ODAC Newsletter - 12 September 2008
Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
The OPEC meeting in Vienna this week brought two surprise announcements. The first that existing production quotas would now be enforced, leading to an overall reduction in output of approx 520,000 bpd. The second was that OPEC and Russia will be seeking closer ties, a situation which could result in a coalition controlling approximately half of the world’s oil.
The International Energy Agency report this week predicted worldwide demand of 87.6 million bpd in 2009, with OPEC output needing to be approx 31.8 million of this. The proposed OPEC cut would significantly tighten the supply/demand dynamic making the market vulnerable to any supply disruptions. It remains to be seen whether Saudi, in particular, is prepared to make the required reductions.
As US production continues to recover from the shutdowns necessitated by Hurricane Gustav, the threat of greater disruption in the largest area of refineries in the US due to the approaching Hurricane Ike is causing alarm. Oil prices have however continued to fall overall with continued focus on demand reduction due to the economic slowdown.
In the UK this week the government launched its long awaited fuel measures aimed at providing relief in the face of increasing energy costs. Responses to the package, which concentrates on assistance for energy saving measures, have been mixed. Energy conservation measures make sense and will benefit people in the long run. The huge rise in costs this year however, coupled with the possibility of further increases due to competition for gas this winter, in parallel with record profits for energy companies, had a lot of people expecting more. A situation which will not have been helped by Mark Owen-Lloyd, Head of Power Trading at E.On who was reported last night as commenting that “worst case scenario,” if prices remain high “it’ll make more money for us”.
Join us! Become a member of the ODAC Newsgathering Network. Can you regularly commit to checking a news source for stories related to peak oil, energy depletion, their implications and responses to the issues? If you are checking either a daily or weekly news source and would have time to add articles to our database, please contact us for more details.
Crude oil fell more than $1 a barrel in New York and gasoline advanced as Hurricane Ike headed across the Gulf of Mexico for the refineries along the Texas coast.
Refiners are shutting plants near Houston and producers are evacuating platforms in the Gulf as the hurricane gains strength. The storm is forecast to sweep through the center of the Gulf, missing the offshore Louisiana oil and natural-gas fields. The region is home to 26 percent of U.S. oil production.
"Ike is aimed at the refineries," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "It looks like refiners will be down for a while and the crude will pile up. The result is a strange situation where the products are higher and crude is lower."
Crude oil for October delivery fell $1.61, or 1.6 percent, to $100.97 a barrel at 11:27 a.m. on the New York Mercantile Exchange. Futures touched $100.10, the lowest since April 2. Prices are up 29 percent from a year ago.
Gasoline for October delivery rose 7.39 cents, or 2.8 percent, to $2.7355 a gallon in New York. Heating oil rose 1.43 cents, or 0.5 percent, to $2.9167 a gallon.
Ike's eye was 470 miles (760 kilometers) east-southeast of Galveston, Texas, and moving west-northwest at 10 miles per hour, the National Hurricane Center said in an advisory at 10 a.m. Houston time today. It strengthened to a Category 2 hurricane with sustained winds of 100 miles per hour, up from 80 mph yesterday.
Galveston, parts of southern Houston and areas south of the city and near the coast are under a mandatory evacuation order starting at noon today, local officials said at a press conference. The area may see a storm surge of as much as 15 feet.
"We have about 3 million barrels a day of refining in the forecast path of Hurricane Ike," said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky.
Exxon Mobil Corp.'s Baytown facility, the country's biggest, with a capacity of 586,000 barrels a day, is in a mandatory evacuation area because of the hurricane, a city official said.
"They probably are shutting down what can be shut down and getting people out," Leann Valdez, a Baytown city inspector, said in a telephone interview today.
Valero Energy Corp. is shutting its Houston and Texas City, Texas refineries. The company also reduced rates at its Port Arthur refinery and may decide today if it will shut the plant, said Bill Day, a company spokesman, in an e-mail. The Houston and Texas City refineries can process a combined 375,000 barrels of oil a day, according to the company Web site.
BP Plc is closing its Texas City refinery because of Ike, Scott Dean, a company spokesman, said in a telephone interview. Texas City has a 475,000-barrel-a-day capacity.
Gulf operators have evacuated personnel from 63 percent of production platforms, the Minerals Management Service said on its Web site yesterday. The agency estimates that as much as 96 percent of Gulf oil production, and 73.1 percent of natural gas output, is shut. That is about 1.25 million barrels a day of oil and 5.4 billion cubic feet a day of gas.
CME Group Inc., the world's biggest futures exchange, said it's extending New York Mercantile Exchange electronic trading hours this weekend because of Ike.
The decision applies to energy trades on its ClearPort and Globex trading platforms, CME said in a release today. Trading will begin on Sept. 14 at 10 a.m. New York time with the session closing on Sept. 15. Trading would normally open at 7 p.m.
Brent crude oil for October settlement declined 43 cents, or 0.4 percent, to $98.54 a barrel on London's ICE Futures Europe exchange. Prices touched $96.99 today, the lowest since March 4. The contract has dropped 11 straight days, the longest stretch since the contract was introduced in 1988.
Oil in New York has fallen 31 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels. Oil's decline led the Organization of Petroleum Exporting Countries to say at a meeting this week it will try to limit production.
OPEC members, who supply about 40 percent of the world's oil, agreed in Vienna to a total production limit for 11 members of 28.8 million barrels a day, unchanged from previous targets. OPEC Secretary-General Abdalla El-Badri said this means it will trim "oversupply" by about 500,000 barrels a day.
Crude oil also fell because the dollar gained against the euro, reducing the appeal of commodities as a hedge. The dollar rose to a one-year high against the euro on speculation that growth in Europe will slow more than in the U.S. Investors looking to hedge against the dollar's decline helped lead crude oil and other commodities to records earlier this year.
The U.S. currency climbed 0.6 percent to $1.3909 per euro, from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007.
Opec on Wednesday surprised the oil markets by announcing that it would make a small but symbolic reduction in its output because the oil cartel views the market as oversupplied.
Traders had been betting the group, which controls about 40 per cent of world oil production, would maintain status quo, and at best make gradual unannounced reductions in its production.
Instead, Opec, after a five hour session in Vienna, agreed to abide by the production limit it had set for its members in September 2007. This would reduce the group’s production by 520,000 barrels per day over the next 40 days.
If all members adhered to the cut, Opec production would fall back to 28.8m barrels per day.
U.S. crude for October delivery was up 54 cents at $103.80 a barrel, reversing earlier losses of more than $1 a barrel. Crude oil prices on Tuesday fell below the critical $100 a barrel level for the first time since April as hurricane Ike shifted its course away from the Gulf of Mexico and traders bet Opec would leave production unchanged.
Since jumping to an all-time high of $147.27 in July, the combination of the slowdown in the global economy, which is damping oil demand, and higher production from the Opec oil cartel has brought down oil prices 30 per cent.
Opec said that oil prices had dropped significantly in recent weeks driven by lower demand especially in developed countries, increased oil supply, the strengthening of the US dollar, and easing of geopolitical tensions,.
“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” Opec said in a statement.
The strengthening of the US dollar against the euro and sterling is providing a cushion to Opec countries as it means that the barrel's purchasing power in the eurozone and the UK remains strong.
The issue of whether to include a call for Opec members to abide by their quotas, which they had brushed aside when oil prices surged in July, was hotly debated in the longer-than-usual closed-door meeting. Iran and Venezuela had earlier in the week called for production cuts, but others had been less enthusiastic, fearing such a move would worsen the problem of demand erosion.
One of the few analysts that called the meeting’s outcome correctly was Washington-based PFC Energy, which yesterday anticipated a 500,000 barrel a day cut. In a note it said: ”The communique text will likely focus on the need to abide by agreed-upon production targets rather than on numerical targets for cuts.”
Now Opec has the tough task of abiding by what it has agreed. The lion share of the cutback will have to come from Saudi Arabia, which boosted its production unilaterally in July when prices were high. If the group does not now attain at least some of the announced cutbacks, it risks losing credibility in the market and exasperating the price drop as traders bet on the cartel’s powerlessness.
The cut came as a surprise after Ali Naimi, Saudi oil minister, signalled that he was comfortable with the current supply and demand outlook.
"The market is fairly well balanced and we have worked very hard since June's meeting to bring prices to where they are now," he said before the meeting, which was held overnight because of the Ramadan fasting.
Another Saudi official made clear high prices were not necessarily in the kingdom's favour. As prices surged this year, Riyadh grew concerned about demand destruction, especially in the US, Europe and Japan. It was one reason the kingdom increased output unilaterally to the highest in more than 25 years.
Sentiment among Opec ministers has clearly shifted from feeling unable to pump enough oil to stop runaway prices to concern that supply is already or is about to outstrip demand as world economies sputter.
Michael Wittner, head of oil research at Société Générale, said the cartel might have already begun this month to trim its output, pointing to "recent weakness in tanker freight rates".
Igor Sechin, Russia's vice-premier, called for closer co-operation between Opec and his country in a further sign of Moscow's determination to flex its muscle in energy markets.
Mr Sechin, the most senior official from Russia to have attended an Opec meeting in recent history, called for the two to more closely work together ”to provide for a stable pricing environment.”
