Triple Crunch Log Jeremy Leggett

30.10.06. US Chemical Safety Board: BP was aware of problems before Texas City Refinery explosion. The CSB said that cost-cutting played a big role in compromising the refinery’s safety, resulting in the US’s worst industrial accident in more than a decade. “The CSB’s investigation shows that BP’s global management was aware of problems with maintenance, spending and infrastructure well before March 2005.” According to the CSB, a 2004 internal audit of 35 BP units revealed problems such as lack of leadership competence and the far-reaching tolerance of non-compliance with fundamental safety rules.

Matthew Simmons suggests that crude oil may already have peaked in 2005. World oil supply had decreased during the first half of 2006, dropping to 83.89 million barrels in the second quarter of this year, compared to 84.35m barrels in the 4^th quarter of 2005.

Speculation over Shell/BP merger created by Shell’s new plans to simplify its N. American business. The merger is thought to be worth $230bn. During the summer Shell admitted it had considered a major merger as part of its “scenario planning.” Spokesmen have since declined to comment. Analysts of Wall Street have suggested that it would make good business sense- allowing Browne to leave on a positive note, and enabling the new company to compete with ExxonMobil. Premier Oil has admitted that it received a take-over offer, but that talks were still in very early stages. It refused to say who the offer had come from.

1.11.06. B&Q takes out ads for micropower products – microwind and solar thermal - in UK newspapers. “Two new power tools from B&Q,” says headline, under a picture of a wind turbine and a solar water panel.

Russian dissident Litvinenko poisoned with Polonium in London. Note that in July, Russian parliament adopted a new law allowing FSB (successor to the Soviet KGB) to assassinate enemies of the state overseas. (Reported 22.11).

2.11.06. RyanAir CEO pours scorn on Stern Review, saying he is too busy to trade emissions. The calls for environmental taxes he describes as the “usual horseshit.” He demands that attention instead be focused on road transport, which accounts for 25% of the EU’s CO2 emission, as opposed to aviation’s 3%. O’Leary claims to be too busy running Ryanair to join emissions trading schemes. Due to its overhaul of Boeing aircrafts with fuel efficient engines, Ryanair claims to be “the most environmentally friendly airline.” An Oxford University report predicts that air travel will be responsible for a quarter of UK’s CO2 emissions by 2050.

Russian technical standards agency warns nation’s oil and gas pipelines are in a critical condition. Rostekhnadzor (independent ecological agency): “Environmental damage caused by oil and gas pipelines is inexcusable.” Safety measures are condemned as unsatisfactory. Over 30 incidents have already taken place this year. The majority of pipelines were built in the 60s and 70s. The agency plans to improve control over the pipeline network.

BP Alaska management reshuffle follows problems with pipelines, stock and share prices. BP denies that the changes are due to cleanouts. Damaged Alaskan pipelines have led to decreased production and dented profits, as has reduced output from the Texas City refinery.

3.11.06. Data from Atlantic sensors deployed in 2004 show no trend in the Gulf Stream yet. Last year the National Oceanographic Centre reported what seemed to be a 30% slowing from five data points over 50 years. Data from sensors deployed in 2004 has now been presented, and shows no trends yet. Many oceanographers now believe the meltwater effect won’t result in abrupt climate cooling.

Falling oil prices have huge implications for energy security and climate change, an FT special supplement on energy suggests. Articles summarise the state of play in all energy types. (L)

5.11.06. FTSE 100 companies spent less on environmental reporting in 2006 than 2005: 0.79% of pre tax profit down from 0.87%. 80 of the 100 have identified climate change as a business risk but well under half (38 of them) have targets. Most of the FTSE 250 have yet to even acknowledge the issue.

6.11.06. IEA warns that world is on an energy path “doomed to failure.” An “apocalyptic warning,” says the FT. Secretary-General Claude Mandil says the current path “may mean skyrocketing prices or more frequent blackouts; can mean more supply disruptions, more meteorological catastrophes – or all these at the same time.” Nuclear and biofuels are needed, the agency says. Energy demand will surge 50% to 2030, requiring 116 mbd, with most of the increased supply having to come from from Saudi Arabia, Iraq and Iran. Non-OPEC supplies are expected to peak early next decade, pushing the oil price as high as $130 a barrel. “This energy scenario is not only unsustainable but doomed to failure,” says Mandil. $20 trillion of investment is needed to meet demand. It is far from certain that this investment will actually occur, Mandil warns. The apparent soaring investment by oil companies is illusory, because of inflation in drilling costs.

