimum carbon fuel input for a given output of electricity, heat or power

Least energy cost policy; not Least DK (or €, $, £) Cost

Massive investment in renewables, heat, energy efficiency, transport

Outcome – decentralisation – trend to a Natural Grid

Open Capital – Financial Resilience

300 year Market 2.0 paradigm of 'closed' proprietary finance capital and 'for profit' intermediation

- Debt (Banks) and Equity (Joint Stock Company)

- October 2008 the Market 2.0 paradigm broke

Market 3.0 - emerging networked market paradigm

Open Capital

- neutral, collaborative framework - Capital Partnership

- prepayment for production or use over time - Prepay

Application - Eastern Mediterranean

Eastern Mediterranean Nondominium

- neutral framework for East Med energy co-operation

- Gas Pool of future production, Gas Grid, Gas Hub /Balancing Point benchmark

East Med gas Prepay instrument

- gas clearing union (mutual guarantee)

- direct 'gas loan' investment by energy investors, especially gas consumers

Eastern Mediterranean Nondominium

Stakeholders

- Custodian – Clearing Union of Littoral Nations

- Producers and Consumers – Littoral Nations

- Manager – private sector service providers

- Investor – energy funds & energy users

Joint Custodian

%

InvestorEnergy Funds/Users

ManagerService Providers

%

Littoral Nations

Prepay

Nondominium – What it is and is not

Nondominium is neither an Organisation (eg Energy Charter) nor a Trust (eg UK North Sea Master Deed)

- consists of 2 parallel collaborative agreements

Clearing Union - agreement between stakeholders jointly

- governs & guarantees prepay unit issuance, exchange & return

Capital Partnership - agreement between stakeholders individually

- governs allocation of flows of production

Nondominium – How it Works

All existing legal rights transferred to Clearing Union as joint Custodian

Production shared by nations and service providers in accordance with project-specific 'enterprise agreements' within Capital Partnership framework

Balance of production available to create and issue prepay units to Investors

No nation or stakeholder has dominant rights

Stakeholders have agreed rights of veto

Nondominium – Outcomes

Neutrality

– no sharing of sovereignty as in Condominium

– takes politics out of energy

Equity – ethical sharing of risk and reward

Stability – no stakeholder has an interest in volatility

Resilience – risk is distributed

Complementary – not alternative but addition to existing agreements eg Law of the Sea, Energy Charter

Prepay Instruments

Taxation

Gas Prepay – What it is & How it Works

Undated credit returnable in payment for gas supplied

Prepay unit issued & sold by gas producers at discount

$1.00's worth of gas sold for 80c gives absolute return of 25%

Rate of Return - rate over time at which prepay unit returnable to issuer in payment for gas supplied

Rate not fixed - depends on existence & amount of flow

No right to supply – accepted in payment for supply

Gas Loans

Prepay - direct investment in future gas production or gas savings

- the earlier the investment, the greater the risk, and the greater the discount

- return in energy: no $ paid for the use of $

Gas Loans – Value proposition

Producer

- sells gas forward and locks in price

- interest-free gas loan until unit returned against supply

Consumer

- prepays for gas and locks in price

Investor

- direct 'inflation hedge' investment in energy

- Consumers buy units from Investors at best price below physical gas price & return them against supply

Outcomes

East Med Benchmark – gas unit could become energy standard unit for East Med energy investment

Carbon Currency – denominated in energy, not $

Energy Subsidy - energy dividend of prepay units

- incentive to save energy, & exchange units for value

East Med energy pool fund

East Med Green Deal – energy loans invested directly in renewable energy and energy saving projects

…....21st century solutions pre-date modern finance