Triple Crunch Log Jeremy Leggett

1.4.06. Worst floods for a century along the Danube. Towns all across Balkans suffer serious flooding in the first week of April.

Petroleum Review oil megaprojects compilation shows shortfall of capacity coming onstream. The study counts all reported oil development projects of more than 50,000 barrels per day peak production capacity. 50,000 barrels per day of capacity amounts to a very tiny oilfield. Global demand today is 84 million barrels per day. The bottom line is this. The industry will bring on stream an average of 3.4 million barrels a day new capacity during 2006 from projects bigger than 50,000 barrels per day peak capacity. By 2010, assuming no slippage in the development projects in the pipeline the industry will bring on stream about the same amount: 3.3 million barrels a day. That may not be good enough to meet rising demand and replace the oil lost by depletion.⁵² (L) See JL blog 5, 18.4.06.

6.4.06. Total’s head of exploration says oil production will not be able to meet demand over next decade. Christophe de Margerie, heir presumptive for the leadership of Total, says IEA has failed to consider the speed at which resources can be brought into production. “Numbers like 120 mbd (IEA estimate for the demand by 2030) will never be reached, never.”

17.4.06. Oil price reaches new height of $72 on news of US nuclear threat to Iran. Bush says a nuclear strike on Iran is on the table. Qatar’s energy minister says OPEC is doing all it can to raise production.

BP joins Exxon-Mobil and others in a scramble for more oil below the melting Arctic ice. UK scientists are objecting to the USGS and oil companies working on what purports to be a flagship scientific programme. USGS thinks a quarter of remaining global undiscovered oil is below the Arctic, perhaps 375bn barrels. Seven ships made it to the North Pole last year, one in August for the first time without an icebreaker. See JL Guardian blog 6, 19.4.06..

18.4.06. Carbon permits reach record price of £20.8: the oil price is to blame. Drought expected this summer could raise it even higher because of the impacts on hydro and nuclear.

19.4.06. Gazprom threatens to send EU gas supply to China or North America if EU opposes megamergers. e.g. with Centrica. Gazprom is the world’s largest natural gas producer, one fifth global production, and supposedly holds 16% of global reserves.

20.4.06. Chinese government says economic growth must be slowed to help the environment: dust storms & pollution are forcing Beijing’s hand. Beijing is suffering a toxic cocktail. Chinese PM says this visiting Bush in Washington.

Royal Society warns Exxon-Mobil will try to obscure the significance of the next IPCC report. An early draft of the next IPCC report, due next February, is in circulation with governments. See JL Guardian blog 7, 25.4.06.

22.4.06. British Chancellor Gordon Brown deems climate change to be a moral issue. He does so in a Radio 4 interview for 15 minutes on every fiscal aspect of the issue. But UK green taxes have fallen during his tenure because of reduction in the fuel tax green escalator.

24.4.06. Gazprom official owns up to future gas-supply shortfall. Gazprom apparently admits doubt that it has been investing enough to meet demand within a few years. An article in Russian from Vremya Novostei quotes deputy head Alexander Ryazanov.

26.4.06. China invests in Nigerian oil infrastructure in effort to secure supply. $4bn in infrastructure in return for first refusal rights on blocks for exploration. The number two importer and the number 8 producer get close.

28.4.06. George Monbiot argues solar has little place in delivering a low-carbon Britain. He accuses me in the Guardian of wanting to solve the problem of climate change with “resources that do not exist.” I say: “They not only exist, they are rather easy to use.” See JL blogs 8 & 9, 26 & 28.4.06.

3.5.06. Leaked IPCC scientific report forecasts disaster: US officials accused of leaking it to dilute impact. The IPCC’s Fourth Scientific Assessment is now circulating among governments. The US posts it on their Climate Change Science Programme website. US climate change negotiator Harlan Watson denies he is trying to reduce the ultimate impact.

4.5.06. Dick Cheney accuses Russia of blackmail and bullying over energy while speaking to Baltic leaders in Vilnius. Mikhail Gorbachev warns that hawks on both sides are seeking to recreate the Cold War and calls the speech a provocation.

