Triple Crunch Log Jeremy Leggett

MPs call for review of “unsustainable” nuclear decommissioning plans. The House of Commons business affairs select committee publishes a report saying the £73bn liability (annual burden of £1.5m) will almost certainly have to increase again, because current assumptions are unsustainable. The costs went up from £50bn in June 2003 to £73bn in March 2007, and surely will not stop there. The government agrees it is “time to review the model.”³⁷¹

Wal-Mart exerts carbon-pressure on Chinese suppliers. 1,000 Chinese companies are to attend a meeting where goals for big reductions in the eco-impact of the supply chain will be set out. Wal-Mart does around 30% of all foreign buying in China, almost 10% of of total US imports from China: more than $320bn of business in 2007.³⁷² Interview with Lee Scott: he took over in 2000, and in 2005 began the process of changing the retailer into an environmentally-responsible company. He did it “to eliminate this constant barrage of negatives that causes people ….to wonder if Wal-Mart is going to be allowed to grow.” With hindsight, he realised the company had lost direction: it was on the “S-curve of the business schools, a concept he had not even heard of when he took over, by his own admission. Wal-Mart then had only a small public relations department and no lobbyists. Now it has one of the largest media departments of any US company, and spends millions lobbying.³⁷³

8.4.08. BP plans to pipe Alaskan gas to the tar sands. Announces a pipeline project with ConocoPhillips, from Alaska to the lower 48 via Athabasca. 4bn cubic feet per day capacity. They will seek clients before end 2010 then go for regulatory approval.³⁷⁴

13.4.08. Russian oil production falls for first time in a decade: IEA says too early to say if it has peaked. Last year production climbed to a high of 9.87 mbpd. The first quarter this year was 9.76 mbpd. Lukoil VP Leonid Fedun says huge investment will be needed if Russia is to maintain 8.5-9 mbd for the next 20 years. The western Siberian fields are declining fast he says, and the investment will be needed in the Arctic, Caspian, and eastern Siberia. Lukoil wants tax relief to finance the investment. Currently the government takes as tax 80% of the revenue over $27 per barrel.³⁷⁵ IEA blames the uncertain investment climate, especially over Sakhalin 1 and Gazprom’s blocking of gas exports to China.³⁷⁶

14.4.08. Texan oil billionaire sets up a $10bn renewables project. T. Boone Pickens makes the first payment on a project to erect 2,700 wind turbines across 200,000 acres of Texas. At 4 GW, this will be five times bigger than the biggest wind farm today. Pickens: “Oil fields have a declining curve – you find one, it peaks and starts downhill, you’ve got to find another one to replace it. It drives you crazy! With wind, there’s no decline.” Pickens plans an enormous wind corridor running north south in the middle of America, and an east-west solar corridor from Texas to California. “There needs to be a huge plan from someone with leadership. It’s going to take years to do but it has to start now.”³⁷⁷

15.4.08. Lukoil exec says Russian peak was last year as oil hits new record high. Leonid Fedun says that last year’s total of >10 mbd was the highest he will ever see. The IEA’s latest outlook (July) has Russian production at 10.5 mbd in 2012. The conventional wisdom has oil price falling as the economy slows down. Its not, says the FT, squarely. The reason is supply: Russia on top of sharp drops in other mature areas: Mexico and the North Sea. OPEC cutting supply by 350,000 bpd has added to the problem. Yesterday WTI crude hit $113.9 9, the highest ever. IEA has global demand growing 1.3 mbd this year, while non-OPEC supply grows 0.8 mbd. OPEC has to make up the rest. The entire forward curve is now trading above $100 on Nymex. Oil company investment hit $250 bn in 2006, up from around $80bn in the early 1990s, according to the IMF in a recent study. But inflation adjusted, that increase is only to $80bn to $115bn.³⁷⁸

Brazil’s latest oil discovery “may” be 33 bn barrels , Brazilian government official says. That would make it the third biggest ever. Haroldo Lima, Head of National Petroeleum Agency, made the claim about the Carioca field. The announcement helped lift the London stock Exchange generally and BG’s share price in particular (they have a stake). Wood MazKenzie are among those sceptical of the announcement. “I don’t know how he calculates that. It is not credible. ….It is likely to be a few hundred million barrels in place.” In any event, as the article notes, delivering the oil to market will take “the best part of decade.” UK government energy advisor Dieter Helm professes no surprise at the 33 bn figure: “there is plenty of oil around.”³⁷⁹

