Triple Crunch Log Jeremy Leggett

14.10.07. Climate change message not getting through on UK high streets, survey shows. More than two thirds of people can’t name a brand taking a lead on climate change, a Climate Group opinion poll shows.

Climate change denier Lord Monckton plans to make a film and send it to schools. The film will be in the style of Gore’s and will be send along with a version of Durkin’s film edited to remove “a few errors”.

15.10.07. Oil price breaks $86 on fears of conflict in Kurdistan. This new record doesn’t make the front page. Turkey seems to be planning an offensive against the Kurds inside Iraq.

Industry insiders voice fears that Qatar may not be able to lift gas exports beyond 2011. As the largest exporter of LNG, that would be a disaster for many plans. The government put a moratorium on new LNG projects in 2005 after fears emerged that the vast North Field was not as productive as originally thought, pending a geological review due to be complete 2010. Industry insiders now fear expensive compression technology will be needed to squeeze out gas. The IEA estimates that Qatar will provide 20 per cent of the global supply of LNG by 2010, and that LNG will account for up to 16 per cent of global gas demand by 2015.

Deforestation speeds up in Amazon as cropland demand increases. President Lula Da Silva’s restraint mechanisms are not working, satellite data show. There was a 200% rise in deforestation in Matto Grosso between May and July 2007. The President of Rural Workers Union in town of Novo Progresso, Agamemnon da Silva Menezes, says that if Bush can invade Iraq for financial interest, who is to stop loggers from invading the rainforest? Where is Lula going to get 30,000 soldiers from to the police his ban, Menezes taunts.

16.10.07. UK considers claim to Antarctic seabed in case oil exploration should be allowed in future. “This has been under consideration for many years,” an FCO spokeswoman says, which will not affect the ban explicit in the Antarctic Treaty of 1991. “It would be a claim in name only, we wouldn't act because doing any mineral exploitation contravenes the treaty.”

The five Caspian states meet in Tehran to squabble over how to divide Caspian oil and gas. Much depends on whether the Caspian is a sea or a lake: if the latter, the shoreline divides the spoils, and Iran misses out because Russia and the three former Soviet republics with coastlines (Azerbaijan, Turkmenistan, and Kazakhstan) get most. No agreement was reached.⁸⁶ Russia and Iran did agree that Lukoil could help out in the Iranian oil sector and Gazprom in the gas sector, developing the South Pars field. Putin also proposed a canal to connect the Caspian and the Black Sea, as a means to combat the Baku-Tblisis-Ceyhan pipeline.⁸⁷

UK government warns rising obesity epidemic in the UK rivals climate change. “We are facing a potential crisis on the scale of climate change,” says health secretary Alan Johnson.

18.10.07. T. Boone Pickens, US oil tycoon, says global oil production has already peaked. Last month, Pickens predicted that oil would reach $100 a barrel after falling to $78. On Oct 8^th, futures in New York dropped to almost $78.35.

19.10.07. Oil price breaks $90, once again without making front page news. Chancellor Darling calls on OPEC to lift production. UK motorists may soon face £1 a litre, up from nearly 98p now.

Ten year study in North Atlantic shows oceans are taking up less CO2. 90,000 measurements made for the University of East Anglia on merchant ships show that the uptake halved between mid 1990s and the period 2000-2005.

Kansas regulator turns down a coal plant solely because of greenhouse gas. Roderick L. Bremby, the secretary of the department of health and environment, says “I believe it would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing.” He cites the Supreme Court ruling of earlier this year, Massachusetts v. EPA, which found that carbon dioxide was a pollutant and could be regulated.

