Demand for OPEC crude will exceed the oil producer group's actual output over the next six months unless the global economy turns out to be weaker than expected, the US Energy Information Administration said Tuesday in its latest Short Term Energy Outlook.

The EIA, statistics arm of the Department of Energy, said the combination of higher oil production from OPEC kingpin Saudi Arabia over the summer, the impact of high prices on demand and the likely impact of the credit market turmoil on the world economy suggested a "loosening" in the global oil balance.

"As a result, the recent supply disruptions in the Gulf of Mexico have not resulted in the kind of price increases that would have been expected had they occurred earlier in the year," the EIA said.

"However, unless the global economy is weaker than anticipated, EIA expects that the call on Organization of the Petroleum Exporting Countries' (OPEC) crude oil will exceed OPEC crude oil production over the next six months," it said.

"This market balance and the relatively low level of Organization for Economic Cooperation and Development (OECD) commercial oil inventories suggest some upward pressure on prices," the EIA said.

However, it added, "if non-OPEC oil production increases as expected during 2009, oil price pressures would then moderate."

LONDON: Oil edged up toward $90 on Thursday after a steep slide this week in response to expectations that demand will fall sharply if the global economy slides into recession.

The sharp drop in prices has prompted OPEC to consider holding talks to review output.

U.S. light crude for November delivery was $88.92 a barrel early in the Asia evening Thursday in electronic trading on the New York Mercantile Exchange. On Wednesday, oil hit a 10-month low of $86.05. Oil has dropped about 40 percent from a peak of $147.27 a barrel in July.

President Hugo Chávez of Venezuela said Wednesday that OPEC was calling for an extraordinary meeting. Some members of the Organization of the Petroleum Exporting Countries have said the group should meet in November.

Referring to Venezuela's energy minister, Chávez said during a televised broadcast, "Rafael Ramirez told me last night" that OPEC "is calling for an extraordinary meeting."

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Nigeria, Qatar and Iraq, all members of OPEC, earlier Wednesday floated the idea of a cut in the group's oil output. The Algerian state news agency, APS, reported that the cartel planned to meet Nov. 18 in Vienna.

"There may be a need to intervene to balance the market, if the price slide seemingly predicted on demand and over-supply continues," said the Nigerian oil minister, Odein Ajumogobia. Edward Meir of the broker MF Global said it would be "interesting to see how the cartel juggles things in a down market."

"Much will ride on the Saudis and whether they will agree to restrain their massive production," Meir said. "We suspect they will resist sharp cutbacks." Visiting Turkey on Wednesday, Iraq's oil minister said OPEC may need to consider cutting output if the price of crude remains below $90.

"If there are any future declines below $90, we will need to consider taking action," Hussain al-Shahristani said on the sidelines of a conference in the Turkish coastal city of Antalya.

Iran, OPEC's second-largest producer, voiced concern Tuesday about the impact of the credit crisis on oil demand, and Libya raised the prospect of an early OPEC meeting. "For oil-producing countries, not only are prices going down, but also their money in the banks, their investments, are threatened by this financial crisis," said Libya's top OPEC official, Shokri Ghanem.

As oil prices surged earlier this year, OPEC was pumping far above its official production limit, largely because of a unilateral supply increase from Saudi Arabia.

An output reduction agreed by OPEC at its last meeting, on Sept. 9-10 in Vienna, has so far failed to stem the price fall.

A much larger than expected rise in crude and gasoline inventories last week in the United States, the top energy consumer, provided evidence that demand was slowing as the credit crisis started to affect the wider economy.

Central banks around the world have cut interest rates to try to ease the strains on the financial system, and the United States may consider taking stakes in debt-laden banks. Wednesday's coordinated rate cuts were the latest salvo from financial policy makers in response to the crisis that has sent stock and credit markets around the globe into a tailspin, and toppled banks in the United States and Europe.

But the moves failed to lift battered stock or credit markets, and the International Monetary Fund added further gloom Wednesday when it said the world economy was set for a major decline, with the United States and Europe either in or on the brink of recession.

Commercial supplies of crude in the United States surged 8.1 million barrels to 302.6 million barrels in the week to Oct. 3, the Energy Information Administration said, more than triple the forecasts by analysts for an increase of 2.3 million barrels.

Gasoline stocks rose 7.2 million barrels to 186.8 million barrels last week, the energy agency said, more than six times the 1.1 million barrel rise that analysts had forecast, data showed.

Even statements from OPEC oil ministers that the producer group may cut oil output to bolster prices failed to lift sentiment.

Jim Ritterbusch, president of Ritterbusch & Associates, said he expected any moves by OPEC "to provide only limited support."

"While OPEC production decisions can spur some impact during a period in which the focus is on tight supply," the cartel "doesn't have a good track record of propping up oil values in a period of weak demand," Ritterbusch said.

WASHINGTON - The "deteriorating" global economy will slash world oil demand growth next year by 140,000 barrels per day, the U.S. Energy Information Administration said on Tuesday in its latest projection.

With pronounced weakness in U.S. oil consumption, the agency could slash projections further after taking into account the latest economic forecasts as the world struggles with a spreading credit crunch and a market sell-off.

"If we were to incorporate the more recent and evolving forecasts, as we will, you could make the argument that demand would be somewhat weaker than we anticipate," Howard Gruenspecht, the EIA's acting administrator, told reporters.

He said the EIA would likely revise downward economic growth estimates in its November forecast, which will result in even lower petroleum demand and energy prices.

Global oil consumption was forecast to average 86.92 million bpd in 2009, about 780,000 bpd more than this year's demand, but 140,000 bpd less than the agency had forecast just last month.

This year world oil use was projected to rise by only 330,000 bpd, about 340,000 bpd lower than EIA's projections last month.

"The current slowdown in economic growth is contributing to the recent decline in oil demand," EIA said in its latest forecast.

U.S. Federal Reserve Chairman Ben Bernanke said on Tuesday that the outlook for economic growth has worsened. He said the economy was poised for subdued growth during the remainder of this year and into 2009.

The Raymond James investment firm said this week that global energy demand and energy prices "will likely be lower than we were thinking a month ago as the world grapples with reduced economic activity."

Oil demand in the United States, the world's leading consumer, is in much worse shape, and will actually fall this year by 830,000 bpd compared with 2007.

