Triple Crunch Log Jeremy Leggett

Flooding and high winds become one of the biggest causes of business disruption in the UK. A Chartered management Institute survey shows almost one in three organisations were affected last year, making extreme weather a buigger threat to businesses than supply chain disruption, loss of key staff, or bad publicity.²⁷⁸

Gulf states target gas flaring reduction. Qatar, Kuwait and Oman are expected to sign up to World Bank flaring-reduction programme. The Gulf flares some 30bcm a year, equal to 900,000 bd or $10bn a year. In most cases other uses can be found “economically.” The UAE has the highest percapita drain on resources, says WWF. It has a gas shortage despite being the fourth largest gas producer in the world. Annual gas flaring globally: 150bcm, the equivalent of 400m tonnes of CO2, around the same as all 3,000 current CDM projects.²⁷⁹

Rift in US evangelical movement on global warming widens. More than 40 leading Southern Baptists have issued a declaration denouncing the denomination’s stance and saying it leads to the movement being seen around the world as “un-caring, reckless and ill-informed.” “The time for timidity regarding God’s creation is no more.” The Southern Baptist Convention is the second largest American denomination. Younger pastors are behind the rebellion.²⁸⁰

UK military costs in Iraq and Afghanistan double to more than £3bn. The total since 2003 is around £10bn. Most of the huge increase is for equipment.²⁸¹

11.3.08. Prices paid for oil in M&A deals was unchanged in 2007, survey shows. The J.S. Herold report shows that M&A is becoming increasingly difficult for IOCs, with North America being the most active market i.e. they buy where they can not where the prospects are best. Profitability in the industry is taking a dive. The average price paid for a barrel of proven reserves worldwide in 2007 fell from $13 to $10. In 2008 so far, while the oil price has risen 14%, ExxonMobil shares have fallen 10% and Shell’s 19%.²⁸²

12.3.08. Oil breaks $110 as dollar plumbs new depths. Goldman Sachs advises clients to sell the May 2008 contract and buy December 2010 futures, which as trades as high as $99.45 on the day. Dollar below $1.55 to €1.

UK budget, billed as the greenest budget ever, “tinkers at margin” with climate change. So say the NGOs. KPMG says the measures, centring on taxing polluting vehicles, might reduce GHG emissions 5% by 2015, way off track, while raising well under £2bn pa. The proportion of revenues being raised by green taxes actually falls marginally in 2008-9. KPMG’s head of environmental taxes and incentives says: “it is still very unclear how the vast majority of carbon reduction will be achieved.” In buildings, new office buildings will have to be zero carbon …..by 2019.²⁸³ See JL blog. Note: Income £575bn, incl. £106bn in income tax. Out: £618bn (i.e. £43bn deficit), incl £169bn social protection, £111bn health, £82bn education, £33bn defence, £31bn debt interest. Ofgem Chief Executive Alistair Buchanan says that of the average annual gas and electricity bill for homeowners of £1,000, £80 is for environmental costs (emissions trading scheme, RO), and “that is only going to go one way – upwards.”²⁸⁴ Environmental taxes as a proportion of total receipts: nearly 10% in Netherlands and Denmark in 2005, up from 1996; less than 7% in UK, down (fully 1.68%) from 1996 (OECD data quoted in Economist).²⁸⁵

13.3.08. Nigeria seeks to set aside up to 30% of gas production for domestic use in chronic power crisis. The FT’s man in Lagos sees a new policy document calling for action to “prioritise domestic gas supplies over export.” An official says that producers might be required to set aside 25-30% for this purpose. This at the same time as the president is seeking $20bn in new investment, and facing scepticism in companies, who can’t see hwere the profitability would lie compared to LNG. Companies and officials alike play down the risk to exports of course, saying that there is plenty of gas: Nigeria has the seventh biggest reserves in the world, and still flares five times more gas than it uses for power generation. Gazprom, Eon and Centrica are all keen to get into Nigerian gas. Note: Nigeria has only one LNG export terminal.²⁸⁶

Russia and Ukraine reach gas deal and end deadlock ….for now. The original Yushchenko-Putin handshake deal stands in terms of middlemen cut out. Now Gazprom gets 25% of Ukraine’s industrial gas market, which consumes 30bcm pa. Gazprom is free to put the price up above the $179 per thousand cm agreed for now, a development which it describes as inevitable.²⁸⁷

