Triple Crunch Log Jeremy Leggett

16.8.08. Economist calls for European nations to stop making bilateral deals with Russia, exclude them from WTO and OECD, return to the G7, and generally do everything to emphasize the seriousness of what the Russians have done in invading Georgia.⁷³⁴ (L: review of war so far and map of the pipelines). Note: The BTC pipeline was still burning after the earlier Kurdish terrorist attack two days before the Russian attack. The only pipeline working this week has been the Russian one for Baku to Novorossisk, a Russian Black Sea Port. The Nabucco pipeline was due to be complete 2013. One of Medvedev’s first acts as president was to begin persuading the Turkmen and Azerbainjani leaders to sell their gas to him.⁷³⁵ The Nabucco pipeline is supposed to provide 10 bcm of gas from 2013, rising to 30 in 2021. The Russian South Stream pipeline across Russia and EU member states Romania and Bulgaria, is intended to provide 30 bcm on completion, in 2013.⁷³⁶

Climate modellers make progress towards short-term predictions. Features of natural variability like warm and cold fronts dominate in the atmosphere over days, and greenhouse gases dominate over decades. Over years, climatologists increasingly think ocean fluctuations dominate, and this is the basis for recent short-term forecasting. Most natural variability is due to heat passing back and forth between the atmosphere and oceans. Since the 1960s, around 90% of the heat trapped by greenhouse gases has gone into the oceans. A number of cycles are recognisable in the oceans around the planet: El Nino, La Nina, the Pacific Decadal Oscillation in the North Pacific, the Atlantic Multidecadal Oscillation (which may be poised to run negative.⁷³⁷ (L)

17.8.08. Gulf “on the verge of a power crisis,” Arabian Business reports. A recent report by analysts at Global Insight reports an expected 50% increase in power consumption over the next 5 years, and only a 30% increase in supply. Arabian Business notes that industrial projects are being scrapped, and completed residential units are lying empty minus both utility connections and residents. Peak-demand power cuts are now inevitable, it says.⁷³⁸

Wave and tidal power potential going begging in UK as no scheme qualifies for a Marine Renewables Deployment Fund grant. The £42m budget remains untapped. The Scottish government has given £13.5m. John Griffiths of the Orkney Centre says blames “huge emphasis on wind” and inertia in Westminster. Peter Fraenkel of Marine Current Turbines says the UK is making the same mistake as it did in the early days of wind power, leaving Danish and German firms to develop the technology. Professor Stephen Salter of Edinburgh University, who has 35 years experience in the offshore industry, having invented a famous wave device called Salter’s Duck in the 1970s, from which the UK government withdrew funding in 1982 after lobbying by the nuclear industry. he says today: “I think there are still people around who don’t want it to work and who want to go nuclear.”⁷³⁹

UK business secretary urges regulator to act on energy company transparency. John Hutton says they should be forced to open their books: it isn’t acceptable for profits from generation and retail to be combined, as some companies do.

19.8.08. Pain from falling banking stocks on FTSE eased by performance of smaller oil explorers. Increasing value of stocks like Tullow Oil, Dana Petroleum and Cairn Energy are attracting buyers because they are now discounting oil at $70, offering downside protection and upside potential.

Huge gas supply deficit emerges as LNG projects are delayed. 100 million tons of supply disappears by 2013 (138 bcm ….the Nabucco pipeline is supposedly to carry 30 bcm pa on completion by contrast; 868 mboe) as Exxon and Chevron postpone or shelve projects in Australia, Nigeria and the Baltics. This is larger than the imports to S. Korea and Japan, the two largest importers in the world. Wood Mackenzie, reporting the setback, says this will mean spot LNG prices at a premium to oil.⁷⁴⁰

20.8.08. WWF report charts massive over-consumption of water. In the UK, the sixth largest importer, each person uses 4,645 litres a day, directly and indirectly. Only 38% of this comes from our own resources, the rest is virtual water, used from the resources of other nations, often water-stressed themselves. We use 150 litres on average for drinking and washing, and the rest comes from water used on imported food and clothes. A meat-based diet uses about 5,000 litres compared to 2,000 for a vegetarian. Out of season vegetables and salad come from Spain, which has a water crisis (use in Almeria is now four or five times annual rainfall in the region). Tomatoes come from Morocco. By comparison, people in poor countries use around 1,000 litres of virtual water a day on average.⁷⁴¹ (L: And see New Scientist review of water).⁷⁴²

