Triple Crunch Log Jeremy Leggett

28.2.07. Wall Street suffers biggest fall since 9.11 on fears of US & China recession plus Iran attack plus sub prime mortgage market. Dow Jones Industrial Average falls 400 points.

BP CEO flies to Moscow to discuss Kovytka field as Gazprom takeover looks inevitable. TNK-BP is of course calling for a softening of the licence terms, which are impossible to meet, but the Kremlin’s Mr Mitvoi says: “The conditions can be changed only once: you tear up the license agreement and the state sells it off at an auction anew.”

Met Office says UK winter is second warmest on record. The mean temperature is 5.47C. “It is consistent with the climate change message,” a spokesman tells BBC News. “It is exactly what we expect winters to be like - warmer and wetter, and dryer and hotter summers.”

Al Gore embarrassingly found to have sky-high energy bills at home. Sunday was the Oscars triumph. Monday a neocon group released the figures for his utility bills, which immediately made headlines all around the world. 221,000 kilowatt-hours (kWh) of electricity - more than 20 times the national annual average. Up from 16,200 kWh a month in 2005 to to 18,400 kWh last year. In addition, on average $1,080 (£550) a month on natural gas. Combined electricity and gas bills: almost $30,000.

Study shows how the war on terror in Iraq has increased terror attacks all over the world. The Centre on Law and Security at the NYU Foundation does a study for Mother Jones magazine including countries such as Russia and India, both of whom have witnessed atrocities carried out as a backlash from the war. Statistics in the report include those revealing the increase in terror attacks taking place around the world: excluding the Arab-Israeli conflict, the number of deaths due to terrorist activity has risen from 729 to 5,420. Iraq is shown to have been the primary cause of the fundamentalist backlash and an undeniable contributing factor in the radicalising of muslims, a link agreed upon by UK security forces.

UK government paid £57m in benefits to dead people last year, far more than it allotted to microrenewables. This is pensions and income support, and does not housing benefit or council tax benefit.

Kjell Aleklett, responding to CERA, publishes data showing peak in 2010 including unconventional oil. Only 507, or 1% of the total numbers of fields, are giants, but in 2005, these contributed around 60 % of the global production and represented about 65 % of the global ultimate recoverable reserves. Discovery of giants peaked in the 1960s.

1.3.07. Contaminated petrol sold at supermarket petrol stations wreaks havoc with cars all over the UK. The contaminating substance causing the damage was later identified as silicon.

US evangelist Jerry Falwell calls global warming the work of Satan. It is “Satan’s attempt to redirect the church’s primary focus” from evangelism to environmentalism, he says in a sermon.

UK government solar subsidies available for March used up within 75 minutes. At stake was £500k allocation pcm for PV. The government significantly reduces the grant available from £3,000 per kilowatt installed to £2,000.

2.3.07. Saudi Arabian oil production down by 8% last year. Pundits debate whether this is due to peak oil or is a strategy to maximise prices. Global production has been stalled around 84 mbd for the past two years. Aramco is reportedly pumping seven million barrels of saltwater a day into Ghawar just to keep production flat. The water cut is significant and growing.

3.3.07 New legislation could mean all coal-fired power stations built in the EU have CCS ….after 2020. This might be extended to gas-fired power stations too. The EU leaders summit is expected to commit to 12 large-scale pilot projects ……by 2015.

4.3.07. Survey for Dispatches TV shows UK government will miss CO2 targets. Building codes are not being enforced. Voluntary fuel efficiency improvements are not being kept to by motor manufacturers. Graduated vehicle excise duty is not high enough to make a difference.

UK Environment Secretary David Miliband calls for UK to have a post-oil economy within 20 years. In a speech at Cambridge University, he advocates the usual policies: cap and trade, road pricing, vehicle emission standards.

Chinese premier calls for cuts in energy use and closure of small coal plants. “We must make conserving energy, decreasing energy consumption, protecting the environment and using land intensively the breakthrough point and main fulcrum for changing the pattern of economic growth,” he says in a speech opening parliament for the new year. Small coal-burning power plants and “backward iron foundries and steel mills” would be shut.