14.3.08. UK Coal recruits old miners back into the industry. In 1947 when the industry was nationalised there were a million men in a thousand pits. Now there are 5,300 men in six underground mines and 24 surface mines. In the underground mines so much has been mined since they opened that men can travel more than an hour to get to the coal face. What do they like about it? Reece: “The lads I work with are absolutely brilliant, its a good laugh, and most of all the money.” (Four times the equivalent labouring in the construction industry). George Hopton: “There’s nothing more satisfying than going up and saying we produced that amount of coal today. It makes you feel good.” Note: Coal generates >a third of UK electricity. 60% is imported, including from Russia, South Africa and Columbia (50m tonnes in 2006 at a cost of £2bn, vs 16m mined in UK).²⁸⁸

Canada protests a new US law that could put a halt to American tar sands imports. The Energy Independence and Security Act of 2007 stipulates that federal agencies can’t buy alternative fuels if the carbon emissions involved their production and use amount to more than those of regular oil. Alberta’s tar sands do so: around three times more. Canada is America’s number one supplier of oil and wants to stay in that position. Canada’s ambassador in Washington has written to the US government informing them, in not so many words, of this desire. But meanwhile in Ottawa, the Canadian environment secretary unveiled proposals for a 20% cut in emissions across all industrial sectors, including the tar sands. Note: Canada’s emissions are now almost 35% above the Kyoto target. Also: if a Republican administration can put limitations on carbon-intensity of alternative fuels, what about a Democrat one?²⁸⁹

Merkel wins emissions concessions for German heavy industry. Gordon Brown and Jose Manuel Barroso, the head of the commission, brokered the deal. In return Brown won support for a scheme to use VAT rates to drive energy efficiency of appliances. The berman car, steel, cement and glass industries have been threatening to relocate if rivals in the US and Asia are not subject to emissions controls. So now Berlin wants these sectors excluded from the EETS after 2012 “if international negotiations fail,” i.e. if the US, China and India do not sign up for similar measures.²⁹⁰

NASA’s glacier guru says “the rates of change are way beyond what we predicted 20 years ago.” In the Amundsen Sea, where the Pine Island Glacier flows is accelerating, Robert Bindschdler tells New Scientist that “we don’t know what is going on.” “No one has been able to observe what is going on at the grounding line where the sea meets the ice.” Bindschadler wants to drill through the cracking ice and deploy instruments. “All the secrets of how glaciers thin and melt lie beneath this ice shelf.”²⁹¹

EU warns US that they must offset CO2 emissions or face curbs on flights to Europe. The Transport Commissioner makes this comment ahead of a second phase of negotiations on open skies starting in May. EU airlines must join the EU emissions trading scheme from 2012 (meaning an addition of up to a maximum of just £13 on return tickets as things stand).²⁹²

As Heathrow Terminal 5 opens, BA’s boss calls for a third runway, says green taxes on aviation are pure opportunism and calls Virgin’s biofuels initiative a PR stunt.²⁹³

Even in the midst of the credit crunch, carbon financing looks good. New Energy Finance thinks the US market for carbon emissions could reach $1 trillion, if the best of the current climate-change bill proposals in Congress makes it to law. Blythe Master of JP Morgan Chase points out that .”²⁹⁴he prize could be many times bigger if you add in derivatives. Recent signs of the times: Citigroup has pledged $50 bn in green investments over the next decade, including $31 bn in cleantech. Bank of American has become the first bank to say it will put a price on carbon ($20-40 per ton) when weighing loan requests from industry. Itr has committed $20bn to green investments, offers green credit cards (purchases on which earn carbon offsets, provides green mortgages ($1,000 cashback on energy-efficient homes), and gifts $3,000 to employees buying hybrid cars. BoA says it sees great potential in solar panel leasing. The Economist is bullish as a consequence: “Giddy oil prices…will only increase interest in alternative energy. There is strong social pressure not to sink back into old habits. This time the revolution looks to be for real.”²⁹⁵

