ODAC Newsletter - 24 October 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.
Even before OPEC meet for their emergency session today, their ability to set the oil price is being called into question. OPEC exports were down 900,000 barrels in September and everyone is expecting further cuts to be agreed at the Vienna meeting. Despite this the oil price continues to fall along with the markets, as investors respond to the stream of bad economic news including slowing growth in China and the likelihood of a deep recession in the US.
As oil revenues drop and credit remains tight there are signs that an increasing number of projects are becoming uneconomic or difficult to finance. Even Gazprom, which this week announced record profits, warned that it was facing credit constraints. A facet of peak oil is the economic viability of production. Thus lower prices and decreased investment now could exacerbate supply constraints in the future, thus feeding a cycle of economic turmoil. Some commentators see the current economic downturn as evidence that peak oil has already occurred.
While OPEC aim to flex their muscle on oil prices, Russia, Iran and Qatar announced this week that they are to create a ‘Troika’ on natural gas with increased collaboration between the 3 nations. The prospect of a pricing cartel is of concern to Europe with its increasing reliance on Russian gas.
In the UK this week both Gordon Brown and Mervyn King stated the obvious in admitting that recession was likely. In response the value of sterling fell to its lowest rate against the dollar for 5 years. A weaker pound holds the prospect of growing exposure to an increasingly competitive food and energy market. As Alastair Darling makes his plans to reprioritise public spending to stimulate the economy, it is to be hoped that he is taking note of the green New Deal ideas from the UN and NEF.
If we can afford £500 billion to bail out the bankers, surely we can afford it to bail out of oil?
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Christophe de Margerie, Total’s chief executive, has been warning for more than a year that political hurdles such as sanctions meant the world would not be able to produce more than 95m barrels a day of crude oil.
But as the credit crunch delays expensive projects and lower oil prices dissuade oil-rich nations from investing in tapping more of their riches, oil executives are privately warning that even 95m barrels could prove optimistic.
That is a stark reassessment. The world consumes 87m barrels a day of oil and will have to find a lot more energy if China, India and other developing nations are to pull themselves out of poverty.
For now, all eyes are on falling demand and tumbling oil prices but the International Energy Agency has warned that the glacial pace at which supplies are being added will have far-reaching economic consequences.
In its latest report, the IEA, said: “Most large international oil companies and state producers should weather the financial storm. However, investment is being affected at a number of highly leveraged companies in locations such as Russia and the Caspian.”
Russia’s two energy giants, Rosneft, the state oil company partially listed in London, and Gazprom, the natural gas monopoly, depend heavily on debt to finance operations and evidence is mounting that they are scaling down their investments.
Gazprom admitted on Wednesday that the liquidity crisis could affect its ability to refinance debts and might affect its cash flow forecasts. It has told TNK-BP that it might not buy its stake in the giant Kovykta gas field after agreeing in principle to a $700m-$900m deal last year.
Meanwhile, TNK-BP is expected to cut its capital expenditure by as much as $1bn next year, or almost a quarter.
Tim Summers, the company’s chief operating officer, said: “At $120 or $140 a barrel, you are trying to grow the company as fast as you can but you take a different view at $70.”
Oil prices, which in July peaked at nearly $150 a barrel, are trading at about $70 a barrel, after having briefly slipped below that mark.
In Iran, which holds the world’s second-largest oil and gas reserves, Gholamhossein Nozari, oil minister, said: “I think the low price is a real damage to the future of production.”
Chief executives of some of the world’s biggest international energy companies meeting in Venice this month privately voiced concerns that the credit crunch-driven belt-tightening and new spirit of government intervention in business were ominous for the oil industry.
Mr de Margerie said: “All projects which are under way will be completed.” But he also warned that, if the oil price fell to $60 a barrel and stayed there, “a lot of [new] projects would be delayed”.
France’s Total has been one of the most forthright companies about the cost of its newest and most expensive ventures, noting that its Canada oil sands projects need an oil price just shy of $90 a barrel to develop while reducing the environmental impact.
Its developments in the deep waters of Angola require prices of about $70 a barrel to achieve a rate of return of 12.5 per cent.
Analysts said Nigerian deepwater projects, which together with Angola make up the most important areas of growth in west Africa and involve all the world’s biggest international energy groups, demand similar oil prices because of their high cost.
Many of these projects have yet to receive final investment decisions, making them more susceptible to delays in times of economic uncertainty.
Expensive liquified natural gas projects, which are often financed by banks, may also be delayed and capacity additions put on hold, analysts said. BP has shelved plans for its $500m Delaware LNG facility, arguing “market conditions do not support such a project near term”.
It is not just the big oil companies’ investments that count.
In the US, small oil and gas companies produce 82 per cent of the country’s natural gas and 68 per cent of domestically extracted oil. Struggling with a less solid balance sheet than their much bigger peers, many are struggling to finance their operations.
Meanwhile, the willingness of refiners to add capacity is also being tested, meaning that the bottleneck that helped drive oil prices to $147 a barrel this summer will not be solved as quickly as the industry had begun to believe before the credit crunch.
Eni, the Italian oil company, has announced that it has scrapped a doubling of the capacity of its Taranto refinery after cutting back its capital expenditure plans for refining and marketing.
But perhaps the most worrying area, at least in the long term, is Brazil, where Petrobras, the national oil company, last year discovered what could become the biggest new oil frontier to open up in almost a decade.
The company has delayed its highly anticipated strategic review to assess the impact of the credit crunch.
Petrobras is expected to need upwards of $500bn to finance the development of its giant subsalt fields, which “may be further delayed as share prices tumble and amid restrictions on the availability of state development bank funding”, the IEA has warned.
Delays in developing the field and other projects in Russia, Angola, Nigeria, Australia and elsewhere, mean there will not be enough oil available once the world economy is ready to get back on its feet, several energy executives said.
At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.
But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.
As the global economy continues to weaken, the Organization of the Petroleum Exporting Countries faces its toughest test in years.
The problem for the oil exporters, who meet for an emergency session in Vienna on Friday, is to find a way to stop the price drop at a time when oil consumption is falling markedly in industrialized countries. Even the Chinese economy, long the biggest engine of growth for oil demand, seems to be cooling.
Most analysts expect the group to announce a production cut of at least a million barrels a day, which would be more than 1 percent of the world oil supply. Chakib Khelil, OPEC’s president, said last week that an output cut was “obvious” and suggested the group might meet often in coming months for further adjustments.
History suggests that OPEC will face a tough time propping up prices as oil consumption slows and the world teeters on the edge of a global recession, analysts said. Some experts warn that if the cartel took too much oil off the market, it could push prices up so much as to worsen the global economic crisis.
“OPEC’s problem is they don’t know how much demand is falling,” said Jan Stuart, an energy economist at UBS. “So the risk they run is either they don’t do enough, or they do too much. That’s a tough choice.”
Nobuo Tanaka, the executive director of the International Energy Agency, said a cut in production could harm consumers and delay an economic recovery. “The slowdown may be prolonged,” Mr. Tanaka told reporters on Monday in Paris, where the energy agency, which advises industrialized countries, is based.
Oil prices settled at $70.89 a barrel on Tuesday, down $3.36 and near the 14-month low they reached last week.
The biggest question is what price the cartel is prepared to defend. In 2000, producers adopted a price band of $22 to $28 a barrel, and adjusted production levels accordingly. The mechanism was imperfect, and many producers felt it constrained them, but it basically worked to ensure stability in oil markets.
But defending a price requires spare capacity, so that production can be raised if prices get too high, as well as discipline on the part of OPEC members, so that production can be lowered when prices fall. OPEC abandoned its price band when its spare capacity virtually disappeared in 2005 amid rapidly rising global oil demand.
Now, with consumption growth slowing sharply and new oil projects coming online, some spare capacity has become available.
Lawrence Eagles, an oil analyst at JPMorgan, said in a research note that he thought the “price-band mechanism offers the best way for OPEC to manage the market under current conditions.” Mr. Eagles said OPEC did not want prices to slip below $70 a barrel, and would be more comfortable with prices around $80.
The cartel, which controls 40 percent of the world’s oil exports, has found it difficult in the past to get all its members to abide by production cuts. When prices fall, producers have an incentive to increase their output to maximize revenue, not stick with OPEC quotas.
Producers are aware that high prices pose a risk to the global economy. Oil consumption is already falling sharply in developed countries, and there is a rising risk that oil demand could slow even in fast-growing developing nations.
OPEC’s researchers recently downgraded their forecasts for global oil demand because of the financial crisis. OPEC expects global demand to rise 550,000 barrels a day this year, to 86.5 million barrels a day.
For many analysts, these expectations are still too optimistic. A growing number of independent experts now say they believe that global oil consumption may fall this year, for the first time since 1993.
