Triple Crunch Log Jeremy Leggett

Two US studies show that energy firms routinely abuse UN carbon offset fund, wasting billions. Chemical, gas, wind and hydro companies are claiming for CDM projects that should not qualify because they would have happened anyway. The market is now £20bn a year, and will be £100bn within four years. Stanford University researcher reckons between a third and two thirds of the 1,000 projects agreed, and c. 2,000 under way do not represent true emissions reductions. Nearly every Chinese gas, wind and hydro project is applying, but would have happened anyway. US watchdog International Rivers group also finds that nearly three quarters of CDM projects applied once built, suggesting they would have happened anyway. UN and US officials defend the CDM.⁵⁰⁸ It is misleading to talk about “emissions reductions” overall even where there are true cuts in the developing world, because the CDM a zero-sum game: emissions cuts in the developing world are traded against emissions increases in the developed world. Note: only 16 solar projects, some 0.5% of the project pipeline, have qualified to date for CDM approval. Most CERs come from trifluoromethane projects (HFC23), where the fear is that refrigerant producers may be increasing output solely to qualify for CDM funds to “stop” emitting.⁵⁰⁹

Mexico’s president appeals to Congress for oil development funds as production plummets in a top ten producing country. It was 3.18 mbd a year ago, and is now 2.77. Cantarell has shrunk 24% in the last 12 months. Reserves are down too, according to a recent study by the energy ministry and Pemex: >20bboe quoted in 2002, revised down to 14.7 last year. President Calderon wants to let overseas companies in the help, but this faces stiff opposition in Congress.⁵¹⁰ Cantarell’s production was just over 1 mbd in April, half the peak four years ago. Mexico’s production has fallen every month of 2007 and 2008. It peaked at 3.38 mbd in 2004. Crude exports have fallen by 500,000 barrels a day since then.⁵¹¹

Russia begins process of cutting tax on oil in an effort to lift flagging production. A proposal to raise the tax-free threshold on extraction from $9 to $15 a barrel will be fast-tracked through parliament, raising $4bn for fresh investment. Analysts say this nowhere near enough, and the government can afford to give back more of the 80% it currently takes on each barrel.⁵¹²

27.5.08. Electric vehicles powered by lithium ion batteries are poised to go mainstream. This is in major part because breakthroughs in lithium-ion battery technology now mean the batteries and light enough and small enough to fit into cars without weighing them down. Tighter regulations are also helping. And higher manufacturing volumes, as ever, are causing the price differential between a hybrid and an ICE auto to shrink.Also: According to the American lung Association, swithcing to EVs in California alone would save the US more than $2bn in health bills from exposure to fine particulate each year. Hundreds of premature deaths and cases of chronic bronchitis could be avoided. Thousands of asthma attacks would not happen.⁵¹³

Fuel tax protest return to British roads. Hundreds of lorries blockade London streets. The Treasury says it is “listening” and that the road tax rises proposed in the Budget is now under review.⁵¹⁴

Gordon Brown says we are heading for a third oil crisis and supply is to blame. “The global economy is facing the third great oil shock of recent decades,” says UK PM in a Guardian op-ed. “This is why the UK is arguing that at the top of of the economic agenda for the forthcoming G8 Summit in Japan should be a global stragey for addressing the impact of higher oil prices. The cause of rising prices is clear: growing demand and too little supply to meet it now and – perhaps more importantly – in the future.” “…we are becoming increasingly aware of the technical, financial, and political barriers to the production of more oil.” “….our strategic interests – reducing energy costs, increasing energy security, tackling climate change – all now point in the same direction: decreasing dependency on oil, through substitution with other energy sources and through energy efficiency.” “….Britain will increase its investment in renewables, including decentralised generation.” Also nuclear of course, though only to replace existing station he now says. “In advance of the G8 Summit, I will be proposing further work internationally to achieve a better dialogue on supply possibilities and trends in demand.”⁵¹⁵