The decline in fuel consumption is expected to continue into next year, but at a much lower rate of 110,000 bpd. That would put 2009 oil demand at 19.74 million bpd, the lowest level in eight years, EIA said.

A side benefit of economic problems and the credit market crisis is that they were helping to push crude oil prices lower, EIA said.

"Absent a major worldwide economic downturn that significantly impacts global demand, West Texas Intermediate crude oil prices are projected to average about $112 per barrel in both 2008 and 2009," EIA said.

On Tuesday, oil prices dipped below $90 a barrel, a sharp fall from July's record above $147 a barrel.

Oil markets are expected to remain tight over the next six months, which will push WTI oil prices to $120 a barrel by April, before declining to $106 by the end of next year, the agency said.

"Further deterioration in actual or expected global economic growth as a fallout of the current financial crisis may lead to weaker oil prices," EIA said.

LONDON  - The plunge in oil prices toward $80 a barrel will curtail oil companies' spending on new projects, limit production growth and perpetuate the industry's tendency for boom and bust.

The surge in oil prices since 2004, to an all-time high above $147 a barrel in July, supported an explosion in spending on new oil and gas projects that is now at risk as recession fears prompt analysts to drop crude price forecasts sharply.

The world's second-largest non-government controlled oil company by market capitalization, Royal Dutch Shell doubled capital investment between 2004 and 2007, when it spent $26.6 billion.

Rivals such as industry leader Exxon Mobil and BP Plc, in third place, also lifted investment as they rushed to explore new areas and as expensive projects, such as liquefied natural gas (LNG) or squeezing crude from Canada's oil sands, became profitable.

The fall in oil prices, coming on top of the credit crisis which partly caused the drop, is expected to end this trend.

"It's certainly going to impact the number of projects that go ahead," John Brannan, president of the integrated oil division of EnCana Corp told a conference in London this week.

High cost projects will be cut first and all eyes are on Canada's oil sands projects. Christophe de Margerie, chief executive of France's Total said last month that $90 a barrel crude was needed to generate a 12.5 percent return on his oil sands plans.

Increasingly tough economics, due to rising costs and regulatory delays, had already prompted the Canadian Association of Petroleum Producers to cut its 2015 oil sands production forecast by around 600,000 barrels of crude a day (bpd) to 2.8 million bpd, compared with around 1 million bpd today.

GAS, DEEP WATER ALSO AFFECTED

Analysts say deep water oil projects, which have delivered millions of extra barrels per day of production in the past decade, were also at risk.

"Some of the deep water projects we see in Nigeria and Angola have breakeven prices of $80/barrel or slightly higher," Derek Butter, head of corporate analysis at Wood Mackenzie, said.

North American gas companies have also been cutting back on capital expenditure (capex) plans following falls in U.S. gas prices, analysts at Citigroup said this week in a research note.

With share prices having fallen sharply in the sector, companies may prefer to buy rivals than invest in new capacity.

"The M&A (mergers and acquisitions) market does look more attractive and will look a lot more attractive if the oil price continues to cool off," Butter said.

Even if companies want to invest in new projects, their ability to do so may be limited.

Oil companies have used record profits to boost dividends, something that companies are usually slower to cut than capex. BP's second quarter dividend of 14 cents a share compares with 7.1 cents a share in the same quarter of 2004.

Oil companies will need crude around $78 a barrel in 2009 to meet dividend and spending obligations, analysts at JP Morgan said.

With a Brent crude price of around $82 a barrel on Thursday and double-digit inflation in industry costs, this gives companies little leeway.

Increased borrowing costs due to the credit crisis -- from which oil and gas companies were largely insulated until now due to high oil prices -- may compound the impact.

Traditionally, multi-billion dollar projects such as LNG terminals are majority financed largely by borrowings from banks or even the oil companies themselves.

While bankers say they remain happy to lend to the sector, the combined impact of lower profits from these projects and higher borrowing costs may make them unattractive.

BOOM AND BUST

The increasing role national oil companies play in global oil production may temper any overall drop in capital spending as their investment decisions are largely politically driven.

However, analysts point out the Western oil majors still account for most investment. Exxon says its capex plans of $125 billion over the coming five years compare with $210 billion for all of the Organization of the Petroleum Exporting Countries.

Cutbacks in capital spending in the wake of falling oil prices is nothing new for the oil industry. The collapse of crude in the 1980s cost hundreds of thousands of jobs in the sector in the United States alone.

In the late 1990s, as oil dipped below $10 a barrel, budgets were slashed again and analysts blame these cuts for the anemic production growth witnessed since 2000, which was a major factor in the surge in crude to $147 a barrel.

Similarly, executives predict that any drop in investment now will lead to less spare capacity in energy markets in future and therefore higher prices when the global economy recovers, continuing the industry's cyclical pattern.

"It is the nature of the beast. In the past, the industry has tended to overextend itself in periods of rising prices and that has let to a sharp pullback as prices have fallen," Butter said.

Editing by Anthony Barker

AS THEY grapple with the implications of climate change and the imperatives of "going green", Scotland's local councils, as an integral part of their responses to these twin "missions", also need to come up with sustainable transport and energy solutions.

To help councils formulate their thinking, two organisations, the Oil Depletion Analysis Centre (ODAC) and the Post Carbon Institute, have got together to produce a guide aimed at local councils, outlining the implications of "peak oil" and the kinds of responsible options that are available to councils.

The ODAC is a charity aiming to improve the world's understanding of what the scenarios and options are as oil becomes scarcer, while the Post Carbon Institute has a similar focus but specialises, in its own words, "in helping communities make a smooth transition to the post carbon world".

The starting premise of the report, entitled Preparing for Peak Oil, is that oil production will peak and go into sustained decline in the next few years (just as it has already done in the UK North Sea). This in turn will create a deficit in fuels for transport and will result in large spikes and turbulence in energy prices, and hence in the price of gas and electricity.

The purpose of the report "is to summarise which local authorities are doing what, and to draw together the most promising policies for tackling peak oil, so that all British local authorities can benefit from best practices being developed both at home and abroad".

