ODAC Newsletter - 15 May 2009
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.
It has been a week of contradictions. On the one hand the oil price went through the $60/barrel barrier for the first time in 2009 spurred on by lower than anticipated US gasoline stocks. On the other the latest IEA forecast was released estimating that 2009 will see the biggest fall in oil demand for 28 years. This announcement, along with news from OPEC that the cartel’s compliance to production quotas was down in April from 82% to 77%, drove prices back down on Wednesday.
Despite the current oversupply and forecasts of continuing weak demand, the oil price has not suffered the kind of collapse predicted by some. One explanation could be that, whether or not they call it peak oil, investors anticipate that any economic upturn will again run some kind of supply constraint. Some like Fredrik Nerbrand, head of global strategy at HSBC acknowledge peak oil explicitly.
In the UK this week there was a boost for the wind industry as the flagship London Array project was finally approved after significant financial uncertainty. In a rare piece of good news for the government this week, Paul Golby of EoN commented that recent changes to the Renewable Obligation Certificates (ROCs) mechanism in the budget assisted in making the approval possible.
A key government announcement this week was a commitment that ‘smart’ meters will be installed in all UK homes by 2020 - the fine detail of how the scheme will work is yet to be confirmed. The plan is a positive move towards giving individual energy users more control over demand and towards enabling more micro generation. The next key announcement on this front will be the price which the government sets for feed in tariffs. For those who don’t want to wait for that though, how about following the example of the Fintry community energy scheme who are ‘greening’ their village by loaning a wind turbine and selling the power?
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The International Energy Agency cut its oil-demand forecast for a ninth consecutive month, predicting consumption this year will fall the most since 1981 as the recession lingers.
The Paris-based adviser to 28 nations cut its global oil demand estimate “slightly” to 83.2 million barrels a day this year, down 3 percent from 2008, it said today in its monthly report. That is 230,000 barrels a day lower than it forecast last month. The revision comes a day after OPEC reduced its 2009 forecast, predicting oil demand of 84.03 million barrels a day.
“Demand continues to look very, very weak,” David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris. “Although there has been a lot of talk about the green shoots of economic recovery, we think it is still a little bit early to be flagging any start of a full blown recovery.”
Oil prices have climbed 34 percent this year, trading above $60 in New York this week for the first time in six months on increasing optimism about an economic recovery and record production cuts by the Organization of Petroleum Exporting Countries. Still, U.S. crude stockpiles remain near the highest since 1990 as the recession saps fuel demand. OPEC crude production is beginning to rise as higher prices encourage members to pump more than their quotas.
Demand is weakest in the world’s most developed nations, where consumption will drop by 5.1 percent this year, the IEA said. The IEA cited “very weak” demand data in April for the U.S., and to a lesser extent, Europe.
Crude inventories in developed nations are at their highest since 1993. Stockpiles were equivalent to 62 days of consumption as of the first quarter of the year, according to the IEA.
“The forward demand-cover level is very high,” Fyfe said. “The market structure is still supportive of a degree of stock- building. It is do with oil for which there is scant demand at the moment.”
The energy adviser said it expects consumption in developing economies to contract for the first time since 1994 as China and Russia “continue to exhibit sustained weakness.” Demand in these economies will average 38.1 million barrels a day this year, a decline of 0.4 percent, or 140,000 barrels a day compared with 2008.
The IEA demand estimate is based on a forecast that global GDP will shrink 1.4 percent in 2009 and the world economy won’t start to markedly recover until 2010 at the earliest, it said. Should the world economy see “strong” economic recovery this year, the IEA’s oil demand could be “too pessimistic,” according to the group.
“If we get an economic bounce in the second half of the year, demand could be stronger than we are showing,” Fyfe said.
Non-OPEC supply will fall by 300,000 barrels a day this year, a second annual decline, to about 50.3 barrels a day. The IEA increased its forecast 50,000 barrels a day compared with last month because of “stable” supply from the North Sea and higher-than-expected Russian output.
Supply from OPEC rose for the first time in eight months in April as members backtracked on production cuts, according to the IEA.
OPEC will meet May 28 in Vienna to review production quotas. It agreed in March to keep supply unchanged as members continue to implement reductions agreed last year, totaling 4.2 million barrels a day, to stem plunging prices.
The 11 OPEC nations bound by production quotas pumped 25.8 million barrels of crude oil a day last month, the IEA said, compared with their official Jan. 1 limit of 24.845 million a day. That means the group collectively completed 78 percent of its promised reduction, compared with 83 percent in March, the IEA said.
The IEA’s estimate is in line with OPEC’s own figure. The producer group said yesterday the 11 members implemented 77 percent of planned output cuts in April, down from 82 percent for March. Production rose to 25.8 million barrels a day, the group said, citing secondary sources.
“There is a little bit of leakage vis-à-vis targets from Iran and a little bit from Angola,” said Fyfe. “Analysts are saying that with prices moving higher and cohesion fraying at the edges, it might be harder,” for the group to reduce production again.
As global consumption weakens, OPEC needs to provide less oil to balance supply and demand. All 12 OPEC members, including Iraq, will need to supply about 27.9 million barrels of crude a day this year, the IEA report showed. That’s a reduction of 300,000 barrels a day from last month’s assessment.
Those same 12 OPEC members pumped 28.2 million barrels a day in April, 270,000 barrels a day more than the previous month according to the IEA. Crude output in Saudi Arabia, OPEC’s biggest producer, was 7.95 million barrels a day in April, unchanged from March, the IEA said.
Oil fell for a second day after OPEC boosted output for the first time since July and U.S. equities dropped on a report showing that retail sales unexpectedly weakened in April.
The Organization of Petroleum Exporting Countries increased oil production last month, exceeding the group’s quota by 967,000 barrels a day. Stocks fell in the U.S., the world’s largest oil-consuming nation, after the Commerce Department said that purchases at stores decreased 0.4 percent.
“Oil is facing pressure from a surprise increase in OPEC supply and a downswing in the major indexes,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “The energy market may not be ready for $60 oil.”
Crude oil for June delivery dropped as much as 76 cents, or 1.3 percent, to $57.26 a barrel on the New York Mercantile Exchange, and traded at $57.56 at 3:36 p.m. in Singapore. Yesterday, the contract fell 83 cents, or 1.4 percent, to settle at $58.02 a barrel, the biggest decline since April 27. Prices initially rose after an Energy Department report showed that U.S. supplies dropped for the first time in 10 weeks.
Oil touched $60.08 on May 12, the highest in six months. Crude oil may fall to $50 a barrel as prices have risen too far from their 20-day moving average, said Masahiko Sato, a senior analyst at OvalNext Corp.
The Standard & Poor’s 500 Index declined 2.7 percent to 883.92 and the Dow Jones Industrial Average dropped 2.2 percent to 8,284.89. The MSCI Asia Pacific Index fell 2.7 percent to 95.54 at 1:44 p.m. in Tokyo, the biggest decline since March 30.
Economists forecast that the Commerce Department report would show that retail sales were unchanged, according to the median of 67 projections in a Bloomberg News survey.
“The international macro data released last night was not supportive for the oil price, although the U.S. EIA inventory data show a sharp fall in crude inventories,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.
The 11 OPEC members bound by targets implemented 77 percent of planned output cuts of 4.2 million barrels a day, down from a revised 82 percent for March, the Vienna-based organization said in a monthly report yesterday.
Those 11 nations, which exclude Iraq, pumped 25.812 million barrels a day in April, the report said, citing secondary sources, which include estimates from analysts and news organizations. That compares with 25.587 million a day in March. The nations have a target of 24.845 million barrels a day that took effect from Jan. 1.