Shell says replacing reserves is no longer a forecast but an “aim.” CEO Jeroen van der Veer admits they may not hit their target of replacing oil and gas reserves in 2004-8 as promised. Shell plans to spend $19bn on new exploration and production this year and $21bn next. (JL: Note this is more than its share of the $200 bn upstream investment needed industry-wide each year according to Goldman Sachs ….Shell has 2.1 mbd / 85 mbd = 2.5% of global production; 2.5% of $200 bn would be c $5bn).

5.5.06. Shell boss says speculators are driving up the price of oil. Meanwhile Shell trades actively itself. van der Veer says he can see $100 bn of speculative money in the oil market. Both BP and Shell have very active trading arms. Shell does not publish the profits it makes from this activity.

Moscow media accuses Cheney of restarting the Cold War over energy. Russian papers report a storming rebuke from the Kremlin. Some say he is driving Russia into the arms of China. Foreign minister Sergei Lavrov: “we cannot agree that Russian companies are intimidating people.” George Bush is due to go to St Petersburg for the G8 Summit in July.

Bolivian President Evo Morales sends troops in to nationalise gas. In a speech on 1^st June Evo Morales says: “The time has come: a historic day in which Bolivia takes absolute control of our natural resources.” 25 foreign energy companies are affected including BP, BG, Total, and ExxonMobil. They have 180 days to renegotiate contracts.

12.5.06. EBRD economist & former Russian Premier warn of Russian gas shortages and high gas prices. Eric Berglof of EBRD tells EU officials that demand will grow, but Gazprom will struggle to keep up. 70% of production comes from fields “running out”. $700 bn investment needed to meet projected demand. Mikhail Kasyanov, premier in 2000-4, warns that gas issues are destroying the east-west relationship.

15.5.06. UK issues first water ban for a decade as fears over drought grow. A six month order is granted in SW London. The supplier can restrict use by both homes and businesses. Other water companies are watching carefully.

New figures show just 5 UK companies produce more CO2 than all motorists combined. UK government figures submitted to the European Commission show that Eon (26mt), RWE npower (21), Drax (20 from one station), Corus and EDF produced >100m tonnes of CO2 in 2005. The country’s 26m private cars account for 91m tonnes p.a.

EU countries have given their heavy industries too many pollution-permitting credits, imperilling emissions trading. German heavy-industry companies had a 495 m tonnes allowance in 2005, the first year of trading. They undershot by 21m tonnes. Berlin decided to recall half this total, sending the price of carbon up from €9 per tonne to €15.

16.5.06. AIG becomes first American insurer to make public a policy on climate change: investment included. AIG makes a no-publicity announcement on its website two days before the AGM, where questions are expected. The policy includes an investment strategy favouring private equity placements in technologies that cut emissions.

Nuclear industry says new reactors cannot be ready in UK before 2017. Provided planning is simplified and a decision is made on waste storage, the third generation plants can be ready 5 years after concrete is poured, says Areva. However, the Finnish plant is 9 months behind schedule just one year into construction. Power companies will make the decision on new nuclear. Up to five new plants have been proposed in the US since Bush said he would simplify planning. The new reactors produce less waste overall but 5 times more of the longest-lasting, deadliest, waste. See JL blog 10, 18.5.06.

Thames Water considers use of “drought tankers” to carry Scottish water if UK drought worsens. Looking at obsolete single-hull tankers to carry water to the parched SE. This is “a last resort,” says the spokesman, who also floats the idea of towing icebergs from the Arctic.

17.5.06. TV ads target Al Gore-type “alarmists”: “carbon dioxide: they call it pollution, we call it life.” “The fuels that produce CO2 (carbon dioxide) have freed us from a world of back-breaking labor. Lighting up our lives, allowing us to create and move the things we need, the people we love. Now some politicians want to label carbon dioxide a pollutant. Imagine if they succeed. What would our lives look like then?” Set to air in 14 US cities, the ad is funded by the Competitive Enterprise Institute for airing ahead of release of Gore’s film.

21.5.06. Widespread drought across wheat-producing countries pushes wheat price up. IPS News Service: “The world is now eating more food than farmers grow, pushing grain stocks to their lowest levels in 30 years. According to Canada’s National Farmers Union, rising water shortages, climate change, and the growing cost of fossil-fuel based fertilisers point to a calamitous shortfall in world grain supplies in the near future.

