High OECD oil stocks show the oil market is oversupplied and OPEC will likely cut supplies when it meets later this month in Algeria, the grouping's secretary general said on Monday.

"The market is oversupplied because we are seeing stocks as very high, about 55 to 56 days," Abdullah Al Badri told reporters on the sidelines of an energy conference in Tehran.

Asked whether there would be a decision to reduce output at the cartel's Dec. 17 meeting in Algeria, he said: "There will be action there... It will be a good amount, a good quantity," without giving any specific figure.

The 12-member Organisation of the Petroleum Exporting Countries held an informal meeting in Cairo on Saturday but deferred a decision on a new oil supply cut to its next policy-setting meeting in Algeria.

Delegates said most members, including Gulf producers led by Saudi Arabia, saw a requirement to slice another one to 1.5 million barrels per day (bpd). But for that to happen, delegates said, Riyadh wants proof that all fellow members are meeting their part of existing curbs.

Oil stocks in the OECD rose to 56 days worth of forward demand last month - the top end of the five-year end norm for this time of the year - and have been a worry for OPEC, which uses them as a key gauge of whether markets are oversupplied.

Asked what kind of stock levels OPEC would like to see, Al Badri said the organisation was aiming at 52 days. "I think we are looking for 52 days. This is the average for the last five years," he said.

OECD inventory levels have hovered at or above their seasonal norm for several months, although relative stock levels normally fall during the winter as heating fuel demand picks up.

Asked about the oil price, Badri echoed comments by Saudi Arabia: "I think $75 is reasonable," he said.

Saudi Arabia on Saturday cited $75 a barrel as a "fair price" for oil in order to keep the more expensive new projects at the margins of world supply on track, the first time in years that the world's biggest exporter has identified a price target.

Oil fell more than a dollar on Monday, towards $53 a barrel, after OPEC decided to delay a decision on a third supply cut.

The price has tumbled from record highs over $147 a barrel struck in July as demand in the United States and other large consumer nations has slumped amid an economic crisis.

Al Badri said in a speech at the Tehran conference that demand could fall next year because of the sharp slowdown in the world economy.

"With oil prices below half of what they were at the beginning of the year both producers and consumers should have cause to be concerned about the investment climate for the industry," Al Badri said.

"We need to take action or actions in this critical period in support of the market order and stability for the short-, medium- and long-term," he said.

Dubai: The world faces a crude supply shock if oil prices remain below $70 (Dh257.11) per barrel, Qatar's Energy Minister Abdullah Bin Hamad Al Attiyah said on Wednesday arguing that lower prices would discourage investment in new capacity.

His comments at a petrochemicals industry conference in Dubai echo recent statements by Saudi Arabia's King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi, who identified $75 as a fair price for oil.

Global oil prices are one-third of what they were in July amid weakening demand due to the world economic slowdown.

Ministers of the Organisation of Petroleum Exporting Countries (Opec) meeting in Algeria on December 17 will decide a production cut, Al Attiyah said, without revealing by how much.

"For sure, we will cut in Oran (Algeria)," the minister told reporters when asked whether Opec, which supplies 40 per cent of the world's oil, will reduce production.

The group postponed this decision at its November 29 meeting in Cairo.

Al Attiyah said Opec is studying the supply and demand situation before deciding on the size of the cut.

A price of $70 per barrel is needed "to avoid any (supply) shock in the future," he said, explaining that this price level should be sufficient to encourage companies and oil producers to continue investing in capacity expansion projects. "Below $70, it will be non-economical to invest in the hydrocarbon sector," Al Attiyah told the Gulf Petrochemical and Chemical Association (GPCA) forum. "Today there is no cheap," he added.

Now that the price has fallen dramatically to below $50, this could discourage investment in finding new deposits and extracting them from difficult places.

Countries and oil companies may postpone many upstream projects if they do not get a return on their investments, he said.

"So this is our concern that when the economic crisis is over and demand starts (to pick up) again, then the world will face a big shortage of supply," Al Attiyah said.

However, Al Attiyah said he is not working to achieve the $70 target, insisting that oil prices are market-driven and the high prices earlier this year were due to speculative futures trading in the commodities markets by financial institutions.

THE CANADIAN PRESS – Oilpatch players are expected to ring in the new year with more modest budgets, as they grapple with plunging commodity prices and a credit crunch that has made it harder and pricier to finance projects.

EnCana Corp. (TSX: ECA) and Petro-Canada (TSX: PCA) are set to reveal next week how much they'll spend in 2009, following frugal capital spending plans announced recently by other major players.

Oil and gas giant EnCana, which will disclose next year's budget a week Thursday, will likely slow down spending in the upstream part of its business, particularly when it comes to natural gas production, said Salman Partners analyst Dragan Trajkov.

"They already hinted that they have some production that they can shut in if they need to if it wasn't economic," Trajkov said.

Most of EnCana's production comes from North American natural gas, but the Calgary-based company also has oilsands operations and interests in American refineries as part of a joint venture with U.S. giant ConocoPhillips (NYSE: COP).

"I would assume that they would switch some of the capital expenditures from the Rockies in the U.S. to possibly shallow gas in Canada, since it's more profitable at these prices," Trajkov said.

Crude oil has seen a major selloff in recent weeks, falling below US$50 on the New York Mercantile Exchange Monday – about a third of its record high reached in July.

While the decline in natural gas has not been quite as sensational as oil's, prices are less than half their summer peak.

Most of EnCana's expansions in the oilsands are close to completion, so there likely won't be much more spending there in 2009. But spending will likely increase somewhat in EnCana's U.S. refinery operations, Trajkov said.

The partners are planning a major expansion to the Wood River refinery in Roxana, Ill., which is expected to cost US$3.6 billion over three years.

EnCana announced in May that it would split its natural gas and oilsands businesses into two separate companies, but those plans have since been put on hold amid the market turmoil.

The Canadian Association of Petroleum Producers, which represents the country's oil and gas producers, expects total spending on the oilsands to be about $16 billion next year, a 20 per cent decline from 2008 levels.

Petro-Canada said last month that it and its partners in the Fort Hills oilsands development would push a decision on the mining portion of the project into next year and defer its accompanying upgrader indefinitely. It will flesh out the details on Dec. 11.

Fellow oilpatch heavyweights Nexen Inc. (TSX: NXY) and Husky Energy Inc. (TSX: HSE) will also disclose their spending plans in the next few weeks.

Canadian Natural Resources (TSX: CNQ) said last month it would spend about half as much next year as it did in 2008, mostly due to construction wrapping up at its Horizon oilsands project.

Half of CNQ's $4-billion 2009 budget has already been committed and the rest is flexible and can be deferred if necessary.

In October, Suncor Energy Inc. (TSX: SU) cut its capital spending target for 2009 by a third to $6 billion, with most of that focused on its Voyageur oilsands expansion.

Talisman Energy Inc. (TSX: TLM), which earlier this year streamlined its worldwide operations into a handful of core areas, has said it would likely slow down its spending in 2009, but has not yet provided details.

You can imagine the internal contortions when an old friend was once memorably described as a 60s liberal with Catholic guilt. I got the same impression of grinding gears while reading the International Energy Agency's latest long-term forecast, the World Energy Outlook 2008, published last month. In many respects, the IEA's analysis of threats to the oil supply is bloodcurdling, and yet the agency maintains that global production can keep rising for at least two decades. The rich nations' energy watchdog is clearly alarmed, but seems afraid of its own bark.

The IEA's annual forecast has become steadily darker in recent years, but this time the deterioration in its outlook is dramatic. Only a year ago, the agency was predicting that global oil production in 2030 would reach 116m barrels per day, up from around 84mb/d, but now it has slashed that to 106mb/d.

At the same time, the agency has also doubled its oil price forecast. Last year, it said the cost of crude would fall in the long term, but now it predicts an average of $100 per barrel until 2015, despite the deepening recession, and rising to $120 in real terms by 2030. It concludes that the era of cheap oil is over and that the recent extreme price volatility will continue.

Temperature rise

If that sounds like good news for global warming at least - as the UN climate talks take place in Poland - the IEA warns that its new "reference scenario" would still mean a devastating 6C rise in global temperatures.