The 12-member group will take into consideration the recent increase in oil prices when it meets on May 28 to decide whether a cut in output is needed to support prices, said Shokri Ghanem, the chairman of Libya’s National Oil Corp.
U.S. Fuel Demand
“The near-term risk for the oil price in the next couple of months is lower,” Moore said. “We might see oil prices at some point back under $50 a barrel.”
Total U.S. daily fuel demand averaged 18.2 million barrels in the four weeks ended May 8, down 7.9 percent from a year earlier, the Energy Department report showed.
Deliveries of petroleum products, a measure of consumption, averaged 19.1 million barrels a day from the beginning of the year through April, 4 percent less than during the same period in 2008, according to a report yesterday from the industry- funded American Petroleum Institute. Fuel use was the lowest for the first four months of the year in 11 years.
OPEC cut its 2009 demand forecast for the ninth straight month, the Vienna-based producer group said in a monthly report.
Consumption will contract by 1.57 million barrels a day this year, or 1.8 percent, to 84.03 million barrels, OPEC said yesterday. That’s 150,000 barrels lower than the April forecast.
U.S. crude-oil supplies dropped 4.63 million barrels to 370.6 million in the week ended May 8, the Energy Department said. Stockpiles were forecast to increase by 1 million barrels, according to the median of responses in a Bloomberg News survey.
Gasoline inventories fell 4.15 million barrels to 208.3 million in the week ended May 8, the Energy Department report showed. The 16 analysts surveyed by Bloomberg News before the report were split over whether stockpiles of the motor fuel would rise or fall.
Gasoline futures for June delivery declined .13 cents, or 0.1 percent, to $1.6855 a gallon in New York at 3:38 p.m. Singapore time.
Brent crude oil for June settlement fell as much as 56 cents, or 1 percent, to $56.78 a barrel on London’s ICE Futures Europe exchange. It was at $57.03 a barrel at 3:40 p.m. in Singapore.
-- With assistance from Ann Koh in Singapore. Editors: Jane Lee, Alex Devine
HSBC Private Bank's head of global strategy is bullish on oil prices for the next 12 months as demand for fuel from China and emerging markets continues to rise.
Fredrik Nerbrand, head of global strategy at HSBC Private Bank, said that the current price of $50 per barrel has lots of room for growth, despite a fall in demand from developed markets.
He said the world is nearing the point of "Peak Oil", the point when productivity reaches its maximum rate, as reserves continue to decline.
He added that recession had made it clear that "even under the most depressed economic scenarios there is a shortage of oil."
"The economic decline witnessed over the last year has had a big impact on oil demand, falling 1.4% globally for the latest figures ending 2008. Supply over the same period remained static, leading to a period of oversupply in mid-2008 but ending the year with a deficit of 0.6 million barrels of oil produced a day as demand ticked-up again in the final quarter."
The largest demand increase in 2008 has been from China, up 7.2%, and has been rising every year since 1993. China demand now constitutes nearly 10% of world demand having risen 27% since 2004, by far the largest increase of all world regions.
Non-OECD countries have also seen uninterrupted rises in demand since 2004 implying that almost all demand increases have originated from developing economies.
The potential for further increases in oil demand from China can be estimated by looking at the number of barrels consumed per capita.
At present 2.2 barrels are consumed per person in China every year and is rising at an annual rate of 5.5% a year. If this annual rate is compounded annually to 2020 our estimations suggest that China’s share of demand would increase from its current 10% to 18%.
Based on HSBC's estimates, this has boosted the global economy (net oil importers) by around $2.7 trillion since the peak in oil prices.
In seeking to explain the run up in oil prices from 2004 to 2008, commentators often turn to "speculation" as the primary cause. While speculation - or at least a kind of piling-on - may have explained the very late stages of the oil price rally, the willingness to attribute oil prices primarily to financial investors - as the CBS news show '60 Minutes' did a few months back - risks drawing the wrong lesson from the period. Let's re-wind the clock and recall the events of the time.
After many years of solid growth, oil production plateaued in October 2004. Regardless of the price level, the oil supply simply stopped responding, and from then on, the world had to make do with broadly flat supplies. Ordinarily, the expansion of the world's economy would be accompanied by increased energy consumption and an inelastic oil supply might have been expected to hinder economic development. It didn't. In the four years to mid-2008, the world economy expanded by 18 percent. The global economy boomed, even without new oil.
However, this came at a price. In the absence of oil supply growth, demand accommodation was required. This was achieved by secular prices rises averaging 25 percent per annum from 2003 to the end of 2007. In other words, the price of oil went up, and this constrained consumption by causing the marginal consumer to drop out of the market. This proved a workable solution for a time, but the global economy could not sustain 25 percent annual price increases indefinitely, and by the second half 2007, the situation was becoming critical. Consumption was being maintained by continuing draws on inventories averaging 1.4 mbpd, and virtually every producer, with the possible exception of the Saudis, was running flat out. By early 2008, even the Saudis were throwing the kitchen sink at the market - all to no avail. On paper, it looked like a peak oil nightmare.
Of course, consumers were responding. From 2005, the EU and Japan began to shed consumption and, from late 2007, US consumption also began to decline as the US consumer sought to escape high oil prices. Notwithstanding, developed economy consumers were not abandoning the market as fast as Chinese consumers were entering it, and prices continued to rise. In early 2008, prices took off and some argue that speculation took over. Still, as inventories continued to fall until May 2008 and all the oil producers were running at full output, the case for market manipulation at that time is hard to make. Indeed, the market was in backwardation most of this time. In backwardation, futures prices are lower than spot prices, the equivalent of the market saying, "Well, prices are high now, but they'll be lower later." The market - those very speculators - believed that oil was over-priced but was continually surprised as demand kept pushing up prices.
Prices did ultimately fall, but not because the supply situation eased, nor because speculators fled the market, and not because inventories were released. Prices fell because the global economy collapsed.
This period then shows us two of the possible adjustment mechanisms in the era of peak oil: oilless growth characterized by increasing prices and continuous, incremental adjustment; and recession accompanied by a dramatic step drop in consumption and a collapse of oil prices. The lesson to be drawn is that conservation can work within limits, but at some point, there is a straw that breaks the camel's back and the whole system collapses. Ultimately, the inability of the oil supply to keep pace with global demand proved to be a key contributing factor to the current recession. I would note, however, that the proximate cause of the recession is China, not peak oil. China ultimately provided both the financial liquidity and the commodities demand which brought down the global economy. Were China not so large and not at its current stage of development, peak oil could pass without anyone noticing for some time. As it was, China hit its stride just as the oil supply was stumbling. The issue was not, therefore, peak oil in and of itself, but rather the supply/demand imbalance caused by the inability of the global oil supply to adjust to China's incremental demand.
As for market manipulation, it has recently been running at full tilt. You can read about it daily in any newspaper or news website. OPEC, acting as a cartel, has reduced production by millions of barrels a day in order to drive prices up. Investment banks have chartered supertankers and hoarded perhaps 100 million barrels of crude to profit from current market conditions. Both of these remove supply from the market and drive up spot prices. Indeed, were OPEC to pump at full capacity and oil move out of those storage tankers at reasonable speed, the oil supply could be 5 mbpd higher than its current levels. That would depress prices by quite a bit, perhaps by half or more. So there is plenty of market manipulation at present.
Why no outrage? Surely the economy could use the implicit stimulus now more than ever. Why are commentators failing to take OPEC or the investment banks to task? Is it not a question of principle? Is 'market manipulation' not a bad thing?