Ahead of Houston refinery trial, sworn testimony shows BP measured human life in $. A fatality was estimated to be at a cost of $20m to the company. The comments were made by a former chemical engineer during a sworn testament made as part of the inquiry into the explosion at Texas City refinery.

Democrats regain both houses in Congress, promising among other headlines “to energize America with energy independence.” OGJ 13.11.06. has a hilarious whining editorial saying “the US won’t achieve energy independence,” and neither should it - the Exxon line - and worrying that Nancy Pelosi, the House leader, may go for windfall taxes.

8.11.06. Australia’s worst drought in 1,000 years sparks water crisis summit and conversion by PM Howard to greenhouse action. Summer has only just begun and crop forecasts are being slashed. This is the fifth year of drought in many regions. Half all farmland is affected. Howard has been forced to show concern about climate change.

Centrica says it will build UK’s cleanest coal plant …..by 2011. The CO2 produced will be stored underneath the North Sea. The last coal-powered power station to be built was Drax in north Yorkshire, in 1974. Centrica is involved in the proposed new project as a result of agreement with Progressive Energy, the chairman of which is Innogy’s former chief exec. Centrica and Progressive Energy have created Coastal Energy, which is due to own the station while Centrica funds its development. Centrica is taking advantage of clean coal technology, as coal starts to creep back in as an energy source due to low prices.

10.11.06. Kremlin threatens to sue Shell for billions over environmental problems with Sakhalin. They may call for the project to be terminated altogether, they say. Shell’s proposed measures to tackle environmental issues is dismissed as inefficient. The Kremlin suggests that the cost of righting the damage done so far could reach $50m. Rozprirodnadzor’s deputy head says that lawsuit would be filed at the international arbitration court in Stockholm. TNK-BP, meanwhile, pays a $1.4bn back tax bill for alleged environmental transgressions.

12.11.06. Brussels threatens to take UK to European Court of Justice over greenhouse emissions failure. A report shows that the government is actively supporting global projects with a detrimental effect on the environment. WWF points out that the government spends £2bn annually contributing to aircraft, and hydrocarbon initiatives, such as Sakhalin-2.

13.11.06. Kremlin plans to create a “gas OPEC”, to the alarm of EU and NATO. A confidential study by economic experts at NATO is sent to 26 member states, warning of the danger of Russia establishing a gas cartel incorporating Algeria, Qatar, Libya, Central Asia and maybe Iran. The study suggests that Russia is utilising energy policy to pursue political goals. Russia currently provides 24% of Europe’s natural gas supplies. The report warns of the “possibility of major gas-exporting countries co-ordinating their investment and production plans in order to avoid surplus capacity and to keep gas prices up.”

14.11.06. CERA report claims peak oil theory is based on “faulty analysis” and could “distort debate.” CERA Director of Oil Industry Activity Peter Jackson writes: “Oil is too critical to the global economy to allow fear to replace careful analysis.” He then goes on predict an undulating plateau beginning beyond 2030 at well over 120 mbd. The oil resource is actually 3.74 trillion barrels. not 1.2 as peak oil proponents claim. CERA draws on the proprietary database of its parent, HIS, for its careful analysis.

16.11.06. Global carbon trading has more than doubled during 2006, despite the EU failure to set tight enough quotas for industry. $22 bn was traded in the first 9 months compared to $10 bn in 2005, 19 bn of it under the EU trading scheme.

19.11.06. BMW unveils a liquid hydrogen powered auto. A normal saloon that runs with a switch that can take you from gasoline to hydrogen and back.

Poll shows British are more resistant to change in face of greenhouse threat than other Europeans. A Harris poll for the FT in the wake of the Stern report, assessing reactions shows that 77% believe man-made global warming is a fact. But only 56% would support restrictions on purchases to fight it. 21% would oppose them. Only 44% would support restrictions on air travel. Only 21% would be prepared to give up the 2% of income Stern says is needed to achieve deep cuts.

