ODAC Newsletter - 19 December 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.
Peak oil inched closer to official recognition this week as the International Energy Agency’s chief economist Fatih Birol conceded that conventional oil will peak by 2020. This is somewhat more explicit and pessimistic than the IEA’s recently published World Energy Outlook 2008. With luck his opinion will provoke some free and frank discussion when Britain’s Energy Secretary Ed Miliband hosts a summit with OPEC oil ministers in London today.
On the markets, even news of a record OPEC production cut of 2.2 million barrels per day failed to stop the oil price hitting a 4 year low of $36/barrel, with attention focussed on collapsing demand in the US and China, and with the usual scepticism about the cartel’s ability to make any agreement stick. Such low prices set the market up for another spike as soon as growth returns.
The depth of the economic crisis was underscored as the Fed slashed interest rates almost to zero, meaning it has all but exhausted the conventional ammunition for fighting a slump. After years of aggressive free marketeering, the tide is turning towards ‘New Deal’ style intervention, and with luck this will include massive investment in renewables.
The ODAC newsletter will be taking a break over the holidays and will return on January 9th. Season Greetings and Happy 2009!
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Can you think of a major threat for which the British government does not prepare? It employs an army of civil servants, spooks and consultants to assess the chances of terrorist attacks, financial collapse, floods, epidemics, even asteroid strikes, and to work out what it should do if they happen. But there is one hazard about which it appears intensely relaxed. It has never conducted its own assessment of the state of global oil supplies and the possibility that one day they might peak and then go into decline.
If you ask, it always produces the same response: “global oil resources are adequate for the foreseeable future.” It knows this, it says, because of the assessments made by the International Energy Agency (IEA) in its World Energy Outlook reports. In the 2007 report, the IEA does appear to support the government’s view. “World oil resources,” it states, “are judged to be sufficient to meet the projected growth in demand to 2030?; though it says nothing about what happens at that point, or whether they will continue to be sufficient after 2030. But this, as far as Whitehall is concerned, is the end of the matter. Like most of the rich world’s governments, the United Kingdom treats the IEA’s projections as gospel. Earlier this year, I submitted a Freedom of Information request to the UK’s Department for Business, asking what contingency plans the government has made for global supplies of oil peaking by 2020. The answer was as follows: “the Government does not feel the need to hold contingency plans specifically for the eventuality of crude oil supplies peaking between now and 2020.”
So the IEA had better bloody well be right. In the report on peak oil commissioned by the US Department of Energy, the oil analyst Robert L.Hirsch concluded that “without timely mitigation, the economic, social and political costs” of world oil supplies peaking “will be unprecedented.” He went on to explain what “timely mitigation” meant. Even a worldwide emergency response “10 years before world oil peaking”, he wrote, would leave “a liquid fuels shortfall roughly a decade after the time that oil would have peaked.” To avoid global economic collapse, we need to begin “a mitigation crash program 20 years before peaking.” If Hirsch is right and if oil supplies peak before 2028, we’re in deep doodah.
So burn this into your mind: between 2007 and 2008 the IEA radically changed its assessment. Until this year’s report, the agency mocked people who said that oil supplies might peak. In the foreword to a book it published in 2005, its executive director, Claude Mandil, dismissed those who warned of this event as “doomsayers”. “The IEA has long maintained that none of this is a cause for concern,” he wrote. “Hydrocarbon resources around the world are abundant and will easily fuel the world through its transition to a sustainable energy future.” In its 2007 World Energy Outlook, the IEA predicted a rate of decline in output from the world’s existing oilfields of 3.7% a year. This, it said, presented a short-term challenge, with the possibility of a temporary supply crunch in 2015, but with sufficient investment any shortfall could be covered. But the new report, published last month, carried a very different message: a projected rate of decline of 6.7%, which means a much greater gap to fill.
More importantly, in the 2008 report the IEA suggests for the first time that world petroleum supplies might hit the buffers. “Although global oil production in total is not expected to peak before 2030, production of conventional oil … is projected to level off towards the end of the projection period.” These bland words reveal a major shift. Never before has one of the IEA’s energy outlooks forecast the peaking or plateauing of the world’s conventional oil production (which is what we mean when we talk about peak oil).
But that is as specific as the report gets. Does it or doesn’t it mean that we have time to prepare? What does “towards the end of the projection period” mean? The agency has never produced a more precise forecast – until now. For the first time, in the interview I conducted with its chief economist Fatih Birol, it has given us a date. And it should scare the pants off anyone who understands the implications.
Fatih Birol, the lead author of the new energy outlook, is a small, shrewd, unflustered man with thick grey hair and Alistair Darling eyebrows. He explained to me that the agency’s new projections were based on a major study it had undertaken into decline rates in the world’s 800 largest oil fields. So what were its previous figures based on? “It was mainly an assumption, a global assumption about the world’s oil fields. This year, we looked at it country by country, field by field and we looked at it also onshore and offshore. It was very very detailed. Last year it was an assumption, and this year it’s a finding of our study.” I told him that it seemed extraordinary to me that the IEA hadn’t done this work before, but had based its assessment on educated guesswork. “In fact nobody had done this research,” he told me. “This is the first publicly available data”.
So was it not irresponsible to publish a decline rate of 3.7% in 2007, when there was no proper research supporting it? “No, our previous decline assumptions have always mentioned that these are assumptions to the best of our knowledge - and we also said that the declines [could be] higher than what we have assumed.”
Then I asked him a question for which I didn’t expect a straight answer: could he give me a precise date by which he expects conventional oil supplies to stop growing?
“In terms of non-OPEC [countries outside the big oil producers’ cartel]”, he replied, “we are expecting that in three, four years’ time the production of conventional oil will come to a plateau, and start to decline. … In terms of the global picture, assuming that OPEC will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is of course not good news from a global oil supply point of view.”
Around 2020. That casts the issue in quite a different light. Mr Birol’s date, if correct, gives us about 11 years to prepare. If the Hirsch report is right, we have already missed the boat. Birol says we need a “global energy revolution” to avoid an oil crunch, including (disastrously for the environment) a massive global drive to exploit unconventional oils, such as the Canadian tar sands. But nothing on this scale has yet happened, and Hirsch suggests that even if it began today, the necessary investments and infrastructure changes could not be made in time. Fatih Birol told me “I think time is not on our side here.”
When I pressed him on the shift in the agency’s position, he argued that the IEA has been saying something like this all along. “We said in the past that one day we will run out of oil. We never said that we will have hundreds of years of oil … but what we have said is that this year, compared to past years, we have seen that the decline rates are significantly higher than what we have seen before. But our line that we are on an unsustainable energy path has not changed”.
This of course is face-saving nonsense. There is a vast difference between a decline rate of 3.7% and a rate of 6.7%. There is an even bigger difference between suggesting that the world is following an unsustainable energy path – a statement almost everyone can subscribe to – and revealing that conventional oil supplies are likely to plateau around 2020. If this is what the IEA meant in the past, it wasn’t expressing itself very clearly.
So what do we do? We could take to the hills, or we could hope and pray that Hirsch is wrong about the 20-year lead time, and begin a global crash programme today of fuel efficiency and electrification. In either case, the British government had better start drawing up some contingency plans.
When the cabin crew admits to anxiety, it is time to panic. The International Energy Authority has always brushed off claims that oil will soon dry up, adopting the tone of a nonchalant air steward guiding jittery travellers through turbulence. This morning, however, the organisation's chief economist, Fatih Birol, tells the Guardian that he expects global production will stop growing in around 2020. It is a remarkable turnaround for the IEA, which only three years ago was insisting that there was no fundamental reason why oil should not continue to grease the cogs of the global economy.
