Triple Crunch Log Jeremy Leggett

Chinese agriculture ministry proposes buying agricultural land in Africa and South America. Under the proposal, agricultural companies would be encouraged to buy land abroad because China may have 40% of the world’s farmers, but it only has 9% of the world’s arable land. Saudi Arabia and Libya are looking to buy land abroad. Libya is talking Ukraine about growing wheat.⁴⁶²

9.5.08. Putin says taxes on the Russian oil industry must be reduced in order to reverse production fall. This in his inaugural speech to the Duma as PM on May 8^th. But the Economist wonders if its too late, because fields can take ten years to bring onstream and the punitive taxes – the government can take as much as 92% of profits – mean companies are hoarding their money and not investing. The industry would have to invest in eastern Siberia and Okhotsk anyway because licences have yet to be handed out for the Arctic, and because of declining returns for enhanced oil production in western Siberia. Oil and gas provides fully half Russia’s budget revenues, 65% of experts, 30% of GDP, and the Economist concludes “the government has put at risk the goose that lays these golden eggs.” Note: Russia is the second biggest producer, but production has fallen for four straight months and is 2% down on the 9.9 mbd peak in October 2007. Reserves of 80bn are the seventh biggest (BP says). TNK-BP provides 20% of BP’s production but only 10% of the profits. Lukoil is investing $10bn a year, but more into gas than oil, which is more lucrative because tax is lower. It is also investing in refining, because tax on exported petrol is lower than on exported crude oil.⁴⁶³

Fuel demand drives oil and corn to new records. Oil reached $126, double the price a year ago: a $10 rise in a week. Opec’’s secretary-general still insists “there is clearly no shortage of oil.” But some ministers are now saying Opec should meet before the next scheduled gathering, in September. Corn is now $6.75 a bushel, up 75% on this time last year.⁴⁶⁴

Sales of home-brew biodiesel reactors are rocketing. Ecotec Resources, for example, makes reactors and 100,000 litres of recycled fuel itself. He sells 15-20 machines a week and all his fuel and can’t meet demand. If you collect your own waste cooking oil, it costs 15p a litre. The forecourt price is £1.25. You can easily save £100 a month, as well as 90% of GHG, says client Gordon Elliot. There are some 35 companies refining recycled oil, and an estimated 20,000 individuals. You can make 2,500 litres a year legally, so most are working legally ….for the moment. The first break in has happened at a fish and chip shop just to steal the waste oil. Buyers include hauliers, taxi firms, etc. The Borough of Richmond, tendering a £3.5m contract to run all its 300 council vehicles on recycled oil for three years, calculates it can save nearly £100,000 and reduce greenhouse-gas emissions by several thousand tonnes. A true grassroots industry seems to be emerging.⁴⁶⁵

Renault-Nissan aims to lead the industry in all-electric cars. CEO Carlos Ghosn says: “We must have zero-emission vehicles. Nothing else will prevent the world from exploding.” He is teaming up with Project Better Place to take EVs to Israel and Denmark by 2011, and plans to launch one in the US in 2010. By 2012, Renault-Nissan intends to have a range of EVs in all main markets offered at prices lower than equivalent petrol models. Nissan and NEC are investing heavily in the lithium-ion batteries needed to make this happen.⁴⁶⁶

Hundreds of $billion savings in energy efficiency still go begging at today’s high energy prices. McKinsay Global Institute (MGI) believes the world could get half way to deep cuts in emissions (550ppm CO2) profitably, using existing technology, and earning an average return on investment of 17%, and a minimum of 10%. Around $170bn would have to be spent by 2020, but the returns would be quick, and anyway that figure is a mere 1.6% of today’s global annual investment in fixed capital.⁴⁶⁷ (L)

Warming oceans may become starved of oxygen, creating deserts in terms of life. Oxygen dissolves less well as water temperature rises. German scientists analyse data spanning the last 50 years showing O2 concentrations in large areas of the Pacific and Atlantic have fallen below 120 micromoles per kg of water, the level at which marine creatures begin to suffocate. Original paper is in Science magazine.⁴⁶⁸

11.5.08. Another round of price increases in utility bills will mean 1 in 5 UK households in fuel poverty, Energywatch warns. Oil price up 90% on a year ago, UK utility bills up 85% on 5 years ago, diesel up 27% on a year ago. ($65 to 126, £543 average a year to £1,000, 95p a litre to £.21). 4.5m households are now in fuel poverty. Over half single pensioners are spending more than 10% of their income on energy bills. Help the Aged estimates that of the 11 million pensioners living in the UK, 20% are in fuel poverty.⁴⁶⁹