Or is the real issue a matter of interests? Does really come down just to price? So it would appear. And this, then, is the greater lesson. When oil prices are high, even ordinarily reserved and thoughtful people will abandon their principles and demand action, demand that someone be held accountable, insist that someone pay. For some, it will be the bankers; for others, the oil companies or the Saudis. Some may come to blame the Chinese, or perhaps the Russians, Iranians or Venezuelans. But someone will have to pay and guilt may be difficult to assign precisely. When this happens, those suffering high oil prices may seek redress by using their national might and influence to ease the burden or exact retribution, even in contravention of obligation, prudence or proportionality.
So as we consider policy in the next cycle, the central issue is not whether to curb speculation by insuring that margin requirements on commodity futures are high enough or by hiring more regulators. The central issue is the containment of oil prices within bands that prevent a second peak oil recession. In doing that, we will prevent the irrational and reactionary from dominating policy and undermining the system of global trade and international relations upon which all our prosperity rests.
Access to reserves, unsettled energy policy agendas and price volatility pose the top risks to the oil and gas industry in 2009, a wholesale change from last year, analysts at Ernst & Young said in a report on Wednesday.
The 2009 Ernst & Young business risk report, oil and gas, ranked the top ten industry risks based on interviews begun in the third quarter of 2008 with oil and gas commentators, academics, sector professionals and the company's own analysts.
In the 2008 report the top three risks the industry faced were human capital deficit, worsening fiscal terms and cost containment.
Oil reached a record price above $147 a barrel last July, but fell to below $34 a barrel by December as the global economy contracted. On Wednesday U.S. crude was trading at $59.65.
"Events of the last six months have shown how quickly and dramatically market conditions can change," report author Wendy Fenwick wrote.
Citing ecological, technological and political challenges faced by independent oil companies, Ernst & Young said the geopolitical consequences of 2008's commodity price surge and plunge continued to reverberate into 2009.
"Operating in politically uncertain regions can expose companies to challenges such as unpredictable government interference, changing fiscal regimes, annulment of contracts or civil unrest."
The report said uncertain national energy policies based on deteriorating government finances in 2009 will create "more noticeable conflicts between environmental and non-environmental policies."
"A global economic downturn and commodity price volatility have unsettled the already volatile energy policy agenda, which fluctuates among the competing goals of security of supply, climate change considerations, ensuring affordability and meeting demand growth."
The report also highlighted last year's record oil price and subsequent fall by two-thirds and said interviewees said the greatest risk to investment strategies this year was a big swing in prices.
"Companies that invest in long-term oil projects with a high marginal cost of production, such as deepwater drilling as well as oil sands, are likely to the the most vulnerable," Ernst & Young analyst Marcela Donadio wrote in the report.
"Companies will look to avoid locking high costs into drilling plans in an environment of significantly reduced commodity prices."
Editing by Keiron Henderson
Russia raised the prospect of war in the Arctic yesterday as nations struggle for control of the world’s dwindling energy reserves.
The country’s new national security strategy identified the intensifying battle for ownership of vast untapped oil and gas fields around its borders as a source of potential military conflict within a decade.
“The presence and potential escalation of armed conflicts near Russia’s national borders, pending border agreements between Russia and several neighbouring nations, are the major threats to Russia’s interests and border security,” stated the document, which analysed security threats up to 2020.
“In a competition for resources it cannot be ruled out that military force could be used to resolve emerging problems that would destroy the balance of forces near the borders of Russia and her allies.”
The Kremlin has insisted that it is not “militarising the Arctic” but its warnings of armed conflict suggest that it is willing to defend its interests by force if necessary as global warming makes exploitation of the region’s energy riches more feasible.
The United States, Norway, Canada and Denmark are challenging Russia’s claim to a section of the Arctic shelf, the size of Western Europe, which is believed to contain billions of tonnes of oil and gas.
An earlier Kremlin document declared the Arctic a strategic resource for Russia and said that development of its energy reserves by 2020 was a vital national objective. It set out plans to establish army bases along the Arctic frontier to “guarantee military security in different military-political situations”.
The strategy published yesterday was approved by President Medvedev and drawn up by the Russian Security Council, which includes the Prime Minister, Vladimir Putin, and heads of the military and intelligence agencies.
Mr Putin accused the West last year of coveting Russian energy reserves, saying: “Many conflicts, foreign policy actions and diplomatic moves smell of oil and gas. Behind all that there often is a desire to enforce an unfair competition and ensure access to our resources.”
Nikolai Patrushev, who heads the Security Council, once flew to the North Pole to plant a Russian flag. He was in charge of the FSB, the federal security service, when Mr Putin was President and created a special Arctic Directorate in 2004 to advance Moscow’s interests in the region. Dmitri Rogozin, the Russian Ambassador to Nato, warned the military alliance in March not to meddle in the Arctic, saying that there was “nothing for them to do there”.
The Foreign Minister, Sergei Lavrov, also criticised Norway, a Nato member, over military exercises based on “a conflict over access to resources”. Norway responded that Russia was expanding its military presence in the region.
A team of explorers led by Artur Chilingarov, the Kremlin’s special representative to the region, used mini-submarines to plant a titanium flag on the Arctic seabed in 2007 to stake Russia’s claim to the massive Lomonosov Ridge.
Russia argues that the ridge is an extension of its territory, which justifies its ownership of 1.2 million sq km (465,000 square miles) of the Arctic. It plans to stake its claim in a submission to the United Nations Convention on the Law of the Sea.
The strategy document predicted that the struggle over energy resources would increasingly dominate international relations. It identified the Barents Sea and Central Asia, where Russia and China are vying for influence, as further areas of friction.
The Caspian Sea is critical to the European Union’s hopes of breaking its dependence on Russian gas by building export routes for alternative supplies from Central Asia. Russia, Kazakhstan, Azerbaijan, Turkmenistan and Iran are locked in talks on dividing the seabed and its energy riches.
The strategy paper also condemned as unacceptable threats to Russian securityAmerican plans for a missile defence shield in Eastern Europe and the expansion of Nato into the former Soviet republics of Ukraine and Georgia.
Norway, the world’s fourth biggest crude exporter, said Monday that its oil production fell a sizeable 7% in April to 1.99 million barrels a day last month from 2.15 million barrels a day in March.
Though preliminary, the data highlight one of the big underlying supply problems in non-OPEC states that many oil analysts believe is likely to send crude prices back over the $100 a barrel mark in coming years. Oil closed Friday at $58.63, its highest settle since mid-November. It is trading around $57.75 a barrel this morning.
The Norwegian situation is being replicated in other non-OPEC oil producers, such as Mexico and the U.K. These regions are mature and giving up less oil, meaning that keeping production flat is getting harder and harder.
If analysts are right, this underlying supply struggle will keep oil prices relatively strong in coming years. And that’s a boon for renewable energy developers. Not just are they set to receive an enormous infusion of cash, low-interest loans and other support out of capitals from Washington D.C. to Beijing, they appear set to get some tailwind from high oil prices. If the worst global recession in decades can’t derail oil prices for long, that’s a good sign that the global economy is entering a period of oil prices high enough to support ongoing investment in renewable (a.k.a. competing) energy sources.
In addition to the so-called “below ground” geological issues, non-OPEC producers, which currently meet about 60% of the world’s daily crude demand, are grappling with the global economic recession. The International Energy Agency in Paris last month cut its 2009 non-OPEC supply forecast by 320,000 barrels a day to 50.3 million barrels a day due to falling spending on drilling projects. It was the IEA’s eighth straight monthly downward revision to non-OPEC supply.
The agency said it could spring further reductions to its non-OPEC supply projections, so be on the outlook when the IEA releases its May monthly oil market report on Thursday.
The Kurdistan regional government has told oil companies working in the northern Iraqi province that they will be able to export oil using Iraq's main pipeline as early as next month, an apparent breakthrough in a longrunning dispute about sharing Iraq's oil wealth.
