Triple Crunch Log Jeremy Leggett

5.1.08. A car costing £1,290 goes on sale in India. Built by Tata Motors, it aims at the Indian middle class, now 50 m but due to be well over 500 m by 2025, according to McKinsey. See also 11.1: If just 10% of motorcycle owners switched to this car 1m extra cars would appear on India's roads a year to join the 13m already there ….around the same number America had at the beginning of the Great Depression in the 1930s.¹¹⁵

6.1.08. UK consumers are being lined up to pay nuclear bills, a government source tells the Guardian. Several energy firms potentially interested in building ten nuclear stations have demanded long term guarantees if they are to put in the c £10 bn investment to build each station. They are asking for a levy on bills, to provide a decommissioning fund. If that proves not enough, presumably the consumer will have to meet the shortfall too. The companies have also demanded a guaranteed minimum floor price for carbon. The government will also build a waste repository with taxpayers funds, in which the energy companies will rent space, so avoiding the full costs of waste disposal. Taxpayers will also have to pay for compensation of local communities where the nuclear waste site is built (almost £1 bn), security at potential sites, transmission of waste, and any update needed to the electricity grid. The National Audit Office says liabilities accrued by the government to date include £70 bn for existing nuclear waste and £5.1 bn in bailouts for British Energy. ¹¹⁶

Electricity price rises top German consumers’ lists of concerns for 2008. Germans were among the first to liberalisation, ten years ago, but it has not led to lower prices. Businesses now pay 65 per cent more for their power while households pay 50 per cent more than in 2000. Prices are third highest among the 27 member states.¹¹⁷

7.1.08. Nymex trades betting on $200 oil within 2008 leap tenfold in the the last two months. The number of contracts is now 5,533. Barclays Capital predicts an average 2008 oil price of $87.40.¹¹⁸

Global warming is “changing the world economy,” Worldwatch State of the World report says. “Once regarded as irrelevant to economic activity, environmental problems are drastically rewriting the rules for business, investors, and consumers, affecting over £50bn in annual capital flows,” says the 2008 annual report. £26bn was invested in renewable energy in 2006, up 33 per cent from 2005. This may reach £33bn in 2007. Carbon trading grew reached around £15bn billion in 2006, nearly tripling on 2005. Companies are lobbying Congress for regulation. DuPont has cut its greenhouse gas emissions by 72 per cent from 1991 levels, saving £1.5bn in the process. 575 environmental and energy hedge funds have been created in the last few years. Clean technology is now the third most popular investment for venture capital, behind the internet and biotechnology. 54 banks, representing 85 per cent of global private project finance capacity, have endorsed a new international standard of sustainability investment, the Equator Principles. Meanwhile, the World Bank calculates that 39 countries had lost five per cent or more of their wealth because of activities related to climate change - whether creation of it, or impacts of it - such as depletion of non-renewable resources, unsustainable forest harvesting, and damage from carbon emissions. For ten countries, the damage ranged as high as from 25 to 60 per cent. There is growing evidence, the report concludes, that the global economy is destroying its own ecological base.¹¹⁹

British architect proposes energy islands based on ocean thermal energy conversion (OTEC) to solve energy crisis. Hexagonal modular platforms would house OTEC plants and other renewable technologies including solar, producing electricity and freshwater. The architect, Alex Michaelis, is entering his design for Richard Branson’s $25m Virgin Earth Prize (inventions to solve global warming, to be submitted by 2010).¹²⁰

8.1.08. The UK nuclear industry gets what it wants as government announces a cap on decommissioning and waste disposal. The government also proposes to use the planning bill to ensure nuclear projects are speeded up like any other critical infrastructure development, and “strengthen” the EU emissions trading scheme, “so that investors have confidence in a meaningful, long-term carbon price when making decisions.” Hutton has not ruled out EDF’s plea for a commitment to a high price. NB: Government estimates about £2.8bn capital cost for a new 1,600 megawatt power station.¹²¹