The news will give an edge to the London summit of oil producers and consumers due at the end of the week. It is, however, only one of many reasons for overhauling the marketopian thinking that has long exerted a peculiar hold over British energy policy, a process the new energy and climate change secretary sought to kick off with a thoughtful speech delivered last week. Back in October Ed Miliband was handed the new portfolio, which united the energy brief from the old DTI with responsibility for greenhouse gases, previously the ward of the environment department. Energy ministries have come and gone in the past, previously being invented in 1942 to deal with the pressing needs of wartime, and then again in 1974 to respond to the first oil shock. But over a generation, Whitehall grew to believe that market disciplines could solve all the problems.
The seeds were sown in the early 80s by Tory radical Nigel Lawson, who as energy secretary dismissed all talk of strategic planning as "guessing the unguessable". Once the work of privatisation had been completed, this thinking rendered the energy department redundant, and it was abolished in 1992. The extent to which laissez-faire wove its way into the intellectual DNA of the remaining energy officials can hardly be overstated. Whereas most New Labour ministers talk as if the world began in 1997, those briefed by Whitehall on energy set year zero at 1990, when electricity privatisation began. Much more worrying, in the light of this morning's revelation about the IEA's latest thinking, was the complacent stance adopted in relation to future energy costs.
The free-for-all was not without its upsides, having - until recently - provided Britain with some of Europe's cheapest electricity. But just as the credit crunch has exposed how private financial interests can soon morph into public problems, Mr Miliband argued that there are nowadays all sorts of reasons why the invisible hand of the market may fail to reconcile individual interests in energy to the common good. Fairness is one, as is underlined by the routine exploitation of poorer customers who rely on prepay meters. The Ofgem report on such pricing is due soon, and it is imperative that it delivers more than the anaemic conclusions for which that watchdog has often been known. Security of supply is another. In the 90s the North Sea made Britain a big energy exporter, but already the UK has tipped over into being a net importer, and in just 10 years' time more than half of the power will have to come from global markets, where the pattern of demand is increasingly shaped by the unquenchable thirst of India and China, and where supply depends on volatile players such as Russia.
Climate change, however, is the biggest of all reasons why the energy market cannot be allowed to let rip. Encouragingly, Barack Obama's choice to head his own energy department, the respected scientist Steven Chu, does understand this, supporting not only smart regulation but also a coordinating and financing role for the government in advancing green generation. Despite the EU's craven decision last week to hand a climate change pass to several polluters, Europe did agree to around €6bn in funding for carbon capture. Albeit falteringly, the world is coming to grasp that energy markets need some energetic new thought.
Oil prices slipped to a four-and-half-year low last night even as Opec announced its largest production cut, totalling nearly 5 per cent of global output, in the cartel's latest effort to bolster prices.
At a meeting in Oran, Algeria, the organisation of oil exporters said that it would slash supplies by a further 2.2 million barrels a day to 24.84 million barrels from January 1. The cut exceeded Opec's previous record cut in 1999 of 1.7 million barrels.
Chakib Khelil, the Opec president and Algerian Energy Minister, said that the latest cuts had brought the total reductions announced by the cartel since August to 4.2 million barrels a day - or just under 5 per cent of global production, which averaged 86.3million barrels a day during the third quarter of this year.
“The impact of the grave global economic downturn has led to a destruction of demand, resulting in unprecedented downward pressure being exerted on prices,” Opec said in a statement justifying the action.
Demand in US tails off
Opec's efforts to turn round the oil market have traditionally been like steering a supertanker. It is a lengthy process.
Historically, the price of oil has been closely correlated with economic performance. High energy prices have fuelled inflation, hit demand and crimped output. The record price of oil only five months ago undoubtedly played a part in the present slowdown. Yesterday's production cuts were dramatic, but until the extent of the economic downturn becomes clearer, the recent slump in oil prices will be difficult to arrest and harder to reverse. Opec knows that the issue of price is one of supply and also demand.
The US Government predicted yesterday that demand for oil in the US, the world's largest consuming country, is set to level off and is unlikely to grow at all between now and 2030.
Growing use of alternative fuels, increased energy efficiency and a decline in the use of gas-guzzling cars and SUVs is shifting US oil use, according to the Energy Information Administration. In a report yesterday the agency predicted that the use of renewable energy, including solar, wind, biofuels and tidal power, would grow by 3 per cent per year.
Overall energy use is expected to increase gradually but at a significantly slower pace than expected a year ago.
The EIA, the arm of the US Government that produces official statistics on energy, also concluded that US reliance on imported oil will fall. It said that imported liquid fuels, mainly oil, would meet 40 per cent of US needs by 2025, down from 58per cent.
US oil demand is weakening rapidly as the country slips into recession. Figures from the International Energy Agency this month showed November demand in the 50 continental states was about 18.5 million barrels per day, down nearly 10 per cent on a year ago. That still represents some 21 per cent of global demand of about 86 million barrels.
But US reliance on imported oil from countries such as Saudi Arabia and Venezuela has become a major political issue.
President-elect Barack Obama has pledged to reduce America's dependence on the fuel and this week appointed Stephen Chu as his energy secretary. Mr Chu, a Nobel prize-winning physicist from the Lawrence Berkeley Laboratory in California, is a proponent of alternative fuels and a developer of scientific solutions to climate change.
T. Boone Pickens, the Texan oil billionaire, has started a campaign to shift America away from its dependence on imported oil by building huge windfarms across a central belt of the US.
Without incentives to further reduce US reliance on fossil fuel, the EIA forecast American CO2 emissions would continue to rise by 0.3 per cent a year, compared with an annual average increase of 1.1 per cent since 1990.
Nevertheless, oil traders remained unimpressed, with some questioning whether all Opec members would comply with the steep cuts - a continuing problem for the organisation.
After the announcement, the price of a barrel of benchmark US crude quickly dropped to a low of $40.20, its weakest level in four and a half years.
With demand collapsing, as some of the world's biggest economies enter recession and growing signs that Chinese oil consumption is also weakening, crude prices have slipped by more than $100 since July, when they briefly touched a record of $147 a barrel.
Andrew Horstead, energy analyst for Utilyx, predicted further price falls below $40 unless other countries joined forces with Opec with production cuts of their own. He said: “The demand numbers coming out of the US are incredibly weak, so I doubt if this will be enough to push prices higher on its own.”
Earlier, there had been speculation that Russia and Azerbaijan, which are not Opec members, would join in with the co-ordinated action and make cuts amounting to 600,000 barrels per day.John Hall, an independent oil analyst, said that these represented a “token gesture” because both countries were already reducing production for reasons such as a lack of investment and were dressing these up as collaborative market action with Opec.
“The real problem Opec has is one of compliance,” Mr Hall said. “The market just doesn't believe it can demonstrate its members are going to follow through in full.”
Mr Khelil rejected claims that some members might choose to produce more than their quotas. “I can tell you it's going to be implemented and it's going to be implemented very well because we do not have a choice,” he said. “If not, the situation is going to get worse.”
Opec, which was formed in 1960 and whose 12 members include Saudi Arabia, Iran, Iraq, Nigeria and Venezuela, produces about 40percent of the world's oil supplies. The cartel's production cuts were condemned by the White House. Tony Fratto, a spokesman, said that the cuts risked further undermining an already fragile global economy. “Opec has an obligation to keep the market well supplied and to consider the health of the global economy, so efforts to limit the benefits of lower energy prices are short-sighted,” Mr Fratto said.
Oil exporting governments are struggling to deal with the rapid collapse of oil prices, which is undermining their public finances. Saudi Arabia, Opec's biggest producer and de facto leader, said last month that it was targeting $75 a barrel, which it considered a fair price for oil. Other members, including Venezuela and Iran, have been pushing for higher prices.
The AA said this week that UK average petrol prices have fallen to their lowest level for more than 21 months. The price of petrol fell 5.4p between mid-November and mid-December, from 94.9p to 89.5p a litre, a level last seen in March 2007. Diesel costs, helped by hefty cuts by supermarkets, dropped 6.89p, from 108.82p to 101.93p a litre. A family with two petrol cars is spending £64.77 less per month than it was in the summer.
U.S. oil consumption will be flat through 2030, as the use of biofuels, rising oil prices and new car efficiency standards temper demand for petroleum, the Energy Information Administration said.