16.4.08. Only 30 of 170 carbon offset companies are “quality” providers, an ENDS report concludes. They include Camco International, EcoSecurities, Climate Care and the Carbon Neutral Company. Tree planting schemes are “questionable.” Renewables deliver the highest quality. $4.5bn will be invested in offsetting this year, but only 70-80% of expected credits are materialising as developing country projects fall through.³⁸⁰

Nigeria’s oil output “could fall by a third” by 2015 without massive investment, Shell report to Nigerian government, seen by the FT, says. The investment has to be in joint ventures with foreign companies. Needless to say, the oil price hit a new record yesterday: 5 cents short of $115.³⁸¹ Shell, BP, ExxonMobil, Chevron, and Total pumped nearly a quarter of their total production from West Africa in 2007.³⁸²

Iran threatens Shell, Total and Repsol: sign South Pars gas contracts or else the work will go to other companies. Deadline: by June. The oil companies are havering on the projects in the world’s biggest gas field as costs soar. The parliament has authorised 3% of 2007 oil revenues of $70bn for development of the field, the oil minister says.³⁸³

Bush proposes freezing US emissions ….by 2025. His most “ambitious” proposal yet. No talk of cuts, which would risk “tremendous costs” to the US economy.³⁸⁴ He is trying to head off a Senate proposal to stop emissions growth by 2012. EU official say they are starled by the weakness of the US proposal.³⁸⁵

Stern says his review should have taken a tougher stance on warming. 18 months on he thinks the report underestimated the costs of climate damage and the probabilities of temeperature rises. Should have opted for 80% cuts not 60%. Costs of action he thinks were about right.³⁸⁶

Ofgem will scour books in investigating energy companies pricing. They will want to know how much the companies pay for fuel, currently not revealed. They threaten “huge fines” if the companies mislead them. They are due to report in September.³⁸⁷

17.4.08. Majorities in 15 of 16 countries think oil is running fast and major effort is needed on renewables. Faced with the proposition that “enough new oil will be found so that it can remain a primary source of energy for the foreseeable future,” only 22% agree (13% in UK). 70% support the view that “oil is running out and it is necessary to make a major effort to replace oil as a primary source of energy (85% in UK).” Most think the price of oil will go much higher. Americans think their government is behaving as though oil won’t run out. Nearly 15,000 people were surveyed by WorldPublicOpinion.org in countries including the US, UK, Russia, India, and China. The countries represent 58% of world population. Only in Nigeria do a majority (53%) think that governments can rely on oil supply far into the future.³⁸⁸

FT editorial calls for investment and production tax cuts by Russia. Also an end to ownership uncertainties, and privatisation of state-controlled oil assets, so that foreign companies can compete fully. Otherwise “it will be unable to revitalise its decayed supply network.”³⁸⁹

Gazprom announces huge projects in Libya and Nigeria. Putin visits Libya and signs a JV with the National Oil Corporation to explore for oil and gas, produce it and transport it by pipeline to Europe. Gazprom has agreed another recent deal with Eni to work together in third countries, including on a pipeline from Libya to Sicily. Gazprom also says it is talking with Nigeria about a $13bn 4,000km pipeline across the Sahara from Nigeria to the Med coast of Algeria.³⁹⁰

Inflation in Russia widens the wealth divide. Prices are rising much faster than pensions. Oil and gas accounted for two thirds of export revenues in 2007.³⁹¹

Greenland glacial meltwater may have less impact on glacier movement, new research says. Aerial surveys and satellite imagery analysed at Woods Hole Oceanographic Institution is published in Science. It suggests that although surface lakes can disappear with flow rates exceeding those of Niagara Falls, for the glaciers studied they contribute only a few percent to the movement. Movement of glaciers near the edge of the ice sheet has doubled in the last two decades, earlier studies have shown.³⁹²