22.10.07. German Energy Watch group report puts peak oil in 2006, based on a study of global production. “The most important finding is the steep decline of oil supply after peak.” The rate will be several percent per year. NB: Between 1960 and 1970 the average size of new discoveries was 527 mb per new field wildcat. Over the period 2000 and 2005 this has declined to 20 mb. IHS says the ME has 677 bb of proved reserves, but EWG estimates only 362. Giants are defined as having an ultimate recoverable reserve (URR) of 0.5 bb or more or have produced more than 100,000 b/d for at least a year. There are 507 such fields (i.e. about 1 percent of all known fields) which cover 60-70 percent of known reserves and about 45 percent of current world production (this is based on the work of Frederik Robelius in a PhD thesis finished in 2007 at the University of Uppsalla: all numbers for 2005). Today there are some 43,000 known oil fields.⁸⁸

22.10.07. Architect of German feed-in law warns UK is trying to derail EU renewables target. They are lobbying for a certificate scheme, with support from France, which would make feed-in redundant. The German feed-in came in 2000, with parliamentarians aiming to go from 6% in the energy mix to 12% by 2010. They are already at 14% of electricity demand in 2007. They have created 200,000 jobs. Wind power is 30% cheaper than in the UK. Note from German Government study: The cost of the feed-in for all renewable energy technologies was less than €3 a month for the average household in 2007. The PV element was €1. The PV tariff will fall, on current trends, from €c43 today to 22 in 2015.⁸⁹

Worldwide use of drilling rigs flat between Jan 2007 and September 2007. Data in the OGJ show around 3,100 rigs on average.

23.10.07. BERR intends to tell Brown today that renewables targets should be abandoned. Leaked papers show that Secretary of State for business John Hutton will tell Brown that hitting 20% by 2020 faces “severe practical difficulties.” We should therefore join Poland and “help persuade” Chancellor Merkel to set lower targets before binding commitments are agreed in December. The paper admits the task will be difficult and controversial. BERR calculates that it would take £4 bn to reach 9% (up from 2%) by 2020. The issue is due to be discussed in Cabinet next week.

26.10.07. Oil price crosses $92 as US issues sanctions on Iran. They believe the Revolutionary Guards are active in Iraq. EIA also says US stocks fell by 5.3 mb last week.

UK government’s aim in North Sea is merely slowing decline from 8-9% to 5%. So says Energy Minister Malcolm Wicks. Last year production was lowest since the first major production year in 1979.

Some British drivers turn to vegetable oil, which is as little as 55p a litre. Diesel now >£1 a litre and petrol 98p. Older engines (low-pressure engines made before late 1990s) can burn vegetable oil pure or mixed, provided owners don’t mind the chip-shop smell. The tax rules say you can burn up to 2,500 litres a year without being taxed. See www.vegetableoildiesel.co.uk.

28.10.07. Saudi Arabian $600 bn infrastructure investment programme well under way. The $624bn (£304bn, €434bn) was launched in 2006. It will embrace thousands of kilometres of new roads and railways; billions of dollars of water, sewerage and electricity plants; and 4m new housing units over the next decade. $320bn will be needed for housing through to 2020, the kingdom’s investment authority says. McKinsey estimates that infrastructure investment in the kingdom is now 30-35% of GDP, compared to around 17% historically. Note: population is 24m.⁹⁰

30.10.07. Sadad al-Husseini says peak oil is here: “We are already three years into level production.” Speaking at the Oil and Money conference in London. He says reserves are inflated by about 300 bb and that Saudi Arabia might be able to hit 12 mbd but not much more. Also, Libya's National Oil Corporation chairman Shokri Ghanem, says: “there is a real problem - that supply may not be possible to increase beyond a certain level, say around 100 million barrels. The reason is, in some countries production is going down and we are not discovering any more of those huge oil wells that we used to discover in the Sixties or the Fifties.”⁹¹

Fears grow of UK energy crisis this winter with 5 nuclear plants out of action. The National Grid warns of a shortfall in electricity-generating capacity and calls for an extra 300 megawatts of power to cover any unexpected surge in demand. Prices are now 40% higher than in continental Europe after news that less gas than expected can be imported through a pipeline from Norway. A vital import plant in South Wales due to be operational this winter won’t be. 5 nuclear plants run by British Energy are out of action due to safety concerns. North Sea gas is depleting faster than expected.

IEA chief economist says IEA will review use of USGS resource estimates. 2008 World Energy Outlook will look anew at the data that growing numbers of analysts fear build in over-estimation of resources.

