Triple Crunch Log Jeremy Leggett

party group of MPs accuses government of empty rhetoric on improvements to building stock. The Urban Development Group says the focus is on the 1% of buildings that are newbuild, when landlords can easily reduce energy use without serious cost penalty. The chair, Clive Betts, is Labour.⁶⁷⁶

16.7.08. Prince Charles gathers industry leaders to hear climate scientists warn of a threat to civilization. The event, at St James Palace, is to plot the follow-on to the Bali Declaration, the strong statement from business to the 2007 climate summit. Another is planned for December's Poznan Summit. We hear an update on the very latest science, economics and politics. The science is now quite simply apocalyptic, in the absence of rapid decarbonisation of the world economy. Schellnhuber of the Potsdam Institute now talks of the need to return atmospheric concentrations to 280 ppm CO2 (pre-industrial) because of the long-run sea-level risk. On the economics, the message from Lord Stern was that decarbonisation of the world economy is do-able, at around 2 percent of gross global product. He claims that the investments needed to do that huge job are affordable, but rising all the time: he thought 1% of GGP at the time of his Review in 2006. On politics, the UK special envoy on climate John Ashton is quite clear that the goal now has to be zero carbon in energy, not 60 or even 80% cuts “We need to build a zero emissions energy infrastructure at a time of resource crunch.” We have to go zero in energy because of inevitable emissions in food production. Ashton, Stern and the scientists all portray climate change to the business world now as a full-blown slow-burn end-of-civilisation drama. It has always been so, of course, but the days are long gone when only a few NGOs said so. Sea-level rise seems to be the lead threat in their analyses. Schnellnhuber says: think of one degree C global temperature increase as locking in 20 metres of long-term sea-level rise. As for runaway greenhouse effect: “I can’t say it won’t happen. Nobody has proved it can’t.” Ashton said China, for example, would face catastrophe if the sea-level goes up only one metre. Adair Turner: The UK would need 3 or 3% of GDP to meet its obligations under the “can do” that Stern and Ashton describe. The UK spends 30-40% of GNP on the war at present.

Al Gore calls for a national US mission of 100% electricity from non-fossil sources within ten years. He appeals to both candidates to emulate John F. Kennedy’s Apollo mission. “We are borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that has got to change.” Climate change is happening faster than we thought. “Scientists with access to data from Navy submarines traversing underneath the North polar ice cap have warned that there is now a 75 percent chance that within five years the entire ice cap will completely disappear during the summer months.” Low-carbon technology is ready. “We can start right now using solar power, wind power and geothermal power to make electricity for our homes and businesses.” “This goal is achievable, affordable and transformative.” ….for example, “the price of the specialized silicon used to make solar cells was recently as high as $300 per kilogram. But the newest contracts have prices as low as $50 a kilogram.” When we send money to foreign countries to buy nearly 70 percent of the oil we use every day, they build new skyscrapers and we lose jobs. When we spend that money building solar arrays and windmills, we build competitive industries and gain jobs here at home.” “When the use of oil and coal goes up, pollution goes up. When the use of solar, wind and geothermal increases, pollution comes down.” Our economy cannot stand 10 more years of sending $2 billion every 24 hours to foreign countries for oil.” New infrastructure will be needed: “we do not have a unified national grid, ….outages and defects in the current grid system cost US businesses more than $120 billion dollars a year. It has to be upgraded anyway.”  “We should tax what we burn, not what we earn.” “This is a generational moment.”⁶⁷⁷

China braces itself for an electricity supply crunch this summer as utilities’ coal supplies fall and power demand surges. China's State Grid has released figures suggesting 14GW – c. 2% of the country's coal-fired generation capacity - has already been shut because of the shortage. The reason is that coal prices in China are being held below international levels, encouraging exports and stunting imports.⁶⁷⁸

17.7.08. Oil falls below $130 and stock markets rally, lifting Wall Street out of bear territory. Paul Horsnell of Barclays Capital: “Prices have been volatile and ultimately directionless in the past month.”⁶⁷⁹

