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.
Falling oil demand forecasts are becoming something of an institution these days, and in April the International Energy Agency, the US Energy Information Administration and OPEC all cut yet again. The IEA, advisor to 28 governments, now predicts 2009 demand will be 2.4 mb/day below 2008 levels. With OPEC still failing to meet its quota cuts - compliance is reported to be around 83% - the oil price seems unlikely to move out of its current range in the short term.
Despite high stockpiles and reduced oil demand, there are still difficulties ahead, according to Michel Mallet, General Manager of Total's German operations, in an interview with Der Spiegel: “The old oil fields are dying. In the future, we will have to invest more and more just to maintain existing production”.
In the UK this week the government remains blithely unconcerned about peak oil, and announced the potential sites for the planned next generation of nuclear power plants. The announcement, which covers England and Wales, described nuclear power as part of a low carbon Britain but also focused on the future benefits of this policy to the economy and employment sector. The Scottish government, which is not pursuing a nuclear policy, pointed to the jobs being created now in the renewables sector, an area where according to a report by the Institute for Public Policy Research, the UK overall is missing out.
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Crude oil futures spent Monday under pressure after the International Energy Agency said world oil demand will fall by 2.4 million barrels a day this year. The forecast was far weaker than the agency's prior view.
Light, sweet crude for May delivery settled at $50.05 a barrel, down $2.19 or 4.2%, on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled down $1.92 at $52.14 a barrel.
After a hiatus for Good Friday last week, futures were lower throughout Monday's session as traders digested the IEA's latest revision to its demand outlook, issued Friday.
The IEA, an energy adviser to 28 industrialized nations, lowered its demand forecast by 1 million barrels a day, and now expects the world will use about 83.4 million barrels daily in 2009. If realized, that would be 2.4 million barrels a day, or 2.8% less than last year and the least amount of oil use since 2004.
Oil prices have hovered close to $50 a barrel all month as traders guess when an economic turnaround might reinvigorate demand. Rallies have been capped by fresh signs of plentiful oil inventories, which could ease the pain of any surprise supply crunch.
"It's a tough market environment right now. We don't get any follow-through in either direction," said Jim Ritterbusch, president of energy trading advisory firm Ritterbusch and Associates in Galena, Ill. "The fundamentals are too bearish to sustain price gains."
Observers were reluctant to attach too much significance to Monday's market moves, as many European traders were off for the Easter Monday holiday.
"The market is volatile on no headlines," said Morgan Downey, a director and commodities trader at Standard Chartered in New York.
The IEA updated its forecast in its monthly oil market report. The report also noted oil stockpiles in industrialized countries of the Organization for Economic Cooperation and Development in February covered 61.6 days of forward demand - what the agency called a "giddy" amount. Barrels of oil stored on waterborne vessels have also increased, the IEA said.
"The net result of the April Oil Market Report is a projection of a balanced market for the rest of 2009 if OPEC maintains existing output - in contrast to March's warning of a stark drop in supplies by the end of the year. If that turns out to be the case, there would be no significant stock draw, and the net result would be exceptionally bearish," said Lawrence Eagles, head of commodity research at J.P. Morgan, in a note to clients.
U.S. crude inventories stand at 16-year highs, according to recent Energy Information Administration estimates. Analysts surveyed by Dow Jones Newswires expect the EIA will report U.S. inventories climbed 2.1 million barrels in the week ended April 10, bringing stockpiles to their highest point since 1990 if their forecasts prove accurate.
Front-month May reformulated gasoline blendstock, or RBOB, fell 1.78 cents, or 1.2%, to $1.4632 a gallon. May heating oil fell 3.08 cents, or 2.2%, to $1.3980 a gallon.
The U.S. Energy Information Administration on Tuesday cut its forecast for 2009 world oil demand by 180,000 barrels per day from its prior March estimate to 84.09 million bpd, as the global economy is expected to shrink 0.8 percent this year.
In its new monthly energy forecast, the agency said it then expects world oil demand in 2010 to increase to 85.22 million bpd, 70,000 bpd higher than it forecast last month, driven by a recovery of global economic growth to 2.6 percent.
"Higher oil prices, as well as the change in market sentiment to a slightly less pessimistic outlook, may also reflect the market's belief that economic recovery policies from central banks and governments have slowed down the decline in demand and even improved the chances for an economic upturn and, consequently, higher oil demand, later this year," EIA said.
Crude oil prices CLc1 fell below $50 per barrel, pressured by EIA's lower oil demand forecast and U.S. retail sales falling in March.
The EIA has slashed its estimate for 2009 global oil demand in 12 out of its last 15 monthly forecasts.
For the United States, which is the world's biggest petroleum consumer, EIA cut its forecast for oil demand this year by 10,000 bpd to 18.99 million bpd.
However, the agency's estimate for U.S. oil consumption in 2010 was raised by 60,000 bpd to 19.27 million bpd thanks to the expected economic recovery.
U.S. drivers this summer will enjoying much lower gasoline prices, paying an average $2.23 a gallon during the season, compared to $3.81 last summer, the EIA said.
Gasoline consumption is expected to edge higher to 9.1 million bpd, up an anemic 1 percent, which will help to keep the lid on fuel costs.
"Gasoline consumption last summer was low due to the high gas prices and hurricane-related distribution problems, and consumption is not expected to begin showing consistent year-over-year growth until the third quarter," the EIA said.
Kyle Cooper, director of research at IAF Advisors in Houston said the EIA's latest forecast "is not yet positive and denotes that weak demand is still out there."
Separately, EIA projected OPEC crude oil production to be 130,000 bpd less this year from earlier estimates to 28.78 million bpd.
"Lower crude oil production by members of the Organization of the Petroleum Exporting Countries has lowered world petroleum supplies, substantially offsetting reduced oil demand caused by the global economic recession," the EIA said.
Non-OPEC oil output is seen averaging 49.77 million bpd in 2009, up 10,000 bpd from the EIA's prior forecast.
U.S. crude oil prices are forecast to average $53 a barrel this year because of the global economic slowdown, and assuming there is an economic recovery in 2010 oil will rise to an average $63 next year, the EIA said.
"Recent OPEC production cuts have stemmed the price decline and are leading to moderate price rebound," said acting EIA head Howard Gruenspecht.
*US summer gasoline price at $2.23, vs $3.81 a year ago
*OPEC 2009 oil output forecast lowered by 130,000 bpd
*US 2009 oil price to avg $53, recover to $63 in 2010
Additional reporting by Russ Blinch and Ayesha Rascoe in Washington and Gene Ramos in New York, Editing by Lisa Shumaker
Crude oil rose for the first time in a week after the Federal Reserve said some of the country’s biggest regional economies slowed their pace of declines, fueling speculation that energy demand will recover.
Crude rebounded from a drop yesterday, when a government report showed U.S. oil stockpiles were the highest in almost 19 years. Later in the day, the Fed said in its Beige Book business survey that economic contractions were slowing or stabilizing in San Francisco, the largest district, New York, Chicago, Kansas City and Dallas.
“All this seems to be lending credence to the argument that the U.S. economy may be stabilizing, albeit at a very low base,” said Edward Meir, an analyst at MF Global Ltd. in Connecticut. “Markets seem to be increasingly desensitized by the poor demand readings as participants seem to be focusing on somewhat more upbeat prospects down the road.”
Crude oil for May delivery climbed as much as $1.05, or 2.1 percent, to $50.30 a barrel on the New York Mercantile Exchange. It was at $49.89 a barrel at 9:50 a.m. London time. Prices are up 12 percent so far this year.
China’s gross domestic product grew at the slowest pace in almost 10 years, probably marking the low point for world’s second-largest oil consumer. GDP expanded 6.1 percent in the first quarter from a year earlier, the statistics bureau said in Beijing today. That compares with a 6.8 percent gain in the previous three months.
Oil inventories rose by 5.67 million barrels to 366.7 million last week, the highest since September 1990, the Energy Department said yesterday. Supplies were forecast to increase by 1.75 million barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
In Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered and a glut had developed, stockpiles fell last week, according to the Energy Department. They fell by 742,000 barrels to 29.2 million, the lowest since the week ended Dec. 26.
Gasoline stockpiles declined by 944,000 barrels to 216.5 million in the week ended April 10, according to the department. Distillate fuels, a category that includes heating oil and diesel, fell by 1.17 million barrels to 139.6 million.
Daily fuel demand averaged 18.7 million barrels over the past four weeks, down 5.2 percent from a year earlier, according to the department.
Refineries operated at 80.4 percent of capacity, down 1.5 percentage points from the week before, the lowest since the week ended Sept. 26, when units were shut in the aftermath of Hurricanes Gustav and Ike, the department said. A gain of 0.1 percentage point was forecast.