Political rowing in Baghdad slows IOCs return to Iraq and threatens production expansion. The Arab majority and the Kurdish minority are at odds over the detail of the short-term technical agreements the oil ministry wants to sign with foreign oil companies, much less the coveted longer-term production contracts. The lengths of the short-term contracts have been reduced from two to one years, and no preference is given for the longer-term contracts beyond. Anadarko, the US independent, has already walked away. Shell still operating by proxy from outside the country, but Eni has sent its head of exploration and production on a quick tour. Production is on 2.4mbd and the extra 500k a day the oil ministry hopes for as a result of the short-term contracts is now not looking likely.⁷⁴³

21.8.08. Kazakhstan considers diverting oil exports from the BTC pipeline to Russia, Turkish Daily reports. The future of the Baku-Tbilisi-Ceyhan pipeline now hangs in the balance, so a high level Kazakh official told Turkish business daily Referans. Security concerns in the Caucasus are apparently the reason.⁷⁴⁴

Ex-BP executive posits the falling oil price is the lull before the storm. Spare production capacity – the main signal to investors, Nick Butler reasons - is increasing because demand levels are down (it looks like 500,000 barrels a day by year end) and production is lifting, with new projects coming onstream in the next months (Khuransaniyah, and offshore fields in Nigeria and Angola. Spare capacity had dropped to not much more than 1 mbd but is now 1.8 and could rise to 3mbd by next spring. (3 mbd was the average through the 1990s). None of this affects the fundamentals though, which amount to dependence on Russia, Saudi Arabia, and a few other producers.⁷⁴⁵

UK gas price soars 14% after a North Sea leak threatens winter supply. Statoil Hydro has discovered a leak between the Kvitebjoern field and the onshore processing plant, and says the pipeline could remain shut until spring. 5% of Norway’s gas passes through it. Gas began the day at 90.75p per therm and ended it at 104p.

New York mayor plans to get his city on track for renewable-energy independence. Michael Bloomberg wants wind and solar on every suitable building and bridge, and wind and wave power along the coastlines and offshore, generating 10% of the city’s power within a decade. Bloomberg says he is determined to make NY the number 1 city in America for clean power.

Investment boom in smart grid technology eases way for renewables and obviates coal. There have been at least seven venture capital deals so far this year in technologies for applying IT to power grid monitoring and management, the latest with Trilliant, a Silicon Valley firm. Smart grid technology replaces grid technology based on 19^th century ideas, and helps integrate embedded generation. US regulators estimate that a 5% improvement in the efficiency of power grids would remove the need for 42 large coal-fired power plants.⁷⁴⁶

World’s first third-generation nuclear reactor is now €1bn (almost €1.5bn) over budget and 2 years late. meanwhile, the Finnish nuclear safety authority has found no evidence of transgressions in quality or safety, after an enquiry following allegations made by Greenpeace.⁷⁴⁷

Falling sales and junk-bond status force rapid change on US carmakers not to mention threat of bankruptcy, with Chrysler the most vulnerable because of its slowness in retreating from SUVs and pick-ups when the demand began to sag in 2004. The three companies together employ half a million people around the world. Then there are all the service companies, where hundreds of thousands more work. GM, which has put its Hummer division up for sale, is burning cash at more than $1bn a month. Its reserves were $21bn at the end of June.⁷⁴⁸

22.8.08. Shareholders in Freddie Mac and Fanny Mae will probably be wiped out, Buffett tells CNBC. The US economy has little prospect of picking up before next year, he adds. Meanwhile analysts are saying the UK is already in recession, after the latest figures. The government-firms Freddie and Fanny own or guarantee $5.3 trillion of US mortgages. The institutions are too big to be allowed to fail, and to prop them up the US government has agreed to guarantee the whole. (Note: they operate a secondary mortgage market by buying mortgages from lenders, packaging them up, and selling them on to financial institutions on a global basis. The whole financial system is thereby under threat. F&F lost $14 bn last year.

