Triple Crunch Log Jeremy Leggett

27.4.08. LNG flow to UK has slowed almost to a standstill this year, despite high prices. Imports over the winter appear to be less than half last year. This is because Britain has to compete with countries desperate for gas, like Japan and South Korea. The UK is building new LNG infrastructure at Milford Haven, a pipeline to one of Norway’s biggest gas fields, plus pipelines to the Netherlands and Belgium. But the existence of metal does not mean it fills with gas by default. N.B. Gas plants take some two years to build, compared to 4-8 for coal.⁴²²

Transparency International rebukes oil multinationals for poor performance on corruption. The anti-graft group releases a survey showing middling to poor performance by the NOCs on financial disclosure and anti-corruption meansers. They rank alongside Lukoil and CNOOC. The Extractive Industries Transparency Initiative says it was “unfortunate” the companies refused to so-operate with the survey.⁴²³

Scotland ships in fuel as a precaution as Grangemouth strike bites. Seven emergency shipments of diesel and kerosene from Rotterdam and Gothenburg, 65,000 tonnes, covering 10 days.⁴²⁴

US Air Force calls for Apollo-style mission to combat climate change. William Anderson an assistant secretary at the AF, wants a multi-billion dollar programme spanning all sectors to work out what to do, including real carbon footprints of all energy sources. Of the USAF plan to go for CTL, he says most of the missions can be captured and stored, and the AF will not switch unless a fuel has “a greener carbon footprint” than existing fuels. “Energy demand is going to outstrip any gains from renewables,” he says. “As oil starts to diminish, coal is going to play big.” The USAF has met with its UK and French equivalents to discuss how to make themselves more environmentally friendly: and the Americans are recommending CTL plus CCS.⁴²⁵

28.4.08. Rockefeller family says it is so worried about ExxonMobil that it demands changes in board. The family of the founder (of Standard Oil, the predecessor) have long lobbied for change behind the scenes. Now, they say, their patience has expired. They want an independent chairman and a board with more power, mean Rex Tillerson would be CEO only, not hold both that role and chairman. A family statement reads: “More than a dozen Rockefeller Family members have sponsored four proxy resolutions this year, raising a range of concerns about how the management of ExxonMobil under Rex Tillerson - who is both the CEO and chairman - is failing to address the future of energy and related industry hurdles. The Rockefeller Family members are the longest continuous shareholders of Exxon Mobil Corporation.”⁴²⁶ At the press conference, they also call for a reduction in Exxon’s GHG emissions and a renewables policy. “We think a few of those billions should go towards looking to the future and the kind of energy this world might need,” says Rockefeller Goodwin. 40% of investor votes supported the independent chairman at last year’s AGM. Exxon’s shares have surged 20% in the last year. The current market value is three billion short of half a trillion dollars. Rockefeller family member shave only $31m of shares, but they are supported by Calpers.⁴²⁷

28.4.08. Concern as gas producing nations meet in Tehran to discuss forming a gas cartel, again. Russia is leading the process, having tabled a draft charter. They may find it difficult to precisely replicate Opec, because most gas is traded leng-term rather than traded on the spot market the way oil is.⁴²⁸

Opec President warns $200 may be coming, and there will be little Opec can do to help. As oil reaches within a few cents of $120, its highest ever, Algeria’s energy minister blames the weak dollar and the credit crunch.⁴²⁹

Airlines fear era of cheap flights is over and that more bankruptcies are on the way. The cost of fuelling a transatlantic price has quadrupled since 2000 to more than $40,000. Several US and UK airlines have already gone under.⁴³⁰

29.4.08. BP announces a near-50% increase in quarterly profits: the biggest positive quarterly earnings surprise BP have ever given investors, in terms of analysts’ consensus. Shell’s oil production was down 6% in the first quarter compared to the same period in 2007. Gas production was up 9% though.⁴³¹

Gordon Brown appeals to BP and Shell to invest more of their their profits in the North Sea. Their combined first quarter haul was £7bn. BP and Shell are pulling back from the North Sea because they know the big fields are found. Lorry drivers are protesting in London and environmentalists are calling for windfall taxes meanwhile.⁴³²

