Triple Crunch Log Jeremy Leggett

Exxon oil and gas output 5% down on the second quarter last year, Chevron down 3.4%, Shell down 1.6%. The price, and consequent profits, masks the problem.

As consumer fury erupts at BG price rise, parent Centrica pledges to cut bills if gas price falls. Amid calls for a windfall tax, Centrica CEO Sam Laidlaw argues against a windfall tax because it would affect investor confidence. Much of the outrage has to do with the fact that the utilities refuse to disclose how much they pay for their gas.⁷⁰⁷

31.7.08. Shell insists tar sands are less damaging to climate than coal. They warn ethical investors that disallowing tar sands would make matters worse because more coal would be used. van der Veer says the well-to-wheels carbon footprint is only 15% more than conventional oil. Announcing flat oil and gas production for the quarter, Shell announces a $36bn expenditure unveils for 2008, a company record, up from $25bn last year.

Russia signs a deal that effective gives Gazprom control over Turkmenistan’s gas, Barely noticed in the run up to the Georgian crisis, Russia signed an incredibly important deal which effectively gives the Kremlin-controlled energy giant Gazprom control over Turkmenistan's gas. This move deepens our energy dependence on Russia with each month of plunging North Sea gas production. Meanwhile, Moscow is cosying up to Beijing on both energy and security. It signed an energy collaboration treaty with China just before the G8 Summit, and has conducted joint military exercises. The Caspian-region gas that Europe is going to need - with the UK at the far end - may end up in pipelines heading eastward, not westward, unless we behave ourselves. No more complaining, please, next time a dissident expat finds alpha emitters in the tea leaves. The Kremlin clearly has a grand strategy to control a vast slab of the world economy via energy, and is rolling it out like a well drawn map. The Georgia crisis is very probably a piece in the jigsaw. On top of the sudden unavailability of Turkmen gas, the war certainly makes the EU plan to build a gas pipeline across the Caucasus, avoiding Russian soil (the Nabucco project), an increasingly forlorn hope. As for the oil part of the Kremlin's new Great Game, it seems that around a quarter of BP reserves may well be in the process of being expropriated on behalf of a Russian company quoted on the London Stock Exchange using London-based lawyers. (So interesting, the way modern capitalism is allowed to work these days). Great Britain, meanwhile, has no energy strategy, and no plan, beyond building a nuclear plant or two, maybe; and a carbon-capture trial, perhaps: some time towards the end of the next decade when it'll be far too late to escape the trap. As the crisis builds, the Russians have Vladimir Putin, Dmitry Medvedev, and blitzkreig. We have Gordon Brown, Malcolm Wicks, and consultations.⁷⁰⁸ (L)

Uncertainty over whether there are enough lithium resources to power a battery revolution. The price of lithium has risen fast in the last decade. A tonne of lithium can produce 5.3 m tonnes of lithium carbonate for use in the batteries that are increasingly used by EV manufacturers (but note: it can be recycled from used batteries). Estimates for lithium resources range between just 4 m tonnes and 28m tonnes. The USGS quotes an estimate of 14 mt, but that is based on a 1976 National Research Council report. Sources are the mineral spodumene and salars (salt flats through which water has passed). Hitachi says that most hybrids will use NiMH batteries until 2015, and this may be just as well. Other technologies on the horizon include ultracapacitors and compressed-air engines. eeStor, a Texan company, says its ultracapacitor can charge in ten minutes and be ready in vehicles on the road by 2010. MDI, a company set up by a Formula 1 engineer, says it will have compressed-air vehicles ready by then.⁷⁰⁹

1.8.08. Renewables can fill the looming UK “energy gap”, a consultancy report for NGOs shows. The gap opening up as coal and nuclear plants reach scheduled shut-down dates could be more than 20GW by 2020, analysts fear: almost a third of current UK generation. A report by Poyry for WWF and Greenpeace argues that renewables can meet that target, so long as energy efficiency improves 20% by 2020 as the EU requires, and the government is on track with its target of 35-40% of electricity from renewables.⁷¹⁰

Commodity prices in biggest monthly fall for 28 years in July. Oil falls more than 20%, gas 31%, corn 19%. Lehman Brothers and Deutsche Bank forecast lower. Goldman Sachs and Merrill Lynch remain bullish.