21.11.06. Gazprom executive says the world is not in danger of an energy shortage. Gas reserves can last 60-80 years, says Sergei Pankratov, deputy head of the strategic development department.

Russian Industry and Energy Ministry forecasts gas shortages starting next year, and growing: 4 bcm next year, 30 billion cu m by 2010, if the gas sector is not reformed.

23.11.06. Putin seeks increased investment in power plants by 900% in the next 10 years in order to meet explosive demand. Increased shortages are raising doubt about Putin’s repeated pledge to guarantee gas supplies to the EU. Russia exports a third of its gas in order to take advantages of high prices in the west. Shortages are increasing as the region’s economic recovery continues apace. EU leaders are keen to ensure that supplies are not disrupted as they were in the Ukraine this year. Critics have suggested that Putin has made the situation worse by refusing to increase gas prices in Russia. He is pressing the power sector to hurry up with investment and build 30GW of new capacity in the first 5 years, and 70GW in the next 5.

26.11.06. Output at Kazhakstan’s Kashagan oil field is to overtake forecasts by 25%, according to developers. As such, it will yield 10% more reserves than was initially predicted. However, it is thought that Eni is about to announce that complications both in the field and between the project’s partners (including Total, Shell and ExxonMobil) will mean that production will start later than estimated, now in 2009. This is the world’s most costly oil project, coming in at the mid $30bn mark. Kashagan is also the world’s most important oilfield in terms of reducing reliance on Russia and OPEC, which currently controls 60% of remaining global reserves.

27.11.06. Texas oilman T.Boone Pickens believes peak oil has been reached. He says the US must find an alternative to oil. “The Achilles heel of the United States is that we’re using 20% of the oil in the world in a day and we have less than 5% of the oil supply… We’ve about had it.”

28.11.06. Marine researchers warn increasing sea temperatures will intensify global warming. Researchers at Southampton and Plymouth universities have found that the top 1500m of the north Atlantic have increased by 0.015 degrees Celsius in the past 7 years, enough to raise atmospheric temperatures by 9C. They warn that oceans could release this heat into the atmosphere in future, destabilising manmade efforts to mitigate the increase in greenhouse gases.

European Commission insists on stricter limits in emissions trading for 2008-12. For the first phase of ETS (2005-7), too many permits were handed out, causing the carbon price to plunge. The same has happened again for the second phase (2008-12), but the allowances are now being revised down by 7% on average.

The Supreme Court in the US is to rule on global warming. Twelve states have brought the case forward to try to force Bush into regulating CO2 emissions from cars and factories, as a challenge to the ruling that the EPA had no obligation to regulate CO2.

Debate flares over the choice between producing food and renewable energy. World grain stocks are down by nearly 4% this year. Of the past 7 years, 6 have witnessed a demand for grain that has not been matched by production, a slide which has meant that reserve stocks have been reduced to 57 days.

29.11.06. Bush denies that Iraq is in the midst of a civil war, despite widespread consensus following the adoption of the term by prominent analysts from both sides. Instead he blames the violence that continues to rage in the region on al-Quaeda in an attempt to force the US out. He has pledged to work with the Maliki government to defeat the elements lying at the heart of the problems. He rejected the idea that the US should enter into talks with Iran and Syria in order to stabilise the situation in Iraq: “Iran knows how to get to table with us. That is to verifiably suspend their [uranium] enrichment programmes.” His stance on the issue is likely to further concern regarding his flexibility on his Iraq strategy. Leaks of the Iraq Study Group are likely to show that their are increasingly at odds with the insistency by Bush that the US will still achieve its aim of “victory” in the region despite the massive increases in violence. According to Anthony Cordesman of the Centre for Strategic International Studies: “to put it bluntly, the US must stop lying about the true nature of Iraqi readiness and the Iraqi force development.” Yesterday NBC labelled the situation a civil war, an announcement compared to that of Walter Cronkite of CBS in 1968, declaring the Vietnam War a failure.