There is no chance the American century is drawing to a close, Will Hutton argues. The fashionable view of a busted flush is wrong, he says. The 21^st century knowledge economy will save it. Of the world’s top 100 universities, 37 are American and 3 are Chinese. No other country spends proportionately more on R&D. Of the top 50 companies ranked on R&D 20 are American, none are Chinese. Half the world’s new patents are registered by American companies, and almost none by Chinese.⁴⁷⁰

Shell pulls out of Iranian gas project. The pressure for Washington has been too great. Repsol also quit. The whole South Pars project may now hang in the balance.⁴⁷¹

Estimates for US nuclear plants inflate 2 to 4 times. The tab for the new generation of plants, summarising a number of recent company estimates, is now $5-12bn a pop. This is primarily a result of commodity prices, labour shortages.⁴⁷²

12.5.08. Atmospheric CO2 rises more than 2ppm in 2007 for fourth year in last six: worse than feared. The annual figure from Hawaii this time was 2.14ppm, and the total is now 387 ppm. From 1970 to 2000 the rise was a steady 1.5 ppm. Since 2000 it has averaged 2.1. Scientists think the steepening accumulation rate is due to three things: accelerating coal use in China (perhaps half), growth of the global economy generally, and a weakening of sinks as forests, seas and soils lose their ability to absorb CO2. Feedbacks are kicking in, in other words.⁴⁷³

BP scraps a second CCS project, this time in Australia. The project was with RioTinto: a coal station with carbon storage in a saline aquifer. Now they have decided the geological formations are unsuitable for long term storage.⁴⁷⁴

13.5.08. Mountaintop mining for coal is splitting hard-up communities. Around a third of US coal comes from the Appallachians and about of third of that comes from mountaintop seams. More than 400 Appalachian mountains have had their tops dynamited off to expose coal for open cast mining. Disfigurement, flooding, and carcinogens in the water supply are among the downsides. Dozens more mountains face the same threat. Polls show a majority in West Virginia and Kentucky opposed, but political leaders are uniformly in favour for some reason. Protestors find their cars smashed and their dogs shot dead. As Mary Anne Hitt, director of an Appallachian conservation group, puts it: “The coal industry and the political establishment are interconnected and the interests of industry are put ahead of ordinary people.”⁴⁷⁵

14.5.08. German President says financial markets have become “a monster.” Horst Köhler, a former head of the International Monetary Fund, calls for much tougher regulations and pay reform in an interview with Stern magazine. “I am still waiting for a clear, audible mea culpa. The only good thing about this crisis is that it has made clear to any thinking, responsible person in the sector that international financial markets have developed into a monster that must be put back in its place.” “We need more severe and efficient regulation, higher capital requirements to underpin financial trades, more transparency and a global institution to independently oversee the stability of the international financial system. I have already suggested that the IMF assume this role.” “Capitalism only has a future if it rises up to its responsibilities. Especially its responsibility towards the weak. It is about practising responsibility and solidarity without at the same time switching off market and price mechanisms.”⁴⁷⁶

15.5.08. First zero carbon home to be built by a UK volume housebuilder unveiled. The house is airtight, with concrete walls, super-insulation, and triple glazed windows, meaning it requires minimal heating. It uses rooftop solar PV and thermal panels and an air-source heat pump, which acts like a reverse air conditioner, pumping warmed air into the building from outside, and releasing stale air from which the heat has been extracted. The ASHP is powered with electricity from the PV. The first home is at the Building Research Establishment, and the first estate – all Code 6 and complete by 2011 (five year ahead of schedule) - will be near Bristol. No gas is used. Hot water comes from the solar thermal, with backed in winter from the heat pump. Not only is the house zero carbon, but its carbon cost of building is extremely low. The lifetime use of carbon-intensive concrete pays itself back over time because it helps the house last over 100 years.⁴⁷⁷