Renewables industry confident that 100% renewables energy supply is possible in 20-40 years. This is the overwhelming consensus of participants at the Tenth Forum on Sustainable Energy, held in Barcelona in April. They review a range of scenarios for EU countries.⁷¹¹ (F)

UK energy minister Malcolm Wicks calls opponents of a new generation of coal stations “naïve” in an interview with the FT. He says the “force of reason is with us.”

Oil-from-algae company Sapphire claims it has a product up to 100 times better than biofuels, and raises $50min venture capital to develop it. Algae take CO2 from the air and make sugars, proteins and – in certain conditions – oils. Sapphire says it has a process using photobioreactors on non-arable land - tapping non-potable water - that can produce oil usable without any modification to ICEs, delivering 10 to 100 times more energy per acre than biofuels. Researchers believe they are using cyanobacteria. Sapphire say they will be at commercial production stage in 3-5 years.⁷¹²

EDF takeover bid for British Energy collapses. The bid, which would have valued BE at £12bn, is considered too low by 22% shareholders Invesco and M&G.

TNK-BP are close to a ceasefire after Tony Hayward meets a representative of the oligarchs, Mikhail Fridman, in Prague. Or so the FT reports, without specifics. Board appointments would have to change on both sides, supposedly, if Dudley is to step down as CEO: which seems suspiciously like what the oligarchs wanted in the first place.

Kuwait’s oil expansion plans to 4mbd by 2020 are still way behind schedule, Petroleum Review reports. Also in this issue: analysis of the BP Statistical Review figures, E&P in Antarctica, and Canadian oil sands review. (L)

3.8.08. UK government “poised to act” on fuel poverty: not via a windfall tax, but with a possible tinker to an existing policy. As six million households – one in four – face fuel poverty, the government is apparently prepared to force energy companies to double spending on fuel poverty within the £3bn Carbon Emission Reduction Target (CERT) scheme launched in April (whereby they have to offer grants for efficiency). Malcolm Wicks adds insult to injury by saying: “we are not going to sacrifice fuel poverty on the altar of climate change.” But last year the government cut its fuel poverty budget by a third. Friends of the Earth and Help the Aged secured a judicial review against the government, due to be heard in October. Oxford University’s Brenda Boardman estimates the cost of “super energy efficiency measures” to lift 6 million out of fuel poverty permanently as £45bn.⁷¹³ Meanwhile, energy companies have pulled all capped deals, after massive interest on websites. Supermarkets and DIY stores report a surge in energy-efficient products. EST advice on 7 quick and easy savings in a typical three-bedroom semi-detached house: £155 insulating the loft to 270mm, £120 by having cavity wall insulation, £110 by installing double glazing, £45 by installing energy-efficient light bulbs, £34 by using an energy efficient freezer, £32 by turning off all appliances on standby, and £20 by sealing the skirting boards. That makes more than £300. On top of that some 30% of the bill can be cut with a condensing boiler and 10% by turning the thermostat down just one degree C.⁷¹⁴

4.8.08. Oil falls below $120 for the first time since May as new economic data show that consumers are feeling pain on both sides of the Atlantic. Oil and gas producers are racing to buy insurance in the options market: almost ten put options contracts (right to sell at a fixed price) are being sold by traders as call options (rights to buy).

Obama hints at allowing some offshore drilling as oil price emerges in poll as the dominant issue in the forthcoming election. He also said he would dip into the Strategic Petroleum Reserve. These policy shifts are because his lead has been slipping in the past fortnight on a perception that McCain has sounder energy policies. US drivers are paying double what they did last year: nearly $4 a gallon.

US gas production rises as high price allows unconventional production. Production increased 4.3% in 2007 up from 2.6% in 2006: the fastest increase in the world. Conventional production is falling but tight gas, coalbed methane and share gas are all rising as horizontal drilling and new fracturing techniques are deployed. (Hot water or chemicals are pumped into shale and dense sandstone to fracture the rock so gas can escape. With CBM, water with dissolved gas in the seam is pumped out, and the gas separates as the pressure drops).⁷¹⁵

TNK-BP finance chief resigns, fearful of governance failures. He was an independent, appointed by both sets of shareholders. Of 88 foreign staff, 10 have been forced to leave the country as a result of their work permits not being renewed, including the executive in charge of corruption risk analysis in the CFO’s team.