“OPEC will have to decide how far it can ignore the global economic crisis and pressure from consuming countries,” wrote researchers at the Center for Global Energy Studies, a London consulting group founded by Sheik Ahmed Zaki Yamani, a former Saudi oil minister. “The real danger is that a big cut will send prices soaring again, putting the global economy at even greater risk.”
Some producers may feel they have little choice. Many exporters have become used to high prices, which feed growing government and social budgets. The group’s 13 members earned $730 billion from oil and gas exports last year, up 12 percent from the previous year, according to OPEC statistics. This year they are on track to hit $1 trillion.
Not all oil producers are affected by falling prices in the same way. Iran and Venezuela, for example, need $95 a barrel to balance their budgets, according to various estimates. Both Nigeria and Iraq recently said they would reduce their budgets for next year because of lower prices.
Iran’s oil minister, Gholamhossein Nozari, has been among the most vocal proponents of an aggressive reduction in output, suggesting OPEC may have to cut production by as much as 2.5 million barrels a day. “The era of cheap oil is finished,” he told reporters in Tehran on Tuesday.
His comments came as Iran, Russia and Qatar discussed the creation of an OPEC-like group for natural gas exports, according to Reuters. The three countries, the biggest holders of gas reserves, will form a “big gas troika” that will meet each quarter, according to Alexei Miller, the chief executive of Gazprom, Russia’s state-owned natural gas giant.
Even conservative oil producers allied with the United States, like Saudi Arabia, may take the view at Friday’s meeting that prices have fallen too much. In the absence of an official price target, Saudi experts estimate the kingdom needs oil at $50 to $55 a barrel to balance its budget. A production cut would be a major turnaround for the Saudis, who have recently been pumping full out and had been eager to see oil prices fall below $100 a barrel.
Outside of OPEC, producers like Russia are also threatened by a prolonged period of lower prices. Last month, the Russian government sent a high-level delegation to attend an OPEC meeting as observers, a sign that Moscow is anxious.
“OPEC will have to act like a cartel for the first time in six years if they want to stabilize the markets,” said Lawrence Goldstein, an energy economist. “The problem is they’ve been fairly ineffective as a cartel. But they are good at crisis management. And this is a crisis for them.”
Growing panic over an imminent global recession sent Asian stocks plummeting today and pushed the price of oil down to a 16-month low amid signs that demand for crude is falling.
Japan's Nikkei index plunged by 7 per cent in early trading, after shares on Wall Street last night closed down 514.45 points, but regained some ground in the afternoon to end the day down 2.5 per cent at 8,460.98.
As well as the onset of a recession in the world's leading economies, investors have been spooked by poor results from their largest companies, which was chiefly responsible for the steep 5.6 per cent on America's Dow Jones industrial index.
This morning, Sony, the Japanese electronics giant, issued a profits warning and cut its expectations for the year by 57 per cent after its export business was hit by the stronger yen and falling demand for its products.
Stock markets across Hong Kong, South Korea and Australia also registered heavy losses. Yesterday, the White House called an emergency summit of the world's key economies for November 15.
World leaders and finance ministers from the G20 — the Group of Seven leading Western economies and the most important emerging market nations, including China and Russia — will gather in Washington, 11 days after the US presidential election, to debate further worldwide action to tackle the worst effects of the still increasing crisis.
Fears of falling demand also sent oil prices down overnight.
Brent crude tumbled by more than $5 to $64.70 a barrel while the price of oil in the US fell by $5.52 to $66.66, the lowest price since June last year and 55 per cent below the $147 peak reached in July this year.
Opec, the cartel responsible for 40 per cent of the world's oil production, is due to meet tomorrow to decide whether to cut supply in an effort to keep prices buoyant.
However, if prices continue to fall, it could boost UK consumers' budgets since Britain's leading supermarkets this week introduced further cuts to a litre of unleaded petrol as Gordon Brown ordered retailers to pass on falling costs to customers.
Yesterday, the Prime Minister said that recession in the UK was now likely, echoing remarks made by Mervyn King, Governor of the Bank of England, whose stark warning on the state of the UK economy sent the pound tumbling to a five-year low.
This morning, sterling fell again against the dollar to $1.6295 from yesterday's close of $1.6334, while shaken investors continued to pile into the relative safety of the greenback.
MOSCOW (Reuters) – Russia could become a swing producer to influence global prices, the country's top energy official said on Wednesday as OPEC's Secretary General met with a Russian president for the first time.
The resurrection of a decade-old idea of a big oil reserve comes as another sign of Russia's growing ties with OPEC, which has unnerved global consumers already worried by talks between Russia, Iran and Qatar to create an OPEC-style gas group.
"The Ministry of Energy is considering creating an oil production reserve, which would allow it to work more efficiently with prices on the market," said Russian Deputy Prime Minister Igor Sechin, who oversees the energy sector.
Asked how big the reserve should be, Sechin told reporters: "Enough to reach efficient pricing parameters."
Russia is the biggest oil producer outside OPEC and the world's second-largest exporter after Saudi Arabia.
OPEC Secretary General Abdullah al-Badri, who arrived in Moscow on Tuesday for a two-day trip, met with Russian President Dmitry Medvedev to discuss the exchange of market data.
"The reason (for this meeting) is absolutely obvious," state television channel Vesti 24 showed Medvedev as saying after the two met just outside of Moscow on Wednesday.
"Russia is also a major producer and exporter of oil and is interested in maintaining stable, predictable prices."
Badri said he liked the reserve idea. "Russian reserves can help global oil shortages ... This idea is good. It is a technical matter. We will have to discuss it," he said before meeting the Russian president.
Badri told journalists he was not interested in asking Russia for a cut in production.
Some top OPEC officials have this week called on Russia and other non-member states to join OPEC in cutting production. The organization will hold an extraordinary meeting on Friday and is widely expected to reduce its deliveries to global markets.
Badri had said no non-member observers, including Russia, would be able to attend the meeting.
Moscow agreed to reduce exports several times earlier this decade in tandem with OPEC, but analysts said the pledge never materialized as private companies raised shipments instead.
Russia has long toyed with the idea of an oil reserve, which could allow it to become a swing producer. But the expensive and logistically difficult plan was never implemented as the government and private companies failed to reach a compromise.
The current oil production scheme in Russia does not allow the country to change its flows significantly as any well shut down in Siberia usually leads to its costly repair.
The head of the International Energy Agency (IEA), attending the same industry conference as Badri, said he was worried by Russia's production outlook as the country heads this year for its first annual output decline in a decade.
"We see worrying signs in some producing countries, including Russia, in the ability to invest enough to meet demand," IEA Executive Director Nobuo Tanaka said.
"We see Russian supply growth slowing, with all projects declining in production over the next decade. Further government incentives would be welcome to increase production," he said.
Russian oil firms have called on the government to ease taxes and slash export duties in November, one month earlier than planned, because of a steep price decline this month.
Sechin said the idea was being discussed but no decision had yet been taken.
Cape Town, South Africa - The petroleum potential of Africa, a key contributor of oil barrels to thirsty markets, is beginning to look dimmer because of the credit crunch and a host of endemic challenges.
Certainly, Big Oil's continental land grab will continue. Countries such as Angola and those around the Gulf of Guinea continue to lease tantalizing exploration blocks in the deep waters off the Atlantic coast. That region has been the hottest play in a scramble that has doubled the acreage under exploration licenses in sub-Saharan Africa to an area 10 times the size of France in the past three years.
But the astronomical costs involved in developing those fields, combined with escalating violence in the oil-rich Niger Delta, the relatively short life span of West Africa's producing basins, unpredictable market prices, and an expected culling of cash-poor small players means Africa's days as a reliable supplier of additional oil may be numbered.
"We have benefited from additional oil volumes from Africa, but given the production profile of offshore fields, we need to see significant new discoveries to sustain that trend," says Fatih Birol, chief economist for the International Energy Agency in Paris. "It's not clear that will happen."
Declining production will deprive a host of developing nations of sorely needed revenue. For countries such as Nigeria and Angola, oil exports account for the vast majority of government revenue and foreign-exchange earnings.
The continent is responsible for about 12% of global oil production of around 85 million barrels a day. But Africa's contribution has been crucial to tight oil markets given the continuing slide in production in non-OPEC countries such as Russia and Mexico. The IEA expects non-OPEC producers will add new supplies of just 150,000 barrels a day this year, down from the agency's original expectations of around one million barrels a day. Other analysts say non-OPEC supplies could actually fall this year.
For big state-owned and private oil companies, Africa has played an outsized role. It is responsible for adding nearly a quarter of the globe's total increase in reserves over the past decade. That has been a boon for companies such as Royal Dutch Shell PLC, Exxon Mobil Corp. and Total SA, all of which have struggled to replace reserves on their books. Outside Africa, big new discoveries have proved elusive and host countries are tightening terms.