The most obvious starting point for local authorities, the report's authors suggest, are for them to:

a) conduct a detailed energy audit of all council activities and buildings; b) develop an emergency energy supply plan; c) introduce rigorous energy efficiency and conservation programmes; d) encourage a major shift from private to public transport, cycling and walking; e) promote the use of locally produced non-fossil transport fuels such as biogas and renewable electricity, in both council operations and public transport; f) set up a joint peak oil task force with other councils and partner closely with existing community-led initiatives.

The key point for councils to take on board, the report urges, is the fact that it takes years of advance planning to make a smooth change from a situation of plentiful oil to one of constrained and diminishing supplies.

Councils, the authors point out, consume millions of litres of petrol and diesel and large amounts of gas and electricity, and all these costs will rise as the price of oil is driven up. North Yorkshire County Council's direct energy spend, for example, rose by almost half between 2004 and 2008, and other councils have experienced similar rises. In addition, councils have to be prepared for the fact that other bought-in service costs will become more expensive as fuel prices rise, and these indirect costs will have an even bigger impact on council budgets.

One of the more controversial arguments is the – on the face of it – logical assertion that as oil gets scarcer, current efforts to expand the capacity of the UK's air and road networks will turn out to be wasted money. Airlines, the report points out, are uniquely exposed to peak oil. The authors, however, seem not to be aware of, for example, Virgin Airlines' pilot (no pun intended) project to run aircraft on biofuels (see our transport story, left).

British councils, the authors say, are beginning to consider the potential impact of peak oil on their services and communities, but they are not nearly as advanced in their thinking on this front as they are in their response to climate change.

They point out that what looks like a great response to climate change, such as Woking Council's move to generating 82 per cent of its own electricity through combined heat and power (CHP) generation, doesn't look so good when peak oil is factored into the equation. This is because the council's CHP generation is largely driven by gas. The council has reduced its reliance on the national grid, but only at the expense of becoming more reliant on imported gas, the authors say.

Iraq will accept offers for a first bidding round for long-term contracts for six oilfields and two gas fields in March 2009, its oil minister said on Monday.

Hussain Al-Shahristani said in an interview that Iraq was also planning to announce a second bidding round for long-term oil contracts in December 2008. The first bidding round was announced in June this year.

"We are working on announcing the second round of bidding in the last month of the year - December," he said.

"So far we did not announce which oilfields will be included, but in December when we announce the bidding we will announce the fields as well."

"The list is not finalised, there is still a field or two that we have not decided on and we are still discussing. It's all going to be explored fields and giant fields."

Al-Shahristani will meet in London on Oct. 13 with 35 oil companies qualified to participate in the first bidding round, which covers the Rumaila, Kirkuk, Zubair, West Qurna Phase 1, Bai Hassan and Maysan oilfields, and the Akkas and Mansuriya gas fields.

He said the criteria for bidding would be based on the cost of halting output decline, boosting output and maintaining long-term output.

He said he would present the companies with model contracts to help them prepare their offers.

"It's important for the companies to know how the contract is going to be so that they can prepare their offers based on the conditions in the contract... Then we are going to give them until March 2009 to present their offers," he said.

"We will notify them of the biddable parameters which the companies are going to offer - what exactly they are going to compete for. For example: what figure they will offer to win the contracts in dollars per barrels of production.

"We are going to have a baseline production [parameter]... the increased production above the baseline production will be another biddable parameter... and the quantity produced during the time of the contract."

He said the model contract would also include other conditions like taxes and the governing law, which will be Iraqi law.

He also expected crude exports to recover in October to 1.9-2.0 million barrels per day from 1.6-1.7 million bpd in September.

The good news is that we are heading for a glut of natural gas. After a couple of years of squeeze and soaring prices, the market is looking soggy and on Tuesday the spot price tumbled, falling by more than 10 per cent, according to ICIS Heren, the gas price assessor.

Gas prices have been shivering for a while. We have new sources of supply, liquefied natural gas (LNG) is arriving from Algeria at the Isle of Grain in Kent and more LNG from Egypt and Qatar will soon be filling storage tanks at Milford Haven in Wales. More importantly, Norway is delivering huge quantities of fuel through a pipeline across the North Sea.

Prices should fall further, says Niall Trimble, of the Energy Contract Company, a gas industry consultant who predicts a slump starting in 2009. Currently, the futures market looks quite expensive, with gas in next year's first quarter at almost £1 a therm, falling to 75p in the summer. Mr Trimble points to emerging oversupply caused by flat consumer demand and falling industrial demand.

Manufacturing has moved to the Far East and the high cost has deterred industrial consumers. New supplies from Norway are killing price peaks and Mr Trimble reckons that gas will average 85p per therm this winter and will continue to fall as low as 55p by next summer.

The bad news is that volatility is likely to last because we are now at the mercy of importers and conditions in foreign markets. The market's structure has changed: gas utility buyers once nominated volumes under long-term contracts with North Sea producers at indexed prices. The spot market dominates in Britain, accounting for three quarters of the gas sold and suppliers and importers are changing their behaviour, reacting to fluctuating prices. For example, in February last year the price plunged to 15p a therm and within days supplies of Norwegian gas diminished, pushing the price back up to 20p a therm.

Such speculative behaviour is likely to increase; we are not only linked by pipeline to markets in continental Europe but by increasing trade in cargoes of LNG. Algerian gas heading for the Isle of Grain can change direction if the price in Massachussetts or Zeebrugge is better. Gas should get a bit cheaper this winter, but not for long.

AMID the waters of the Adriatic, some 40 kilometres (25 miles) south of Venice, a curious new structure is being installed. It is the size of two football pitches, as tall as a ten-storey building and will soon be connected to the shore by a 15-kilometre pipeline. It is a regasification terminal, which will take deliveries of liquefied natural gas (LNG) and turn it back into a gas before pumping it ashore—and it is the first such plant to be located at sea. That has allowed its owners, Exxon Mobil and Qatar Petroleum, both oil and gas firms, and Edison, a local utility, to avoid the permitting problems that have hampered regasification projects in crowded countries such as Italy. Such innovations are helping the LNG business to grow dramatically—but they are also changing it in unpredictable ways.

Natural gas is cleaner than other fossil fuels, and gas-fired power plants are relatively cheap to build, prompting a “dash for gas” by European and American utilities in recent decades. Demand for gas is still growing in rich countries, even as their thirst for oil has faltered. But domestic supplies have been shrinking. Europe, in particular, is becoming ever more dependent on gas imported by pipeline from Russia.