Climate activist arrested for breaching bail at Kingsnorth coal protest amid heavy police presence. He had been at the Drax protest in June. It seems that the UK government may be prepared to imprison people for peaceful protest about the greatest threat facing civilization. In tense scenes at the protest site, police searched protestors and checked identities.

4.8.08. E.ON is “looking to finalise” building contracts for Kingsnorth without final decision on CCS. The company is insisting in public that it is waiting for the result of a consultation that the Department of Business is running, but leaked e-mails between the company to BERR shows it is pressing ahead. BERR has also drafted revised planning conditions for the E.ON that make no mention of CCS.⁷¹⁶

Drax profits halve as price of carbon credits bites. In 2007, the company paid just £11m for credits for its 4GW coal plant (supplying 7% of UK electricity from the nation’s single biggest source of CO2). This year so far it has spent ten times more (££107m) as the second phase of the EU emissions trading scheme bites. Also coal costs are 34% higher.⁷¹⁷

6.8.08. First terrorist attack on the Baku-Tbilisi-Ceyhan pipeline shuts it for up to two weeks. Kurdish separatists lay claim to the blast in eastern Turkey. One percent of world oil passes through the pipeline, which runs 2 metres underground. The oil price is pushed back above $120.⁷¹⁸

80% of biofuels sold in UK are not meeting environmental standards. So the first report of the government’s Renewable Fuels Agency shows. The UK is also missing its first yearly target of 2.5%, with 2.14% in the mix in the month from mid April to mid May. Only 8% came from feedstock grown in Britain. (86% is biodiesel, the rest plant-derived ethanol).

T
“My own feeling is that if we did get to a 4 degree rise it is quite likely we would begin to see a runaway increase.”

Prof David King, former UK government chief scientific advisor, August 2008

op climate scientist Bob Watson says we must prepare to adapt to 4C global increase, because although we should stabilise below 2C, “we don’t in detail know how to.” David King says that even with an effort that hits 450ppm C02, there is still a 50% probability of temperatures over 2C, through to a 20% probability of more than 3.5C. King concludes: “My own feeling is that if we did get to a 4 degree rise it is quite likely we would begin to see a runaway increase.”⁷¹⁹

8.8.08. BG announces sixth drilling success in a row in Brazil’s Santos basin: a “material” discovery, though no details given. The Tupi discovery of last year is 5-8bn barrels BG said at the time,. This discovery, Iara, is 30 km away, 200km off Rio in “pre-salt” rocks. Some geologists are saying the discoveries could all be part of one supergiant field, the “Sugarloaf.” Analysts say that while the clutch of discoveries could end up produced 1-2 mboed, 1.25 – 2.5% of world demand, it is too early to say whether the Sugarloaf exists.⁷²⁰

Ratings agencies downgrade TNK-BP debt as fall-out from dispute spreads. Two agencies have done so far, and Fitch is considering it. Meanwhile, Dudley is fined a whopping £11 by a Russian court for breaching Russian labour laws, but not barred from office.

UK energy minister says Kingsnorth and other coal plants must be built if CCS is to be tested. Once the UK has developed the technology, we can then help the Chinese and Indians he says in an interview. This is a whole new line of argument. He wants the utilities to finance CCS via a high carbon price emerging in the ETS (but says he doesn’t know what level would trigger the investments). He fears that unless the UK goes for coal we will be ever more reliant on gas from unstable exporters. He fears E.ON won’t go ahead if the government sets a cut-off date for CCS operation “when we do not know 100% that CCS is going to work, the engineering has not been tested and no-one is full aware of what the costs might be.”⁷²¹ The world is watching all this: 100 coal-fired plants are in preparation worldwide, almost half of them in China, at least 10 in Germany, and 10 in the US. Other UK utilities have plans (for 3 coal stations in RWE’s case).