One reason for the deeper pessimism about oil is a new analysis of the rate at which output of existing fields declines due to falling reservoir pressures - an inevitable feature of oil production. This number has always been difficult to estimate, but now the IEA has done a detailed study and has concluded that the global average decline rate for fields that have already peaked is 6.7% per year, much higher than previous estimates and in spite of billions of dollars of remedial investment.

That means that, to satisfy the IEA's predicted demand growth of 10mb/d day by 2015, the industry must build 30 mb/d of additional capacity. It is as if the oil industry is struggling up a sand dune, constantly slipping back, forced to scramble three steps to make the distance of one.

The IEA says the challenge of raising oil production is made even harder by the recent collapse in the oil price - from a record high in July of $147 per barrel to around $55 - because many planned oil investments are now uneconomic. News of projects being delayed comes almost daily, creating the conditions for an even bigger price spike whenever the economy recovers. The report warns that "there remains a real risk that underinvestment will cause an oil supply crunch [by 2015]". This would pitch the world back into recession, with all the economic and social misery that implies.

But as alarming as it sounds, the IEA view is almost certainly far too sanguine. The agency maintains its feared "supply crunch" could be avoided if the industry would invest enough, and if Opec countries, with three-quarters of the world's reserves, would only be reasonable. It insists that there is no geological shortage of oil in view ("peak oil"), and that output should continue to grow to 106mb/d in 2030, even though that would mean building new production capacity equivalent to six times that of Saudi Arabia today. Yet all this depends on a series of highly optimistic assumptions that fundamentally undermine the IEA's conclusions.

The first is that there is even the remotest chance the necessary investment will happen in time, now that projects are being delayed from the US to the Middle East. The IEA's "real risk" of a supply crunch is more like a racing certainty.

The second assumption is that steep declines in non-Opec oil fields will be offset by increases in "non-conventional" oil production, such as the Canadian oil sands. This also looks unlikely. Oil sands projects are uneconomic at less than $80 per barrel, and several have recently been shelved. More importantly, they require vast amounts of water, and this is likely to limit output to about 3mb/d, whereas the IEA is counting on twice that much by 2030. The third is that Opec will ramp up its production, which the IEA says is crucial to satisfying demand "in the face of dwindling resources in most parts of the world and accelerating decline rates everywhere". But if the rest of the world is running out, it makes perfect sense that Opec members should want to husband their resources.

Upward revisions

More specifically, the agency assumes that Iraq will triple its output to 6.4mb/d. The country almost certainly has the geological potential, but what it will actually be producing in 2030 is anybody's guess.

Fourth is the assumption that Opec's oil reserves are anything like as big as its member countries claim: 935bn barrels. There have been severe doubts about this ever since the 1980s, when many members made huge upward revisions, which most observers regard as largely bogus.

The IEA has gone some way to addressing this by employing independent estimates, which are somewhat lower than Opec's claims, but their numbers could still be some 250bn barrels too high. PFC Energy, a Washington-based consultancy, has concluded that, on a more prudent estimate of Opec reserves, its output could peak by the middle of the next decade.

With so much apparently unjustified optimism, the danger is that the IEA's supply crunch turns out to be something even worse: peak oil, or as near as makes no difference. If the IEA were to moderate its assumptions, its outlook would come into line with the view of several major oil companies. Oil and gas company Total has said the global output will never exceed 95mb/d, for a mixture of geological and geopolitical reasons, while Shell forecasts a plateau from the middle of the next decade.

The distinction may seem subtle, but the difference is crucial. One view allows for the resumption of economic growth, while the other admits some kind of hard production ceiling that condemns us to alternating oil price spikes and recessions until we liberate ourselves from oil dependency.

The question remains as to why the IEA persists in its view. Perhaps it is just the innate conservatism of an international bureaucracy funded by western governments, or maybe the agency fears a diplomatic rift with Opec, or possibly it wants to avoid panic. Or maybe it hopes policymakers will read between the lines.

David Strahan is the author of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man. Details at lastoilshock.com

When oil almost topped $150 back in July, politicians flew around the world trying to quell the panic it created. Many commentators declared the era of cheap oil over for ever. Now the price has sunk below $50. Politicians are still flying around the world, trying to quell a different form of panic. Many analysts declare that with the recession, and the drop in demand for the black stuff, cheap oil is back to stay.

It isn't. What we are seeing is a temporary respite. The IEA's world energy outlook for 2008, released on November 12, warned that underinvestment in oil and gas exploration is putting the world on course for an energy crunch before 2015.

Underinvestment is likely to prove an understatement. Because of rapid inflation in the paraphernalia of the upstream oil business, the cost of production is now more than $80 in the Canadian tar sands and $70 offshore Africa. These areas, plus the Arctic, are where oil-industry bulls place most of their hopes of meeting future demand. But at current oil prices nobody can invest in them and make money. As a result, to quote IEA chief economist Fatih Birol: "We hear almost every day about a project being postponed."

That, too, may well prove to be an understatement. National oil companies – responsible for around 80% of global production – expect the oil price to fall to $40, according to the head of China's national offshore oil corporation. Such a consensus exists in 27 such bodies from 23 countries, and in their feeling of "panic" they will cancel "most" investment projects.

The oil market has completely disconnected from fundamentals. As the FT put it last week: "Do supply and demand even matter any more when the futures pits have become the tail that wags the dog?"

Citigroup analysts have reported a 460% rise in futures and options positions on Nymex in the last four years. Real physical oil trading has grown, meanwhile, only 9%.

Supply and demand do still matter. Very much so. The IEA's report included a study of 800 of the biggest oil fields, and it shows 6.7% per annum depletion, even assuming heavy investment in the fields. This translates over the next 22 years into a need to find 45m barrels a day of new capacity just to maintain today's level of production. That is four Saudi Arabias. An impossible ask.

As the brewing energy crunch waits in the wings to compound the credit crunch – conceivably, just as we beginning to repair the damage from our toxic derivatives problem – a catastrophic outcome looks ever more likely for the global economy.

Our only hope is to embark on a meaningful Green New Deal, kicking the oil habit, starting tomorrow.

Petroleum Intelligence Weekly this week published its annual ranking of the world's 50 largest oil companies, a benchmark survey now in its 20th year that is recognized industry-wide as the leading source of comparative performance assessments on all the world's oil companies. The main trend in the latest survey is the greater predominance of national oil companies, and, particularly, the substantial gains by Chinese and Russian companies.

The PIW Top 50 rankings are based on six operational criteria that allow the comparison of private sector and state-owned oil companies. This year's rankings are based on operational data for 2007, the most recent period available for such a wide group of firms.

In contrast to national oil companies, the major oil companies and other private sector firms generally lost ground, especially in the top tiers. However, unlike other super majors, Exxon Mobil held on to its number three position. A comparison with results from 10 years ago shows that the top major oil companies, as a group, now account for a smaller global share of the six ranking criteria than they did prior to the mega-mergers that created them.

Other key findings from the PIW Top 50:

Saudi Aramco maintains its hold on the top spot, the result of significant ongoing investment in both upstream and downstream oil and gas operations.

Three new firms moved into the PIW Top 50 -- Uzbekneftegas, China's CNOOC and Kazmunaigas of Kazakhstan -- all majority state-owned.

The Top 50 is the precursor to the more comprehensive Energy Intelligence Top 100: Ranking The World's Oil Companies, to be published in December 2008.

Tensions between the joint owners of TNK-BP, the Anglo-Russian oil group, heightened last night amid signs that the billionaire oligarchs who own half of Russia's third-largest crude producer were increasing their grip on the business.

Reports yesterday said that TNK-BP would dismiss 390 managers and close 200 vacancies at its Moscow headquarters, representing 19 per cent of its staff. A spokesman for TNK-BP in Moscow declined to comment on the number of staff affected, but confirmed that the group was pursuing a cost-cutting strategy.

The cuts run counter to the aims of BP, which stated only four months ago that it wanted to bolster its Russian joint venture.

TNK-BP lost 148 seconded employees from BP, mostly technical experts and engineers, in April when the row over ownership spilled into a dispute regarding work permits and visas.