23.8.08. UK PM Brown faces revolt over energy windfall tax. Two thirds of voters support a levy on oil and gas company profits, a poll shows. 57% of Tory voters are in favour. Many MPs are in favour too. Oil and Gas UK points out that the companies paid £8bn in tax last year and is expected to pay £16bn this year.

Shale gas sparks talk of a drilling boom and reversal of gas decline in the US. Exploration of shale formations is just beginning, both in the US and elsewhere. Some hold considerable quantities of gas, which drilling techniques are only now opening up. Horizontal drilling is used and water is pumped into the shale to fracture the rock. A US Geological Survey paper presented to the International Geological Congress (13^th August) is very upbeat on prospects but notes that drilling the first major deposit in the US will take a festoon of thousands of wells to drill each deposit. CERA, no less, are saying the jury is still out. But US gas production is up 9% this year, and most of that is coming from shale. The Barnett Shale near Forth Worth has been producing for a few years.⁷⁴⁹

Psychologists tell American Psychological Association that instant feedback energy meters are vital in triggering can-do attitudes in people when it comes to climate-change action. “People need to see their actions have effects that are local, immediate and concrete,” Paul Stern of the US National Research Council tells the APA meeting.⁷⁵⁰

26.8.08. Japan plans to build hundreds of quick-recharge stations before plug-in hybrids enter the market next year. Japanese drivers will be the first in the world to be offered plug-in cars by the major carmakers: in 2009 by Mitsubishi Motors and Subaru and 2010 by Toyota and Renault-Nissan. Tokyo Electric Power (TEPCO) says it has developed a device that recharges enough of the battery in 5 minutes to allow a 40 km drive. 10 minutes gives 60km. The device costs $36,500 and will be installed in supermarkets and other public places. The government, aiming for half of all new car sales to be electric by 2020, is doing its bit: offering discounts to EV drivers on parking, loans, insurance and other things.⁷⁵¹

Germany reconsiders its nuclear phase out as gas supply worries grow. The 2002 decision to phase nuclear out is now under pressure from many in the CDU, and last month, for the first time, a majority opinion poll favoured extending the lives of the 17 nuclear plants. RWE has come up with an incentive: the longer-lived plants have paid off capital and are running at huge profit. Intention is to give some of it back to customers in lower prices for electricity, and investments in energy-efficiency and renewables. Note: the next general election is in September 2009. If the anti-nuclear forces win, 7GW will come out of commission in the lifetime of that parliament, and the retreat would become irreversible.⁷⁵²

28.8.08. Merril Lynch’s losses in 18 months are a quarter of the profits it made over 36 years. FT number crunching shows the bank’s losses have totalled $14bn during the credit crisis, and it has written down $52bn on its balance sheet.

Chinese government halts CTL projects, saying it needs to conserve coal for power generation. The National Development and Reform Commission issues a decree, according to statement on the Ningxia Provincial Development and Reform Commission’s website, announcing that all projects must stop except Shenhua’s plants in Inner Mongolia and Ningxia. Sasol confirms it is dropping one of the two projects it has underway in its joint venture with Shenhua. China is struggling through a sixth year of power shortages because of insufficient coal supplies. Coal shortages caused the mothballing of almost 3 percent of China’s coal-fired generating capacity in July, according to the State Grid Corporation of China.⁷⁵³

UK Coal invests to lift output, but CEO says new coal mines are unlikely. £55m is going to each of its two collieries in Nottinghamshire and West Yorkshire, but CEO Jon Lloyd says “to start from scratch, to drive shafts would cost about £1bn and take eight or nine years – even if you find the who know how to drive shafts any more.”⁷⁵⁴

Catalan government accuses Spanish generators of putting profit before nuclear safety. 25 of 47 reported incidents in Spain’s six nuclear plants have been in Catalonia. The problems began, according to the government, when Iberdrola and Endesa started to subcontract maintenance, as a route to lower sosts, in 2002. The Spanish government has vowed to gradually replace the six plants (and 20% national electricity) with renewables.⁷⁵⁵