Africa's crude is highly prized by refiners in Europe and North America because it yields far more lucrative refined products than oil from the Middle East. Even before the credit crunch took hold, experts had been warning of challenges to maintaining Africa's upward trend in production, particularly in sub-Saharan Africa and the continent's two OPEC members, Nigeria and Angola.
Consultancy Wood Mackenzie sees production in West Africa beginning to fall as soon as 2013. PFC Energy in Washington estimates that trend could take hold after 2014 when West African production peaks at 7.1 million barrels a day, compared with the current 5.8 million barrels a day.
But even those modest gains could prove to be elusive. In Nigeria, which competes with Angola to be Africa's largest producer, deepening rebel and criminal violence targeting Western oil companies in the oil-rich Niger Delta is severely crimping supply. Nigerian Foreign Minister Ojo Maduekwe said last week Nigeria currently was producing just 1.5 million barrels of oil a day. That surprised observers who had pegged Nigerian production at closer to two million barrels a day.
The violence is also driving up costs. Chief Tunde Afolabi, chief executive of Nigerian oil company Amni International, says his production costs in the delta are 250% higher than those offshore once he factors in security outlays and kidnapping insurance for his employees.
The credit crisis and the falling price of oil will only deepen the Nigerian state oil company's chronic funding shortfalls. Nigeria is supposed to contribute roughly $60 billion in oil-development costs in the 2008 to 2012 period, its share of funding of joint projects with international oil companies. It will need to borrow more than half that amount -- no mean feat in current conditions.
In Angola, China's largest single oil supplier, oil production recently fell to around 1.7 million barrels a day from a high about two million barrels a day earlier this year, the country's oil minister said last week, blaming an accident in one offshore block. Such supply pinches may be transitory as new fields come on line, but they highlight the region's production challenges.
Geology and project economics are a longer-term concern. The nature of oil reservoirs in West Africa's key offshore fields means production peaks quickly. Major oil companies have a financial incentive to pump oil fast, and that speeds decline rates and shortens a field's life.
"The major oil companies want a quick ramp-up in those fields" to recoup their massive development costs, says David Kirsch of PFC. "One reason Angola joined OPEC was to give it some leverage in managing that." The Organization of Petroleum Exporting Countries assigns its members production quotas.
Africa's hundreds of smaller explorers -- known as chongololos after the continent's scavenging millipedes -- have been aggressive in picking up the scraps left by big oil companies and pushing into frontier regions.
But again, the global credit crunch is making the road to developing those plays much tougher.
Tullow Oil of the U.K. has been extremely successful with large oil finds offshore Ghana and on the Ugandan side of Lake Albert. But getting Uganda's oil to market will require construction of a 750-mile pipeline to Mombasa on the Kenyan coast. Company Chairman Aidan Heavey says that effort pays only if oil is found in sufficient quantities and if benchmark prices stay above $80 a barrel. The price of oil fell $3.36 a barrel, or 4.5%, to $70.89 in Tuesday trading.
While he and other larger independent companies sitting on solid African prospects are likely to ride out the storm, others won't be so lucky. "This is a tough time for small companies that don't have production [to generate cash]," says Stewart Williams, senior analyst for sub-Saharan energy research at Wood Mackenzie. "Many will have trouble funding drilling programs."
BEIJING: China will build a further 150,000 km (93,000 miles) of oil and gas pipelines in the next 12 years, the official Xinhua news agency said on Sunday, as the energy-hungry nation looks to guarantee supplies.
China has already built pipelines to bring gas from its far western region of Xinjiang to its booming coast, and is also considering a crude oil and gas pipeline from Russia.
"In the next 12 years, China will build another 150,000 km of pipelines," Xinhua said in a brief report, without giving further details.
Separately, Xinhua said that the country's largest open-pit coal mine, in the northern region of Inner Mongolia, is ready to open.
The 7 billion yuan ($1.02 billion) project is run by Shenhua Group, China's top coal producer, and has about 1.73 billion tonnes of coal reserves, the report said.
"Its estimated coal output was forecast at 7 million tonnes in the fourth quarter this year, but the company didn't specify the exact date when the mine would be put into production," Xinhua added.
Nigeria’s government is to pass new laws to overhaul the country’s oil and gas sector before the end of the year, ramping up the pace of reform in spite of fears among Western majors that the changes could cost billions in profits.
Umaru Yar’Adua, the president, hopes the new law will form the foundation for a revival of an industry where attacks on pipelines and constraints on investment have fuelled a growing sense of crisis among energy companies.
But executives from Nigeria’s biggest producers – which include ExxonMobil, Royal Dutch Shell, Total and Chevron – said the proposed new terms were so stringent that they risked deterring investment rather than encouraging it.
Emmanuel Egbogah, a senior adviser to the president, said the proposed legislation would soon be submitted to the National Assembly for approval.
“I believe the passage will be very, very speedy,” Mr Egbogah told the Financial Times.
“For the first time the Nigerian petroleum industry will be able to reach its full potential.”
The overhaul has, however, created fresh uncertainty in one of the few frontiers open to Western majors that still has huge untapped reserves. Oil companies complain that a slowdown in decision-making at the Nigerian National Petroleum Corporation, the state oil company, has reduced the pace of new developments to a crawl.
Key proposals of the Nigerian oil industry bill include:
● Measures to ensure the government increases its take from a growing number of deep-water developments.
● Review of the royalties on gas production.
● Increasing the tax take from gas by creating a new fiscal regime separate from rules governing oil.
● Changes to the way tax breaks are applied for new developments.
● Oil companies will be encouraged to refine at least 50 per cent of their production in Nigeria by the end of the decade.
● New rules to boost employment of Nigerians in the oil industry.
● Incentives to encourage development of marginal fields.
● Improved community programmes in the Niger Delta.
The 175-page Petroleum Industry Bill, seen by the FT, aims to inject new vigour into the NNPC by reforming its opaque, octopus-like structure to create discrete units to handle tasks such as exploration and production, regulation and research.
The committee that drafted the bill, chaired by Rilwanu Lukman, the former Opec secretary-general, also tried to ensure that Nigeria wins a greater share of profits from huge deepwater fields, and its growing industry for exporting Liquefied Natural Gas to the US and Europe.
The central plank of the reform strategy is to restructure joint ventures between the NNPC and Western majors to allow them to raise private capital, rather than rely on a notoriously unreliable annual injection of cash from Nigeria’s government.
The lack of investment is slowly strangling hopes that Nigeria will be able to raise production much beyond this year’s levels – estimated to have ranged from 1.5m b/d to about 2m b/d – compared with closer to 2.5m b/d in 2005.
The new bill says the reform of the joint ventures will take effect a year after it is passed, although analysts said the complex task of re-engineering the businesses – which account for the bulk of Nigeria’s oil production – could take much longer.
The global financial crisis, which has made banks more averse to risk, has also raised a question mark over the kinds of terms for financing multibillion oil ventures that Nigeria may ultimately attract.
Falling oil prices may also undermine the government’s leverage in its push to enact the reforms.
As the secretary-general of Opec flew into Moscow yesterday to talk about oil, Alexei Miller, the chairman of Gazprom, was jetting out of Tehran after concluding talks about gas with Iran and Qatar.
We need not worry that Russia is about to join the oily club. Today's visit by Abdullah al-Badri is a formality, but the talk of a gas cartel is a different matter. A combination of leading gas exporters, no matter how tentative, could pose a serious economic threat to Europe. We should first discount the hoopla from Gholam Hossein Nozari, the Iranian Oil Minister, who proclaimed yesterday that the talks between Russia, Iran and Qatar had reached “a consensus to set up a gas Opec”.
No such thing is likely - we can forget any notion of horse-trading gas production quotas — but what we can expect, and what we ought to fear, is the exchange of information about prices, development schedules and investment plans. Mr Miller said as much: “We have agreed to hold regular — three or four times per year — meetings of the 'big gas troika' to discuss key issues of gas market developments.”
If European steel, cement or chemical companies exchanged such information, they could expect colossal fines and the imprisonment of their directors. The point is that the information is vital for a nascent industry that is constantly in fear of price wars and market collapses.
Russia, Iran and Qatar are the world's top dogs in gas, accounting for 56 per cent of the world's known reserves, according to the BP Statistical Review of World Energy 2008. Russia is already the world's leading exporter, but Qatar is in the throes of development and Iran has barely tapped its potential. So chaotic is the Islamic Republic's energy infrastructure, and so hamstrung by American sanctions, it is forced to import gas from Turkmenistan.