On July 29, Tony Hayward, BP's chief executive, said that BP wanted to boost investment in TNK-BP by 20 per cent in 2008. He also said that BP was “committed to” increased investment in the Russian oil and gas industry, while AAR, the vehicle owned by Viktor Vekselberg, Mikhail Fridman, German Khan and Leonard Blavatnik that controls 50 per cent of TNK-BP, was not. “Not all of the other shareholders support this investment,” he said at the time.

A spokesman for BP in London said that the latest decision to cut staff was a matter for TNK-BP's management board and reflected falling oil prices rather than a strategy disagreement.

Robert Dudley formally stepped down as chief executive of TNK-BP yesterday, to be temporarily replaced by Tim Summers, the chief operating officer. Mr Dudley had been appointed by BP.

The new chief executive is expected to be Denis Morozov, the former chief executive of Norilsk Nickel, another Russian industrial group. He is expected to be nominated at a board meeting on December 11.

The details of the new corporate structure are still being hammered out, but, in a statement released yesterday, Mr Dudley said that he was departing TNK-BP “after more than five challenging and immensely satisfying years building” what he described as a “unique and progressive” Russian oil company.

In an e-mail to TNK-BP staff, which was seen by The Times, Mr Dudley acknowledged that the company's problems were not over. “Some very testing times lie ahead,” the American executive said. “The company is moving towards a new governance model and will soon have a new management team. There will be less reliance on BP experts and senior international leadership. External conditions will likely be adverse.”

In response, he urged staff to offer their “full and enthusiastic support” for his replacement and his new management team.

Mr Dudley is expected to return to the United States to be with his family rather than go back to work for his former employer.

— The price of oil slipped by more than $5 yesterday to $49 a barrel after Opec, the oil exporters’ cartel, opted at the weekend to wait until later this month to cut production in defence of prices. US crude settled down $5.15 at $49.28 a barrel, the lowest settlement since May 2005.

The price of a barrel of London Brent crude was $5.52 lower at $47.97. The drop in prices came as Abdalla el-Badri, the secretary-general of Opec, said that the oil producers’ organisation would consider an output cut of between one million and 1.5 million barrels per day at a meeting in Algeria on December 17.

Lack of capacity in the nuclear construction industry means that Britain will have to rely on imported natural gas to meet an emerging shortfall in power generation over the next decade, according to a senior executive of EDF, the French utility that has agreed to acquire British Energy, the nuclear power generator.

Bernard Dupraz, senior executive vice-president for power generation at EDF, said Europe did not have the engineering and construction capacity to build enough nuclear plant at sufficient speed to fill the gap left in Britain by the planned closure of elderly and obsolete power stations. “I think to fill this gap it will have to be gas-fired power stations,” he said.

According to the Government’s Energy White Paper, the UK will lose 22.5 gigawatts of power by 2020 because of closures of old nuclear stations and coal-fired plant that fails to meet EU emission regulations.

The French utility wants to build four nuclear reactors in Britain over the next decade. It hopes to begin pouring concrete on the first site in 2012 after a five-year licensing process and the first electrons might be generated by 2017. Mr Dupraz reckons that when its build programme is in full swing, it could bring a nuclear plant on stream every 18 months.

EDF’s preferred technology is the EPR, designed by Areva, the French utility, a nuclear reactor capable of 1.6 gigawatts of generating capacity. If four reactors are built by British Energy/EDF and perhaps a fifth plant by E.ON, the new nuclear contribution will fill less than half of the power gap forecast by the Government.

The likely solution will be the rapid construction of gas-fired power stations which could be built in a shorter time frame. Mr Dupraz said: “The problem will be solved with gas.”

However, more gas will leave Britain further exposed to energy price volatility and increase the country’s dependence on imports of fuel from Russia. It would also hamper efforts to reduce Britain’s carbon emissions.

Mr Dupraz said it would take time before a European nuclear supply chain could be developed. “During the 1970s, EDF built five nuclear power stations per year for a period of ten years. The situation today in Europe is one per year, then rising to two and three per year. You cannot yet imagine five per year.”

Britain will play a key part in EDF’s global ambition to extend its nuclear reach. The utility, which runs 58 nuclear stations in France which supply 65 per cent of the country’s power, wants to build ten reactors abroad by 2020, of which four will be in Britain, four in China and two in the US.

EDF’s first EPR is under construction at Flamanville in Brittany and Mr Dupraz expects it to be commissioned in 2012. The date is sensitive because Areva’s first EPR, in Olkiluoto in Finland, is two years behind schedule and suffering cost overruns. Given EDF’s commitment to a UK build programme and Britain’s anticipated power shortage, the French utility cannot afford problems at Flamanville.

“The merger [with British Energy] is very important, it will help us to compete on a world level,” Mr Dupraz said. EDF believes that the British company’s presence in the US will open doors, where an Anglo-Saxon calling card might be helpful.

Thousands of British graduates will have to be trained to meet EDF’s ambition for an Anglo-French nuclear power assault on the world. Each new plant will create 2,000 jobs for the five-year construction period and require an operational staff of 300. Areva envisages a large nuclear supply chain created in the UK but indicated there was a huge task in educating and training workforces to meet the demanding standards of the nuclear industry.

“We can imagine a very close partnership between the UK and France to attack the international market. It’s a question of reaching the right standards. We have higher [technical] standards than the petroleum industry,” Jean-Jacques Gautrot, head of Areva in the UK, said.

Nasdaq OMX, the transatlantic exchange group, is set to launch Britain's first electricity exchange after winning a contract to create a power market to match the highly successful ones in Scandinavia and Germany.

The group, which runs the Nord Pool power exchange in Scandinavia, has been chosen to run the market by a group of energy companies and financial institutions after a competitive tender organised by the Futures and Options Association, a London-based industry body whose members are the main participants in exchange-traded derivatives.

The new exchange will make it easier for companies to hedge their energy price risk, its backers say.

It should also open new opportunities for businesses trading electricity, helping independent suppliers that do not have their own generation capacity, and generators that do not have a retail supply business.

Nasdaq fought off more than 10 other bidders, including EEX, part-owned by Eurex, the derivatives arm of Deutsche Börse; APX, the Dutch group that bought the UK Power Exchange, a small former trading platform; and the ICE energy platform operated by US-based Intercontinental Exchange.

Lack of liquidity in the wholesale power market has been seen as a factor holding back effective competition between suppliers. The FOA said the aim of the project was to satisfy the need for “a risk-based, cost-efficient route to the clearing of UK power, a robust and comprehensive set of reference prices, a firm foundation for trading derivatives and, in due course, a power auction”.

Power is already traded in the UK through APX which bought the UK Power Exchange in 2004, for the same-day and day-ahead markets, and on ICE for derivatives.

However, volumes in the forward markets have remained relatively low, on ICE and over-the-counter.

Liquidity dropped sharply following the exit of Enron and other energy trading companies in the early years of the decade. It has since picked up, but at a much slower rate than the growth in Nord Pool or EEX in Germany.

OTC trading has been hit in recent weeks by the financial stress that has hit many such markets.

Paul Beynon of RWE Supply and Trading, who led the group working on the exchange plan, said: “Hopefully, it will increase the take-up of clearing, reduce reliance on bilateral trading arrangements and make the pricing of power more transparent.”

The new exchange would offer a spot and near-term forward market over the next nine days, and develop derivatives contracts based on prices in those markets. The target is to have it running by next summer, with 20-30 participants rising eventually to 40-50.

APX is next week launching its first UK power auction, which it says will provide a transparent spot price that could be used as the basis of derivatives contracts.

Les Male, APX’s commercial director, said: “APX already provides a very well functioning spot market that is meeting the needs of the industry.”

Plans to equip 40,000 homes with energy saving equipment aimed at cutting bills and creating jobs, have been unveiled by the assembly government.

The £12m programme is also designed to tackle child and fuel poverty in the Heads of the Valleys area.

Leighton Andrews, deputy minister for regeneration, said it was anticipated the 15 year initiative would attract millions of pounds of investment.

It is hoped the measures will make the area Europe's first low carbon zone.

The programme aims to install sustainable energy measures into 40,000 socially owned homes, have 65,000 homes assessed for energy efficiency and 39,000 energy reduction measures implemented.