Rice breaks $1,000 per tonne as panic hits traders / oil breaks new record of $117. This is 3 times higher than a year ago, and the price has hovered not much above $300 since 2005. The panic adds to the impact of export restrictions in countries including India and China.³⁹³ Oil broke $117 this week.³⁹⁴

18.4.08. EU backs away from biofuels target. New standards of “sustainability” are being drafted by the Commission, including sourcing and manufacture, with the Commission proposal being minimum 35% CO2 cuts compared to fossil-fuel equivalents. The Commission is not going to object if countries back off their targets, an official says.³⁹⁵

19.4.08. Solar in UK gives better ROI than money in a building society, Guardian economics correspondent says. A front page splash in the Money section. Bottom line: next year, at the current oil price and the doubled ROC due then, the return on investment without grant is 4% on which no tax is required, meaning that it is a better idea to put your money into a solar roof than put it in a building society account. With a 50% grant, ROI would be 7%. To talk about payback, he says, is to miss the point completely.³⁹⁶

Norway does not see as a priority for gas exports / UK energy firms to raise prices another 25%. Thor Otto Lohne of Gassco, the Norwegian gas pipeline company, tells an Ofgem/BERR seminar in London that long-term contracts with mainland Europe are much more important. “The UK is a secondary priority. Like it or not, that is a fact,” he says. Norwar currently supplies about 20% of UK gas, and by 2010 about half our gas will need to be coming from Norway, Russia and other top producing nations. Meanwhile, since the last round of price rises in February, wholesale gas and electricity has continued to rise, meaning consumer price rise of 25% are likely in the summer.³⁹⁷

Oil refinery strike threatens UK oil supplies. Ineos, the company running Grangemouth, Scotland’s only refinery, start to shut the site down ahead of a threatened walkout by 1,200 workers over pension rights on 27 and 28 April. The strike could cripple petrol pump supplies for at least a month in Scotland and the north of England, according to the Ineos CEO. A large portion of North Sea oil and gas would also be shut down. Gas goes through Grangemouth as well as oil.³⁹⁸

New Scientist argues: “we are staking our future on carbon trading, so we’d better make it work.” Tom Burke says that believing it can fix climate change “is to be believe in magic.” $60bn of deals took place in 2007, including demonstrably for projects that would have taken place anyway. Fred Pearce worries that we could be designing carbon capitalism disconnected from the real carbon cycle: “an environmental version of the Enron saga.”³⁹⁹ (L) And see Guardian special issue 25.6.08.

20.4.08. Shell CEO insists his company has 55 years of production in its current resource base (at current levels of production). Jeroen van der Veer in an interview with the FT says Shell has $30bn (£15bn), or 20% of its balance sheet, in projects under construction: more than anyone else. “What is unconventional today will be conventional tomorrow. I’m convinced the world needs oil sands.” (Note the headline of this article: I presume the sub-editor got it wrong: he’s not talking about reserves).⁴⁰⁰

Russia needs to invest $300bn over the next 8 years merely to maintain current production. So says the Lukoil VP quoted above. The problems began in 2004 when the government hiked the tax take and began to nationalise private companies, not least Yukos. In 2003 the likes of Yukos and Sibneft were posting production gains of more than 20%. Now average production growth has slowed to 2.5%. The state now owns more than 50% of the Russian oil industry, according to the Uralsib investment bank in Moscow. The government takes over 80% of revenues above $27, so that net profit in western Siberian fields, even at $110 a barrel, is only $11. And even if you go for that, you have no idea whether or not the state will seize your fields.⁴⁰¹

African governments and banks discuss £80bn Congo HEP scheme potentially doubling Africa’s electricity supply. The Grand Inga dam would generate double the Three Gorge’s in China, currently the world’s largest. The idea is an old one, and is being resurrected at a meeting in London because returns available based on the availability of carbon credits. Critics say it is a white elephant that would leave Congo with mountainous debts, and its 94% in Congo without electricity, and the two thirds of Africans without, would still have little or none because the power lines would head existing industry centres especially in South Africa. Congo has exported electricity for years from two smaller schemes at Inga, and villagers nearby get none.⁴⁰²