5.3.07. More than half the employees in the oil and gas industry will retire within 6 years. Booz Allen Hamilton Study shows the average retirement is 55. And 4.4: US Interstate Oil and Gas Compact Commission (IOGCC): “With the average retirement age for the industry being 55 years, it is obvious that the industry faces a crisis in the next 7 to 10 years as more than half of the employee base leaves the work force,”

6.3.07. BP reserves down by 1 billion barrels except Russia, where TNK reserves rose from 3.9 to 4.5 bb. Total is 13 bb. The company added only 329 mb last year, most from UK reserves enhancement.

7.3.07. 8 out 10 UK green tariffs criticised by regulator for not going beyond what is legally required anyway. Only Good Energy and SSE’s RSPB Energy scheme get three ticks from Energy Watch. Ofgem is critical because most don’t go beyond the Renewables Obligation. Only 1% of households are on green tariffs and they are not advertised. If the public switched en masse, we could quickly get to 6.7% RE in the mix with new renewable purchases.

8.3.07. UK will miss its renewables target with current policies, a Cambridge Econometrics report shows. We will hit 8% by 2010, not 10%. Was 4% in 2005. The British Wind Energy Association (BWEA) says that planning is the problem, with wind farms now taking four years to reach a decision, often a negative one. More than 14 GW of onshore and offshore wind capacity is either consented or in the planning system, more than enough to reach the 10% mark.

9.3.07. Europe sets target of 20% GHG cuts by 2020, and 20% renewables in the energy mix. 27 governments at 2 day summit in Brussels set the world’s toughest target, led by Markel despite opposition from France and eastern Europe. The EU will go further, to 30%, if an agreement can be struck with the US and other countries. There will be much haggling now within the Union on burden sharing. All countries will have a target of 10% biofuel in the transport fuel mix by 2020. There is a possibility of a ban on conventional lightbulbs by 2009. The EU average for renewables in the energy mix is 6.5%, with a big range, e.g. Finland at 24% and UK down at 2%. The Commission costs the switch to renewables at €24bn ($32bn, £16bn) to €31bn a year, given an oil price of $48 a barrel. There would be no extra cost with oil at $78 a barrel and €25 per tonne of CO2. The programme would add 0.5 percentage points to GDP growth and create 650,000 jobs, Commission says.

10.3.07. National oil companies are more powerful than international companies, industry believes. An FT survey of analysts, bankers, national oil company officials and international oil company executives about the most powerful players in oil and gas shows Saudi Aramco, Gazprom, CNPC, PDVSA, and NIOC ahead of the national companies.

11.3.07. Scientist prominent in climate debunking TV programme claims he was seriously misrepresented. The Great Global Warming Swindle, screened on Channel 4 last week, featured Carl Wunsch, professor of oceanography at MIT, who now claims his views were “grossly distorted.”

14.3.07. REA meet Blair to discuss microrenewables funding. The meeting is sandwiched each side of Iain Paisley and Gerry Adams.

Fear in US Army that gas supply may dry up within 25 years. The Army's assistant chief of staff for installation management writes a memo saying: “Current Army assumption is that natural gas may cease to be a viable field for the Army within the next 25 years based on price volatility and affordable supply availability,” threatening, “the Army's ability to house, train and deploy soldiers.”

See JL blog 28, 14.3.07., on dysfunctional investment.

15.3.07. UK imported oil for every month of 2006 except June. The UK Offshore Operators Association (UKOAA) has long maintained that the UK wouldn’t become an importer until 2010.

Carbon Trust launches first product lifecycle carbon footprint labels. Examples: Walkers crisps (first to use it) (carbon footprint: 75g), Boots Organics shampoo (148g) and Innocent smoothies (294g)

16.3.07. Venture capital investments in alternative energy start-ups are soaring. The US National Venture Capital Association says $195m in 18 companies in 2005, and $727 m in 39 in 2006. But oil and gas is also benefiting: $56m in 14 companies in 2005, and $163 m in 18 in 2006.