That is where LNG comes in. It allows producing countries to profit from “stranded gas” located far from big markets, and lets consuming countries diversify their supplies. The gas for the Adriatic terminal will come by ship from Qatar. Another 14 countries, from Indonesia to Equatorial Guinea, export LNG; 18 import it. Whereas global gas consumption is growing by 2-3% a year, according to Royal Dutch Shell, another oil and gas firm, demand for LNG is growing by 7-10%. It now accounts for a quarter of the international trade in gas.

The International Energy Agency (IEA), a watchdog for rich countries, expects LNG trade almost to double between 2006 and 2015, to 393 billion cubic metres a year. But regasification capacity is growing much faster. Existing terminals can take in 617 billion cubic metres a year, says the IEA, and others under construction should increase that to 846 billion cubic metres by 2010.

Energy firms have found clever ways to overcome permitting problems, beyond putting terminals offshore. One trick is to build plants just over the border in a more welcoming country: Sempra, an American firm, has built a regasification plant in Mexico, just across the border from California, where regulators have yet to approve such a facility. Excelerate Energy, an American firm, owns LNG tankers that can regasify their cargoes on board, and then send the gas ashore through pipelines—another way to avoid building a big onshore plant.

Most LNG is still sold under long-term contracts that underpin the huge investments required for liquefaction plants. But the surfeit of regasification capacity has created opportunities to divert cargoes to the most lucrative market. Last year, for example, an earthquake in Japan forced the closure of several nuclear plants, leading to a surge in demand for gas for power generation. Several LNG shipments were diverted from the Atlantic to Asia to take advantage of the higher prices on offer there. As a result, the number of shipments arriving at an American terminal belonging to BG, a big gas firm, fell from 48 in the second quarter of the year to one in the fourth.

The prohibitive expense of building liquefaction plants will prevent any completely speculative developments, says Umberto Quadrino, the boss of Edison. But some global gas giants are committing to buy ever more LNG from liquefaction plants without lining up subsequent buyers, which will let them sell it to the highest bidder instead. The proportion of LNG in the hands of such middlemen will rise from 12% to 25% when all the plants now under construction start running, says Michael Stoppard of Cambridge Energy Research Associates, a consultancy.

Yet the price LNG will fetch depends on supply as much as demand. Technological innovations might yet make it cheaper to produce. Shell, for example, hopes to build offshore liquefaction plants that could be towed from one gasfield to another, dramatically reducing overheads. Other firms plan to ship compressed, rather than liquid, gas—a less capital-intensive process that might make smaller fields profitable.

Meanwhile, America has recently reversed a steady decline in domestic gas production, thanks to new technology that allows firms to tap previously inaccessible gas trapped in coal, shale and some types of sandstone. Gas production in America grew by 4.3% last year, and by 9% in the first quarter of this year. This unexpected spurt will delay America’s emergence as a big importer of LNG by a decade, in Mr Stoppard’s view. And America is not the only country with big reserves of “unconventional” gas. Firms in Australia and Canada are rushing to adopt the same technology. Any country with lots of coal, including China, India, Russia and much of Europe, should be able to increase gas output in the same way. Several firms in Australia even plan to use such gas to make LNG.

PARIS, Oct. 7 -- Over the last 18 months, natural gas prices have continued to rise steadily in both established and new markets "not only a reflection of higher demand, but also of a delayed supply response," said Nabuo Tanaka, executive director of Paris-based International Energy Agency, in his introduction of the 2008 Natural Gas Market Review.

"Investments uncertainties, cost increases, and delays continue to be a major problem in most gas markets and are continuing to constitute a threat to long-term security of supply," Tanaka stressed. These factors no doubt will be compounded by the world financial turmoil, which has erupted since the review was published and which will forcibly result in a credit squeeze for energy investments.

Investment lag
Ian Cronshaw, head of IEA's Energy Diversification Division, who designed and managed the review, was already concerned that increasing gas demand, especially for power generation, was not being met by sufficient investment. While he said projects currently under way will proceed, he also said the lag in LNG investments beyond 2012 "is a concern for all gas users in both the IEA and non-IEA markets."

The review pointed out other issues that pose a threat to long-term supply security: the escalation of engineering, procurement, and construction costs (EPC); the tight engineering market; and the growing propensity of producing countries to reserve a greater share of gas production for their own growing domestic markets.

High natural gas prices, which also are pushing up electricity prices because of the close link being established between gas and power, have not slowed demand in consuming markets either inside the IEA or nonmember countries. In the US gas demand grew by 6.5% in 2007 and about 4% in first-quarter 2008. In Japan, growth in 2007-08 was 9% on the back of a 50% lower nuclear power utilization.

In Europe, gas consumption was dampened by warm weather but in early 2008, growth jumped to more than 8%, most notably in Spain, where first-half 2008 demand increased by 20% despite an economic slowdown.

Meeting gas demand
To meet this growing demand LNG trade is on the way to playing a stronger role in regional markets within the Organization for Economic Cooperation and Development (OECD) countries in the short and medium term, forecasts the review. While LNG is already pivotal in OECD Pacific, it is expected to reach 20% in Europe, where imports will account for over half of total supplies.

In North America, indigenous production will still supply more than 90% of expected demand by 2015, yet LNG imports are expected to more than double 2007 levels.

Increasing LNG trade will globalize regional gas markets, a trend that seems irreversible, says the review. Driving global interactions are the prevalence of more producing and consuming countries, a growing dependence on external markets in OECD Europe, tighter balances, increasing volumes of spot and short-term LNG, and higher gas prices.

But, insists the review, to benefit from the globalization of the gas market, improved transparency on flows and prices and more-competitive internal markets are needed. Interregional competition will improve global gas security in the long term. Making its point, the review notes that liquidity on European hubs—both on the UK's National Balancing Points and on most continental hubs—has "grown considerably, promoting more flexible market responses, more transparency, and more-accurate price signals."

Gas traded among regions will grow to 17% in 2015 from 13% in 2005, with LNG accounting for about 84% of the increase in interregional trade as exports grow to some 400 billion cu m in 2015 from 192 billion cu m in 2005.

