1. Caspian Energy 3.0 - Transition through Gas
Caspian Oil & Gas 2013
Chris Cook
5th June 2013

2. 21st
Century problems cannot be solved with 20th
century solutions.........

3. 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

4. Resource Resilience – Natural Grid
Since 1980 Denmark's GDP rose 78%
Energy use has been stable
Carbon fuel use has declined
How did Denmark achieve this?

5. Resource Resilience - Natural Grid
Least Energy Cost principle
- not 'least Danish Krone cost' (or least $, € or £ cost)
- minimum carbon fuel input for a given output of
electricity, heat or power
- investment in renewables, heat, transport, energy
efficiency

6. Emerging Outcomes of Natural Grid policy
- decentralisation
- skills base of knowledge and knowhow: eg Vestas is
the biggest global wind turbine manufacturer......in a
country of 6m people
- trend to energy security and energy independence
- not forgetting........reduction in carbon use

7. Funding the Natural Grid
$ trillions required to fund transition to a Natural Grid
$ trillions in carbon fuel use is wasted
Need to drill for oil and gas savings.......

8. Financial Resilience – Open Capital
Market 2.0 – centralised, intermediated market paradigm
- proprietary finance capital and 'for profit' transactions
- Debt (Banks) and Equity (Joint Stock Company)
- October 2008 – the Market 2.0 paradigm broke
What Market 3.0 will replace it?

9. Financial Resilience – Open Capital
Market 3.0
- networked, decentralised and dis-intermediated market
paradigm
- transition from intermediation to service provision
- Reason? Finance capital is limited to operating costs

10. Financial Resilience – Open Capital
Two elements: market architecture & market instrument
Capital Partnership - neutral, collaborative framework
Prepay - prepayment for production or use over time

11. Application to Caspian Energy
Caspian Capital Partnership ('Nondominium')
- neutral framework for Caspian energy co-operation
- Energy Pool of future production, Gas & Power Grids,
Gas Hub /Balancing Point benchmark
Caspian Prepay energy financial instrument
- energy clearing union - (mutual guarantee of issue)
- direct 'energy loan' investment by energy investors,
especially gas/power consumers

12. Caspian Capital Partnership (Nondominium)
Stakeholders
- Custodian – Clearing Union of Littoral Nations
- Producers and Consumers – Littoral Nations
- Manager – private sector service providers
- Investor – energy funds & energy users

13. Custodian
(Clearing Union)
%
Investor
Energy Funds/Users
Manager
Service Providers
%
Littoral Nations
Prepay

14. Nondominium – What it is and is not
Nondominium is neither an Organisation (eg Energy
Charter) nor a Trust (eg UK North Sea Master Deed)
It is simply two parallel collaborative agreements
Clearing Union - agreement between stakeholders jointly
- governs & guarantees prepay unit issuance, exchange
& return
Capital Partnership – project agreements between
stakeholders individually
- governs allocation of flows of production

15. Nondominium – How it Works
Existing rights held by 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

16. 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

17. Prepay Instruments
Taxation

18. Energy Prepay – What it is and is not
Undated credit returnable in payment for energy
supplied
Prepay credit is issued & sold by energy producers at
discount
Not a futures contract: no right to demand delivery

19. Energy Prepay – How it Works
$1.00's worth of energy sold for 80c gives absolute
return of 25%
Rate of Return - rate over time at which prepay unit
returnable to issuer in payment for energy supply
Rate not fixed - depends on existence & amount of flow
No right to supply – accepted in payment for supply

20. Energy Loans
Prepay - direct investment in future energy production
or energy savings
- the earlier the investment, the greater the risk, and the
greater the discount
- return in energy: no $ paid for the use of $

21. Energy Loans – the Value Proposition
Producer
- sells energy forward and locks in price
- interest-free energy loan until credit returned vs supply
Consumer
- prepays for energy and locks in price
Investor
- direct 'inflation hedge' investment in energy
- Consumers buy credits from Investors at best price
below physical energy price & return against supply

22. Generator
(Iran)
Gas
Investor
Energy Funds/Users
Manager
Service Providers
%
Turkmenistan
Power
Power Partnership
Power
Prepay

23. Refinery
(Turkey)
Crude
Oil
Investor
Energy Funds/Users
Manager
Service Providers
%
Azerbaijan
Fuel
Prepay
Fuel Partnership
Fuel

24. Outcome – Caspian Benchmark
Energy standard unit for Caspian energy investment
- 1 Mmbtu energy equivalent?
- 10 KwH energy equivalent?

25. Outcome – energy denominated Carbon
currency

26. Outcome – new energy subsidy Policy
Energy dividend made in energy prepay units
- incentive to save energy
- energy loan investment use
- exchange units for other value

27. Outcome – Caspian Green Deal
Energy loans
- new renewable infrastructure: Caspian Supergrid;
wind, solar, hydro
- energy efficiency: least energy cost heating, cooling,
transport, spatial infrastructure

28. Outcome – the Transition Trade
A Big Trade of the 21st
Century
Exchanging
- value of carbon fuel saved (NegaBarrels and
NegaTherms)
- value of IP (knowledge) and Know How

29. 21st
Century problems cannot be solved with 20th
century solutions.........

30. …....21st
century solutions pre-date modern finance