The oil ministry in Baghdad confirmed that crude extracted from some fields in Kurdistan could be exported. There remained significant confusion, however, and analysts warned this could be yet another false start. "We are absolutely certain oil will flow on [June 1]," Ashti Hawrami, the KRG's oil minister, said.
"Iraq desperately needs the oil revenues, and no one can deny that. The rest that needs to be worked out is just rough edges - I am talking about the oil law, the constitution, the legalities."
Oil has long been the subject of dispute between the Kurdish regional and Baghdad central governments. This has hindered passage of a national hydrocarbons law outlining foreign participation in the energy sector.
Any deal between the KRG and Baghdad would allow companies such as DNO, the small Norwegian oil producer, and Addax, of Switzerland, to pipe rather than truck out their oil.
Addax said it had been told formally it could begin sending crude from the Taq Taq field through the main northern pipeline to the Turkish port of Ceyhan. Taq Taq, which can produce 40,000 barrels of oil a day, is expected eventually to produce 180,000 barrels a day.
DNO, which can produce 50,000b/d from its Tawke field, received similar notice. Its shares rallied almost 20 per cent on the news.
In Baghdad, Asim Jihad, the oil ministry spokesman, said the oil would be exported once northern fields were connected to the national export pipelines.
"These quantities will increase Iraqi export capacity and all revenues will go to state coffers. The ministry supports any steps to increase Iraqi output and export levels," Mr Jihad said.
Iraq has the world's third-largest proven oil reserves, at 115bn barrels. The volumes set to be exported through the northern pipeline represent less than 5 per cent of Iraq's total output.
But Baghdad has made significant progress in luring big oil companies, such as BP and Royal Dutch Shell, back to Iraq to help boost its ailing fields potential production by 1.6m b/d.
LNG has become a transforming force in the global energy market and a potential answer to Russian domination of Europe's gas supplies.
The first super-tanker from Qatar has begun delivering frozen gas at –160C to the South Hook LNG Terminal in the south-west Wales port of Milford Haven, which was formally opened on Tuesday.
The biggest and most advanced LNG terminal in Europe, it will boast five giant storage tanks as large as the Albert Hall by the end of the year.
The hi-tech project is a joint venture by Qatar Petroleum, ExxonMobil and Total.
Qatar's LNG fleet will send one ship to Wales every three days, each supplying enough to meet Britain's gas needs for 24 hours.
It is hoped that the new trade from Qatar's vast fields in the Persian Gulf will guarantee Britain a reliable source of gas as the North Sea basin goes into rapid depletion.
As the world's biggest exporter of LNG, Qatar provides a counter-weight to Russian control of pipelines feeding Europe's grids – prompting Moscow's frantic efforts to rope Qatar into an OPEC-style gas cartel.
The revolution in LNG technology over the last decade has opened up Qatar's off-shore gas fields, transforming the tiny sheikdom of 1.5m people (240,000 citizens) into the planet's richest country per capita.
By 2013, Qatar aims to produce 5.5m barrels per day of oil equivalent, half as much as Saudi Arabia but with a fraction of the population.
The task for Britain is to ensure that the fleet of LNG tankers keep sailing to Wales rather going East, where prices have been higher.
Abdullah Al-Attiya, Qatar's energy minister, said yesterday: "Asia demand for LNG now, in other parts such as India and China, is becoming very high.
"China's needs are still not satisfied. They need huge amounts of gas. So now China is the centre of the new LNG compass."
Kazakhstan approved its participation in a Moscow-led gas pipeline, which could divert potential supplies away from Europe's Nabucco project, days after refusing to commit to the EU-backed plan to cut reliance on Russia.
President Nursultan Nazarbayev signed Kazakhstan's agreement with Russia and Turkmenistan into law on Wednesday, according to the presidential website akorda.kz.
Diplomats who attended a summit in Prague last week said Kazakhstan, Turkmenistan and Uzbekistan had refused to sign a final declaration to speed up work on the European Union-backed Nabucco project to bring Caspian gas to Europe.
Russia agreed with Central Asian producers in 2007 to carry more of their gas to Russia by increasing the capacity of the Central Asia-Center pipeline system, which would allow Moscow to keep regional gas flows under its control.
But talks have stalled and analysts have said Central Asian states could opt to work more closely with European plans to import gas via the Trans-Caspian Gas Pipeline under the inland sea, rather than sending it around the northern coast to Russia.
The Russian pipeline plan is expected to transport up to an extra 10 billion cubic metres of Turkmen gas a year and the same volume of additional Kazakh supplies, according to the original deal.
Officials say it would come on stream by March 2010, a year before construction work on Nabucco is scheduled to start, but its cost and precise construction plan remain unclear.
Russia's Gazprom said last month it may double the capacity of the pipeline, in which Uzbekistan is also due to take part.
Russia could sell the additional Caspian gas on to Europe through its proposed South Stream pipeline project which is seen as a direct rival to Nabucco.
Gazprom currently buys about 50 bcm of gas a year from Turkmenistan, about 15 bcm from Uzbekistan and less than 10 bcm from Kazakhstan using a Soviet-era pipeline.
All countries in the region plan to boost output in the future but the West hopes that these additional volumes would be exported through new routes bypassing Russia.
A source close to the Nabucco project told Reuters the three countries wanted guarantees and tangible incentives to supply the pipeline. Turkmenistan, the region's biggest gas exporter, which also plans to begin shipments to China through a new link later this year, has said it could fill all the planned pipelines.
Additional reporting by Anna Mudeva in Sofia, editing by Daniel Fineren/Anthony Barker
Economist Jeremy Rifkin galvanised the Research Connections 2009 conference in Prague with a roadmap to simultaneously solve the economic and energy crises.
He proposed a pan-European strategy of small-scale energy generation and smart energy grids that make everyone a partner in energy.
What is more, he said, the plan would create millions of jobs and foster investment that would see the end of the current economic crisis.
Mr Rifkin leads a roundtable of 100 top CEOs and government officials who have subscribed to the plan.
The roundtable is part of the Foundation on Economic Trends, which Mr Rifkin founded.
He said old economic models will not see humanity through, and the combination of the climatic, energy and economic woes of the planet created a "perfect storm" that will see in a new era for its inhabitants.
But such a revolution is not unique to human history, he said.
"The great economic revolutions in history occur when two things happen," he explained.
"First, we humans change the way we organise the energy of the Earth; we've done this frequently over the course of our history.
"Second, and equally important, we change the way we communicate to organise new energy regimes. When energy revolutions converge with communication revolutions, those are the pivotal points in human history."
The current renewable energy push, in common with the information and communication technology revolution that characterised the 1990s, is just such a pairing of regime changes.
But in Mr Rifkin's grand plan, every citizen of the EU would participate in order to revolutionise the way energy is generated, used, and monetised.
Although the sheer scope of the idea raised eyebrows throughout the room, Mr Rifkin laid out a cogent, four-part plan that he said could in one stroke dispel the perfect storm he described.
The first two pillars of the plan were a call to technological arms: further develop renewable energy technologies' efficiencies, amplify production to access "economies of scale", and develop means to store the intermittent energy they harvest.
The third pillar is a common idea writ very large indeed. He called for a pan-European commitment to microgeneration - small installations of renewable energy technology work in place of, for example, vast wind farms - but on every single building already up or yet to be built.
"We cannot build enough centralised wind and solar parks to run Europe," he said.
"If this energy is distributed over every square foot all over the world, why would we collect it only at a few points? The problem is we're using 20th century, centralised, top-down business models."
Instead, Mr Rifkin suggested overhauling the technology of infrastructure and architecture such that buildings have integral power generation: solar panels and small vertical wind turbines on roofs, heat pumps harvesting geothermal energy in basements.
