Triple Crunch Log Jeremy Leggett

Triple Crunch Log © Jeremy Leggett

A
1989 - 1997

1998 - 2005
21st century history

of the triple crunch

…a log compiled by Jeremy Leggett emphasising matters relevant to the energy-, climate-, and financial crises, and issues pertinent to society’s response to this triple crunch
Editor’s note
This log represents one person’s reading experience of the unfolding dramas that most preoccupy him, among the all-too numerous dramas inherent in the human condition. I have compiled it while pursuing a full time day job in a solar energy company, and further part-time roles as a director in a private equity fund (throughout) and trustee of a charity (since 2006). Accordingly, there is far more source material from newspapers than academic journals and books, most of it culled and processed in evenings, weekends, and journeys. I have selectively added references wherever facts or quotes I consider particularly important appear. The frequency of the entries picks up from 2005, at which time it occurred to me for the first time that I might at some point make this log available for use by others. Unless otherwise stated, entries are from newspaper reports published the day after the news event. Magazine and journal reports are on the day of publication, some time (days) after the actual events referred to. Entries from monthlies appear on the first of each month. After the creation of the website (June 2009), references use url format.
Abbreviations:
boe: barrels of oil equivalent; CCS: Carbon capture and storage; CTL: Coal to liquids; mbd: million barrels per day; mcf: million cubic feet (bn: billion; tn: trillion etc); L: author’s library copy for further detail (either digital or paper); mcm: million cubic metres; oe: oil equivalent; p.a. per annum.

31.12.99. The Dow Jones reaches its highest value ever on the last day of the twentieth century. The first few days of the twenty-first century see a wobble, but the bull market will roar on into March.

4.1.00. CNN changes tack on global warming, now portraying it as a huge problem. The key to their conversion, it seems, is data from nuclear submarines showing thinning of Arctic ice. Throughout the 1990s, CNN’s coverage of global warming routinely embraced what producers thought of as balance. This involved pairing any interviewee urging greenhouse-gas emissions-cuts because of the threat of global warming with a naysayer, usually from a hard-core pool of half a dozen, smoothly asserting that there is no threat. What has changed CNN’s mind, it seems, is that just over a month ago, American scientists informed the world that over the last forty years the Arctic ice cap - across the entire Arctic Ocean - has thinned by around 40 percent. This awful evidence, which featured large in the programme, came from American nuclear submarines playing Cold War hide-and-seek with Russian counterparts. The Pentagon had been sitting on the knowledge for years. National security, it seems, applies in the collective mind of the nuclear navies only to the impact of nuclear weapons on national economies, not to environmental devastation potentially as bad as the impact of nuclear weapons. (L)

28.1.00. World Economic Forum this week votes global warming No. 1 issue of concern to global business. Several hundred CEOs of the world’s biggest companies are asked by the organisers to vote on the greatest challenge facing the world at the beginning of the new century. Global warming comes out top. The organisers are so surprised, they try the exercise a second time, fearing a mechanical failure.

1.2.00. Investment in internet companies is booming: the dot.com era is in full swing. Venture capitalists figure that $3.5 billion will go into British internet companies, of $10 billion going to Europe as a whole in 2000. Fifty such companies have launched initial public offerings, with many more expected. Big companies making hundreds of millions have been driven from the FTSE 100 index by tiny newcomers who had yet to make a penny. Those ousted include major energy companies like PowerGen, with millions of real customers and guaranteed billing measured in the billions. Such companies are being dismissed as “old economy” stocks by the business magazines at the time. Others are beginning to think very differently. One eminent economics editor views the whole thing as potentially analogous to an investment craze in the 1630s, when Dutch investors went mad for tulips, chasing the price of a single bulb up to $150,000 in today’s prices. That bubble burst with a vengeance, ruining many who still held stock. The chain of greed could be extended no further, there being no more “greater fools” left for speculators to sell stock on to at a profit.

8.2.00. Insurance expert tells London fund managers global warming threatens the global economy. A City of London seminar on investment and the environment attracts the interest of an unheard-of total of 40 fund managers. Putting all their investments together would have made a pot worth £250 billion. For comparison, the FTSE all share index has a combined value of £1,500 billion. Dr Julian Salt of the Loss Prevention Council, an insurance industry think tank, launches a withering attack on his own industry. “The system that operates today is fatally flawed.” It relies on the collection of claims data from the past to underwrite in the present for the future’s unknown claims. This is fine in a system that is confined, but unsustainable in a world with a changing climate and the potential for unmanageable claims. The insurance industry has income now in excess of $2 trillion – fully ten percent of a global economy worth $20 trillion. The entire shooting match is in dire peril because of global warming. Pensions are at risk. Banks could fall. Indeed, the entire stock market could collapse. The only answer, he concludes, is to decarbonize industry, and energy production.