Petrobras CEO makes clear they have no data that can confirm 33bn barrel Caracioca estimate. Sergio Gabrielli says a well is being drilled, but won’t produce results for three months. The recent estimate by the Brazilian regulator was not an official one (even if it did hike share prices all round). The field is below salt, where extraction is difficult because the salt can move and crush production well casing. The reservoir is a carbonate, which tends to be more variable than a sandstone, tending to give variable flows that can drop quickly. He expresses confidence. Largest recent discoveries: Kashagan (Kazakhstan, 2000) 14.6 bb; Tupi (Brazil, 2006) 4 bb; Niban (Saudi Arabia, 1999) 4 bb; Shah Deniz (Azerbaijan, 1999) 2 bb, etc.⁴³³ Petrobras also tells Mexico it is not willing to go and try help help them arrest their falling production (3.4 mbd Nov 2004, Nov 2007 2.9mbd) by drilling in deep water just as a services company. Mexico does not have the expertise to produce in deep water, and desperately needs it.⁴³⁴

Blood and Gore raise a second fund: $683m to invest in early stage environmental companies. The target for Generation Investment (chaired by Gore and managed by former head of asset management at Goldman Sachs, David Blood) will be small companies in renewables, efficiency, biofuels and biomass, and carbon trading. This Climate Solutions Fund joins the Global Equity Strategy Fund, $2.2bn for large companies in sustainable fields.⁴³⁵

Most carbon-friendly UK homes yet are finished in Surrey. The Raven Housing Trust has built the first homes at Level 5 of the Code for Sustainable Homes. These are double the efficiency of the standard building regulations (level 1). The walls are thick and well insulated. The windows are triple-galzed. There are no radiators, and any heat generated by appliances and people is used by a heat-recovery ventilation system. There are rooftop solar PV panels, and a biomass boiler fuelled by wood pellets. The top level, 6, involves dwellings where energy consumed is replaced with renewable generation. All new housing must reach this level by 2016.⁴³⁶

30.4.08. Shell ditches share in UK’s largest windfarm, sparking fears of a retreat from renewables. The Shell statement attempting to justify dumping its 33% share in the £2bn approved London array (one of only two renewables projects it is working on in the UK) is all is all about profit, which appears largely to be in hydrocarbon schemes. E.ON’s CEO says he is disappointed, and that the London array is now on a knife-edge because of the “new element of risk” Shell has introduced. Note: The array is 1,000MW. 404MW of wind is operational offshore at 7 sites, 550MW is under construction at 5 sites, 2,500MW is approved at 9 sites, and 2,100 MW has been submitted at 6 sites: total 5.5GW. Onshore, 2,062MW of wind is operational, 890MW under construction, 2,461 MW approved, and 6,804 MW submitted: total 12.2 GW. The combined total of onshore and offshore is 17.7GW, against a government target of 33GW by 2020.⁴³⁷ The cost of the Thames array was an estimated £1m in 2003, was £1.5bn by 2005, and now may be as high as £2.5bn. The rising price of steel is a big problem.⁴³⁸

1.5.08. ExxonMobil’s oil production falls almost 10% in the first quarter of 2008. The company declares record profits, but its shares fall 3.6%, with analysts warning the company may not grow at all in the next five years.⁴³⁹ A Wall Street portfolio manager, Chris MacDonald of WHG Funds, says the news is “kind of shocking. It makes the future seem kind of dire, because this quarter they really got bailed out by high oil prices ….It shows that you’re at the limit of big new finds.”⁴⁴⁰

MPs call for biofuels rules to be suspended. The House of Commons Environmental Audit Committee makes the call as industry warns that the UK will only have enough surplus wheat production for 3 biofuels plants. Several more than these are planned.⁴⁴¹

Poll shows Britons are unprepared to foot bill for saving planet. More than seven in ten voters say they would not be willing to pay higher taxes to combat climate change. Two thirds think the tax system has been hijacked simply to raise cash. Three in ten would oppose any legislation favouring green policies and the same number believe green taxes would have no discernable effect on the environment. Only 34% believe extreme weather events are becoming more common and one in ten believe climate change is entirely natural. Opinium surveyed 2,000 adults online to get these depressing results.⁴⁴²