1.11.07. Listed renewables companies soar in number and value. Citigroup shows there were 20 in 2004 with <$50 bn total market value (solar, biofuels, wind and fuel cells), and 169 by November 2007 (67 of them solar) with almost $180 bn market value. Over $100 bn market value is in solar. Global revenues in the four categories will be around $170 bn by 2015. $38 bn investment went into all renewables in 2005.

Price of oil breaches $96, and is still not on the front pages. ODAC reports an “almost total lack of interest by society.” Prices are still below the $101 high reached in November 1980. Reasons cited by BBC: the weakness of the dollar, Turkey/Iraq, Mexico, Nigeria: nothing at all about the drawing down of OECD stocks, the supply or the infrastructure problems of the industry.

Floods in the Mexican state of Tabasco destroy all crops. 80% of the state is under up to 20 feet of water and half the 2.1m inhabitants have been displaced.

France announces plan to stop roadbuilding and new airport construction. Environment Monister Jean-Louis Borloo announces that high speed trains and trams will be the focus. This is world’s apart from British plans.

2.11.07. Beijing raises the pump price of petrol and a queue-jumper is shot dead in Henan. The increase (i.e. cut in subsidy) is 10%.

The tiny proportion of UK electricity consumers on a green energy tariff is actually falling. Only 350,000 of 26m households (1.3%) are on green tariffs. But with a third of UK emissions coming from power plants, electricity is the biggest source of emissions. BG’s impressive Zero Carbon dual fuel deal has attracted only a few hundred customers since launching in July. The premium for going zero is only £86 pa.

FAO warns that a global food crisis is looming as prices soar. We now have 18% food price inflation in China, 13% in Indonesia and Pakistan, and 10% or more in Latin America, Russia and India. Wheat has doubled in price, maize is nearly 50% up on a year ago, rice 20% up. Cereal stocks, declining for more than a decade, now stand at around 57 days, one international crisis away from disaster.

3.11.07. Credit crunch takes first Wall Street boss down as Merrill Lynch CEO resigns. Stan O’Neal presided over a $7.9 bn write down, and it could grow. UBS CEO has already gone after of $5 bn of failed hedge funds. (Check date).

Allianz sets up a Climate Solutions division to offer financial products addressing global warming. It will look for investment opportunities and products ranging from insurance to renewable energy fund investment and tradable assets.

4.11.07. Credit crunch is worst ever, economics correspondents fear. Will Hutton says “worst in 30 years” in today’s Observer. Banks are supposed to keep £8 of their own money for every £100 they loan, and are starting to fear each others’ indebtedness, so hold back to be sure of the £8. The Bank of England has now thrown £40 bn to the first UK casualty, Northern Rock, and that could end up as £50 bn. That would be 5% of UK GDP. So much for free-market fundamentalism, Hutton argues. It’s dead now. “Governments will have to devise new forms of regulation and control. Banks may have to be taken into public ownership.” James Doran in the Observer: “What is to stop the devaluation spiral from continuing until the world is forced to admit that the $400 bn or so of debt-related securities sloshed around out there is worth absolutely nothing at all?”

5
“As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
Chuck Prince,

CEO, Citigroup

July 2007

.11.07. Second big-bank CEO casualty: Citigroup CEO resigns. Chuck Prince had said in July that there was no chance of Citigroup being hit: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” His write off stands at $5.9 bn. Analysts reckon the final worldwide losses could be $100 bn plus. Alistair Darling warns that the UK has entered “an unparalleled period of financial uncertainty.”

Petrochina replaces ExxonMobil as the biggest quoted company by market cap. Jonathan Stern of Oxford Institute of Energy Studies says that the IOCs are in trouble: “their business model is now highly questionable.” PFC estimates that only 7% of global oil and gas reserves are freely available to IOCs, with another 16% held by Russian companies, 12% by national oil companies prepared to offer equity access and 65% by NOCs that offer little or no equity access.

Oil futures trading at $100 soars. Nymex December 2010 call options at $100 a barrel rise to 24,903 contracts, double the level of the start of the year. $120, $160 and even $250 a barrel also rise. There are over 48,000 contracts for $100 oil in December 2007.