World defence budget exceeds $1 trillion, shared between almost 20 million active personnel, >1.5m of them American. 260+ terrorist/freedom fighter groups (International Institute for Strategic Studies statistics).

25.5.06. Enron bosses Lay and Skilling, found guilty of fraud and conspiracy. Skilling is found guilty on 18 out of 28 counts. Lay faces 45 years, Skilling 185 years. Sentencing is on 11 Sept. A consortium of US and European hedge funds have agreed to buy the international assets of Enron for $2 billion.

27.5.06. Economist debate at Hay Festival: “Are cars killing the planet?” Whether they are or not, Hugo Chavez pointed out when visiting London recently, accelerating oil depletion and rising oil prices are going to leave many in the British middle classes in a state of enforced carlessness, and soon. See JL blog 1, 27.5.06.

28.5.06. First oil reaches the end of the Baku-Tbilisi-Ceyhan pipeline, 1,770 km from the Caspian to the Turkish coast, the pipeline has been 6 years under construction. The oil was pumped from Baku 10 May, reaching Ceyhan 28 May: around 10 km per day.

X.5.06. “An Inconvenient Truth” makes the second most money of any Memorial Day film opening. Al Gore’s film about global warming is produced by the same production company that does Quentin Tarantino’s films.

31.5.06. Saudi Aramco admits decline in production from its mature oilfields is now running at 8% a year. So says a Platts report quoting a Saudi Aramco spokesperson, who adds that new fields and enhanced recovery have lowered composite decline rate of producing fields to around 2%. ASPO newsletter, 6.06: “Begins to sound as though it is past peak.”

Venezuela buys Russian oil to avoid defaulting on own export deals due to shortfall in production: a $2bn deal to buy 100,000 barrels a day from Russian until year end.

3.6.06. Iran reaffirms threat to use its “oil weapon” if US makes “the wrong move” in opposing its nuclear capability. Ayatollah Ali Khamenei issues the warning this time.

Canada’s energy regulator warns tar sands production will nearly triple demand for gas over the next decade, should demand rise to the expected 3 mbd+ by 2015.

5.6.06. Thirteen British business leaders, including Shell, urge Blair to bring in tough regulation on CO2. A delegation to Number Ten, organised under the Prince of Wales Business and Environment Programme, includes Tesco and Vodafone executives.

Lloyd’s of London, world’s oldest insurance market, warns climate change could destroy insurers. Lloyd’s director Rolf Tolle says “if we don’t take action now to understand the changing nature of our planet we will face extinction.” A report written for members is called Climate Change: Adapt or Bust. Lloyd’s can write £15bn of business as things stand, and according to the report believes still that the vast majority of natural perils remain insurable, provided the price is right.

7.6.06. Alan Greenspan, former US Federal Reserve Chair, doubts oil producers can meet rising demand. He warns that a big price increase could precipitate “a significant contraction in the economy.” “The balance of world supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on oil prices.”

Total becomes the first oil company to predict the year of peak oil production: 2020. Assuming output growth continues at current levels. CEO Thierry Desmarest, addressing the World Gas conference, says governments must cool demand.

14.6.06. BP CEO Lord Browne predicts oil price could fall back to $25. In about a decade, he says in an interview with Der Speigel. He cites discoveries in Caspian, Russia, W Africa, plus enhanced recovery to 50-60% of an oilfield’s reserves in place. Barclays Capital, trading out 15 years, does not see it going below $60 by then. Neither does the rest of the market. See JL blog 12, 14.6.06, on peak oil debate at the Society of Petroleum Engineers.

15.6.06. 27 US institutions call on SEC to require listed companies to report carbon risk. The signatories to the open letter, co-ordinated by Ceres, hold >$1 trillion in assets. Calpers Chairman Rob Feckner says: “Investors are not receiving from companies the climate risk information that is essential to their investment decision-making.”