2
“I keep no secret from you that, when there were some new finds, I told them ‘No, leave it in the ground, with grace from god, our children need it’.”
King Abdullah

of Saudi Arabia

April 2008
1.4.08. Saudi King and Aramco CEO say that they have put oil capacity rise on hold: they do not believe there is need for further expansion. Saudi Aramco CEO Abdullah Jum’ah says in a closed door meeting with oil ministers in Rome that the worsening global economy and the move away from oil mean Riyadh is nervous about investing. He says he does not see the need to go beyond the capacity target of 12.5mbd by 2009 (9 now) “at least up to 2020.” King Abdullah was reported by the official news agency earlier this month to have said “I keep no secret from you that, when there were some new finds, I told them ‘No, leave it in the ground, with grace from god, our children need it’.”⁴⁰³

22.4.08. Saudi stance suggests Ghawar production is in steep decline, analyst says. In a letter to the FT, the head of research at NCB Stockbrokers drops a worrying anecdote in with a list of reasons for concern: sales of water-injection product exceed all its other products, a Saudi oil equipment supplier has reported. Aramco has more than doubled well numbers since 2004, while trebling recompletions and quadrupling workovers, all without any increase in production. Khursaniyah (500,000 barrels a day) is now behind schedule (due last quarter 2007) and if Khurais (1.2mbd due late 2009) is also delayed there will be problems for global production. Even without further delays, Aramco reports no new capacity from end 2009 to 2012 (at least). Adding it all up, Peter Hutton points out that capacity should be 13mbd, yet SA’s targets are 12.4 mbd by end 2009, and 12.2m in 2012. This probably means that the 5mbd Ghawar field is beginning a fast decline, something the Saudis have long denied in public.⁴⁰⁴

Oil almost hits $120 as Chinese demand increases. Ahead of the Olympics, Chinese demand in March was 4 mbd up on last the month last year. Also, Gordon Brown said UK would be pushing for a reduction the EU biofuels target.⁴⁰⁵

Npower mis-selling to be investigated by Ofgem. The probe targets “a potential breach by Npower of its licence obligations relating to marketing.” This move follows front page Sunday Times revelations last month that salespeople had claimed to be from the “electricity board” while getting people with poor English to switch contracts thinking they were signing on for “more information.” Mangers knew, the staff concerned said. Npower says it is an isolated incident involving a few individuals, since taken off the road. Energywatch says they have 400 complaints filed against Npower salespeople.⁴⁰⁶

23.4.08. E.ON says it will build two UK nuclear plants. It has signed a letter of intent with Areva and Siemens for two 11.6GW Areva plants. They are unlikely to be ready before 2018.⁴⁰⁷

Conoco quest for new fuels now embraces chicken fat. As well as tar sands and CTL, Conoco is working with Tyson Chicken to produce diesel from animal fat. “We don’t have the availability of new exploration acreage that, historically, we used to get,” says CEO Jim Mulva. “We, as producers of energy, need to look for newer, exotic types of energy.” Mulva has increased his non-conventional energy budget by 50% in the last few years, to more than $150m (not much) in 2008. Shell is less worried, but will up tar sands from 10% of the fuel portfolio today to 15% in 2015. Exxon barrels on unphased, with CEO Tillerson saying “the industry has consistently overcome challenges,” and will continue to do so. Jeff Rubin of CIBC believes they are facing a losing battle. Price –earnings ratios for the IOCs are well below healthcare, technology, consumer goods and other industries. They exceed only conglomerates and the financial sector.⁴⁰⁸

Renewed pressure on TNK-BP by Gazprom. The talks on the detail of the sale by TNK-BP of the giant Kovytka gas field are going slowly, amid complex wrangling. Now Gazprom warns that the state could revoke TNK-BP’s licence completely if things don’t progress fast.⁴⁰⁹

24.4.08. BP invests $560m in Brazilian ethanol, defending action on both carbon and food grounds. Half a billion will be spent two refineries, and the rest in a JV company. BP says the ethanol comes from sugar cane and does not affect food supplies. The head of biofuels, Phil New, feels the need to justify the investment both on food and carbon grounds: “Sugar cane has the best greenhouse-gas profile of any biofuel feedstock,” and “I struggle to see how this kind of project can be connected to the food and fuel debate. If it could be connected to it, we wouldn’t be investing in it.”⁴¹⁰