17.3.07. IPCC leaders hit back after being accused of overstating the problem. Sir John Houghton says the panel had in fact “deliberately underestimated the problem.” He calls global warming a “weapon of mass destruction,” that it is “frightening”, and poses a greater threat than global terrorism. Two meteorologists had counselled against overstated the problem, but when asked by a journalist, one could not name a case where a scientist had overstated the case.⁶²

Leak shows that BP knew of the risk at Texas City refinery. The Board was told of a link between spending cuts and poor maintenance at oil refinery years two-and-a-half years ahead of the March 2005 blast.

18.3.07. Financial institutions join US business call for deep cuts in US emissions. Investors and Business for Action, including the CEOs of Alcoa, BP America, DuPont, Sun Microsystems and PG&E. 65 signers in all. Funds include Merrill Lynch, Calpers, Allianz and Calvert, with $4 trillion funds under management in all. The letter to President Bush called for a 60 to 90 percent cut in US emissions by 2050.

Royal Bank of Scotland faces a student boycott over fossil-fuel investments. RBS markets itself as the “oil and gas bank”, and announced a record £9 bn plus profit two weeks ago.

19.3.07. US government agency finds cost cutting to blame for Texas City disaster. After a two year inquiry, the Chemical Safety and Hazard Investigation Board blames “safety deficiencies at all levels of the BP corporation’’ for the accident and called on the board to appoint an extra member with expertise in safety.

22.3.07. British sailors seized by Iran, lifting oil price to the highest so far in 2007. Iranian Revolutionary Guard asserts that they were in Iranian waters. Oil goes to $63.

24.3.07. Complaints emerge about auditing of carbon offset schemes for BA and Barclays. Climate Care and fuel-efficient cooking stoves in Honduras. No audit almost two years in of money for over 1,000 stoves.

UK government suspends solar PV grants. Gordon Brown announced an extra £6m for the fund in last week's Budget. But later the same day, DTI officials quietly announced that the scheme was being “restructured” and thus suspended until further notice. The DTI's low-carbon buildings programme, launched last year, has been massively oversubscribed. Monthly allocations of cash, distributed on a first-come, first-served basis, ran out minutes after becoming available. Alistair Darling, Secretary of State for Trade: “There have been problems in meeting that unprecedented demand. We will restructure the scheme to make it work better.”

BP internal investigation finds that tensions at the top fuelled oversight of Texas City failings. John Manzoni, in overall charge, had problems with the then Group VP for refining, and these meant he failed to take the “much deeper dive” that was needed into the state of the facility despite “clear warning signals” from previous accidents.

26.3.07. Iran and the US mortgage market head investors’ list of concerns. The stock market has wobbled because of the failures in the US “sub-prime” mortgage market, the Iran hostage depends, and the threat of a US or Israeli air strike on Iran’s nuclear infrastructure hovers still.

A majority of Americans now think global warming is as serious threat than terrorism. 83% now say global warming is a serious problem. 63 percent agree that the United States “is in as much danger from environmental hazards, such as air pollution and global warming, as it is from terrorists.” 75% recognise their own behaviour can help, and 81% feel they have a responsibility to act. 70% say they would be willing to buy solar panels. 43% say preventing GW is a religious duty. 1,000 adults, nationwide, were polled by Yale University.

27.3.07. McKinsey study suggests EU could hit 20% cuts by 2020 economically, if efficient technologies are used. The cost will be E 1.1 trillion (£747 bn) over the 14 years. Insulation must come before the cost-heavy solutions such as CO2-free power plants.

UK “roll to coal” effect – hike in coal use as gas prices rise – has cancelled out “dash to gas” effect – accidental reductions in emissions as gas use rose in the 1990s. 2006 coal emissions went up 6% to 178 tonnes, a WWF report shows.