Brent crude oil for June settlement rose as much as $1.70 cents, or 3.3 percent, to $53.49 a barrel on London’s ICE Futures Europe exchange. It was at $53.05 a barrel at 9:50 a.m. London time.
The Organization of Petroleum Exporting Countries is producing 722,000 barrels a day more than its output quota as implementation of the group’s record supply cuts stalls.
The 11 OPEC members bound by targets reduced output by 170,000 barrels a day last month, about a quarter of the amount they cut in February, the organization said in a monthly report today. The reduction means the group completed 83 percent of the 4.2 million barrels a day in curbs announced since September.
The OPEC 11, which excludes Iraq, pumped 25.567 million barrels a day in March, the report said, citing secondary sources, including analysts and news organizations. That compares with 25.737 million a day in February and 26.357 million a day in January. Those 11 nations have a target of 24.845 million barrels a day that took effect from Jan. 1.
“The real issue is whether they will be able to maintain the level of compliance we saw in the first quarter,” Harry Tchilinguirian, senior oil market analyst at BNP Paribas SA in London, said today. “Those countries over quota face fiscal constraints that limit the scope to cut supply.”
OPEC is next due to meet in Vienna on May 28. At its last summit on March 15 the group decided that it should focus on fulfilling its commitment to reaching the 24.845 million a day target rather than announce any additional supply restrictions.
Iran and Venezuela exceeded their quotas most. Iran pumped 3.663 million barrels a day last month compared with an official ceiling of 3.336 million, while Venezuela supplied 2.123 million a day, above its OPEC target of 1.986 million a day.
Angola was the only nation in the quota system to increase output last month, by 15,300 barrels a day to 1.653 million barrels a day. Saudi Arabia is the still the only member to be producing under its allocation, and deepened its cuts last month by 20,800 barrels a day to 7.894 million a day.
OPEC’s assessment of its own compliance is in line with that of the International Energy Agency, which in its own monthly report on April 10 said that the group had achieved 83 percent of its publicized cuts.
Here's how the British government describes the risk of a smallpox outbreak. "We are currently at alert level O. Smallpox remains eradicated. No credible threat of a smallpox release."
So, in response to this non-existent threat, it has published 122 pages of central plans. Each of the nine English regions maintains a Smallpox Diagnosis and Response Group, which in turn supports five Smallpox Management and Response Teams, one of which is on duty at all times. There are smallpox centres all over the country and lists of doctors, nurses and support staff prepared to run them, laboratories ready to multiply vaccines, and planning committees involving scores of different agencies.
The plans, in other words, must have cost millions. They use thousands of hours of specialist time every year. But step forward the man or woman who believes the government should abandon them.
The chances that this extinct disease might break out here are extremely remote - one in a million perhaps - but they cannot be dismissed while the US and Russia disgracefully refuse to destroy their stockpiles. Stealing, weaponising and distributing the virus would require capabilities beyond those of any known terrorist group. The government's plans are almost certainly a waste of time and money. But they are a waste of time and money that makes sense.
This is what government is for: to prepare for the worst, however unlikely it may be. The UK, like all rich nations, maintains an elaborate network of agencies to defend us from unlikely events: the ministerial sub-committee on protective security and resilience, the Civil Contingencies Secretariat, the domestic horizon scanning committee, the National Risk Register, the Research Capability Programme, the National Recovery Working Group, the Regional Resilience and Emergency Response Division, the Centre for Emergency Preparedness and Response, and endless departmental and regional bodies.
But this great state safety net is full of holes. The government has a strangely unbalanced approach to risk, overemphasising some contingencies - terrorism, anarchy, attacks by rogue states - while underplaying, even promoting, others. It was Gordon Brown, for example, who told the bankers of the City of London in his Mansion House speech of 2004 that "in budget after budget I want us to do even more to encourage the risk-takers".
There is one respect in which the government's approach seems utterly bonkers: a threat with a high likelihood of occurrence, for which it refuses to make any plans at all. I've been banging on about this for a while, with my usual absence of results. But now I've received a letter that makes its dismissive response look like outright lunacy.
There is nothing certain about the hypothesis that global supplies of conventional petroleum might soon stop growing and then go into decline. There is a large body of expert opinion, marshalling impressive statistics, which is convinced that peak oil is imminent. There is also a large body of expert opinion, marshalling impressive statistics, which insists that it's a long way off. I don't know who to believe. The key data - the true extent of reserves in the Opec nations - is a state secret. Anyone who tells you that oil supplies will definitely peak by a certain date or definitely won't peak ever is a fraud: the information required to make these assessments does not exist.
In February 2008 I sent a Freedom of Information request to the Department for Business, asking what contingency plans the government has made for the eventuality that global supplies of crude oil might peak between now and 2020. The answer I received astonished me. "The government does not feel the need to hold contingency plans specifically for the eventuality of crude oil supplies peaking between now and 2020."
As it revealed in a parliamentary answer, the government relies primarily on the International Energy Agency for its assessment. When I made my first request, its cavalier attitude chimed with the IEA's. But at the end of last year the agency suddenly changed tack. Its World Energy Outlook report upgraded the annual rate of decline in output from the world's existing oilfields from 3.7% to 6.7%. Previously it had relied on guesswork. This time it had conducted the world's first comprehensive study of decline rates, covering the 800 largest fields.
The report also contained a word the agency had hitherto avoided: peak. It proposed that "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." When I interviewed the IEA's chief economist for the Guardian, he tightened this up: "In terms of non-Opec, 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 ... I think time is not on our side here." He told me that we would need a "global energy revolution" to avert this prospect. Nothing of the kind is happening.
So I sent the British government a new request: in the light of what the IEA has revealed, what contingency plans has the government made? The response has now arrived. "With sufficient investment, the government does not believe that global oil production will peak between now and 2020, and consequently we do not have any contingency plans specific to a peak in oil production."
I just don't get it. Let us assume that there is only a 10% chance of the IEA, and everybody else predicting that global oil supplies will soon peak or plateau, being right. That still makes peak oil about 100,000 times more likely than an outbreak of smallpox in the United Kingdom.
As the report by Robert Hirsch - commissioned by the US department of energy - shows, the consequences of peak oil taking governments by surprise are at least as devastating as a smallpox epidemic. "Without timely mitigation, the economic, social and political costs will be unprecedented." Hirsch estimated that to avoid global economic collapse, we would need to begin "a mitigation crash programme 20 years before peaking". If he's right and the IEA is right, we are already 10 years too late. But my conversations with government officials suggest to me that they wear the absence of plans almost as a badge of honour, like the Viking berserkers who went into battle without armour to show how mad they were.
The only explanation I can suggest is that the concept of insufficient oil cannot be accommodated within the government's worldview. Its response to a smallpox epidemic accords with its messianic tendencies: government as superman, defending us from crackpots carrying vampire pathogens. The idea that we might be undone by an issue as mundane and unresponsive as resource depletion just doesn't fit.
But at least we know where we stand: we'll have to make our own contingency plans. Does anyone have a spare AK-47?
Part 1 - 'We have to save, save, save'
The world could run out of oil in 20 years. This grim scenario is not the prediction of environmentalists, but of Michel Mallet, the general manager of French energy giant Total's German operations. In an interview, Mallet calls for radical reduction of gas consumption and a tax on aviation fuel.
SPIEGEL ONLINE: Total earned profits of close to €14 billion ($18.5 billion) in 2008, a record in French economic history. Aren't you affected by the recession?
Mallet: Yes, we are. Our revenues are closely tied to the oil price, which has fallen. We are experiencing a slight decline at the moment. But we are in better shape than other industries. You can put off buying a car, but you need to fill up on a regular basis.
SPIEGEL ONLINE: Last summer, a barrel of crude oil cost $147. The price has dropped to $47 today. But that's still a lot, given that a barrel of oil cost only $9 a few years ago.
Mallet: Nine dollars was a catastrophe. We need reasonable prices, or else there is no incentive for investment.
SPIEGEL ONLINE: You have to say that. But is $47 enough?
Mallet: No. At that price, you can drain an old oil field. But the profit threshold for drilling new wells in the ocean, at a depth of 2,000 meters (5,300 feet), is $60, and the major producing countries want even more. Venezuela needs an oil price of $90 to balance its national budget, while Iran needs $80.
SPIEGEL ONLINE: And what price does Total want?
Mallet: For us, an oil price of between $50 and $90 a barrel would be reasonable. Let's say $80. In Germany, that would translate into prices of about €1.40 ($7 a gallon) for a liter of super and €1.25 ($6.30 a gallon) for a liter of diesel.
SPIEGEL ONLINE: You aren't exactly modest.
Mallet: Oil production will be technically complex in the future, which makes it expensive.
SPIEGEL ONLINE: Why?