The last 20 years “has been a history of rising oil use,” Howard Gruenspecht, acting head of the agency, part of the U.S. Energy Department, said in a speech today in Washington. The new outlook “projects a break in this trend, with no appreciable growth in oil consumption between now and 2030 and biofuels being all of the growth in liquids.”
Use of liquid fuels, including biofuels, will grow by 1 million barrels a day between 2007 and 2030, the agency said in its Annual Energy Outlook. Ethanol consumption will increase to 12.2 billion gallons, and cellulosic ethanol feedstocks will reach 12.6 billion gallons by 2030, EIA says.
The outlook predicts oil prices of $130 a barrel, using 2007 dollars, by 2030. Crude oil for January delivery declined $2.81, or 6.4 percent, to $40.79 a barrel at 11:46 a.m. on the New York Mercantile Exchange. Prices have tumbled 72 percent from a record $147.27 on July 11.
The EIA said earlier this month that global oil consumption would drop by 50,000 barrels this year, the first time it has forecast a decline since 1983.
Imports of oil and gasoline are projected to fall from 58 percent of supplies to less than 40 percent in 2025, EIA finds. Natural gas imports also will decline as increased offshore production along with new gas from Alaska and unconventional sources reduce the share of imports from 16 percent in 2007 to 3 percent of supply in 2030.
Energy-related greenhouse gas emissions are forecast to grow at 0.3 percent a year, lower than the forecast rate of growth in energy use, resulting in a total of 6,410 million metric tons of carbon dioxide by 2030.
China's once ravenous hunger for energy is weakening at a record rate, compounding the pressure on Opec to slash global oil production this week by as much as two million barrels a day to prevent a glut.
With China's economy slowing sharply, the country's electricity output during November fell 9.6 per cent from a year ago to just over 254 billion kilowatt-hours, according to official figures published on Monday.
It was the second consecutive monthly decline and the largest fall on record. Other data pointed to a 3.5 per cent fall in demand for crude oil during the month.
With the Opec cartel of 13 oil producing nations set to meet today and tomorrow in Oran, Algeria, mounting evidence of the accelerating downturn in China, the world's second-largest oil consumer after the US, is likely to play a pivotal role in the discussions.
Abdullah al-Badri, the secretary-general of Opec, said: “We have to act, we see a very sizeable reduction. The market is oversupplied with oil.”
His comments were echoed on Monday by Chakib Khelil, the president of Opec. “Everybody is supporting a cut,” he said on his arrival at the meeting.
A sharp decline in consumption in the US and Japan, the world's number one and three oil consumers respectively, has already driven oil prices down by about $100 since July.
Hopes held by oil exporters that continued growth in Asian demand might serve to bolster prices are rapidly fading, amid growing fears that China too is slipping into recession. Since 2003, China has contributed one third of the global growth in oil demand.
But Goldman Sachs, the investment bank, predicted on Friday that Chinese energy demand was “on the cusp of a sharp deceleration” as manufacturers cut production and lay off staff to cope with the downturn. It forecast that oil demand would fall by 200,000 barrels per day during 2009.
This month, Francisco Blanch, commodity strategist at Merrill Lynch, predicted that the price of oil could fall to $25 a barrel if China entered recession.
While coal still supplies about 70 per cent of China's total energy needs, oil is the second-largest source, accounting for about 21 per cent.
China has made an effort to diversify its energy supplies but hydroelectric power (6 per cent), natural gas (3 per cent), and nuclear power (1 per cent) still account for small proportions of its total energy consumption.
Global crude prices rallied slightly yesterday as traders bet that Opec would announce a sharp cut in production and might be joined by Russia, which last week expressed its willingness to collaborate in bolstering prices.
Russia and Opec control about 50 per cent of the world's crude oil supplies.
A two million barrel a day cut would be the largest in Opec's history.
The cost of benchmark US crude rose by more than $3 a barrel in early trade to more than $50 — still far short of the $75 a barrel which Saudi Arabia, Opec's biggest producer, said last month was a “fair price” for a barrel of oil.
There was growing evidence yesterday that Saudi Arabia had already acted to trim production ahead of the meeting. Mr Khelil, who is also Algeria's Energy Minister, said that Saudi Arabia had taken a decision to reduce its supply to the market by 8 per cent.
— Shell has booked a fourth supertanker to store crude oil in the US Gulf. Ship brokers said that Shell had booked the Leo Glory from West Africa to the US.
Oil companies and traders are storing at least 50m barrels of oil in supertankers in a clear sign of supply outstripping demand as the global economy slows.
The surge in floating storage, – enough to meet France’s oil imports for a month and the biggest since late 2001–, is likely to push the Opec oil cartel, which is due to meet on Wednesday in Oran, Algeria, to make a deeper production cut to reduce stocks. Storing oil in tankers is unusual as it is significantly more expensive than inland.
Abdullah al-Badri, Opec’s secretary general, said on Monday:“Stocks are very high. We have to act. We see a very sizeable reduction [in production].”
Chakib Khelil, Opec president, said: “Everybody is supporting a cut.”
Oil prices rose briefly above $50 a barrel, recovering from a four-year low of $40.50 earlier this month. Oil later traded $1.30 down at $44.95 barrel on concerns that Opec’s cuts would not be enough to prevent further stock building.
Several Opec officials have suggested a 2m barrels-a-day cut, the biggest in recent history, and were also hoping to persuade Russia – the world’s largest oil producer outside the cartel – to make a reduction.
But with Russia’s oil output already declining because of a lack of investment, any commitment is likely to be seen as a political gesture rather than an actual reduction.
Whatever the size of Opec’s cut, the floating storage surge is a clear sign the cartel is losing its battle to cut supplies more quickly than demand falls.
Jens Martin Jensens, managing director at Bermuda-based Frontline, the world’s largest operator of supertankers, said that as many as 25 supertankers – each holding about 2m barrels – were being used as floating storage worldwide. Other traders suggested a similar number, pointing to companies such as BP and Royal Dutch Shell and traders such as Vitol and Koch as the holders of the oil.
Opec ministers said in November they intended to reduce developed countries’ oil stocks from the equivalent of 56 days of demand to 52. But the surge in floating storage indicates that tanks are brimming, in spite of Opec’s having announced 2m b/d in cuts. Indeed, inventories have risen to almost 57 days’ demand.
The International Energy Agency, the western countries’ oil watchdog, said the surge was the “result of abundant prompt supplies having a hard time finding customers”.
China National Petroleum Corp., the nation's biggest oil company, said it may slash investment in projects by at least 10 percent next year because of the global recession. The shares of unit PetroChina Co. fell in Hong Kong.
``The global financial crisis and slowdown of the domestic economy are forcing us to optimize investment with higher returns,'' Zhou Jiping, vice general manager of China National, said in a statement on its Web site today. Zhou didn't say if the possible investment cut would apply to overall spending or specific projects.
China National said on Dec. 16 that market uncertainties and the slowing global economy will make 2009 a ``difficult year.'' The oil producer echoed comments earlier this month by China Petroleum & Chemical Corp., the Hong Kong-listed unit of China Petrochemical Corp.
PetroChina shares fell as much as 1.8 percent to HK$7.07 in Hong Kong today and were at HK$7.17 at 2:31 p.m. local time.
The Chinese economy, the world's fourth-largest, grew at the slowest pace in five years in the third quarter as exports waned amid the global credit crisis. Oil in New York has slumped 73 percent from July's record of $147.27 a barrel.
Beijing-based China National said on Dec. 16 that risks in overseas expansion have risen. The oil producer is bidding for Canadian-listed Verenex Energy Inc. in a transaction valued at as much as $300 million, the South China Morning Post reported. Verenex owns oil and gas deposits in Libya, the report said.
Crude costs have plunged since their mid-summer high of $147/barrel. Oil recently dipped below $40 – a staggering 72pc fall. Within crude-importing Western countries, there is now a captive audience – including politicians, central bankers and anyone else trying to justify massive interest rate cuts – for the message that energy prices, having recently tumbled, will now stay low.