20.6.06. As Canadian tar sands projects hit spiralling costs, companies turn to mergers for growth. Labour and other costs are spiralling. Around $122 bn of projects must be planned in the next decade if the industry is to get to the expected 3 mbd by 2015.

21.6.06. Saudi output falls to 9.05 mbd, amid speculation that production has peaked. These are the lowest production figures for 3 years, below their OPEC quota. ODAC speculates they are beyond the peak. They are offering some of their 1-2 mbd of spare capacity that is high sulphur crude, and nobody currently wants to buy it.

22.6.06. US National Academy of Sciences report confirms “hockeystick” rise of recent global temperature. A US politician had requested the report be produced. It largely backs the methods used by Michael Mann et al in their much-quoted 1998 paper, and much attacked by sceptics, which uses proxy data from tree rings, glaciers, ocean and lake sediments, ice cores etc before 150 yrs before present. The past few decades have been the warmest for 400 years and probably since AD 900.

25.6.06. As US hurricane season starts, 15% Gulf oil production remains unrepaired and offline as a result of last season. Katrina, Rita and Wilma cost an estimated $31 bn in damage in all. Some of which will never be fixed. 11% of gas production is also offline.

26.6.06. US Supreme Court agrees to hear arguments of 12 States that government must regulate CO2. Massachusetts vs EPA pits 12 states, 13 environmental groups and American Samoa against the Bush Administration. It says the government has a legal authority to regulate carbon dioxide under the Clean Air Act. The Bush Administration says it has no legal obligation so to do. The ruling is due next year.

28.6.06. BP faces charges of price fixing in the US: traders allegedly tried to corner the propane market in 2004. A former trader has pleaded guilty to federal charges of conspiracy in one of the biggest cases of alleged energy price fixing in the US. The case is filed by the Commodity Futures Trading Commission, which oversees trading in US energy derivatives, for cornering the propane market in Texas during February 2004 (creating a shortage by buying supplies at the end of the winter heating period).

3.7.06. Carbon price is by now routinely being factored into investment bank appraisals. Nick Robins: “The scheme has created a new market in carbon dioxide allowances estimated at some €35 billion (US$43bn) per year, potentially rising to over €50 billion per year by the end of the decade. Investment banks now regularly factor in a cost of carbon into their valuation spreadsheets for affected sectors. For Chris Rowland, a leading City analyst, “it’s possibly the biggest change the European utilities industry has seen since the industrial revolution”. The carbon caps might not have been as tight as many had hoped, but already the price for carbon dioxide allowances has risen from just €7 in April 2004 to over €28 in April 2006. This is equal to the UK government’s mid-point estimate of the actual damage done by a tonne of carbon dioxide of £19 (€28).” See JL blog 13, 3.7.06, on global warming and patriotism, and blog 14, 5.7.06 summarising this log for the second quarter.

4.7.06. Kuwaiti opposition to ruling family, worried about reserves, opposes plans to increase production. The opposition alliance, elected in June, will reject plans to invest heavily in lifting the current 2.5 mbd production, having heard that actual reserves are half the official figure. They prefer to conserve what is left.

CTL plans for Illinois coal, which holds more energy potential than all of Saudi Arabia’s oil. Rentech, a Denver R&D company, has kicked off the race for liquids from coal in the US. They can do it for $25 a barrel they say. Sasol of SA is conducting a feasibility study for two plants in China. An American company Syntroleum has teamed up with an Australian company Linc Energy to develop a plant in Brisbane. All use the Fischer-Tropsch process to produce diesel (the process can be adapted to form gasoline). Unless the carbon dioxide is captured, the greenhouse impact of driving a mile would double.

US government climate agencies report say ocean acidification is killing corals. NCAR And NOAA join forces to warn that CO2 emissions are “dramatically altering ocean chemistry.” Oceans are taking up a third of the emissions. One of the scientists involved says that corals may not survive the century.

UK nuclear inspectors reveal unexplained cracks in reactor cores, and increased risk of accidents. The Nuclear Safety Directorate have found cracks in Hinkley Point and 5 other AGR reactors. Papers released under the Freedom of Information Act show that British Energy “does not know the extent of the damage in the reactor cores, cannot monitor their deterioration and does not fully understand why the cracking has occurred.”