Iran would like to be a big gas exporter and Mr Miller's presence at the talks in Tehran is recognition by a key player that Iran will not remain a bystander for long. Qatar is about to launch a winter convoy of vessels laden with liquefied natural gas (LNG), destined for the UK. Iran wants to export gas to Europe via the proposed Nabucco pipeline through Turkey and the Balkans; yet so far, hunger for gas has not been sufficient for European states to sign up Iran and risk the outrage of Washington.
Sooner rather than later, the European Union will snub Washington and Iranian gas will move west, threatening Russian hegemony. Gazprom commands a quarter of the European market. It has tied the big Western utilities E.ON, RWE, Gaz de France, OMV, of Austria, and Eni, of Italy, to its apron with big contracts. There is competition from Norway and Algeria, but North Sea gas is dwindling and the main threat facing Russia's desire to defend and extend its market reach is the trade in seaborne LNG and pipelines from the Middle East.
The notion of a gas exporters' club has been rumbling for years within the Gas Exporting Countries Forum. Promoted mainly by Iran, the idea garnered little support. Gas is an illiquid market, it was argued, sold mainly under long-term contracts and shipped via pipeline to a single customer. Until recently, there was little secondary trading in gas and no international price benchmark.
The expanding trade in LNG has changed everything. Cargoes of gas are sold en route and there is an arbitrage trade in North Atlantic gas as ships bound from North Africa to Europe can be diverted to US ports or vice versa. Russia fears that its strategy of enlarging and tightening its grip on its core market could weaken if Qatar, Iran and perhaps Iraq compete for Europe's gas markets. In Russia's nightmare, a business of old dependent relationships would become a squabble for short-term profits.
Russia desperately needs that regular cashflow from Europe - the budget depends on a $70 oil price and the evidence lies in the financial crisis in Moscow. The oil money made possible a half-trillion-dollar hoard that is being tapped to prop up a shaky banking system. Already, a tenth of the pot has been spent propping up distressed banks and businesses. Without the oil and gas cash, wisely saved by Alexei Kudrin, the Finance Minister, we would not be witnessing a rescue but a repeat of the 1998 financial collapse.
Instead, it will probably ride through this whirlwind undamaged, but Russia's long-term health still depends on adequate oil and gas revenues. We should not, therefore, be surprised to hear of more huddles between the gassy troika in the Gulf.
Britain now has enough offshore wind farms to provide power to 300,000 homes, an energy conference has heard.
The completion of the latest wind farms off the Lincolnshire coast has taken the industry past the 3 gigawatts capacity mark.
Total wind capacity from onshore and wind farms at sea is enough to provide power for the equivalent of 1.5m homes, the British Wind Energy conference was told.
In a special video message played at the London conference Gordon Brown said Britain had the best wind and wave resources in Europe and had now overtaken Denmark as the largest producer of offshore wind in the world.
He said over the next 12 years the North Sea would become to offshore wind what the Gulf of Arabia is to oil production.
The Prime Minister also pledged that the economic crisis wouldn't derail Government plans for cleaner and cheaper forms of energy.
"You may have heard some people say that these difficult economic times should or will reduce the Government's commitment to building a low carbon economy. They should not and will not," he said.
"On the contrary, the investment and jobs we will create from our commitment to low carbon energy is one of the drivers that will bring us new prosperity."
Within the next decade offshore wind farms in Europe will be producing 40GW of power and about 50 per cent of the total will be in British waters.
Mr Brown told the conference that there was a potential £100bn market for renewable energy which would create huge opportunities and create 160,000 jobs.
The Crown Estate, holder of the Queen's property, has helped trigger a resurgence of interest for wind projects in the deep waters off Britain by promising to invest in projects at a time when schemes are struggling in the face of planning delays and other problems.
The decision by the Crown Estate to pay up to half of all pre-construction development costs has brought a huge surge in applications for the latest round of licensing, with almost 100 companies wanting to build wind farms far into the North Sea.
"The Crown Estate offering to be a development partner takes away much of the cost and uncertainty with third-round projects, which is why we have seen so much interest in the latest licensing round," said Adam Bruce, chairman of the British Wind Energy Association, on the eve of its annual conference to be opened by Gordon Brown today.
The organisation has also showed its willingness to be at the forefront of the battle against climate change recently by agreeing to buy the world's biggest wind turbine, the 7.5-megawatt Clipper Windpower MBE prototype, codenamed Project Britannia. The turbine, said to be powerful enough to provide power for 5,500 homes, is under construction in Blyth, Northumberland, and will be towed out and erected in the North Sea.
Although deep-water projects are expensive, they could be far more efficient because they could utilise larger turbines and take advantage of stronger prevailing winds, said Bruce. "Unlike onshore wind schemes, the operator is also only dealing with one planning regime and one landlord in the Crown Estate, which is now offering to be a partner."
The organisation, which has responsibility for licensing the seabed up to 200 miles out for renewable projects, will help pay for the cost of undertaking studies on what impact plans would have on shipping and marine life. The cost of doing that will later be clawed back from revenues once the wind turbines are turning.
Ninety-six companies expressed their interest by last month in becoming involved in the third licensing round, far more than in previous rounds. The Crown Estate is considering the offers and will make a firm decision on who will win the chance to proceed with schemes on 11 favoured zones.
A spokeswoman for the Crown Estate said the response to the licensing round had "greatly exceeded our expectations". The body, which owns parts of Regent Street as well as 55% of Britain's foreshore, traces its history back to George III, who swapped much of his land for a fixed income from the Treasury. It is independent of the monarch and the government.
The interest in deep-water projects is a welcome boost for the industry, which is still hobbled by problems that ministers have endlessly promised to sort out.
A new planning bill is meant to streamline projects but the BWEA pointed out yesterday in a new review that half of the seven gigawatts of wind capacity stuck in the planning system is located in Scotland and not covered by the legislation and a further 3.5GW is represented by schemes below a 50-megawatt threshold.
There are still difficulties with the ministry of defence and the aviation sector over the alleged threat to radar coverage posed by wind turbines. The government has again promised to bang heads together to prevent this delaying schemes but problems remain.
"It is currently not possible to quantify the risk to a project from an aviation perspective," says the BWEA. "The objections cannot be easily predicted, and a pre-planning statement of no objection is not always valid through the planning process."
The prime minister will reiterate his determination to clear any logjams and ensure wind farming reaches its potential. Brown will say that his decision to create a new self-standing energy and climate change department is proof of how seriously he takes global warming and energy security.
The Carbon Trust will today announce that it has reached agreement with five major energy companies under which £30m will be invested in finding ways to reduce the cost of offshore wind by at least 10%.
Airtricity, ScottishPower Renewables and StatoilHydro will work with RWE Innogy and Dong Energy to research and develop ways of cutting costs and improving efficiency at wind farms at a time of mounting concern that rising costs are chasing investors away from renewables.
The move comes only days after the Carbon Trust, an organisation established by government to help speed up the introduction of clean energy, published a report showing that the government would fail to meet its offshore-wind goals unless a variety of measures were introduced. Among the proposals was that permission be given to develop a new generation of wind farms much closer to shore.
ROYAL DUTCH SHELL completed its withdrawal from the UK wind-energy sector after quietly selling out of the last project it had in this country.
The oil giant recently agreed to sell its stake in the £800m Cirrus Shell Flat Array, a 270MW project off the Blackpool coast, to partners Scottish Power and Dong Energy.
Its exit, three months after it walked away from the world’s largest proposed offshore wind farm, the London Array, will raise questions about the government’s ambitious wind-energy targets.
The decision will also anger environmentalists already critical of Shell’s push into dirty-fuel sources such as Canada’s tar sands.
Shell said: “Our focus for new projects is North America. We are committed to wind projects that make economic sense.”
The world's biggest publicly funded project to make transport fuels from algae will be launched today by a government agency which develops low-carbon technologies.
The Carbon Trust will today announce a project to make algal biofuels a commercial reality by 2020. The plan could see up to £26m spent on developing the technology and infrastructure to ensure that algal biofuels replace a signficant proportion of the fossil fuels used by UK drivers.
Mark Williamson, innovations director at the Carbon Trust, said: "We must find a cost-effective and sustainable alternative to oil for our cars and planes if we are to deliver the deep cuts in carbon emissions necessary to tackle climate change. Algae could provide a significant part of the answer and represents a multibillion-pound opportunity."
Transport accounts for one-quarter of the UK's carbon emissions and is the fastest growing sector. Finding carbon-neutral fuels will be crucial to the government meeting its target to reduce overall emissions by 80% by 2050.
A recent review by the chairman of the Renewable Fuels Agency, Ed Gallagher, identified algae as a potential way to generate sustainable biofuels. Biofuels made from food crops have been blamed for rising food prices.