The danger is the comfort provided by such a view may have imbued it with more credence than the fundamentals suggest. Can we really assume oil will average less than $50/barrel next year – as many now do? Could crude languish down at $30? That would certainly keep a lid on inflation and give the Western world a boost.
But is it a credible view? On Thursday, crude prices jumped 10pc – the biggest gain in five weeks. It is hard to attribute such a sharp rise entirely to sabre-rattling by the Opec exporters’ cartel.
While many blithely assume the days of cheap oil will soon be back – and plug such reassuring assumptions into their economic models – the oil markets are in turmoil. Volatility – a measure of how rapidly and strongly traders think prices could move – just hit a 22-year high. So are there underlying reasons that oil could soon shoot up?
The basis of the low-oil case is “demand destruction”. As the global economy slows, crude use falls, which leads to a drop in prices. And, it’s true, demand has fallen in the US, the world’s biggest oil importer, by around 5pc in the third quarter of this year. Other Western nations have also been using less crude.
But the demand destruction argument deserves closer examination. I’ve often thought at least part of the reason US oil use has fallen is that the breakdown of the payment and credit system means gasoline simply isn’t getting to market. That’s certainly borne out by profit margins at American petrol stations, which have spiked – the opposite of what should happen if demand is actually loose.
It’s also worth noting that, despite apparently low demand, refined oil inventories in the US and across the Western world are extremely low. Again, that’s counter-intuitive if demand really has fallen off a cliff.
What’s undeniable is that low inventories mean prices can “turn on a dime” if demand ticks up just slightly – what economists call the “vertical supply curve”. And there are signs that could soon happen. Industry surveys suggest US gasoline use rose 0.3pc year-on-year last week – the first increase since April. After all, for the most part, oil is a necessity.
In any case the demand destruction argument falls apart if one bothers to look beyond the Western world. As their populations grow richer there is little sign of lower oil use in the still fast-growing emerging markets.
Granted, as the big Asian economies have slowed, this switch to high fuel-consumption has also slowed, but it’s still happening. The emerging markets now account for half of the world’s total oil use, the world population is growing fast, and in many of the most populous countries per capita oil use is growing faster still.
Against this strong demand backdrop, the supply picture looks pretty grim. Opec is now talking about “severe” production cuts – though their impact will depend, of course, on whether members comply.
What’s definite, though, is that recent price falls, combined with the credit crunch, have slashed investments in oil production. Large crude exporters such as Saudi Arabia, UAE and Russia have lately put major drilling projects “under review”, undermining future supplies. And global oil markets are buzzing with talk of growing evidence that the world’s largest fields are now seriously depleting.
Despite their importance to the outside world, oil markets are very murky. Hard information is jealously guarded and the true nature of the supply/demand balance is difficult to judge. But two factors convince me oil is on its way up – and that nostrums of cheap crude are indicative of a Western world in denial.
The first is the dollar – which is now under serious pressure. The markets are questioning whether the US currency deserves “safe haven” status.
As a new President starts spending serious bail-out cash, the only way for the dollar is down. And when the US currency falls, the oil price rises – not least because crude is priced in dollars. There aren’t many irrefutable relationships in global economics but – check out the graph – that’s one of them.
The second reason I’m sticking to my view is that the weight of money in the futures market isn’t banking on $50 oil next year. The December 2009 future contract traded at no less than $15 above the spot price last week – pointing to massive bets being placed on crude going up.
This so-called “contango” – when futures prices are above prices today – is now very wide. And while such markets are opaque and used for all kinds of complex hedging activity, the price of oil bought now for delivery next year and for years to come, is now nearer to $80 than $40.
Vital spending on energy infrastructure such as power stations and gas storage sites is threatened by the financial crisis, which has hit the supply of investment funds, the industry regulator has warned.
Alistair Buchanan, chief executive of Ofgem, told the Financial Times that energy companies were having to manage "some tremendous pressures", including the rising cost of finance.
"The issues that are affecting the financial markets could have quite a significant impact on the energy market," he said.
"It is going to be a very interesting year." His comments will reinforce concerns about whether the industry can meet the government's objectives of making energy supplies secure and affordable while cutting carbon dioxide emissions.
Energy companies have estimated that £100bn-plus of investment will be needed to to keep Britain's lights on and boilers firing in the coming decades.
MPs on the business and enterprise select committee warned last week that the financial crisis and a lack of political leadership threatened Britain with an "energy crunch" that could have "disastrous" social and economic effects. They added that the industry needed to be allowed to make reasonable profits, or badly needed investment in infrastructure would not come.
Energy suppliers remained under strong pressure over household bills yesterday, as a result of the steep falls in wholesale gas and electricity prices since the summer that have not been matched by cuts in retail prices.
Backbench Labour MPs launched a new attempt to threaten companies with a windfall tax if they did not cut bills quickly. Greg Clark, the Conservative shadow energy secretary, said that if the suppliers did not announce "firm action by Christmas to bring energy prices down", the government should launch a Competition Commission inquiry.
Mr Buchanan said the financial crisis need not prevent suppliers cutting retail prices, but would nevertheless have a significant impact on the industry.
Ofgem has already begun exploring the implications of a gas or electricity network operator getting into financial difficulties.
Early next year it will hold "war-game" exercises to rehearse the consequences of a possible crisis, such as a network operator being hit by a bad debt owed by a big company that has gone bust.
That danger remains hypothetical, however: there is no evidence of any network company getting into trouble. A more immediate problem is the steep rise in the cost of funding, which threatens investment plans.
Although energy suppliers are seen as more secure than many other businesses, they have still faced a steep increase in the cost of their borrowing in recent months.
Raising money with shares is also difficult. Centrica, the owner of British Gas, yesterday announced the results of its £2.2bn rights issue, which had a 91 per cent take-up from shareholders, seen by some as a good result in current market conditions.
For smaller energy companies, the problems are even worse. Ian Parrett of Inenco, a consultancy, said he had heard of planned investments in renewable energy failing to secure bank funding.
"Projects with sound business cases are being turned down by banks as being too risky," he said. "Some projects have found alternative routes for funding but this issue could be slowing development just when we need to speed it up."
Mr Buchanan said that as a result, Ofgem would be reviewing whether the industry could deliver the investment that would be needed to guarantee security of energy supplies.
"The economy could pick up quite dramatically, and the demand pick-up could be quite steep," he said, and when that happened, the supply of gas and electricity might not be able to keep up.
Ed Miliband, the climate and energy secretary, said in a speech last week that the credit crunch was an "added challenge" that was "an important focus for our new department".
Centrica is hoping to take advantage of knock-down valuations in the oil and gas industry next year to snap up gas producers and storage operators.
The owner of British Gas is already planning to spend £3.1 billion buying a 25 per cent stake in British Energy from EDF, the French state-controlled energy group.
On Monday, it said it had received a 91 per cent take-up from investors for a £2.2 billion rights issue to part fund the deal.
But the energy supplier is now discussing the terms of a fresh debt financing round of £1 billion to £1.5 billion. That would be enough for it to complete the joint takeover of Britain's nuclear industry while also giving the company the flexibility to consider fresh acquisitions, probably in the UK or Norwegian North Sea.
The same banks that underwrote the rights issue — Goldman Sachs, Credit Suisse, UBS, HSBC, BNP Paribas, the Royal Bank of Scotland and Barclays Capital — would be involved in the debt round.
Many smaller oil and gas operators are struggling because they cannot raise sufficient finance to complete projects. The plunging oil price has also undermined the economics of developing smaller oil and gas fields.
Centrica is keen to bolster its access to supplies of its own gas. The group said last week that it would struggle to trim retail prices before the spring because it had entered a series of costly bulk gas purchase contracts last summer when prices were close to record highs.
Boosting its own gas storage capacity would also help Centrica to ride out volatile prices in the wholesale markets.