Russia is an observer member of Opec, meaning it attends meetings but is excluded from the quota system and policy decisions. The last time Russia cut its output in solidarity with Opec was in 1999, when Mexico and Norway also reduced their production to help boost prices that had fallen to 9 dollars a barrel.
But today prices are far beyond that point and Russian relations with Europe and the US are strained, with Washington increasingly concerned about the Kremlin’s willingness to brandish its oil and gas production as a diplomatic weapon.
This latest declaration is likely to add to that concern, even though Opec has recently held a relatively benign position and become a reliable supplier of oil to the world for more than two decades.
Opec also officially suspended Indonesia’s full membership to the group.
The International Energy Agency, an adviser to 27 nations, cut its forecast for global oil demand in 2008 and 2009 as high crude prices and the economic slowdown reduce U.S. consumption.
The IEA lowered its 2008 forecast by 100,000 barrels to 86.8 million barrels a day, and the 2009 estimate by 140,000 barrels to 87.6 million barrels a day, the Paris-based agency said today in its monthly report. Declining consumption in developed economies is partly offset by higher fuel demand forecasts for China, India and Iran.
"A combination of weak economic prospects and persistently high prices appears to be having an impact on consumer behavior and choices," David Fyfe, the head of the IEA's oil industry and markets division, said in a telephone interview.
Oil prices have fallen about 29 percent since reaching a record $147.27 in New York in July, as drivers in the U.S., the world's biggest gasoline consumer, switch to smaller cars and make fewer journeys. Slower demand led the Organization of Petroleum Exporting Countries today to limit production at levels below current output. The IEA warned that the drop in U.S. consumption may last longer than previously expected.
"The demand impact of weaker economic conditions and high prices during the summer, when oil prices reached an all-time peak, was more marked than expected, notably in the U.S.," the report said. There is evidence of a "marked shift to more efficient vehicles, changing mobility and driving habits, signs that suburban living is gradually losing its appeal and ongoing modifications in business practices," it said.
As consumption in the most industrialized countries slows, fuel demand in developing nations such as China and India is increasing, the IEA said. The group forecasts demand from countries outside the Organization for Economic Cooperation and Development to rise 4 percent, or 1.5 million barrels a day, in 2008 to 38.3 million barrels a day. That's 50,000 barrels a day more than forecast last month.
In 2009, non-OECD demand is forecast to rise 3.7 percent, or 1.4 million barrels a day, to 39.8 million barrels a day, 20,000 barrels a day higher than previously expected, the IEA said.
The IEA still expects oil demand to increase in 2008 by 0.8 percent, or 700,000 barrels a day compared with 2007, and by 1 percent, or 900,000 barrels a day in 2009.
OPEC pumped 32.5 million barrels a day last month, 195,000 barrels a day less than in July because of field and pipeline outages in Iraq, Angola, Libya and Nigeria, according to IEA estimates.
Global oil supply fell about 1 million barrels a day to 86.8 million barrels a day because of North Sea field maintenance and the shutdown of the BTC pipeline from Azerbaijan to Europe, according to the report.
OPEC, which supplies more than 40 percent of the world's oil, will need to provide about 31.8 million barrels a day this year to balance world supply and demand, the report showed. That's about 100,000 barrels a day more than it estimated last month. Next year, the so-called "call on OPEC crude" will be 31.1 million barrels a day, the same level the IEA forecast last month.
OPEC has increased production this year, taking output above its agreed targets, to balance shortfalls elsewhere and satisfy the developing world's thirst for crude. Most of the increase has come from Saudi Arabia, which pledged to raise output by 500,000 barrels a day through June and July to calm prices.
Members of the producer group today agreed to adhere more strictly to its 11-member target of 28.8 million barrels a day, about 520,000 barrels lower than its July output. Iran and Venezuela were among members that favored action to support falling prices, with the Venezuelan Oil Minister Rafael Ramirez calling on the group to defend an oil price of $100 a barrel.
OPEC's decision to remove barrels from the market could prove to be "counterproductive" in the current environment, the IEA's Fyfe said. "High oil prices are still hurting."
Crude oil for October delivery traded at $104.08 on the New York Mercantile Exchange at 9:55 a.m. London time.
The IEA also trimmed its projections for supply from outside OPEC this year by 180,000 barrels a day to 49.9 million barrels after hurricanes caused the shutdown of production in the Gulf of Mexico. Non-OPEC oil supply for 2009 will be 50.7 million barrels a day, 85,000 barrels a day less than forecast last month because of lower Russian, Norwegian, Australian and Chinese production, the IEA said.
A top-level delegation from Opec will travel to Moscow next month to forge closer ties between the oil producers’ cartel and Russia.
Speaking at a meeting of Opec oil ministers in Vienna, Abdullah al-Badri, the group’s secretary-general, said that he and other officials would hold a joint workshop with the Russians on global oil supply, demand and market issues. Russia already attends Opec meetings as an observer and was represented this week by Igor Sechin, the Deputy Prime Minister, who said that the Moscow talks would focus on “global energy security” matters and ensuring stable prices.
“Opec is one of Russia’s key partners on the global oil market,” Mr Sechin said. “It is very important for us to create mechanisms of regular dialogue.” He said that Russia had already presented Opec with a draft memorandum of understanding including a variety of proposals.
The prospect of closer ties between Opec, whose 13 member states produce 40 per cent of the world’s oil, and Russia, the world’s second-biggest producer after Saudi Arabia, will alarm consumer countries. Together, Opec and Russia would produce about half of the world’s oil, giving them even greater control over prices if they chose to collaborate.
Mr Badri sought to soothe concerns that the dialogue would have harmful consequences for consumer countries. “I don’t think our co-operation with Russia will affect the consumer because as far as we are concerned we are trying to encourage dialogue between producers and consumers,” he said.
Oil prices rallied briefly yesterday but dropped back below $100 after Opec said that it would stick to its existing production quota of 28.8 million barrels per day while calling on members to more rigidly adhere to their individual targets. Such a step, if observed, would amount to a reduction of about 520,000 barrels per day.
This is because some members are producing more than they are supposed to under agreed Opec targets.
October Brent crude fell $1.41 to $98.93 a barrel on the ICE Futures exchange yesterday after falling through $100 per barrel on Tuesday night for the first time since April.
The two countries are expected to formally sign an agreement later this month that will earn the state-controlled China National Petroleum Corp (CNPC) a fixed price for every barrel it produces in Iraq.
While China opposed the Iraq war and stood back from post-war rebuilding, Beijing has quietly outflanked its global rivals to grab a large slice of Iraq's oil industry. The pioneers of its overseas quest for fuel are already exploring vast tracts in the Kurdish north of the war-torn nation.
With an extensive foothold in the only part of the country where new oil wells have been built since 2003, Chinese firms are already believed to have more personnel than their American rivals.
America contested every step of China's drive to expand its oil industry in central Asia and Africa for more than a decade, viewing the push overseas as a boost for Beijing's diplomatic standing.
Beijing's success in the latest battleground represents a double blow for Washington whose troops are still fighting daily for Iraq's security. With the return of stability, Baghdad hopes that its output can triple to six million barrels per day.
The latest Chinese outpost on the ground is a mountain camp pitched 1,400 metres above sea-level by CNPC, which has signed a contract to conduct the exploration of a 44 x 12 mile tract. The sensitivity of the Chinese presence is betrayed by the camp's heavy fortifications. It is overlooked by watchtowers and surrounded by a square earth berm. Scientists in the 100-strong team only leave to conduct surveys in heavily-armed convoys. Fierce-looking members of the Surchi, a notorious local tribe, stand guard at the gate.
The chief CNPC geologist at the site, Chao Shu-he exudes a missionary zeal. "The Chinese have opened the door to co-operation," said Mr Chao. "China is more and more developed and it's our patriotic duty to contribute to development, even if we are far from home."
Oil executives complain that China is the only big country prepared to work in Iraq. DNO, a Norwegian firm that produces 10,000 barrels a day in Kurdistan, said it solicited "dozens" of well-known firms before signing a drilling contract with another Chinese firm, Great Wall Drilling.
"The Chinese are strong in service contracts but not in exploration rights," said Asti Hawrami, the Kurdish oil minister. "They are not taking on the risks but they are playing a strong, important role in the industry."
"China wants security of oil supply but they also want a finger in every pie," said Paul Stevens, an expert at Chatham House. "The Chinese now sit like death's head at the feast, waiting for the slightest chance to get into Iraq."
Clifford Chance, the international law firm, reported last month that up to 30 billion barrels of oil lies beneath the Kurdish territories, where fire worship around the pools of crude at the surface has a long tradition.
Such estimates have drawn a rush of wildcat firms but, because of a political dispute between the regional government and Baghdad, big American and British oil firms are notably absent.
Western majors have been warned off by threats from Hussein al-Shahristani, the Baghdad oil minister, to blackball firms seeking production in the north. However that injunction does not appear to have applied to CNPC.
As the American military presence in Iraq shrinks, the al-Ahdab deal is one of a host of signs that Beijing is well-placed to rival US ties to post-war Iraq.