Gas supply sufficient
Examining gas supply, IEA's review sees worldwide gas resources more than sufficient to meet global demand, which it establishes at 3.689 trillion cu m by 2015, up from 2.854 trillion cu m in 2005, always subject to timely investment. The biggest regional increase in absolute terms is in the Middle East, but there is also a marked increase in Africa and Latin America. All told, production is expected to increase in all major regions except OECD Europe, where North Sea output is declining. North American production growth should slow after 2015.

Natural gas supplies will continue to come mainly from conventional sources but coalbed methane and other nonconventional supplies, such as shale gas, should be playing a growing role in some regions, notably North America.

The great uncertainty, however, is how major resource holders will meet increasing demand, rapidly rising costs, and development of more-remote gas.

Pipeline delays
Looking at the needed infrastructure to deal with increasing gas flows, both regional and global, Tanaka was concerned that "progress on major pipelines, outside the United States is slow." Improvements to market functioning are especially urgent in Europe, he noted, because of the region's growing demand for gas. Also needed in Europe are greater cross-border gasline connections.

Noted, also, were the many delays in pipeline infrastructure development last year globally as well as increased costs. Particularly mentioned were Nabucco and Nord Stream in Europe and the Alaska pipeline in North America.

In LNG there are similar trends, as many projects are planned but not all are going ahead. In this area, the review notes the unprecedented and major expansion in regasification capacity worldwide, which risks being underutilized for it greatly exceeds liquefaction capacity. On the other hand, concedes the review, this could be a source of flexibility.

The review is prolific and detailed on all these developments. It also includes data and forecasts on OECD and non-OECD regions to 2015 and in-depth reviews of five OECD countries and regions, including the European Union.

The future of coal-fired power generation in Europe was called into question yesterday after a European Parliament committee backed new laws that would force power companies to pay for all of their carbon dioxide emissions from 2013.

The decision, which could cost the power industry €30 billion (£23 billion) a year and trigger a steep rise in electricity bills, represents a huge boost for Europe’s renewable energy industry. It also casts fresh doubt over the likelihood of a £1.5 billion coal-fired power plant being built at Kingsnorth, Kent, by E.ON, the German power group.

In addition, it flies in the face of British government policy. Last month, John Hutton, the former business secretary, told the Labour Party conference that “no coal . . . equals no lights. No power. No future.”

Chris Davies, an MEP who backed the legislation, said that the decision by the European Parliament’s environment committee “effectively prevents the building of new coal-fired power plants from 2015 unless equipped with CCS [carbon capture and storage technology]”. The new rules require final approval from the European Parliament and EU countries. If granted, they will transform the economics of burning coal to generate electricity.

The move came despite fierce resistance from power industry lobbyists, who said that that the EU’s aggressive emissions-cutting targets should be weakened because of the global financial crisis.

Avril Doyle, an Irish MEP on the committee, said: “For all the trouble we have, the single greatest challenge facing us is climate change.”

The committee backed proposed changes to the EU Emissions Trading Scheme (ETS), an existing programme in which the bulk of permits are handed out to energy companies for free. Members voted in favour of auctioning all emissions permits after 2013 for power companies. The committee proposed that other polluting industries, such as steelmaking, should pay for 15 per cent of permits in 2013, rising to 100 per cent by 2020.

It had been unclear how the ETS programme would evolve after 2012.

The committee also offered to plough $10 billion from the scheme into carbon capture and storage (CCS) research, an untried technology designed to strip out greenhouse gases at source and store them underground.

The bill is a key plank of the EU’s plan to reduce Europe’s carbon dioxide emissions by 20 per cent by 2020.

The CBI welcomed the scheme last night, saying that it would provide greater clarity for businesses.

Europe’s renewable energy industry also endorsed the decision. Maria McCaffery, of the British Wind Energy Association, said: “This new target underlines the urgency of action to deliver clean, sustainable energy now if we are to keep global temperatures within acceptable limits.”

A spokeswoman for E.ON, which relies heavily on coal-fired power stations in Germany, as well as in the UK, said: “We are taking our time to review and assess the decision.”

A vote before the full European Parliament is likely in December, although opposition is expected from some heavily coal-dependent countries, such as Poland. France, which has the EU presidency at the moment, wants to enshrine the Bill in law by the end of the year.

European legislators have committed about €10bn ($13.6bn, £7.7bn) to help build as many as a dozen power stations equipped to capture and store carbon dioxide, throwing its weight behind a technology that supporters say has immense potential to curb greenhouse gases.

The European parliament’s environmental committee brushed aside concerns about financial turmoil to back the unproven technology, in a narrow vote in favour of a package that would make Europe a global leader in cutting emissions.

Tuesday’s vote was dubbed “Super Tuesday” by legislators and environmentalists eager for Europe to pass an ambitious climate regime ahead of an international meeting next year to renegotiate the Kyoto Treaty.

It will form the basis of discussions with the EU’s 27 member states, with France hoping for a final agreement before the end of their presidency in December.

The environmental committee endorsed the target for the EU to reduce its carbon dioxide emissions by 20 per cent by 2020, or 30 per cent if a broader international agreement is struck. It also supported an expansion of Europe’s carbon emissions trading scheme that would force power generators to pay for 100 per cent of their emissions allowances, beginning in 2013.

They currently receive most for free.

Plans to develop as many as 12 power plants, equipped with carbon capture and storage to test the technology, were agreed by EU governments last year. However, little progress was made because they had not been allocated any funding.

The proposal approved onTuesday would set aside revenue from carbon credits that Europe will sell at auction, beginning in 2013, as part of its expanded emissions trading scheme. Those allowances could be worth roughly €10bn, according to Chris Davies, the liberal MEP who is championing the technology. Mr Davies’ proposal would also allow for at least one of the pilot plants to be built in China, which is heavily reliant on coal-fired power plants.

The vote took place against a backdrop of darkening economic news that appeared to give new weight to efforts by industrial lobbyists and some member governments to delay or dilute the measures.

Hans-Ulrich Engel, head of oil and gas and the European region for BASF, the German chemicals and energy group, on Tuesday urged Brussels to protect energy-intensive industries from the increased energy costs imposed by the emissions trading scheme: a proposal already made by the German government.

He warned that unless Brussels moved quickly to ease the impact of the ETS, investment in industry would be displaced out of the EU.

Avril Doyle, the MEP who drafted one of the bills, acknowledged the economic environment, but said that legislators could not put aside long-term goals because of a short-term crisis. The committee did offer some concessions, allowing so-called energy-intensive industries a phase-in period for the new trading scheme.