Gas prices could rise 65% if the oil price stays high, a Centrica report says. That would mean more than £1,000 per UK household. Continental prices are linked to the oil price through long-term contracts that link prices to heating oil and other products, and UK prices are linked “by pipeline” to these because 80% of demand may have to be met by imports by 2015. Centrica’s CEO Sam Laidlaw says the UK faces an “energy crunch” as a result of “global factors outside the UK’s control.”⁶⁸⁰

Another £10bn is added to the UK nuclear clean-up bill by the NDA, making £83bn in all. The reasons given by the NDA are inflation, a decision to tackle more complicated hazards at Sellafield, and low income from Thorp and the Mox reprocessing plants. An NDA spokesman can’t give a guarantee that the bill won’t rise again.

British Energy says four broken nuclear plants will not be back on line before the end of the year. Two of the plants, where problems were found nine months ago (Hartlepool and Heysham 1), involve “significantly higher” costs than expected for an engineering solution, and much more time than expected. The other two reactors, Hinkley Point B and Hunterston B have boiler problems. A million man hours have already been invested in the four reactors.⁶⁸¹

French government orders a radiological assessment of groundwater around all 58 nuclear reactors after a second leak is reported at another site in southern France, and an unexplained older contamination is found in the groundwater at the spill at the Tricastin site. The second site is at Romains-sur-Isere, another site run by an Areva subsidiary, where a pipe is found to have burst long ago. Radioactivity has not leaked beyond the site. The Nuclear Safety Authority (ASN) accuses Areva of “human negligence” and “dysfunctional” processes. Ecology minister Jean-Louis Borloo says the investigation is because “I do not want people to think we are hiding anything,” and Areva insists there is no threat. However, ASN’s findings have been passed to the prosecutor’s office, which may decide a criminal investigation is required. Borloo says there were 86 level-one incidents in France last year and 114 in 2006.⁶⁸²

First UK tidal turbine begins feeding power to grid. The device, akin to an underwater windmill, is in Stranford Lough, Northern Ireland. It starts at 150kW, soon rising to 300 kW. There could be at least 5 and as much as 15GW of tidal power around UK coasts. It was built by Marine Current Turbines.⁶⁸³

Credit Suisse concludes oil demand will peak before supply and much lower oil prices are imminent.

JL: This is the BP view. The report doesn't talk about depletion at all. The most revealing statement is on page 8. "History is not on the side of the bulls: looking at the data since 1860" (er.....1860?) "there have been ten previous occasions when real oil prices have averaged more than $60. ....On no previous occasion have real prices been higher five years later." So, they argue, will it be this time, with a bunch of economist's jargon and simple regression curves to drive the point home. Depletion makes it different this time. We have both underground factors and above ground factors that have no precedent.⁶⁸⁴ (L)

18.7.08. Another bad week for BP in the TNK-BP civil war, as Russian employees take out law suits against CEO Bob Dudley, accusing him of discriminating against them. He does finally have a visa to continue work for 10 days though, just one day before he was due to be evicted from Russia. BP is fighting back. A spokesman claims that BP wants to increase capex to bring on new fields but AAR are rejecting that. Another source tells the FT that decision making on future projects has “ground to a halt.”

US states are passing laws to allow golf cars on roads. Rising fuel costs are driving people to use them. A Missouri police chief surprises a drug dealer mid-deal by silently gliding up in one.⁶⁸⁵

UK Treasury reveals record deficit and says the borrowing rules may be changed to allow net debt to be more than 40% of GDP. Currently national public sector debt it is 38.3% (US is 60.8%, Germany 63.2% and France 64%), a grand total of more than half a trillion pounds, or more precisely £555bn (up from 359bn in 1998), and £640bn if you include Northern Rock and Bank of England. The 2008 national budget has £575bn of income and £618bn of outgoings. A great example to set companies and households.