World’s first high-performance electric car hits UK roads. The “Green rocket,” as the Daily Mail calls the Tesla Roadster, acclerates from zero to 60 in less than four seconds, the car is faster than all but a few gasoline-powered cars. It has a top speed of 150 mph, and a range of 250 miles. At $92,000, the 2008 production is already sold out. (Same price as a Porsche 911, but not requiring the £70 a tank for less than 300 miles driving). This is not about high-performance toys for rich Californians, because the Tesla Motors plan is to adapt the revolutionary drive-train and motor for a four-door saloon costing less than $50,000 and a $30,000 mass-market model.⁴⁷⁸ Vanity Fair says the Tesla Roadster “could spell the end of the internal combustion engine.” The Tesla overcomes objections raised about earlier battery cars, like the GM EV1 of the 1990s. That best version of that had nickel-metal hydride batteries, which had a memory problem. The Tesla has lithium-ion batteries, which obviate the memory issue, and are recyclable.⁴⁷⁹ Regenerative braking adds to the efficiency, which is twice that of a popular hybrid (assuming gas is burned at the power plant), giving half the carbon dioxide emissions. The Tesla is six times as efficient as a typical sports car and emits a tenth of the carbon dioxide. Of course, if you use renewable electricity, the emissions would be zero. The car needs 0.38 kilowatt hours per mile (at a cost of about 1p, or less than a pint of beer per charge), so that if you drive it 10,000 miles a year, a 5 kilowatt solar PV array would provide all the electricity needed. That could fit on the roof of many a Californian home. A 3.5 hour charge is needed for the 220 range, and Tesla says the charge time will shrink to that of a long lunch as their R&D delivers.⁴⁸⁰ Rosie: “As we stop for a sandwich in a country pub, a radio is blaring away in the background, with a local DJ advising listeners on where they can find cheap petrol. "We've found some for 111p a litre at BP in Bicester," he says, scarcely able to contain his excitement, "and someone's just phoned in to say it's just 110.9p at Sainsbury's in Kidlington - phone us now if you know of any better deals." Well, how about a gleaming sports car that not only looks the height of cool, but costs less than a pint of beer to "fill up"?”

16.5.08. Oil reaches new high of $128 on fears of a diesel shortage and a Goldman Sachs prediction of average $141 prices in the second half of the years, up from $107 in an earlier forecast.⁴⁸¹

FT calls for a global summit on oil supply to combat high prices. The lead editorial says there should be three objectives: to encourage efficiency, to encourage investment, and “to smooth the recycling of billions of dollars in oil revenues from producers back to the consuming countries.” The latter addresses the trade surpluses and deficits building up, aiming to make sure the imbalance doesn’t cause a currency crisis.⁴⁸²

17.5.08. Saudis say they will lift production by about 300,000 barrels after Bush visits and appeals direct to King Abdullah. This would be 9.45 mbd, by June, the highest level since March 2006.⁴⁸³

17.5.08. UK campaigners target coal-fired power plants, seeking guarantees CO2 will be contained. Eight plants are being planned, equal to entire 2050 target the UK has set itself. Eon’s two intended plants at Kingsnorth would generate 8 mt CO2 equivalent at full 1,600 MW capacity. They await government approval. Eon’s clean coal business development manager, Andy Read, admits there is no guarantee, even if CCS can be made to work, will be fitted without subsidies from government. Meanwhile, Denmark and NZ have moratoria on new coal plants, Canada says they must have CCS by 2018, California the same by 2020. Of 151 new coal plants announced in the US last year, 59 have been dropped due to protests and 49 are being contested in court.⁴⁸⁴

18.5.08. UK government pledge to speed up wind farm planning process fail to materialise. The BWEA annual review shows 22 projects awaiting approvals. The average wait time has increased to more than 24 months.⁴⁸⁵

19.5.08. Zero carbon home operating on Unst, Scotland at the same latitude as southern Greenland. It is powered entirely by wind and sun, completely off grid. The couple who own it run a battery car and will soon grow almost all their own food in a solar heated greenhouse with plants grown in high-nutrient hydroponic liquids under special LED lights creating artificial seasons. The couple who built it run a website which has been the fourth most popular site worldwide on Google (www.zerocarbonhouse: check). Scotland also has the first island grid. Switched on in February, it links 45 homes and 20 businesses on Eigg, powered by a mix of wind, solar, and two small HEP dams.⁴⁸⁶