15.3.08. 2006 glacier data shows fastest melt rate since records began, and probably for 5,000 years. UNEP chief Achim Steiner says this is now the “loudest and clearest” warning about climate change. Meanwhile, Blair leads a global team aiming to secure a climate deal with meetings in India, China and Japan. In a speech in Chiba he says: “Failure to act now would be deeply and unforgivably irresponsible.” “We’re talking about a revolution.” The key to that revolution, he adds, is to vastly increase the use of nuclear power around the world.²⁹⁶ The net retreat averaged 1.3m. From 1850 to 1970 it was around 30cm. From 1970 to 2000 it was 60-90, and since then has averaged over a metre. Lester Brown worries about the food supply for the hundreds of millions in glacier-fed river basins: 360m in the Ganges and 388m in the Yangtze. Note: melting glaciers now account for around a third of global sea-level rise, the other two thirds being thermal expansion.²⁹⁷

Lord Brown now has his chance to go “beyond petroleum” in a $16bn fund with a mandate to invest in renewables and oil both. “Climate change is our greatest energy challenge,” he has said recently. “It is also the world's greatest political challenge, requiring the kind of long-term, outward-looking political leadership last seen after the Second World War and an iron-clad partnership with business.” He became European MD of Riverside Holdings, the NY-based PE firm, last year, since when he has been a magnet for investors, building $16bn in two funds. How will he invest it, the Sunday telegraph asks.²⁹⁸

A wheat disease capable of destroying the global harvest has found its way from Africa to Asia. The fungus, Ug99, a virulent strain of black stem rust, is in Iran two years ahead of when research suggested it would get there. The breeding of resistant wheat varieties may be five years away, researchers fear. New Scientist first reported on the fungus in 2007. When a translated article was sent to top Chinese officials, they started a crash programme to breed resistance. Western governments have not been so galvanized.²⁹⁹

16.3.08. Credit crisis claims first American bank: Bear Stearns, 5th biggest investment bank, sold for $230m (£114m). JP Morgan Chase bought it, and if it hadn’t done so Bear would surely have gone bankrupt. It was worth $140bn last week. The Fed also had to step in, agreeing to stand behind up to $30bn of Bear’s less liquid assets: the first time the central bank has seen fit to bail out a brokerage firm since the 1920s. Bear had $11.8 of capital and $395bn of debt, a leverage of more than 30^{. 300}

Carbon trading begins on Nymex today. A number of instruments including futures will be traded. opening a second front to challenge London’s supremacy to date. Note: GHG trading was worth some €63bn last year. Almost three quarters is under the EETS: 2.1bn permits for one tonne of CO2 each issued to European heavy industry. One tonne trades for €22 today. The threats to trading are political: that governments will not agree a post-Kyoto regime and see Merkel move yesterday.³⁰¹

UK government figures hide scale of emissions, National Audit Office report says. The true figure is 77m tonnes of CO2 higher, some 12%. The government presented 656 mt to the UN for 2005, and 722mt in its own national environmental accounts. The latter include aviation and shipping. The former figures allow the government to claim a small reduction - which it does - the latter don’t. Predictable cries of cheating arise from NGOs and opposition. Note: BY 2010, the UK target is a 20% CO2 cut. By 2012, our Kyoto GHG target is 12.5%.³⁰²

Every oil futures contract until end 2016 finished last week above $100. Since September, the five-year forward price has risen 45%. Analysts speak of a shift in sentiment. One refers to “in-grained supply side concerns.” These include rising inflation, increasing taxes in the producing countries, and the shutting out of IOCs by NOCs. No peak production mentioned yet.³⁰³

UK NDA looks to Sweden for advice on how to dispose of nuclear waste. They choose a site later this year after years of research at eight sites. It will cost £1.2 -1.6bn and take eight years to build. They ask regions to volunteer and the UK plans to do the same (i.e. Sellafield). The Swedish underground research site is in granite, needing constant pumping. To contain the waste for 100,000 years, the final repository will contain spent fuel in 6,000 25 tonne cast-iron and copper canisters buried in clay lined vaults.³⁰⁴