A week of dramatic acceleration in Arctic ice melting: 2008 could be worse than 2007, scientists say. The cause was warm air blown into the Beaufort Sea by storms. A study a few months ago by the Naval Postgraduate School in Monterrey, California, using US Navy supercomputers, forecast that the Arctic could be ice free in summer within 5 years. Prof Peter Wadhams of Cambridge University points out that when the first climate models were run, the assumption was that the ice sheet would remain until around 2070.

UK Fire Brigade reports a huge rise in outdoor blazes over the last decade – a doubling in some areas - and forecasts that conflagrations like those Greece and Turkey are suffering today will be common in the UK within as little as ten years thanks to global warming.⁷²²

100 arrested at Kingsnorth power station site, and 46 charged, as 1,500 protestors face almost the same number of police. Police variously use batons, horses, dogs, trail bikes and helicopters to control protestors. Only a few protestors break into the power station site: most opt for a carnival. As PA plays “I’ve been loving you too long,” a police tannoy announces: “This is a police warning. Please disperse in ten minutes or police horses, dogs and police batons will be used.” ⁷²³ The policing, involving 26 forces, costs more than £1m.⁷²⁴

Far too few UK households are taking up energy-savings grants under existing schemes. Grants available from energy companies under the CERT scheme, totalling £3bn over the next 3 years, are seriously under-subscribed. The Warm Front initiative, administered for the government by Eaga, an energy-service company, offers insulation and heating grants up to £2,700. That too is undersubscribed by a long way, Eaga says.

10.8.08. Russia invades Georgia, threatening both the BTC pipeline and EU plans for the Nabucco pipeline. These pipelines in the corridor available to the west between Azerbaijan and Turkey threaten Russian hegemony over the region’s oil and gas. The planners of Nabucco have so far failed to secure enough gas to fill the pipeline because Gazprom has been buying so much, and plans a new pipeline of its own to Europe, across Russian territory.⁷²⁵

Oil price falls as hedge funds bet on downside. $112 is the price now. Lehman Brothers’ analyst says oil prices have “peaked for the next few years.” The net-short position of hedge funds has been in place for three weeks now, replacing a net-long position that had lasted since early in 2007. Goldman Sachs still predicts $148 by year end, noting that US crude investories remain at “critically” low levels.

Opec earns almost as many petrodollars in first half of 2008 as all 2007: $645bn (€430bn, £ 335bn), $194 of it Saudi Arabia’s take. 2007 was $671bn. Production in July hit a record 32.6 mbd. Average price for the first half of the year was $111. Gulf governments are spending only 45% of their oil income, the lowest proportion ever. The GCC economy is some $1.2 trillion in 2008, compared to $350bn five years ago.⁷²⁶ At these prices, oil importers are paying exporters around $1.5 trillion a year, some 2.5% of global GDP: obviously, the biggest transfer of wealth in history. The value of oil in the ground, of the BP Statistical Review can be relied on, is $162 trillion (€107 trillion, £84 trillion): more than the value of all global equity markets ($52 trillion) plus all debt markets ($67 trillion) …..and almost the same as the total value of all tradeable financial assets ($167 trillion, as estimated by the McKinsey Global Institute for the end of 2006). The scale of this transfer poses two huge challenges: keeping demand and therefore employment up at the importing end, and how to build real assets with the cash the importing end.⁷²⁷ Take Iran: failure to invest oil revenues in infrastructure has this summer has meant power cuts lasting at least two hours a day in temperatures of 50C.

Campaigners warn that high street banks face a consumer boycott if they continue to fund coal. The Co-op Bank by contrast will not finance any coal, oil or gas projects.