20.7.08. Ineos says it will be producing ethanol from municipal waste by 2011. It will convert organic waste into gas, and feed it to bacteria for conversion. It hopes to have deals signed up on the first plants in the next 3-4 months. 90% of the emissions of conventional petrol can be saved, two studies suggest. However, meeting the EU’s 10% target for biofuel in the road-fuel mix by 2010 would require more than half the EU’s organic waste, if just this process were to be used.⁶⁸⁶

Channel 4 censured by Ofcom for unfairly representing scientists in climate documentary. But Ofgem also rules, bizarrely, that viewers were not misled by The Great Global Warming Swindle. The regulator’s broadcasting code only allows it to consider whether documentaries “materially mislead the audience so as to cause harm or offence.” Ofcom in its wisdom sees no harm or offence. It seems Channel 4 will be able to claim it is vindicated (and does, in a Newsnight interview, much to the visible disgust of David King, when this ruling is confirmed). The programme was sold to 21 other countries, and has gone out on DVD despite the efforts of wronged scientists to stop its distribution.⁶⁸⁷

Land grab underway in the American SW for solar sites. In the Mojave desert 104 claims have been received for nearly a million acres of land, a theoretical 60GW of electricity. (All-California capacity today is 33GW). Some companies are paying more than $10,000 an acre for scrubland. One player, Solar Investments, is a subsidiary of Goldman Sachs, who will probably either partner with developers or sell leases. The bank has requested permission from the Bureau of Land Management to install and monitor a range of thermal and PV technologies. A secretive start-up, OptiSolar, has filed claims for more than 100,000 acres, aiming to install 9GW (sic) of PV plants. The biggest PV farm today is 15MW. Developers like these are worried about resistance from environmentalists, who say they are going to challenge applications because habitats of threatened species such as the desert tortoise are affected.⁶⁸⁸ (L)

21.7.08. Mexican oil production for first half of 2008 plunges almost 10% on same period last year. Production averaged 2.6mbd. Exports were down more than 15% to 1.45 mbd.⁶⁸⁹

Coal price surges as exports fall because producers are using more coal in their own economies. They have doubled in the last year, exceeding $200 a tonne in Europe during July. Some analysts predict $250 in the next quarter. A power crisis is coinciding with exporters like Indonesia, South Africa, Poland and Russia increasingly needing their own coal. Hedge funds are taking an interest at the same time, observing these fundamentals. China’s next exports have more than halved over the last four years, and the indeed China even became a net importer in April.⁶⁹⁰

Brain drain depletes Nuclear Installations Inspectorate, threatening entire UK nuclear programme. Only 16 people are staffing a reactor-approval programme that the HSE (of which NII is part) says requires 40 minimum. One problem is public-sector pay scales.⁶⁹¹

E.ON and Dong Energy take Shell’s share in the London Array, the world’s largest offshore wind farm. Each will have a one third stake in the 1,000 MW scheme, of which the first phase could be ready by 2012. The price tage is now £2.5bn, up from the £1.5bn envisaged three years ago.

22.7.08. Saharan solar electricity plan for Europe gains support from Brown and Sarkhozy. The European Commission’s Institute for Energy envisages many 50-200 MW solar plants in Africa, linked by a HVDC transmission grid (losing less energy over distance than AC: 3% per 1,000km). To provide all Europe’s electricity needs would require the capture of just 0.3% of the light falling on the Saharan and Middle Eastern deserts: an area smaller than the equivalent of Wales, covered either with CSP or PV (generating up to three times more electricity than they could in northern Europe) could do this. The grid could also capture wind across Europe and western North Africa, and geothermal power from Iceland. By 2050, north Africa could be providing 100 GW to Europe, at a total investment of €450bn (c.€1bn a year). Algeria is already working on a combined CSP-gas plant aiming to export 6GW to Europe by 2020. In context, this is not too expensive: the IEA now calculates that the world needs to spend $45tn (£22.5 trillion) on energy systems over the next 30 years.⁶⁹²

BP pulls its specialists out of TNK. It does so reluctantly, expecting that production will be adversely affected. Meanwhile, TNK-BP has signed a deal with Venezuela to extract heavy oil.

Scottish ministers approve Europe’s largest windfarm: 456MW from 152 turbines in the Southern Uplands along the motorway between Moffat and Biggar, a £600m project providing enough electricity for 250,000 homes, to be complete by 2011.