28.5.08. Daniel Yergin says “oil has reached a turning point” and is “losing its almost total domination in ground transport.” There are three obstacles to oil supply responding to price. The first is time: “these high prices haven’t been around all that long and development of resources and development of new supplies takes many years.” The others are access and costs. “CERA calculates that costs for developing a new oil or gas field have more than doubled in just four years.⁵¹⁶

OPEC loses a member as Indonesia, now an oil-importer, quits. Indonesia’s energy minister says the twelve oil exporters all want high prices, while his country now wants low prices. Production is also falling in Nigeria, Venezuela, and Iran.⁵¹⁷

Exxon wins the shareholder vote and stays as it is. The Rockefeller-led dissidents won 39% of the vote, including 19 institutional investors, but a company campaign persuaded more than half. Resolutions seeking action from the company on climate change all failed too. Annualised returns of more than 24% over the past 5 years – tripling the value of investments – must have helped. An investment in Exxon in 1987 would have grown in value 19 times, more than twice the S&P500 index and much better than other oil companies. Tillerson on oil use out to mid-century: “You can run, but you can’t hide – that’s what you’re going to be using.”⁵¹⁸ Exxon’s VP for public affairs, ken Cohen, says the company has spent $200m in the past five years on renewables. It believes solar is not robust enough to go global and help with emissions reductions, he says.⁵¹⁹

Arctic nations agree to abide by the Law of the Sea until boundary disputes are resolved. In so doing, Denmark, Canada, Russia, Norway and US are trying to bring a degree of order to their scramble for oil. A UN panel is due to decide on Arctic boundaries by 2020.⁵²⁰ Under UNCLOS, states have the right to exploit the seabed up to 200 nautical miles off their coasts, provided there is no overlap with other nations’ territory. To claim further, a state must make a case to UNCLOS within ten years of the convention entering into force in the nation. Russia and Norway have until May 2009, Canada has until 2013, and Denmark 2014. The US has not ratified. Wood Mackenzie in a recent report estimates the Arctic basins hold 233bn barrels of oil and gas discovered and 166 to be discovered, most of it gas, all of it very difficult to produce, and requiring very long lead times.⁵²¹ (If so, what’s the fuss about?).

British Energy shuts 60% of capacity down as profits fall and decommissioning costs inflate. 10 of 16 reactors are out of action at a bad time for the nuclear industry, and the NDA’s director tells the BBC that the current estimate for cleaning up the UK nuclear legacy of £73bn will rise “with high probability.”⁵²² A FoE report puts the annualised bill at £3bn.⁵²³ Meanwhile Gordon Brown says, at an emergency meeting with oil executives, that the need to diversify supply means “we are pretty clear that that we will have to do more than simply replace existing nuclear capacity in Britain.”⁵²⁴

Blackouts leave hundreds of thousands without electricity as power stations go down. Sizewell and a Scottish coal plant happened to go down with problems at the same time, and these plus other plants down for maintenance meaning that National Grid had to close down portions of the grid.⁵²⁵

UK government signals that it will drop fuel duty rise proposed in budget. The Chancellor gives a clear steer that this will happen in the Autumn pre-budget report, but no sign it will drop proposals to increase vehicle excise duty on more polluting cars, due to come into force next April.⁵²⁶

Capital efficiency of oil industry investments drops in the North Sea. The core issue is that the amount of oil and gas recovered per £ now is only a third what it was five years ago. Note: UK Oil and Gas says 37bb have been extracted from the UK continental shelf with 25.5 bb to go. Current industry investment plans would deliver only half that. Total costs are $35 per barrel, i.e. one of the most expensive places to produce oil in the world. Investment dropped last year in real terms (by about £1bn, to £4.9bn). An industry survey shows £29bn of investment in the next ten years, 12 in existing fields and 17 in new projects (i.e. £2.9bn a year). Decline in production was 5% last year, lower than expected.⁵²⁷ More stats in the article.