With regular oil reserves replacement slumping to just 17%, Shell strategy majors on tar sands. At his annual strategy meeting, van der Veer majors on the fact that Shell has replaced its reserves in terms of oil equivalent, despite the loss of Sakhalin 2 ownership. He reaffirms a commitment to grow output 2-3% pa in the next decade based on 124% reserves replacement, and a total of pf 11.92 bboe reserves overall. The company also had a “good year” in discoveries, adding 2 bboe to resources (not yet in reserves figures). Investment is higher than any other company at $28-29bn this year, more than half in “long lived assets (tar sands, GT, and LNG.³⁰⁵ “Alberta has the potential to become a major production heartland for Shell for decades to come, says van der Veer, admitting that the conventional reserves ration fell from 158% in 2006 to 17% in 2007. Shell’s tar sands production is 155kbd, heading to 500kbd, with a licence application under review to get to 770,000: a five fold increase. Shell says it has halved the energy intensity of its tar sands operation over the last four years.³⁰⁶

17.3.08. UK government is set to miss its own national emission targets in most ministries. So observes the Sustainable Development Commission, finding that central government is emitting 22% GHG than it did in 1999, adding that this places the government in danger of losing credibility.³⁰⁷

Carbon capture labeled “just another great green scam” ….”even ‘CCS ready’ is untrue.” Kingsnorth will be the first coal plant to be built since Drax was finished in 1986 (22 years ago), and would be finished by 2012, before the CCS experiment begins in 2014, an experiment that the government says will take at least 15 years to assess. And when the government says Kingsnorth and the others will be “CCS ready,” we read in an e-mail from BERR to Eon, leaked to Greenpeace in January, that the government dropped the condition with no protest at all once Eon complained. Even if it was fitted, the CO2 captured might be pumped to an oilfield for use in EOR, which would cancel the carbon saved many times in the excess oil produced.³⁰⁸

18.3.08. Chavez wins a legal battle with ExxonMobil as UK court unfreezes $12bn of Venezuelan assets. This is only a first round in what seems set to be a protracted battle. Asset frezes by Dutch courst are still in place until arbitration in NY.³⁰⁹

19.3.08. Dissolution of Kuwait parliament leaves oil production expansion plans in limbo, maybe crisis. The Emir acted after the entire cabinet resigned, claiming the parliament was being completely unco-operative. But there is chaos on both sides: the post of oil minister has been vacant since November. There will be elections in May. Meanwhile, because of objections by the parliament, the long-standing Project Kuwait plan to bring IOCs in to help lift production continues on hold. KPC officials tell the FT that they cannot achieve enhanced production targets without the IOCs, at least in part because they will need to exploit heavy oil for the first time to hit the targets and produce from technically challenging fields. They don’t have the resources or skills to do this, they say. They need to get from 2.6 mbd today (11^th biggest producer) to 3mbd by 2010 and 4 mbd by 2020, investing $21bn over the next 5 years in the process. They also hope to produce gas for the first time. If the IOCs aren’t allowed in, the targets will have to be “rethought.” Note: IOCs can’t book reserves even if they get in, they only get operating services contracts.³¹⁰

Sectarian tensions stop Iraqi oil law completion, threatening oil major designs on owning oil. Shell has been running tutorials on how to boost production in Iraqi oilfields remotely, from Jordan. The other majors have also opted for a remote control approach. But now the oil minstry, tiring of the squabbling in the parlaiment, wants the majors to press ahead and bid for development contracts in which they could own part of reserves. Note: Iraq has third largest reserves. The oil ministry claims only 27 out of 80 discovered fields are producing. The south, Shia majority, has 80% of the reserves. The Kurdish north east has most of the rest, leaving the Sunni majority in the middle with little, and a big interest in having the reserves controlled by central government. Part of the squabbling, unsurprisingly, is over who has the rights to sign contracts. The US state department met with opposition politicians months before the invasion in 2003, and agreed that the country needed to be opened up to foreign participation as soon as possible.³¹¹

BP offices raided by armed police in Moscow as Gazprom tightens the takeover screw on TNK-BP. The JV company’s president was questioned by FSB officers (successors to the KGB) as 50 employees were barred from leaving. Such searches were frequent in the crackdown on Yukos.³¹² TNK-BP is owned 50% by a group of Russian billionaires. Gazprom’s deputy CEO is quite open about wanting to buy a share. The raid supposedly arises from an ongoing criminal investigation into Sidanco, and oil group now incorporated in TNK-BP.³¹³ Next day they arrest a TNK-BP employee for spying on behalf of foreign interests.³¹⁴