The company is eager to buy into British Energy, whose eight nuclear plants generate one sixth of the United Kingdom's electricity, because it generates only about 30 per cent of the electricity it needs to supply its 15.9 million customers. That situation forces Centrica to buy at high prices in the wholesale power market.
The proposed deal, which would provide Centrica with a long-term off-take agreement for a quarter of British Energy's output, would increase this ratio to more than 40 per cent.
Roger Carr, the Centrica chairman, said that the level of take-up of the rights issue had been encouraging.
However, Centrica's acquisition of the stake in BE is not yet guaranteed. EU regulators are still negotiating the terms of the deal and its impact on competition, with EDF.
German renewable energy companies and bankers will meet officials in Berlin on Monday to discuss ways of preventing the financial crisis from casting a storm cloud over a vital domestic growth industry.
Up to 30 companies and organisations are expected to outline the problems facing the renewables sector, whose bullish projections have been overshadowed by concerns about project finance, falling prices and delayed orders.
Much is at stake. Innovative government subsidies have helped make Germany a leader in the manufacturer and roll-out of solar and wind technology in spite of a lack of dependable sunshine and breeze.
Turnover in the German renewables sector grew 10 per cent to €24.6bn ($33bn) last year as rising oil prices helped spur interest in the technology, supporting some 250,000 jobs.
An ambitious German climate target to produce 30 per cent of energy from renewables sources by 2020 and the election of Barack Obama – who is expected to lead a drive for more renewable energy in the US – have helped convince investors that the sector is set for continued strong growth.
This confidence was apparent last month when Solar World, the world’s third largest photovoltaic company, made an audacious €1bn offer to acquire Opel’s production facilities, which the carmaker rebuffed. Analysts were therefore shocked last week when Q-Cells, the world’s largest producer of solar cells, based in Thalheim, Germany, cut its sales and profit forecast for 2008, blaming a flood of requests from customers to postpone deliveries. Q-Cells shares fell more than 20 per cent after it warned that a deterioration in the outlook for project finance and uncertain conditions would cause demand to remain weak right into next year.
“Claims that the solar industry would not be affected by the financial crisis were too optimistic,” Karsten von Blumenthal, analyst at SES Research, said. “All along the value chain we have seen prices collapsing.”
Shares in Conergy, a rival solar systems manufacturer, came under pressure after a €400m capital-raising left underwriter Dresdner Bank holding more than 40 per cent of the offered shares.
Q-Cells representatives declined to be interviewed and Conergy did not return calls.
Analysts expect the price of solar components to fall next year amid a supply glut in part due to greater competition from China.
Although cheaper products are likely to spur consumer demand in the long term by making solar a viable alternative to fossil fuels, the short-term risk is that smaller players could struggle.
Government subsidies are being scaled back.
Germany has cut its much imitated feed-in tariff, which guarantees producers of electricity generated from renewable resources a price fixed above the standard electricity rate for up to 20 years.
Spain, the third biggest solar market, has set a limit of 500MW for subsidised solar power in 2009, less than half of this year’s cap.
Germany’s nascent offshore wind park industry is also entering treacherous waters as companies put off high-risk untested projects, which are estimated to cost about three times as much as their land-based equivalent.
A study published by PwC said Germany would fall short of a goal to install 25GW of offshore capacity by 2025.
Penny-pinching and red tape are suffocating government plans for a rapid increase in the amount of renewable energy used in Britain.
The plans – a cornerstone of ministers' strategy to combat climate change – set out to multiply the proportion of the country's energy provided by renewables by an ambitious five times in just 12 years. But they have yet to make headway because of official foot-dragging.
A government fund set up three years ago to encourage the development of wave and tide power has yet to provide a single penny to any device designed to tap the sea's energy. Civil service obstruction is holding up the deployment of rooftop wind turbines, despite a personal assurance from the Prime Minister that the problem had been solved. And grants for solar power have been cut back.
Peter Ainsworth, the shadow Environment Secretary, is planning to announce this week that he will introduce a Private Member's Bill to clear these obstructions, after coming high in the annual ballot for such Bills last week.
He said yesterday: "The situation is dire. A whole series of bureaucratic blockages are imperilling the rapid development of renewables in Britain."
The revelations come at the end of the most important two weeks for tackling climate change this year, both in Britain and globally. In the early hours of yesterday, the latest round of international negotiations on a new treaty to replace the Kyoto Protocol ended after making little progress.
The talks, in the Polish town of Poznan, were not expected to achieve much – largely because of the hiatus in US policymaking caused by the post-election transition – and amply lived down to expectations. They decided on little more than to set up a fund (which has almost no money in it) to help poor countries adapt to climate change, and to lay out a programme for negotiations next year, leading to a make-or-break December session in Copenhagen, billed as the last chance to take serious measures to limit global warming before it runs out of control.
If a treaty is to be agreed there, enormous progress will have to be made from last week's talks, with rich countries agreeing to cut emissions of greenhouses gases by some 40 per cent by 2020 and poor ones undertaking at least to limit the growth of their pollution. In one of the few breakthroughs at Poznan, Mexico pledged to halve its emissions by 2050, and delegates are hoping that the US president-elect, Barack Obama, will live up to his promise to breathe new life into the negotiations when he takes office.
As the talks were ending European leaders confirmed that EU countries, as a whole, would increase the proportion of energy provided by renewables to 20 per cent by 2020. Britain's share of this commitment is to get 15 per cent of its energy in this way.
Ministers accept this is an "extremely challenging" task since the country now achieves only 3 per cent – the third lowest in Europe after Luxembourg and Malta – despite having the best resources. But Gordon Brown has repeatedly reaffirmed his intention to achieve it, fighting off resistance from John Hutton, the minister previously responsible for energy, and replacing him with the more progressive Ed Miliband.
Still, official obstruction continues (see panel). The delay on rooftop wind is particularly puzzling because Mr Brown wrote a letter on 27 August to David Gordon, the head of one of the main firms producing the turbines, to say the issue was resolved.
Mr Gordon says his firm, Windsave, has 6,500 orders and 25,000 inquiries awaiting the official go-ahead. And a survey of local authorities by the Micropower Council has found only three upheld noise complaints from the several thousand turbines already installed.
The reduction in solar grants has had a similarly chilling effect. Sharp, the country's only manufacturer of the panels, says that only one 50th of its year's production is installed in Britain; the rest is exported to countries with more encouraging policies.
Power play: Water, wind, sun... and hot air
Wave and tide The Government's £50m Marine Renewables Deployment Fund has not given any money to support any device since being set up in 2005. It requires three months of operating experience before it releases funds, whereas the help is needed to get schemes to that point.
Rooftop windmills These do not need planning permission, subject to noise limits agreed months ago by ministers and industry, to make them half as quiet as a gas boiler. Officials have resisted, saying they should be almost four times quieter still. The industry says it cannot achieve this.
Solar power Government grants to encourage householders to install solar electric panels on roofs were rationed, then reduced by two-thirds just as they were taking off. So, only 270 were installed in Britain last year, compared with 130,000 in Germany.
Scientists say they now have unambiguous evidence that the warming in the Arctic is accelerating.
Computer models have long predicted that decreasing sea ice should amplify temperature changes in the northern polar region.
Julienne Stroeve, from the US National Snow and Ice Data Center, told a meeting of the American Geophysical Union that this process was under way.
Arctic ice cover in summer has seen rapid retreat in recent years.
The minimum extents reached in 2007 and 2008 were the smallest recorded in the satellite age.
"The sea ice is entering a new state where the ice cover has become so thin that no matter what happens during the summer in terms of temperature or circulation patterns, you're still going to have very low ice conditions," she told the meeting.
Theory predicts that as ice is lost in the Arctic, more of the ocean's surface will be exposed to solar radiation and will warm up.
When the autumn comes and the Sun goes down on the Arctic, that warmth should be released back into the atmosphere, delaying the fall in air temperatures.