Three investment banks now have all have internet-company funds of $1 billion or more: Credit Suisse First Boston, Morgan Stanley Dean Witter, and Goldman Sachs. In the UK, Lastminute.dom, a high-profile firm offering cheap and instant holiday and entertainment bookings online, will float next month with a valuation supposedly of £400 million. Yet its net revenues as of last September were only £195,000. Amazon.com last week announced losses of $323 million for the last quarter, yet its stock price rose from $69 to $79. Amazon has tiny margins on sales of books, records and suchlike, and Lastminute.com’s only current route for income is commission on sales. At a valuation of £400 million, every customer would be worth £35,000. This cannot be right. One of the founders tells the press that the company’s aim is to “become the global last-minute marketplace.” But how many people spend anything close to £35,000 a year on last minute purchases? The papers and business magazines are speculating openly about when the bubble will burst for dot.coms.

29.2.00. Texaco becomes the first American oil company to break ranks with the Global Climate Coalition. (The GCC is the oil industry’s main umbrella lobbying group on climate change. BP quit in the run-up to the Kyoto climate summit in 1997, and Shell soon followed them). The reason Texaco gives the press is that they want to speak for themselves on climate change now. They claim not to have have differences of opinion with the group. It will be interesting to see whether their strategy follows the BP and Shell route or the enduringly unrepentant greenhouse-threat denial and oil-focus of Exxon and Mobil. Texaco has long been a main feature of the carbon club. Their chief climate-change propogandist, Clem Malin, professed that global warming was a non-problem, yet he was allowed for years to head the International Chamber of Commerce’s delegations to the climate talks – a delegation that was supposed to speak for all industry sectors, including insurance, not to mention renewable energy. With this development, as Ozone Action, a Washington-based environment group, put it: “it seems like lying about global warming has finally fallen out of fashion in corporate America.”

1.3.00. The price of oil reaches $30 a barrel, the highest it has been since the Gulf War ten years before. The Business Week headline reads: “It’s still too early to panic at the pump”. Others disagree. The three post-war recessions all happened after the price of oil exceeded $22 (the Yom Kippur War in 1973, the Iran/Iraq War in 1979, and in 1990 after the Iraqi invasion of Kuwait). The year 2000 price rise - a trebling in twelve months - is as rapid as the 1979 one. Yet even at $30 for a 27-gallon barrel - including the costs of transporting the stuff round the world - oil works out at a mere 13 cents a pint.

5.3.00. New scientific evidence from Greenland shows half the ice cap melted 125,000 years ago. Analysis of oxygen isotopes in the ice cap suggests that 125,000 years ago the air temperatures there were 8 degrees Centigrade higher there. Half the icecap melted, causing sea levels to be 5 metres higher than today.

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“The bottom line is this. If you’re not heavily investing in tech these days, you’re out of luck.”
Business Week

March 2000

einsurers announce that 1999 was second worst year ever for catastrophe losses: $22 billion in global insured losses, from 755 significant natural loss events, according to Muncih Re and Swiss Re. The long time average is 600 per year. The second highest number, 705, was in 1998. There were seven loss events of over a billion dollars. And as with every other year so far, no cyclone hit a coastal city.

Mozambique’s economy is brought to its knees by floods. A cyclone has hit a coastal plain better known for its droughts. The evening TV news has shown white South African soldiers dangling upside down below helicopters plucking drowning black people from the water. “There will be economic and environmental holocaust,” a Mozambique politician said. But the holocaust won’t figure in this year’s insured losses, of course. Most people people affected can’t buy insurance.

12.3.00. Business magazines exhort people to get wise to the wonderful opportunities of the dot.com era. The “new economy”, they call it. “The bottom line”, according to Business Week this week, is this: “… if you’re not heavily investing in tech these days, you’re out of luck.”

15.3.00. BP Amoco takes over Burmah Castrol in mid March and tables a further bid for Arco. Sir John Browne is pictured in all the papers, looking urbane – the most successful oil industry boss for decades, they call him, after he bought Amoco in August 1998 (the largest industrial merger in history). He gives a rare in-depth interview in Fortune magazine, which gives an insight into the way he is able to combine best-of-sector corporate environmentalism with standard blue-chip investor-return maximisation. Global warming is a real problem, he says, and describes how BP decides to begin to take immediate precautions. “At that moment I think I opened up a new way of thinking about our business,” he reflects. Asked about the ultimate goal of his environmental policies, he replies: “In the end its just good business.” People, governments and staff want to associate with companies who act on the obvious. “The big thing is to get the time right. Our ambition is always to be ahead of the curve, though of course you can be too far ahead.” He professes not to worried by oil and gas supplies. “There are many things to worry about, but running out of hydrocarbons isn’t one of them.” So what about the timing? “For the foreseeable future – at least for the next ten years – hydrocarbons are going to be the main energy source in the world.” But after that, solar will begin to make real sense. “In 50 years, it will make very, very great sense.”