It is hoped this will result in the reduction of domestic energy bills of £1.7m and reduce emissions of at least 139,200 tonnes of CO2 a year.

Mr Andrews said the programme was designed to tackle fuel poverty and create a new industry base in the region linked to job creation, skills development and the development of local businesses in the sector.

Details of the first round of investment and the first low carbon town will be unveiled in the New Year, he said.

"Energy costs have a disproportionate impact on household income in deprived areas and less money spent on fuel bills means more money available to spend in the local economy," said Mr Andrews.

A pilot project in Ebbw Vale saw the United Welsh Housing Association getting help from the programme to fund the installation of a range of measures to tackle carbon emissions in 28 new homes.

Exhaust air recovery heating, under floor heating, rainwater recycling and thermal water heating systems have been among the measures introduced.

The pilot will test the effectiveness of these systems.

Further projects have been undertaken with Rhondda Cynon Taf Homes and Bron Afron Homes to introduce energy-saving technologies including solar power during the refurbishment of existing homes.

Leighton Andrews said these projects formed part of the wider economic and social regeneration of the Heads of the Valleys region.

"They are taking forward several strands of our environmental theme with the ultimate aim of adding value to the fuel poverty and economic regeneration agendas," he said.

"These projects are leading the way in delivering a step change in the economy of the region."

One of the largest offshore wind farms in the world has been approved to be built off the coast of north Wales.

The 250 turbines of Gwynt y Môr offshore wind farm will be built eight miles off the coast, 10 miles away from Llandudno, Conwy.

Gwynt y Môr, combined with three other nearby wind farms, will provide enough green electricity to power the equivalent of 680,000 homes.

It has been approved by the Department of Energy and Climate Change (DECC).

The wind farm will start to produce power from 2012, subject to consent for onshore electricity works.

Energy and Climate Change Secretary Ed Miliband said the 750MW development by Npower Renewables Ltd will create a "powerhouse for renewable energy" off the north Wales coast.

"The UK must clean up its energy supply to fight the damaging effects of climate change and more wind power will help us do this," he said.

"The UK is leading the world in offshore wind, and the developments off the coast of north Wales will help keep us front runners."

In granting approval, DECC took into account both the distance of the development from the shore and work Npower Renewables Ltd had done to minimise the visual impact.

The Welsh Assembly Government said it had requested for the DECC to have a public inquiry into the Gwynt y Môr proposal on grounds of its visual impact and taking into account Llandudno's historic built environment.

"Although our view point was made clear, that the above issues should be tested via a public inquiry before ministers took their decision, those ministers are entirely within their rights to override our request and to arrive at a decision on the information before them," an assembly government spokesman said.

"Now that the decision is made, Welsh companies should seek to capitalise on the significant economic opportunities that will arise in the supply chain of this huge project."

A spokesperson for the British Wind Energy Association said the development was "fantastic news", adding: "Gwynt y Môr is a landmark project both for Wales and the United Kingdom as a whole.

"It brings the total offshore projects with planning approval to 4.5 GW, solidifying UK's position as leader in offshore wind energy.

"It will also set us well on our way towards reaching our 2020 renewable energy targets."

Morgan Parry, head of WWF Cymru, said the scheme's approval was "fantastic news for Wales".

"We need more projects such as Gwynt y Môr to help reduce our carbon emissions," he said.

"It is only through landmark projects such as this that we can meet the tough targets set and start to de-carbonise our economy in Wales.

"The evidence of the effects of climate change is becoming increasing apparent, scientists have predicted that sea levels will rise by about a metre by the end of the century - this will change the face of Wales especially our coastal areas."

But John Lawson-Reay, chairman of Save our Scenery, who campaigned against the wind farm, said he was "shattered" by the scheme's go-ahead.

"Tourism is the only major industry in Wales basically," he said.

"Llandudno is the queen of Welsh resorts, as has been often said, and we think and we believe and the views we get from visitors we speak to is that the scenery is the primary number one reason for people coming here.

"They want to get away from industrial areas."

Gwynt y Môr is the latest wind farm to be approved off the north Wales coast.

North Hoyle, which has 30 turbines and Burbo, which has 25 turbines, are already up and running, while Rhyl Flats, with its 25 turbines, is into the latter half of its construction phase.

Europe's biggest onshore wind farm plugged itself into the grid today to provide enough electricity for up to a million people in northern Portugal.

A total of 120 windmills are dotted across the highlands of the Upper Minho region of Portugal as one of western Europe's poorer nations continues to forge its reputation as a renewables champion.

"Europe's largest onshore wind farm is now fully operational," a spokeswoman for France's EDF Energies Nouvelles, which co-owns the farm, announced this morning.

The two megawatt turbines on each windmill deliver electricity to a single connection point with the electricity grid and should supply around 1% of Portugal's total energy needs.

A second, smaller wind farm is already functioning nearby, giving a combined output of 650 gigawatt hours per year. "That is above 1% of national consumption," said Nuno Ribeiro da Silva, head of the VentoMinho company that runs the farm.

That would provide enough energy for 300,000 homes, or most of the northern city of Viana do Castelo and its surrounding districts, he told the Publico newspaper.

Portugal's mixture of government enthusiasm, subsidies and special tariffs has turned it into one of the focal points of renewables development in Europe over the past five years.

The world's largest solar photovoltaic farm is being built near the southern town of Moura. The Moura solar farm, which will include a research centre, should be twice the size of any other in the world when it is fully up and running in two years time.

Portugal also recently inaugurated the world's first commercial wave power plant in the Atlantic Ocean off Aguçadoura, using technology developed in Scotland.

The country is heavily dependent on imported fossil fuels and has set a target of obtaining 31% of energy needs from renewables by the year 2020. That is more than twice the UK target. It also uses its subsidies policy to insist that manufacturers of turbines and solar panels set up production plants.

"By 2010 we will have 5,000MW of wind energy installed, meaning we will have increased it tenfold in just five years," economy minister Manuel Pinho said. "This is another step towards putting our country in the vanguard of what is being done with renewable energy."

Portugal, which claims to be one of the world's top five renewable energy countries, provides subsidies of up to 40% for new projects.

The world's largest onshore wind farms are in the United States, with the Horse Hollow farm in Texas providing more than 700MW.

These will soon be dwarfed by proposed offshore wind farms of up to 5,000MW each.

Myth 1: solar power is too expensive to be of much use

In reality, today's bulky and expensive solar panels capture only 10% or so of the sun's energy, but rapid innovation in the US means that the next generation of panels will be much thinner, capture far more of the energy in the sun's light and cost a fraction of what they do today. They may not even be made of silicon. First Solar, the largest manufacturer of thin panels, claims that its products will generate electricity in sunny countries as cheaply as large power stations by 2012.

Other companies are investigating even more efficient ways of capturing the sun's energy, for example the use of long parabolic mirrors to focus light on to a thin tube carrying a liquid, which gets hot enough to drive a steam turbine and generate electricity. Spanish and German companies are installing large-scale solar power plants of this type in North Africa, Spain and the south-west of America; on hot summer afternoons in California, solar power stations are probably already financially competitive with coal. Europe, meanwhile, could get most of its electricity from plants in the Sahara desert. We would need new long-distance power transmission but the technology for providing this is advancing fast, and the countries of North Africa would get a valuable new source of income.

Myth 2: wind power is too unreliable

Actually, during some periods earlier this year the wind provided almost 40% of Spanish power. Parts of northern Germany generate more electricity from wind than they actually need. Northern Scotland, blessed with some of the best wind speeds in Europe, could easily generate 10% or even 15% of the UK's electricity needs at a cost that would comfortably match today's fossil fuel prices.

The intermittency of wind power does mean that we would need to run our electricity grids in a very different way. To provide the most reliable electricity, Europe needs to build better connections between regions and countries; those generating a surplus of wind energy should be able to export it easily to places where the air is still. The UK must invest in transmission cables, probably offshore, that bring Scottish wind-generated electricity to the power-hungry south-east and then continue on to Holland and France. The electricity distribution system must be Europe-wide if we are to get the maximum security of supply.