In rural settings, agricultural waste could be used to generate methane and in coastal regions, tidal power could be harvested.
"Your building becomes your power plant, just like your computer becomes your information vehicle to the world. Every home, factory, industrial park, every building is converted," he explained.
While existing buildings could generate a sizeable fraction of their energy demands, new buildings would be "positive power" - generating more than they need through grand changes in building materials and architecture.
Such an idea is not new; in fact, installations are already underway. Mr Rifkin cited car maker GM's Opel factory in Zaragoza, Spain, which sports a $78m (£52m) solar panel array.
It produces some 10 Megawatts of power, which means the energy savings could pay for the installation in just nine years.
Elsewhere in Spain, Navarra and Aragon have, in the past 10 years, moved to generating 70% of their energy with renewables.
Using wind turbines in the Pyrenees, hydroelectric generation from snowmelt, and sun-tracking solar arrays, Aragon will be 100% self-sufficient in six months and be in energy surplus in six more.
"Everyone can do that tomorrow," Mr Rifkin emphasised. Moreover, it is a handy way out of an economic abyss.
"If you want to jump-start an economy it's always about construction. You jump-start not hundreds of thousands of jobs building solar collectors, but millions of jobs reconverting the entire infrastructure."
The scale of the proposed changeover is unconvincing for Paul Ekins, professor of energy and environment policy at King's College London.
"People tend to want power when they demand it and they tend to want it to be there all the time," he told BBC News.
"It's certainly possible that microgeneration has a role to play in the future energy system, but my view is that central generation is likely to be a very important part of satisfying that demand."
The fourth pillar of the plan would make everyone a stakeholder in the scheme by overhauling the outdated power grid system.
"We're going to use the same tecnology that created the internet; we take the power grid of the EU and turn it into an 'intergrid' that works just like the internet.
"Say you're producing 30% of your energy need, it's peak period in the middle of the day and you don't need the electricity. If millions of people send just a little bit back to the grid, peer-to-peer just like we send information on the internet, that's distributed power."
But the distributed computing allowed by the revamped power grid could introduce a new economic paradigm - what Mr Rifkin calls "distributed capitalism".
"The main grid [will be] completely distributed, software connected to sensors connected to every appliance in your home: thermostat, washing machine, toaster, everything.
"At any one time the system will know what every washing machine is doing in Europe. If you have peak demand, not enough supply, software can say to two million washing machines 'forget the extra rinse'.
"If you bought the program - it's all voluntary - you get a cheque at the end of the month or a credit from the electricity company."
Like microgeneration, the idea of such "smart grids" has been circulating in the energy community for some time. But it is the sheer scope of all facets of Mr Rifkin's plan that makes it unique.
He has formed the "Third Industrial Revolution Roundtable" with 100 leaders from industry - big names such as IBM and BASF are on the list - as well as governments to further promote the idea.
And he is sure that the EU will continue to lead the way, citing the "golden goose" of the union: it is the largest internal market economy in the world, making it particularly poised to undertake such an ambitious plan.
Professor Ekins wonders about the likelihood that all the facets such a long-term, high-investment initiative is what the future holds.
"The world has room for visionaries," he said, "and one of the characteristics of visionaries is that their total vision very rarely comes true.
"Normally the future ends up having some aspect of different competing visions."
General Electric will open a $100m factory in the US that will build energy-storage batteries used to help power a new generation of more efficient locomotives, power grids and other industrial gear.
The plant marks the latest step in GE’s efforts to profit from advancements in battery technologies, a centrepiece in chief executive Jeff Immelt’s push to capitalise on mounting demand for more efficient and environmentally friendly ways to produce, distribute and use energy. Mr Immelt predicted that annual sales at GE’s fledgling battery business would swell to $1bn within the next decade.
“Batteries are a key technology in the 21st century,” he said on Tuesday.
GE expects to begin production at the facility, which will be located near its research centre in Niskayuna, New York, and employ 350 people, by mid-2011.
“We are making New York the global capital of the new clean energy economy,” said David Paterson, the state’s governor.
The company plans to apply to the US Department of Energy this week for federal stimulus money to help pay for construction costs, though Mr Immelt said GE would press ahead with its plans for the factory even the request is denied. It received a $15m grant from New York state.
In an interview, Mr Immelt said GE executives had observed the same economic “stabilisation” noted in recent weeks by many industrial companies.
“Things aren’t getting worse,” Mr Immelt said. “The credit markets are a lot better. That’s a foundation for a recovery.”
Commercial use of the sodium-based, high-energy density storage batteries will begin next year with the deployment of new hybrid locomotives produced by GE’s transportation division. The company said it has lined up launch customers in the mining, telecommunications and utility industries.
GE has also invested $70m in A123Systems, a startup that is developing lithium-based batteries used in plug-in electric automobiles and other hybrid vehicles. The conglomerate now owns more than 10 per cent of A123, which counts Chrysler and SAIC Motor among its customers. Mark Little, who heads GE’s research centre, is on the company’s board.
As sodium and lithium batteries advance and prove their worth in additional commercial applications, GE intends to develop new systems that blend the best of both technologies.
“When you look at the tech charts, there are two dimensions: power and duration, or storage,” Mr Immelt said. “If you can optimise those two things, then you have -- particularly in the transportation space -- the Holy Grail.”
WASHINGTON — Cars powered by hydrogen fuel cells, once hailed by President George W. Bush as a pollution-free solution for reducing the nation’s dependence on foreign oil, will not be practical over the next 10 to 20 years, the energy secretary said Thursday, and the government will cut off funds for the vehicles’ development.
Developing those cells and coming up with a way to transport the hydrogen is a big challenge, Energy Secretary Steven Chu said in releasing energy-related details of the administration’s budget for the year beginning Oct. 1. Dr. Chu said the government preferred to focus on projects that would bear fruit more quickly.
The retreat from cars powered by fuel cells counters Mr. Bush’s prediction in 2003 that “the first car driven by a child born today could be powered by hydrogen, and pollution-free.” The Energy Department will continue to pay for research into stationary fuel cells, which Dr. Chu said could be used like batteries on the power grid and do not require compact storage of hydrogen.
The Obama administration will also establish eight “energy innovation hubs,” small centers for basic research that Dr. Chu referred to as “Bell Lablettes.” These will be financed for five years at a time to lure more scientists into the energy area.
“We’re very devoted to delivering solutions — not just science papers, but solutions — but it will require some basic science,” Dr. Chu, who won a Nobel Prize for his work in physics, said at a news conference.
He said he would probably reverse another Bush administration decision and restore funds for FutureGen, a program to build a power plant prototype. The plant would turn coal into gas, separate out the carbon dioxide — a major contributor to the greenhouse gases that cause global warming — and pump it underground. Then it would burn the hydrogen, which is nearly pollution-free.
An international partnership had selected a site in Mattoon, Ill., for construction of the plant, but the Bush administration decided that the costs were too high and that the money should be spread among more projects.
The Obama administration will also drop spending for research on the exploration of oil and gas deposits because the industry itself has ample resources for that, Dr. Chu said.
While the budget request for the Energy Department is $26.4 billion, an increase of less than 1 percent, actual spending will actually be far higher because some projects will be financed by the economic stimulus package, said Steve Isakowitz, the department’s chief financial officer.
While Dr. Chu emphasized the allocations for research, a former Energy Department official, Robert Alvarez, pointed out that the budget still includes $6.4 billion for nuclear weapons and $4.4 billion for naval reactors, nuclear nonproliferation activity and safe storage of surplus plutonium. “Weapons still make up the largest single expenditure,” he said.
EDF on Monday announced the sale of a 20 per cent stake in British Energy to Centrica of the UK, in a deal that would value the French group’s recently acquired nuclear operator at close to 6 per cent less than the £12.4bn it paid last year.