Mallet: There are hardly any readily accessible oil fields anymore. The fields on the floor of the North Sea, for example, are practically empty. New reserves are only being found deep in the ocean, in remote regions like Kazakhstan or in the form of oil sands. None of this is cheap to produce.
SPIEGEL ONLINE: The International Energy Agency is warning of a new mega-crisis, arguing that because the oil companies are not investing enough in production, the price of oil could shoot up to $200 by 2013.
Mallet: A price of $200 would be dramatic for the world economy. If we were to gradually move in that direction, it would be okay. Then we'd have time to develop alternative technologies. But not by 2013. That's not enough time.
SPIEGEL ONLINE: What are you doing to avert this scenario?
Mallet: Total is investing $18 billion (€13.6 billion) this year. This is far more than our competitors, based on profits.
SPIEGEL ONLINE: Nevertheless, you are unable to increase production. In fact, it declined last year.
Mallet: The drilling licenses are the problem. The countries that have oil are behaving very restrictively. In the 1970s, the seven largest oil companies controlled 70 percent of reserves. Today it's only seven percent, with the lion's share now in government hands.
SPIEGEL ONLINE: What's so bad about that? Countries like Venezuela, Iran, Iraq or Russia can certainly produce their own oil.
Mallet: Of course. But the government-owned companies, to a large extent, lack the technical know-how we have accumulated in the last few decades. For that reason, they unable to produce as efficiently, especially in the new, difficult drilling areas.
SPIEGEL ONLINE: Total is also canceling projects because of the economic crisis, such as production from oil sands in Canada.
Mallet: No. All we are doing is delaying projects. In general, the crisis is even beneficial to us. Prices for drilling equipment have returned to normal again.
Part 2: 'The Old Oil Fields Are Dying'
SPIEGEL ONLINE: Is it even possible to increase oil production anymore?
Mallet: About 87 million barrels a day are produced worldwide. In the past, it was believed that this number could be increased to 130 million. I consider that an illusion. Realistically, the capacity is less than 105 million barrels.
SPIEGEL ONLINE: It sounds like the peak oil theory, which isn't very popular among your competitors. It holds that maximum production will be reached soon.
Mallet: The old oil fields are dying. In the future, we will have to invest more and more just to maintain existing production.
SPIEGEL ONLINE: Is the age of oil coming to an end?
Mallet: No, not really. There is plenty of oil, geologically speaking. The question is just how much can be produced a year.
SPIEGEL ONLINE: How much oil is left in the earth?
Mallet: Since the beginning of industrial production, mankind has used about 1 trillion barrels, most of it in the last 30 years. About the same amount is still available, plus possible new finds. And then there are unconventional reserves such as heavy crude oil, oil sands and oil shale, although developing them is expensive. And not all aspects have been resolved when it comes to the effects on the environment.
SPIEGEL ONLINE: So how much longer will the oil last?
Mallet: We won't have any problems for the next 20 years. If we handle demand responsibly, it could even last another 40 or 50 years.
SPIEGEL ONLINE: But what if demand increases, particularly in Asia?
Mallet: That's why we have a clear message: We have to save, save, save.
SPIEGEL ONLINE: Total is the only oil company that is predicting stagnating production. Are the others ignoring the truth?
Mallet: I don't know. But I do know that anyone who encourages people to buy big cars to increase his oil sales is making a big mistake. I myself walk to work.
SPIEGEL ONLINE: Perhaps you are just dramatizing the issue to justify high gasoline prices.
Mallet: Gasoline isn't expensive. It costs less than 32 cents a liter ($1.60 a gallon) before taxes. It's cheaper than good mineral water.
SPIEGEL ONLINE: Millions of drivers would disagree.
Mallet: In Germany, we have the lowest profit margin in all of Europe. Competition is extremely tough. For a one-cent difference in price, Germans are willing to go well out of their way to drive to a different gas station.
SPIEGEL ONLINE: Some politicians want to see the petroleum tax reduced.
Mallet: The purpose of the petroleum tax is to pay for investment in new forms of energy, and in research that will guarantee long-term and environmentally friendly mobility. That's something drivers should also welcome.
SPIEGEL ONLINE: Total wants a higher petroleum tax?
Mallet: No. But energy has to cost something. We need incentives to economize, as well as to develop alternatives. For instance, there is no tax on aviation fuel, which is completely unreasonable. There are three parties involved in saving energy: the political sphere, with its laws and guidelines, the industry, while makes efficient products available, and consumers, who can achieve a lot with their behavior.
SPIEGEL ONLINE: Customers are likely to have other desires.
Mallet: Why? If energy consumption declines, it will not become more expensive overall for customers. A liter of gasoline will cost more, but those who drive fuel-efficient cars won't have to fill up as often.
As Washington tries to rebuild its strained relationships in Latin America, China is stepping in vigorously, offering countries across the region large amounts of money while they struggle with sharply slowing economies, a plunge in commodity prices and restricted access to credit.
In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.
China’s trade with Latin America has grown quickly this decade, making it the region’s second largest trading partner after the United States. But the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is starting to address the erosion of Washington’s influence in the hemisphere.
“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”
Mr. Obama will meet with leaders from the region this weekend. They will discuss the economic crisis, including a plan to replenish the Inter-American Development Bank, a Washington-based pillar of clout that has suffered losses from the financial crisis. Leaders at the summit meeting are also expected to push Mr. Obama to further loosen the United States policy toward Cuba.
Meanwhile, China is rapidly increasing its lending in Latin America as it pursues not only long-term access to commodities like soybeans and iron ore, but also an alternative to investing in United States Treasury notes.
One of China’s new deals in Latin America, the $10 billion arrangement with Argentina, would allow Argentina reliable access to Chinese currency to help pay for imports from China. It may also help lead the way to China’s currency to eventually be used as an alternate reserve currency. The deal follows similar ones China has struck with countries like South Korea, Indonesia and Belarus.
As the financial crisis began to whipsaw international markets last year, the Federal Reserve made its own currency arrangements with central banks around the world, allocating $30 billion each to Brazil and Mexico. (Brazil has opted not to tap it for now.) But smaller economies in the region, including Argentina, which has been trying to dispel doubts about its ability to meet its international debt payments, were left out of those agreements.
Details of the Chinese deal with Argentina are still being ironed out, but an official at Argentina’s central bank said it would allow Argentina to avoid using scarce dollars for all its international transactions. The takeover of billions of dollars in private pension funds, among other moves, led Argentines to pull the equivalent of nearly $23 billion, much of it in dollars, out of the country last year.
Dante Sica, the lead economist at Abeceb, a consulting firm in Buenos Aires, said the Chinese overtures in the region were made possible by the “lack of attention that the United States showed to Latin America during the entire Bush administration.”
China is also seizing opportunities in Latin America when traditional lenders over which the United States holds some sway, like the Inter-American Development Bank, are pushing up against their limits.
Just one of China’s planned loans, the $10 billion for Brazil’s national oil company, is almost as much as the $11.2 billion in all approved financing by the Inter-American Bank in 2008. Brazil is expected to use the loan for offshore exploration, while agreeing to export as much as 100,000 barrels of oil a day to China, according to the oil company.
The Inter-American bank, in which the United States has de facto veto power in some matters, is trying to triple its capital and increase lending to $18 billion this year. But the replenishment involves delicate negotiations among member nations, made all the more difficult after the bank lost almost $1 billion last year.
China will also have a role in these talks, having become a member of the bank this year.
China has also pushed into Latin American countries where the United States has negligible influence, like Venezuela.
In February, China’s vice president, Xi Jinping, traveled to Caracas to meet with President Hugo Chávez. The two men announced that a Chinese-backed development fund based here would grow to $12 billion from $6 billion, giving Venezuela access to hard currency while agreeing to increase oil shipments to China to one million barrels a day from a level of about 380,000 barrels.
Mr. Chávez’s government contends the Chinese aid differs from other multilateral loans because it comes without strings attached, like scrutiny of internal finances. But the Chinese fund has generated criticism among his opponents, who view it as an affront to Venezuela’s sovereignty.
“The fund is a swindle to the nation,” said Luis Díaz, a lawmaker who claims that China locked in low prices for the oil Venezuela is using as repayment.
Despite forging ties to Venezuela and extending loans to other nations that have chafed at Washington’s clout, Beijing has bolstered its presence without bombast, perhaps out of an awareness that its relationship with the United States is still of paramount importance. But this deference may not last.
“This is China playing the long game,” said Gregory Chin, a political scientist at York University in Toronto. “If this ultimately translates into political influence, then that is how the game is played.”
When British soldiers first arrived in Basra in March 2003, they quickly set about ensuring that the local economy continued to function. That involved, crucially, protecting the tankers that lined up at the Basra oil terminal and standing by as the pipeline was connected to their holds. Months later, the British realised they had unwittingly been helping audacious smugglers who had been taking advantage of the post-invasion chaos.