27.3.07. China’s President Hu flies to Moscow as promised oil and gas import pipelines fall behind schedule. This week saw the third state visit to Moscow since 2003. In March 2006, on a visit to Beijing, Putin promised 80 bcm pa through two new pipelines. The project has not moved ahead. Gazprom wants to keep gas from Koyykta for domestic use and supply China from the Far East. Meanwhile, a planned oil pipeline is also deferred, because – as Russian PM Mikhail Fradkov has confirmed - there is not enough oil to fill it. It is due onstream in 2025, but oil output in Siberia must go up by 1 mbd first, which would require $102bn of investment, only 30% of which has been forthcoming so far. This will be a problem. China had 25m cars in 2005, up from almost none ten years ago. 7m were sold in China in 2006. 140m are expected by 2020, more than the US today. It has 50,000 km of roads up from almost nothing in the late 1980s, with 25,000 km to be added over the next 5 years.

Major gas producers explore setting up a gas export cartel: Russia, Iran, Qatar, and Algeria. This is strange, because supplies are tight in Russia and Iran is a net importer despite vast reserves.

28.3.07. UK carbon dioxide emissions rose 1.25% in 2006 to a ten year high. Provisional government data chart the rise, mainly due to a move from gas to coal for electricity generation. Emissions of all greenhouse gases in the Kyoto basket were up about 0.5%, but are still on target to be below the target of a 12.5% cut from 1990 by the period 2008-2012. Total greenhouse emissions were equivalent to 658.10 million tonnes of CO2, down about 15% from the 1990 figure of 775.20 million tonnes. Carbon dioxide output rose from 544.2 million tonnes in 2005 to 560.6 million tonnes in 2006. The domestic CO2 target is reduction of 20% between 1990 and 2010, and the figure at end 2006 is a reduction of just 5.25% . David Miliband describes the figures as “worrying.”

US Government Accountability Office says the US needs a plan for peak oil. This investigative arm of Congress notes that peak forecasts range between now and 2040. “The consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks,” the GAO report says. “There is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues.”

29.3.07. Putin ponders a cap on Russian oil production. From February 2006 to February 2007, Russian oil production increased by over 400,000 barrels per day (b/d), whereas exports remained flat. The excess was needed at home, where Russian car production and sales grew prodigiously in 2006.⁶³

30.3.07. Swedish analysis of giant oilfields points to early peak. Frederik Robelius PhD thesis published end March. In Peak Oil articles, the world's top four oil fields are often quoted as Ghawar (Saudi Arabia), Burgan (Kuwait), Cantarell (Mexico) and Daqing (China). In Table 6.1, Ghawar and Burgan are ranked first and second, Cantarell is twelfth and Daqing sixteenth (Report 3^rd June).

2.4.07. Sub prime mortgage lender New Century Financial files for Chapter 11 bankruptcy protection. The carnage begins, althought it doesn’t seem much like it at the time.

EU emissions grew by up to 1.5% in 2006 as the emissions trading scheme flops. Over-generous allocations of emissions allowances are to blame.

US Supreme Court rules that government agencies have power to enforce emissions regulations. The first such ruling finds that the EPA can use the Clean Air Act to enforce vehicle limits, to the disappointment of the White House.

4.4.07. Economist magazine agrees with Castro: US ethanol production is bad. Last week Castro warned that “the sinister idea of turning food into fuel” will result in starvation for many. Corn-based ethanol requires almost as much or more energy to produce as it releases when it is burned. Ethanol made from sugar cane, by contrast, produces far more energy than is needed to grow it, and Brazil has plenty of land available to grow it.

Mexico’s Cantarell oilfield loses one fifth of its production: has fallen to 1.6 mbd, down from 2.13 mbd at peak in 2005. The Wall Street Journal asks whether this could be part of a bigger picture. “Nearly a quarter of the world's daily oil output of 85 million barrels is pumped from the biggest 20 fields, according to estimates from Wood Mackenzie, a Scotland-based oil consulting firm. And many of those fields, discovered decades ago, could soon follow in Cantarell's footsteps.” Matt Simmons on the discovery of the world’s biggest fields: in the ‘40s-60s eight big fields were discovered able to produce more than 500,000 barrels a day. During the 1970s and 1980s: two. Since then, only one with that potential, Kashagan. Today, only four fields produce at > 1 mbd. Two decades ago, twenty did.⁶⁴

5.4.07. German study predicts peak coal around 2025. Energy Watch Group concludes that reserves are consistently overstated. The peak will occur around 30% above today’s production.