Algae produce a range of chemicals depending on their species and the environmental conditions in which they grow. View how the process works here. Scientists hope to find strains that can produce oils that could be used to make fuel for cars, as a replacement for petrol and diesel. Once identified, these algae could be grown in large amounts and processed to extract the useful oils.
John Loughhead, executive director of the UK Energy Research Council, said: "Algae are potentially attractive means to harvest solar energy: they reproduce themselves, so there's no manufacturing cost for the solar converter, they can live in areas not useful for food or similar productive use, they don't need clean or even fresh water so don't add to global water stress, and can give oils, biomass, or even hydrogen as a product. Perhaps they'll be the stem cells of the energy world."
The Carbon Trust forecasts that algae-based biofuels could replace more than 70 billion litres of fossil fuels used every year around the world in road transport and aviation by 2030, equivalent to 12% of annual global jet fuel consumption or 6% of road transport diesel. In carbon terms, this equates to an annual saving of more than 160m tonnes of CO2 globally with a market value of more than £15bn.
For the first stage of the project, the Carbon Trust will spend up to £6m in a range of British companies involved in promising algae research. "You can make algae with a very high oil content and you can make algae that grows very quickly and, at the moment, no one can do both," said Robert Trezona, R&D director at the Carbon Trust. Other problems include the best design of mass-culture systems.
John Benneman, a consultant on algae who has worked with the US Department of Energy and the International Energy Agency, said that it would take a multitude of approaches to fully realise the potential of algae. "There are many more different algae species than there are higher plant species so each algae will require specific effort. Each one will have its own peculiar requirements to figure out how to make them productive, how to get the right strains, how to harvest and process them. We cannot just depend on one or two companies."
The second phase of the project will start in around a year and involves scaling up the algae-growing operation. The Carbon Trust will build multi-hectare open ponds to act as laboratories for the most promising algae technologies identified in the early stages of the challenge. Due to the UK's gloomy weather, these will most likely be built abroad.
"If you I've got 12 months a year of warmth and sunshine, your algae farm just produces much more biomass. In a world where costs will be important, UK algae farms would have a real problem," said Trezona. This phase of the project could see the Carbon Trust, and interested partners from industry, investing up to £20m.
Loughhead welcomed the Carbon Trust project. "The critical aspect is that algae convert the energy of sunlight and the efficiency with which they do that determines the economic viability of the whole approach as sunlight is unhelpfully low in energy density. Hopefully this Carbon Trust scheme will help gather information on how well that can be done now, and start the scientific development to improve it for the future."
There have been major efforts in the past to develop biofuels from algae. Multimillion-dollar programmes funded by the US government in the 1980s found that high biomass yields were possible but research ended when no one found a way to make it commercially competitive with the low oil prices of that era. Work in Japan also faltered when researchers were unable to scale up the growth of algae in photobioreactors, closed vessels that provide plenty of light and conditions that could intensively grow the microorganisms. To date, no one has designed a system that has made it to market.
But the Carbon Trust believes that interest in algae has been renewed, thanks to the recent increases in oil prices and public awareness of climate change.
Transport minister Andrew Adonis said: "This project demonstrates our commitment to ensuring that second generation biofuels are truly sustainable — and will further our understanding of the potential for microalgae to be refined for use in renewable transport fuel development, to help reduce carbon dioxide emissions."
Several companies around the world are already involved in making fuels from algae, with one of the most prominent the San Diego-based company Sapphire Energy. Sapphire plans to use genetically modified algae to produce a chemical mixture from which it is possible to extract what it calls "green crude". Their idea is to refine this mixture into fuel for cars and airplanes. Investors include the UK's Wellcome Trust and the company has so far raised $100m to develop its ideas.
Loughhead added that another potential benefit of algae is its ability to remove CO2 from the air. "Although here they will re-emit it when used as fuels, there is the possibility that they could ultimately be used as a means of cleaning the atmosphere — if we can find a way of converting the algae to a safely storable form after they've grown."
The global downturn could scupper plans for a landmark "son of Kyoto" deal to combat climate change, green campaigners have warned.
The warning came after the European Union's ambitious plans to combat climate change were left in disarray at the close of its summit in Brussels yesterday. Some member states are calling for the programme to be watered down on the grounds that it cannot be afforded in a downturn.
Sharp divisions over whether or not the EU's flagship goal to cut carbon emissions by 20 per cent by 2020 can be afforded in a downturn forced the Brussels summit to put off a decision on a route map for achieving it.
Environmentalists fear the deadlock in the EU could cast a shadow over crucial United Nations-led talks in Copenhagen next year on a new agreement to combat global warming. Until now, the EU has been at the forefront of efforts to tackle the problem. But if it cannot implement its own policy, it would ease the pressure on other countries to act. It would also reduce the EU's voice in the talks, leaving the main players as America, under a new president, and China.
"The whole world is looking to Europe for leadership on the issue," said Joris Den Blanken, a spokesman for Greenpeace's European unit. "It is very important that Europe is at the table." He accused some EU nations of using the downturn as an "excuse" to reopen its decision to cut emissions.
Robin Webster, Friends of the Earth's climate campaigner, said: "The EU must continue to resist short-sighted efforts to wreck its plans for tackling climate change – urgent action is essential to safeguard our economy and our environment. Even ambitious climate change plans are likely to cost less than 1 per cent of member states' GDP. Delaying action will increase the devastation caused by climate change and the costs associated with this will make this figure seem like small change."
And Caroline Lucas, a British Green Party MEP, said: "This à la carte approach to the various demands of the member states will rip all substance out of the climate package, leaving the EU with an empty shell of legislation which makes a mockery of its supposed 'global leadership' going into the international negotiations."
Although EU leaders reaffirmed their 2020 goal, diplomats said it would be a huge struggle to reach agreement by the EU's December deadline on how the target would be hit. Poland and six other eastern European nations who depend heavily on coal are demanding more of the burden be taken on by richer member states such as Britain, France and Germany. Some want the 20 per cent cut to be based on emissions in 1999, rather than 2005 as planned, to ease pressure on industry.
The Poles threatened to veto an EU-wide agreement unless they win major concessions by the next EU summit in December. "We want a package that will be tolerable for the poorer member states," said Donald Tusk, the Polish Prime Minister. Jacek Rostowski, the Polish Finance Minister, said: "The climate change [policy] has to be accepted by unanimity, and the implications of that should be clear to all."
Hungary, Bulgaria, Latvia, Lithuania, Romania and Slovakia also called for a rethink. In a joint statement with Poland, they said that at a time of "serious economic and financial uncertainties", the package had to be reconciled with economic growth. For less affluent EU nations, reducing greenhouse gases has been achieved at "a very high social and economic cost", they said.
Silvio Berlusconi, the Italian Prime Minister, also voiced concern, saying the EU plan would put Europe at a disadvantage to China and the United States. "Our businesses are in absolutely no position at the moment to absorb the costs of the regulations that have been proposed," he said.
The difficult task of avoiding failure in December now falls to Nicolas Sarkozy, the French President, whose country holds the EU presidency. Yesterday, he insisted: "The objectives remain unchanged, the calendar remains the same. The deadline on climate change is so important that we cannot use the financial and economic crisis as a pretext for dropping it."
Britain is standing by the original plans agreed by the EU last year. David Miliband, the Foreign Secretary, admitted some member states were having "buyer's remorse", but insisted: "There has been no step back. There will be no going back. We will ensure that Europe hits its 20 per cent target."
In a concession to the doubters, the summit agreed that the talks on the route map would have "regard to each member state's specific situation" and produce a package that is "cost effective". Jose Manuel Barroso, the president of the European Commission, said: "We are not going to let up on the battle against climate change."
A global green 'New Deal' is needed to transform the world's economies, according to a new UN report.
It would be similar to Franklin D Roosevelt's New Deal which helped the US recover from the Great Depression of the 1930s.
But it would be aimed at a fundamental restructuring of economies weaning away dependence on oil and towards cleaner and more sustainable sources of energy.
The Green Economy Initiative from the UN Environment Programme (UNEP) calls for global economies which invest in better care and management of the Earth's natural resources such as rainforests and oceans.
Rather than more boom and bust cycles and the continued asset stripping of dwindling resources, the new green system would nurture and re-invest in them.
It would refocus the global economy, create growth, trigger a 21st century employment boom and at the same time combat climate change, it is claimed.
Launching the report in London Achim Steiner, UNEP executive director, said the worldwide financial crisis had created an historic opportunity to replace a system which had seen the world's GDP double between 1981-2005 but which had resulted in 60 per cent of the Earth's ecosystem being degraded while 2.6bn people were still living on less than $2 per day.
He said the financial, food and fuel crises of 2008 had been caused by speculation and a failure by governments to regulate markets but they were also part of a wider market failure which was eating away the world's natural resources.