Iraq's oil has long attracted would-be profiteers. The country's reserves are the third-largest in the world, and have been left relatively untapped by decades of embargoes and war. In the south, it literally seeps from the landscape – a muddy brown expanse, spread by the spring rains, and peppered in all directions by giant flames that erupt like roman candles from the outlet pipes.
The burn-off of impurities causes giant flames that leap as high as 30 metres from the oil fields, creating a tangerine glow that mixes with dust and sand then spans the horizon.
The Bush administration always denied that oil-lust was a factor behind the invasion. In purely economic terms, it pointed out, it would have been cheaper to have simply cut a deal with Saddam Hussein, as many oil companies did. However, the expectation of huge oil revenues certainly contributed to the administration's optimism that the war would be quick and cheap.
A week after the invasion began Paul Wolfowitz, then the deputy secretary of defence, told Congress that the US was "dealing with a country that can really finance its own reconstruction and relatively soon". He predicted that Iraq's oil revenues would bring $50-100bn in less than three years. On the day Baghdad fell, Dick Cheney predicted output of three million barrels a day by the end of 2003. Six years on, output is still only two million barrels.
"Before the war the expectation was almost unanimous that Iraq would not only resume its pre-1990 level production but it would increase significantly. People were even talking about seven million barrels a day," said Gal Luft, an oil expert and head of the Institute for the Analysis of Global Security in Washington. "There were very high expectations that never really materialised."
Andy Bearpark, a British diplomat and reconstruction expert, became the director of operations and infrastructure for the new Coalition Provisional Authority (CPA) in mid-June 2003.
"All the pressure was to get the oil pumping as soon as possible, but it was proving to be a mammoth task," he recalled. "There was this constant mantra: We have to get to 2m barrels a day. That's what it was when Saddam was in power. That was the key figure that was put out each day and it was hardly ever above 1m. It was no more nor less than anything else done by the CPA – a total disaster."
Bearpark was supposed to be in charge of rebuilding the country's infrastructure, but Paul Bremer, the CPA head, made clear from the outset that his remit would not include the sprawling oil industry. That would be run by Americans.
The exclusivity of American influence caused deep unease back in the boardrooms of British and European oil companies. Fearing they would lose out to their American competitors, British oil companies held talks with No 10 before the invasion about the post-war distribution of contracts, insisting on a level playing field. In the aftermath of the war, multinationals haunted the CPA offices, aiming to stake their claim.
But as insurgent attacks on the oil infrastructure gathered momentum in the long, unbearable summer of 2003, high hopes for the Iraqi oil bonanza faded.
"When the war really began, the Saudis did not protect their border and thousands of jihadis went across. The Saudis preferred to sit on their hands and allowed this influx into Iraq," Gal Luft said. "Both Iran and Saudi Arabia were concerned that Iraqi oil would eat into their [Opec production] quotas. They have made a fortune from the lack of Iraqi production."
Erinys, a British private security firm, was given a $40m contract to guard the pipelines, and that led to a temporary improvement, buoying spirits in the CPA, but Bearpark said insurgents soon skirted around the new defences.
"Those of us inside the system were in a pretty good state of denial throughout 2003 and into 2004," he said. "Things kept going wrong, but because there was tremendous pressure to churn out good news for the American public, we began to believe it ourselves."
The big oil companies could see that the investment required was enormous, the returns uncertain - and began packing their bags. Meanwhile, Libya had voluntarily given up its nuclear programme and was open for business, a much more attractive proposition.
In the past few years the industry has begun to recover. Safer roads have led to more tanker convoys and new wells are being planned throughout the Basra province, along with two crude oil processing plants. A total of 45 wells are planned for the huge South Rumaila oilfield south of Basra, while processing plants are scheduled to be installed west of the city at the west Qurna site.
Roads leading to oil fields on each side of the main highway to Baghdad are now heavily guarded by Iraqi troops and are largely secure. So too is the highway itself, a straight, flat road of European standard, that was a death run for oil convoys until mid-2008. Output has remained stubbornly at the two million barrel level, and the country still does not have enough refining capacity to be self-sufficent. The prime minister, Nouri al-Maliki, is under pressure to bring in capital and expertise while not being seen to "sell out" Iraq's only real wealth-making industry to companies from the outgoing occupying countries.
The government and the oil companies have been haggling over Iraq's new oil laws, as the multinationals have sought to squeeze out ever better concessions out of their potential hosts, not least by arguing that the area has become less attractive due to a slump in the price of crude – from $150 a barrel last summer to $50. As recently as the middle of February, 32 foreign oil companies – including Shell and BP – met the Iraqis in Istanbul and asked them to come up with more favourable terms for the southern fields, which hold as much as 40bn barrels of recoverable oil, around a quarter of the country's total. Predictions of a final deal in June now look optimistic.
The tragedy for Iraq was its inability to capitalise on last year's oil price spike. With the current price slump, it is much harder to get the investment needed to salvage the industry.
"Iraq had an opportunity to make a lot of money and it was lost," Luft said. "I believe there will be another spike as we move out of recession. The question now is whether Iraq will be in a position to benefit the next time round."
National Grid Plc is investigating piping carbon-dioxide emissions from power plants and refineries near London and in northern England to undersea storage sites so the gas won’t add to global warming.
The manager of Britain’s natural gas-delivery network found the Thames Estuary near London and the northern Teesside industrial hub may be suitable to lay new pipelines to move the greenhouse gas toward depleted offshore wells, Director of Network Operations Chris Train said in an interview.
The U.S. and Europe together have earmarked as much as $14 billion in aid to develop technology to trap and bury the waste gas for eons, which in the London area may benefit utilities E.ON AG and RWE AG and refinery operator Petroplus Holding AG.
“What we’ll probably see is something arranged around clusters” of industrial polluters to remove their CO2, Train said by telephone. That’s more feasible than building a national infrastructure, he said.
Pilot projects have developed slowly because of potential gas-transport costs. London-based National Grid is expanding its range of possible routes beyond Scotland and Humberside, banking on government support and its own unique position of already operating 4,600 miles of gas pipelines in Britain.
Saving Polluters Money
A carbon-capture system might help the government as well as industrial polluters to meet international greenhouse-gas agreements without having to buy emissions permits from traders.
The Thames river area near the country’s financial capital is home to large producers of greenhouse gases.
Duesseldorf-based E.ON, Germany’s largest utility, has drawn up plans for carbon capture at a new coal-burning power plant at Kingsnorth, just south of the Thames river. RWE AG’s Npower unit runs a coal-fired power station on the banks of the Thames. Petroplus has refineries by the Thames and on Teesside.
Train declined to name companies National Grid has spoken with about the plans, beyond saying “we are talking with parties in both those areas” of England. “It’s pretty embryonic at this stage.”
Carbon capture and storage, commonly called CCS, will contribute a maximum of 10 percent of emission reductions needed globally in 2020 under expected greenhouse-gas trading programs, or 240 million metric tons of gas, New Carbon Finance, a London- based research company, estimated last month.
“The role of CCS will only be minor given the relative high cost of doing CCS projects prior to 2020,” said Milo Sjardin, an analyst in New York for the firm. The rest of the reductions would come from increased fuel efficiency at factories, fuel switching and other abatement efforts, he said.
National Grid, which earns a regulated rate of return on its energy networks, is an “ideal” candidate to move the gas around Britain, provided the government set rules that enable companies to make money by helping bury CO2, Train said.
“One of the barriers for the development of carbon capture to date is having the right incentive framework in place,” he said. While National Grid’s focus is land-based pipes, “if it meant developing a project, we wouldn’t shy away from doing the offshore” leg of the transportation too, Train said.
The company is vying to control the transportation side of the unproven technology, which the International Energy Agency has said will be vital to meet the United Nations’ goal of cutting greenhouse-gas output 50 percent by mid-century.
“It’s still a technology that’s at the beginning of its development,” Mark Freshney, a London-based analyst at Credit Suisse Group, said today in a telephone interview. “It’s 10 years away. It’s not a big value-driver today.”
$3 Billion Plan
National Grid said in February it was drawing up plans for a 2-billion pound ($3 billion) network of carbon-dioxide pipes in the Humber area of northeast England. Last week, the energy regulator, Ofgem, began a public consultation to investigate the viability of National Grid plans to turn over 300 kilometers (186 miles) of natural gas pipes in Scotland to transport CO2.
“There’s a number of areas that also have similar opportunities,” including the Thames Gateway, and Teesside, “which is more refinery-based,” Train said. “There are the economies of scale and opportunity that are afforded by the clustering of coal-fired plants.”
The company is studying converting existing natural gas pipes for CO2 transportation, as in Scotland, and to build new networks, such as in the Humber area. So long as the government introduces clear rules, construction of pipes can start “quite quickly,” Train said.