23.7.08. US Geological Survey says Arctic has 90 bn barrels of oil, and gas equal to all Russia’s reserves yet to be discovered. 90bb oil is 13% of the world’s undiscovered oil (692 billion barrels) and the gas (1,669tcf) is 30% of the world’s undiscovered gas. USGS’s Don Gaultier says the pole itself is not interesting. Wood Mackenzie estimated that in addition to 233bboe discovered, the Arctic held 166bboe, most of it gas.⁶⁹³

Dependence of oil producing countries on oil revenues is increasing so much that it threatens exports, a new RIIA report shows. Even Saudi Arabia must plan for export decline, and some countries might rationally choose to keep oil in the ground, even at over $100 a barrel.⁶⁹⁴

UK government lobbies both US presidential candidates to support the “Jeddah process,” the effort led by Gordon Brown to get the Saudis to pump more oil. John Hutton, Business Secretary, flies to Washington to lobby the offices of both candidates, and to try and interest investors in the UK’s nuclear renaissance. He says the Jeddah process is the only game in town, when it comes to trying to control the oil price.

UK government opposes the EU renewables directive efforts to give renewables priority access to grid. The EU draft reads “member states shall” give renewables priority access to national grids. The UK wants “may.” An EU official says they are trying to protect coal, gas and nuclear.⁶⁹⁵

Radioactive particles contaminate 100 French workers in fourth French nuclear incident within the last few weeks. EDF announces “slight contamination” of employees as a pipe leaks radioactivity at an EDF reactor at the Tricastin site, next to the treatment plant where uranium spilt three weeks earlier.⁶⁹⁶ A nearby Rhone valley winemaker, Coteaux de Tricastin, wants to change its name.⁶⁹⁷

UK parliament audit shows massive cost over-runs at the Nuclear Decommissioning Authority. £400m had to be added from other budgets by the Department of Business to balance the books, which is now allocating 42% of its budget to nuclear clean-up. At least £15m was switched from renewables, figures released in February show. The NDA is sending its finance staff for retraining at the National School of Government. The audit, by MPs, also points to problems arising as a result of untrained staff generally, and bureaucratic bungling resulting from misunderstandings after unminuted meetings.⁶⁹⁸

24.7.08. Head of TNK-BP is forced out of Moscow. BP complains of “an orchestrated programme of harassment.” Bob Dudley plans to do what he can to run the company temporarily from somewhere in Europe. The oligarchs continue to maintain they have had nothing to do with the state agencies that have targeted BP (the raid by the FSB [post-Soviet spy agency], tax and employment officials), but add that the idea Dudley can still run the company is a “ridiculous notion,” and insist as they have since May that he replaced with a CEO who will run TNK-BP as something other than a BP subsidiary.

25.7.08. Wind energy deployment in China breaks records. The growth rate has exceeded 100% a year since 2005 as China pursues of policy of 15% non-crbon energy by 2020, up from 5%. The wind target was 5 GW by 2010, but that has been passed three years ahead of schedule (China has 6 GW today), and the target doubled to 10 GW. One report says 130 GW is in the pipeline: more electricity Junfeng Li, secretary general of the China Renewable Energy Industries Association, says that many believe wind power will be cheaper than coal by 2015. In 2007, domestic manufacturers took more than half the domestic market for the first time, and China might already have overtaken the US as the biggest manufacturer of turbines. Growth is fast in India and Brazil too, with these three countries’ share of global wind investment rising from 12% in 2004 to 22% in 2007.⁶⁹⁹

EDF becomes the first UK energy supplier to raise prices in the latest round: 17% for electricity and 22% for gas, blaming soaring wholesale prices. Analysts are surprised the hike wasn’t greater. The French government-owned supplier is also in advanced negotiations to acquire British Energy.