Beginning in 2013, they would have to purchase only 15 per cent of their emissions allowances; down from the 20 per cent figure set out by the European Commission earlier this year. That will increase to 100 per cent by 2020.

It also pulled back from a measure that would have placed a ceiling on carbon emissions for new power plants at 350g per kilowatt hour, a measure that would have banned construction of new coal-fired plants. Instead, the committee set the limit at a more manageable 500g, the same as that set by California.

NATIONAL GRID will buck market conditions this week when it unveils a £17.5 billion capital-expenditure programme, one of the biggest in the UK corporate sector.

The debt-fuelled £3 billion-a-year plan, details of which will be given at an investor day on Tuesday, represents a £1.5 billion increase on a previous forecast that projected a total spend of £16 billion between 2006 and 2012.

Having already invested £5.4 billion in the past two years, the company now expects to spend £12 billion more to upgrade gas and electricity networks here and in the US up to 2012.

Chief executive Steve Holliday said the beefed-up programme reflected the need to overhaul the UK’s gas and electrical-distribution grid.

“You’ve got to go back to when the national grid was first constructed in the 1950s and 1960s for a comparison,” he said. “We’re seeing growth beyond anything experienced previously.”

About 80% of the outlay will be spent on the UK, with the rest going to National Grid’s assets in America. The tenuous state of the UK’s energy infrastructure was highlighted last week when wholesale power prices jumped after the company warned that maintenance of several power stations would mean an unusually thin margin between supply and expected demand this winter.

The company will also lay bare the heavy cost of the government’s ambitious energy plans that put new nuclear power stations and large offshore wind farms at its heart.

National Grid expects to spend between £5 billion and £9 billion - beyond the basic spending programme - over the next 20 years to hook up the new power sources to the grid. Much of this will go on bringing offshore wind farms onshore and managing the spikes and troughs of wind production.

Holliday expects little trouble in raising the billions the programme will require. About 95% of the company’s assets are regulated, meaning its returns are set by the regulator and grow in tandem with the value of its assets. Investors see it as a safe bet.

Europe’s governments must work together to deliver a “visible and stable” European energy policy or they will fail to attract the investment they need to meet sharply rising demand, according to Pierre Gadonneix, president of the World Energy Council and chairman of French energy group EDF.

“We must be planning a strategy for high energy prices. That is a new factor in the environment and that will require huge investment,” Mr Gadonneix told the Financial Times. “The challenge for energy policy today is to give investors the visibility they must have to provide the very big sums we need. It is very important for all energy operators that Europe makes these statements.”

The International Energy Agency has estimated that energy consumption will rise by 60 per cent between now and 2030, and capacity will have to double to meet demand. But Mr Gadonneix’s warning comes as Brussels struggles to stop its member states
from picking apart its attempt to forge a common approach on energy policy and climate change, including the plan to auction carbon emission permits.

Last month, the German government dealt a severe blow to the proposal to force companies to pay for the carbon dioxide they emit by backing an almost total exemption for industry. Other European Union members such as France are also pushing for concessions for certain energy-intensive industries.

But it also comes as the energy industry faces soaring costs on the construction of power plants and, in particular, on nuclear reactors whose return is longer-term and is so far unproven.

Mr Gadonneix admitted EDF was facing higher than expected costs on the construction of its new-generation EPR 1600 MW reactor in Flamanville, France. The initial estimate was €3.3bn ($4.5bn) but “we have probably passed this number now, given that it is in 2005 euros”.

He said that Europe’s governments needed to agree common rules, especially on carbon trading, if investors were to invest in new power stations.

This was key for energy producers and “must be done at international level, otherwise there will be a distortion of competition”, Mr Gadonneix said.

The EDF boss, fresh from agreeing the nuclear industry’s biggest takeover with the proposed deal to acquire British Energy for €15.7bn, also said he expected further consolidation in the energy sector.

“The restructuring has not yet finished. Only very big groups can assure the financing of the investment needed,” he said, adding that nuclear power in particular required scale.

“When you build a plant you commit financing for 60 years. That can only be done by very large groups.”

The EU is studying plans for a transnational power grid in the North Sea that could provide electricity from renewable sources for 70m homes. It could cost up to €20bn (£16bn) to install.

The proposed 3,850 mile offshore grid would connect more than 100 wind farms, containing 10,000 turbines, to seven North Sea countries - Britain, Belgium, Denmark, France, Germany, the Netherlands and Norway.

Senior EC energy officials yesterday gave a warm but guarded welcome to the plans, which were submitted by eco-campaigners Greenpeace and drawn up by environment consultants 3E, calling them "ambitious but realistic".

The EU is committed to cutting greenhouse gases by 20%, producing 20% of primary energy from renewables and reducing energy consumption by 20% - the so-called 20/20/20 package - by 2020.

The plans, on the agenda again in November, have run into serious difficulties among governments and MEPs.

A senior EC official said the package meant a third of Europe's electricity would come from renewables by 2020, with a third of that from wind power - and a third of the wind power from offshore.

The report, based on identified projects, assumes that 68.4 gigawatts of capacity at 118 wind farms will have been established in the North Sea by 2020-30 and could provide 13% of the annual electricity consumption of the seven countries.

A recent European Wind Energy Association strategy paper estimated installed capacity, on land and offshore, could rise to 300GW by 2030 - accounting for 28% of power generation in the EU and a quarter of consumption, saving 600m tonnes of CO2. Yesterday's report using scientific data on wind speeds, suggests that the power output of wind farms could be stabilised within an integrated grid and supplemented by Scandinavian hydropower that can be easily switched on. The variability of wind speeds and, hence, of output has been a drawback of wind power.

"The grid would enable the efficient large-scale integration of renewable energy in the power system across the whole North Sea region," said Frauke Thies, a Greenpeace campaigner. "A dip in wind power in one area could be 'balanced' by higher production in another area, even hundreds of kilometres away."

Greenpeace estimates the cost of the scheme at between €15bn and €20bn but says it would unlock power trading opportunities and cost efficiency. A new 600km-power line between Norway and the Netherlands, it says, cost €600m to build but generates €800,000 in daily trading. It argues that such a scheme, boosted by other renewables such as tidal, wave energy and biomass, would eradicate the need for further investment in coal and nuclear.