Ultimately, this feedback process should result in Arctic temperatures rising faster than the global mean.
Dr Stroeve and colleagues have now analysed Arctic autumn (September, October, November) air temperatures for the period 2004-2008 and compared them to the long term average (1979 to 2008).
The results, they believe, are evidence of the predicted amplification effect.
"You see this large warming over the Arctic ocean of around 3C in these last four years compared to the long-term mean," explained Dr Stroeve.
"You see some smaller areas where you have temperature warming of maybe 5C; and this warming is directly located over those areas where we've lost all the ice."
If this process continues, it will extend the melting season for Arctic ice, delaying the onset of winter freezing and weakening further the whole system.
These warming effects are not just restricted to the ocean, Dr Stroeve said. Circulation patterns could then move the warmth over land areas, she added.
"The Arctic is really the air conditioner of the Northern Hemisphere, and as you lose that sea ice you change that air conditioner; and the rest of the system has to respond.
"You start affecting the temperature gradient between the Arctic and equator which affects atmospheric patterns and precipitation patterns.
"Exactly how this is going to play out, we really don't know yet. Our research is in its infancy."
The study reported by Dr Stroeve will be published in the journal Cryosphere shortly.
The world’s most stringent climate change package was approved by the European parliament on Wednesday, setting the scene for the toughest talks ever undertaken on climate change.
A packed year of international negotiations on climate change culminates in a crunch meeting next December in Copenhagen, at which 190 countries will gather to forge an agreement on cutting emissions that will replace the Kyoto protocol when its main provisions expire in 2012.
The clearing of the European Union’s final hurdle means the bloc is now committed to cutting its greenhouse gas emissions 20 per cent from 1990 levels by 2020; generating at least 20 per cent of its energy from renewable sources by 2020; and committing billions of euros in funding to develop carbon capture and storage technology.
Many parliamentarians complained that changes to the emissions trading system at the centre of the package were too generous to corporate interests and that the legislation allowed member states to undertake most of their emissions reductions outside of Europe. Nonetheless, they voted in favour.
“Of course, it’s not a perfect agreement. But if we say ‘no’, we’re left with nothing – with our arms empty,” said Lena Ek, a liberal democrat from Sweden, echoing a common refrain.
• Internationally agreed targets for greenhouse gas emissions cuts by developed countries
• Commitments, probably falling short of absolute cuts, but including curbs on greenhouse gases
• Agreement on measures to help poor countries adapt
• Agreement on how to finance transfer of low-carbon technology to developing countries and for forest preservation
Europe is expected to play a leading role in Copenhagen in brokering a deal with the US, Japan and rapidly developing countries such as India and, most importantly, China – which has overtaken the US to become the world’s biggest emitter of greenhouse gases.
Europe’s stringent measures – and its offer to up its target to a cut of 30 per cent in emissions compared with 1990 levels by 2020 if other countries come to an agreement – will put pressure on other developed countries to seal a deal.
But the most hopeful sign for a deal is the change of administration in the US. George W. Bush, the incumbent president, was accused by many other countries of stalling on global warming for years.
Barack Obama, who will take office in January, sent Senator John Kerry to a UN climate change meeting in Poznan, Poland, last week. Mr Kerry promised a fruitful partnership with Europe and said Mr Obama was determined to forge a deal on emissions cuts and invest in a low-carbon programme that would yield millions of new jobs.
“Mr Obama has made it clear he supports mandatory targets,” the senator said. “This is a significant departure from where we have been [under Mr Bush].”
But in spite of any newfound partnership between Europe and the US, next year’s negotiations are likely to be tough.
One of the faultlines – over how the burden of emissions cuts should be shared between rich and poor nations – was exposed towards the end of the Poznan conference, when developing countries, including Brazil and India, accused richer countries at the talks of a lack of generosity.
Yvo de Boer, the UN’s senior climate change official, said: “Poznan achieved what it was supposed to but it ended on a rather grim note ... It’s a worrying sign that people are taking up positions for a hard negotiation.”
Few would expect developing countries to sign up for absolute cuts in emissions of the kind that developed countries have taken on. But Mr Kerry made it clear that rapidly emerging economies, such as China, would have to commit to curb their emissions to ensure they do not rise as fast as they have in the recent past – in the UN jargon, to “deviate from business as usual”.
China’s leadership has shown an increasing willingness to negotiate on these points but is likely to demand some incentives in order to agree. Other developing countries might take a much harder line.
Among developed countries, a consensus is lacking. Australia unveiled a climate package this week but agreed only to cut emissions 5 per cent compared with 2000 levels by 2020 and by 15 per cent only in the “unlikely” event that other nations agreed to do the same. Japan is yet to come forward with a 2020 target and is wary of any agreement that penalises its industry compared with less efficient companies in China.
The world’s environment ministers will meet for UN negotiations at least twice and probably more often next year. Heads of state and government are likely to meet at least once, at a conference being mooted at the UN in September.
If scientific warnings are correct, the talks will decide whether or not global warming reaches catastrophic levels. The stakes could scarcely be higher.
Barack Obama made his most decisive break with the past eight years of George Bush yesterday, claiming the creation of a new energy economy for the US as the defining issue of his presidency and naming a Nobel science laureate and a supporter of Al Gore to his cabinet.
The president-elect turned the roll-out of his new energy and environment team, made at a press conference in Chicago, into a chance to restate his commitment towards putting energy reform at the centre of his economic plan.
"We have heard president after president promising to chart a new course," he said. "This time has to be different."
His choice of the physicist Steve Chu as his energy secretary and the veteran regulator Carol Browner for the newly created White House post of "climate tsarina" received almost unanimously positive response from environmentalists. The professional credentials of both were seen as a sign of Obama's determination to change America's energy mix and deal with climate change.
Gene Karpinski, the head of the League of Conservation Voters, hailed Browner and Chu as "a green dream team".
Lester Brown, president of the Earth Policy Institute, said: "We can expect some strong initiatives reflecting the sense of seriousness and the urgency of doing something about climate change."
Chu, 60, won his Nobel prize in 1997 and is director of the Lawrence Berkeley National Laboratory. He is a committed advocate for action on climate change.
Obama held up Chu's appointment as a sign of his determination to break with the Bush administration, which recruited oil industry executives to the energy department and censored government scientific reports on global warming. The environmental protection agency saw its funding and powers drastically reduced.
"His appointment should signal to all that my administration will value science," he said. "We will make decisions based on facts."
But despite Chu's title, the greater responsibility for dealing with issues of energy and climate change falls to Browner, who will coordinate the different government agencies that deal with energy policy.
Obama's decision to create a new co-ordinating post for her was seen as a further sign of his seriousness on climate change. Reid Detchon, director of the Energy Future Coalition, called the move "visionary and overdue".
Browner, who headed the environmental protection agency under Bill Clinton, has worked with Gore, and called climate change "the greatest challenge ever faced". She is expected to pick up on her efforts to give the EPA the authority to regulate the carbon emissions that cause climate change. That initiative was blocked by the Bush administration. She has also supported California's efforts to reduce car emissions at a faster pace than under federal law.
Lisa Jackson, a chemical engineer and former environmental policy official from New Jersey, is to head the EPA, which regulates air quality. Nancy Sutley, an environmental officer in California, becomes head of the president's Council on Environmental Quality.
Obama's economic team has been criticised for being too strongly allied with Wall Street, but he has given out repeated signals that he intends to move ahead with legislation to deal with climate change. He reaffirmed that commitment yesterday, saying there was still an urgent need to develop alternative energy sources, despite the recent drop in oil prices and the economic crisis.
However, there were some cautionary notes sounded about Obama's choices yesterday. Chu, despite his sterling reputation as scientist, has little experience of politics. There were also reports that Browner would be competing for influence against other presidential advisers, such as General Jim Jones, Obama's national security adviser, and Lawrence Summers, his economic adviser.