South Africa seeks to solve energy crisis by hiking electricity price 60%. The hope is that this will stimulate efficiency. Poor households and small businesses are excepted. This after earlier interventions. Imposing a 10% cut on the mining industry’s use (the biggest user) caused outcry about predictions of mining job losses. Next came rolling blackouts.³¹⁵

UK government publishes a National Security Strategy. Terrorism figures large. Four regional counter-terrorism units are to be set up. There will be a national register of risks. “We will consider how to strengthen the government’s capacity for horizon-scanning, forward planning and early warning.”³¹⁶

20.3.08. German Reichstag to become the greenest parliament building at 100% renewables. Currently the building has cut carbon emissions 94% with Foster’s passive solar and biomass boiler design. The biomass produces 40% of the building’s energy. From this summer, the remaining 60% will be imported from renewables.³¹⁷

21.3.08. Russia’s environmental watchdog ups the assault on TNK-BP by launching an investigation. It will be led by Oleg Mitvoi, the attack-dog deputy head of the Rosprirodnadzor Inspectorate, the man who led the campaign against Shell over Sakhalin 2.³¹⁸

UK and France to join together and take nuclear power to the world. So Brown and Sarkozy are due to agree this week. The UK began the licensing process for four reactor designs this week, including the Areva one run by EDF.³¹⁹ This week, BE announced it was the subject of a £7bn takeover bid. No doubt EDF will now get it? Guardian speculates that the UK nuclear industry “was derided, feared and dying – but now it promises to return stronger than ever.” Note: UK stations: 10 existing (with decommissioning due date): Dungeness B (2006), Bradwell (2002), Sizewell B (2035), Hartlepool (2014), Torness (2023), Hunterston B (2106), Heysham 1 (2104), Heysham 2 (2023), Wylfa (2010), Oldbury (2008), Hinkley Point B (2016). 10 non-operational (decommissioning started): Dungeness A (2006), Bradwell (2002), Sizewell A (2006), Dounreay (1994), Hunterston A (1989), Chapelcross (2004), Calder Hall (2003), Trawsfynydd (1991), Berkeley (1989), Hinkley Point A (2016), Winfrith (1990). Probable new 3,3 GW sites: Dungeness, Bradwell, Sizewell, Hinkley Point.³²⁰

EDF plans to enter Spain biggest cross-border deal in the history of European energy markets: a €90bn bid, with Spanish construction giant ACS, to buy two of the three biggest Spanish utilities, Iberdrola and Union Fenosa. This would dwarf the previous record, the takeover of Endesa by Enel.³²¹

New research suggests IPCC models have underestimated climate sensitivity. Peter Cox’s group at the University of Exeter find evidence in the Little Ice Age that CO2 is more sensitive to temperature than the other way round. The mainstream IPCC estimate has CO2 driving temperature. But the reality will be higher temperatures because temperature in turn will drive more CO2 into the atmosphere. Cox believes 4C of warming will drive a further 160 ppm of CO2, meaning that mainstream climate projections may be 50% underestimates, he believes.³²²

22.3.08. London mayor Livingstone rages at civil servants blocking his distributed generation plans. He claims senior BERR officials are displaying inertia and hostility. “These civil servants know there will be a job for them on the board of British Nuclear fuels.” He claims three senior DEFRA officials have been pro-incineration in the same way BERR officials are pro-nuclear.³²³

23.3.08. New research shows coal burning is more damaging to the climate than previously thought. “Black carbon” from the burning of coal, diesel, wood and dung could be causing up to 60% of the global warming CO2 does, US researchers find. Scientists from the University of Iowa (Greg Carmichael) and Scripps Institution of Oceanography (V. Ramanathan) use satellite, aircraft and surface data to show a warming effect of 0.9w sq m, much higher than the 0.2-0.4 of the last IPCC report. Also: more than 400,000 people are estimated to die each year from inhaling soot, especially indoors in developing countries from burning wood and dung. Note: most particulates cause the reverse effect, global dimming.³²⁴