29.5.08. SSE warns power industry faces imminent and radical change. The company statement releasing the annual results says: “The days of meeting an unchecked demand for energy through monolithic carbon-intensive power stations are coming to an end. Increasingly the emphasis will be on energy efficiency, renewables, cleaned-up fossil-fuel plants and microgeneration. …one more tranche of nuclear power stations will be necessary, but the deployment of of such stations should be minimised through the maximum exploitation of renewable resources.” SSE gets 15% of its energy from nuclear suppliers. Customer numbers rose 700,000 to 8.45m in 2007.⁵²⁸

TNK-BP’s three Russian billionaire shareholders fall out with BP over investment and expansion strategy and the balance between Russian and foreign specialists in the JV (too few of the former). TNK-BP, Russia’s third largest oil producer, contributes a quarter of BP production, and 13% of profits. The three oligarchs own 50%, a stake they are expected to sell soon to either Gazprom or Rosneft (i.e. the Kremlin), though they deny this. The billionaires want Robert Dudley, TNK-BP CEO, removed. They are miffed because he went public about the dispute, and fail to turn up to the TNK-BP board meeting in Cyprus.⁵²⁹ They want TNK-BP to be able to expand outside Russia even if it means competing with BP. A broader BP-Gazprom tie-up is also possible, with analysts speculating that BP would prefer the Kremlin to the billionaires.⁵³⁰

BP leak suggests heavy metal structures may have fallen off the Thunder Horse platform posing risk to well control infrastructure on the seafloor. So says an anonymous BP employee. More than a hundred anti-corrosive structures, weighing up to 700 pounds are missing or have been removed from the platform. BP denies any damage, but their spokesman says he does not know why the structures are missing. BP has to bring the giant Thunder Horse field on stream by year end.⁵³¹

1,700 top scientists call on US government to enact immediate greenhouse gas emissions cuts, citing “unprecedented and unanticipated” effects of global warming. In a letter signed by six Nobel prizewinners, the Union of Concerned Scientists plead for the nation to be put on a course that will achieve 80% emissions cuts by 2050.⁵³²

30.5.08. FSA and other western watchdogs investigate price manipulation of crude. They and the US Commodity Futures Trading Commission will require traders to report positions taken in the market daily as part of the probe. meanwhile Lehman Brothers expects “the bubble” to break as soon as September, and oil to come down to $90 by the first quarter of 2009.⁵³³

Columbia University scientists say they will build a prototype “CO2 catcher” within two years. The scrubber device, smaller than a shipping container and cost around £100,000, will be able to take a tonne of CO2 per day out of the air. Klaus Lackner and his colleagues say this is not a magic bullet: millions would be needed, and even then the CO2 would need to be disposed of. The Guardian has obtained his patent application, which describes passing of air over an ion exchange resin, which acts as sorbant. The CO2 sticks to it and clean air is pumped out. Then the resin is washed with humid air that can clean off the CO2 with low use of energy: the key new development. The patent application suggests that the humid air and CO2 are fed into greenhouses to fertilise plants, or algae ponds, closing the carbon loop. the prototype is being developed by Global Research Technologies in Arizona, a company at which Lackner is VP for Research. Hitherto Lackner was looking to wash the CO2 off the resin with sodium carbonate, and then use electricity to liberate the gas from the liquid.⁵³⁴

Nuclear bomb blueprints for sale on global black market, experts say. Trackers of the infamous nuclear smuggling racket run by Abdul Qadeer Khan say that manuals can be bought and sold on. The Swiss, under pressure from the US, have already destroyed tens of thousands of documents deriving from Khan’s operation, which the Pakisatni metallurgist admitted in 2004. He has been under house arrest in Islamabad ever since. he trafficed tgo at least three countries: iran, Libya and North Korea.⁵³⁵

31.5.08. The Economist argues that peak oil is not involved in the oil shock. The quadrupling of the oil price in the early 1970s hit the world like a sledgehammer. This crisis has been building like a vice, and only now the pain is emerging as rage. Goldman Sachs calculates consumers are handing producers $1.8 trillion a year. The speculators are not to blame, for they deal only in paper barrels, not real ones. Nor are the oil companies. Nor peak oil: “There is little evidence to support the doctrine of ‘peak oil’ in its extreme form. The Middle East seems to contain a sea of the stuff. Even if new finds elsewhere have been rarer and less accessible than in the past, vast quantities of oil could now be profitably stripped from the tar sands and shale.” The truth is the expense and time involved in finding new oil, as the Economist writers see it. “The first two shocks banished oil from power generation. How fitting if the third finished the job and began to free transport from oil’s century-long monopoly.”⁵³⁶