Centrica will pay £2.3bn ($3bn) for a smaller stake in British Energy than expected. It had agreed to take a stake of up to 25 per cent, but came under fire from some shareholders concerned that it could be over-paying.
Electricity prices have plunged since last summer, hitting British Energy’s profits.
The UK gas group will pay about half in cash. The balance will be accounted for with the transfer of Centrica’s 51 per cent stake in SPE, Belgium’s second-largest power producer, to EDF.
Centrica and EDF had been struggling to conclude a deal for several months amid strong disagreements over valuation.
Last summer the two sides announced a non-binding agreement whereby Centrica would buy 25 per cent of British Energy for £3.1bn, putting the same valuation on British Energy as was paid by EDF.
But the sharp fall in energy prices since then has called into doubt future earnings for British Energy and raised doubts among Centrica shareholders about the wisdom of a deal at that price.
Neil Woodford, head of investment at Invesco Perpetual, which is a significant investor in both Centrica and British Energy, said on Monday: “Centrica has negotiated a good price for the deal package which will create a more vertically integrated and more balanced business in an environment of volatile international energy prices.”
Sam Laidlaw, Centrica’s chief executive, said the deal with EDF had been agreed on “very different terms” from the memorandum of understanding signed last summer.
Centrica is paying only £1.1bn of the price in cash, leaving it with sufficient financial firepower for other deals, including a possible bid for Venture Production, the North Sea oil and gas producer in which it has a 23.6 per cent stake. The group last year raised raised £2.2bn in a rights issue, and buying Venture would cost it about £1.3bn.
Centrica was intent on pursuing the British Energy deal as part of its strategy of increasing its electricity and gas production to reduce its exposure to prices in wholesale energy markets.
The deal marks Centrica's debut in the nuclear market, to offset stagnant demand and falling gas production at home. It takes the proportion of the company’s gas and electricity needs that it produces itself from 35 to 45 per cent.
Mr Laidlaw said his target was to increase it further to 50-55 per cent, in line with Centrica’s competitors, although that could also include long-term gas contracts.
Some investors were supportive of that strategy, but concerned that Centrica did not pay too much to pursue it.
The final price agreed with EDF should ease those fears. The notional valuation of £2.3bn represents a 6 per cent discount to the price paid by EDF, according to Centrica.
However, that is made up of just £1.1bn in cash and a £1.2bn value put on Centrica’s 51 per cent stake in SPE. That valuation represents a multiple of 14 times the Belgian utility’s earnings before interest, tax, depreciation and amortisation – well above those paid in similar deals in the sector. Centrica paid just €585m for 25.5 per cent of SPE last summer, when energy prices were at their peak.
Shares in Centrica gained 5.8 per cent to 240¾p in afternoon London trading, while in Paris EDF was 5.7 per cent lower at €34.37.
EDF is coming under strong pressure to cut its debt, already close to record highs after buying British Energy and 50 per cent of the nuclear assets of its US partner Constellation Energy for $4.5bn.
The group faces a substantial investment programme both in France and abroad. The costs of its new generation EPR reactor has skyrocketed and the nuclear revival has opened markets more quickly than expected.
EDF had said it would not accept less than what it paid for British Energy at 765p a share.
But the deal puts a value of just over 700p a share on British Energy, including a £1.2bn valuation for the SPE stake, which does not appear to have been affected by falling energy prices.
The lower-than-expected price will raise pressure on EDF to accelerate disposals to cut debt, which is set this year to increase significantly beyond last year’s €25bn ($33.5bn).
EDF has said it will sell about €5bn of assets to reduce borrowing and, as reported in the Financial Times last week, is considering whether to pull out of the regulated distribution business in Britain.
Centrica said in a trading statement on Monday that it expected post-tax profits for 2009 to be higher than in 2008, although it reported a sharp drop in production from its gas fields.
It welcomed the British government’s plans to compel energy suppliers to fit every household in the country with a “smart meter”, an intelligent device that monitors electricity and gas use minute by minute, and can send and receive information.
Britain's plans to build a new generation of nuclear power stations have been thrown into jeopardy by startling official safety fears. The nuclear regulatory body in Finland, where the first of the reactors is being built, has taken the extraordinary step of threatening to halt its construction because it has not been satisfied that key safety systems will work.
STUK, the Finnish government's Radiation and Nuclear Safety Authority, says that "evident errors" have not been corrected more than a year after it raised its concerns and condemns the "lack of professional knowledge" of people working for the firm responsible for its design and construction.
This is an unexpected, and potentially devastating, blow because one of the main selling points of the new European Pressurised Reactor (EPR) has been that its safety systems will work far better than those in current reactors. It is particularly important that they do because, as The Independent on Sunday reported in February, they will produce many times as much radiation that could be rapidly released in the event of an accident.
EDF, the French electricity generator, plans to build at least four EPRs in Britain; two each are expected for existing nuclear sites at Sizewell in Suffolk and Hinkley Point in Somerset. It plans to let the first construction contracts this year and to have the first power station in operation by 2017. However, the first EPR, called Olkiluoto 3 – which is being built on an island in the Gulf of Bothnia, off western Finland – has already been plagued with problems. It was supposed to begin operating this year but its construction is now three years behind schedule, vastly exceeding its original cost of €3bn.
The new crisis has been sparked by a leaked letter from Jukka Laaksonen, STUK's director general, to Anne Lauvergeon, the chief executive officer of the French nuclear company Areva, which has designed and is building the reactor, to express his "great concern" over "the design of the control and protection systems".
He said he first raised the issue in the spring of 2008, but "we have not seen expected progress in the work on the Areva side" adding that "the attitude or lack of professional knowledge" of some of the people representing the firm in expert meetings on the issue "prevents progress in resolving the concerns. Therefore evident design errors are not corrected and we are not receiving design documentation with adequate information." He warns: "Without a proper design that meets the basic principles of nuclear safety... I see no possibility of approving these important systems for installation. This would mean that the construction will come to a halt."
John Large, an independent nuclear consultant, describes the warning as "a hell of a damp towel for the reactor", and says that STUK's ultimatum shows that "it must consider the safety issue very serious indeed". The Health and Safety Executive, which will have to approve the EPR for use in Britain, is already liaising closely with STUK.
The letter was written last December, but a spokesman for STUK said late last week that, as far as he was aware, the situation had not changed since. Areva said it had sent some more files to the Finnish utility that will operate the power station, but admitted that "there are still some problems to solve".
EDF declined to comment.
Plans to build the world's biggest offshore wind farm in the Thames Estuary have finally been given the go-ahead thanks to changes to the incentive scheme for renewable energy investments.
The first phase of the 90 square mile London Array will see 175 turbines producing 630 megawatts (MW) of electricity seven miles off Kent, the development consortium of E.ON, Dong Energy and Masdar said yesterday.
Planning work for the €2.2bn (£2bn) programme will start this year with offshore construction under way in 2011 and the first electricity produced in 2012. The second stage is dependent on future environmental evaluations, but the ultimate aim is for 341 turbines producing 1 gigawatt (GW) of power, enough for a quarter of all the homes in Greater London and by far the biggest off shore development in the world.
The London Array has been on the stocks since 2006. But one major backer, Shell, pulled out last summer, and even the arrival of Masdar, the Abu Dhabi sovereign wealth investment vehicle, could not make the business plan stack up. The boost to the Renewables Obligation Certificate (ROC) incentive mechanism, announced in last month's Budget, was crucial.
Paul Golby, the chief executive of E.ON UK, said: "The project was on a knife edge but the changes to the incentive regime tipped the balance. The London Array would not have been economic without the additional support."