Fears that production in Iran is too low and demand becoming too high to sustain exports. Within a decade, PFC says, exports could fall to zero. Reserves of oil are second only to Saudi and gas second only to Russia, but substantial upgrades are needed to infrastructure. Meanwhile gasoline is priced at 35 cents a gallon and demand grows at 10%.⁵⁵

Kuwait oil minister says there will be no public announcement about size of reserves, but Parliament will be told.

US and Asia head towards legal action over EU’s carbon emissions proposals for aviation. The EU intends to bring all international flights into the ETS. US sources fought back, saying that this move would breach the 1947 Chicago Convention. Stavros Dimas has stated that his plan falls within the rules of the International Civil Aviation Authority and the Chicago Convention, as the rules would be applied to all airlines indiscriminately.

31.11.06. BP signs deal with Rosneft to search for oil in the Arctic. Having invested $1 bn when Rosneft floated on the London Stock Exchange in July.

1.12.06. Another nail in a central argument of climate change sceptics: the “hockey-stick” graph is supported by more cores studies using oxygen isotopes. The Little Ice Age, 1200-1850, does not show up in the global record nor would it be expected to. The Gulf Stream was only 10% weaker in the Little Ice Age.

2.12.06. A month after the Stern review, the climate change research budget is cut at the Met Office. 3% trimmed. Meanwhile 2006 is on track to the hottest year in last 200. People are still in shirtsleeves in southern England, where raspberries and strawberries can still be picked.

French ski season opens to lack of snow on all but the highest runs. The situation is similar and worse in Italy and Germany, in the warmest weather for 60 years. Temperatures are so moderate that even snow guns will not work. Last week a high of 22.4C was recorded in Grenoble.

3.12.06. Consumer group calls for inquiry into UK gas prices. Wholesale prices have fallen 40% since March with 30% retail increases in the last 6 months. The average gas and electricity bill in the UK exceeds £1,000 per household. All power companies have hiked prices at last twice in the last year. The big 6 justify the situation because of their rising costs.

4.12.06. Societe Generale analyst fears lights will go out in UK if this winter is bad. Most of British nuclear reactors are offline, indigenous gas production is down 8-10%, and the new pipeline from Norway won’t be delivering gas until next winter. A third of UK electricity is gas fired.

6.12.06. Satellite survey shows tropical seas are being impoverished by global warming. A decade of data shows phytoplankton plummeting up to 30% as temperatures rise, creating a “famine” in tropical and sub-tropical seas, where the waters stratify and nutrients can’t reach the surface waters so well. The oceans are warming 0.2 C per decade.

Prince Charles pledges a greener royal lifestyle. Scheduled flights and trains are to replace the private jets. Jaguars are to run on biodiesel. Highgrove is to switch to green electricity.

Iraq Study Group, led by James Baker, tells Bush to change course in Iraq including to sit down with Iran and Syria. “America’s military capacity is stretched thin.” The group offers 79 recommendations in all: including not to send in more troops beyond the existing 140,000. $400 bn spent so far, with costs running at $8 bn per month. Estimates of the final cost run to $2 trillion.

UK Chancellor Gordon Brown says he aims for every new home to be zero carbon by 2016. He exempts new zero-carbon homes from stamp duty: but they only represent 1% of the housing stock.

7.12.06. Hopes for UK CCS set back by Chancellor Brown: he opts for more studies, not commitment ….even to support a demonstration project. Proposals on the table for CCS at power plants now number 8: 7 coal plants and 1 gas plant.

BP Texas City refinery chief: the lethal site was “held together with band aids and super-glue.” Workers would say “I could die today.” Don Parus, the site director, had grave misgivings in the years running to the disaster. He is now on unpaid leave. An internal BP survey of worker attitudes shows there was “an exceptional degree of fear of catastrophic accidents.” But people didn’t want to lose their jobs. BP is now spending $7 bn in a H&S blitz on its US refineries.