French power station leading the way in the world's sluggish move towards using environmentally vital CCS technology
The world's first retrofit of a power plant with carbon capture and storage (CCS) technology will begin operating this month in the south of France.
At a power plant at Lacq, energy company Total has upgraded an existing gas-fired boiler with CCS technology – a crucial step towards reducing carbon emissions from fossil-fuel power plants worldwide.
With renewable energy sources a long way from covering the world's increasing demand for energy, many experts believe that developing reliable technology to allow countries to burn fossil fuels without releasing dangerous amounts of CO2 into the atmosphere is essential to avoid the worst impacts of climate change.
Experts welcomed Total's achievement but added that it highlighted how Britain was being left behind in the development of an important technology to head off climate change.
"CCS remains the most important initiative that needs to be implemented both here and around the world in reducing emissions from coal, gas and oil-fired power stations," said Environment Agency chairman Chris Smith.
"[But this project] re-emphasises the importance of making sure that Britain takes an early opportunity to put itself in the lead worldwide in taking the technology forward."
Stuart Haszeldine, professor of geology and an expert in CCS at the University of Edinburgh, was more scathing. "The UK has been first to stoke up interest in CCS, in the 1990s. But since then, CCS has not received any significant government support to make any real projects happen."
He said the technology was essential for the UK to meet its climate change targets. "We have to completely clean up CO2 emissions from gas as well as coal by 2030, if the UK is to meet the legally binding decreases set by the climate change committee," said Haszeldine. "Projects like Lacq will help to make cleanup cheaper and bring that reality closer."
The 60m euro Lacq project will transport and store 60,000 tonnes of carbon dioxide every year in the nearby depleted gas field at Rousse – once the biggest onshore natural gas field in Europe, but which is now almost empty. It is the first to link together all parts of the carbon capture chain from burning natural gas to isolating CO2 from flue gases and burying it underground.
Reusing an existing pipeline that has been transporting natural gas from Rousse to Lacq for 50 years, Total engineers plan to push the carbon dioxide from the power plant in the other direction, injecting the gas into the Rousse reservoir at a depth of around 4,500m. The Lacq project will run for two years, after which engineers will monitor the Rousse gas field to demonstrate that the carbon dioxide remains safely trapped inside.
Last year, the Schwarze Pumpe power station in north Germany became the first demonstration experiment to build a a 12MW fossil fuel-fired boiler from scratch with full CCS – it will bury 100,000 tonnes of CO2 a year 3,000m below the surface of the depleted Altmark gas field.
CCS is seen as the technolology that could save the planet from the expected increased use of coal in power stations around the world. At its best, it could trap up to 90% of a power plant's carbon emissions and, though each element of the capture, transportation and storage process is already proven and in use, only the Schwarze Pumpe plant has put the chain together until now.
Despite agreement from almost all sides that CCS must be made commercial if the world can ever hope to meet its carbon-reduction targets, a full-scale system remains years away, largely because of the costs involved in its development. As a result, many leading power companies have been reluctant to fund CCS individually, arguing that governments should also shoulder some of the financial risks.
The UK government wants to fund a single demonstration plant using post-combustion capture technology and is running a competition to decide which new power station will get the go-ahead. Within the next few weeks, ministers are expected to announce proposals on how to fund further CCS projects in the UK beyond the competition.
But the British government's procrastination has forced many CCS projects planned in the past decade to be abandoned or moved abroad. These include BP's plans to build a carbon capture plant at Peterhead and Centrica's Eston Grange project.
Haszledine also criticised the lack of research effort in the UK, saying just over £6m has been spent on CCS research in the UK in the past decade compared with $2bn to date in Canada, and annual spends of around £40m in Norway and several hundreds of millions of dollars in Australia. New CCS demonstration projects are due to start operating later this year in the United States and Australia.
At Lacq, Total has fitted one of the plant's 30MW gas-fired boilers with oxyfuel technology, where the fossil fuel is burned in an atmosphere enriched with oxygen. The resulting exhaust gas is then composed almost entirely of carbon dioxide and water vapour, which can be easily separated and stored.
"Total needs to master this new technology," said Luc de Marliave, climate change coordinator at the energy company. "Oxycombustion had never been tested at this scale in such an integrated CCS scheme."
Philippe Paelinck of Alstom, the engineeering company that designed and built the CCS equipment at Lacq, said the experiment was an important milestone. "We first proved the feasibility of retrofitting an installation to carbon capture and storage, but also this will be the first demonstration in Europe of CCS with [existing] integrated CO2 pipeline transportation and storage."
De Marliave said Total chose to test oxyfuel because it could potentially save costs in future. "Our calculations showed that, with oxycombustion in that type of application, you could reduce the cost of capture – which is a large part of the cost of the CCS chain – around two-thirds of the cost roughly. For just capture, existing post combustion technologies would cost you something like 70 euros per tonne of CO2. Oxycombustion could reduce this to 35 euros per tonne."
Despite that, he said Total was still open to the investigating the other types of CCS technology, both pre- and post- combustion. "We are not set on one technology. We selected oxycombusiton for the pilot but it doesn't mean that we are not very much interested in post-combustion as well."
Plans for government-funded CCS demonstration plants across Europe have been moving slowly. The EU wants 12 demonstration plants in operation next decade and has reserved 300m carbon credits from the next stage of the European emissions trading scheme to help fund the technology.
In January, the European Commission proposed earmarking €1.25bn to kickstart carbon capture and storage (CCS) at 11 coal-fired plants across Europe, including four in Britain: the Kingsnorth plant in Kent, Longannet in Fife, Tilbury in Essex and Hatfield in Yorkshire would share €250m under the two-year scheme.
Britain's commitment to building a new generation of nuclear power plants took a step closer with the announcement of a list of potential reactor sites around England and Wales.
A list of 11 potential areas was revealed by ministers, sparking anger from environmental campaigners but also hopes of new jobs and a boost to local economies.
Nine of the locations have previously been home to nuclear reactors – including Dungeness in Kent and Sizewell in Suffolk – while two others are close to the former Sellafield reactor site in Cumbria.
The sites have been nominated by companies interested in building the stations and have been initially approved by the Government.
Currently nuclear power supplies some 20 per cent of the country's electricity, but most of the stations are to be closed within a decade due to old age, and the youngest one – Sizewell B – is due to close in 2035.
The list of potential locations is: Dungeness in Kent; Sizewell in Suffolk; Hartlepool in Cleveland; Heysham in Lancashire; Sellafield in Cumbria; Braystones in Cumbria; Kirksanton in Cumbria; Wylfa Peninsula in Anglesey; Oldbury in Gloucestershire; Hinkley Point in Somerset and Bradwell in Essex.
Members of the public are now being asked for their views during a month-long consultation, with the expectation of a shortlist being drawn up.
Ed Miliband, Energy and Climate Change Secretary, said: "This is another important step towards a new generation of nuclear power stations.
"I want to listen to what people have to say about these nominations and I encourage people to log on to our website, read the information and let us have their comments. Nuclear power is part of the low carbon future for Britain.
"It also has the potential to offer thousands of jobs to the UK and multi-million pound opportunities to British businesses."
The sites have been nominated by energy giants EDF, E. ON and RWE, and by the Nuclear Decommissioning Authority, and could be operational by 2025.
Keith Parker, chief executive of the Nuclear Industry Association, said: "The announcement shows that we're making strong and tangible progress towards building new nuclear power stations, which will help keep the UK's lights on and drive down our carbon emissions.
"Today's announcement demonstrates a key step towards a new fleet of nuclear power stations for the UK – with the first on course for the end of 2017."
The news sparked a mixed reaction from environment groups and local residents.
Robin Webster, Friends of the Earth energy campaigner, said "breathing new life into the failed nuclear experiment" was not the answer to the UK's energy problems.
"Nuclear power leaves a deadly legacy of radioactive waste that remains highly dangerous for tens of thousands of years and costs tens of billions of pounds to manage," he said.
Charles Barnett, chairman of the Shutdown Sizewell Campaign, said: "The Government is going down the wrong path in proposing that we should have more nuclear power stations. They are not safe. With the heightened risk of terrorism, it's foolhardy to build more."
Isle of Anglesey council leader Phil Fowlie said the announcement was "very good news" for the local economy, adding: "In the short term, it will create thousands of construction jobs as the new power station is built and in the long term it will secure work for those already employed at Wylfa and nearby."
Matthew Riddle, South Gloucestershire councillor for the Severn area, said plans to bring the Oldbury site, near Thornbury, back into use would bring jobs and a boost to the local economy.
"The general reaction from people here is that they are fairly happy about a power station at Oldbury, there is no great groundswell of opposition to it."
Nuclear power supplies 16 per cent of the world's electricity and 34 per cent of the European Union's. Fifteen of the EU's 27 members have nuclear power plants, with the percentage of electricity supplied ranging from 78 per cent in France to just 3.5 per cent in the Netherlands.