UK government microgeneration grant scheme has been a failure, figures show. The number of homes generating their own renewable heat and/or electricity has risen by just 18,000 in four years, from 82,000 in 2004 to 100,000. The government’s Renewables Advisory Board professes that nine in every ten British homes can be made zero carbon with renewable microgeneration.⁵³⁷

Total’s reluctance threatens access to over a fifth of remaining North Sea oil and gas. Some 4 bb lies in deepwater west of Shetland. Total owns the largest fields in the region, and plans a small pipeline for its own oil and gas. The government wants it to build a bigger pipeline which can be shared with other companies controlling other fields, some half of all the oil. Total says it won’t do so without subsidy.⁵³⁸

1.6.08. Canadian carbon legislation threatens economics of the oil sands, analysts say. The federal scheme announced in March requires CCS on all projects by 2012. But the costs could be too high, on top of recent negative tax and royalty changes, according to some analysts, causing delays and cancellations. Production costs may increase as much as $13 a barrel. Note: Suncor has now increased efficiency to 100 kg of CO2 per barrel.⁵³⁹

McKinsey says global solar PV market could be as much as 400 GW pa in 2020, up from just 4 in 2007, and – if Photon is to be believed – 28 GW in 2010. Solar generation costs will be at grid parity (10-12 cents per kWh) in at least 10 markets by 2020.⁵⁴⁰

Ready-to-occupy solar houses are being provided at normal market prices. For example, he first turnkey affordable house is the “Energetikhaus 100”, occupied since 2006, which covered 97% of its heating demand from solar hot winter during its first winter. The living space is 137 square metres and the south roof includes 69 square metres of solar collectors. Another design, the Kroiss “plus-energy” house in Austria, is built of wood and insulated to the famously high standards of the well-know German “Passivehaus”designs. On the roof, 10.35 kilowatts of solar photovoltaics provide more electricity than the occupants (two adults and two children) need, and 17.4 square metres of solar thermal collectors provide all the hot water they need. ⁵⁴¹

2.6.08. UK government report says 9 million microgeneration systems could be installed by 2020. Key findings (verbatim): “There are almost 100,000 microgeneration installations in the UK, up from 82,000 at the end of 2004. At current support levels, this could increase to approximately 1 million by 2020. With ambitious policy measures, up to 9 million microgeneration systems could be installed by 2020, producing as much energy as 5 nuclear power stations. This would require an estimated cumulative cost of at least £21 billion. By 2030, microgeneration installations could be saving thirty million tonnes of CO2 - an amount equivalent to removing the emissions from all Heavy Goods Vehicles and Buses from UK roads. These savings could be achieved at an estimated cumulative cost of at least £70 billion (excluding non domestic subsidy costs). If consumers are to take up microgeneration in these numbers, they need to see a compelling economic reason to do so – environmental benefits are not sufficient on their own to create a genuine mass market. Government targets for microgeneration, supported by concrete policy measures, would improve the confidence of those investing in the sector. A challenging government target of 2-3 million units installed by 2020 could be met through a combination of measures.⁵⁴²

Sentiment grows among solar PV analysts that a price collapse is imminent. Manufacturer capacity seems heading for a glut, given pressures on demand, especially in Germany. But as the FT puts it, the clouds will probably have a silver lining, in that demand will grow faster at the lower prices.⁵⁴³

3.6.08. US natural gas prices rising faster than crude. They are up 65% this year, no more than $12 per mbtu. reasons: soaring coal and oil prices are making generators go for gas, plus supply constraints. Canada’s gas output has disappointed. The global LNG market is being squeezed by coal shortages and soaring electricity demand in India and China etc. Japan has problems with its nuclear and is importing.⁵⁴⁴