Greenpeace establishes a protest camp a mile from BP’s Northstar oil rig in Alaska, the first ever offshore drilling operation in the Arctic. This development Greenpeace has designated as the metaphorical line in the sand – a bridge too far in a world committing suicide. They are braving temperatures of minus 42 degrees C in two survival huts. BP, meanwhile, is dragging 50,000 truckloads of gravel six miles offshore to create an artificial island capable of housing 30 wells. They plan to invest $500 million in getting the oil out.

24.3.00. Shell pulls out of PV in UK. Note from the then country manager: “This is the result of a global ranking exercise carried out internally that concluded Shell resources would at the present time be more effectively deployed in other PV markets.”

26.3.00. US National Oceanic and Atmospheric Administration finds warming deep in the oceans: down to depths of as much as 10,000 feet over the last 40 years. Their analysis of 5 million readings from 1948 to 1996 is published this week in Science magazine. “Unfortunately for all of us, it shows that the modellers are still in the ballpark,” says the team leader. “If either the ocean or the Arctic (sea ice) was going in a different direction from the air temperature record, it would give you pause. But it now seems that all three are acting in concert.”

An iceberg 295 km long and 37 km wide is in the process of breaking off Antarctica’s Ross ice shelf, scientists studying satellite imagery report.

Forest fires are raging across northern and central Portugal as a result of a freak heatwave that began in mid February. The fires are so bad that newspaper reports talk of a threat to the country’s ability to sustain itself.

1.4.00. The dot.com circus rolls on. One of the world’s hitherto most successful hedge fund managers, Julian Robertson, closes his investment company, Tiger Management, after his funds have lost $16 billion over the last 18 months. He had been betting on what the business pages are calling “old economy” stocks. The surge of the tech stocks – now dubbed “new economy” stocks – has left him stranded. Robertson tells the press he is no longer willing to risk his investors’ money in a market he no longer understands. But, he warns, hi-tech stocks are creating “a pyramid destined for collapse.”

5.4.00. Stock exchanges wobble as investors show first fear that the dot.com boom is over. The Nasdaq Composite index of tech stocks loses 13.6% of its value at one point. The White House issues a statement discounting predictions of an economic crisis, and rejecting allegations that the Department of Justice’s pursuit of Microsoft over monopoly behaviour has anything to do with the loss of confidence in the “new economy” stocks. By the end of a day of wild fluctuations of share price, with computer systems threatening to crash, the overall loss on Nasdaq is only 1.8%.

7.4.00. House of Representatives approves a bill to investigate whether methane hydrates can be exploited as an energy source. The budget would be $50 million. A source of greenhouse gas at least twice the size of all fossil fuels left on the planet, a source we know to be unstable - at risk of releasing methane in hundreds of millions of tonnes if warmed up - and many American politicians want to take it out and burn it.

13.4.00. At BP’s AGM , fully 13.5% of all shareholders support a resolution to stop Alaskan drilling and put the capital saved into solar. Holders of a collective £8 billion worth of shares, 1.5 billion ordinary shares, vote for the resolution. 0.45 billion abstain, and 9.54 billion vote with the directors. Sir John Browne and his directors put a resolute face on it. They won a majority, they say, and are planning to expand solar anyway. Non board-originated resolutions typically get only 3-5% of the vote, and even these have helped force great companies to change policy. Browne says he intends solar to grow at 30% per year in BP, but that is below the growth rate of the global market. In Germany, the 100,000 solar roofs programme is taking off.

1
“We had greed, now we have fear.”
Financial Times

Front page headline

April 2000
4.4.00. Wall Street takes its biggest one day fall in history. A high oil price and clearly puffed-up valuations for companies with no proven profit-making capacity is too much finally for investors. The $2 trillion nosedive affects everything – technology-based Nasdaq, blue-chip Dow Jones and broad-based S&P500 all had their biggest ever falls. $2 trillion is equivalent to the entire German economy. The figures are mind boggling. Although it is perhaps most worrying that blue-chip “old economy” stocks fall so far, technology of course takes the biggest hit. Nasdaq loses a quarter of its value - almost all the value accreted since last October, with a 25% fall this week alone, 10% today. Microsoft loses $239 billion, or the equivalent of the Belgian GDP, Cisco $167 billion, the equivalent of Poland’s GDP, Intel loses $100 billion, the equivalent of Ireland’s GDP. An analyst quoted on the front page of the Financial Times summarises well: “We had greed, now we have fear.”