Battlelines have been drawn between the UK and Scottish governments over nuclear power.
Prime Minister Gordon Brown and his ministers have gathered in Glasgow for the cabinet's first meeting in Scotland for almost 90 years.
Energy secretary Ed Miliband told BBC Radio Scotland the Scottish Government's opposition to new nuclear power stations in Scotland was wrong.
But First Minister Alex Salmond said renewable energy was the way forward.
Mr Miliband said: "I disagree with the position the Scottish Executive have taken on this.
"I don't think it's good for Scotland.
"There's a huge number of jobs - it's 9,000 jobs per nuclear power station with huge benefits for the economy.
"Hunterston B will be decommissioned in the middle of the next decade - the decisions made by the Scottish Government mean that site will not be renewed.
"I think that's a shame for Scotland in industrial terms and I don't think it's the right decision for the United Kingdom in energy terms, but it does remain a decision for Scotland."
But Mr Salmond said: "As opposed to talking about nuclear jobs which might be years away from construction, decades away from production, in the last few weeks in Scotland we have announced 500 offshore wind jobs in construction.
"These are actual jobs which are being created now in technologies which are being deployed now and technologies where Scotland has a huge substantial, natural advantage as opposed to nuclear technologies where Scotland has no advantage whatsoever."
On Wednesday, two south of Scotland MPs hit out at the Scottish Government's refusal to approve new nuclear plants being built.
Labour's Russell Brown and Tory David Mundell said it could cost jobs in Dumfries and Galloway where a station was being decommissioned.
Liberal Democrat Energy spokesperson Liam McArthur said Mr Miliband should take a lesson from Scotland's drive to boost renewable energy, rather than visiting an "ageing nuclear power plant".
The UK Government has released a list of 11 sites in England and Wales where new plants could be built including three in Cumbria, just south of the border between Scotland and England.
The sites were nominated by the companies EDF, E.On and RWE, and by the Nuclear Decommissioning Authority (NDA) which owns the sites of the UK's older generation of Magnox reactors, many of which have ceased operating.
The NDA is currently auctioning land on these sites, with EDF and E.On among the bidders.
By 2018, the Magnox fleet and most of the newer advanced gas-cooled reactors (AGRs) will have come out of service, leaving the UK with just four operational nuclear stations.
Reasons why companies have nominated sites with existing nuclear capacity include the presence of grid connections and a community used to living with nuclear stations and the employment they provide.
In Anglesey, where the existing Wylfa station is scheduled to close next year, the council is actively lobbying for a replacement.
But in Oldbury in South Gloucestershire, a survey two years ago showed a majority of people wanted the site returned to nature rather than used for new generation capacity.
The two proposed locations that were not involved in the Magnox or AGR programmes are Kirksanton and Braystones, both close to Sellafield in Cumbria, which has the longest nuclear history of any UK community.
Many environmental groups remain unconvinced that the UK needs a nuclear renaissance.
Britain risks missing out on tens of thousands of jobs and failing to hit its renewable energy target unless the state steps in to rescue the struggling wind power industry, the Government will be warned today.
A rapid expansion of wind power and the development of major offshore farms are crucial in the Government's efforts to meet its legally binding target of producing 15 per cent of energy from renewable sources by 2020. But the spiralling costs of importing wind turbines and problems raising capital have put some major projects planned for the next decade in jeopardy.
Last month, Iberdrola Renewables decided to cut its investment in Britain by more than £300m. Shell has also pulled out of the London Array offshore project, which would be the biggest offshore wind farm in the world if completed.
A report by the Institute for Public Policy Research, published today, says that an offshore wind investment programme is urgently needed, while as many as 70,000 jobs could be created if the Government is prepared to provide financial backing for offshore projects.
It has found that, despite having huge potential for offshore wind energy production, Britain currently looks set to miss out on the jobs and export potential that the development of the industry will create across the world. Only 700 people work in the industry at present, while the UK is home to just one company that makes parts for wind turbines.
Biomass power - such as burning wood for energy - could do more harm than good in the battle to reduce greenhouse gases, the Environment Agency warns.
Ploughing up pasture to plant energy crops could produce more CO2 by 2030 than burning fossil fuels, if not done in a sustainable way, it said.
Its study found waste wood and MDF produced the lowest emissions, unlike willow, poplar and oil seed rape.
The EA wants biomass companies to report all greenhouse gas emissions.
The agency is calling on the government to introduce mandatory reporting of greenhouse gas emissions from publicly-subsidised biomass facilities, to help work out if minimum standards need to be introduced.
Wood-burning stoves, boilers and even power stations are seen by many as critical to Britain's renewable energy targets.
Biomass is considered low carbon as long as what is burnt is replaced by new growth, and harvesting and transport do not use too much fuel.
'Role to play'
The EA's report reiterated the belief that biomass had the potential to play a "major role" in producing low carbon, renewable energy to help meet future energy needs and help cut greenhouse gas emissions.
But the report Biomass: Carbon Sink or Carbon Sinner also found that the greenhouse gas emission savings from such fuels were currently highly variable.
At its best, biomass could produce as little as 27kg of CO2 (equivalent) per megawatt hour - 98% less than coal, saving around two million tonnes of CO2 every year.
However, the study also found that in some cases overall emissions could be higher than those of fossil fuels.
This was particularly true where energy crops were planted on permanent grassland, it said.
Tony Grayling, head of climate change and sustainable development at the Environment Agency, said biomass could play a role in helping the UK meet its renewable energy targets.
But he argued the credibility of biomass rested on tough sustainability criteria and called on biomass projects to combine heat and power production.
"Biomass is a limited resource, and we must make sure it is not wasted on inefficient generators that do not take advantage of the emissions savings to be made from combined heat and power," he said.
"By 2030, biomass fuels will need to be produced using good practice simply to keep up with the average carbon intensity of the electricity grid."
He added: "The government should ensure that good practice is rewarded and that biomass production and use that does more harm than good to the environment does not benefit from public support."
Biomass has potential but we must assess its full environmental impact before it gets the green light
Despite all the media attention on wind, solar and even wave power as key sources of renewable energy, the UK's largest green energy provider is biomass – using wood, annual crops or waste materials as fuel for heat and electricity. It now generates over 2% of our total electricity, enough to power more than 2m homes. In addition, it produces about 1% of heat for our homes and industry.
And it has the potential to deliver even more in the future, helping the UK to meet its target of 15% of energy from renewable sources by 2020 and reduce dramatically greenhouse gas emissions from heat and power generation, which contribute to climate change.
Heat and power can be generated from a large range of biomass fuels, such as wood, grasses and organic wastes. It is considered renewable because it is either based on wastes which would otherwise go to landfill or on energy crops and forestry that, after being harvested, can be grown again.
But like all "green" products, it's important that we assess its entire environmental impact before giving it the green light.
A new report launched by the Environment Agency this week shows that biomass energy has the potential to be a clean, sustainable energy source – but only if we do it properly.
The best forms of biomass energy have the potential to produce up to 98% less emissions than coal power. The worst would have higher greenhouse gas emissions overall than gas power.
Our report sets out how we can achieve our goal of clean, sustainable biomass. And it makes clear that we should avoid the same problems that have afflicted biofuels – which saw a headlong rush, followed by an abrupt slow down after the total environmental impact of growing crops for fuel had been recognised.
So what should we be doing to ensure that the emerging biomass sector blossoms into a green and low-carbon industry for the future?
The Environment Agency's report: Biomass: carbon sink or carbon sinner analysed the carbon footprint of a range of methods of biomass energy production and comes out with some clear recommendations. The carbon footprint is the overall greenhouse gas emissions from producing, processing, transporting and using the biomass to generate heat and power.
First, the biomass needs to come from sustainable sources, using wastes and local sources as much as possible, while avoiding major land use changes and minimising use of nitrogen fertilisers where crops are used. Second, the processing of the biomass into fuel needs to be efficient, consuming as little energy as possible. Finally, the generators used to turn biomass into useful energy need to be as efficient as possible. This means where possible using the heat generated to heat homes or in local industries.
Bearing in mind the difference between "good" biomass and "poor" biomass, it's important that we have a consistent approach to this emerging industry. Worryingly, there are currently no plans to ensure that best practice is followed, and there is little to suggest that the emerging biomass industry will adopt these standards without encouragement from the government.
We are therefore calling for immediate action to ensure that the biomass industry is encouraged to meet the recommendations outlined above and delivers the lowest carbon energy possible.
This means providing greater incentives for the most efficient plants that produce heat and power rather than electricity only. It also means requiring all plants that receive any public support to accurately report on their greenhouse gas emissions. Eventually, it is likely that we will need minimum standards for all generators.