7.7.06. Al Gore’s movie is proving to be a success in getting the climate-change message out. The book is number 3 in the NYT bestseller list. The key argument according to this analysis, which summarises its impact: it’s a moral issue, not a political one.

8.7.06. German government allocates almost as many 2008-12 emissions permits for industry as 2005-7. This is a severe threat to the Kyoto Protocol from its staunchest historical supporter. The Ministry of Environment under Merkel behaves out of character.

9.7.06. Rising costs and lack of infrastructure force major rethink on potential of Canadian tar sands. Shell’s costs in Athabasca have almost doubled, from C$4 billion to 7.3. Steel, equipment and labour all contribute. Fort McMurray’s regional municipality will tell the government it can’t cope with Suncor’s proposed C$6bn expansion. Western, a partner of Shell’s, has said that the cost increases could be as much as C$11 bn for another 100,000 barrels a day. Canada’s oil production today is 2.5 mbd, of which more than half is conventional.

US DoE official proposes using nuclear energy to produce oil from American oil shale. Oak Ridge National Lab engineer proposes modification of Shell’s proposal to drill wells into the shale and install electric heaters that can raise the bulk temperature to 370C, so initiating reactions that produce light crude. “Major technical challenges” remain with this, including the requirement for 250-300 kWh of electricity per barrel of oil. Direct heating from nuclear is the answer.

10.7.06. UK energy review will back nuclear energy. The way will be clear after the second energy white paper is published for half a dozen new reactors to replace those being closed. Blair on nuclear in the late 80s: "What is unbelievably depressing about the [Conservative] government's response is that they see, in the evidence about greenhouse gases, not an opportunity to promote environmental concern but a chance to make the case for nuclear power" - Tony Blair, Neil Kinnock's shadow energy secretary, 1988-89 (Hansard link: http://tinyurl.com/3azeuo). See JL blog 15, 26.7.06.

14.7.06. Underground injection of CO2 shows potential problem with long-term sequestration. Experimental CCS injection began October 2004 into an old brine-filled oil reservoir in the US, with regular sampling thereafter. More recent samples show the CO2-laden brine is dissolving carbonate and other minerals. Seepage is deemed possible.

16.7.06. Hosting the G8 Summit, Russia assures the world it is a reliable energy partner. Putin assuages G7 concerns, aired in St Petersburg.

Extreme drought threatens the Amazon basin for the second summer running. Acre, the hinterland province of Brazil, has gone 40 days without rain in June and early July. Now, as last year, tributaries up to a mile wide are drying up. Record sea temperatures in the SW Atlantic and Gulf of Mexico are to blame, plus logging contributes: trees cause around half the Amazon’s rain by recycling water through evaporation. The Brazilian government is clamping down on ranchers, loggers and soya bean farmers.

17.7.06. Israeli invasion of Lebanon sends oil price to new high > $78. Jitters once again around the Middle East send the gold price up, and stock markets down.

Yukos tries to stop Rosneft floating on LSE: saying it would make “a thieves bazaar” of the exchange. Yukos lawyers are arguing in the High Court that sale would amount to money laundering under the Proceeds of Crime Act 2002. Rosneft seeks to raise $11bn, and has approached potential strategic investors including BP. Browne has said he has no ethical objections. Rosneft faces legal action in the UK and US from Yukos, who claim they obtained 70% of their production assets illegally when Yukos was forced to sell its oil and gas business Yuganskneftegaz to pay a multi-billion dollar back-tax demand as part of the Kremlin’s assault on the Yukos founder, Mikhail Khodorkovsky, now languishing in a Siberian jail. Investors have not been put off. BP can’t be put off either if it wants to curry favour with Putin.

18.7.06. City investors fear that global downturn awaits as a result of the high oil prices. A 5 year survey run by Merrill Lynch finds record pessimism among fund managers: 60% expect the global economy to weaken in the year ahead. 3 months ago it was 5%. David Bowers of Merrill Lynch says: “This survey is so grim it could constitute a contrarian signal. High cash levels, high risk aversion and extreme pessimism about growth are the raw ingredients for a stock market rally if we get the merest pinch of good news to add to the mix.”