ODAC Newsletter - 12 June 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.
Oil demand will fall less in 2009 than previously forecast according to reports by both the IEA and EIA this week. This, along with news of a further reduction in US oil stocks, and a weak dollar saw prices soar above $70/barrel for the first time this year. The price is now close to the $75/barrel which oil producers have been saying is required for investment, at the same time however the increase threatens to dampen the fragile economic recovery.
Last year’s oil data came under the spotlight this week with Wednesday’s release of the BP Annual Statistical Review. In 2008 global proved oil reserves fell by 3bn barrels, global oil consumption fell for the first time since 1992, the year also marked the first time that oil consumption in the developing nations outstripped that of the OECD. CEO Tony Hayward acknowledged a “year of truly unprecedented developments”, before summarising optimistically that reserves were enough for decades to come and that challenges to supply growth are above ground and human rather than geological.
These human and above ground challenges are however exactly the problem. Tony Hayward is correct in saying that large amounts of oil reserves still exist (albeit that new discoveries are drying up), the problem is that the remaining reserves are no longer those which are easy to exploit. For insightful analysis on the report and its release see ODAC Trustee Richard Miller’s Guest Commentary.
In the UK it has been a torrid week for the government with cabinet resignations and disastrous local and European election results for Labour. There was one piece of good news for Gordon Brown this week as the National Institute for Economic and Social Research asserted on Wednesday that the UK economy is actually growing. Brown’s one shot at success now is a quick economic recovery; such a short-term political focus however threatens to stack up problems for the future. As Vince Cable of the UK Liberal Party wrote this week “Long-term thinking is difficult in the current political crisis, when most politicians are obsessed by tomorrow's headlines,...but our future as a country depends much more on our ability to plan ahead for the next oil shock and the post-oil world.”
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World oil demand will contract by less than previously expected this year, the International Energy Agency said on Thursday as it raised its 2009 demand forecast for the first time in almost a year.
The agency, which advises 28 industrialised countries, said the upward adjustment followed stronger-than-expected demand early in the year in developed countries. The increase in the estimate for 2009 is the IEA's first since August 2008.
"These revisions do not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession," the IEA said in its monthly Oil Market Report.
Global oil demand is expected to fall in 2009 by 2.47 million barrels per day (bpd) to 83.3 million bpd. The IEA's previous forecast was for demand to contract by 2.56 million bpd.
The IEA joins the US government's Energy Information Administration (EIA) in nudging up forecasts for oil demand. The EIA raised its 2009 estimate by 10,000 bpd earlier this week, following months of downward revisions.
While oil stocks both on land and in floating storage remain "abnormally high," the IEA said inventories were lower expressed as days of forward demand.
Oil inventories in developed countries fell to 62.0 days of forward cover at end-April, a measure closely watched by the Organization of the Petroleum Exporting Countries (OPEC), which considers 52-53 days comfortable.
Higher oil output in May reduced OPEC's compliance rate with its pledged supply curbs to 74 percent, compared with compliance in April of an average of 76 percent, the IEA said.
The IEA raised its forecast for supply from countries outside OPEC by 170,000 bpd for 2009 on higher-than-expected growth from new Russian fields, more robust North Sea production and stronger crude output in Columbia.
Crude oil rose for a third day, climbing above $72 a barrel for the first time in seven months, after China’s net imports jumped to a 14-month high and U.S. crude and gasoline stockpiles unexpectedly fell.
China, the world’s second-biggest energy user, increased its net crude purchases to 16.62 million metric tons in May, or 3.9 million barrels a day, according to data released by customs on its Web site today. Oil was also supported by a 4.38 million barrel drop in U.S. stockpiles.
“China’s oil import number should be seen in a positive light for the oil price,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “That’s pretty strong. I think that will be a supportive factor.”
Crude oil for July delivery gained as much as 85 cents, or 1.2 percent, to $72.18 a barrel in after-hours electronic trading on the New York Mercantile Exchange and was at $71.63 at 3:42 p.m. Singapore time. Yesterday, the contract rose $1.32, or 1.9 percent, to close at $71.33, the highest settlement since Oct. 20.
U.S. oil stockpiles dropped to 361.6 million in the week ended June 5, the Energy Department said yesterday. Analysts surveyed by Bloomberg News said supplies would rise by 100,000 barrels. Gasoline inventories slipped for a seventh week.
China’s increase in net crude-oil imports in May was second only to a record of 16.9 million tons in March. Imports rose by 5 percent to 17.09 million tons from a year earlier and exports stood at 470,000 tons, up from 150,000 tons last year.
