Triple Crunch Log Jeremy Leggett

UK heatwave pushes electricity prices ever higher. Demand soars for air conditioning and fridges. National Grid announces an “insufficiency margin warning” (saying spare capacity is under threat) and encourages generators to open up more plants. Eon is now running an old oil-fired plant in Kent.

REN Global Status Report shows 2005 was a record year for investment in renewables: $38 bn up from $30 bn. Wind grew 24% on the previous year, reaching 59GW. Total market cap of the 85 companies >$40m is $50 bn, double the 2004 figure.

21.7.06. Record breaking US wildfire season as study shows wildfires are bigger and more frequent. The summer so far has seen more acres burned than in recent years. A study in Science has shown that since 1986, the number of fires has increased fourfold. Very large fires (>250,000 acres) are becoming more frequent, the seasons are lasting longer, and it takes more than 37 days on average to put a large fire out today compared to 7.5 days in the 1970s.

22.7.06. The Bishop of London declares it sinful to fly on holiday. Richard Chartres, the chair of the bishops’ panel on the environment, is the third most senior bishop in the Church of England. He says Christians now have a moral obligation to lead eco-friendly lifestyles. “Making selfish choices such as flying on holiday or buying a large car are a symptom of sin. Sin is not just a restricted list of moral mistakes. It is living a life turned in on itself where people ignore the consequences of their actions.” The Church’s environment policy director goes further: “Indiscriminate use of the earth’s resources must be seen as profoundly wrong, just as we now see slavery is wrong.”

23.7.06. Wheat price soars as granaries run low. High summer temperatures, low grain stocks and expectations of biofuels growth pushes wheat price to a ten year high, threatening price of bread and pasta. Corn and barley are also likely to rise, which in turn would threaten the price of beer and cerials. Meanwhile we are set for the fifth out of the last six years where demand for wheat has exceeded supply.

Record power cut in New York: six days and counting for 80,000 without electricity. ConEd have no idea what is causing the outage, which began in sweltering heat. Manhole-by-manhole inspections of the cables have been hampered by heavy rain and flooding of the areas examined.

25.7.06. The UK is a tinderbox of drought and thousands of fires, with public health threatened by resulting pollution. A fire in Wales is in its sixth day. A Surrey nature reserve is virtually burned to the ground. Deep layers of peat in the Peak District have caught fire. “I think mortality rates will rise sharply,” said a Met Office spokesperson. It is even worse in Europe. In Germany, accident and emergency admissions are up 25%. It is the hottest July on record. See JL blog.16, 27.7.06.

26.7.06. High price of oil means record profits for oil companies in second quarter. ExxonMobil >$10bn on revenues of $99 bn. Returned $7.9 bn to shareholders in dividends and share buy backs. Shell 6.3 bn on revenue of 83 bn. Production down to 3.25 mboed, but van der Veer says they plan to bring on 20 bn barrels of oil equivalent in reserves by the end of the decade.

27.7.06. In the UK, millions face yet another rise in energy bills. BG inflicts its second price hike and the eleventh so far this year by the big energy suppliers. The average household fuel bill is now around £1,000. Every 10% rise in fuel price pushes a further 200,000 into fuel poverty (defined as having to spend 10% or more of disposable income on energy). Most are old. Over a million pensioner households fall in the fuel poverty bracket.

29.7.06. Global warming may destroy Californian wine industry, report says, as California wilts in a heatwave state-of-emergency. A steady rise of v.hot days >35C will mean loss of 80% of the best vineyards by the end of the century, a study from the University of Indiana says. Last year was a record for sales of California wine: $16.5bn.

Heatwave shuts down European nuclear plants. Spain has shut a reactor on the Ebro. Others in France and Germany have run at lower power. Reactors in Germany & France have been given special permits to emit hot water into rivers.

30.7.06. Exxon becomes first ever company with more than $1bn a day sales: that’s £6,250 per second. Five of the top ten global companies are oil, four car makers. Note: The most profitable company per £ revenue in the world is the UK’s National Grid: it takes £40 for ever £100 of income.