Government needs to take the lead to develop an industry that meets strict standards and delivers clean heat and power. The prize of a major contribution to the UK's renewable energy and greenhouse gas targets is great. The alternative – an industry using inefficient generators to burn anonymous fuels – could ultimately do more harm than good.
Tony Grayling is head of climate change and sustainable development at the Environment Agency.
Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s state-owned gas company, signed a 20- year deal to buy liquefied natural gas from Qatar to cut its dependence on Russian energy.
Poland announced plans to build an LNG import terminal more than three years ago and also is building a pipeline from Norway. About two-thirds of its gas comes from the former Soviet Union, making it vulnerable to supply cuts like the one earlier this year following a dispute between Russia and Ukraine.
Qatar Gas will sell Polskie Gornictwo 1 million tons of LNG annually a year from 2014 to 2034, the companies said today in an e-mailed statement. That’s equivalent to about 1.4 billion cubic meters, or roughly one-tenth of Poland’s annual consumption.
“An additional source of gas will significantly improve our negotiating position,” Joanna Zakrzewska, a spokeswoman for Warsaw-based Gornictwo, told the TVN CNBC Biznes television channel.
Gornictwo is seeking new supplies from Russia’s OAO Gazprom after deliveries from RosUkrEnergo AG, the trader that sells about 22 percent of gas exports to Poland from the former Soviet Union, were halted earlier this year by the Russian-Ukrainian dispute. The agreement with RosUkrEnergo is scheduled to expire at the end of this year.
The French government is turning to a Pittsburgh-based investor in its efforts to revive rail freight and stem losses at the state train operator’s freight arm.
Railroad Development Corp, which has successfully revived the Iowa Interstate Railroad, wants to replicate in France the technique, known as shortlining, that has seen local traffic revived on many US rail lines.
Major North American railways have sold many lightly used rail lines since 1980 to small, often locally owned companies, which have marketed freight services more aggressively and cut costs.
Shortlines typically have less onerous union agreements than the largest, Class I operators. They also often reduce track and other infrastructure costs by running lighter, slower trains.
The approach has boosted many lines’ traffic – and profitability – significantly.
RDC has signed a joint venture agreement with Réseau Ferré de France, owner of rail infrastructure, and Caisse des Dépôts, France’s development bank, to look for and operate branch lines as shortlines.
The venture is intended to revive the wagonload freight business offered by SNCF, the state-owned train operator, according to Henry Posner, RDC’s chairman.
Wagonload business – where customers can have a single wagon of freight moved, instead of booking a whole train – is a major contributor to the losses of SNCF’s freight division, which made operating losses of €611m ($811m) on €8.03bn turnover in 2008.
The new joint venture will move wagons between marshalling yards on main lines, where they can be formed into longer trains moved onwards by SNCF, and local factories and distribution centres.
“We think we can play a role in stabilising the wagonload business,” Mr Posner said. “That will be part of restoring the freight business of SNCF to health.”
Some European countries have abandoned wagonload freight because of its high operating costs. Some North American railroads – including Canadian National – have found it highly profitable, however.
Dominique Bussereau, France’s transport secretary, said the government had put in place special regulations for lightly used, freight-only lines.
The joint venture would seek a small number of promising areas to start the initiative, Mr Posner said. While some might fail, others would work well.
“For this really to succeed, we need some early success stories,” Mr Posner said.
The venture would need the support of France’s combative rail unions, he said.
SNCF executives attribute many problems at the freight division to restrictive labour practices.
“There’s no question that we’re going to need some flexibility in dealing with labour,” Mr Posner said.
A driver leans out of his car and swipes a card to open an unmarked steel door. Blasted from the bedrock, a road descends steeply into a long cavern, bristling with machinery, banks of lights and high-tech equipment.
This is not the lair of a criminal mastermind in a James Bond story, but the nerve centre of the world's most sophisticated coal-fired central heating system.
From here, a 1,350km network of tunnels, pipes and pumping stations supplies hot water to more than half a million people in Helsinki, one of the world's coldest capital cities.
“It's a fantastic system,” says the newly arrived driver, Marko Riipinen, director of district heating for Helsingi Energia, the municipal utility that operates the system.
“It's highly efficient, environmentally friendly and the price of heat is comparatively low.”
In Helsinki, where winter temperatures often plunge to -30C (-22F), hardly anyone owns a domestic heating boiler. Instead, water is heated centrally at combined heat and power (CHP) plants to 115C and piped directly to tens of thousands of homes and public buildings.
“We can handle the whole system from a single control room,” Mr Riipinen says, placing his hand on a metre-thick pipe. More than 90 per cent of the total heating needs of Helsinki, including hot tap water and heat for homes, offices and factories, comes from the same shared network.
It is a vastly more efficient use of energy than in Britain, where 50 per cent of the energy produced in power stations burning coal and gas is routinely lost as heat, usually emitted directly into the air via chimney flues. In contrast, at Helsingi Energia's gleaming CHP plant in the suburb of Vuosaari, up to 93percent of the energy produced is converted into either electricity or hot water for district heating. That makes it the most efficient power station in the world, says Mr Riipinen.
“To us [the British system] seems very wasteful,” he says. “Finland doesn't have any of its own coal, gas or oil so we have to import everything from Russia or Poland. So we have really learnt that we have to use it in the best way possible.”
It is a model system that Britain, which aims to slash emissions of carbon dioxide by 80per cent by 2050, would do well to emulate. But Mr Riipinen says the problem for countries trying to copy Finland's system is the need to build the pipeline infrastructure, an effort that in Helsinki began in the 1950s and is continuing.
“You need that distribution network,” says Mr Riipinen, who adds that the system can switch between being powered by coal, gas or oil.
The system is supplemented by the world's largest underground coal storage facility, where 250,000cu m of the fuel can be stored in caverns lying 124m below sea-level.
Britain has been trying to encourage the development of CHP and district heating for years, but progress is slow, in part because of the high cost and complexity of fitting the country's ageing housing stock with the necessary equipment.
The big six energy companies, which operate lucrative domestic boiler servicing businesses, also appear lukewarm on the development of such a scheme. Nevertheless, the Government is keen to do more and a new subsidy arrangement is due to come into effect in 2011. It is also conducting a consultation on the subject, which is scheduled to end next month.
China’s economy grew 6.1 per cent in the first quarter from a year earlier, as Beijing struggled to prop up growth that has deteriorated in the face of the global crisis.
The increase was down from 6.8 per cent in the fourth quarter and 9 per cent for the whole of 2008.
The rapid cooling in Chinese growth has been led by a collapse in exports and private sector investment but aggressive government stimulus measures to boost growth through infrastructure spending kept the economy in positive territory.
The 6.1 per cent GDP growth rate was far lower than the 10.6 per cent recorded in the first quarter of 2008 and less than half the 13 per cent China recorded for the whole of 2007 but the government appears relieved that growth has not deteriorated further.
The figure was “indeed quite an achievement” against the background of the worsening global crisis and recession in many of the developed economies that China relies on to buy its exports, Li Xiaochao, spokesman for the National Bureau of Statistics.
Premier Wen Jiabao was pleased the growth rate was not lower and expressed optimism that the Chinese economy is showing some signs of recovery, according to someone who met him earlier this week.
Other data released on Thursday showed a mixed picture with some signs of recovery as a result of government policy and spending support.
Fixed asset investment, which accounted for more than 42 per cent of Chinese GDP in 2008, showed a marked acceleration in March, rising 28.8 per cent in the first quarter, 4.2 percentage points higher than the growth in the same period last year.
The bulk of the increase came from a flood of bank credit to government-supported infrastructure projects, which offset a decrease in investment in the real estate and manufacturing sectors.
The government’s railway investment more than tripled from a year ago while investment in power projects, non-ferrous metals and mining and the coal sector registered growth of 20.6 per cent, 84.3 per cent and 59.6 per cent respectively in the first two months, according to JPMorgan.
Industrial production accelerated to grow 8.3 per cent in March and 5.1 per cent in the first quarter from a year earlier, down from 16.4 per cent growth in the first quarter of 2008, according to Mr Li.
But aggregate profits at large Chinese enterprises fell 37.3 per cent in the first two months from a year earlier and industrial use of electricity, which is usually closely correlated industrial production actually fell 8.38 per cent in the first quarter from a year earlier, according to the China Electricity Council.
Mr Li said he had no explanation for the discrepancy between falling power consumption and rising industrial production but insisted that both figures were accurate and the issue required “further study”.
Consumer prices remained in deflationary territory in March, with the benchmark consumer price index dropping 1.2 per cent from a year earlier and falling 0.3 per cent from February.
Prices for manufactured goods at the factory gate fell 4.6 per cent from a year earlier in March.
Deflation has returned to the US for the first time in more than half a century, taking the pressure off cash-strapped consumers but raising the stakes in the Obama administration's battle to restore economic growth.