An affinity with Chairman Mao Zedong, a leader who killed 10 times as many as the vilified Saddam, drew President Jalal Talabani to China last year. But when President Talabani paid $100 million for Chinese-made Kalashnikov rifles, America was so displeased it sent all Iraqi security forces on a training programme to use US M4 rifles.
Nothing bolsters Sarah Palin’s credentials among her fans more than her attacks on “big oil”. But the oil industry is retaliating, describing tax increases and fighting rhetoric as “politically astute, but economically dumb”.
There was always going to be tension between the two ends of a message that seeks both to project Mrs Palin as a maverick willing to take on fat-cat corporations and to satisfy a Republican desire for cheaper petrol – not for nothing is the chant at Republican rallies “Drill Baby Drill”.
Campaigning in Virginia yesterday, Mrs Palin repeated her mantra: “In Alaska I broke the lobbyist and special interests that had controlled big oil. We are going to make this nation energy-independent.” Last week she told the Republican convention: “In a McCain-Palin administration, we’re going to lay more pipelines.”
However, energy experts say that in challenging BP, Conoco Philips and Exxon Mobil Mrs Palin may have gone too far, driving billions of dollars out of Alaska and jeopardising the goal of energy independence.
Sources inside the companies told The Times that taxes introduced by Mrs Palin had led them to shelve two multimillion-dollar projects and cancel plans to explore new drilling areas. “They would have produced millions of barrels of oil a year,” one said. “Palin’s taxes were popular. But economically they didn’t make sense. She has behaved like the worst Democrats.”
Mrs Palin has raised taxes on oil profits and given $1,200 rebates to consumers – an idea John McCain has opposed at federal level. She has given $500 million to a Canadian company to build a gas pipeline that the main holders of the state’s gas reserves boycotted. And she has become embroiled in a legal battle over rights to one of the state’s richest gas deposits.
The EU must redouble its efforts to build the $12bn Nabucco gas pipeline and reduce its dependence on imports from Russia in the wake of the Georgian crisis, its energy commissioner said yesterday.
The conflict in the Caucasus has led many experts to dismiss Nabucco, the planned 3,300km pipeline from Azerbaijan to Europe via Georgia and Turkey. But Andris Piebalgs said the aim of diversifying energy sources and routes was even more important now.
"We need more political engagement to remove all the political obstacles to Nabucco to bring gas from the Caspian basin to the EU," he said in the face of evidence that the ambitious project to bypass Russia is foundering.
Gazprom, the Russian gas monopoly, has already offered to buy Azeri gas at world prices and has put its weight behind two alternative pipelines, Nord Stream and South Stream, to Europe.
Piebalgs won backing from Nabuo Tanaka, executive director of the International Energy Agency, who said alternative import routes would enhance the EU's energy security and reduce its dependence on Russia. Russia provides 42% of the EU's overall gas imports and 30% of its oil but accounts for up to 80% of energy imports in some countries.
Moscow and Gazprom have succeeded in dividing the EU by signing bilateral supply deals, notably with Germany, Italy and Austria, and by persuading member states to take part in its own sponsored transnational pipelines even when they are already involved with Nabucco.
But Tanaka, presenting the IEA's first review of EU energy policies, said Russia's dependence on Europe was much higher, with the EU taking 70% of its oil and gas exports. "It's more and more important to have a single European energy market and a single EU voice," he said. "In the long run countries conducting relations on a bilateral basis will lose out."
The 220-page IEA report adds: "Speaking with one voice and acting in a consistent and unified manner will be crucial to moving towards closer relationships between the EU and the external suppliers on which it will increasingly depend in the future."
The ultimate aim of the six partners in the Nabucco project and the EC is to import gas from the Middle East, including Iraq, via the pipeline.
The IEA also urges the EU to step up its efforts to promote renewable sources of energy if it is to reach its 20% target of consumption by 2020 and combat climate change. Tanaka said that an extra $45tn (£25tn) of investment in renewables and other green technologies would be required globally by 2050 if the world were to cut carbon emissions by a half - the EU's own long-term goal. This would be on top of the $22tn required globally to reach interim targets.
The agency endorsed the EU's "bold and innovative" energy and climate change policies but said continued use of nuclear power "is almost certainly going to be necessary" to achieve its goals.
WASHINGTON (Reuters) - Institutional investors caused the rapid rise and subsequent steep fall in oil prices in 2008, according to an independent report released by U.S. lawmakers on Wednesday.
The report, co-authored by hedge fund manager Michael Masters, said from January to May index traders poured $60 billion into commodity markets, causing a big spike in oil prices. When Congress held hearings in May to July about reining in speculation, traders pulled $39 billion from the market, the report stated.
Oil hit a record $147 a barrel in July, and then started falling sharply until it reached $102 this week.
"The bottom line here is that with regard to commodities, money going in pushes prices up, money going out pushes prices down," Masters said.
Portfolio manager for Masters Capital Management, Masters based his analysis on data available to the public from the Commodity Futures Trading Commission, the Energy Information Administration and other investment sources.
Masters said his company paid for the report to help lawmakers as they consider new regulations for futures markets. But critics say Masters' hedge fund invests in industries that would benefit from lower oil prices.
The conclusion of the study is not surprising as it echoes Masters' remarks at several congressional hearings this year about the impact of speculators in futures markets.
The influx of large index traders in the commodities markets has been blamed by some for pushing up oil and food prices. Masters said institutional investors should be banned from all futures markets or be greatly restricted.
"They don't add anything in terms of price discovery, and I think they greatly distort the marketplace," Masters said.
Lawmakers unveiled his report on Capitol Hill to bolster their efforts to rein in what they believe is excessive speculation in oil markets.
Democratic Senators Byron Dorgan and Maria Cantwell said the report showed that U.S. regulators need to "crack down on irresponsible oil speculators."
The Commodity Futures Trading Commission is scheduled to send a report to Congress in the next few days on the role speculators have played in the oil market.
Walter Lukken, chairman of the CFTC, is set to testify before the House of Representatives on Thursday about speculation and the futures market. The agency's report is likely to be discussed.
In the past, the CFTC has downplayed the impact of speculators and said supply and demand factors are the primary driver of oil prices.
Critics say Masters' report overlooks other issues that could influence the price of oil.
"The authors ignore publicly available facts that invalidate their central premise," said Scott DeFife with the Smart Energy Policy Coalition. DeFife pointed out data that showed oil demand fell as Americans drove less this summer.
Others have questioned whether Masters' company's stock in the auto and airline industries may have influenced his push to lower oil prices. Both industries would benefit greatly from falling fuel costs.
Masters said his company held stock in those industries before he began working with lawmakers and the company has held on to the stock through the ups and downs of oil prices.
It was a day rich in symbolism. On an oil platform off the Brazilian coast, President Luiz Inácio Lula da Silva this month dipped his hands into the first crude to flow from promising reserves discovered in the country’s waters.
The gesture – an echo of that by Getúlio Vargas, a presidential predecessor who in the 1950s created Petrobras, Brazil’s state oil company – was unmistakable. But Mr Lula da Silva (pictured, above right) went further: as if to confirm the political significance of his country’s newly discovered offshore oil wealth, he planted an oily seal of approval on the overalls worn by Dilma Rousseff, his chief of staff and the woman widely regarded as his likely successor.
The reserves, though hard to reach, are expected to propel Brazil up the table of oil producing nations. Tony Hayward, chief executive of BP, Europe’s second biggest oil company, says the new finds are “as significant as the North Sea” – which in the 1970s was one of the new frontiers that helped pull the world out of its last big oil shock.
But the find is also set to pit one of the world’s most important emerging economies against both foreign equity investors and international oil companies. Many in the leftwing government seem determined to avoid sharing the coming bonanza. The future shape of the industry may be decided by short-term political imperatives ahead of presidential elections due in 2010.
Petrobras, a world leader in deep-sea exploration, is seen by many observers as ideally placed to lead the task of tapping what are some of the most inaccessible oilfields on earth. But the government has other plans. On September 19, an inter-ministerial commission is due to present its recommendations on the future structure of Brazil’s oil sector. The shortest odds are on the creation – recently backed publicly by Mr Lula da Silva – of a new national oil company, 100 per cent under government control, to take ownership of the new reserves and develop them in partnership with Petrobras and others.
While Petrobras is controlled by the Brazilian state through a majority of its voting stock, most of its capital is in non-voting shares. Some 60 per cent of total capital is held by minority – mostly foreign – shareholders. It is they who would lose the opportunity to benefit from exploiting the offshore discoveries.
Reserves that are seated below the salt
Brazil’s “pre-salt” offshore fields, as their name suggests, are trapped beneath a layer of salt way below the ocean floor, where they have resided since before Africa and South America parted company more than 100m years ago.
Working the Jubarte field, from which the first pre-salt oil is flowing, is relatively straightforward. It lies 77km off the coast, beneath 1,375 metres of water, under a layer of salt about 200 metres thick. Out in the Santos Basin further south, where the main pre-salt deposits have been found, the difficulties are greater.
These are virgin fields, more than 300km from the coast, where the oil is trapped at depths of up to 7,000 metres, including more than 2,000 metres of water and up to 2,000 metres of hot, high-pressure, volatile salt.