We will also need to invest in energy storage. At the moment we do this by pumping water uphill at times of surplus and letting it flow back down the mountain when power is scarce. Other countries are talking of developing "smart grids" that provide users with incentives to consume less electricity when wind speeds are low. Wind power is financially viable today in many countries, and it will become cheaper as turbines continue to grow in size, and manufacturers drive down costs. Some projections see more than 30% of the world's electricity eventually coming from the wind. Turbine manufacture and installation are also set to become major sources of employment, with one trade body predicting that the sector will generate 2m jobs worldwide by 2020.

Myth 3: marine energy is a dead-end

The thin channel of water between the north-east tip of Scotland and Orkney contains some of the most concentrated tidal power in the world. The energy from the peak flows may well be greater than the electricity needs of London. Similarly, the waves off the Atlantic coasts of Spain and Portugal are strong, consistent and able to provide a substantial fraction of the region's power. Designing and building machines that can survive the harsh conditions of fast-flowing ocean waters has been challenging and the past decades have seen repeated disappointments here and abroad. This year we have seen the installation of the first tidal turbine to be successfully connected to the UK electricity grid in Strangford Lough, Northern Ireland, and the first group of large-scale wave power generators 5km off the coast of Portugal, constructed by a Scottish company.

But even though the UK shares with Canada, South Africa and parts of South America some of the best marine energy resources in the world, financial support has been trifling. The London opera houses have had more taxpayer money than the British marine power industry over the past few years. Danish support for wind power helped that country establish worldwide leadership in the building of turbines; the UK could do the same with wave and tidal power.

Myth 4: nuclear power is cheaper than other low-carbon sources of electricity

If we believe that the world energy and environmental crises are as severe as is said, nuclear power stations must be considered as a possible option. But although the disposal of waste and the proliferation of nuclear weapons are profoundly important issues, the most severe problem may be the high and unpredictable cost of nuclear plants.

The new nuclear power station on the island of Olkiluoto in western Finland is a clear example. Electricity production was originally supposed to start this year, but the latest news is that the power station will not start generating until 2012. The impact on the cost of the project has been dramatic. When the contracts were signed, the plant was supposed to cost €3bn (£2.5bn). The final cost is likely to be more than twice this figure and the construction process is fast turning into a nightmare. A second new plant in Normandy appears to be experiencing similar problems. In the US, power companies are backing away from nuclear because of fears over uncontrollable costs.

Unless we can find a new way to build nuclear power stations, it looks as though CO2 capture at coal-fired plants will be a cheaper way of producing low-carbon electricity. A sustained research effort around the world might also mean that cost-effective carbon capture is available before the next generation of nuclear plants is ready, and that it will be possible to fit carbon-capture equipment on existing coal-fired power stations. Finding a way to roll out CO2 capture is the single most important research challenge the world faces today. The current leader, the Swedish power company Vattenfall, is using an innovative technology that burns the coal in pure oxygen rather than air, producing pure carbon dioxide from its chimneys, rather than expensively separating the CO2 from other exhaust gases. It hopes to be operating huge coal-fired power stations with minimal CO2 emissions by 2020.

Myth 5: electric cars are slow and ugly

We tend to think that electric cars are all like the G Wiz vehicle, with a limited range, poor acceleration and an unprepossessing appearance. Actually, we are already very close to developing electric cars that match the performance of petrol vehicles. The Tesla electric sports car, sold in America but designed by Lotus in Norfolk, amazes all those who experience its awesome acceleration. With a price tag of more than $100,000, late 2008 probably wasn't a good time to launch a luxury electric car, but the Tesla has demonstrated to everybody that electric cars can be exciting and desirable. The crucial advance in electric car technology has been in batteries: the latest lithium batteries - similar to the ones in your laptop - can provide large amounts of power for acceleration and a long enough range for almost all journeys.

Batteries still need to become cheaper and quicker to charge, but the UK's largest manufacturer of electric vehicles says that advances are happening faster than ever before. Its urban delivery van has a range of over 100 miles, accelerates to 70mph and has running costs of just over 1p per mile. The cost of the diesel equivalent is probably 20 times as much. Denmark and Israel have committed to develop the full infrastructure for a switch to an all-electric car fleet. Danish cars will be powered by the spare electricity from the copious resources of wind power; the Israelis will provide solar power harvested from the desert.

Myth 6: biofuels are always destructive to the environment

Making some of our motor fuel from food has been an almost unmitigated disaster. It has caused hunger and increased the rate of forest loss, as farmers have sought extra land on which to grow their crops. However the failure of the first generation of biofuels should not mean that we should reject the use of biological materials forever. Within a few years we will be able to turn agricultural wastes into liquid fuels by splitting cellulose, the most abundant molecule in plants and trees, into simple hydrocarbons. Chemists have struggled to find a way of breaking down this tough compound cheaply, but huge amounts of new capital have flowed into US companies that are working on making a petrol substitute from low-value agricultural wastes. In the lead is Range Fuels, a business funded by the venture capitalist Vinod Khosla, which is now building its first commercial cellulose cracking plant in Georgia using waste wood from managed forests as its feedstock.

We shouldn't be under any illusion that making petrol from cellulose is a solution to all the problems of the first generation of biofuels. Although cellulose is abundant, our voracious needs for liquid fuel mean we will have to devote a significant fraction of the world's land to growing the grasses and wood we need for cellulose refineries. Managing cellulose production so that it doesn't reduce the amount of food produced is one of the most important issues we face.

Myth 7: climate change means we need more organic agriculture

The uncomfortable reality is that we already struggle to feed six billion people. Population numbers will rise to more than nine billion by 2050. Although food production is increasing slowly, the growth rate in agricultural productivity is likely to decline below population increases within a few years. The richer half of the world's population will also be eating more meat. Since animals need large amounts of land for every unit of meat they produce, this further threatens food production for the poor. So we need to ensure that as much food as possible is produced on the limited resources of good farmland. Most studies show that yields under organic cultivation are little more than half what can be achieved elsewhere. Unless this figure can be hugely improved, the implication is clear: the world cannot feed its people and produce huge amounts of cellulose for fuels if large acreages are converted to organic cultivation.

Myth 8: zero carbon homes are the best way of dealing with greenhouse gas emissions from buildings

Buildings are responsible for about half the world's emissions; domestic housing is the most important single source of greenhouse gases. The UK's insistence that all new homes are "zero carbon" by 2016 sounds like a good idea, but there are two problems. In most countries, only about 1% of the housing stock is newly built each year. Tighter building regulations have no effect on the remaining 99%. Second, making a building genuinely zero carbon is extremely expensive. The few prototype UK homes that have recently reached this standard have cost twice as much as conventional houses.

Just focusing on new homes and demanding that housebuilders meet extremely high targets is not the right way to cut emissions. Instead, we should take a lesson from Germany. A mixture of subsidies, cheap loans and exhortation is succeeding in getting hundreds of thousands of older properties eco-renovated each year to very impressive standards and at reasonable cost. German renovators are learning lessons from the PassivHaus movement, which has focused not on reducing carbon emissions to zero, but on using painstaking methods to cut emissions to 10 or 20% of conventional levels, at a manageable cost, in both renovations and new homes. The PassivHaus pioneers have focused on improving insulation, providing far better air-tightness and warming incoming air in winter, with the hotter stale air extracted from the house. Careful attention to detail in both design and building work has produced unexpectedly large cuts in total energy use. The small extra price paid by householders is easily outweighed by the savings in electricity and gas. Rather than demanding totally carbon-neutral housing, the UK should push a massive programme of eco-renovation and cost-effective techniques for new construction.

Myth 9: the most efficient power stations are big

Large, modern gas-fired power stations can turn about 60% of the energy in fuel into electricity. The rest is lost as waste heat.

Even though 5-10% of the electricity will be lost in transmission to the user, efficiency has still been far better than small-scale local generation of power. This is changing fast.

New types of tiny combined heat and power plants are able to turn about half the energy in fuel into electricity, almost matching the efficiency of huge generators. These are now small enough to be easily installed in ordinary homes. Not only will they generate electricity but the surplus heat can be used to heat the house, meaning that all the energy in gas is productively used. Some types of air conditioning can even use the heat to power their chillers in summer.