10.12.06. Rumours circulate in Moscow that Putin will do a job swap with Gazprom boss when he has to step down from Presidency in 2008. The Gazprom Chairman Dmitri Medvedev is First Deputy Prime Minister already. He recently appointed a former KGB General, Valery Golubyev, as deputy CEO. Rosneft Chairman Igor Sechin is the Kremlin’s Deputy Chief of Staff, and also believed to be ex FSB (ex KGB). Mikhail Khodorkovsky, former boss of the now-dismembered Yukos – now absorbed into Rosneft - is facing his fourth Christmas in Siberian jails. But “normal” business goes on. Investment banks’ estimated fees in Russia for last year: $1.2 bn. Up from $100m in 2001. The Russian economy has grown 7% since 1999.

“The country is run by the KGB, whatever they call themselves,” says a Russian analyst. Yevgenia Albats, quoted in the Independent on 22.12. Mind you, says Jonathan Stern, plenty of former MI5 employees now have top jobs in British industry.

Saudi Arabia and other Gulf states consider a joint civil nuclear programme. The Gulf Co-operation Council orders a study.

11.12.06. Shell finally caves in to Kremlin pressure: Gazprom now has a 51% stake in Sakhalin 2. The Shell stake of the 4 bn barrels oil and gas equivalent falls from 55% to around 27.5%. This is a big hit on Shell’s bookable reserves. Mitsui and Mitsubishi shares will also go down. CEO Jeroen van der Veer met Gazprom Chairman Alexei Miller in Moscow 9.12. One view in the FT: Shell are doing what the Seven Sisters have always done - holding on to as much as they can until national governments flex their muscles and take over some or all. The Kremlin campaign was waged on TV, and began immediately after the assurances at the July G8 in St Petersburg. Who might be next in line? The Russian state’s share of oil production had doubled in 3 years, but up to now at expense of domestic companies. The Kremlin is still trying to encourage foreign auto makers to site factories in-country. NB Sakhalin 2 is almost finished, and is producing oil already. LNG shipments are supposed to begin in 2008. 22.12: Gazprom pays Shell $7.5 bn (£3.8 bn), leaving Shell with 27.5%. Citigroup estimates the deal could cut 5-6% off Shell’s 11.5 bn barrels reserves as now booked under SEC rules.

13.12.06. Russia threatens to turn off gas to Belarus and Georgia if they do not pay higher prices. The authoritarian leader of Belarus says they can pay, but Russia could no longer consider them an ally. Georgia views the whole thing as political. Russia has already severed mail and transport links. The demand to Georgia is for $230 per cu m, up from $110, close to European payment levels. From Belarus they seek something near $200, up from less than $47.

South Caucasus gas pipeline comes on stream, bypassing Russia. It crosses Azerbaijan from Baku, then through Georgia to Erzurum in east Turkey, running parallel to the Baku-Tbilisi-Ceyhan oil pipeline, and will carry 8.6 bcm by 2008.

Gazprom is cutting ex-Soviet cradle-to-grave care of employees to please western investors. Nurseries etc in eg Urengoy being handed over to local authorities. Note: the company began life in 1992, created from the old Soviet energy ministry.

BP faces new US legal charges over trading, this time for manipulating prices of unleaded petrol. The Commodity Futures Trading Commission, the futures markets regulator, has taken the action over events on one day in October 2002, involving trading on Nymex. BP faces two other investigations at the moment.

Blair caves in to Saudi pressure over BAE fraud investigation, and stops it. On same day, police interview him re honours-for-donations. Serious Fraud Office told to stop the 3 year investigation of a £60m slush fund allegedly set up in connection with the c £40 bn 20 year-old Al Yamamah oil-for-arms contracts. Saudis have threatened to stop considering the latest arms deal, for 72 Eurofighters, also worth c. £40 bn, and to stop collaborating on al-Queda intelligence. The government doesn’t see this as blackmail. “It has been necessary to balance the need to maintain the rule of law against the wider public interest,” says Attorney General Lord Goldsmith. Er, but isn’t the executive supposed to steer clear of the course of justice?

Carnegie Institution report: planting trees to soak up CO2 is “a waste of time” outside tropics. The issue is the heat absorption compared to grasslands, snow etc. In the first study to factor this effect in with CO2 sequestration, the authors suggest that north of 50 degrees latitude, forests have on average warmed the earth by 0.8 C and in the tropics cooled it by 0.7 C.