10.1.08. Total boss Christophe de Margerie reiterates view that oil production may be nearing its peak. Last year he contricted ExxonMobil and OPEC by insisting that the world would never be able lift production from the current level of 85m barrels per day (b/d) to 100m b/d, much less 120. He means “when supply cannot meet demand,” not the geological peak. Production from existing fields is declining by 5m-6m b/d every year. He is eager to get Total into nuclear. They have taken a 1% stake in Areva. As the Economist concludes the article: “Why would an oil firm want to enter such a controversial field, unless it feels that it is already out on a limb?”¹²²

11.1.08. British Gas launches fuel poverty initiative: home insulation worth £600 for over 70s. Recipients don’t have to be BG customers. The rest of the Big 6 are expected to follow suit. British Gas estimates that £1 in every £3 currently spent on heating UK homes is wasted due to poor insulation. Part of the CERT scheme, the offer embraces cavity wall and loft insulation. Almost 9m UK homes have uninsulated cavity walls. Some 40% of homes in England either have no loft insulation, or have less than 100mm (3.9in) of heat-retaining material. The Energy Savings Trust estimates around a third of a home's heat vanishes through the walls. Good cavity wall insulation will save around £90 a year on heating bills. Loft insulation 270mm deep will save an average of £110 a year.¹²³

12.1.08. Energy bills soar in the UK as European giants “tacitly collude on price.” Energy Watch says that this is a failure of liberalization. The liberalized UK market initially succeeded. Bills were 40% lower in the UK between 1996 and 2001. But the rash of continental takeovers has combined with soaring oil prices and shrinking gas supply to make UK bills as expensive as mainland Europe or more so. Four out of six UK power companies are now foreign owned (npower by RWE, Powergen by Eon, EDF, Scottish Power by Iberdrola). The European giants tacitly collude to fix prices and hoard gas in Europe, Energywatch alleges, selling on come the cold weather. This problem will get worse. We currently import 10% of our energy, a figure set to rise to 50% in five years. We only have storage for 5% of our gas needs, where Germany and France can store 20%.¹²⁴

13.1.08. GE investment in renewables will be a quarter of all its energy investments by 2010. General Electric plans to double investments in renewable energy to $6bn (€4bn) by. Wind, solar, and other renewables will account make up almost a quarter of its total investments in energy and water, up from 10% in 2006. The global renewable energy market is worth an estimated $60bn a year, growing fast.¹²⁵

Kashagan compensation deal agreed between Kazakhstan and ENI et al. There is confusion over the sum though: the government says its it is owed $5 bn in compensation payments for the delays and cost overruns at the project, while the consortium (Eni, Exxon, Total and Shell) suggests a top figure of $2.5bn to $4.5bn. The net present value of the project is around $60 bn.¹²⁶

European Environment Commissioner admits EC did not foresee biofuels problems. Stavros Dimas says it would be better to miss the target than achieve it by harming the poor or damaging the environment.¹²⁷

14.1.08. EC says it may ban some biofuel crop imports in a draft law due to be unveiled next week. The draft would imports from forests, wetlands or grasslands, and that crops must deliver “a minimum level of greenhouse gas savings,” the exact level of which is still under discussion. The ban would affect palm oil and Brazilian ethanol imports.¹²⁸

15.1.08. High oil price means Gulf states foreign assets will top two trillion dollars by year end. The Institute of International Finance said the region’s public and private overseas wealth stood at $1,800bn (€1,211bn, £916bn) at the end of 2007. The GCC’s nominal gross domestic product will be $900bn in 2008, more than double the 2003 figure. Hydrocarbons account for 77 per cent of GCC 2007 export earnings. Oil export receipts reached $381bn in 2007, 8 per cent up on 2006, while natural gas revenues were $26bn in 2007, mostly in Qatar.¹²⁹

16.1.08. BP’s chief economist says demand will limit oil production, not supply. Speaking to the UK Parliamentary Group on Peak Oil, Peter Davies says “I believe there is a realistic possibility that world oil production will peak within the next generation as a result of peaking demand….. I think we will run out of demand before we run out of supply. There's a distinct possibility that global oil consumption could peak as a result of climate policies.” “I believe 100 million barrels per day is achievable. This is achievable in resource terms but it does come down to how much investment is going to take place.” However, “valid concerns remain over investment, especially in resource-rich regions.”¹³⁰