At the Tupi field, containing an estimated 5bn-8bn barrels of oil, a “long-duration test” is due to begin next year. It will be based on tried and tested technology, in which several wells are sunk into deposits to extract oil and gas and others to pump in sea water to maintain enough pressure to keep the oil flowing.
Apart from the huge operational problems, there is also the risk that individual deposits, once found, may not be commercially viable given the enormous investments required.
At the relatively simple Jubarte field, Petrobras is using the experience of two partners, Partex and Galp of Portugal, which have worked in comparable conditions in Oman. In the Santos Basin it will need all the expertise that its own engineers and those of partners can deliver.
It is hard to be precise about the size of the new finds, known as the “pre-salt” fields because they are trapped beneath a layer of salt. The one field that has been measured with any accuracy contains 5bn-8bn barrels – as much as the remaining reserves of Norway. Ministers are working on the assumption that there is 10 times that amount waiting to be found.
If so, international oil companies may be locked out of one of the biggest parties of the industry for some time. That is bad news when these companies are failing to replace used reserves with new discoveries. Petrobras and others are likely to be offered the chance to participate through service contracts – in which companies are paid to bring up the oil and gas but have no commercial rights over it – or production sharing agreements, in which they are given some of the oil they produce to cover costs and some as profit but have limited control over how much they may produce and when. What seems almost certain is that the current concessions system, in place since 1997, will change.
The notion has caused a political storm in Brazil, where many politicians who usually support the government have been alarmed by the proposals being floated by the president and senior ministers. “An assault on Petrobras’s minority shareholders,” is how Francisco Dornelles, a pro-government senator, describes the idea of the new company. The reserves already belong to the people and the idea that they must be reclaimed “is devoid of any meaning, confuses public opinion and serves only for electoral purposes”, declares Sérgio Guerra, a senator in the opposition centrist PSDB, which introduced the 1997 law.
The dissatisfaction is shared at Petrobras itself. Just as years of investment and accumulated expertise are set to pay off in spectacular fashion, the company’s domination of the industry it helped to create has been put in jeopardy. Sérgio Gabrielli, chief executive, (pictured above with Mr Lula da Silva) says Petrobras can take on the task and describes talks with the government as heated. The company’s strategic plan for 2008-12 includes investments of more than $112bn, of which just $8bn must be financed. The plan was drawn up on the basis of oil at $35 a barrel and before the discovery of the new fields – a revised plan is due to be announced this month. Mr Gabrielli says that with much higher oil prices and with new discoveries adding to reserves, Petrobras will be in a much stronger position. “We think we can develop the pre-salt fields on our own,” he adds, although modifying the assertion by saying: “Perhaps not 100 per cent, as we don’t know 100 per cent of what is there.”
Though they will be squeezed and may even lose pre-emption rights, international oil companies will be needed to handle technical challenges such as high levels of carbon dioxide in the offshore discoveries, an issue on which they say Petrobras is seeking their advice. Yet Brazil has already floated the idea of modifying existing contracts, albeit as one of several possibilities.
It seems strange to be keeping investors at arm’s length at a time when a worldwide shortage of rigs and other gear is forcing up costs across the industry – let alone in cases as complex as the pre-salt fields. “For every new project, costs are escalating exponentially,” says Michelle Billig of Pira Energy, a New York consultancy. “That puts a limit on the volume that can simultaneously be brought online, regardless of the reserve base.”
Under the concessions model introduced in 1997, oil companies buy rights to explore geographical blocks of Brazilian territory, on land or at sea. Petrobras – usually but not always as leader – has formed consortia with several international oil companies to buy concessions. Concession holders accept the risk of finding no oil, make the necessary investments and are rewarded with rights over whatever is discovered. They pay royalties to the government on what they produce.
The risk of not finding oil in the pre-salt fields appears slim. Of 16 probes sunk so far, all have found oil. That 100 per cent success rate compares with the 10-15 per cent typical of new areas in Brazil, according to Nilo Azambuja, a former Petrobras executive now working at High Resolution Technology, a geology and geochemistry service provider.
While the operational risks involved are still considerable, industry executives agree that the reduced risk of finding no oil at all leaves room to change the concession rules. Brazil’s oil industry regulator is among those who favour keeping the existing regime but demanding higher prices for concessions and charging companies bigger royalties. This would ensure that Brazilians gained from their new-found wealth while causing minimal disruption and attracting investment.
But Mr Lula da Silva seems determined to create a wholly state company modelled on Norway’s Petoro. Brazil has begun talks with Norway about how it managed its oil and gas discoveries in the North Sea.
People close to the talks say the stake that Brazil’s version of Petoro gained in each project would be limited by the fact that it will also have to invest and pay its share of the costs just like other partners. A senior executive of one national oil company says: “If Norway is any guide, having a new partnership of that nature in the future would not be a reason to be scared.”
Brazilian critics are less confident. “It just doesn’t make sense,” says Adriano Pires, an oil industry consultant in Rio de Janeiro. Petrobras has been able to invest and grow precisely because it has private shareholders, he says. “Where will the new company get money for investment?”
João Augusto de Castro Neves, a political scientist in Brasília, says he believes Mr Lula da Silva has spied in the new company a means of securing the election of Ms Rousseff when he stands down after two consecutive terms at the end of 2010.
Success would depend on parliamentary support not only from the president’s socialist PT but also the catch-all PMDB, an agglomeration of regional interests that makes no secret of demanding government jobs in exchange for its support. A new oil company – immensely powerful and commanding a giant budget – is just the kind of entity both parties would love to gain command of, Mr Castro Neves says.
In arguing for different treatment of the new reserves, Mr Lula da Silva has revived an old nationalist slogan popular when Petrobras was created more than 50 years ago: O petróleo é nosso – “the oil is ours”.
That prompted a sharp rebuke from Antonio Palocci, formerly his finance minister. The biggest challenge, Mr Palocci said, would be to attract the necessary investment. “Either we make this investment possible,” he warned, “or we will be saying, ‘the oil is ours – ours down there under the ground’.”
The UK will have a low supply of stored gas this winter because countries in Asia and Spain are outbidding us, according to leading energy companies.
At an Ofgem conference in London, E.ON, RWE's Npower business and British Gas owner Centrica said liquified natural gas (LNG), which can be transformed for domestic use, is going to the countries who are prepared to pay more.
The UK is building more storage facilities for LNG because its supply of gas from the North Sea is declining.
Cassim Mangerah, head of gas portfolio supply at Centrica, said it was not a waste of money for the facilities to be built in the UK, but they would not be used to full capacity this winter.
"Supply of LNG is going to be tight, especially if we have a harsh winter.
"But unlike countries like Japan, we have other sources of gas too," he said.
The UK gets a large proportion of its gas supply from Norway but this is also volatile because there are no long-term contracts for importing gas.
Mr Mangerah added that "we see the level of Norwegian supply to the UK as critical," to UK gas prices this winter.
"Just because we have the capacity doesn't mean we can attract the gas," said Mark Owen-Lloyd, head of power trading at E.ON.
The price of wholesale gas is likely to remain at current high level throughout 2009, the experts said. Wholesale prices, which are closely linked to the retail prices paid by consumers, have almost doubled along with oil prices in the past 12 months.
Jon Page, head of energy marketing at RWE Npower, said there was some evidence that consumer demand would decrease as energy bills go up.
The site does not look impressive: a fenced-off farmer's field next to an old barn in a quiet Welsh valley with a sign that warns parents to keep children away. There are no drills or rigs or gangs of workers. But if the experts have got it right, an energy revolution could be about to take place in coal-rich valleys across south Wales.
An Australian energy company announced last week that recently completed test drilling in a field in the Llynfi Valley near Bridgend and two further sites has revealed huge quantities of high-quality coalbed methane (CBM) gas, which it says could be piped out and used to help ease Britain's growing energy crisis.
In the area that Eden Energy has explored - a block of 230 square kilometres - it is believed there may be enough coalbed methane to meet 5% of the whole of the UK's energy need for a year. Eden, which is working with two British companies, says there may be four or five more blocks in Wales alone that could provide a similar amount of energy or even more.
The announcement has been welcomed by politicians, who are coming to see coalbed methane as one of the ways of making Britain's energy supply more secure, and some environmentalists who believe the use of coalbed methane could help provide a breathing space while green energy technologies are developed.
That means that a gas that was once the arch-enemy of mining communities because of the devastating underground explosions it caused could now create jobs in areas still blighted by the closure of the pits and provide local industry with a source of local, and hopefully cheaper, power. Greg Solomon, executive chairman of Eden Energy, said: "We are sitting on a major resource of methane at a time when prices for this commodity have never been higher. There is a significant quantity of energy that could be tapped here."
Huw Irranca-Davies, MP for Ogmore in south Wales, said: "It's very exciting. There's huge potential. I think people are going to be very supportive when they realise just what we have got here."
Previously the government has seemed sceptical about coalbed methane but yesterday the Department for Business, Enterprise and Regulatory Reform described the new efforts to tap the energy source in Wales and elsewhere as "encouraging". It said that one in three of the licences granted for onshore oil and gas exploration this year concerned coalbed methane.