Silicon Valley venture capitalists expand cleantech focus as the millions roll in. VCs in the Valley have raised hundreds of millions in the last few weeks. John Doerr, legendary partner at Kleiner Perkins Caufield and Byers, explains that “We have identified 50 sectors in green tech. Two of those, solar and biofuels, are the most popular. (But) we think there are some outstanding opportunities in (other) sectors.” Another VC says that demand side is just as exciting as supply, and indeed returns can come faster because you can build companies quicker. Opportunities include energy-saving building materials, energy management systems for buildings including smart grids, and energy storage.⁴⁴³

Greenpeace report argues CCS is a “false hope.” It won’t be ready at utility scale before 2030. It will use 10-40% of the energy from the power plant. Underground storage of gas is risky. It will double powerplant costs. It poses significant liability risks.⁴⁴⁴ (L)

1.5.08. IEA Chief Economist warns 2008 IEA WEO will give a “shrill warning” on oil crunch. Probably the most strident interview the IEA's Chief Economist has ever given and a major contradiction of how the FT reported peak oil in the climate report. FB: “…We see a sharp decline in production from the existing oil fields, especially in the North Sea, the USA and many non-OPEC countries. ….we (also) looked at all oil exploration projects around the world: 230 altogether, in Saudi-Arabia, Venezuela, the North-Sea, everywhere. Even if all those projects which are already funded will be implemented, the overall capacity they can bring for new oil production is too little.” Q: How much is missing? FB: “Exactly 12.5 million barrel a day are still missing, about 15 % of the global oil demand. This gap means that we could face a supply shortage and very high prices during the next years.” Q: In the WEO 2007 it is mentioned that the rapid decline of oil production will be between 3.7 and 4.2 percent per year. Is that right? FB: “Exactly.” Q: This decline is even steeper than the one predicted by the Energy Watch Group! FB: “I can already tell you that in our "World Energy Outlook 2008" which will be published in November we will deal in depth with the prospects of the oil and gas production. We will take a look at the 350 most important oil and gas fields and explore how much production rates are sinking and what that means. ….As far as I know this will be the first profound public study in which we verify and revise our knowledge about how much oil and gas is going to the markets. Many people will come to new conclusions about this.” Q: One of the statements of the WEO 2007 is that the complete additional oil production has to come from the OPEC countries and especially the Middle East. Salem el-Badri, the general secretary of the OPEC has announced on a conference regarding energy security in London last February, that the OPEC wants to invest 200 billion dollar until 2012 to create new production capacities of 5 million barrel (mb) a day. This is a sharp contrast to the WEO 2007 where you state that to the year 2020 we need 24 mb per day in new production capacity to satisfy the rising demand for oil. So de facto Salem el-Badri says that the OPEC will not be able to meet the expectations. Doesn't that mean that we will run into serious problems? FB: “Indeed. this is the reason that this year for the first time we announce a "supply crunch" situation. There is a gap between the global demand for oil and the amount which is or can be brought to the market from that region. We think that the oil producers have to increase their production output significantly, but we are not sure that they will do it or even can do it.” “If you look at the dimensions, I don't think that the markets alone can solve those problems. We cannot leave everything to them. The national governments as well as international institutions have to help to define the rules and follow them. The issue is too important.” “Several people now think that the global oil and gas production will get into troubled waters soon, but this is not only due to resource depletion. The lack of investments are another problem, as well as the fact that some countries don't want to increase production. ….Before I joined the IEA I worked for the OPEC in Vienna. And every oil person had the same thoughts: I don't use up all the oil that I have today, but leave some for my children and grandchildren, so they will be able to make money from it as well. And I understand that. In many oil producing countries, oil is the sole or at least most important source of income.” Q: If I understand you correctly, you say that the demand for oil could rise 3 % globally every year, while we have to expect a decrease of 4 % in oil production in the time from now until 2015. That would be 7 % each year which are missing. “The demand might increase a little slower. But there could be a large gap between what should be there and what actually will be there, especially if we do not put massive efforts into improving the efficiency of cars or change to other transportation systems. If we don't take measures on the consumer side, the consumption will continue to grow. And if we have not invested enough into oil production, we will flounder. “We can see a gradual incline and that will give the people some time to adapt. But on the long run it has to be clear: if oil will be gone by 2030, or in 2040 or 2050 does not change much.” Q: You really say that? FB: “Yes, one day it will definitely end. And I think we should leave oil before it leaves us. That should be our motto. So we should prepare for that day - through research and development on alternatives to oil, on which living standards we want to keep and what alternative ways we can find.” “With the World Energy Outlook 2007. It was a clear signal to the governments of all our member countries. They take energy and oil security much more important than before, now. And when we present the WEO 2008 this November, I think it possible that the sirens will shrill even louder.”⁴⁴⁵