Gordon Brown accuses Opec of with-holding supply from the market, calling it “a scandal.” Speaking a conference in London, he says: “It is, as people will recognise, a scandal that 40% of the world’s oil is controlled by Opec, that their decisions can restrict the supply of oil to the rest of the world and that, at a time when oil is desparately needed and supply needs to expand, Opec can with-hold supply from the market.” He calls for the EU and G8 to break Opec’s power, but didn’t say how.⁴⁸⁷

Eni finds oil sands in the Congo, possibly 9 billion barrels in all. This is potentially Africa’s first large unconventional oil development. Eni intends to bring it onstream by 2011. It could exceed their entire current reserves of 7bboe, and be on a par with Kashagan.⁴⁸⁸

US imports fall as conservation kicks in. The EIA reports imports at 57.9% in the first quarter compared to 58.2% last year. EIA forecasts imports falling from 60% to 50% by 2015.⁴⁸⁹

20.5.08. Long-term oil futures almost hit $140 by end 2016 on fears of shortage by 2012. Traders say they have never seen such a jump and that investors are increasingly betting on peak oil because of geopolitical and geological peak oil. T. Boone Pickens gives another prediction that fans the flames: $150 oil by year end.⁴⁹⁰

Kuwait government moves again to engage international oil companies in bid to raise production. Kuwait Petroleum Corporation is negotiating performance-related contracts for the first time, hoping to lift production from the current 2.6 mbd to 3 in 2009, 3.5 by 2015 and 4 by 2020. Its plan known as Project Kuwait, in which IOCs would be offered operating services contracts, was repeatedly blocked by parliament. The Emir dissolved parliament recently, but new elections are being held this month. KPC is hoping that that the new contracts will prove more palatable to parliamentarians, because they will suppress fear that foreigners will be given ownership of the oil.⁴⁹¹

Russian agents rid BP-TNK’s office for a second time in two months. Timed nicely ahead of the BP CEO’s visit to the St Petersburg economic forum. The speculation in Moscow is that Gazprom will try and turn this pressure into a merger with Gazprom Neft, its oil arm, in which BP would have a 25% stake.

npower breaks through the 1 MW PV barrier in UK, notwithstanding poor subsidy regime. Since starting selling solar PV in June 2007, the company has around 500 customers exporting to the grid (i.e. average size 2 kW, costing £11,800, or £5.9W): about a third of the total selling surplus energy, according to Ofgem. Most use Schueco polycrystalline modules. Npower now also has Lafarge tiles on its list.⁴⁹²

21.5.08. IEA gives another warning on an early oil crunch: its new supply study is not finding good news. The IEA is in the middle of its first assessment field by field in the top 400 fields (two-thirds of global production), and pessimism is growing, far ahead of the November production date. The agency fears that aging fields and under-investment will mean a peak below 100 mbd. Fatih Birol, the IEA's chief economist and the leader of the in the 25-member team doing the study, tells the Wall Street Journal: “The oil investments required may be much, much higher than what people assume. This is a dangerous situation.” “We are of the opinion that the public isn't aware of the role of the decline rate of existing fields in the energy supply balance, and that this rate will accelerate in the future.” The EIA is also reported as being increasingly pessimistic. ⁴⁹³

US oil executives grilled in Congress about profits. Meanwhile, Herb Kohl, a Wisconsin Democrat, is trying to get the anti-trust exemption given to OPEC members removed.⁴⁹⁴

Rockefellers attract allies in battle with ExxonMobil. Nineteen investors, including Calpers and Calsters, support resolutions calling for a new independent chairman and action on climate change.⁴⁹⁵ Two of the family write an FT op-ed explaining their desire to see an independent Exxon Chairman. 92 percent (70 people) of all living descendants of John Rockefeller, founder of Exxon, want to see reform. Otherwise, they believe, the long-term value of their shares will suffer. The company has no plan for the changing energy environment. No strategy for carbon, or for the skills shortage (the industry’s biggest strategic risk, so a recent Ernst and Youndg report says).⁴⁹⁶

Goldman, Merrill Lynch and Barclays Capital all now warn of a super spike in oil price. And so the price goes up again. The Saudi oil minister is being rivalled by Wall Street analysts in his ability to do this, the FT says.⁴⁹⁷

American Airlines cuts planes and jobs. CEO Gerard Arpey says: “The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel.”⁴⁹⁸

Twelve ME states have now delared an interest in developing nuclear power. UAE and Libya have signed co-operation agreements with France.