CBM, which clings to the surface of coal in unmined beds, is an important energy source for the US, Canada and Australia. As well as exploring for gas in Wales, Eden Energy has the rights to areas including Somerset and Kent and other companies are exploring Scotland.
But Wales is proving particularly exciting because the coal is so "gassy", comparable in quantity and quality to that found in parts of Australia, according to Eden. Neil Crumpton, a Friends of the Earth energy expert, looked at Eden's figures for the Guardian and calculated that CBM from this first area could supply 5% or 6% of the UK for a whole year.
There have been complaints from some environmental groups in the US that drilling for CBM in the Rockies is having an impact on the wilderness, but those behind the exploration in south Wales say that drilling would be done from a series of rigs no bigger than a two-storey house. And rigs would not be needed every few hundred metres - instead engineers can drill down and then out to a kilometre horizontally.
In the Llynfi Valley there is excitement at the news. Wyn Davies, clerk to two local community councils, said: "We've been told that gas from just one seam would power 1,000 homes for 100 years."
Test drilling is complete in the Llynfi Valley and at two other sites near Port Talbot and Pencoed. Eden says that between six and 10 further test drillings are likely to take place in the next 12 months - after which the coalbed methane rush could begin.
Methane is a natural gas, which arises out of the decay of organic matter. Over many centuries as coal deposits are formed, some methane is absorbed by the coal. Methane can continue to seep out of disused coalmines - bad news for the environment as it is a greenhouse gas. There are two main ways of exploiting methane from coal seams. A number of companies in the UK capture escaping coalmine methane and use it to generate electricity. Methane locked into unworked seams can also be drilled for.
Two of the biggest international oil companies on Monday showed why that tag tells less than half the story.
ConocoPhillips’ aggressive plans to invest up to $8bn in an unproven prospect in Australian coal-bed methane, and Eni’s $865m agreed bid for First Calgary Petroleums, a fallen star of the London stock market, show how eager oil companies are to develop their gas businesses.
News that Royal Dutch Shell has agreed a deal to develop the gas industry in Iraq, where western companies are still waiting for long-delayed oil contracts, is another example of the trend.
Selling gas is generally less profitable than selling oil. Gas typically trades at a significant discount to oil for an equivalent energy content, and it is more expensive to deliver.
Oil can be sold anywhere a tanker can pick it up; gas needs to be piped or liquefied and shipped to market.
Yet in a world where international oil companies find it increasingly difficult to access resources, gas developments often offer the best hope for growth. Pressure for cleaner forms of electricity generation means the market for gas is growing faster than the market for oil.
As Nikos Tsafos of PFC Energy, the consultancy, puts it: “For international oil companies, having a good gas strategy is going to be critical. When the financial community looks at the international oil companies, it will have to ask: what is their gas strategy? Is it effective, will it be profitable?”
As the price of oil has risen over the past decade, resource-rich countries have felt emboldened to tighten their grip on foreign companies.
Western groups are also facing increasingly assertive competition from emerging economies, such as China and India, when they look for opportunities internationally.
Even in Brazil, the scene of the biggest excitement in the industry in recent years, the national oil company Petrobras is dominant in opening up the deepwater offshore areas that are thought to hold vast reserves.
Gas reserves, however, still offer IOCs the prospect of being able to exercise a competitive advantage, because of the greater complexity involved in getting the product to market.
Integrated companies with gas transportation and marketing businesses, such as Conoco and Eni, can offer resource-rich countries something they need.
Western companies also often have technology for gas extraction and transport that national oil companies lack. The IOCs still have a very significant presence in LNG, for example.
PFC Energy, the consultancy, said this year that IOCs owned 49 per cent of the world’s capacity for liquefying gas to turn it into LNG, and 72 per cent of the capacity for regasifying it.
That compares with the share of the world’s oil and gas reserves to which the IOCs have free access, which is just 7 per cent.
The extraction of coal-bed methane, a capital-intensive process that can require the drilling of thousands of wells to develop a big field, is another area where IOCs still have the edge.
As many other resource-rich countries have put up barriers to IOCs, there has been a surge in interest in Australia.
John Lowe, head of exploration and production at Conoco in Sydney, said yesterday: “These assets were under-appreciated...we should have known better and recognised the value of these resources a year ago, and it would have been less expensive for us.”
He said the US energy group’s technical team had been “giddy” after undertaking on-site due diligence on the scale of Origin’s potential reserves.
“We have been looking around the world but what the team saw here is a tremendous resource,” he said.
Royal Dutch Shell is to become the first western oil company to sign a deal with the Iraqi government since the US-led invasion of 2003, agreeing a plan to capture and use gas in the Basra region that could be worth up to $4bn.
It also emerged on Monday that Iraq’s oil ministry had written to oil companies saying it had abandoned its controversial plan to award short-term technical support contracts to a small number of them to work on its oil fields.
Shell’s project is intended to make use of the gas flared off by the oil industry in the south of Iraq. In that region alone, an estimated 700m cubic feet of gas is burned off every day for safety reasons: roughly enough to meet the demand for power generation in the entire country.
The Iraqi government wants Shell to put in the infrastructure to capture that gas and make commercial use of it, both domestically and for export. Assem Jihad, oil ministry spokesman, told the Financial Times that following a green light from the cabinet, the ministry was inviting Shell to Baghdad next month to sign the deal.
“Europe is looking for supplies of gas from Iraq,” said Mr Jihad. “Security used to be a deterrent but now companies feel that security has improved and this will encourage others to come in.”
He added that the project would be run as a joint venture, with Shell taking 49 per cent and the oil ministry 51 per cent.
The length and value of the contract have yet to be determined but reports in Iraq suggested it could be worth $3bn-$4bn.
Shell said: “We are delighted with the government’s decision and look forward to signing the agreement in the near future.”
The Shell deal follows news last month that Iraq had revived a big oil deal first negotiated between China and the government of Saddam Hussein, for China National Petroleum Corp to develop the al-Ahdab oilfield.
That deal represented the first important commitment to Iraq by a foreign company since its industry was nationalised in 1972.
However, Iraq has cooled on its plan to sign deals with a few western oil companies, including Shell, ExxonMobil and BP, to offer technical support and advice on its biggest fields.
Mr Assem said that after delays and differences with the companies over the length of contracts, the ministry was now inclined to bypass that stage and focus on longer-term development contracts.
Total SA, Europe's third-largest oil company, sees a partnership with OAO Gazprom as "key" to developing energy projects in Russia.
"If we consider new projects there, it will be with Gazprom," Total Chief Financial Officer Patrick de la Chevardiere said in an interview with Bloomberg Television yesterday in London. "We want to maintain our relationship. Gazprom is a key partner in Russia."
Total and Norway's StatoilHydro ASA hold stakes of 25 percent and 24 percent respectively in a unit working on the Arctic field of Shtokman, while Gazprom holds the rest. Total counts the project among 15 "building blocks" to provide 12 billion barrels of oil equivalent in reserves and says it will make an investment decision at the end of 2009 or early 2010.
Gazprom has said the field holds enough natural gas to supply the world for one year.
Total, based in Paris, also plans to make bigger purchases among exploration and production companies internationally than in the past three years to boost output.
"The acquisition market has changed dramatically this summer," de la Chevardiere said. "Some small companies share prices dropped 30 percent." Total is "looking at possible targets" around the world, and hasn't yet decided to approach one in particular, he said.
Total bought Synenco Energy Inc., the Calgary-based energy company developing an oil-sands project, at a cost of C$541 million ($505 million) to expand heavy oil operations. The French company bought Canada's Deer Creek Energy Ltd. for C$1.67 billion in 2005.
"We might make a bigger acquisition in the near future," Chief Executive Officer Christophe de Margerie said at an analyst conference in London yesterday on the company's outlook, referring to the Synenco deal. "If we want to keep a strong upside in our portfolio we need to make acquisitions."
Future acquisitions will be in sectors Total is missing in its exploration and production portfolio and will adhere to profitability requirements, de la Chevardiere said.
Total yesterday cut its annual production growth target because higher crude prices will prompt partners to demand a greater share of output.
Average output growth over the next decade will be 2 percent to 3 percent, de Margerie said. The estimate, based on crude prices of $100 a barrel, is lower than the 4 percent predicted a year ago for the five years through 2010, which was based on oil at $60.
The producer is relying on projects in Angola and Canada's oil sands to raise output as Kazakhstan and Venezuela restrict access to reserves.
Total said almost a fifth of production will come from LNG ventures by the middle of the next decade, with growth led by nine liquefaction projects already operating or under construction. A further five are being studied, it said.
Total plans to triple LNG output to 30 million tons a year by 2016, surpassing Exxon Mobil Corp. and remaining behind Royal Dutch Shell Plc, it said.
The company's LNG assets include stakes in projects in Yemen, Qatar and Angola, as well as Shtokman.
Total, Eni SpA and their partners in Kazakhstan's Kashagan field agreed to cede a greater stake in the development to the government in January. The project is at least seven years behind schedule.
"Our estimate for first oil is 2012," de la Chevardiere said. "I am confident the new contract framework will be able to achieve this."