Latest round of world trade talks fails: this time it seems any revival may take years. Larry Elliot argues that the Doha Development Round has nothing to do with development. Neither is it about free trade. It’s about managed protectionism. WTO boss Lamy wants to put the Big 6 troublemakers in a room before going back to the rest of the world: US, UK, Japan, Brazil, India and Australia. Debating point: every country that has industrialised, from UK first to China most recently, has used protectionism liberally.

31.7.06 American Electric Power says it will plan for carbon constraint notwithstanding Bush stance. They are planning 3 IGCC plants for 2011 because they are more efficient and sequestration can be added more easily “when the legislation guides it.”

Russian pipeline leak lifts oil price further: amid press speculation that the system can’t carry the loads expected. The Druzhba pipeline, which supplies an eighth of Europe’s imports, had a spill at the weekend.

Coal gasification plants are now in double figures. Coal gasification is the breakdown of any carbon-based feedstock into its basic molecules to produce a “syngas” that can then be burned for heat, to generate electricity, or create chemicals including fuels. This is done by feeding the feedstock into a pressure vessel with steam at temperatures around 1,600C and controlling the oxygen so that combustion is incomplete and the majority of the feedstock breaks down into CO and H2. This results in less CO2 and other emissions. Today there are almost a dozen plants in the 400 MW range in US, Europe, Japan. They are significantly more expensive than a gas-fired plant ($500-700/kW vs $1,800/kW). Rising gas prices can change that of course. Breakeven is at $6-7 per million cubic feet. The technique is being used for oil sands to lower costs by $5-9 per barrel. Liquified bitumen will be put into a gasifier from 2007 at Long Lake to produce gas for an oil production technique known as steam-assisted gravity drainage (SAGD), plus cogeneration and as feedstock for the hydrocracker. The Bush administration has a plan called FutureGen, a $1bn 275 MW coal plant using latest coal gasification, combined cycle and sequestration technologies, to be funded by an alliance of government and industry. 5% of US electricity may come from coal gasification by 2030, some predict.⁵³

1.8.06. Gas demand will quadruple for tar sands projects. A report released by an energy consultancy in Calgary says consumption will go from 0.6 bcf today to 2.4 bcf by 2015. 2.4 bcf is double the capacity of the Mackenzie Valley pipeline, due to be built in 2012.

Grain crisis looms in Japan as China switches from export to import, & US diverts corn to ethanol. US is largest exporter, around 70% of all exports. China could become a net importer as early as next year.

3.8.06. Mexico’s giant Cantarell field depletes faster than Pemex projected. Production fell 8% in 2005, not 6%: 1.86 mbd. The field is 56% of Mexico’s total 3.35 mbd national production. Pemex’s own worst-case scenario, leaked to Mexican papers, shows production as low as 0.5 mbd by end 2008. Pemex exports 1.9 mbd at the moment, 80% to US. It is the most indebted oil company in the world, with common leaks and explosions in its underinvested infrastructure.

6.8.06. Iran threatens to “make people shiver in the cold” if nuclear sanctions go ahead. So says Ali Larijani, chief nuclear negotiator, talking about use of the oil weapon. If UK, US and France have nuclear for electricity, he asks, why not us?

7.8.06. BP shuts down Prudhoe Bay pipeline and oil price hits an all-time high of $78.4. 0.4 mbd is cut out of the market, 8% of total US consumption. At least 16 miles of the pipeline need to be replaced. A second leak was found, over-and-above the one involving a quarter million gallons earlier this year: a long-undetected leak from a hole the size of a 5p piece. BP faces criminal investigation by the EPA for the leaks. There is heavy flak in Congress. (All this on top of the Texas oil refinery fire that killed 15 and injured 500 in 2005. Compensation of $1.2 bn has been set aside by the company, although the fines to date are only $21m).

The new rules of business, according to Fortune magazine. They contrast totally with Jack Welch’s “old rules.” One imagines even Jack is beginning to suspect this. Though whether the rules work or not is another matter.

8.8.06. UBS analyst slams optimistic SEAR report saying oil demand can be met at 110 mbd by 2015. Jan Stuart, global economist with UBS Securities, asks Bloomberg News “how is this remotely useful or realistic?”