Chinese race for nuclear power means skills shortage could threaten the small UK programme. The Economic Research Council points out that China has 7 plants under construction, 24 planned and 76 proposed. France, by contrast, has 1, 0 and 1. Realising just part of this, much less plans in India (6,10,9) and Russia (1,10 and 15) would risking forcing the few companies capable in principle of building nuclear plants - Areva, GE, Westinghouse (owned by Toshiba) and Atomic Energy of Canada – to drop any focus on the slim pickings in the UK.⁷⁵⁶

29.8.08. Last two UK energy companies raise prices, by up to 34%. Average UK bills are now in the £1,200 to £1,300 range. Calls for a windfall tax grow, but the government is reluctant, because it wants the companies to have enough cash for their nuclear investments. Note Good Energy situation: 21.8.08. Good Energy situation: From Oct 06 to Oct 07 the cost of wholesale electricity hovered around £40 per MWh before soaring to c £90 per MWh in Jul 07. Renewable electricity is sold on the open electricity market, alongside electricity from gas an coal, meaning that the price of wholesale renewable electricity is governed by the oil price. GE’s wind farm at Delabole helps cut the over cost of its electricity, and GE expects the price of wholesale electricity to become less sensitive to oil price as more RE enters the mix. The unit rate is 16.26 per kWh as of today.⁷⁵⁷

Republican Convention attendees chant “drill, baby, drill” at Sarah Palin after she tells them Alska has lots of oil and gas.

30.8.08. Oil production by the Big Five IOCs declined 614,000 barrels a day in last quarter, as oil production falls at all the companies despite a collective $44bn profits. This was the steepest decline of five consecutive quarters. By contrast, global demand is expected to rise 800,000 barrels a day this year. Goldman Sachs analyst Arjun Murti: “There is still a lot of oil to develop out there, which is why we don’t call this geological peak oil, especially in places like Venezuela, Russia, Iran and Iraq. What we have now is geopolitical peak oil.” Note: Collective profits of Exxon, Shell, BP, Chevron and ConocoPhillips have gone up from c. $20bn a quarter in 2004 to >$35bn 1^st quarter 2008 and $40 bn 2nd quarter. 1994 collective Big Five exploration budget has gone down from 16% in 1994 to 7% in 2007. Share buybacks have risen from 4% to 37% in the same period. How the Big Five spent their collective $155bn outlay in 2007, according to SEC filings and the James Baker Institute for Public Policy: 37% share buybacks, 36% development, 22% dividends, 7% exploration and 2% property acquisition.⁷⁵⁸

Gordon Brown rages against “Russia’s naked aggression”, and says UK will stand up to it by “rapidly build(ing) relationships with other producers of oil and gas.” And “looking to replace our ageing nuclear power plants,” of course. All this because “the UK will go from being 80% self sufficient to having to import almost two thirds of our gas and more than half our oil by 2020”⁷⁵⁹

Foreign owners of UK energy companies scupper Brown plan for a £1bn windfall tax. Centrica and SSE, the last two domestically owned companies, were apparently willing to sign the deal, which would have involved them buying more allowances under the EETS. But Eon and the test feared they would set precedents for Europe. The companies say they need to invest £100bn in renewables by 2020 if the government is to hit its 15% target. Ofgem says they have invested £14bn in gas-fired plant and renewables since 1990, by contrast. Ofgem also says they stand to make a £11bn profit on EETS over the next 4 years. Note how: They receive the permits for free (except for 7% sold at auction), but reason that if they don’t sell them (but use to continue polluting) they forego an “opportunity cost”, which they pass on consumers ….an estimated average of an extra £31 on every bill!⁷⁶⁰

1.9.08. UK coal demand, and industry, grows for first time since privatisation in the mid 1990s. Production peaked in the 1950s, when almost 1,000 mines yielded 200m tonnes a year. In 2007, just 52 mines produced 16.3 mt. The price in 2006 was under $70 a tonne. In 2008 it has touched 220.⁷⁶¹

Algal biomass moves to commercial-scale production with more than $100m of new investments. Solazyme, which grows algae in stainless steel tanks, fed by industrial waste, alone raised $45m in venture capital.