1.5.08. Interest in survivalism grows as Survivalblog.com attracts 82,000 visitors a week. One enquiry asked what weapons should be kept handy. American responders advised the questioner to get out of the UK soon, while the US and New Zealand still accepts émigrés.⁴⁴⁶

2.5.08. Triodos Bank offers £8.5m public share issue for investment in small- and mid-size UK renewables. This is their fourth such offering in the 13 years of their wind fund (now called Triodos Renewables). The last, in 2005, returned 22% (investments in wind, small-scale hydro, and Marine Current Turbines). A £2,970 investment “will produce renewable energy output equivalent to the average person’s carbon footprint,” the bank says (smallest investment is £825).⁴⁴⁷

3.5.08. Renewables investors seek to attract conversions from other industries with training course. Concerned about the growing lack of talent, VC firms in New England have established a three-month renewables “fellowship.” They seek recruitment of the right calibre people as a major bottleneck for cleantech.⁴⁴⁸

3.5.08. Falling North Sea investment means 2020 oil and gas production might be a sixth of today’s: enough to meet only 8% of UK demand. Nine billion barrels might be left unproduced - about nine years of production at current levels – the CEO of Oil and Gas UK says. Peak production of oil was 4.5 mbd in 1999, and now stands at 3 mbd. 36 bb have been produced. Oil company plans envisage only another 10 bb of production, but the government estimates 16.5 – 25.5 bb of recoverable oil. BP has sold its Forties Field. Oil and Gas UK estimates 96% of future discoveries will be less than 50 mb.⁴⁴⁹

Polar bear could stop Shell in its ambition to drill in the US Arctic. In ten days the US government has to decide – by court ruling - whether the bear is an endangered species or not. If so, no drilling. If not, environmentalists take legal action to stop the drilling.⁴⁵⁰

4.5.08. As the oil price rises and rises, rural dwellers in Scotland return to cutting peat. Sales of peat-burning stoves are soaring.⁴⁵¹

5.5.08. CERA reports that 50% or more of the experienced workforce will be retired within by 2015. The workforce is dominated by people close to retirement and inexperienced graduates. The average age at retirement is 55.⁴⁵²

Bad weather threatens big shortfall in US maize harvest, meaning more pressure on food prices. The draft farm bill under debate in Congress entails only a small cut in ethanol subsidies, from 51 cents a gallon to 49, meaning US bioethanol production will be taking food from people. (There is also an import tariff of 54 cents a gallon, aiming to keep Brazilian ethanol out). The bill will set agricultural policies for the next five years. Cool, wet weather is hitting as crop that is already 8% down in terms of acreage planted on last year due to high input costs and the fact that other crops are becoming more attractive. Senators are shifting position as the crisis becomes ever clearer.⁴⁵³

6.5.08. Serious food price problems emerge even in Gulf oil-producing countries, including food riots in Abu Dhabi, Yemen and Egypt. The FAO estimates a $22bn cereals import bill for the MENA region this year, 40% up on 2007. The FT headline reads: “Mideast reels as hunger outgrows oil revenues.” Even Saudi Arabia is seems to be wondering how it can feed its population.⁴⁵⁴ The central bank governor warns that the kingdom faces “a critical situation” over inflation, which is running at 9.6% in March, creating huge problems in a country long used to zero inflation. He calls for Saudis to curb spending. In the UAE and Qatar, inflation is even higher.⁴⁵⁵