The system was also over-reliant on a finite amount of fossil fuels - coal, oil and gas - which were often subsidised.
"The flip side of the coin is the enormous economic, social and environmental benefits likely to arise from combating climate change and reinvesting in natural infrastructure - benefits ranging from new green jobs in clean teach and clean energy businesses up to ones in sustainable agriculture and conservation-based enterprises," he said.
Mr Steiner said that even though the world's focus was on the financial crisis, the pressing problems of food, fuel, energy and especially climate change had not altered and the world had no alternative but to reach a deal at the climate conference in Copenhagen next year.
"We need to accelerate towards a green economy. We are talking about nothing less than the transformation of our economies in effect a global green New Deal," he said.
"There will be challenges in bringing about this transformation but there are enormous opportunities and potential and it pays us to do so but governments need to change the signals about how the markets work."
The report has identified six keys areas which would underpin the New Deal:
*Clean energy, cleaner technologies including recycling
* Rural energy including renewables and sustainable biomass
*Reduced emissions from deforestation and degradation.
*Sustainable cities including planning, transport and buildings.
Pavan Sukdhev, a banker seconded to UNEP, who is leading an attempt to draw up an 'inventory' of the Earth's resources and what they are worth, said current economic models were now at the limit of what they could deliver.
"Investments will soon be pouring back into the global economy - the question is whether they go into the old, extractive short-term economy of yesterday or a new green economy that will deal with multiple challenges while generating multiple economic opportunities for the poor and the well-off alike."
The UNEP is developing a tool-kit for transforming economies which it will deliver to governments within the next two years.
The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.
Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not, however, know how deep or protracted it will be.
The focus of concern is shifting from the markets – although these remain dangerously stressed – to the wider economy, where the consumer finally appears to be cracking.
The Fed and Treasury were expecting the economy to weaken but not as rapidly as it has, with collapsing consumer confidence, falling home starts, slumping retail sales and falling industrial production.
“The actual deterioration in the data in the last few weeks has been much more severe than anyone was expecting,” said Frederic Mishkin, a professor at Columbia university and former Fed governor.
Consumers, who account for 72 per cent of the US economy, are pulling back amid a brutal tightening of credit conditions on everything from car loans to credit cards and home equity lines. Meanwhile, foreign demand is also weakening.
Alan Blinder, a professor at Princeton and former Fed vice-chairman, said: “It looks to me like the economy has fallen off a cliff.”
He said it was all but certain the US would face a recession worse than in 2001 or 1990-1991.
“The game is now about making sure this recession is less deep and less long than the 1982 recession.”
Many experts expect unemployment will soar from its current level of 6.1 per cent and worry it could go above 8 per cent.
The Fed now thinks that unemployment will rise above 7 per cent and is likely to peak at about 7.5 per cent – a level last seen in 1992.
“We may be talking about one of the most severe recessions in the post-war period,” said Larry Meyer, chairman of Macroeconomic Advisers and a former Fed governor.
This is in spite of the extraordinary measures taken to stabilise the banking system, which senior officials believe will gain traction in the weeks ahead.
Policymakers believe that as the markets become more comfortable with the new arrangements the credit freeze will gradually thaw. If it does not, they are grimly determined to return with still more force.
“We are moving in the right direction. The Europeans are moving as well, which is very important,” said Mr Mishkin. “But we won’t know whether it is enough until we see how the market responds. A lot of damage has been done already.”
The battle over the $700bn bail-out was very costly, he said. “People are really terrified and this has the potential to have a big impact on spending.”
The US entered the crisis with a very low savings rate – unlike, for instance, Japan in the 1990s – making it vulnerable to a sudden consumer retrenchment.
Many economists think the savings rate – which was 0.2 per cent this year before being temporarily lifted by a tax rebate – will rise to between 3 per cent and 4.5 per cent. The fall in the price of oil will accommodate part of this.
But if it happens over a few quarters – as seems increasingly likely, given the shock to wealth and extreme denial of credit – it would produce a deep, if not necessarily long-lasting, recession.
Rising unemployment threatens to deepen the housing slump, further depress mortgage debt and increase delinquencies on car loans, credit cards and other consumer loans.
Meanwhile economic weakness is likely to multiply corporate defaults, including private equity deals.
This second wave of losses for banks might prolong the credit crisis.
Some worry this could end in deflation. Senior Fed officials admit they cannot completely rule it out.
However, Fed simulations with even severe recessions do not result in falling core prices, due to the high initial level of inflation, firm expectations and a weak relationship between unemployment and prices.
Standard models suggest that the US central bank should cut rates further from 1.5 per cent to 1 per cent and possibly lower, and do so quickly.
Policymakers will probably end up doing this. But senior Fed officials are unenthusiastic, worrying that further rate cuts will not have much impact and this could weaken confidence further.
At best, they now see rate cuts as a secondary issue, compared with bank recapitalisation, asset purchases, borrowing guarantees and Fed commercial paper purchases.
Some believe even these actions might not be enough. Democrats in Congress are calling for a second fiscal stimulus to hold down unemployment.
China has fuelled fears over a global recession by warning that the financial crisis is damaging its economic growth, as South Korea became the latest government to launch a banking rescue.
Data released today showed that China's gross domestic product expanded by 9% in the third quarter of 2008, down from 10.1% for the second quarter. Although this is still extremely healthy compared with other major economies, it is below analyst expectations - and the first time GDP growth has dipped below 10% in almost three years.
China's government blamed the lower growth on the world economic slowdown, which means less demand for Chinese exports.
"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," said spokesman Li Xiaochao of the National Bureau of Statistics.
"All these factors have started to release their negative impact on China's economy."
After years of boom, there are signs that the Chinese economy may now be suffering from the fallout from the credit crunch. GDP growth has now slowed for the last five consecutive five quarters. The country is a huge consumer of raw materials, and last week Rio Tinto spooked the mining sector by warning that demand from China was slowing down.
Analysts believe that GDP growth will slow further in the fourth quarter, as the impact of the financial crisis bites.
"A gloomy outlook lies ahead after the third quarter, and concerns about the slowdown now outweigh concerns about inflation," said Chen Jinren, an analyst at Huatai Securities.
China's toymaking industry is under particular pressure, following a series of safety scares last year. Last week more than 6,000 employees lost their jobs when Smart Union, a major toy manufacturer in Dongguan, closed. It blamed a fall in demand from the US.
$100bn Korea move welcomed
Stockmarkets across Asia recorded gains overnight - after a week of volatility - as traders welcomed a $130bn bail-out (£74.32bn) of South Korea's banking sector.
Yesterday, the South Korea government announced it would take fresh action to support its banks; $30bn of fresh liquidity is on offer, plus loan guarantees totalling $100bn.
The move came just days after ratings agency Standard & Poor's put the country's five biggest banks on a ratings watch. S&P warned that they could struggle to repay foreign loans, as the South Korean won has fallen by a third against other currencies since January.
Finance minister Kang Man-soo told reporters in Seoul that the measures would "allay fears in the financial market," and "avoid placing domestic banks at a competitive disadvantage in terms of overseas funding".
The news sent the country's stockmarket, the Kospi, up by over 2% in late trading. Japan's Nikkei index closed 3.6% higher, recovering some of its recent losses.
But in a further sign that the crisis is far from over, ING has received a €10bn (£7.7bn) injection from the Dutch government to shore up its capital ratios. The bank denied it was in financial trouble, insisting that the recapitalising of UK and US banks meant it had to follow suit.
Airline traffic has fallen because of economic slowdown for the first time in 25 years, according to figures from the Association of European Airlines.
Overall traffic fell 1.1% in September, compared with the same month last year, while domestic traffic fell 12.4%.
Since the early 1980s, only the 11 September 2001 attacks, Sars and the Gulf Wars have caused such declines.
With European countries entering recession, traffic cannot be expected to recover quickly, the AEA said.
The association blamed the "toxic" combination of economic slowdown, declining business and consumer confidence, and fuel-driven price inflation for the fall.
Ulrich Schulte-Strathaus, general secretary of the AEA, said: "In terms of response to purely economic stimuli, these figures are the weakest our industry has seen for 25 years."
Cross-border European flights fell 1.1%, while total international flights were down 0.1%.
Alitalia, Italy's national airline that filed for bankruptcy protection in August, saw traffic fall 25%, more than any other carrier.
Spanair was down 21.1% and Icelandair was down 12.8%.
Some of Europe's biggest airlines fared slightly better. British Airways saw traffic fall by 5.1%, while Germany's Lufthansa saw its increase by 4.2%.
By far the best performing airline was the UK-based BMI, which saw traffic increase by 22.8%.
A stunning aspect of the current economic crisis is that most economists didn't see it coming and remain bewildered by its causes. Treasury Secretary Paulson said just over a year ago that the business environment was the best of his career.