They cannot go any lower. The United States Federal Reserve has reduced its funds rate to between 0 and 0.25 per cent in a desperate effort to stimulate economic activity in America. The Bank of England might well follow. These are unprecedented actions from our monetary authorities. But these are also unprecedented times.
A screeching global economic slowdown has coincided with a global banking crisis. Traumatised investors all around the world are pulling their money out of assets, shares and banks and ploughing it into government securities.
The result is that money is being sucked out of the international economy at a quite stunning rate. Businesses are being forced to sack workers as over-indebted households in the West cut back on spending. Developing countries and strong manufacturing nations are in just as much danger. They have built their economies around strong export sectors. As overseas demand dries up, so does their livelihood.
Yet nothing the authorities are throwing at the problem seems to be having much effect. The bank recapitalisations stopped these institutions going under, but it is not inducing them to lend on anything like a healthy scale. The effect of interest rate cuts has, so far, been underwhelming. Attempts at fiscal stimulus in Europe, China and Japan look unlikely to be substantial enough to restore confidence. There cannot even be any guarantee that Barack Obama's expected huge spending package in America in the New Year will do the trick.
The world is in a dangerous place. Deflation and negative growth will create immense social strains. An upsurge in national protectionism cannot be ruled out. Evocations of the 1930s are by no means fanciful.
In the immediate term it is vital that governments think radically and act in co-ordination with each other. If further recapitalisations of the banks are necessary it is better to do it sooner rather than later. Perhaps governments should set up "bad" state-controlled banks to get the toxic debt off the sector's balance sheets; anything to get credit flowing again. These issues are especially pressing here in Britain.
Monetary authorities, including the Bank of England, also need to print money and use it to buy assets in order to prop up prices. This flies in the face of the financial orthodoxy of recent years, but these are not normal times. The immediate threat of debt deflation is a much greater danger than the threat of inflation.
Yet the old fundamentals do apply in one vital respect. The monetary authorities must have a credible plan to soak up the liquidity they have pumped into the system. Otherwise a massive surge of inflationary expectations could easily smother the hoped-for recovery. In the longer term, our political and monetary leaders must recognise the need for a fundamental rebalancing of the global economy. Debtor nations such as the US and Britain cannot continue floating their economies on a sea of credit. Countries such as China, Germany and Japan need to reduce their overwhelming reliance on exports and stimulate their domestic consumer sectors. Otherwise the conditions that caused this crisis will continue to exist.
The great crash of 2008 was a consequence of an unprecedented financial bubble and gaping global economic imbalances. The objective of 2009 will be to halt a lethal deflationary spiral. But after that, the hardest task of all awaits: putting the world on a pathway to sustainable growth.
European governments have come under even more pressure to rescue their motor manufacturing industries after figures out yesterday showed a 25.8% slump in new car sales in November.
ACEA, the European manufacturers' trade body, said sales had declined for seven months in a row - the first time they have fallen at that rate in almost 10 years. Overall sales are down 7.1% for the first 11 months of 2008, with 1m fewer cars sold in western Europe than last year.
The Spanish market dropped 49.6%, with the UK down 36.8%, Italy 29.5% and Germany 17.7%. The rapid spread of the recession across Europe has caught up with the former communist countries of east and central Europe, with new car sales down 22.6% last month. Only Poland and the Czech Republic registered any positive growth, with the market more than halving in Romania.
The figures came as Fiat announced it was laying off nearly 50,000 workers and shutting down most of its Italian plants for a month, and a day after France became the first EU country to offer direct aid to its carmakers, with Renault and Peugeot Citroën sharing €779m (£700m) in credit guarantees. The British industry, which hopes for a similar shot in the arm, and Germany's Volkswagen, Europe's biggest manufacturer, want to tap government rescue schemes for banks as lending remains difficult and expensive.
Nicolas Sarkozy, the French president, has indicated that the two main car producers could count on a further €221m of guarantees by the end of January to kickstart falling sales.
Carlos Ghosn, the Renault chief, said of the recession: "We are far from the bottom." The world's second-biggest truckmaker yesterday today posted a 21% year-on-year fall in November deliveries and said orders remained weak.
Volvo, which sells trucks under brands such as Nissan Diesel and Mack as well as its own name, said deliveries in Europe fell 42% while they were down by 22% in North America.
Power companies could be forced by law to reduce their gas and electricity charges, the leader of the Commons said yesterday.
Harriet Harman said that the Government was considering creating legislation that would force the Big Six suppliers to pass on falls in wholesale oil and energy prices more swiftly.
“The energy companies must pass on the price cuts to consumers - both businesses and families. They must also treat all consumers fairly,” she told the House of Commons. “And, if they don't, it won't just be
Ofgem and the Competition Commission they'll have to worry about. We will change the law to force them to do it.”
British Gas, E.ON, EDF Energy, ScottishPower, npower and Scottish and Southern Energy increased retail prices twice this year, in January and again this autumn. But they have not passed on any of the falls in wholesale energy costs that occurred since the summer as gas and electricity prices tracked the collapse in the price of crude oil.
Andrew Horstead, energy analyst for Utilyx, said that the cost of an annual wholesale power contract had fallen by 45 per cent from a peak in July of about £90 per megawatt hour to £50 last week.
Ms Harman, who was standing in for the Prime Minister during his visit to Iraq, was responding to a question from Brian Donohoe, a Labour MP.
“At a time when the price of a barrel of oil has sunk like a stone, why is it that the energy companies are charging the price they are for fuel?” he said. “Surely, it is time for more to be done by the Government ... in bringing down the price.”
Ms Harman said that she “absolutely agreed” with Mr Donohoe. Her comments come after remarks last week by Ed Miliband, the Energy Secretary, when he called for greater government intervention in the industry. He also suggested that Britain's laissez-faire approach to energy market regulation was not working effectively for consumers or in delivering necessary investment.
Boris Johnson warned today that a third runway at Heathrow airport would "drive a coach and horses" through his plans to reduce London's carbon emissions by 60% by 2025.
The mayor used a question-and-answer session with the London assembly on his draft budget to urge assembly members to join him in opposing the controversial airport expansion.
"I hope you will all join me in deprecating this government's plans to build a third runway, which would drive a coach and horses through our attempts to reduce C02 emissions," he told John Biggs, the deputy leader of the Labour assembly group.
Johnson made his comments after being grilled on the lack of targets for reducing C02 emissions for each of the functional bodies under his control – Transport for London, the London Development Agency, the fire and emergency planning authority, and the Metropolitan police authority.
Johnson has kept the target of reducing carbon emissions by 2025 set by his predecessor, Ken Livingstone.
Asked how Londoners would be able to judge his success if targets were not set for the four functional bodies, Johnson told the cross-party budget committee: "I think they will judge our success by our ability to persuade this government not to go ahead this crazy plan and they will judge you by your bravery in opposing this hysterical government plan."
Johnson used his Daily Telegraph column today to laud Hilary Benn, the environment secretary, for comments made over the weekend in which he raised concerns about breaching EU pollution limits if the expansion goes ahead.
The third runway proposal has divided Gordon Brown's cabinet. Benn's warnings on breaching EU pollution laws were followed by Lord Mandelson, the business secretary, arguing for a bigger Heathrow.
A decision on the third runway has been delayed until early next year, with rumours circulating that Geoff Hoon, the transport secretary, may opt for relaxing regulations on the two existing Heathrow runways rather than give the go-ahead to a third.
Johnson used his article to cast doubt on Conservative plans to push for high-speed rail links into Heathrow to curb the need for domestic flights, as he defended the popularity of air travel.
Johnson wrote: "High-speed rail should certainly be part of the mix, but it is not enough on its own. The reality is that the recession will end, and when that ends we need to be able to compete in the long term with other capitals whose main airports have four, five or six runways."
He pressed the case for an airport site in the Thames estuary, which he said would present a minimal threat to bird life, "or north Kent marginal seats", which could be connected to London by high speed rail.
