Chevalier – Professor Emeritus, Center of Energy Economics and Geopolitics, Dauphine University Paris
Jean-Marie Chevalier is Professor emeritus of economics at the Paris-Dauphine University and a Senior Associate at Cambridge Energy Research Associates. In 2010, he was commissioned by Christine Lagarde, the current Managing Director of the IMF to produce a report on the volatility of hydrocarbon prices. He addresses the geopolitical implications of low hydrocarbon prices, the need for greater European integration in the field of energy and comments on the controversial shale oil and gas debate in France.
Professor, you are an associate at the Cambridge Energy Research Associates, you taught energy economics at Dauphine University, and you are a distinguished member of the Cercle des Economistes. Have you always been convinced that economic and energy issues are inextricably linked?
Of course, but the relationship between energy and economics is a lot more complicated than it was 20 years ago. Today energy economists must take climate change into account when addressing energy matters. The world is undergoing tremendous change, while economics, energy and other activities are becoming increasingly interdependent. Twenty years ago, the energy sector almost exclusively comprised engineers. Engineers in the oil and gas sector didn’t interact with engineers in electricity for instance. Today, all energy sectors are inherently interconnected. I personally developed an interest for energy matters during my military service. I was teaching economics in Algeria, where I discovered the oil and gas sector. I later on worked for the World Bank on the development of gas fields in developing countries.
You were commissioned by Christine Lagarde, former ministry of the economy and current head of the IMF to produce a report. Was it a culminating point in your career?
I was very proud indeed. I admire Christine Lagarde. She asked me to chair a group of experts working on the volatility of oil prices. We submitted this report in 2010. The main conclusion we drew from this report was the need for stricter financial market regulation.
What is your interpretation of the current drop in oil prices? What are its long-term geopolitical implications?
Until last summer my intuition was that the price of oil would not go below USD 80 a barrel. My main argument was that several oil exporting countries required a certain minimum income to finance public spending and secure social peace. I underestimated the very important role of American shale gas. When I observed the decrease in oil prices, I was very surprised. Regarding the geopolitical situation, I believe that it is not in Saudi Arabia’s interest to weaken its OPEC counterparts and that oil prices will therefore modestly rally.
You are a strong advocate of European integration in the field of energy. What is your assessment of the Europeanization of energy policy?
My first concern is the security of gas and electricity supply. We have a very complicated electricity supply network caused by the closure of gas power plants. We have to manage the coordination and harmonization of various European electricity grids. It is not a simple task especially since we want to maintain a single electricity market ruled by competition, while maintaining our commitment to climate change and energy efficiency. European integration in the field of energy must go much further. We need more interconnections, we need to curb CO2 emissions, we need to achieve energy independence and we need to foster a real common energy market. Local communities will also want to participate in discussions and decisions. European populations want to take initiatives in terms of energy efficiency and renewable energy, which I find promising. There are still strong ideological differences within Europe. For instance, we had been expecting Germany to shut down its nuclear activity for a very long time.
In your recent book on energy transition, you claim that France is home to one of the most attractive energy models in the world. What needs to be done to maintain this reputation?
We have to be careful. We were convinced that we had the most attractive energy model in the world. However it was the case under a centralized and statist regime. With European integration, our energy model has been subject to liberalization, privatizations and competition. The transition to a free market economy was much more challenging for France than other European countries like Germany. Even a national champion like EDF will face tremendous difficulties. However, I still believe that companies like Technip, CGG or Vallourec will remain market leaders.
What is your assessment of our current government’s energy policies?
The energy policy of the current government is full of contradictions. In its recent law on energy transition, I noticed two positive elements: the promotion of energy efficiency and an effort to integrate local communities in the decision-making process. Energy efficiency is an essential tool to face climate change and global warming. Meanwhile local communities have become increasingly important, as energy intelligence is no longer found in Paris but rather in the countryside. I however also noticed two negative aspects: The prohibition of shale gas exploration and the unwillingness to address the hidden costs of nuclear energy.
As you just mentioned, the François Hollande administration has been reluctant to explore opportunities for shale gas and oil exploration and production in France. Is it a mistake? Politically? Economically? Environmentally?
I am not in favor or against shale gas. As a citizen of France, I want to know the quality of the gas, the quantities available, and the risks at stake. Shale gas will never be produced in France because the emotional reaction against it is too resilient. People simply refuse to acknowledge that shale gas can contribute to energy independence and create jobs.