Defra chief scientist Bob Watson says UK should prepare for 4 degrees C warming, Oliver Tickell says prepare for extinction if so. At that increase in global average temperature, the polar ice caps would collapse, raising sea levels 70-80 metres, rivalling the 120m sea-level rise at the end of the last glaciation. Civilization could not survive. Tickell advocates abandoning national allocations, and placing a global cap on upstream sources of emissions (oil refineries, coal-washing plants, cement factories and so on), selling permits for these to raise funds (he believes $1 trillion) for climate abatement and adaptation technologies and strategies. The cap should be tight enough to guarantee zero net greenhouse gas emissions by 2050, and stabilisation of atmospheric greenhouse-gas concentrations at 350 ppm equivalent.⁷²⁸

Giant American retailers queue to make energy savings from solar roofs. Wal-Mart, Kohl’s Safeway and others are seeing the utility of the sun as an energy saver. If the Congress renews solar tax credits, and states offer other incentives, the chains are promising to put solar on almost every big store. If Wal-Mart were to cover every Sam’s Club and Wal-Mart stores, 23 square miles of solar panels would be needed: an area the size of Manhattan.⁷²⁹

Bill Clinton visits first solar powered village in Ethiopia, and speaks of a coming revolution in solarising developing countries: “It’s the energy equivalent of the cellphone movement.” The village, Rema, has 1,100 homes “shining in the dark evenings like white beads on a string,” as one British newspaper reporter reports. The Solar Energy Foundation, set up by Harald Schutzeichel, solarised the village at a cost of £240,000. 80% of his funding comes from GoodEnergies. He has set up a solar energy school which has trained 24 technicians from all across Ethiopia, and is looking for €10m to set up a microfinance bank, from which villagers can borrow at affordable rates, though Rema has been solarised for free.⁷³⁰

14.8.08. BP turns Baku-Georgia-Turkey gas pipeline back on, but the trans-Georgia oil pipeline remains off. Both had been turned off as a precautionary measure upon news of the Russian invasion. The 150,000 bd oil pipeline, direct from Baku to the Georgian Black Sea port of Supsa, remains off because of doubts about security in Black Sea ports. In the continuing political fallout of the conflict, an FT headline reads “World left wondering if Medvedev is in charge of Russia.”

TNK-BP CEO Dudley suspended for 2 years by a Russian court for violations of Russian labour code. The Alfa-Access-Renova oligarchs say essentially “we told you so,” and claim no connection to the investigations.

Turkey pulls out of a gas deal with Iran under pressure from the US, who fear it will provide resources for Iran’s nuclear programme. Ahmadinejad is in Istanbul hoping to sign it, and to interest Turkey in investing in the South Pars gas field, from which others have pulled out under US pressure. Almost half the world’s gas reserves are supposedly in Russia and Iran.

PG&E plans 800 MW of solar PV in two giant solar farms by 2013. This 12 square mile development in San Luis Obispo county will dwarf the largest solar PV farm currently: a mere 14MW on the Nellis Air Force base. The total amount of PV connected to the US grid is only 473MW. Optisolar will deploy 550MW of its amorphous silicon thin film at one farm, and Sunpower will deploy 250MW of its crystalline silicon on trackers at High Plains Ranch. The two will together generate 1.65 billion kilowatt hours a year, peaking in the afternoon on the sunniest days when electricity demand is at its highest.⁷³¹ This farm, as big as many a natural gas power plantwill provide enough electricity for nearly a quarter of a million homes. The first arrays from the plant will begin generating power in 2010, and the whole farm will be complete by 2013, according to PG&E’s plan. Analysts expect the first solar electricity from the plant to be priced as low as 12 cents per kilowatt hour. Californian combined-cycle gas power plants current generate electricity at around 10 cents per kilowatt hour. But gas prices seem set to rise going forward, while solar prices will fall further. Moreover, a Renewable Energy Portolio introduced by the Californian state government requires utilities to generate 20% of their electricity from renewables by 2010.⁷³²

15.8.08. Renewable jet fuel is taking off in the world of $100+ oil, but has very far to go. Fuel costs are crippling the industry, which is heading for a collective $40bn loss this year. Ten small carriers have gone under. Normal biodiesel freezes at high altitude and contains too much oxygen (meaning added weight, not energy content). But recently Finnish oil company Neste has found a way to produce oxygen-free biodiesel. It has two plants running and another two planned. The Fischer-Tropsch process can also be used for biomass to liquids. And algaue could in principle produce all the jet fuel used today in an area the size of Belgium, according to Boeing. Others are not so optimistic, and meanwhile jet fuel accounts for almost 60% of the current DoD annual budget. Much more in the article.⁷³³