GM looks to drop the hummer as sales plummet. CEO Rick Wagoner says the ailing auto giant is reviewing all options, including sale of the brand. He says: “We at GM don’t think this is a spike or a temporary shift. We think this is by and large permanent.”⁵⁴⁵

US delegation to food summit rejects food-biofuel link, to general scorn. US agriculture secretary Ed Schafer claims at the UN summit in Rome that biofuels contribute less than 3% to rise of food price. A FAO document says they account for 59% of the increase in coarse grains and wheat between 2005-7. A senior UN official says the US is diverting food away from the hungry “to satisfy a thirst for fuel for vehicles.”⁵⁴⁶

Ryanair boss says oil price will wipe out profits for 2008 ….and that’s if it stays at $136. But he says the notion that the era of cheap flights is over is “bullshit.” “The ones who won’t go bust will be British Airways, Air France, Lufthansa, probably easyjet and Ryanair. Everyone else is in danger of going bust.” “In the medium term there is not doubt in my mind that higher oil prices are really great for Ryanair’s business model.”⁵⁴⁷

4.6.08. BBC Scotland TV documentary finds that North Sea oil will last for “decades.” The film, “Truth, Lies, Oil and Scotland,” suggests (based on Economist Peter Odell and others) that 25-40 billion barrels of oil remains to be recovered in the next 40 years. The thesis is that oil companies have an incentive to understate reserves to avoid taxation. The article on the BBC website doesn’t even mention that oil has peaked and is falling steeply.⁵⁴⁸

E.ON warns that UK renewables will need lots of fossil-fuel backup. The EU target would require 50GW of renewables in the UK, CEO Paul Golby says, releasing E.ON’s annual results. Because wind capacity can fall as low as 8-10% of full capacity, we would also require 70 GW of back-up from coal and gas to insure against the intermittency, i.e. total installed power of 120GW, up from 76 GW today.⁵⁴⁹ Golby says he wants to confront single-issue campaigners: “It is easy to say ‘no’ to coal, easy to say ‘no’ to nuclear. I’m quite interested in what they are going to say ‘yes’ to.”⁵⁵⁰

Exxon newspaper ad says “about one quarter of the world’s recoverable oil has been used to date.” Much of the remainer is found in harsh environments, deep water or highly complex rock formations. New technologies will help us find, retrieve, deliver and use these supplies safely and in an environmentally responsible manner.” Part of an all-week series on energy, a different ad each day.” A handsome engineer marvels at how they are drilling today in 3,000 metres of water, a feat that only a few decades ago seemed impossible.⁵⁵¹


“It has become clear that there is a strong connection between our willingness to diversify our energy sources and our ability to grow the economy sustaniably.”
Ken Jones, CEO, Bank of America

June 2008

BP Russia boss in criminal tax probe as Russians tighten the screw. Bob Dudley is summoned to the interior ministry. The issue is possible tax evasion at Slavneft, an oil company 50% owned by TNK-BP.⁵⁵² He is also being investigated for employment law transgressions involving the 150 foreign executives who work for TNK-BP: the gang of three oligarchs want fewer. At stake in the Russian gangster capitalism game is ownership of TNK-BP’s 24% share of BP production and 19% of BP oil and gas reserves. Last year BP replaced only 44% of its O&G reserves, absent the “equity-accounted entities (mostly TNK-BP), but the reserve replacement ration rose to 112% with them. 2007 liquid reserves were 5.5 bb (of which EAEs’ share – gulp – is 4,581). Natural gas reserves were 41 tcf (of which EAEs’ share was only 3.7 tcf). Total reserves were 41 bboe (of which EAEs’ was 5.2 bboe). Production of liquids was 1.3 mbd (of which EAEs’ share was 1.1 mbd). Production of natural gas was 7.2 mcfd (of which EAEs’ was only 0.9 bboe). Total production was 2.5 mbdoe (of which EAEs’ was 1.2 mbdoe).⁵⁵³ TNK-BP in 2007 provided a third of BP’s oil reserves, a quarter of its production, and a fifth of oil and gas reserves combined. BP cannot afford to lose this battle. To do so would revive bid speculation, the FT opines.⁵⁵⁴