A Platts survey shows oil majors’ production falling fast in third-quarter. Global production of oil liquids at seven majors is down 6% on last year, 664,000 b/d lower: ExxonMobil, BP, Shell, Chevron, ConocoPhillips, Eni and Marathon. 2006 was the third consecutive year in which the major oil companies failed to replace production.

Developers review faltering gas-to-liquids projects: only 6 underway or construction. IEA lists 5 cancelled, or “postponed” (including the 3 in Qatar where there is a moratorium until 2012).

More than half top 100 UK FTSE firms still do not report plans to cut carbon emissions. Sir Terry Leahy: “Too few organisations - governments or companies - are alert to the challenge climate change poses.” By working with consumers, “we can turn the green movement into a mass movement.”

MORI survey shows environmental protection is top public policy priority. 45% polled say that it should now be the highest priority for business. 80% now say that a company's environmental reputation would affect their purchasing decisions. 40% say that social responsibility is very important to those decisions.

Jim Hansen testifies to the Iowa Utilities Board: coal is the biggest climate problem, he says. He has been in trouble for likening coal trains to the gas chambers of the holocaust. Today he presents the technical reasons why he chooses that analogy.

Swaziland, in the grip of famine, recipient of emergency food aid, is to export biofuels made from cassava, one of its staple crops. The world’s 850 million motorists are increasingly coming into conflict with the 2 billion-plus poor in a fuel versus food competition.

Ryanair boss calls climate change “a middle-class mid-life crisis” as he announces record profits. Michael O’Leary says he can double passengers from 40m last year to 80m five years from now.

6.11.07. Oil crosses $98 after Arctic storm hits the North Sea. Facing 11m waves and 110 kph winds, companies are evacuating rigs.

Fathi Birol says we have ten years to turn round global energy policy as the IEA’s World Energy Outlook 2007 is released. The message to the industrialised world is stark. “There is a need for an electroshock. We have to act immediately and boldly.” “China and India are transforming our energy markets. We have a window of opportunity of 5 to 10 years before it becomes unsustainable and irreversible” in terms of greenhouse emissions. In the next year, China on current trends will install 800 gigawatts of power-generating capacity, around as much as Europe now has. To meet oil demand by 2030, OPEC will have to double supply: from 46 mbd now to 61 mbd by 2030.⁹²

Sea Shepherd threatens to disrupt iron fertilization experiment off Galapagos. Planktos, a company set up to try and benefit from carbon credits, has put a ship to sea from Florida – Weatherbird 2 - aiming to dump iron in the ocean and see if phytoplankton blooms are stimulated.

8.11.07. Big oil find off Brazil relaxes supply fears. It may be 8 billion barrels, which would be 40% of all oil ever found in Brazil, making 20bn in reserves. But as the FT points out, the Supi Tul field will be barely enough to supply China for a year by 2030.

As LNG constraints bite, the industry “will need a new Qatar” to meet growing demand, says analyst. The IEA says LNG will need to meet 16% of global gas demand by 2015, but cost impediments, political insecurities, security fears and environmental challenges make this daunting. No final investment decisions for any LNG project were taken in 2006, the first such year since 1998. Some $40bn of gas produced alongside oil is burned off globally as a result of absent networks, mainly in Russia and Nigeria. Qatar faces a moratorium on development and Indonesia, the world’s largest LNG exporter until last year, has also been cutting deliveries because of slower than expected reserve replacement. Says Frank Harris, an LNG expert at Wood Mackenzie, the energy consultants: “Even assuming that the current tightness in the LNG market is worked out in the next few years, the industry needs a new Qatar in order to maintain growth.”

UK nuclear decommissioning plans in disarray as NDA slows reprocessing at Sellafield. The reason is soaring costs. British Energy’s shares fall 10%. The NDA has a £8.5bn budget from the Treasury for the next three years: not enough, it says, to deal with a total clean-up bill of £73bn, an estimate 16% higher than the one given a year ago. Unions fear lay offs.