Johnson's deputy, Sir Simon Milton, told the assembly earlier today that the GLA could not deliver the 60% reduction target alone. "It is a target which both the previous mayor and this mayor recognises by joint action with government policies, business and individuals and therefore you will not see targets in functional bodies' business plans."
The GLA was monitoring the carbon usage of all parts of the organisation that fall under Johnson's watch, he added.
Communications companies are poised to enter the energy sector under government proposals for the £6bn roll out of "smart" electricity meters to all households by 2020.
Under the scheme expected to be put to the energy industry for consultation in January, IT groups will be invited to bid for a national contract to run the networking and data-processing associated with energy meters that monitor electricity use in real time and provide an always-on, two-way link between the household and the supplier.
Although the details are yet to be worked through, and the tendering process is unlikely to start until the second half of next year, BT, Vodafone and Logica are all said to be in the frame for the deal, which is likely to be worth hundreds of millions of pounds. Smart meters have considerable potential. Consumers are able to see and track their energy consumption. There are also considerable benefits for energy providers, not least from no longer having to send out armies of staff to read meters.
But the biggest prize is the environmental impact and a smart-metering infrastructure is necessary if the UK is to meet the Government's target for 15 per cent of all energy to be from renewable sources by 2020. Only smart meters can track energy produced as well as energy consumed, so they are vital to plans for expanded use of microgeneration – where rooftop solar panels, for example, not only provide power to the building but feed the excess into the grid. They are also the key to the futuristic concept of "smart grids", where supply and demand across the whole national infrastructure are balanced automatically. Jason Brogan, at the Energy Retail Association, said: "Smart meters are not an answer in themselves but they are a facilitating infrastructure."
Despite the acknowledged benefits, trying to square the installation of expensive, immoveable equipment with a liberal market where customers can chop and change their supplier has proved difficult. The Government finally mandated the roll out, which is to run from 2011 to 2020, in October. But the next step is to find a model where the economics work and competition is preserved. "There is a positive business case for UK plc, but for an individual supplier the cost-benefit analysis is less clear," Mr Brogan said.
The proposal that a third-party communications provider should take on the networking and data services portion of the scheme – while electricity retailers are responsible for installation and maintenance, as they are now – is the favourite of a range of options. The Government also considered a regional franchise model, where individual suppliers have responsibility for specific areas. It was also possible that no changes would be made to the current set up.
Voters in Manchester have overwhelmingly rejected plans for a congestion charge after a city-wide referendum in which more than a million people voted.
The Greater Manchester scheme was rejected by 79% of voters, amid a turnout in the 10 boroughs of 53.2%.
The biggest support for the charge was in the borough of Manchester, but, even there, only 28% were in favour of the scheme, the Manchester Evening News reported. There was least support for the charge in Salford, where 84% voted against it.
The resounding no vote will effectively cause more disarray for attempts to introduce national road pricing, a key recommendation of the 2006 Eddington transport study. The report said road pricing offered potential benefits of £28bn a year by 2025.
The Manchester result could also discourage other local authorities pursuing a congestion charge option.
The high turnout aided opponents of what would have been Britain's biggest congestion charging zone.
The timing of the proposals, which would have seen drivers paying up to £5 a day – or £1,200 a year – to use the region's roads, was questioned amid the economic downturn.
One no voter said: "Turkeys don't vote for Christmas – and motorists won't vote for more taxes to drive."
Despite a major yes campaign backed the area's councils, many local politicians lined up to criticise the project. The proposals needed a majority of votes in favour in at least seven of the 10 boroughs for the scheme to get the go ahead.
"It's a brave politician that goes forward with such a scheme, unless it is an extraordinarily good scheme that virtually everybody benefits from," said Graham Stringer, the MP for Blackley in Manchester.
"It does show there is a hostility to road charging. You have to come up with an extremely good scheme whereby you reduce other road taxes if you ever want road pricing by consent in this country. I am delighted with the result."
Privately, yes campaigners conceded that people failed to grasp what the £2.75bn planned investment would mean for local transport. A yes vote could have lead to a central government grant of £1.5bn from the Transport Innovation Fund and £1.2bn of local funding taken out as a 30-year loan and partly paid for by future revenue from the congestion charge.
Sir Richard Leese, the leader of Manchester City council and one of the chief backers of the scheme, said: "I am very disappointed. It does mean we have lost the opportunity to get the changes in public transport we need.
"The issues have still not gone away. We still have issues of congestion, of poor air quality and poor public transport."
The yes campaign said the region had a once-and-for-all chance to see billions invested in local transport.
But the no campaign said the plans would hit the local economy, were unfair and would cost drivers £60 a month.
"This is a resounding defeat for Labour. It is clear that the government is completely out of touch with the problems people face in Manchester with the economic downturn," said the shadow transport secretary, Theresa Villiers. "Labour's attempt at bullying the city into accepting congestion charging has failed."
The area covered by the proposed charge zone would have covered about 80 square miles, corresponding to the area within the M60 orbital motorway.
The original zone covered by the London congestion charge was about eight square miles.
"The voters of Manchester have shown that they have no great appetite for congestion charging," said Edmund King, the president of the motorists' group.
"Motorists are still suffering from the after effects of record fuel prices so perhaps it is not surprising that there is little support for local charging schemes."
Friends of the Earth's senior transport campaigner, Tony Bosworth, said: "Greater Manchester has missed the opportunity to develop a clean, fast and efficient transport network.
"Investing in a state-of-the-art public transport system, cycling and walking would have brought massive benefits to ordinary people by tackling congestion, climate change and air pollution."
He indicated that he hoped other local authorities would now take the chance to bid for their own low-carbon transport systems.
Stephen Joseph, the executive director of Campaign for Better Transport, said: "Those who opposed the charge will now have to say how traffic problems in our cities can be addressed. It's not possible or desirable to build enough roads for free-flowing traffic."
Car ownership has increased by about 25% over the last decade. The government says it must tackle congestion now to avoid future gridlock - and building more roads is not financially possible or environmentally acceptable.
Councillor Margaret Eaton, the chairman of the Local Government Association, said: "Manchester's decision is a good example of local people having their say about the things that affect them most and deciding what's right for their area. These decisions should always be made by local people, not politicians in Whitehall."
The UK government will come under severe pressure this week to rescue the car industry with new figures showing a further drastic slump in production last month, the Guardian has learned.
Amid union claims that the jobs of 40,000 car workers could go in the next four weeks because of frozen credit, the Society of Motor Manufacturers and Traders is due to confirm this week that the 27% plunge in output in October worsened in November.
The fresh evidence of the impact of the recession and financial crisis on a sector employing 850,000 people and accounting for £20bn of exports will coincide with a likely decision by senior ministers to offer measures to ease liquidity problems in British industry as a whole.
Last night the Department for Business, Enterprise and Regulatory Reform and the Treasury were still locked in talks over measures to be announced before parliament rises on Thursday. Officials refused to confirm reports, first revealed by guardian.co.uk on Friday, that the package would come this week and could tap funds from the government's £400bn bank bail-out. MPs are to debate the industry's plight on Wednesday.
Whitehall officials said the chancellor, Alistair Darling, had not received "firm proposals" for a rescue package, with both departments said to be monitoring the situation in the US and in Britain.
The SMMT is pressing the government for access to the £400bn bank rescue scheme in Britain for carmakers' consumer financing arms and to provide credit guarantees for struggling component suppliers.
Paul Everitt, SMMT chief executive, said: "The idea that this is just about one industry is a nonsense. What happens to us will have a multiplier effect across industry as a whole as we are the best customer for a whole variety of manufacturing suppliers. If we can't survive this situation or the government can't find a way of supporting us it will roll around the entire economy."
European executives liken the global impact of the collapse of, say, GM to that unleashed by the failure of investment bank Lehman Brothers in September.
In October the SMMT reported a 25% slump in UK car output to 114,058 units and a 41% plunge in commercial vehicle production to just 13,106. Until then output had held up well and was 0.7% up for the first 10 months of the year. The traditional decline in November is expected to show a marked deterioration.
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