We think that microgeneration means wind turbines or solar panels on the roof, but efficient combined heat and power plants are a far better prospect for the UK and elsewhere. Within a few years, we will see these small power plants, perhaps using cellulose-based renewable fuels and not just gas, in many buildings. Korea is leading the way by heavily subsidising the early installation of fuel cells at office buildings and other large electricity users.

Myth 10: all proposed solutions to climate change need to be hi-tech

The advanced economies are obsessed with finding hi-tech solutions to reducing greenhouse gas emissions. Many of these are expensive and may create as many problems as they solve. Nuclear power is a good example. But it may be cheaper and more effective to look for simple solutions that reduce emissions, or even extract existing carbon dioxide from the air. There are many viable proposals to do this cheaply around the world, which also often help feed the world's poorest people. One outstanding example is to use a substance known as biochar to sequester carbon and increase food yields at the same time.

Biochar is an astonishing idea. Burning agricultural wastes in the absence of air leaves a charcoal composed of almost pure carbon, which can then be crushed and dug into the soil. Biochar is extremely stable and the carbon will stay in the soil unchanged for hundreds of years. The original agricultural wastes had captured CO2 from the air through the photosynthesis process; biochar is a low-tech way of sequestering carbon, effectively for ever. As importantly, biochar improves fertility in a wide variety of tropical soils. Beneficial micro-organisms seem to crowd into the pores of the small pieces of crushed charcoal. A network of practical engineers around the tropical world is developing the simple stoves needed to make the charcoal. A few million dollars of support would allow their research to benefit hundreds of millions of small farmers at the same time as extracting large quantities of CO2 from the atmosphere.

Chris Goodall's new book, Ten Technologies to Save the Planet, is published by Profile books

Green groups have welcomed a European Commission proposal to release billions of euros of structural funding to pay for the installation of solar panels and double-glazing in homes across Europe.

The Commission will on Wednesday ask member states to change funding rules to allow local authorities to use EU regional funds to pay for energy-saving measures in low-income households. Current regulations restrict funding for household energy-efficiency to the new member states in eastern Europe. Even there, EU money can only be used in communal areas of shared social housing.

Relaxing the rules would create jobs in the construction and energy certification sectors, reduce the EU’s energy consumption and bringing down heating bills for those worst hit by the recession, the Commission says.

However, no new money is being made available. The money would come from €9bn ($11bn) earmarked for renewable energy and energy efficiency projects under the current rules would be used to co-finance insulation, energy-saving boilers and solar panels, if member states agree to the plans.

Frauke Thies, of environmental campaign group Greenpeace, said it was an “important step in the right direction”.

“This is a big part of the European move towards using energy more effectively,” Ms Thies said. “For low-income households, energy costs are still making up a large share of the domestic budget. These sorts of households might hesitate to make investments in double-glazing or putting in a more efficient boiler.”

According to recent Commission figures, homes account for more than a quarter of total EU energy consumption.

The measures are an extension to the Commission’s economic recovery package, announced last week, which pledged to improve energy efficiency as a means of making cost savings in homes and businesses. The plan also included moves to create a a fund which can help finance energy-saving infrastructure projects and an urgent call on member states and industry to develop new ways of financing energy-efficient refurbishments.

Danuta Hübner, the EU’s regional policy commissioner, said it was a “win-win measure”.

This will save energy, cut emissions, bring down fuel bills for the most vulnerable in society and help the construction industry and SMEs in particular,” Ms Hübner said. “We hope that the Council and the European Parliament will adopt this proposal without delay and that Member States will move quickly to set up schemes to harness this investment.”

Andris Piebalgs, commissioner for energy, said the move would help European citizens improve the quality of their homes while making a “substantial contribution” to climate change and security of supply policies.

Just outside Bristol, a driver is filling a J Sainsbury delivery truck with fuel. It looks like petrol but is in fact produced from rotting rubbish.

This innovation in green fuel technology is turning what was previously regarded as a source of environmental blight – landfill waste – into an opportunity for companies to save money while bolstering their green credentials.

The new fuel, liquid bio-methane, has been produced by a young British company, Gasrec, which is hoping to capitalise on the credit crunch by persuading organisations that operate large fleets to switch from reliance on diesel. LBM, Gasrec claims, will enable organisations to make significant savings on fleet fuel bills. Gasrec is the only company in Europe to make the fuel, though Prometheus Energy has led the way in the US.

The new fuel is potent enough to power the heaviest vehicles, as it is proving, for instance, in trials with Sainsbury’s, which aims to roll it out to its entire fleet. Any vehicle equipped to operate on liquefied or compressed natural gas can also use LBM, but Gasrec claims it is even greener, offering twice the reduction in CO2 emissions compared with these other alternative fuels, while burning far more cleanly than diesel.

LBM is produced at Gasrec’s discreetly sited industrial plant in Albury, Surrey, which began operating this summer. Raw gas from an adjacent landfill site, run by Sita UK, is piped to the Gasrec plant. Landfill gas forms naturally from decomposing rubbish, and is normally flared to render it harmless, but increasingly landfill operators are utilising it as an energy resource. At the Gasrec plant it is compressed, purified and refined, then liquefied to produce LBM. It is then distributed to clients’ fuel bunkers by Hardstaff Group, transporters of gas fuel.

Gasrec’s initial targets are refuse collection fleets, logistics businesses and large retailer trunking operations: “We provide a virtuous circle because these companies produce a lot of waste. We take the waste, make the fuel, sell the fuel back to them and it closes the loop,” explains James Ingall, Gasrec finance director.

Once at full capacity, Albury could produce 5,000 tonnes of LBM annually – enough to fuel up to 150 HGVs or 500 LGVs for a year. And Gasrec envisages opening several plants to process 50,000 tonnes of LBM a year within three to four years.

Sita UK is among the first to trial the fuel. Veolia, another major waste company, is testing LBM in an Iveco light commercial vehicle used in its street cleansing contract with London’s Camden council.

Mr Ingall is aware the green procurement policies of many companies are vulnerable at times of financial constraint. But he hopes to persuade them that tackling carbon emissions can also save money. “Possibly the first thing to go out the window is the environment,” he says. “But there’s an important point in there. Our business is not just built on the pillar of being environmentally sound, it is also cost-effective because our fuel is cheaper than diesel so there’s a financial benefit in there for customers, which in a time of economic decline is possibly even more important than when times are good.”

The reason, he says, that LBM is cheaper than diesel is that its processing does not involve distilling complex hydrocarbons.

Another key selling point is security of supply. Because LBM is not sourced from potentially unstable regions such as Russia and the Middle East, Gasrec can fix the price for a time that, Mr Ingall says, “gives customers visibility of costs”.

This is borne out by Trevor Fletcher, managing director of Hardstaff Group, which not only distributes LBM but also uses it to run most of its dual fuel trucks.

“As a fleet operator we only considered cost-effective, reliable and sustainable alternative fuels that would lessen our impact on the environment. We chose natural gas and renewable methane, derived from household waste, because it satisfied all these requirements.”

The tempting dream that global recession may be vanquished by a worldwide push into green technologies is threatened by a powerful international army of foes: Chilean salt lakes, German ball bearings and Japanese ingots.

The critical role of these three has, until now, been largely ignored: expansive national schemes and grand political pronouncements have been crafted worldwide on the assumption that the engineering and chemistry behind those bold alternative energy plans would take care of themselves.

That, industry veterans say, may have been wishful thinking.

Without this trio of resources, Europe and Asia's ambitious plans to build dozens of nuclear power plants, China's dream of giant wind farms and America's hopes for the electric car could be, at best, delayed and, at worst, dashed entirely.

The cracks in the future supply of the “picks and shovels” of green technology, scientists and financial analysts argue, have begun to show. In the case of lithium, the metal on which the vision of the electric car is based, the level of worldwide reserves may prevent more than a few tens of thousands of units of the hotly anticipated Chevrolet Volt ever being produced.

Since the commercialisation of lithium ion batteries in the early 1990s, production and use of the technology has soared. The metal - difficult to extract and with reserves skewed to certain pockets of South America - has been seized on by the global electronics industry as the answer to its prayers. The power of the lithium battery drives personal information technology, from iPods and mobile phones to laptops and BlackBerrys.