Consumer prices were 0.4 per cent lower last month than in March 2008, the first year-on-year drop since August 1955, as the effects of last summer's oil price collapse fed through into energy bills.
The spectre of deflation has haunted monetary policymaking, since a spiral of falling prices, declining wages and collapsing output could leave the US economy in an intractable recession, but economists said yesterday's milestone was far from that nightmare scenario. Excluding volatile food and energy prices, year-on-year inflation was still 1.8 per cent higher than a year ago, only a little below the Federal Reserve's informal "comfort level" of 2 per cent.
"Wages are still growing quite briskly, so injurious or ruinous deflation is a risk rather than a likelihood," said John Lonski, the chief economist at Moody's Investors Service. "What these figures do mean, though, is that it is really premature and unwarranted to argue that all the economic stimulus is going to ignite a surge in prices. I wouldn't take inflation talk seriously unless we are all wrong about the likely severity of the recession and the economic recovery unexpectedly resembles a V shape."
David Buik, a market analyst at BGC Partners in London, said the March deflation may prove only temporary. "The decline in year-on-year terms is all due to the spike upwards and subsequent reversal in energy prices last year – it does not reflect the beginnings of a widespread deflation this year. With oil prices now stable at close to $50 a barrel, there is no near-term prospect of a further substantial decline in energy prices."
Peter Kenny, the managing director at Knight Equity Markets, said the notion that inflation will pick up in the short term is "completely out of the picture". He said: "We're no longer in shock mode, with staggering numbers that speak to a serious slide lower in macroeconomic activity. That scenario, which we were dealing with in the fourth quarter of 2008, is behind us. Now we're looking at numbers that speak to recession without the prospect of inflation."
Consumer energy bills have plunged 23 per cent since March 2008, according to yesterday's figures. Transportation costs – including petrol prices and the cost of new and used cars – were down 13 per cent. Most other bills are rising on a year-over-year basis, however, with health care, education and food among the most robust.
There were declines in the prices of food and clothing in March, compared with the previous month, however, and members of the Obama administration continue to be concerned about the risks of a wider deflationary spiral. Larry Summers, the president's chief economic adviser, said last week that deflation remained a possibility.
Analysts were combing through the Federal Reserve's "Beige Book" last night for more information on the outlook for the US economy, which has now been in recession for 16 months. The book is a collection of surveys by the central bank's regional offices.
It showed that the economy continued to weaken in March and early April, but the speed of contraction was fading and there were scattered signs the recession may be nearing an end. "Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilising at a low level," the Fed said.
As a result of this economic slack, districts reported downward pressure on prices, including significant discounting among retailers and many service providers cutting fees, it said. The outlook for the labour market continued to be poor, but while the housing market remained depressed overall, there were some signs that conditions may be stabilising.
Consumers are to be offered incentives of up to £5,000 to purchase an electric car under government plans to be unveiled today that will also see the creation of electric car cities across the UK and the launch of large-scale experiments with ultra-green vehicles.
The proposals are part of a £250m strategy, seen by the Guardian, spelling out a revolution in Britain's road transport network based on ultra-low carbon vehicles. It will be launched today by Geoff Hoon, the transport secretary, and Lord Mandelson, the business secretary, with the aim of kickstarting the market for cleaner road vehicles and slashing the UK's CO2 emisisons.
Hoon said yesterday that decarbonising road transport had a big role in helping the UK meet its targets of reducing CO2 emissions by 26% by 2020 and 80% by 2050. "Something like 35% of all our carbon emissions are caused by domestic transport," he said. "Of that, 58% of the emissions are caused by motor cars."
The focus of the strategy, in the first instance, would be on urban transport. "Given that 60% of journeys by car are under 25 miles, there's no reason why someone using a car for commuting on a regular basis will not be able to charge up their car at home, take it to work and come home again well within the distance an electric vehicle should be able to travel," Hoon said.
The cash incentive for consumers would be available to offset the higher upfront costs of electric cars, in particular the price of the batteries in modern vehicles. How the money would be distributed is yet to be decided but Hoon said it would be available only to people buying cars that ran entirely, or for the vast majority of their time, on electricity. The scheme, which would be enforced by setting a ceiling for the amount of CO2 a car emits, will become operational in 2011.
"What we've got to get people used to is the idea that electric cars will become quite normal, quite usual," said Hoon. "That it won't be exceptional and, without being unkind to existing electric vehicles, they won't be slightly odd, they will be cars that conform to appropriate safety standards and we can use on an everyday basis."
Part of this attempt to habitualise people to electric cars will be to offer various models to the public to try out. The government's strategy proposes £20m to foster a core of cities and regions interested in developing an infrastructure to charge electric vehicles.
In addition, about 200 electric cars will be available in city centres across the country for the public to try out.
"It may well be that one of the ways forward is for a city to offer itself as a model for demonstration because we're still at that stage where we've got to persuade people that this can be something that is easy, regular, predictable and not something difficult," said Hoon.
Last week Boris Johnson, the London mayor, announced his intention to make the capital a showcase for electric car technology by putting 100,000 electric cars on the roads. Hoon said he was looking at ways of contributing to the mayor's £60m plan. The government aims to begin work on a national infrastructure but expects the private sector to take the lead in building the charging networks needed for mass adoption of electric vehicles.
Car manufacturers are a key part of the strategy: £100m will be available for research to car makers. "What we want to see is the UK firmly in the lead in the manufacturing sense because we want to ensure the incentives ... benefit, broadly, manufacturing in the UK," said Hoon.
The government also wants to find ways to support the ongoing costs of electric cars. "We are looking at ways we can continue to support [electric car owners], perhaps, the cost of the batteries - leasing or renting them - there are various options around," said Hoon. "It's that part that could incentivise consumers to buy an electric vehicle." John Loughhead, executive director of the UK Energy Research Centre, welcomed the government's move. "It has developed for itself some high aspirations in the role the UK is going to play ..." he said. "But the question really is it doesn't tell you exactly how they're going to do it."
The leading lobby group for the North Sea oil and gas industry has called on the Chancellor of the Exchequer to introduce tax concessions for its members or risk about 50,000 job losses inside two years and a looming energy crunch.
Malcolm Webb, the chief executive of Oil and Gas UK, wrote to Alistair Darling this month saying that the tax benefits were essential to help to stem a sharp decline in investment in offshore exploration.
As well as the threat to jobs, a continued tailing off in the hunt for new oilfields would increase Britain's reliance on energy imports from countries including Russia, he wrote.
“There is a very real prospect that the UK could next face an energy crunch in the near future unless sufficient capital investment flows into the nation's primary energy assets, of which indigenous oil and gas, with its capacity to supply 65per cent of UK oil demand and 25 per cent of UK gas demand in the year 2020, forms a most vital part,” Mr Webb wrote.
According to Deloitte, the consultancy, only 18 wells were drilled in the UK during the first quarter. That is a 78 per cent slide on the same period last year and represents a 41 per cent decline in drilling capacity.
Oil and Gas UK is forecasting that drilling will slump by two thirds over the full year.
The group thinks that investment in new fields could drop from £5 billion last year to £2.5 billion next year as the recession bites into spending budgets and the tax burden on developers continues to mount.
The British oil and gas industry, much of which is located in Aberdeen, employs about 350,000 workers directly, with a further 100,000 staff supported in other exploration regions.
Every £1 billion of investment safeguards roughly 20,000 jobs, according to Oil and Gas UK, which represents 80 companies, including the oil majors and biggest contractors.
A spokesman for the group said that about 25 billion barrels of oil and gas were estimated to remain in the North Sea, an important revenue earner for Scotland and essential for the Scottish National Party's plans to pursue independence.
However, much of hydrocarbons in the main offshore fields have already been removed, making it more likely that the big oil developers will dismantle the infrastructure that is necessary to drill for smaller deposits.
The Government has not relaxed the tax burden on energy developers despite a slump in the price of oil on world markets, the industry argues. It is aiming to ramp up the pressure on Mr Darling and the Treasury before the Budget next week.
In his letter, Mr Webb calls for three concessions. At the moment, oil companies are unable to benefit from tax relief on their exploration costs until they begin pumping the resource from the ground.
As well as paying a higher basic rate of corporation tax of 30 per cent, compared with 28 per cent that most companies are liable for, developers have to pay a supplementary tax of 20 per cent.
Third, oil companies have to set aside capital to cover, not just their share of decommissioning costs, but also the Government's contribution.
Oil and Gas UK has asked the Chancellor to relax the burden in all three of these areas.
“We urge you now to pass a clear and unequivocal message to the UK and international investor communities regarding the Government's determination to promote the UK offshore oil and gas province as a competitive destination for capital investment,” Mr Webb wrote.
If the Government did not act within 15 years, the decline in the offshore industry would probably be irreparable, Oil and Gas UK said.