British Ambassador to Moscow locked out of UK-funded nuclear facility in Russia. The UK provided £23m of funding to the Atomflot facility in Murmansk to help ensure safe storage of spent fuel. But that didn’t buy Tony Brenton rights of entry to have a look at what it was being spent on.⁷⁰⁰

26.7.08. E.ON admits it would run Kingsnorth if CCS proved not to work. The admission is made by Andy Read, clean coal business development manager. Meanwhile leading scientists hit out at government plans to allow coal burning without CCS in a letter to the Observer, adding their voices to the Commons Environment Audit Committee’s conclusion this week that all coal-fired plants must have CCS. The Tories want a moratorium on building of coal plants until and if CCS is proven, a policy Energy Minister Wicks calls “stupid.”⁷⁰¹

27.7.08. UK MPs call for a windfall tax on energy companies. The Commons Business and Enterprise calls on Ofgem to toughen up, and reform the market, because households are paying too much.

Fears grow about “handing the entire UK nuclear industry to the French government,” as Dieter Helm puts it. Both EDF and Areva are French government controlled. The vertically-integrated energy companies fear unfair competition. The independent suppliers fear the wholesale electricity market, which is problematically illiquid now because vertically-integrated companies are able to bypass it, buying their own generation – meaning independents find it difficult to invest in new plant - will get worse.⁷⁰² An FT editorial on 29^th reads: “EDF can be trusted to behave like a conventional commercial enterprise ….EDF is not France is not Russia.” But it then goes on to argue that EDF shouldn’t be able to buy a monopoly: some of the nuclear plants must be owned by other companies if we are to have a market.

28.7.08. Falling oil price results in Nymex trades being net short for the first time since February 2007. Last week’s sharp falls have been followed by a rebound to $124 yesterday. The unexpected fall in prices has hit hedge funds hard.

Eight UK streets cut their CO2 by an average 20% and fuel bills by a third in a competition organized by British Gas. Says one contestant mother: “What’s struck is that it’s our behaviour which really makes the difference.” She speaks of watching the meter, turning lights off, and so on. The Institute of Public Policy Research, which monitors the exercise for BG, suggests that 10,000 advisors be appointed nationwide, one per 20 streets. The cost would be £500m annually against national energy savings of £4.6bn. Other measures, IPPR says, could include a £524 loan package at 7% for cavity wall and loft insulation. Annual savings of £395 at today’s prices would soon pay that off.⁷⁰³

Tense rivalry between Ukrainian leaders will have a major say in future gas prices in EU countries. President Victor Yushchenko and his former ally turned rival, Prime Minister Yulia Tymoshenko, have very different reviews about how to deal with the Kremlin. He believes current arrangements, whereby Russian and CIS gas are perchased from a Swtzerland-based middleman, should stay in place, and that there should be no price review. She believes Ukraine should buy direct from Russia, which would add transparency but probably end up with higher prices. The UK is already importing 21 bcm a year, and ten EU countries are almost completely dependent on Russian and CIS gas piped via Ukraine.⁷⁰⁴

Matt Simmons reiterates view that crude oil probably peaked in 2005. He says that for the last three years crude has struggled to stay on an undulating plateau at 73-74 mbd. The rest, topping up to around 88 mbd, comes from LNG, refining processing gains, and tapping inventories. Major new projects occasionally coming online may nudge the total crude production higher than 74 mbd, but the odds of going higher are low, he says.⁷⁰⁵

Ethical investors join campaigners to seek an end to unconventional production. The hook-up between the Co-operative and WWF comes as Shell and other oil companies propose investing $125bn to 2015, subject to investor approval, to develop the tar sands. From the report: Tar sands produce three times the carbon emissions of conventional oil production (and oil shale 8 times). If the official figures of recoverable oil are accepted, (315 bb in the tar sands and 800 bb in the oil shale), the 1,115 barrels resulting would mean 980 Gt CO2 of emissions, adding 49-65 ppm to the atmospheric concentration of CO2.⁷⁰⁶

30.7.08. British Gas raises prices by another 35%, a record for the industry, creating consumer uproar. Just hours later parent company Centrica announces £880m of profits for the first half. Ten million households will be affected. Economists predict that, as result of BG’s action alone, the Consumer Prices Index will rise from 3.8 now to 5% by the autumn. If the move is replicated across the industry, a further million will join the 4.5m already in fuel poverty, consumer groups say.