Extra-large wind farms are crucial to meeting the commitment to ensuring 15 per cent of all UK energy is from renewable sources by 2020. But funding is not the only issue for budding developers. There are also questions about the wind industry's capacity to support such rapid expansion. Limited access to everything from turbine blades to ships has dogged developments across Europe and resource issues were a major topic in the decision about the London Array. In harsh weather conditions and such deep water, time schedules for construction are inflexibly tight. So only once the parts, range of ships and skilled staff were sourced was the project given the green light.
Frank Mastiaux, the chief executive of E.ON Climate and Renewables, said: "The three critical things are having the right turbines, the right vessels and the right people. Overall the industry that will be building gigawatts of these schemes in the future will have to find a way to resource the projects."
The Government is trying to address the problem. Ed Miliband, the Energy Secretary, said: "The London Array sends an important signal about the UK renewables market and the confidence of major suppliers, and vindicates the decision in the Budget about the ROCs."
Notwithstanding the recent closure of Vestas's Isle of Wight turbine factory supplying the US market, there are also talks with major suppliers about setting up plants in the UK. "There is a lot of interest in locating in this country and we are having discussions with a range of companies," said Mr Miliband.
In comparison with other energy projects, wind farms are hugely expensive. At current costs, offshore developments come in at about £3bn per GW, compared with £1.8bn for nuclear and just £600m for a gas-fired power station.
The ROCs regime was developed to offset the imbalance. Electricity retailers are required by law to derive a growing proportion of power from renewable sources. By issuing the ROCs to generators – to be sold on to utilities to prove the obligation has been fulfilled – the system provides an extra revenue stream. Under the new rules, the allocation for offshore wind has gone up to 2 ROCs per MW hour (MWh), compared with 1 ROC per MWh for onshore wind.
The London Array is not the only development to have stalled pending discussions over ROCs. Centrica's 250MW Lincs scheme was passed by planners in October, but is yet to be signed off by the company.
There is a perception that increasing the deployment of renewable generation in the UK will increase the price of electricity for British consumers. However, the reality is the reverse: adding significant amounts of wind capacity to a country’s generation portfolio leads to lower overall generation costs, and to lower bills, while increasing energy security.
Wind is a free source of fuel. When the wind blows the UK’s electricity system has access to this free source and the power generated is automatically accepted onto the system. That electricity system is a combination of generation plants using different fuels and technologies, each with its own marginal cost. Operators bring plants on line in an ascending order of marginal cost and employ the same methodology when reducing output. In short, the most expensive plants, such as open cycle gas, are the last to be brought onto the system and the first to be shed.
When introduced wind displaces this “low merit” or “peaking” plant. This is the “merit order” effect, where wind reduces both the marginal and average cost of power. Recent studies in Germany have shown the consumer benefit of this effect, in that the reduction in domestic electricity prices brought about by this fossil fuel displacement exceeds the amount paid out by the consumer in support mechanisms for renewable generation.
When wind energy is available in significant quantities it causes the demand for fossil fuels to fall and if it continues to blow for a prolonged period, as frequently happens in northern Europe, the expected future market price of electricity also falls. This phenomenon was clearly seen in Spain over the early months of 2009 where prices paid for electricity on the spot market were reported to have dropped by over 10 per cent as production from wind plant increased relative to demand. A longer term study in Denmark has shown that between 2004 and 2007 the cost of power would have increased by up to 12 per cent if wind had not been available on the system. An American study this year has shown that if renewables provided 25 per cent of US electricity, it would lead to a 7 per cent reduction in consumer bills.
Where wind production is increased, units burning fossil fuel will have their input price reduced because the inclusion of wind reduces demand for fossils. Thus there is a leverage effect on the value of each unit of electricity made from wind. It does not just have a very low marginal cost; it lowers the cost of every other unit of fossil fired electricity as well.
One of the greatest benefits of wind power is that it reduces our exposure to fuel price volatility. Energy security considerations generally focus on the threat of abrupt supply disruptions, such as Russia’s closure of its gas pipeline to the West. However there is another aspect of energy security: the risk of unexpected fossil fuel price increases. Energy security is reduced – and prices increased - when countries hold inefficient portfolios that are overexposed to fossil price risks. Diversifying a country’s generation portfolio by growing the supply of wind energy increases energy security and serves to lower the overall generation portfolio cost – again reducing electricity prices.
Opponents of renewable energy have been allowed to frame the debate around the economics of wind power by concentrating on its high capital cost, rather than its low and stable fuel cost, the benefits it brings in terms of lower energy market prices and its contribution to energy security. Maximising the opportunity to develop large-scale wind resources in the UK will have clear, long-term, sustainable benefits for our economy and for domestic and commercial electricity consumers. Wind energy means lower bills; it’s as simple as that.
When residents of the village of Fintry in Stirlingshire first heard about plans for a wind farm in the hills above them, their reaction took the developer by surprise.
Instead of opposing the scheme, the villagers asked the company to build an extra turbine and sell it to them to try to make the community one of the greenest in the UK.
The Fintry turbine has now been operating for more than a year, and has already earned £140,000 for the villagers, money that has been put aside for energy efficiency schemes. Around half of the 300 households have already had roof and cavity wall insulation fitted, and some residents have seen their heating bills cut by hundreds of pounds a year. When the loan on the £2.5m turbine is paid off, Fintry could be making up to £500,000 a year from the electricity its turbine feeds into the National Grid.
This weekend, the village has been holding an energy fair to showcase new renewable energy initiatives for the residents, and to try to persuade other communities in the UK to follow their lead.
"As far as we are aware, we are the only community in the UK to have gone down this route," says Gordon Cowtan of the Fintry Development Trust, which manages the income from the turbine. "I think it's a great shame it has not happened more."
Cowtan says the villagers had already started looking into ways of being more energy efficient when they heard about proposals for the Earlsburn wind farm in the Fintry Hills.
"A couple of guys in the village had already been tasked by the community council to look at what opportunities there might be in doing something in the renewables area for the community," he says. "We were going through that process when the wind farm developer turned up and said, we're thinking about putting some turbines on the hill up there.
"Rather than saying to the developer, we don't want these things; we said, can we have some more please? They were a little taken aback. We grabbed the agenda; we saw this was potentially a great thing for the village." Only one person objected, he says.
The community worked out a loan deal with the wind farm developer, West Coast Energy, and an extra turbine was added to the 14-turbine project. The electricity it provides is sold to the National Grid and the profits go to the village, once the mortgage and maintenance payments have been made.
The community decided from the start that any money raised would be used for energy improvements, but Gordon Cowtan acknowledges that there may come a day when they have addressed all the green issues that they can, and they will have to look at other ways of spending the cash.
"If, a number of years down the line, we have solved all the energy issues of the village, then who knows what would happen then?"
There is no mains gas in the village and many residents have to rely on oil or LGP, so the trust is looking into alternative and greener heating forms. They are also considering setting up an energy supply company which could purchase energy wholesale. Many people in the village commute to work in Glasgow or Stirling, so transport issues will also be looked at, as will issues around food production. Fintry is surrounded by farmland, and has one small shop in the sports centre. Most residents travel to Stirling to shop at the supermarkets.
Tracey Tysvaer, of the Fintry Sports Club, said the turbine initiative had worked better than any of the villagers could have imagined.
"From our point of view at the sports club, we have had a huge benefit from it," says Tysvaer, who has lived in Fintry since 1993. "It has paid for energy efficient lighting and we've been able to put light sensors in, so the lights go off when they are not being used. From a personal point of view, I have had my house insulated, which has been a great help."
Bill Acton, one of the founder members of the Fintry project, says he gets dismayed when he sees developers and communities at loggerheads over wind farm projects.