Fifth EPIA-Greenpeace PV market forecast shows 13.8% of global electricity from PV by 2030. This would entail 1,864 GW of cumulative installed capacity (it was 9 GW as of end 2007), and electricity production of 2,646 TWh per year by more than a billion grid-connected consumers and more than 3 billion off-grid consumers. With more than 280 GW being installed per year by 2030 (around 60% grid-connected), the employment potential would be 10 million, mostly in services and marketing, and the industry would be worth approaching € half a trillion. The cost of the electricity would be 7-13 € cents per kWh depending on location, and almost 9 billion tonnes of CO2 would have been saved over the period, and 1.6 billion per year in 2030.⁷⁶² (L) Note: the four previous forecast have undershot reality, and this too appears conservative, according to an EPIA announcement just two days later (see blow). The scenario has only 2-3% of European electricity from PV by 2020, and assumed major energy efficiency investments are needed to get the contribution into double figures.

Sustainable investing marches on into the mainstream. Rich individuals are a key lead driver, the European Social Investment Forum reports. The Eurosif survey records more than €half a trillion of rich people’s money in SI in 2007 and forecasts a doubling to more than a trillion by 2012. “Successful entrepreneurs of today are not the industrialists of yesterday,” one respondent to the survey points out. “They are younger and more interested in sustainable investments.”⁷⁶³ The Cowan versus Scargill ruling in 1985 set the legal course for pension funds only to invest with best returns in mind, rather than taking any ethical stance. This view was challenged by Freshfield Bruckhaus Deringer in 2005, in a report on behalf of the UN arguing that failing to take ethical issues into account might constitute a breach of fiduciary duties. This opinion has not been tested in court yet, but funds are increasingly getting round it using positive engagement with companies, and decisions to screen out those with unappealing climate liabilities.⁷⁶⁴

UNEP study shows that the PV industry is much more labour intensive than the fossil industries. Renewable power creates more jobs per unit of power, per unit of installed capacity and per dollar invested than conventional power generation. Public transport generates more jobs than vehicular manufacturing and use. Every MW of PV capacity creates 7-11 jobs, compared to 3 for every MW of wind power and 1 to every MW of coal and gas-fired generation. Out of at least 2.3 million employed in the global renewables industry in 2006, some 794,000 were employed in the solar industry (about 624,000 in solar thermal and about 170,000 in PV 40,000 of them in Germany). German renewables-industry employment grew to 260,000 in less than ten years. The global market for environmental goods and services is worth £1,300bn per year ($1.3 trillion, sic), half in energy efficiency.⁷⁶⁵ (L) According to Photon, $50bn of it is PV. More detail in report.

UNEP study showcases most ambitious energy-efficiency retrofit programme in buildings. This is the sector with the greatest potential to reduce greenhouse-gas emissions in the years ahead. In Germany, a partnership between government, building industry, trade unions and NGOs deployed $5.2bn of public subsidies between 2001 -2006 retrofitting 342,000 apartments with a variety of energy saving techniques. The $5.2bn stimulated a total investment of $20.9bn, creating 140,000 jobs and reducing annual emissions from buildings by 2%. The government recouped $4bn of the $5.2bn through tax and the reduced need for unemployment benefit.⁷⁶⁶

Discovery rate continues to fall in the North Sea. In 2006 there were 12 oil discoveries totalling 500mb. In 2007 there were 13, totalling 400 mb (average 30 mb), according to the latest UK Oil figures.⁷⁶⁷ (L)

Former Bear Stearns CEO seems to admit he didn’t understand mortgage-backed securities. In his first interview since the bank collapsed, Jimmy Cayne says he did not know what to do when his firm’s assets devalued. “It was not knowing what to do. It’s not being able to make a definitive decision one way or the other, because I just couldn’t tell you what was going to happen. …When you know that you have worked your ass off and you’re not smart enough to know the answer, that’s tough.” Cayne staked a 22 year old who had never managed money before to start a hedge fund. Stearns claims he didn’t know Bear was in trouble until two weeks before the announced, in June 2007, that it would need to stake $3.2bn to try and bail out the hedge fund. In June 2008 the 22 year old was indicted for conspiracy and fraud.⁷⁶⁸