Between 2003 and 2007, industrial demand for lithium doubled and now consumption stands at about 80,000 tonnes a year: give or take 18 months of global downturn, the growth rate for lithium demand is soon expected to return to about 25 per cent per year.

However, some experts say, the present calculations of lithium reserve usage do not take sufficient account of the potential demand from the car industry if it truly plans to convert the world to cleaner, emission-free electric cars. The sort of batteries large enough to power a car use about 100 times more lithium than a laptop and, according to William Tahil, research director of Meridian International Research, there is not enough commercially extractable lithium in the world to meet the sort of demand implied if motoring goes electric.

By his calculations, world reserves of lithium - that is, the quantity that can be extracted economically - are about four million tonnes. Mr Tahil told The Times that production of lithium cannot possibly be expanded to meet the ambitions of the car industry. Even highly productive lodes of the material, such as the deposits at the Salar de Atacama salt lake in Chile, may be past their peak already.

Although Mr Tahil's warnings are not universally accepted by industrial users and producers of lithium, actions speak louder than words. Toyota is said to have scrapped plans to use a lithium battery in its 2009 Prius hybrid and will stick with the heavier, less efficient, nickel battery. The company said recently that it did not believe that future lithium supply would be able to sustain the dual demands from the electronics and car industries.

Another of the cornerstones in the world's attempt to wean itself off fossil fuels has been the belief that nuclear power could be ramped up substantially. If all the plans for new nuclear generators are totted up, the World Nuclear Association has said that an additional 237 reactors will be built over the next 21 years.

The only snag with that plan lies in the island of Hokkaido and in a century-old steel forge that produces 80 per cent of the world's reactor cores - a highly specialised piece of steel, milled from a single 600-tonne ingot, which only a few companies in the world can handle. Nearly two years ago, the nuclear industry started to get worried: Japan Steel Works (JSW) was able to churn out only four of these reactors a year, far, far below the demand implied by the politicians' promises and considerably lower than the biggest players in nuclear - Areva, of France, and Toshiba, of Japan - were at all happy with.

JSW accepted that there was a problem and said that it would invest heavily to ramp up production to 8 cores per year. But that will still not be enough to meet implied demand: JSW has an overstuffed order book that stretches decades out and the tussle to win spots near the front of the waiting list has turned ugly, according to some reports. Toshiba, Hitachi and Mitsubishi all hold stakes in JSW in what is understood to be an “ongoing gesture of goodwill” to the steelmaker.

In a move that analysts said revealed the extent of the desperation in Europe, Areva struck a deal with JSW this month for long-term purchase agreements and bought a 1.3 per cent stake in the company. JSW has said that it might be able to produce 12 reactor cores per year by 2011. Nuclear industry insiders told The Times that JSW's virtual monopoly was still the “biggest, most overlooked bottleneck” for a nuclear renaissance.

Where the nuclear industry is confronted by the complexities of handling very large hunks of specialised steel, the wind-power industry, especially in China, faces a technology bottleneck on a far smaller scale: it cannot lay its hands on enough gearboxes and the German ball bearings that keep them rolling. As one of the most important components in a wind-turbine generator, and the second most costly after the supporting tower, gearbox supply issues feature heavily in the industry's growth plans.

The component shortages are particularly acute. In the past, leading turbine makers invested heavily to secure the supply chain, buying up the gearbox makers, but that has still not solved the issue. Simon Powell, of CLSA Asia-Pacific Markets, said that although the financial crisis had mildly alleviated the imbalance of supply and demand in wind power, the gearbox and bearings shortage could last for another two years.

Russia said on Wednesday that a Nato decision to rule out near-term membership for Ukraine and Georgia showed that the US-led military alliance is shying away from interfering with the Russian sphere of influence.

“There is an open split within Nato and it will widen if it tries to expand further”, Dmitry Rogozin, Russian ambassador to Nato, said on the website of state broadcaster Vesti-24. “The schemes of those who adopted a frozen approach to Russia have been destroyed.”

On Tuesday night Nato agreed to a “conditional and gradual” resumption of dialogue with Russia, seeking to end divisions between the US and its main European allies on what stance the defence organisation should adopt towards the Kremlin.

On the same day the European Union resumed talks on an economic co-operation agreement with Russia, the 26-member Nato alliance made a similar attempt to renew relations with Moscow, which were badly undermined by the Russian invasion of Georgia.

At a meeting of alliance foreign ministers, Nato agreed to start informal sessions of the Nato-Russia Council, set up to manage security ties between Moscow and the west. It also mandated Jaap De Hoop Scheffer, Nato's secretary-general, to explore the scope to resume the political relationship. But Mr De Hoop Scheffer made clear Nato's move did not mean the alliance accepted Russia's takeover of Abkhazia and South Ossetia or its threat to site short-range missiles in the Kaliningrad enclave.

“It certainly does not mean that we consider it acceptable to hear voices from Moscow we thought we would not hear any more on a possible siting of Iskander missiles near Lithuania or threatening our staunch ally Poland,” he said.

Condoleezza Rice, US secretary of state, reinforced this. “This is not business as usual,” she said. The US still considered Russia's action in Georgia in the summer to be “unacceptable”.

The outgoing Bush administration has been keen to maintain a tough position after the Georgian war but Germany and France - which want to resume ties with a big trading and energy partner - sought a rapprochement. Diplomats said Nato’s move gave Barack Obama, US president-elect, more scope to recast the relationship with Moscow as he wished.

“This will take some of the bad blood out of the relationship,” said a senior diplomat from an EU state. “But the speed with which ties are resumed – especially military ties – will depend on how Moscow acts now.”

Although Nato decided not to grant Georgia and Ukraine immediate admission to the organisation’s membership plan (Map), it agreed to engage with the two former Soviet republics over political and security reforms they must undertake to become Nato members.

But, in deference to Germany and France, Nato agreed not to rule out the possibility that both former Soviet republics might have formally to qualify for Map.

President Dmitry Medvedev was due to hold talks with Fidel Castro tonight to rebuild Russia's relations with Cuba almost a decade after they ended in acrimony.

The Russian leader earlier met and signed deals on nickel mining and oil exploration with Raul Castro, who succeeded his ailing older brother as Cuba's president in February.

In a display of bonhomie, the two presidents toured Havana's historical sights arm in arm. "It has been a magnificent visit and now he will see Fidel," Raul shouted to TV cameras.

The one-night stop in Havana was the final leg of Medvedev's week-long Latin America tour, a visit intended to open business opportunties for Russian companies and to show that Moscow could operate in the US backyard amid tension over Washington's involvement in eastern Europe and the Caucasus.

"One must admit, to put it simply, we have never had a serious presence here (in Latin America). These have been just episodes," Medvedev told reporters.

His stops in Peru, Brazil and Venezuela showed Moscow's determination to become a regional player, he said. "In some ways we are only now beginning full-fledged, full-format and, I hope, mutually beneficial contacts with the leaders of these states. We should not be shy and fear competition. We must bravely enter the fight."

A Russian naval squadron led by the nuclear-powered cruiser Peter the Great has moored off Venezuela's coast and is due to hold joint exercises next week with Venezuela's navy, Moscow's first such deployment since the cold war.

Russia's relations with Havana curdled after the collapse of the Soviet Union ended its subsidies to Castro's government, a brutal economic blow to an island enduring a US embargo. Medvedev's predecessor, Vladimir Putin, rubbed salt in the wound by closing Russia's Lourdes intelligence base in Havana in 2000.

Both sides hope to benefit from trade and energy deals, including oil drilling in Cuba's segment of the Gulf of Mexico.

Today's visit was carefully prepared over the past year with repeated visits to Havana by high-ranking Russian officials. The recent opening of a Russian orthodox church in the capital signalled the Castro government's eagerness.

However analysts said Raul, who is deemed to be more pragmatic than Fidel, would stop short of military or other types of cooperation with Moscow which could sabotage Havana's hopes of a softer US policy under an Obama administration.