17.1.08. Top US media commentators virtually ignore global warming in the US primaries. A League of Conservation Voters study finds that ABC's George Stephanopoulos has asked presidential candidates more than 767 questions, only 5 of which were related to global warming. CNN's Wolf Blitzer asked more than 402 questions, only 5 were about global warming. Other political commentators and reporters have similarly disregarded the issue. Candidates have been asked about UFOs, childhood nicknames or sports teams. (PR US Climate Alliance).

18.1.08. CERA study suggests oil production peak will be well over 100 million barrels a day. A study of 800 oilfields with flow rates of >10,000 barrels a day, producing 19 of the world’s 32 bb per year, shows only 4.5% depletion, half the generally assumed rate. Peter Jackson, author, says: “We will be able to grow supply to well over 100 million barrels per day by 2017.” He believes with tar sands the total can be 112 mbd.¹³¹

20.1.08. Israel announces nationwide electric car project aiming to obviate oil within a decade. A private plan with the backing of the President will install 500,000 recharging points and battery-swap stations for electric cars in the next 18 months, halving oil dependence within a few years. Solar plants will be built to offset the rest of the imports. Project Better Place, a US start-up company, has raised $200m (€137m, £102m) for the initial stages. The rest of the infrastructure and vehicles is expected to cost a further $800m or so. PBP, run by entrepreneur Shai Agassi, likens itelf to the early infrastructure companies that made the widespread use of mobile phones possible. Project Better Place calculates that if Israel's fleet of 2m cars were all electric, they would require 2,000MW of electricity per year, entailing an investment of $5bn in solar plants.¹³² See LNG world trade map December 2008 Oil & Gas Journal (L)

23.1.08. EC unveils ambitious draft climate legislation for Europe ….and UK. 20% of Europe's energy mix would come from renewables by 2020, and Europe's biggest polluting industries would slash their emissions by 21% against 2005 levels by 2020. The aim is to seize clear leadership ground in the post-Kyoto negotiations with a reduction in EU greenhouse gas emissions by 363m tonnes, or 20%, by 2020. The UK’s share as drafted would be a 16% cut in emissions by 2020, and 15% renewables in the energy mix. The scheme would be accelerated to take the cuts to the level of 30% if the remainder of the world signed up for that level of cuts. EU estimate of cost for all this: €3 a week for every European. A contentious part of the package involves 10% of all road fuel in Europe being supplied by biofuels by 2020.¹³³

OPEC’s 2007 revenues up more than a quarter to $850bn (€583bn, £435bn). 26% rise from $675 bn last year. Saudi Arabia is around a third of this. $850 bn is three times the $258 bn taken in 2000, when the long oil price rise started.¹³⁴

24.1.08. Cattle ranching and soy (for cattle feed) fuel first increase in Amazon deforestation in 3 years. Government satellite images show that between August and December last year at least 1,280 sq miles (3,235 sq kilometers) of rainforest were lost, mainly because of soy planting and cattle ranching. Environment ministry officials profess that the true figure could be as high as 2,700 sq miles (7,000 sq kilometers). For three years before this, the trend had been reversing. As much as 20% of the rainforest has now been destroyed, most of it since the 70s.¹³⁵Article continues

25.1.08. Peak oil awareness spreading by word of mouth in US, according to Wall Street Journal. A front page A1 article reports dozens of "relocalization" working groups from Maine to Southern California advocating dumping of cars, buying local produce and home working. A 13-member congressional Peak Oil Caucus formed in late 2005. City councils from Bloomington, Indiana, to Portland, Oregon, have passed peak-oil.¹³⁶