17.4.00. Anti-globalisation protestors close Washington for six hours. A human chain of 6-10,000 people stopped finance ministers getting to their meeting with the IMF and the World Bank. The protestors seek to repeat the anti-globalisation protests of November 30^th last year, where the World Trade Organisation meeting in Seattle saw the biggest demonstration since the Vietnam war. 100,000 people protested peacefully until a few masked activists hijacked events, provoking American riot police dressed like science-fiction stormtroopers into predictably violent over-reaction.

22.4.00. Earth Day: hundreds of thousands of people express their concern about the global environment at demonstrations and other events around the world. Al Gore has had his 1992 book, Earth in the Balance, reprinted. In a new foreword he spiritedly defends his view that global warming amounts to a global environmental crisis, and that among the measures needed to deal with it, the internal combustion engine needs to be phased out within 25 years. Gore’s environmental views are still widely viewed as extremist in the USA. Even in the UK, conservative organs tend to heap scorn on him. A review in the Economist reads: “if Mr Gore believed the anti-capitalist, anti-individual, anti-liberal, eco-fundamentalist nonsense he pours out in this book, the possibility of his election to the White House would be truly frightening to contemplate. Mercifully, though, as his proposals show, he doesn't.”

The first three months of this year have been the USA’s warmest in all 106 years of records. Dire droughts are building up over fully a quarter of mainland America, including the breadbasket states. The last time this happened, in 1988, the economic losses exceeded $40 billion. The worst-hit is Bush’s home of Texas. America is not alone. Terrible droughts are afflicting large areas of India and Africa. It hasn’t rained in Rajistan for three years now. Elsewhere, the rains are also breaking records. Mozambique is still clearing up after the floods that have wrecked its economy. Record downpours in eastern Australia have been followed by a locust swarm 100 billion strong that is eating everything in its path.

The Western Fuels Association files a law suit against environmental groups for taking out an advertisement attacking coal burning. The CEO of this coal lobby group, Fred Palmer, says “they are attempting to portray electric power generation from fossil fuels as a significant health risk, while in fact the opposite is true.”

10.5.00. “BP bows to solar power pressure,” a newspaper headline reads. The article quotes a high-level BP source as saying that the shareholder revolt has convinced BP to spend more on solar.

11.5.00. Royal Commission on Environmental Pollution says 60% CO2 cuts by 2050 needed to avoid disaster, and recommends that UK energy policy be based on this target. The media reports this as a revelation, but it is not new. It was clear as long ago as 1990, in the first report by the Intergovernmental Panel on Climate Change (IPCC), an international body of several hundred scientists set up by the UN in 1988. That report was so alarming that it kick-started governments into negotiating the Convention on Climate Change. When governments signed the convention at the Rio Earth Summit in 1992, the objective they signed up to was to stabilize atmospheric concentrations at levels that posed no dangers to economic wellbeing and the ability of ecosystems to adapt. Everyone understood at the time that such a tough goal would have to involve deep cuts in emissions eventually, because the IPCC First Scientific Assessment had showed that this is would be needed in order to stablize atmospheric concentrations of the gas.

Sixteen of the world’s national academies of science issue a statement on global warming, around this time, directing themselves at America. The IPCC is “the world’s most reliable source of information on climate change”, they say. They endorse its conclusions. “Despite increasing consensus on the science underpinning predictions of global climate change, doubts have been expressed recently about the need to mitigate the risks posed by global climate change. We do not consider such doubts justified.”

12.5.00. Stephan Schmidheiny decides to invest £6.1m in Solarcentury, on a business plan aiming to create the best brand of solar installation and product development within five years. The £1.9m he invested in 1999 was about to run out.

18.5.00. First collapse of an internet retailer: Boo.com. Having raised and spent £135 million from private investors, it can raise no more, and has to call in the liquidators. The young entrepreneurs running the show have been burning over a million pounds a week. Their aim had been to launch their internet clothes brand simultaneously in 18 countries, for which they needed huge marketing spends and a payroll of 400. It took Boo.com six months to find a good CFO, during which time there was essentially no financial control, and four months to find a Chief Technology Officer, meaning they had to delay the launch of their website. When they found the right people, it was too late.The FT reports surveys showing that 51 of 207 US internet companies will run out of cash within a year, and 25 out of 28 UK-listed companies will burn through their existing cash by August.

BP Amoco hire MI6’s former director of security and public affairs – a spymaster, in other words. He takes up a vice presidency, but the press report doesn’t say in what. His previous job involved attempting to suppress the memoirs of former MI6 officers.

1.6.00. The German solar market is exploding. On 1^st April, the new German Renewable Energy Law entered force. From that day on, solar generators are guaranteed a feed-in tariff for 20 years of 99 pfennigs (about 35 pence or 50 cents) per kilowatt hour for exported electricity. The market is moving just as fast in Japan, where the target of the government’s 70,000 roofs programme is working well. The UK, meanwhile, has a 100 roofs “field trial” programme.