22.5.08. Oil passes $135, breaking record for three days running, up $10 in a week. OPEC blames speculators. Libyan oil mister Shokri Ghanem: “$200 a barrel is not logical, but even $135 a barrel is not logical, so yes oil could reach $200 a barrel. Why not?”⁴⁹⁹

Ford says it can no longer hit its goal of black figures next year. CEO Alan Mulally says the US auto market has hit a tipping point of people switching to fuel-efficient cars at the expense of SUVs and pickups.⁵⁰⁰

24.5.08. Fears of stagflation grow. Compared to prices a year ago, electricity is up >11%, unleaded petrol up >18%, heating up 120%. Jet fuel is up 450% on 2003.⁵⁰¹ The FT comments that: “normally it takes a war to lift oil prices $10 in a week. Not this week.” Fuel subsidies are common in SE Asian and countries including Taiwan, Malaysia and Indonesia start cutting them.⁵⁰²

Two thirds of the world’s population faces double-digit inflation, the Economist reports. America is close to recession and growth in other economies has slowed, but inflation continues to rise. “An economic serial killer is on the loose.”⁵⁰³

IEA to probe fears that global oil shortages are real, the Observer reports. Lawrence Eagles, head of oil markets research at IEA: Our findings will form part of the short- and long-term forecasts that we intend to publish in July and November. Up to now we have believed supply can cope with demand. One caveat is that we don’t know for certain whether estimates of reserves in countries such as Saudi Arabia are entirely accurate.” The worry is an extremely narrow margin by 2012, when demand will be around 05 mbd on current demand trends.⁵⁰⁴

25.5.08. Fears that green business will suffer in the economic downturn. Global sales of environmental industries are over $500m – as big as aerospace or pharmaceuticals already, according to the Environmental Industries Commission, which expects sales of $700 bn by 2010. But the Observer is concerned that moves like Shell’s recent withdrawal from a major UK wind project won’t help. On the other hand, for example, Ceres members have promised to be investing $10bn in clean energy by 2010, up from $2bn (out of $5,000 [5 trillion] under management). JP Morgan expects the carbon offset market to be half a trillion by 2010 up from $60-70bn in 2007.⁵⁰⁵

Robot submarines to search for radioactive waste on the seabed off Dounreay nuclear site. The robots will cross-cross the seafloor with geiger counters looking for specks of plutonium from accidental dumping in the 1980s. They will lift the particles and transport to land for storage. Two miles of beach have been closed since 1983 when the dumping of fuel rod fragments was discovered. The UKAEA was fined £140,000 at Wick Sheriff Court – eventually, in 2007 - for the “very grave errors” involved. The government ordered the closure of the failed fast-breeder programme at Dounreay in 1994: plus a clean-up to be completed by 2025. The site, with huge amounts of urnaium and plutonium in storage, is a terrorist threat, and is heavily guarded by armed police. One Scottish plan is to build tidal power station on the site, because – according to site director Simon Middlemiss - the currents are so strong. (JL: So why were only 2 miles of beach closed then?)⁵⁰⁶

26.5.08. All Gulf states except perhaps Qatar now face gas-shortage constraints to their development, experts say. GCC countries face 6-12% annual growth rates in electricity demand, compared to 2-4% in developed countries. Pure gas is relatively rare in the Gulf. Says one Saudi official: “There is enough gas but the problem is its cheap and everyone wants to use it. The petrochemicals people, the desalination people, everybody – and Saudi Arabia has to expand.” Qatar has the third biggest reserves in the world, >800 trillion cu ft. By comparison Saudi has >200 trillion cu ft, the fourth largest. UAE, the fifth largest has a little less than SA, c. 200 trillion, but has to import from Qatar. Qatar has put a moratorium on projects in the North Field, the world’s largest gas filed, until 2010. The queue of projects in Saudi Arabia means that Saudi officials are considering the unthinkable: importing gas. Another un-named official: “Unless the gas ventures in the Empty Quarter get some gas, then maybe supply might not come to satisfy growth in demand.” No discoveries have been made by the IOCs given licenses to explore or gas in the Empty Quarter in 2003 and 2004 and Total has pulled out. UAE and Kuwait are burning liquids in power plants at peak times and Oman is talking about building a coal-fired plant. Nuclear is being looked at by Gulf States. Gas exploration is underway, but even with discoveries lead times are around five years. Also, much of the gas is sour of “tight,” and as a result difficult to produce.⁵⁰⁷