Goldman Sachs analyst, who successfully predicted $100 oil at $55, now warns of $200 oil in the next two years. The price meanwhile crosses $122, the highest ever. Arjun Murti predicted a “super spike” above $100 in March 2005. He now says “the possibility of $150-200 per barrel seems increasingly likely over the next 6-24 months.” Oil option contracts betting on $200 by December have tripled since the beginning of 2008.⁴⁵⁶

Former Labour Cabinet minister questions nuclear industry’s uranium figures. The problem is that even the IAEA and OECD put total world uranium reserves at 4.7mtonnes, and production is falling. If fast reactors were ready by 2030, as planned, a further 10mt would be needed by then, and it would have to come from what the industry calls “speculative and undiscovered resources.” Generation IV reactors are due to be ready by 2030, the industry hopes. before then we carry on with generation II (advanced AGR) and III (the ones now being built including at Olkiluoto) [generation I was Magnox]. Generation II and II reactors operate in “once through” mode meaning that a good deal of fissionable uranium ends up in waste. The US is already using former Russian weapons uranium for half its supply. If the Generation IV reactors are run in “breeder” mode, they can address this problem while massively compounding the waste issue. If they are run in “burner” mode the waste problem is reduced, but you are left with the supply problem. Michael Meacher’s conclusion: “A nuclear renaissance? Forget it.”⁴⁵⁷

7.5.08. UK energy minister Malcolm Wicks offers a complacent UK government peak oil assessment which – incredibly - he says is in line with the IEA’s. John Hemming: “To ask the Secretary of State for Business, Enterprise and Regulatory Reform what the Government’s estimate is on when global oil production will peak; and what information has been used to arrive at that estimate.” [203516] Malcolm Wicks: “The Government do not estimate the timing of peak in global oil production. However, it is our assessment that the global oil reserves are sufficient to prevent total global oil production peaking in the foreseeable future provided sufficient investment in both upstream and downstream is forthcoming in order for production to keep pace with the growing global oil demand. This is consistent with the assessment made by the International Energy Agency (IEA) in its 2007 World Energy Outlook (WEO).”⁴⁵⁸ Consistent? The IEA warned of an energy crunch within 5 years after that report.

Shell’s former global brand standards manager rages against company’s loss of values in wake of windfarm cut-and-run. “Sometimes Shell’s actions are so extraordinary that you wonder if the announcements that they make are a wind up – thrown into the ether just to see what might happen. ….As an ex-employee, pensioner and small shareholder …I find Shell’s mismatch between rhetoric and reality a continuing and monstrous disgrace. ….The latest so-called “Shell brand campaign” is apparently a new initiative designed to communicate “What Shell stands for” - the campaign material states what this is: We are positive about energy. We are anti-complacent. We are creative, persistent problem solvers. So let’s take a look at the withdrawal from the wind farm project about which Shell UK Chairman James Smith boasted less than eighteen months ago: “The London Array offshore wind farm will make a crucial contribution to the UK's renewable energy targets.” Is this withdrawal being “Positive about energy”? Isn’t the abandonment of the project so precipitously extremely “complacent”? Can’t Shell be seen not as “creative, persistent problem solvers” but as mendacious knee-jerkers who when they encounter the unknown or the uncertain they run like hell for cover?”⁴⁵⁹

8.5.08. World carbon trading value doubles to about $64bn in 2007. The World Bank’s annual review of the emissions markets shows that EU ETS did $50bn of this, up from $24bn, and the UN market $5.6bn, up from $445m.⁴⁶⁰

Call options on $200 oil surge. They have risen fourfold since the beginning of the year, and 40% in the eight days this month. It only cost investor 70 cents to buy the December option, which could be taken as an indication the market sees the actual probability of $200 oil before year end as low.⁴⁶¹