9.8.06. Gravity studies confirm Greenland ice sheet melting is accelerating, with a point of no return feasible this century. Satellite based gravity studies (at the University of Texas at Austin) show the second largest ice cap in the world - 10% of global ice mass - is melting at 239 cubic kilometres p.a. and speeding up. This latest study confirms Caltech studies using satellite radar interferometry earlier this year. These showed a 220 cu km loss. If the whole thing melts, we get a 6.5 m rise.

BP’s pipeline shutdown could continue into 2007: assessment of damage still underway. The company is unable to calculate the cost yet.

Europe-wide, waterless farmers face crop loses measured in billion of Euros. July was the hottest month ever in UK (17.8C, 2.9 higher than average). Many other records have been broken across Europe.

10.8.06. Chinese government aims to limit the amount of coal liquefaction: 1 mbd only by 2020. So the China Daily reports.

Strongest typhoon for half a century hits China and 1.5 million are evacuated. 8 typhoons so far this year in SE China have killed more than 1,700 and caused >$10bn damage.

13.8.06. Most comprehensive climate prediction so far shows 3C would mean half world’s forests lost. A University of Bristol study published in the Proceedings of the National Academy of Sciences summarises 52 simulations based on 16 different climate models. Plants become net producers of CO2 at 3C increase in global average temperature because there is more respiration than photosynthetic take-up of carbon. There could be a tipping point around the middle of the century.

15.8.06. US investor sues BP executives over Prudhoe Bay leak. The complaint alleges that BP top management had been warned about the corrosion, and did nothing to fund corrective work.

16.8.06. WWF report on water supply shows crisis in both developed and developing world. Only 2.5% of all water in the world is fresh, the rest is salt. Two thirds of freshwater is locked up in ice caps and permanent snow cover. The remainder is coming under great stress. For example, every American consumes the equivalent of 2,000 cubic metres of water a year, most from underground aquifers.

20.8.06. BP workers tell EPA criminal investigators that BP was negligent in maintaining Alaska pipelines. The investigators are chasing down allegations that BP manipulated inspection data. Meanwhile, Alaska’s Attorney General has issued subpoenas to BP charging them to preserve all documents relevant to corrosion.

21.8.06. Matt Simmons warns BP’s pipeline corrosion could be endemic: oil’s “Pearl Harbour,” harbinger of $300 oil. The pipeline infrastructure is too old, and too many corners were cut, he says. The Trans Alaska Pipeline alone would cost $30 bn to replace. Saudi Arabia has an “endemic” corrosion problem, he says.

22.8.06. UK food prices jump after heatwave hits harvest. The oil price is also still rising. At the same time, general shop prices are falling.

BP launches scheme enabling motorists to pay £20 a year to offset their emissions. Five projects are involved, including methane capture from animal waste in Mexico. Car companies began this: Honda and Land Rover will ask customers to pay for 3 years of offset emissions from next year.

Russia overtakes Saudi Arabia as world’s number one oil producer. Russia produced 9.2 mbd in June. Oil and gas income accounts for 52% of all revenues in the state treasury and 35% of Russian exports.

24.8.06. Insurers are responding to climate change with 190 climate-related products & services. Dozens of providers are involved in 16 countries, a Ceres report shows. More than half are US based. Ranging from energy efficiency, green building design, carbon emissions trading and sustainable driving practices.

Editor of Petroleum Review says peak oil will be in around 1,500 days, in 2010, and we are in denial. Chris Skrebowski, speaking in Adelaide. Of the world’s 18 largest fields, 12 are in decline. Peak will hit in 2010-11, at 92-94 mbd.

Former BP expert says oil companies are hushing up pipeline corrosion for fear of creating panic. Richard Pike, 25 years with BP and now pipeline consultant and head of the Royal Society of Chemistry, tells the Times that some the world’s largest oilfields have reduced production or shut down so that corroding pipelines could be fixed. No names of companies, but Middle East, Russia and India affected. Oil companies are setting aside hundreds of millions to tackle corrosion. “People are keeping this quiet,” he says, “and just getting on with it because there is an awful risk that the outside world will over-react.” Prudhoe Bay is now down from 400,000 barrels a day to 110,000. See JL blog 17, 8.9.06.