Former Shell Chairman says a CCS industry will be worth a trillion dollars one day. Lord Oxburgh says it will be as big as the oil industry. Climate Change Capital calculates that the carbon offset price will be between $40 and 90 per tonne. Maybe 2,000 power plants will be built or revamped in the next 20 years, on current energy predictions. The US may have a commercial CCS plant by 2012. Australia hope to have a demo plant in Queensland by 2011. CCS plants cost around $1 bn. Norway is the only one targeting gas.

9.11.07. Many blame the surging oil price on speculators, but NYMEX traders deny this. On the cavernous trading floor of the NY mercantile exchange, where benchmark prices have surged 45% in six months, a trader summarises the mood: “speculation is less than 10% of the whole price. Geopolitics, technical factors, fundamentals and supply constraints are what really drive the market.” There is already a market to buy and sell at $150. Others seem to disagree that price will ever get that high. Trader Chris Motroni says: “in order to get to levels of $150 or $200 you really need serious instabilitiy in the Middle East – you need a real war.”

Eastern England narrowly escapes a storm surge disaster. Gale force winds coincide with a high tide as was the case in the 1953 disaster. Thousands of homes are evacuated, the government’s emergency committee (Cobra) meets twice, but flooding is not too serious as major defences hold.

10.11.07. OPEC made a record $658 bn (€448 bn, £315 bn) last year. It will probably reach $762 bn in revenues this year.

Kansas Governor turns down a coal plant licence and is attacked in an ad by power companies. The ad shows Putin, Chavez and Ahmadinejin smiling, and asks “Why are these mean smiling? Because the recent decision by the Sebelius Administration will import more natural gas from countries like Russia, Venezuela and Iran. The choice is simple...clean coal from Middle America versus expensive gas from the Middle East.”

11.11.07. Saudi oil minister rejects talk of an oil crunch, saying it is harming market. Scepticism is helping speculators and “doing a lot of damage to the stability of the market”. “Why are people so pessimistic?” Saudi Arabia has a production capacity of 11.3m b/d and is pumping only about 9m b/d, he points out, and has a 500,000 bpd field (Khursaniyah) due on early in 2008.⁹³

Opec says it will seek assurances from biggest consumers that they will maintain their demand This assurance is needed if they are to yield to pressure to boost investment in production capacity. The call will be made at the third OPEC Summit in Riyadh this weekend. Opec crude oil revenues are set to rise to $658bn this year, an increase of almost 9 per cent from 2006.

12.11.07. Europe sleepwalking towards gas dependence, Eni Chief Executive says. Paulo Scaroni tells the Financial Times that the emerging depenency on imports is “staggering.” Europe is importing 60% and counting. Currently the main sources are Russia, Algeria and Norway.

13.11.07. Cost of Iraq and Afghanistan now stands at $1.6 trillion (£800 bn). That is $20,000 for every family of four in the US. A congressional committee did the totting up, including indirect costs such as healthcare, interest on debt to finance the military, and oil market disruptions.

Milk, eggs and sugar increasingly unavailable in Venezuela despite oil boom. Basic food vanishes from many shops as imports of luxury goods soar. Price controls are causing shortages, an industry groups says. This is the “oil curse” at work: producers become flooded with cash, which makes it cheaper to import than make.

Saudi oil minister derides “confused” thinking by pessimists on oil supply. On the eve of the third OPEC Summit (first was in 1975), Ali al-Naimi also says SA wants a positive role on climate change, but no “discriminatory” taxes on oil.

Shell to continue gas hunt in Saudi Empty Quarter despite three dry wells. “We will complete our plan to drill seven wells,” Shell Saudi Arabia Country Chairman Robert Weener tells Reuters “This is an area the size of the UK. You can't just drill three wells and say there's no gas.”  Four consortia of European, Russian and Chinese firms are exploring for gas in Saudi Arabia's Empty Quarter, having been awarded licenses in 2003 and 2004. None has found commercial quantities of gas.

14.11.07. OPEC says high oil price is not a weapon. Secretary-General El-Badri says the high price hurts everyone. The real causes are led by lack of investment in refining capacity and the low dollar. A decision will be taken on whether to lift production in December. $150 bn needs to be invested in OPEC oil fields to meet soaring demand in the next 8 years he says.