Kazakhstan Energy Minister Sauat Mynbayev said Sept. 5 the field is on target to meet an October 2013 deadline for starting production.
The threat of global warming is so great that campaigners were justified in causing more than £35,000 worth of damage to a coal-fired power station, a jury decided yesterday. In a verdict that will have shocked ministers and energy companies the jury at Maidstone Crown Court cleared six Greenpeace activists of criminal damage.
Jurors accepted defence arguments that the six had a "lawful excuse" to damage property at Kingsnorth power station in Kent to prevent even greater damage caused by climate change. The defence of "lawful excuse" under the Criminal Damage Act 1971 allows damage to be caused to property to prevent even greater damage – such as breaking down the door of a burning house to tackle a fire.
The not-guilty verdict, delivered after two days and greeted with cheers in the courtroom, raises the stakes for the most pressing issue on Britain's green agenda and could encourage further direct action.
Kingsnorth was the centre for mass protests by climate camp activists last month. Last year, three protesters managed to paint Gordon Brown's name on the plant's chimney. Their handi-work cost £35,000 to remove.
The plan to build a successor to the power station is likely to be the first of a new generation of coal-fired plants. As coal produces more of the carbon emissions causing climate change than any other fuel, campaigners claim that a new station would be a disastrous setback in the battle against global warming, and send out a negative signal to the rest of the world about how serious Britain really is about tackling the climate threat.
But the proposals, from the energy giant E.ON, are firmly backed by the Business Secretary, John Hutton, and the Energy minister, Malcolm Wicks. Some members of the Cabinet are thought to be unhappy about them, including the Foreign Secretary, David Miliband, and the Environment Secretary, Hilary Benn. Mr Brown is likely to have the final say on the matter later this year.
During the eight-day trial, the world's leading climate scientist, Professor James Hansen of Nasa, who had flown from American to give evidence, appealed to the Prime Minister personally to "take a leadership role" in cancelling the plan and scrapping the idea of a coal-fired future for Britain. Last December he wrote to Mr Brown with a similar appeal. At the trial, he called for an moratorium on all coal-fired power stations, and his hour-long testimony about the gravity of the climate danger, which painted a bleak picture, was listened to intently by the jury of nine women and three men.
Professor Hansen, who first alerted the world to the global warming threat in June 1988 with testimony to a US senate committee in Washington, and who last year said the earth was in "imminent peril" from the warming atmosphere, asserted that emissions of CO2 from Kings-north would damage property through the effects of the climate change they would help to cause.
He was one of several leading public figures who gave evidence for the defence, including Zac Goldsmith, the Conservative parliamentary candidate for Richmond Park and director of the Ecologist magazine, who similarly told the jury that in his opinion, direct action could be justified in the minds of many people if it was intended to prevent larger crimes being committed.
The acquittal was the second time in a decade that the "lawful excuse" defence has been successfully used by Greenpeace activists. In 1999, 28 Greenpeace campaigners led Lord Melchett, who was director at the time, were cleared of criminal damage after trashing an experimental field of GM crops in Norfolk. In each case the damage was not disputed – the point at issue was the motive.
The defendants who scaled the 630ft chimney at Kingsnorth, near Hoo, last year were Huw Williams, 41, from Nottingham; Ben Stewart, 34, from Lyminge, Kent; Kevin Drake, 44, from Westbury, Wiltshire; Will Rose, 29, from London; and Emily Hall, 34, from New Zealand. Tim Hewke, 48, from Ulcombe, Kent, helped organise the protest.
The court heard how, dressed in orange boiler suits and white hard hats bearing the Greenpeace logo, the six-strong group arrived at the site at 6.30am on 8 October. Armed with bags containing abseiling gear, five of them scaled the chimney while Mr Hewke waited below to liaise between the climbers and police.
The climbers had planned to paint "Gordon, bin it" in huge letters on the side of the chimney, but although they succeeded in temporarily shutting the station, they only got as far as painting the word "Gordon" on the chimney before they descended, having been threatened with a High Court injunction. Removing the graffiti cost E.ON £35,000, the court heard.
During the trial the defendants said they had acted lawfully, owing to an honestly held belief that their attempt to stop emissions from Kingsnorth would prevent further damage to properties worldwide caused by global warming. Their aim, they said, was to rein back CO2 emissions and bring urgent pressure to bear on the Government and E.ON to changes policies. They insisted their action had caused the minimum amount of damage necessary to close the plant down and constituted a "proportionate response" to the increasing environmental threat.
Speaking outside court after being cleared yesterday, Mr Stewart said: "This is a huge blow for ministers and their plans for new coal-fired power stations. It wasn't only us in the dock, it was the coal-fired generation as well. After this verdict, the only people left in Britain who think new coal is a good idea are John Hutton and Malcolm Wicks. It's time the Prime Minister stepped in, showed some leadership and embraced the clean energy future for Britain."
He added: "This verdict marks a tipping point for the climate change movement. When a jury of normal people say it is legitimate for a direct action group to shut down a coal-fired power station because of the harm it does to our planet, then where does that leave Government energy policy? We have the clean technologies at hand to power our economy. It's time we turned to them instead of coal."
Ms Hall said: "The jury heard from the most distinguished climate scientist in the world. How could they ignore his warnings and reject his leading scientific arguments?"
Stressing the need to employ new mining technologies, a top PSU official said India is likely to run out of its 60-70 billion tonnes of coal reserves by 2040-41 if the demand continues to grow at the present pace.
“The demand for coal will reach two billion tonnes mark by 2016-17. We need to grow at the rate of 17-18 per cent from the present 6-7 per cent to meet this growing demand,” Coal India Ltd (CIL) Chairman Partha S Bhattacharyya said at the ICC Coal Summit here.
“We need to employ new mining technologies to go deeper to explore the untapped resources, otherwise by 2040-41 our present coal blocks will run out of reserves due to the growing demand from consuming industries,” he said.
“The demand (for coal) by power sector for 2011-12 has been pegged at around 730 million tonnes but the production target for the 11th Five Year Plan is at around 680 million tonnes,” he said.
Echoing sentiments, Coal Secretary H C Gupta said, “Actual demand is more than what was forecast by the Working Group on Coal for the 11th Plan. We are looking to bridge the demand-supply gap.”
However, Minister of State for Coal Santosh Bagrodia was of the view that there is no shortage of coal in the country and the raw material can be unearthed at the rate of 12 per cent by this year itself.
“Where is the shortage. CIL has at present about 31 million tonnes coal with them. Around 15 million tonnes are kept for e-auction route for the consumers,” he said.
Talking about problems the industry faces, Bhattacharyya said, land acquisition and environmental issues are some hurdles in the growth of coal sector.
Apart from CIL, efforts are being made to give more blocks for development to other private and public sector companies, Gupta said.
“Besides, efforts are also made to streamline the process to give environment and forest clearance so that such approvals are given in time bound manner,” he said.
To mitigate the freight and transportation problems faced by coal miners, the government is looking at providing railway link to the extractors.
“Coal ministry is talking to the Ministry of Railways, so that transportation does not become a bottleneck in growth of this industry,” Gupta said.
The coal ministry is also working to increase the capacity of government’s exploration and mapping agency CMPDI and MECL and allow private companies to conduct the same in its efforts to tap more mining resources to meet the growing consumption by power, steel and cement producers among others, he said.
Empowering Coal India Ltd and other PSUs in this sector by giving them ‘mini-ratna’ and ‘Navratna’ status is also been discussed by the ministry.
“Giving ‘Navratna’ status to CIL is in advanced stage of consideration,” he said.
The ministry had recently conducted a study to have a watch-dog for the sector, he said, adding the matter to have a coal regulator is under consideration of the government.
Sweeping improvements in the energy productivity of Europe's economies could prevent the runaway energy demand and consumption currently threatening to undermine the EU's economic growth, says a new report by the McKinsey Global Institute (MGI).
Europe has "an opportunity to increase energy productivity that would halt energy demand growth in the region completely," says the new MGI report , entitled 'Capturing the European energy productivity opportunity'.
Indeed, according to MGI's findings, as much as twice the amount of electricity consumed by the entire EU 25 in 2003, or eight million barrels of oil per day, could be saved using existing technologies.
"Compared with many of the alternative energy supply solutions, investing in energy productivity is cost-effective and faces less uncertainty," adds the report, citing estimates by the International Energy Agency (IEA), which predicts that "an additional €1 spent on more efficient electrical equipment, appliances, and buildings avoids more than €2 in investment in electricity supply".
Energy-efficiency improvements in the residential buildings sector provide the greatest potential for slashing demand, notably through more efficient appliances and heating and cooling systems, the report says. Next in line are the commercial and transportation sectors, followed by heavy industry and refineries.
Improvements in these sectors could result in a reduction of greenhouse gas emissions (GHGs) in the order of one billion tonnes by 2020, equivalent to the GHG emissions of the UK and France put together, according to the report.
But EU and national policymakers, who are under pressure to create the right framework conditions to drive energy efficiency improvements, have their work cut out.
"A myriad of information barriers, market imperfections and policy distortions today stand in the way of investors taking up economically attractive opportunities to invest in energy productivity and explain why consumers and businesses fail to capture the savings that higher energy productivity offers," laments the report.