25.8.06. Critical shortage of workers and rigs stops oil industry expanding production. Costs are soaring. Hiring a deep-water rig in the Gulf of Mexico has doubled to $400k a day in last two years. Headhunters can’t find enough senior project managers able to run multi-billion dollar operations. One estimate is that the industry is 40k to 100k people short at present.

27.8.06. US housing slump in danger of becoming full-blown crash worse than the dot.com crash. So economists are warning. Business could end up losing 73,000 jobs a month by the new year. 22% fewer homes were sold in July than in same month last year.

Chad orders foreign oil firms out, amid speculation they might be making room for China. ChevronTexaco and Petronas are asked to leave for “not paying taxes.” Chad resumed diplomatic relations with Chad three weeks ago.

28.8.06. China to invest $5 bn in Venezuelan oil projects in effort to boost production and reduce US exports. This will happen by 2012. Chavez visited China recently seeking to reduce his dependence on US exports.

29.8.06. US federal investigators look into allegations that BP has manipulated oil markets. The Commodity Futures Trading Commission has launched an investigation. It investigated in 2003, but filed no charges, though BP paid $2.5m in fines. Fadel Ghiet, analyst, says the company now faces a crisis. Share price gains this year are 6% compared to Exxon 25% and Shell 15%.

29.8.06. Disaster simulation finds US computers vulnerable. The internet might not work if there was a global virus outbreak compounded by cyberterror attacks.

Bill Clinton is doing well in his own post-Presidential redemption crusade fighting AIDS in Africa. Gates puts up the money, he does the PR, it seems.

30.8.06. California decides to cut its greenhouse emissions by 25% by 2020. Schwarzenegger cuts a deal with the state’s Democrats to produce legislation that will punish non-compliant polluters and rescue emissions to their 1990 levels.

Sadad al-Husseini tells Bloomberg Saudi reserves not overstated but Kuwait’s and Iran’s are: by about half. “Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next ten years,” says the Saudi Aramco former head of exploration and production (retired 2004).

Abducted Shell worker murdered in the Niger delta. Oil workers go on strike for three days in protest at the increasing attacks on oil workers.

Blair has survived for so long in unpopularity because of the structure of the UK political system. He got 67% of seats in 1997 with 44% of the popular vote. His absolute number of votes fell from 13.5m to 10.7m to 9.6m over the 3 election victories. The last election gave him 55% of seats with just over 35% of the vote. The UK has had just three prime ministers in 27 years.

31.8.06. Climate change protesters try to close down UK’s largest power station: 38 arrests at Drax, the giant coal plant that provides 7% of UK electricity. Drax is the FTSE 100’s best performer this year because of the high electricity prices. The CEO says she has “sympathy” with the protestors, of which there were around 600, but that Drax burns coal more efficiently than most. Police far outnumber protesters, ensuring that the protest fails to affect the plant beyond workers being instructed to lock their doors and only open them in response to coded knocks. Protester (a doctor): “This issue is too important for one offs. There will be protests, more persuasion and no doubt more camps.”

UK Conservative leader escalates his bid for the green vote by calling for a carbon targets bill. David Cameron joins with LibDems and Friends of the Earth to demand that the government enshrine carbon targets in a bill.

Insider tells tales of ego and excess in investment banks. Jonathan Knee, ex Goldman Sachs and Morgan Stanley, has written an explosive book.

2.9.06. Global harvest calculation: this year we will fail to feed everyone on Earth for 6^th time in 7 years. FAO and USDA, which produce the two main forecasts, suggest barely more than 2 bn tonnes of grain and 1.984 respectively. Last year: 2.38. 2004: 2.68. Stocks have shrunk to around 75 days only, below the safety level. Prices have gone up by up to 20%.

3.9.06. Fortune magazine publishes a warning that the ethanol boom is endangering world food supply. Lester Brown: “This year cars, not people, will consume most of the increase in world grain consumption.” The increase will be around 1% this year, or 20 million tons. The use ratio is cars 14 people 6. A 25 gallon SUV gas tank full of ethanol uses enough grain to feed a person for a year. Convert the entire US grain harvest into ethanol and you only fuel a sixth of US oil demand. Commercialization of ethanol production from cellulosic materials is at least five years away. Only 3% of US automotive fuel supplies are ethanol-derived, and that could be wiped out by raising fuel standards in Detroit just a few percent.