Petrol price, as opposed to oil price, is at a historic low because of demand constraint. Stagnant or even falling demand at the pump means refiners are only breaking even, and cannot pass their costs on to customers. Oil is at a record $119, but US petrol prices remain below $3.68. Crude cost is now 65-70% of the pump price.⁴¹¹

24.4.08. Intelligence report released suggesting North Korea helped Syria develop a nuclear plant: the one bombed by Israel in September 2007. Both Republicans and Democrats criticise the Bush Administration for shifting in negotiations away from insisting that North Korea declare all its nuclear activities to only acknowledging US concerns about proliferation.⁴¹²

25.4.08. Air-conditioning bills hit £800 a month for the pioneer resident of Palm Jumeirah in Dubai. The first 4,000 residents have moved into the luxury development, created by shifting 94m cubic metres of sand into the shape of a giant palm four times the size of Hyde Park which has doubled the coastline of Dubai. The villas crammed onto the mile-long “fronds” (so unlike the brochures) swelter in 48C summer temperatures, and residents are rebelling against the unforeseen, huge and rapidly rising air-conditioning bills. Some, reportedly, are even feeling guilt about the average £25 a week “wages” paid to the tens of thousands of Indian and Bangladeshi labourers who built the place while living in camps in the desert.⁴¹³

Trade war brews over US biofuel subsidies. European biodiesel producers are urging the EU to impose punitive sanctions on US “splash and dash” imports and American producers are urging Washington to take action to protect the trade. All areas of trade war between the US and Europe are now over environmental issues: beef imports from the US (also poultry), genetically modified seeds and foods, and subsidies for plane makers, and now biofuels.⁴¹⁴

Guinness Asset Management runs newspaper advertisements, one an obituary for fossil fuels, another a birth announcement for its Alternative Energy Fund. Between the two in the Guardian, an article tracks the oil price from $10 in 1998, ambling up to $30+ at the time of the 2003 invasion of Iraq, then soaring from 2004 to 120 today. Mark Moody-Stuart in 2000: “In the longer term, technology will increase production capacity and tend to drive the oil price somewhere below $20 a barrel.”⁴¹⁵

UN says oil price hits food price much more than biofuels. The FAO estimates biofuels are about 10% responsible for the recent rise in food prices. The IMF estimates 20-30%.⁴¹⁶ The IEA warns against a mass retreat from biofuels. They make up around half the oil coming to market from sources other than Opec this year. William Ramsay, deputy executive directors, says: “If we didn’t have those barrels, I’m not sure where we would be getting those half a million barrels.” NB Biofuels this year will consumer nearly a third of the US corn crop.⁴¹⁷ They contributed 1.3% of world oil supplies in 2007. Even supporters of cellulosic ethanol reckon it is five years from commercial production.⁴¹⁸

Carmakers alarmed by spiralling consensus against biofuels. They have been busy retooling to make flexi fuel and biofuel vehicles. GM CEO Rick Wagoner syas: “oil prices are a far bigger driver of higher dirver of higher food prices than ethanol.” American car-makers have bet more heavily on cars able to run on bioethanol than others, so have more to lose.⁴¹⁹ But ethanol from maize in the US saves little carbon, in part because of the coal-derived electricity used in the distillation process. NB. Environmental groups called enthusiastically for use of biofuels in 2004 (FoE, WWF and RSPB).⁴²⁰

26.4.08. Fear on the forecourts as Grangemouth strike shuts refinery for the first time since the war. Panic buying is underway despite government pleas, some petrol stations have run out, and others are rationing fuel. Steam and electricity from Grangemouth is needed to run a nearby plant into which a third of UK’s oil output flows, and 30% of UK gas, meaning it and therefore 70 oil and gas fields will have to close. The strike is due to last two days, but it will take five to six thereafter to re-open production and a minimum of three weeks for the refinery to come back on line. The union is Unite, which represents the 1,200 workers striking at the site. The Grangemouth operator is Ineos, the third biggest chemical company in the world, who bought the plant from BP in 2005. The issue is that Ineos wants to close the final salary pension scheme. About 10% of UK petrol is refined at Grangemouth. The loss to the UK economy is around £50m a day.⁴²¹