Azerbaijan and Turkmenistan agreed a common energy export strategy that could help unlock new pipeline routes from the Caspian region, easing European dependence on Russian supplies. The EU and US have urged Turkmenistan to join the planned Nabucco pipeline project to move gas across Azerbaijan, Georgia and Turkey.

"Turkmenistan and Azerbaijan are rich in hydrocarbon resources and share a common view about diversifying energy export routes to the world market," Gurbanguly Berdymukhamedov, the president of Turkmenistan, said after a meeting on Friday with Ilham Aliev, the leader of Azerbaijan, in Turkmenbashi, an oil town on the Caspian Sea.

Mr Berdymukhamedov has expressed interest in Nabucco but is under pressure to increase gas exports to Russia, the main market for Turkmen gas. He has also contracted to supply gas to China through a new pipeline now being built to the east.

Chinese manufacturing slumped in November, according to two surveys released on Monday as recessions in Europe, the US and Japan began to hit the country’s export machine.

The record falls in activity in both surveys underlined the rapid deceleration in the Chinese economy in recent months, which has raised fears of heavy job losses and prompted shifts in fiscal and monetary policy.

The purchasing managers index compiled by the government-linked China Federation of Logistics and Purchasing fell from 44.6 in October to 38.8 last month. The figure for new export orders plunged from 41.4 to 29.

A separate index by CLSA, the Hong Kong-based brokerage, also dropped sharply to a record low from 45.2 last month to 40.9 in November, the fourth month in a row that the figure has declined. Export order receipts fell sharply, as did employment levels at manufacturing companies.

Eric Fishwick, economist at CLSA, said: “Another grim month for Chinese manufacturing and the first in which weakness in overseas demand overtook what has been mainly a domestic slowdown.”

Most economists expect Chinese manufacturing to remain weak for at least six months, if not longer.

In the US, new data from the Institute for Supply Management showed manufacturing activity suffered a further slowdown last month to a 26-year low.

The ISM’s overall index fell to 36.2 in November, the lowest since May 1982, from 38.9 in October, marking the fourth consecutive month of rapid contraction.

News of the continued slump in Chinese manufacturing came as the country’s central bank announced a relatively big one-day drop in the value of the renminbi against the US dollar. The renminbi rate was set on Monday at 6.8505 to the US dollar, up from 6.8349 on Friday, the biggest one-day change in six months.

Economists cautioned against reading too much into one-day movements but it coincided with speculation China might seek to weaken its currency against the dollar to soften the effects of the global slowdown on its exporters.

A renminbi depreciation would probably fuel tensions with the US and Europe over China’s large trade surplus. Hank Paulson, the US Treasury secretary, is to visit Beijing this week.

Beijing’s growing economic concerns were underlined in comments from Hu Jintao, the president, in which he referred to problems faced by exporters. “External demand has obviously weakened and China’s traditional competitive advantage is being gradually weakened,” he said.

“Whether we can turn the pressures into momentum, transform challenges into opportunities and maintain stable and fairly fast economic development is a test . . . of the party’s ability to govern.”

Additional reporting by Joanna Chung in New York

The world's stock markets suffered another round of falls yesterday as the body regarded as the arbiter of US recessions said the American economy's 73-month economic expansion ended in December 2007.

The news came as surveys of business confidence across continents displayed further catastrophic declines. The US economy decreased at an annualised rate of 0.5 per cent in the third quarter of 2008, having grown by an annualised 2.8 per cent in the second quarter. Although it thus does not yet qualify as a recession according to the common definition of two successive quarters of negative growth, the US National Bureau of Economic Research's business cycle dating committee employs a much more flexible definition of recession, as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity."

Manufacturing in the US contracted in November at the fastest pace in 26 years, putting American factories at the sharp end of a global industrial slump, according to the Arizona-based Institute for Supply Management's factory index. At 36.2, the reading is at its lowest level since 1982. A reading of 50 is the dividing line between expansion and contraction. Similar measures from China, the UK, the euro area, and Russia also all dropped to record lows.

Asked about the NBER economists' ruling that the US fell into a recession a year ago – and that this is now the longest recession since the early Eighties – the Treasury secretary, Hank Paulson, said he didn't think the decision was going to be "big news" to Americans who have been dealing with the slowdown for some time. Separately, Ben Bernanke, chairman of the Federal Reserve, said it was "feasible" that more US interest rate cuts could be made, although with the rate now down to 1 per cent, the scope for them was limited.

The Dow Jones Industrial Average slid 7.7 per cent to 8,149.1, erasing around half of the gains made over five consecutive upwards sessions. In London, the FTSE 100 shed 5.2 per cent to 4,065.5.

Sterling fell as much a 5.2 cents against the dollar, touching $1.486, in its steepest one-day fall since the ERM crisis of September 1992, as the latest monthly survey of confidence among managers by the Chartered Institute of Purchasing and Supply (CIPS) showed that during November manufacturing output shrank at its fastest level since the survey began in 1992. Cuts in interest rates by the Bank of England and an approximate 20 per cent depreciation in sterling over the past year have thus far failed to counter-act the continuing effects of the credit squeeze and a global slump in demand.

The CIPS data suggests the outlook has worsened markedly in the past few weeks as turmoil on the world's financial markets has fed growing insecurity among businesses and consumers about borrowing – and intensified the commercial banks' reluctance to lend. Yesterday, dollar Libor rates increased and the key sterling Libor/OIS index differential also widened slightly, both additional signs that the credit crisis is far from over. Ten-year gilt yields fell to their lowest since records began 30 years ago and sterling fell, as expectations grew that the Bank of England will be forced to cut rates sharply this week.

The headline manufacturing PMI reading from Market/CIPS fell to 34.4 from October's 41.5, well under analysts' estimates of a decline to around 40.

The CIPS figures came a day after the Engineering Employers' Federation warned that British industry will see 90,000 redundancies next year. Howard Archer, UK economist at Global Insight, said "the exceptionally weak manufacturing survey" led it to believe "there is an even stronger chance now that the Monetary Policy Committee will deliver a 100-basis point cut, taking interest rates down ... to 2 per cent" on Thursday.

A sharp slump in new orders has pushed Britain's struggling manufacturing industry to its lowest point in at least 16 years.

The latest purchasing managers index, published this morning, sent shares falling in London, weakened the pound and fuelled speculation of a hefty cut in interest rates.

The PMI manufacturing data for November showed that activity in the sector shrank to its lowest point since the survey began in 1992. The headline figure plunged to 34.4, down from 40.7 in October, making November the third month in a row to see a record decline. This is also the biggest monthly drop on record since the Chartered Institute of Purchasing and Supply began the series in 1992. Any figure below 50 indicates a contraction.

The decline in activity was caused by a dearth of new orders, with order books contracting by the most on record. The measure tracking new orders hit an all-time low of 29.7, down from 37 the previous month – indicating a sudden deterioration in demand.

Economists agreed that the data showed that the manufacturing sector is already suffering a painful recession.

"UK manufacturing activity has fallen off a large cliff," said Howard Archer, chief UK and European economist at IHS Global Insight, who dubbed the data "absolutely terrible".

Ken Wattret, chief eurozone economist at BNP Paribas, said that the PMI figures echoed other surveys which show that the global manufacturing industry is in serious trouble.

The FTSE 100 fell deeper into negative territory after the data was released, shedding 111.6 points, or 2.6%, to 4176.5 by mid-morning.

One bright spot was that input costs fell significantly, with energy, metal, plastic and timber all costing less in November than the previous month.

At the same time, output prices rose by much less than in previous months, showing that manufacturers are coming under pressure to keep their prices down as the recession kicks in.

There was little evidence that sterling's steady decline against other currencies has given exporters much relief, as economies around the world slip into recession.

The pound slipped further against the dollar after the data was released, hitting a low of $1.5010. Traders expect the Bank of England to make another substantial cut in interest rates when its monetary policy committee meets later this week, with engineering and manufacturing organisations demanding a full percentage point cut to 2%.

Overnight, China's own PMI index showed that the country's manufacturing sector was under assault from the global economic downturn. It fell to an all-time low of 38.8 in November, down from 44.6 in October, as Chinese factories suffered a fall in orders, especially from overseas.