26.1.08. The most turbulent week in the markets for years. Will Hutton in the Observer: “There was the biggest one-day fall in Wall Street since 11 September, which spilled over into every world stock market and the largest single cut in American interest rates for 25 years as an emergency attempt to stop the rout. A new crisis emerged in an obscure American insurance business (monoline, it is called). To cap it all, there was the £3.7bn bank fraud at Société Générale.” “…An industry that socialises losses while privatising profit, and that has the capacity to create booms and busts alike, has to be as closely regulated as any utility.” “….Underneath their technical names - monoline insurance, derivatives, debt securitisation - lies little more than bookie principles and practice.” ¹³⁷

Survey of 500 major firms shows only one in ten believe global warming is a priority. Accenture canvasses more than 500 big businesses in Britain, the US, Germany, Japan, India and China. For ever one which sees opportunity in climate change, more than two see costs on their business. 80% want governments to take a central role in tackling climate change. Only 5 per cent – and not one in China – regard global warming as their top priority.

27.1.08. EC imposes huge fine on Eon as investigation continues on price fixing cartel. The fine, which could be as much as €280m (£207m), is for damage inflicted to the seal left on an office at the headquarters of E.ON's energy division in Munich during 2006. The office housed confidential documents seized in dawn raids in six countries relating to allegations of price fixing, which the Competition Commissioner has yet to resolve. The EC has the power to fine Eon up to 1% of its €28bn profits.¹³⁸

28.1.08. UK government will not hit zero-carbon homes target with current policies, study says. The recently introduced Code for Sustainable Homes is only mandatory for publicly subsidised housing. Housing built with private funds, which is the majority, is exempt. A study published today in the Journal of Environmental Planning and Management shows that the government must make the current "code 6-star rating" (ie zero-carbon standard) mandatory for all new housing - and invest in the technology, infrastructure and knowledge needed to execute – if it is ever to get to zero carbon.¹³⁹

29.1.08. Cost of UK nuclear decommissioning has risen from £61 bn to £73 bn in just two years, National Audit Office says. The clearing of contaminated sites is already behind schedule, and subject to stop-start as the Nuclear Decommissioning Authority suffers its periodic cash problems. Five sites named as frontrunners for the new generation of nuclear power stations suffered big cuts in their decommissioning budgets in 2007: Bradwell, Dungeness, Berkeley, Hinckley Point and Sizewell.¹⁴⁰

US CCS flagship project collapses leaving threat of legal action as DOE pulls out. The FutureGen Alliance is a coalition of power and coal companies that joined with the US DoE in 2005 to announce it would build a virtually zero emissions coal plant. Last month it announced the chosen site for the $1.8 billion, 275-megawatt prototype zero-emissions power plant: Mattoon in Illinois. The DOE, due to cover three-quarters of the cost has become frustrated by costs that have almost doubled, and wanted the announcement delayed until the project could be redesigned and costs reduced. Now it has pulled out. Illinois lawmakers intend to take the DoE to court.¹⁴¹

31.1.08. Shell’s profits and capital expenditure in 2007 were both records, but production was down 4.5%. Profit was $27.6bn, a European record. Capex was a staggering $25.5 bn and will rise to $28-29 in 2008. Lombard in FT: “As for "profitability" - rather than profit - analysts point out that cost inflation in the past two years of rising oil prices has curbed oil majors' profitability, as measured by return on capital employed. Returns have been, at best, flat since 2005 and are projected to fall in the years ahead.”¹⁴² Output of oil equivalent fell 4.5% to 3.3 mbdoe, blamed on the Sakhalin seizure by Gazprom and a fire in a tar sands development.¹⁴³

Shell oil production down 7% in Q4 2007. Even tar sands production is down. “I've just been reading the Shell results and it looks to me as though we have our first major corporate Peak Oil. A few years back J S Herold did a report which from memory predicted that BP, Shell and Total would Peak in 2007, Exxon in 2008 and Chevron in 2009 among others. …The Shell report shows a year on year decline in boe terms of 3.8% for the fourth quarter and 4.5% for the year. They then claim excluding this that and the other that it was really a 1% rise in the fourth quarter and a 2% decline for the year. That, however, is not the killer because we find that in Q4 gas production was up 10% but oil production was down 14% year on year. I repeat DOWN 14% and for the full year the decline was 7%. This is the first time we've seen a mega-major that looks as though its oil production has peaked. As far as being saved by the tar sands. Shell's tar sands production in 2007 was down by 1%. There seems to me every chance that BP's results will show a similar pattern.”¹⁴⁴