The EU has embarked on an ambitious drive to reduce its GHG emissions by 20% by 2020. But unlike in the area of energy supply, where a legally binding target for increasing renewable energy use by 20% by 2020 is set to be agreed by EU lawmakers, Brussels has been criticised for not pushing to make improvements in energy efficiency legally binding for member states. The EU has only set an 'indicative' target of 20% greater energy efficiency by 2020.
Among its recommendations, the report calls on policymakers to set stricter energy-efficiency standards for appliances and equipment. The Commission is proposing to revise and expand existing 'eco-design' and energy-efficiency rules as part of an action plan on Sustainable Consumption and Production (SCP). But the proposals disappointed many stakeholders for not going far enough
The European parliament will tomorrow reaffirm binding targets for biofuels in transport and for renewables in energy use in the face of growing political resistance.
MEPs on the parliament's key industry committee will set a mandatory target of 5% of biofuels in transport by 2015, rising to 10% by 2020.
They will also defy objections from several governments, including Britain, and approve in principle a system of penalties for countries which fail to meet interim targets for renewable energy.
Claude Turmes, Green MEP and rapporteur on the renewables directive, said after exhaustive talks with political groups to consider up to 2000 amendments said he was now optimistic the new law could be approved before the end of the year. He said he had won support across the political spectrum for his compromises.
Biofuels have increasingly come under attack for allegedly causing land used for food and animal feed to be switched to fuel crops and for being a prime cause of soaring food and commodity prices.
A protagonist of scrapping the controversial biofuels target, Turmes said the agreed compromise would see second-generation biofuels - from non-food, non-feed crops - gradually play a greater role.
In the interim stage, he said, second-generation biofuels would provide 1% of the overall 5% target and, in the second stage, 4% of the 10% target. The original scheme was for biofuels to provide 5.75% of transport fuel by 2010.
Electric and hydrogen-fuelled cars would play a substantial role in meeting these targets despite scepticism that manufacturers can either produce enough or sell them. But they would only count if the electricity or hydrogen came from verifiably "green" sources.
Other biofuels will only be counted towards the overall targets if they meet tougher sustainability criteria than proposed by the European commission or many governments. Turmes said the agreed compromise would mean that fuels saving 45% of carbon emissions would count - rather than the 35% proposed earlier. In time this could rise to 60%.
The targets and standards will provoke a row with European biofuel producers who claim they are being forced out of their home markets by subsidised imports. The European Biodiesel Board (EBB) said biofuel production was not the cause of commodity price rises and the fuels involved met higher sustainability criteria than allowed by the EC.
Much of European biofuels come from rapeseed oil which, the EC says, saves 36% of carbon emissions - just meeting the standard. But the EBB's secretary-general, Raffaello Garofalo, said the savings were much higher.
Tomorrow's vote at the European parliament, meanwhile, is also expected to provoke disputes with governments as MEPs should approve plans to give priority access to power grids for electricity produced from renewables, potentially shutting down coal-fired and nuclear plants. Britain is a leading opponent of the scheme, arguing that it interferes with market forces.
Gordon Brown has agreed a £910m package of measures with the big energy companies aimed at helping people with soaring gas and electricity bills.
It includes half price insulation for all households and a freeze on this year's bills for the poorest families.
Pensioners and unemployed people with young children will get an extra £16.50 a week if there is a severe winter.
But the measures were attacked as "ridiculous" by the unions, who want a windfall tax on the energy giants.
The package includes:
- Free cavity wall and loft insulation for pensioners and poor households
- 50% off cost of insulation for all households
- Freeze on this year's bills for half a million poor consumers
- Partial reversal of cut to warm front programme giving free central heating to poorest pensioners
- Cold weather payments to go up from £8.50 a week to £25 a week for pensioners, disabled people and unemployed families with children under five - if temperatures drop below zero for seven consecutive days
- The government says its aim is to insulate every home in Britain by 2020 - and energy companies, councils and voluntary organisations will be making door-to-door visits in deprived areas to promote the scheme.
"This is the right approach, giving priority to permanent - not just one-off - changes, with the offer of lasting benefits and fairness for all families, cutting bills permanently every year," said Mr Brown at his monthly Downing Street press conference.
The prime minister said this was a "better way" than bringing in the one-off cash rebates for consumers paid for by a windfall tax on energy firms demanded by trade unions.
And for the first time, power generators such as Drax will contribute, as well as the big energy providers, he added.
The energy companies will be expected to pay for the £910m package and Mr Brown has urged them not to pass the costs on to consumers.
But David Porter, chief executive of the Association of Electricity Producers, which represents the "big six" energy firms, said they may not be able to avoid it.
"Someone has to pay for the green agenda, which is already costing a great deal of money," he told BBC Radio 4's The World at One.
He said the companies would try to contain price rises "because they have to" but added: "It remains to be seen just how much of it ends up on the customers' bill in the long term."
Business secretary John Hutton denied the government was being "soft" on the energy companies but said they had to be allowed to make a profit to guarantee future investment.
He said the government did not have the power to fix energy prices but he stressed: "We don't believe there is any justification for passing this increase on."
Average household electricity bills are already expected to increase to more than £500 per year by 2010, and gas bills to around £900.
And the government's package received a lukewarm response from poverty campaigners, who have been demanding cash rebates to help people struggling with bills.
Mervyn Kohler, special adviser to Help the Aged, said: "Half-baked measures such as these are not going to address the social emergency of fuel poverty."
And the trade unions repeated their demand for immediate relief for consumers facing soaring bills and a windfall tax.
Derek Simpson, joint leader of Britain's biggest union, Unite, said: "It is ridiculous to believe these measures are a partial or complete solution."
Thursday's announcement follows a National Housing Federation report suggesting that almost a quarter of people will be in fuel poverty by next year - defined as spending more than 10% of their income on energy bills.
A NHF spokesman said the government's measures "looked good" on the surface but "ultimately many fat cat energy bosses will be able to sleep easy tonight".
Chris Grayling, for the Conservatives, said the details of the package were "fine as far as it goes" but added: "Is this actually what we were promised?"
"We've had lots of built-up expectations over the summer that there was going to be a major relaunch package in September that would deal with a whole range of the different challenges the British people are facing, but actually what we have had is a damp squib."
He said it would not transform the fortunes of the country or "people feeling the pinch".
For the Liberal Democrats, Vince Cable said the measures were "eminently sensible, but very, very modest".
He said it was "not even clear" that the energy companies were going to pay for all of the package, adding: "The effect on the average family is completely dwarfed by the increase in energy prices that we're all going to see."
The Lib Dems did not back a windfall tax but did want a cap on price rises and a Competition Commission inquiry into the energy industry, he added.
Energy prices are unlikely to fall significantly over the winter, industry experts said yesterday, holding out little prospect of relief for customers hit by steep increases in bills this year.
Gas and electricity prices have been forced up by the rising price of oil. Although it is now down about $45 a barrel from its peak in July, wholesale gas and electricity have stayed close to record highs.
The gas market was "reasonably well supplied" but there were "a number of key downside risks" to supplies, said Cassim Mangerah of Centrica, the owner of British Gas, speaking at a seminar on energy supplies yesterday organised by Ofgem, the regulator.
As Britain's North Sea gas production has declined, imports of liquefied natural gas and pipeline gas from Norway or continental Europe have become increasingly important.
National Grid, which owns the gas and electricity transmission systems and compiles a regular assessment of the outlook for energy supply and demand, said domestic production now accounted for only half of Britain's available gas supply. Growing reliance on pipeline imports means Britain is increasingly tied to the continental gas market, where prices are typically linked to the oil price with a lag of about six months.
Although two big new terminals for importing LNG at Milford Haven in Wales are expected to be ready soon, high prices in Asia mean almost all available gas is being shipped to the Pacific.
Mark Owen-Lloyd of Eon, another leading energy supplier, did not expect the price of oil to fall much further, in spite of its plunge from more than $145 to about $100 a barrel in less than two months. "If oil falls to $85, we see the hedge funds and the airlines buying aggressively, so we can't see much downside over the winter," he said. "The risks lie on the upside."
Andrew Ryan of Global Insight, a consultancy, said he expected gas prices to average 80p-90p per therm over the winter - down a little from yesterday's futures market price of about 100p but still well up on last winter's 48p.
Almost a quarter of the population will be pushed into fuel poverty by the end of next year, a report has suggested.
By the end of 2009, 5.7 million UK households will be spending at least 10% of their income on energy bills, the National Housing Federation said.
Average household electricity bills are expected to increase to more than £500 per year by 2010, and gas bills to around £900.
The government said it was doing a great deal to help reduce fuel bills.
The National Housing Federation research, entitled Energy Prices and Debt, said low income households would be worst hit by increases to pre-payment schemes.
The number of families in fuel poverty - defined as when more than 10% of household income is spent on fuel bills - has increased by 100% since 2005.
Around 5.7 million people will spend 10% of their annual income on energy bills by 2009, compared with around 3.8 million in 2007 and 2.4 million in 2005, the report said.
The average energy bill is set to climb to £1,406 next year, from £676 in 2005.