4.9.06. Supergiant deep-water oil field discovery reported in Gulf of Mexico: as much as 15 billion barrels. “You can tune out of peak oil for a while, probably a long while,” says Business Week. 175 miles off Louisiana, 5 miles deep, 1 mile water & 4 miles rock. The find would double US reserves if as large as reported. Reported flow rate is 6,000 barrels a day (very low for the supposed size). CERA spokesman Esser: “Peak oil theory is garbage.”

5.9.06. One of Canada’s biggest oil companies, Talisman, pulls out of the tar sands: The CEO is sceptical, and sells off of assets valued at $800m.

6.9.06. US oil trader files suit claiming BP manipulated oil price in 2003-4 by shutting a storage plant. His suit follows up the Commodity Futures Trading Commission investigation, which covers activities in the same period.

8.9.06. The Kremlin refuses to allow Exxon to book new Sakhalin 1 reserves. They were found in the same geological structure that Exxon owns, the company says, and they should be given the licence. No, says the Russian resources ministry, we will auction them. NB Rosneft has a share in Sakhalin 1.

9.9.06. Scientists measure 5x more methane emission from Siberian permafrost than calculated. A team led by Katey Walter at the University of Alaska, publishing in Nature, assesses 100 sites across Siberia. “It’s a slow motion time bomb,” says Ted Scuur of the University of Florida. “I don’t think it can be easily stopped,” says Walter. “We would have to have major cooling. It’s coming out and there is a lot more to come out.” Scientists reckon as much as 450 billion tonnes of methane and carbon dioxide are trapped in the permafrost. Methane is 23 x more powerful as a greenhouse gas than carbon dioxide.

10.9.06. US-UK-German scientific team shows strong hurricanes are due to global warming: and there are more to come. Hansen, Wrigley, Jones et al using 22 climate models to conclude with 84% probability that human greenhouse emissions cause most of the observed sea-surface temperature rises in the past century. Temperature rises in the hurricane breeding grounds are 0.32-0.67C and since hurricanes form in waters > 26C, the spawning area has expanded.

12.9.06. IMF warns that risk of a global crash is increasing: because of oil price and 4 other reasons. Markets have failed to price in numerous threats capable of massive shocks to the world economy. Five major risks are foreseen: a sharp slowdown of the US economy triggered by a slump in house prices, a surge in inflation forcing central banks to hike interest rates sharply, soaring oil prices eg as a result of Iran-US conflict, sudden unravelling of the record imbalances between surpluses in Asia and deficits in the US, a mutation in bird flu.

Rising UK fuel bills add to consumer credit, causing mortgage defaults to rise. Personal bankruptcies are soaring. Gas, electricity, and transport costs are up nearly 30% in 12 months, heralding a second phase of the domestic cash crisis: the first involved debts that people could control, the second involves costs that people can’t. Total consumer debt: a record £1.3 trillion. Average Briton owes £3,175 before mortgage debt, compared to £1,588 in Europe.

13.9.0. Chevron takes out an ad urging energy efficiency, ending “what are we waiting for?” “A 5 percent reduction in global energy use would be enough to power Australia, Mexico and the entire UK, so what are we waiting for?” So reads the ad in the FT. “I fully agree with them,” IEA head Claude Mandl tells Reuters on the sidelines at an OPEC seminar. Total and Saudi Aramco have also urged restraint.

Kremlin says it will not tolerate being handed the tab for cost over-runs at Sakhalin 2. Natural Resources Minister Yuri Tretnev says “Operators’ plans to increase reimbursable costs are not acceptable to the Russian side.” Original production-sharing agreement stipulated that Russia could take profits only after the developers recoup expenses. That was when the estimate was $10 billion. Since then it has at least doubled.

14.9.06. UK report says GHG emissions have to be cut much quicker than current UK government target: not 60% by 2050 but 70% by 2030, says the Tyndall Centre, and 90% by 2050.