Paul Greenstein wrote recently that the crisis struck with little forewarning, as if unleashed by a "secret signal" sent out in 2007 that slammed the economy with soaring energy and food costs, and the free-fall of housing prices.
The current economic crisis was indeed unanticipated by most economists, but the trigger may be hiding in plain sight - peak oil. Oil engineer M. King Hubbert predicted in 1956 that U. S. oil production would peak in 1970 and then decline.
He was right, and we have since depended mainly on foreign oil. Hubbert also predicted that peak global oil production would follow in 2000. Global oil production has been flat since May of 2005, when the current economic storm clouds began to gather.
Is peak oil that secret signal that eludes economists? They initially dismissed it as misinformed alarmism; economic theory holds that scarce oil will increase prices, stimulate exploration, enhance reserves, and reduce prices.
That's what happened in the U. S., creating a secondary oil production peak in 1980 - but the accelerated pumping of finite oil only hastened the subsequent decline of U. S. oil production.
I interviewed Hubbert in his Virginia home in the early 1980s, shortly before his death. An oil painting of Don Quixote graced his dining room wall.
But Hubbert was no Don Quixote; his prediction of peak oil is confirmed in 33 of the 48 largest oil producing countries, and is predicted in the remaining 15 countries within six years.
Global production is a simple sum of national production; peak oil has probably already occurred.
Peak oil can explain a lot about our current economic malaise. Oil supplies are static at peak production, meaning that the slightest increase in demand (China) or disruption of supply (hurricane Ike) makes price spike. Gasoline prices become volatile, but on the average climb relentlessly.
One-sixth of energy is used to produce and transport food, so energy price spikes elevate food price. Consumers must pay more for energy and food as high energy costs squeeze wages and the job market; therefore the largest single expense, housing, becomes harder to meet, contributing to foreclosures and the housing market meltdown. Sound familiar?
Economics of course goes in cycles. Oil and gasoline pices will go up and down - but on a rising baseline. And of course the current economic crisis has many facets.
Most economists see the bursting of the housing bubble as the cause, prompted by irresponsible lending and borrowing.
Then there is the second layer of the related financial crisis and credit crunch. But these may be the mere effects of a penultimate cause - peak oil.
This election cycle has seen no mention of peak oil, and little sensible discourse on energy policy. Senator McCain calls for drilling, coal, new nuclear plants, and energy independence.
Drilling will have virtually no impact on cumulative U. S. oil production, coal and nuclear plants generate electricity not gasoline, and energy independence is as illusory now as when first proclaimed decades ago by President Nixon.
Senator Obama calls for renewable energy and acknowledges the need to transform the American economy, but there is little evidence that he or any other politician appreciates the full dimensions of this transformation.
Its features are as clear now as they were three decades ago when I described them in The Seventh Year.
Steadily declining oil means steadily rising energy costs, which will drive a corresponding increase in the relative price of food, force more people to grow their own, fuel systemic inflation, erode consumer purchasing power, reduce the standard of living, stimulate bio-regionalism, motivate alternative energy and transportation, propel the decline of cities, increase rural immigration, shrink government and military budgets, and end materialism.
Alarmism or realism? Geology and history suggest the latter, but a soft landing remains within reach. Urgent conservation and efficiency can cut oil demand by half over the next few decades, and extraordinary economic opportunities beckon in renewable energy, a reinvented transportation industry, and in creating a sustainable agriculture and infrastructure.
What is not yet widely appreciated is that rehabilitation from our oil addiction will take 50 years. That is how long past transitions to new energy sources took because that's how long it takes to replace the infrastructure that produces and consumes energy.
The mission for the next U. S. administration: imagine and design the transition from abundant to scarce oil and natural resources, and take the first steps.
The mission for economists: stop resorting to secret signals to explain the current economic crisis, evaluate the implications of peak oil, and help navigate the transition. The mission for the rest of us: gird for the long haul as we begin the most exhilarating transition in recent human history.
W. Jackson Davis is a professor emeritus, University of California at Santa Cruz (Biology and Environmental Science); Professor Emeritus, Monterey Institute of International Studies (International Environmental Policy); and author of The Seventh Year: Industrial Civilization in Transition (New York: Norton, 1979).
The large rises in heating costs has pushed an extra 750,000 pensioners into fuel poverty – which means 2.6 million are now paying at least a tenth of their pension on fuel bills.
Last winter, figures from the Office for National Statistics showed there were 23,900 more deaths in England and Wales than the average for warmer months.
But after this year's price hikes, it is feared thousands more could perish as they try to save money.
And the report from ITV News warned that "if this winter is a colder than usual year that figure could rise even further".
Dr Stirling Howieson from the University of Strathclyde, who carried out the research for ITV News, said: "Even if they were to keep one room at the recommended level of 21 degrees, and yet let other rooms fall below the recommended minimum of 18 degrees, they could potentially be putting their health at risk."
People aged 60 and above are eligible for a winter-fuel payment form the Government to help with their heating bills.
The payment is £200 for the over 60s and £300 for the over 80s - although in this year's budget the Government announced a one-off additional payment of £50 for the over 60s and £100 for the over 80s.
But charities called on energy companies and the Government to take more action to ensure energy prices are affordable for the poorest pensioners.
This year has seen a 43p per cent increase in energy prices, with the joint gas and electricity bill rising from £913 to £1303 for an average household.
Gordon Lishman, director general of Age Concern, said: "Staying warm and well will be a big worry for many older people this winter.
"Price differences for pre-payment customers and those who pay by cash and cheque should be banned, and social tariffs should be a mandatory requirement to ensure the poorest households get the cheapest energy rates.s
"With millions of pensioners missing out on benefits, the Government must do much more to increase benefit take-up to help maximise the income of those struggling to make ends meet."
Ed Miliband, the new Secretary of State for Energy and Climate Change, is drawing up plans for a "big shift" in the way Britons heat and power their homes, The Independent on Sunday can reveal.
The plans – which are scheduled to be published at the end of next month – are expected to include tough targets for cutting energy use in the country's 26 million homes, notoriously the worst insulated in Europe, and generous incentives to make it easy for householders to meet them.
The drive has the full backing of the Prime Minister, who has decided that promoting energy saving should be a top priority for the Government because it will create employment, save families money as fuel prices rise, combat climate change and make it easier for Britain to achieve energy security.
Yesterday Mr Miliband, who is already shaking up his department's priorities in order to place much more emphasis on reducing demand for fuel, told the IoS: "Over time we need a big shift in the way we use and conserve energy and the Government must play a part in making this happen."
Senior officials will present him with the first draft of the plans on Wednesday, in the middle of the Government's official Energy Saving Week. They will focus on reducing energy wastage from Britain's housing stock, which is responsible for 27 per cent of the entire country's emissions of carbon dioxide.
Ministers have already laid down an ambitious programme for new housing, which requires all new homes to meet strict zero-carbon standards by 2016. But this only scratches the surface of the problem, which arises overwhelmingly from the leaky state of the country's s existing homes.
Last week Mr Miliband accepted a recommendation from the official Committee on Climate Change to increase Britain's target for reducing carbon dioxide emissions from 60 to 80 per cent by 2050.
But if the country is to have any chance of meeting this – the most radical commitment so far made by any nation in the world – it will have dramatically to improve the energy efficiency of existing homes, since 85 per cent of them are expected still to be in use by the middle of the century.
Gordon Brown took the first step towards achieving this last month by making cavity wall and loft insulation available half-price to every household – and free to the poor and to pensioners. Firms report a sharp increase in demand as a result. But he, and Mr Miliband, realise that further measures will be needed.
Among the initiatives that the new Energy Secretary is expected to adopt are:
Targets for reducing the amount of carbon dioxide emitted from British homes. Last week a report by the UK Green Building Council (UKGBC), partly funded by the Government, called for this to be "at least 80 per cent" by 2050. And it added that "interim targets" should be set for every five years between now and mid century, to ensure that the policy stays on track. The report says that "the scale of this challenge is somewhat daunting", but that there was a "consensus" that "it can be done", provided policies change. Certainly no lesser target has a chance of doing the job.
New ways to enable people to fund the improvements needed to make their homes energy efficient. Most energy-saving measures more than pay for themselves over time, but most families still find it hard to find the initial sum of money needed to buy equipment and install it.
The UKGBC report suggests that the Government, banks or the energy companies should offer 100 per cent, interest-free loans that could be repaid through local taxes, the energy bill or the mortgage. One imaginative idea is that householders should pay back a proportion of the money they actually save on fuel bills from making the improvement, keeping the rest as an incentive. But the loan would have to be tied to the property not the individual, staying in place when a home changed hands.