Chevron CEO talks of a future in energy services. “We're a pretty resilient bunch,” O'Reilly said in an interview with The Chronicle (previously, not today). “We'll be around. We'll be selling energy. We'll be providing energy services. But I'm confident it will be quite different than it is today.”¹⁴⁵

Eon will be granted unsequestered carbon at Kingsnorth coal plant, leaked e-mails show. BERR officials acquiesce to Eon requests, e-mails obtained by Greenpeace under the Freedom of Information Act show. Kingsnorth will emit 8 mt CO2 a year if it goes ahead. Greenpeace says 7 other coal plants are planned.¹⁴⁶

UK claims progress towards Kyoto targets, but NGOs cry foul. DEFRA figures show a fall to 652mt (0.5% down on 2006) thanks in large part to the warm winter. CO2 emissions, 80% of the total, were down 0.1%. This drop is on course for the 12.5% Kyoto requirement by 2012, but not the self-imposed 20% by 2010. The figures don’t include international shipping and aviation, for which emissions rose 1.5% (but do include domestic). UK's greenhouse gas emissions are now 16.4% lower than they were in 1990, and 20.7% including European emission trading schemes.¹⁴⁷

1.2.08. Exxon and Chevron production down despite record profits. The two biggest US companies produced less oil and gas in 2007 than 2006. Exxon fell 1% to 4.18 mbdoe. Chevron fell 2% to 2.61 mbdoe. Chevron warns it will replace only 10-15% of the oil and gas it produced. Exxon defers reserves replacement data until an announcement later in February. Profits: $40.6 bn for Exxon (up 3% on 2006, the largest ever recorded by a US company) and $18.7 bn for Chevron (up 9%). Shell’s oil and gas production was down 5% in 2007, and will fall again in 2008 for a sixth successive year. Exxon’s capital spending in 2007 was $20.9 bn, less than it spent on share buy-backs ($28 bn).¹⁴⁸

OPEC threatens to cut production and IEA warns doing so would threaten the global economy. OPEC, worried about a US recession, has rebuffed calls from consumer countries to raise output, and instead is threatening to cut production to hold the oil price up in the face of inevitable reducing demand. Bush appealed to King Abdullah for more oil last month. Next OPEC meeting is March 5^th.¹⁴⁹

Second generation biofuels “edging towards commercialisation” in the US. Ethanol brewed from plant cellulose is getting there. This can come from wood, grass or waste, and algae also hold promise, especially for countries lacking the space to grow wood or grasses. Algae are very efficient at converting light energy into biomass, being capable of doubling their size in a day. Greg Mitchell of Scripps Institution of Oceanography calculates that all current American transportation needs could be met by algae in 20 million acres of ponds. For comparison, the US has 900 million acres of agricultural land today. Some species of algae are lipid rich, and others are mainly starch, making them a good source for either biodiesel or enthanol. They can also process sewage as they grow. DARPA is researching use of algae for jet fuel. Shell is building a pilot algae-to-biofuel plant in Hawaii.¹⁵⁰

Multiple innovations in auto industry threaten gas guzzlers. US energy bill Bush signed into law December 2007 requires a 40% increase in efficiency of cars and light trucks to 35 mpg, but doesn’t come into force until 2020. US autos and light trucks emit 45% of global vehicle emissions. But there is progress anyway. A diesel hybrid can cut CO2 emissions by around two-thirds from a current petrol-powered car. A series hybrid like GM’s Volt concept car can manage more than 150 mpg. Carbon composites, which can be as strong as steel but only 40% the weight, could be classically disruptive, allowing small newcomers to threaten the major carmakers. Toyota has produced a Prius with a carbon composite body.¹⁵¹ (L)