"One of the problems is the reluctance of developers to really engage a community," he says. Communities, too, he says, should make sure their voices are heard early on, and look to see if there is an opportunity for the community itself.
"If the wind farm developer comes in and has got as far as the planning stage, and the community has not engaged, they have lost their case. There is no chance of any relationship other than one neither wants."
Fintry does not look directly on to the Earlsburn site, which has helped, as has the almost blanket support from villagers, but Acton says there was no reason for other communities not to copy what the village has done. Some have already expressed an interest in setting up something similar and have sought advice from the Fintry residents.
"We were very lucky," says Acton. "We have had clear passage from the community, but absolutely 100% this could work elsewhere."
It's official: it's getting windier down south. This unexpected quirk of climate change has given a much needed boost to offshore wind-farm developers.
For those struggling to make the economics of hugely expensive wind farms work, more wind equals more money.
Experts said that the waters off the coast of East Anglia and Essex could host many more wind farms as a result.
The research, from Atmos Consulting, has found that wind speeds in these areas have been rising so much that wind farms could generate 50% more electricity than envisaged a decade ago.
More than 10GW of offshore wind projects - enough to power 10m homes - being planned for the southern part of the North Sea could benefit.
Based on information taken from Nasa satellite images, the research found that average annual wind speed in the southern part of the North Sea had increased from about 7.5 metres per second in 1990 to 8.5 metres in 2008. In contrast, wind speeds in the northern part of the North Sea, off the coast of Scotland, have remained constant during this period.
If these trends continue, in a decade the south could be windier all year round than northern areas and double the power generated by wind farms off the coast of East Anglia and Essex.
The news could rescue the £3bn London Array wind-farm project planned in the Thames estuary. Project developer E.ON has warned that the economics of the project are on a "knife edge" and will make a final decision this summer.
Atmos Consulting has developed software to process 22 years of satellite images from space agency Nasa. These images measure the size of small, capillary waves on the ocean surface, which indicate the strength of the wind.
Until now, developers have relied on wind-speed levels taken on oil and gas installations or have used meteorological masts planted offshore. The Met Office has only limited satellite data to track offshore wind speeds in the North Sea but is working with wind-farm developers to produce a comprehensive set of data of the last 30 years. A spokeswoman admitted it would take two years to develop.
Duncan Ayling, head of offshore renewables at the British Wind Energy Association, said: "There have been wind-speed measurements on oil and gas installations that give some localised historic data, but a lot of the rest of it is extrapolation. If this technology provides an accurate measurement, it would be very exciting. More wind equals more money for projects. It would enable wind-farm developers to more accurately forecast revenues and have more certainty about the expected return on their investment."
Every household in Britain should by 2020 be able to cut its energy bills and carbon footprint using "smart meters" and handheld devices to control energy use closely, the government said on Monday.
Britain plans to replace all existing electricity and gas meters -- often clunky objects hidden away amid domestic clutter in dark understairs cupboards -- with easily viewed devices that show consumers exactly how much energy they are using, including by individual appliances. The hope is users will change their behaviour to save money.
The meters will also help homeowners sell electricity from green technologies like roof-top wind turbines back to the grid while improving energy demand forecasts and network management. "The meters most of us have in our homes were designed for a different age, before climate change. Now we need to get smarter with our energy," Energy and Climate Change Secretary Ed Miliband said.
"Smart meters will empower all consumers to monitor their own energy use and make reductions in energy consumption and carbon emissions as a result. Smart meters will also mean the end of inaccurate bills and estimated meter readings."
The government estimates that smart meters could deliver net benefits of between 2.5 billion pounds and 3.6 billion pounds over the next 20 years.
In April the government set a 2020 target to cut greenhouse gas emissions by 34 percent compared with 1990 levels, making it the first country to bind itself to a framework for emissions reductions.
But the necessary renewable energy growth and efficiency improvements have been small. A consultation on how to install and run smart meters across the country will run until July 24, 2009. The Energy Retail Association of Britain's biggest suppliers said the government should follow up with swift action to get the meters rolling.
"We're delighted that the Government has finally announced its commitment to enable energy companies to put smart meters in every home," Garry Felgate, Chief Executive of the ERA, said "However, we are still waiting for more detail on the meters themselves and the timetable for the project."
The government said it would prefer energy suppliers to install and maintain the devices, while communications with them would be coordinated by a third party across Great Britain.
The other options being considered are for energy suppliers to manage all aspects including communications, or where regional franchises manage installation and operation with communications managed nationally.
British Gas, which is trialling the meters in almost 50,000 homes and businesses, backs the government's choice.
"We believe the central communications model is best for customers, as it will speed up the roll-out of the technology by almost four years," Phil Bentley, the managing director of Britain's biggest energy supplier said.
Smart meters are seen as a first step towards creating "smart grids" where consumers can adjust electricity use to benefit from cheaper energy at times of low demand, including charging electric cars, and reduce consumption at peak times.
The older meters, many installed in the 1970s, show the total amount of electricity and gas used since installation.
Additional reporting by Michael Holden, editing by Anthony Barker
FirstGroup's First Great Western rail franchise has had £50m in support from the Government because the recession has pushed revenues down below the contracted target.
The company's profits from its rail division dropped by more than 20 per cent to £94.2m last year, although revenue rose 9.5 per cent to £2.1bn.
Although the bus division remains stable – with passenger revenues up 7 per cent on volume increases of 2 per cent – the recession has taken a significant bite out of rail travel in and out of London.
First Great Western, which operates from Paddington to the West Country and Wales, saw 9.6 per cent passenger revenue growth in the year before last, despite performance problems. But last year, even with significant improvements, the number dropped to just 6.1 per cent. Similarly the Capital Connect London commuter service's 13.5 per cent growth dropped back to 8.6 per cent, while TransPennine Express and ScotRail both lost less than a percentage point each.
The regional rail franchises let by the Department for Transport (DfT) include a "revenue cap and collar" arrangement whereby companies that outperform their target share the excess profits with the Government, and those that fall below receive support. TransPennine Express overperformed last year, so 75 per cent of all profits more than 25 per cent above the target were handed over to the Government. Meanwhile, First Great Western's £50m subsidy represents 80 per cent of the revenue shortfall below 94 per cent of the target.
FirstGroup is not the only train operator to be feeling the pinch. But it is the first to receive government support, because the mechanism does not kick in until part-way through the franchise deal, generally about four years. FirstGroup's own Capital Connect service also missed its target in the financial year to the end of March. And although not eligible for financial assistance until the current year, it expects to be claiming support over the next 12 months.
Similarly, National Express has been in talks with the DfT since early this year in an attempt to renegotiate the terms of its East Coast rail franchise in the light of current economic conditions. Under the current deal, the company will not be eligible for government support until 2011 although a trading statement earlier this month showed only 0.3 per cent growth, compared with the 9 to 10 per cent set out in the franchise agreement.
FirstGroup's exposure to fluctuations in passenger numbers is balanced out by the 50 per cent of its revenues from contract business, the majority of which is in the US. The company operates 60,000 yellow school buses across the country, in a market estimated to be worth $22bn (£15bn) per annum. Revenue from the school bus business alone was up 41 per cent last year, and profits rose by 57 per cent. Despite a dip in passengers on the Greyhound bus services, overall US revenue was up 73 per cent to £2.9bn and profits rose by 111 per cent to £140m.
Overall group revenues grew by 31 per cent to £6.2bn and adjusted operating profit was up 38 per cent to £371m, buoyed by strong performance from the US business. "The group has delivered a robust performance during the year despite a turbulent macroeconomic backdrop," said the chief executive Sir Moir Lockhead. "The group continues to benefit from a diverse revenue stream which is balanced between contract-backed and passenger revenues."