But EU officials are sceptical, suggesting that "clean" coal and nuclear are essential. "We don't share the view that these are incompatible with renewables," one said. The growth of wind farms has been held back by planning disputes and the EC and Greenpeace urge greater European co-ordination in developing grids.

Plans have been unveiled to power 45,000 homes with wind and hydro-electric turbines along Britain's historic canals and rivers.

British Waterways want to house 50 wind turbines and additional small-scale hydro schemes on land it owns over the next five years.

They say the scheme will raise more than £1m a year, which will be used for waterway upkeep.

The exact locations of the turbines have yet to be decided.

British Waterways, which is a public body in charge of the waterside land, was praised by its partner in the project for using its resources in an innovative and environmental way.

Partnerships for Renewables said the navigation authority was a "torchbearer for others to follow".

Yorkshire option

The £1m that will be raised will be used to help maintain and repair some of the 2,200 miles of canals, historic locks, bridges and rivers that the organisation looks after throughout the UK.

British Waterways' chief executive Robin Evans was delighted that the project will generate income and help with the government's renewable energy targets.

Mr Evans said that, whilst the authority is always protecting the canals and rivers' heritage, they are "proactively looking at how we can use this resource to make a contribution towards the fight against climate change.

"If we successfully develop this resource it would mean that the nation's canal network would generate more than 10 times more electricity than it consumes," he added.

The public corporation is now looking at potential locations for the turbines and generators.

One suitable site could be on the banks of the Aire and Calder navigation in Yorkshire.

A British Waterways spokesman told the BBC: "We are looking at radar and environmental issues first and then will engage with the local communities at suitable sites."

Environmentalists 'delighted'

Partnerships for Renewables, a privately-funded group that works with public bodies on renewable energy projects, will develop, construct and manage all the equipment at an estimated cost of £150m.

The private company hopes to create the capacity to power 230,000 homes from electricity on public land within five to eight years and this project would contribute to a fifth of that target.

Stephen Ainger, chief executive of Partnerships for Renewables, said, "It is great to see that British Waterways has demonstrated the vision to become a torch bearer for others to follow."

Friends of the Earth energy campaigner Nick Rau was delighted by British Waterways' plans.

Mr Rau said that "Community-scale renewable energy projects such as hydro-power schemes and wind turbines have a huge role to play in reducing our dependency on fossil fuels and helping Britain to develop a low-carbon economy."

The government had pledged to generate 15% of the UK's electricity from renewable sources by 2015, although some studies have shown this target may not be reached by then.

BOSSES at a composting site in Suffolk are planning to use residents' rubbish to make electricity.

For years, Greenview Environmental has composted waste from St Edmundsbury and Forest Heath at its site in Lackford, near Bury St Edmunds.

But the firm now plans to use new technology to turn 26,000 tonnes of collected waste each year into compost and electricity.

The system involves green waste from kitchens and gardens being put through a modified Tollemache machine which pulverises the waste before air is forced through it, heating it up to kill potentially-harmful microbes.

The end product can then be left to become compost or fed through an anaerobic digester which will generate electricity.

It is believed the site could produce between one and three megawatts of electricity which will be sold to the National Grid.

That amount is about the same amount of electricity as an onshore wind turbine, though the exact amount is dependent on how much kitchen and garden waste is put in the anaerobic digestion tanks.

A spokeswoman for St Edmundsbury Borough Council said the Lackford site was not being extended but new technology was being used.

“All of the material collected from the brown bins in St Edmundsbury Borough Council is composted by Greenview,” she said.

“Last year approximately 12,600 tonnes was sent for composting, although this varies slightly year on year due to the climatic variations.

“We have been working in partnership for a number of years and provide a consistent and clean feedstock for the composting process that helps them to produce high quality compost.

“As the brown bin scheme has been rolled out across the borough there is no immediate plan to increase the amount of material collected and sent for composting.”

In an age of rapidly rising fuel bills the discovery of vast supplies of free hot water sounds too good to be true. But that is exactly what one Dutch city has found to run the radiators of hundreds of homes, shops and offices.

Heerlen, in the southern province of Limburg, has created the first geothermal power station in the world using water heated naturally in the deep shafts of old coalmines — which once provided the southern Netherlands with thousands of jobs but have been dormant since the 1970s.

Tapping “free energy” marks a breakthrough in green technology by exploiting the legacy of the coalmines that emitted so much pollution and helped to create the climate change emergency faced by the planet.

“With the threat of global warming and soaring energy prices, nobody can afford to sit back,” said Riet de Wit, a councillor in Heerlen. “We have proven that a local initiative can provide a local solution for sustainable energy. Moreover, our concept can be adapted by former mining regions all over the world.”

The concept sounds simple. The abandoned mineshafts were seen as a blight on an area that has struggled to recover economically from the mass redundancies of miners in the 1970s. After the mineworks were demolished new homes were built and linked to a geothermal power station pumping water up from the mines at a depth of 800 metres, where it reaches temperatures of 35C (95F). The water is used to provide heating for 350 homes and then pumped back into the pit after use, where it will again heat up for the cycle to continue. The water will circulate two or three times a year.

The only drawback is that the homes need to be close enough to the old mines to make use of the heat, which will be topped up by domestic boilers when greater temperatures are needed.

Scientists estimate that the project will produce 55 per cent fewer CO2 emissions than a traditional coal-fired power station — and are now working on a carbon capture system to liquefy the CO2 and pump it back into other disused shafts rather than release it into the atmosphere.

The goal is “emission-free” heating and it could revitalise other former mining areas as sources of cheap, renewable energy.

“For wind power, you need wind. If there is no wind, there is no power. But with geothermal energy, you have a constant level of simple heat without any need for conversion,” said Karl-Heinz Wolf, Professor of Coal and Geothermal Energy at the Technical University of Delft. “You have it all year round and if you don’t need it, you close the tap until you need it again. You have heat at a certain level and you only have to top it up if you want it at a higher level.”

During the summer the water can be taken from near the top of the shaft where it is cold enough to cool the city’s buildings.

So, is this the answer to Europe’s energy crisis? Professor Wolf, who is working on a project to drill down to an aquifer 2.5km below Delft where the temperature of the water is 80-85C, said: “It is not difficult to do, the only thing you need is a mine which is in the vicinity of the industry or houses you want to heat.”