Other financial incentives could include reducing the rate of VAT charged on home improvements and offering rebates of council tax, income tax or stamp duty to owners of energy efficient homes.
Much better advice and information to householders on how to make their homes more energy efficient. A wide consultation by the UKGBC found that the most important obstacles to them taking action are "a lack of knowledge about what can be done to upgrade a home, and confusion about where to find reliable advice, installers and information".
This might be best achieved through a "whole home energy plan", which lays out how to make it energy efficient, what measures should be made when, how to get the money needed and how to ensure aftercare. There would also need to be some scheme for formally accrediting installers.
A drive to train builders and tradesmen to enable them to carry out green refurbishment projects, often at the same time as they are doing other building work on the property. The improvement of the energy efficiency of British homes is potentially a huge source of income and employment: the UKGBC report calls it an "enormous business opportunity", worth an estimated £3.5bn-£6.5bn a year, and likely to create "tens of thousands of new 'green-collar' jobs".
Experts believe Mr Miliband is shaking up the notoriously conservative official attitude to energy, which has placed a low priority on efficiency. He is seen as a great improvement on his predecessor, the arch-Blairite John Hutton, who was particularly focused on building new nuclear and coal-fired power stations. Paul King, the UKGBC's chief executive, said: "Ed Miliband's first few days have shown that he is determined to push the agenda forward. I believe he will be looking to set bold targets for existing houses."
Downing Street said Gordon Brown regards energy conservation as "a very high priority" not least because it will provide much-needed jobs and enable people to keep fuel bills down.
But the Conservative Party seemed to have missed the point – and let its green positioning slip – last week when Chris Grayling, the shadow Work and Pensions Secretary, said the Prime Minister's interest in creating jobs through energy efficiency measures shows "how out of touch he is with what is going on in the real economy".
EU moves to toughen law on insulation
Families that extend their homes will be forced to insulate their whole houses under new plans being drawn up by the European Commission, confidential documents reveal. The documents, seen by 'The Independent on Sunday', detail proposals for toughening European energy conservation laws. They will be put before commissioners next month.
The measure will embarrass ministers because it will make them do something that the Government had itself proposed and then abandoned. Shortly before the last general election, it put out a consultation document on the proposal – but dropped the idea despite an overwhelmingly favourable response. It then promised another consultation, but this never materialised.
The thinking behind the proposal is that when a home is extended it increases its carbon footprint, and that work should be carried out to reduce it instead.
Up to now, the EU has required this only when buildings with a total floor area of more than 1,000 square metres are extended. The new measure will apply to all buildings, including private homes, when the extension is equivalent to more than a quarter of their size or value. The EC officials who have drawn up the proposal believe it will lead to €25bn in energy savings by 2020 and provide tens of thousands of jobs.
Andrew Warren, director of the Association for the Conservation of Energy, said: "This would be one of the biggest breakthroughs for years in reducing the amount of energy used in homes and other buildings. It will make an important contribution to fighting climate change and create a lot of new jobs in the construction industry."
10 ways to a more energy-efficient house
A rooftop gadget that uses warm air rising through the house to heat domestic water or re-circulate it through the home. Some types act as an internal chimney, capturing some of the heat from extracted air to be reused to heat incoming air.
Ground source (or geothermal) heat pump
This works by extracting heat from the ground and consists of a length of pipe containing water and antifreeze which is pumped around, absorbing the heat. The pump can cost from £6,000 to £12,000 but is able to generate £1,000 worth of electricity a year.
Air source heat pump
This exchanges heat with the air rather than the ground. A system costs about £7,500 but can produce £750 worth of energy a year. Grants are available from the Government's Low Carbon Buildings Programme for eco heat pumps and other green technologies such as solar, wind and hydro power.
People with streams or rivers on their property can use a hydro turbine, the most efficient of the renewable energy technologies. Up to 90 per cent of the water's energy can be converted to electricity. A small hydro turbine can cost between £4,000 and £10,000 depending on size.
A Wattson energy meter displays your energy consumption at any given time in terms of pounds per year for that level of consumption. This allows you to track just how much you are using and prevent catch-up bills from energy companies that may have previously billed on estimated usage.
Double-glazing has been superseded by triple-glazed windows, with cavities filled with argon gas, which is a better insulator than air. Commonly used in Canada and Scandinavian countries, they are more efficient than traditional double-glazed windows.
Biomass burning boiler
These burn pellets made from compressed waste sawdust to heat water and provide central heating. They cost from £5,000 to £10,000 to install. But a typical system can produce up to £1,000 worth of energy a year and saves six tons of carbon dioxide compared to a traditional boiler.
Usually powered by ground source heat pumps, underfloor heating is more energy efficient than radiators. Because the floor has a larger space than a standard radiator, the water can be heated to a lower temperature than usual.
For about £30 you can get a portable solar-powered charger to keep mobile phones, satnav units, laptops and other electronic gadgets fully charged.
By installing a wind turbine on your roof, you can meet some of your energy needs. Although it can cost from £1,500 to £5,000, grants and long-term savings make this a viable option.
and what you should be doing already
Using energy-efficient lightbulbs
Turning down your thermostat by at least 1C
Switching to a green energy supplier
Making sure your home – including potentially wasteful areas such as the loft space – is well insulated
Turning off appliances such as computers and televisions when they not in use, rather than leaving them on standby
Using energy-efficient washing machines and fridge-freezers
Getting a free Home Energy check by logging on to www.energy savingtrust.org.uk
Alistair Darling evoked the spirit of John Maynard Keynes on Sunday as he signalled a “reprioritising” of spending plans towards capital infrastructure, housing and energy.
The chancellor of the exchequer will call on departments to bring forward billions of pounds of capital expenditure to invigorate the economy ahead of an expected recession.
The government is limited in its ability to step up overall spending for the current three-year period, set at the last comprehensive spending review. But it can bring forward money from planned budgets in 2010-11 – after the next general election – creating potential difficulties for whoever is in government.
The challenge will be to accelerate the spending in such a short period, not least given the chill in private finance initiative markets upon which many such projects depend.
Mr Darling, in a newspaper interview published on Sunday, spoke approvingly of Keynes, the economist who urged the use of public money to finance job-creating capital projects in difficult times.
The rhetoric at the top of the government has been shifting towards this position for several days, with Gordon Brown promising last Thursday to continue high levels of investment. “We are spending more to get the economy moving,” the prime minister said.
Various ministers have recently justified the need to borrow and spend more to help pull the economy out of its downwards lurch.
The policy is popular with Labour MPs, some of whom would like to go even further and nationalise other parts of the economy – including housebuilders – to stimulate economic activity.
Mr Darling said on Sunday he did not want the government to find itself in a position where it would have to cut back on investment in the future.
The chancellor did not specify what this would mean in practice. “Much of what Keynes wrote still makes sense,” he said. “You will see us switching our spending priorities to areas that make a difference – housing and energy are classic cases where people are feeling squeezed.”
The government has already announced the front-loading of money to build more social housing as part of its autumn relaunch. It has also allowed the Ministry of Defence to sign off its £4bn aircraft carrier contracts by juggling its budget.
Beyond that, it is understood that ministers will find ways to accelerate funding into projects such as new schools, primary care buildings and leisure facilities – rather than huge infrastructure projects such as Crossrail.
“We are bringing forward levels of public spending ... already set out for years to come,” said a Treasury spokesperson. This could give a fillip to the construction industry and help slow the loss of thousands of jobs.
But the practical constraints in doing so are well illustrated by delays to Building Schools for the Future, a £43bn project launched in 2004 to refurbish or rebuild 3,500 secondary schools.
By now more than 100 schools were meant to have opened in a scheme that uses private and public finance. Fewer than 40 have done so, the approach plagued by the complexity of negotiations between heads, local authorities, funders, builders and architects.
Susan Anderson, head of public services for the CBI employers’ group, said on Sunday “the programme has been drifting” and needs to be “given some real wellie”.
Jim Knight, schools minister, said that key steps have now been cut out of the procurement process and minimum design standards were being agreed. But he held out little hope that it could be accelerated further.
“We do have to get it right. We will do what we can,” he said, in terms of using it to push money into the economy. “But we have to ensure that we have the capacity to do it properly”.
The Tories on Sunday night questioned Mr Darling’s ability to speed up capital projects given the government’s dependence on the private finance initiative market, which relies heavily on debt markets.
Although PFI deals are still being struck, they are taking longer and costing more because of the credit crunch. Public sector bodies now need to assemble “clubs” of banks to provide funding rather than going to one or two, according to James Stewart, chief executive of Partnerships UK, the body that helps facilitate public-private partnerships.
The Treasury has pledged to cut the budget deficit by 0.5 per cent of national income in 2009-10 through a combination of tax increases and relatively slow growth in public spending.
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