But the report said big energy companies charge the five million people who pay for their energy through pre-payment meters more than those who are billed quarterly. Most are from low income backgrounds and will pay up to £65 more by 2010, it said.
Ruth Davison, director of the federation's campaigns and neighbourhoods department, called the findings part of a "full-scale national energy crisis".
"The government needs to grasp the nettle and take strong and radical action to protect the nation's energy customers.
"Britain is virtually unique in Europe in that our energy suppliers have been privatised and deregulated. The promise at the time of deregulation was that prices would fall. This has palpably not happened. It is time for ministers to regulate the market," she said.
'Hopelessly off course'
Energy companies should not be allowed to charge pre-payment meter customers "grotesquely high tariffs", a cap should be put on prices, and "companies should use profits to pay for social and energy efficiency responsibilities," she added.
The research coincides with calls from charities and consumer bodies for the government to follow a 10-point charter on fuel poverty.
The charter, supported by Friends of the Earth, the Association for Conservation of Energy and National Energy Action, urges the government to properly insulate UK homes, install renewable energy systems and provide short-term crisis payments to low earners.
Ed Matthew, Head of UK Climate at Friends of the Earth, said the government's current fuel poverty plan was "hopelessly off course" and must be transformed.
"We have set out exactly what needs to be done to sort out this national disaster - ministers must now listen and take action now to fulfil all our recommendations," he said.
A spokesman for the Department for Business, Enterprise & Regulatory Reform said: "The government is committed to responding to the new insecurities that hard-pressed, hard-working British families face and is already doing a lot to help people save energy and reduce their fuel bills.
"Since 2000 we have spent £20 billion on fuel poverty benefits and programmes - assisting over two million households in the UK."
Winter fuel payments help nearly 12 million people a year in the UK and in addition to the £200 normally awarded to the over-60s and £300 to the over-80s, a one-off payment of £50 and £100 respectively has been made available for this winter, he added.
Last week the government ruled out one-off fuel payments.
But it is facing mounting pressure to help those hit by high energy bills, with TUC leader Brendan Barber the latest to call for a windfall tax.
The growing value of waste cooking oil for use in biodiesel has enabled a London borough to become the latest council to start collecting the commodity from businesses free of charge.
The Royal Borough of Kensington and Chelsea is offering the free collection of waste cooking oil from businesses after recognising the growing value of the commodity for use in biodiesel production and as fuel in power stations.
With the distribution of 600 leaflets to local businesses explaining the service, Kensington and Chelsea will offer catering companies the chance to dispose of their waste cooking oil safely and legally, as part of a partnership with Enfield-based oil recycling firm Pure Fuels.
Promotion of free oil collection in the West London borough comes in the wake of other councils - such as Ealing, Great Yarmouth, Nottinghamshire and Thurrock - promoting the services of local waste oil collectors in a bid to increase the amount of surplus oil collected from the catering industry.
The borough council - which receives no financial gain from the service - will distribute leaflets to businesses over the next two to three weeks with the collections due to begin immediately, and the council intends to include the oil collected in its Best Value performance indicator recycling statistics.
Councillor Nicholas Paget-Brown, Kensington and Chelsea cabinet member for the environment, said: "The scheme is now being offered all over the borough and expected to be extremely popular. We are currently working on a process of collection statistics from the waste oils collected from the businesses that will be added to our recycling figures for best value recycling purposes."
Having run a trial of the service from September to December 2007, the borough approached a number of businesses and managed to salvage in excess of 3,000 litres of waste cooking oil over the three months, which Pure Fuels were then able to turn into biodiesel at its production facility to the north of the capital.
Catering establishments are bound by a duty of care enforced by the Animal By-Product Regulations Act 2004, which lays down stringent guidelines on the legal disposal of animal-derived waste cooking oil, and so the council took the initiative to offer businesses the free service.
Following a meeting at the Kensington and Chelsea ‘Environment Day' in 2007, the council struck up a partnership with biofuel producers Pure Fuels and Green Miles Fuels - a collection service operated by Quenton Kelley who shares a work site with Pure Fuels.
Mr Kelley supplies businesses across the capital with receptacles and then returns after a couple of months to collect the accumulated oil before returning it to Pure Fuels depot in Enfield for bio fuel production.
In the partnership deal, the council promotes Mr Kelley's collection service to local businesses and then he reports his collection quantities to Kensington and Chelsea, which is then able to include the recovered oil in its own recycling figures.
Cllr Paget-Brown said: "Quenton was already working in the borough collecting from certain establishments but was looking for a way to gain access to more oil, and more businesses."
Scott Wilson, head of commercial waste management at the council, highlighted that collection of waste cooking oil is not a new idea and mentioned that a number of businesses will already have collections in place but hoped to get businesses which didn't to come forward by promoting the scheme.
He told letsrecycle.com: "Response to any free collection service is always pretty good. The one thing that everyone doesn't realise is that there are a lot of collectors and there are 25 collectors in and around the borough at any one time."
Other councils have previously used the services of an independent collector to facilitate waste cooking oil collection for various reasons - from improving the streetscape to improving the council sewer systems, which can be irrevocably damaged by waste cooking oil disposed down drains.
In December 2007, Ealing council ran a trial of a number of businesses in Southall to help oil to be safely disposed of, due to reports by Thames Water claiming that it had had to clear 70,000 sewer blockages in 2007, 60% of which were deemed to be caused by fat, oil and grease.
The service the council introduced - using Twickenham-based Proper Fuels - was well-received and expanded beyond its original 100 businesses to go city-wide on March 1 2008 and has since collected 4,960 litres of waste cooking oil. Saving a saleable commodity and stopping the damage it was causing on drainage systems from improper disposal.
Following the three month trial at the end of last year, the council hopes that the free oil collections will limit the ill effects spilt and wrongly disposed oil can have on the borough's street scene, with the council highlighting that there is no monetary gain for them in this process.
Cllr Paget-Brown said: "The council for many years had been blighted by stained pavements, due to oil spillage from bags, or worse customers discarding waste oils in the back of our dustcarts. Both practices are highly unpopular in the borough.
"The council receives no financial reward for being the middle man in this process, but in terms of street scene appearance it's win, win for us," added Cllr Paget-Brown.
A bold plan for public sector bodies such as councils, hospitals and emergency services to cut their soaring energy bills by clubbing together to buy fuel in the futures market is being aggressively championed by one of the UK's largest local authorities.
Local authorities spend more than £2bn a year on fuel - much of it oil for heating schools - but this does not include large quantities of petrol and diesel bought by private contractors, such as refuse collectors and highway maintenance companies.
Because individual amounts spent by councils are too small to interest futures traders, Kent County Council has taken the lead in writing to public sector bodies asking them if they would be willing to co-ordinate fuel purchase with other public bodies. A meeting of local authorities is being planned for next month to discuss the idea.
Local authorities would have reduced their fuel bills by a third if they had bought on the futures market a year ago, for delivery this month. The futures price for Brent crude, the benchmark used for European oil purchases, was quoted at just over $71 a barrel a year ago compared with yesterday's spot price of more than $108 a barrel.
But traders warned that public sector bodies, funded by taxpayers' money, could be embarrassed if prices subsequently fell after deals had been agreed.
Dozens of councils, led by Hammersmith & Fulham, lost large amounts of money on interest rate swaps sold to them by banks in the 1980s. The affair ended up in the courts, with the House of Lords ruling that councils had had no powers to enter swap agreements in the first place, leaving banks bearing losses of £500m to £600m.
The Office of Government Commerce, an independent body established by the Treasury to achieve better value from public spending, has been told of the Kent proposals, according to an article in today's Municipal Journal. "Town halls are desperate to limit the impact of rising fuel costs on vehicle fleets and want to reduce exorbitant heating bills for public buildings," it says.
Improvement & Efficiency South East, one of a series of regional bodies established by government to help councils improve their efficiency, which is helping Kent develop the proposals, told the Financial Times yesterday that local authorities had been asked to provide details of individual purchases and fuel storage capacities.
Councils would be asked to a meeting next month to flesh out the proposals, said Andrew Larner IESE director. Storage facilities were essential, he said, if councils and other public sector bodies were to make bulk purchases of fuel in the wholesale market.
Kevin Harlock, director of commercial services at Kent County Council, said: "We need to create critical mass. A link-up between council and NHS trust could be just the start. Police and fire services could also benefit by co-ordinating purchases."
The county council already co-ordinated its electricity and gas purchases with about 80 local authorities, including on the futures markets, said Mr Harlock. Distributors bidding to supply fuel to local authorities currently competed on distribution costs but the price of oil itself was fixed according to the spot market price five days before delivery, he said. The county council's fuel bill had risen by 23 per cent at its worst point this year, said Mr Harlock.
The Local Government Association said: "Councils deliver more than 800 different services to people and the savings which could be achieved are likely to be substantial."
The items contained in this newsletter are distributed as submitted and are provided for general information purposes only. ODAC does not necessarily endorse the views expressed in these submissions, nor does it guarantee the accuracy or completeness of any information presented.
FAIR USE NOTICE: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material. If you wish to use copyrighted material from this newsletter for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.