A new ministry to oversee energy and climate change policy was created on Friday.

The move was welcomed by the power industry. Senior executives said that the shake-up, which will merge parts of the Department for Business, Enterprise & Regulatory Reform (Berr) and the Department for Environment, Food and Rural Affairs (Defra) into a single organisation to be led by Ed Miliband, reflected the growing importance of energy policy in Downing Street.

It comes as Britain struggles to upgrade its ageing power infrastructure, meet tough carbon emissions targets and secure adequate long-term energy supplies as oil and gas output in the North Sea declines.

Nick Horler, chief executive of ScottishPower, said: “This is an opportunity for a holistic and co-ordinated approach to the giant challenges of ensuring energy security and protecting the environment.”

Another power company chief executive said: “Anything which provides a more co-ordinated approach to climate change and energy issues has to be encouraging.”

However, there was regret at the loss of John Hutton, who has been appointed Defence Secretary. The former Business Secretary was seen as being among the most successful ministers dealing with energy issues in years. “In an ideal world it would have been Hutton being appointed to head this new department,” a source at one of Britain's big power companies said.

The industry is hoping that the creation of the new structure will bring to an end infighting between Berr and Defra over key areas of energy policy, including fuel poverty and the types of incentives required to channel fresh investment into green energy projects.

Neil Bentley, director of business environment at the CBI, said that the new structure could prove problematic if one faction were to gain the upper hand: “Both climate change and energy security are vital national interests that need the Government's fullest attention and urgent action,” he said. “Combining them may help to identify both synergies and trade-offs, but we must avoid either becoming subordinate to the other. Ultimately, sound, timely policy decisions matter most, not departmental names or structures.”

Others expressed uncertainty about how Mr Miliband, the former Cabinet Office Minister, was likely to handle his new brief. His approach will be crucial on areas of energy policy, including negotiations over new European Union targets for the amount of energy generated from wind and wave power. Since January, Britain has been committed to raising its share of renewable power generation from 4 per cent to 40 per cent by 2020, a target that experts say is unachievable.

Britain must abandon using almost all fossil fuels to produce power in 20 years' time, the government's climate change watchdog will warn today.

The independent Climate Change Committee will publish its advice to the government that the UK should set a 2050 target of cutting all greenhouse gas emissions by at least 80% - including the emissions from aviation and transport, which were previously excluded.

Because it is unlikely that emissions from aviation and shipping will be cut so dramatically, other sectors, particularly power generation, would have to reduce emissions by much more, with big increases in energy efficiency, wind and tide power, and probably new nuclear generators, Lord Turner of Ecchinswell, the committee chairman, told the Guardian.

"We have to almost totally decarbonise the power sector by 2030, well before 2050," he said.

The committee will say the far-reaching changes would cost about 1-2% of the value of the economy in 2050, although growth would still be strong. "Rather than be twice present levels, [gross domestic product] would be 1 or 2% less than that," added Turner.

In his speech to the Labour party conference last month, Gordon Brown hinted that the government would accept the new target when it responds, possibly within days, although it is not clear if it will accept the full report.

Last night Ed Miliband, the new energy and climate secretary, said he welcomed the report. "We need to act now to avoid dangerous climate change and the action we take must be guided by experts. This is a pressing issue and we'll respond to the recommendations swiftly. The hard work will be for us all to make emission reductions a reality over the coming decades."

If the report is accepted in full, campaigners said the UK target would be the most ambitious legally binding commitment of any country and would give the UK a strong position in international negotiations about a new global plan.

"It would mean finally the government would accept the advice of scientists," said Martyn Williams, climate change campaigner for Friends of the Earth. "We could say to people in international negotiations: you can do what we're doing, not just what we're saying."

However, Williams warned that in future the commitment to include aviation and shipping must also be made legally binding. "If the government [did] not accept a mechanism to make sure they and other governments were held to account, then we'd have to wonder if there was any confidence it would have to be delivered," he said.

The Climate Change Committee was set up by the climate change bill and was asked to advise government on whether to increase the target of a 60% cut in carbon emissions by 2050.

Today's report will say the new target must be "at least 80%" and extend it to include other greenhouse gas emissions such as methane and nitrous oxide. International aviation and shipping should not be part of the legally binding interim "budgets" that the committee will report on each year but should be a national target, and would "absolutely end up with an equal level of scrutiny", said Turner.

In the first decade the biggest change would be a big expansion of energy efficiency and in the second decade of renewable energy. Such a "radical" change was "do-able" but could also require new nuclear power, and carbon capture and storage (CCS) technology for coal-fired power stations and industries like cement and steel, both of which will be seen as controversial by environmental campaigners. "It's possible to do it while knocking out particular technologies [like nuclear or CCS], it just gets significantly costly and more difficult to do," said Turner.

Longer term, zero-carbon electricity would also have to be used to power cars and heat homes, says the report.

The report will increase pressure to abandon controversial plans for new coal-fired power stations in the UK before CCS is available at that scale. Ministers have previously admitted full-scale CCS might not happen before 2050. Turner said the committee's opinion would be published in a more detailed report in December.

The December report will also recommend interim targets up to 2022 and the impact of different industry sectors.

Monday 24 November 2008, 9.30 - 16.00

Energy Institute, 61 New Cavendish Street, London, W1G 7AR

The Energy Institute is pleased to announce its annual one-day conference examining Oil Depletion.

This conference chaired by Professor Martin Fry FEI will examine the data and calculations that indicate the imminence of oil flows peaking, and present some of the challenges to be faced.

Who should attend?

The meeting is of interest to all who have a professional need to understand near and medium term global energy supply.

Confirmed Speakers

- Professor Martin Fry FEI, Visiting Professor of City University

- Dr Roger Bentley MEI, University of Reading

- Chris Skrebowski FEI, Consulting Editor, Petroleum Review
- Glen Cayley, Vice President, Shell Exploration

- Professor Paul Stevens, Senior Research Fellow, Energy, Environment and Development     
Programme, Chatham House

- Simon Snowden, University of Liverpool
- Professor Roger Wooton, City University
- Geoff Loram

For more information please contact Vickie Naidu, Events Organiser, Energy Institute: t: +44 (0)20 7467 7179
e: vnaidu@energyinst.org.uk