IPCC impacts working group releases fourth assessment report. The usual combination of doom-laden headlines and scientists saying officials had watered down the conclusions. This report will join the scientists’ assessment, published in February, and a third report on abatement and adaptation measures, to make the final report, published later this year.

8.4.07. Russia failing to replace oil and gas reserves, government official warns. Oil reserves shrank by 7.3 billion barrels from 1994 to 2005. “The proportion of reserves that can be extracted has fallen from 42 percent at the start of the 1990s to 27 percent,” says Sergei Fyodorov, head of subsoil policy at the Natural Resources Ministry, at a conference. BP's statistical review of world energy has put Russia’s (classified) oil reserves at 74.4 billion barrels. “At the current rate of growth in oil production, there won't be enough reserves to keep up,” Fyodorov says. Gas reserves were down by 2.4 trillion cubic meters over the same period, he says. BP put Russia's natural gas reserves at 47.8 trillion cubic meters in 2005.⁶⁵

7.4.07. Gas crunch speculation in Gulf press as locals race to meet their own needs. “In ten years' time, you could easily be looking at a deficit of 1.5 billion cubic feet per day in the UAE,” an oil and gas executive tells Gulf Times. BP estimates that the deficit could be 7 bcf by 2015. Regional demand growth of 10^th is eating export potential. ODAC contact in the Gulf: “I believe the Gulf is about to run out of gas. The earliest article forecasting this was in about 1997 but it is now going to mainstream media. Due to far greater growth rate particularly of tourism, construction and industry the situation look as if it may become precarious soon. Power cuts in summer would do untold damage to local economies not to mention the dangers to people exposed to +50C in their recently built glass clad vertical solar ovens.” The Burj Dubai tower has more floors than any other buildings in the world. The Emirates Road has 12 lanes.

9.4.07. Lawrence Livermore Lab study study shows trees outside the tropics do not offset warming. In the tropics, trees do three things: absorb carbon dioxide via photosynthesis, promote convective clouds that tend to reflect radiation back into space, but on sunny days tend to absorb radiative heat because of the albedo effect. The last one is cancelled out by the other two, causing a net cooling. At higher latitudes the albedo effect of dark trees compared to non-forest cancels out the cooling effect of carbon dioxide absorption.

9.4.07. Insurers launch world’s first flood bond: $150m for those who want to bet against a flood in London. The issue, by Allianz, is oversubscribed by hedge funds and traditional fund managers, and Allianz is considering of a $1 bn bond soon. Insurers already have bonds for earthquake and hurricane risk. “Insurers believe that certain disasters are so unlikely at the same time that they can use one to hedge against the other,” says the FT.

10.4.07. UK House Builders Federation slams “gesture politics” of zero carbon building objective. Roger Humber, strategic policy consultant to the House Builders Association division of the National Federation of Builders, calls Brown’s initiative on the zero-carbon goal as “gesture politics on a grand scale” and says house builders will never be able to deliver zero carbon in the 200,000 homes they are being asked to build each year. He says: “We're now being told: 'You're not in the business to keep prices down to consumers; you're in the business of saving the planet.'”

15.4.07. UK tries to raise climate change as an issue in the UN Security Council. Russia, China and US oppose the action.

Eleven former US army generals co-author report saying climate change is a significant threat to US national security, and urge the Bush administration to do more to counter it.

17.4.07. Shell technology join with UK coal entrepreneur to build the biggest CCS station above a coal mine. The entrepreneur, Richard Budge, wants to reopen Hatfield Colliery and build a power plant on the site.

Inquiry to be launched into claims Sellafield kept body parts of dead workers The government announces an independent inquiry into claims that body parts of workers who died in suspicious circumstances at Sellafield and other nuclear plants were taken without consent, over a period back to the 1960s, for medical examination. BNFL admits this but says the practice stopped in the 1990s.⁶⁶

19.4.07. British Gas sees the future in green energy advice: expects doubled profits from services. The costly giant says it will sell home surveys, and install solar panels and efficiency boilers, as a route to escape low margins: 9% margins compared to “low single digits” for traditional power supply. See Jl blog 30, 20.4.07.