China’s diesel market is showing signs of tight supply, Jin Anyao, the deputy head of PetroChina Co.’s sales department, said at a conference in Beijing today. China may import more than 50 percent of its crude oil needs this year, he said.
China’s spending on factories, property and roads surged a more-than-estimated 32.9 percent from a year earlier, the statistics bureau said today, helping to drive a recovery in the world’s third-largest economy and drive up demand for fuel.
The Organization of Petroleum Exporting Countries will only consider increasing output when the price of crude rises to $100 a barrel, according to Kuwaiti Oil Minister Sheikh Ahmed al- Abdullah al-Sabah. OPEC is scheduled to meet on Sept. 9.
U.S. fuel demand in the past four weeks averaged 18.3 million barrels a day, down 6.9 percent from a year earlier, the Energy Department said. There was a 7.7 percent deficit in the week ended May 29. Gasoline use averaged 9.2 million barrels a day during the period, up 0.4 percent from a year ago.
Fuel imports to the U.S. dropped 379,000 barrels a day to 2.55 million, the department said. Crude-oil imports slipped 676,000 barrels to 8.97 million.
Stockpiles of gasoline fell 1.55 million barrels to 201.6 million, the Energy Department report showed. A 750,000-barrel increase was forecast, according to the median of 14 estimates by analysts surveyed before today’s report.
“The big news last night was the bigger than expected decline in stockpiles,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “That’s somewhat of a fundamental justification for this rally continuing in the short term.”
Gasoline supplies last week were 3.9 percent below the five-year average for the period, according to the department. There was a 13 percent surplus in the week ended May 22.
Gasoline for July delivery gained 1.47 cents, or 0.7 percent, to $2.03 a gallon at 3:34 p.m. in Singapore. Yesterday, it rose 4.86 cents, or 2.5 percent, to $2.0153 a gallon in New York, the highest close since Oct. 9.
Brent crude for July delivery rose as much as 75 cents, or 1.1 percent, to $71.55 on London’s ICE Futures Europe exchange. The contract was at $71.08 a barrel at 3:39 p.m. in Singapore. Yesterday, it settled at $70.80, the highest since Oct. 20.
It used to be the nightmare scenario that the world would run out of oil and civilisation would grind to a halt. Not so, Tony Hayward, the chief executive of BP, said yesterday: global oil production will decline, but because of dwindling demand, not because of a scarcity of supplies of crude.
Gains in energy efficiency will lead, ultimately, to falling oil demand, he said. Indeed, consumption of oil in the developed world fell by 1.6 per cent last year, the largest drop since 1982, and the decline is set to continue.
Mr Hayward’s prediction of weakening demand came as the energy company unveiled its annual review of energy trends. The BP Statistical Review of World Energy showed that, for the first time, total energy demand in poorer countries, including China and India, exceeded the hunger for power and fuel in wealthier nations in the Organisation for Economic Co-operation and Development (OECD).
According to BP, non-OECD energy consumption accounts for 51 per cent of the total. Demand for energy in the emerging world economies continued to rise in 2008, but among the developed nations energy demand fell by 1.3 per cent.
“The world will be able to deliver the oil demand required,” Mr Hayward said. “BP is unlikely to sell more gasoline to Americans than it sold in the first half of 2008. Energy efficiency means demand from OECD countries will continue to decline.”
BP said that there were 1.258 trillion barrels of proven oil reserves left in the ground, enough to supply the world for 42 years at present production rates. It said that reserves of gas were sufficient for 60 years and coal for 122 years. “Our data confirms that the world has enough proved reserves . . . to meet the world’s needs for decades to come,” Mr Hayward said, adding that constraints on production were “human, not geological”.
Will Whitehorn, an executive with Sir Richard Branson’s Virgin Group, who chairs a UK industry task force on peak oil and energy security, called the findings overoptimistic. He said: “Many of the reserves figures are overstated.”
BP’s report showed that total global oil consumption in 2008 had slipped by 420,000 barrels a day to 84.4 million barrels, compared with 84.8 million barrels in 2007. It added that demand in the 30 industrialised countries of the OECD had slipped by 3.5 per cent, or 1.5 million barrels, representing the third consecutive annual decline. That fall was led by a 6.4 per cent slide in the US oil market of nearly 1.3 million barrels per day. Nevertheless, consumption in the emerging economies of Africa, China and the Middle East continued to expand briskly.
The closely watched annual study from BP reflected an unprecedented year in the global oil market, during which prices soared to a record high of more than $147 a barrel last July before plummeting to slightly more than $30 in December as demand evaporated amid an intensifying global recession.
Oil prices exceeded $71 a barrel — a seven-month high — yesterday after figures from the US Government indicated that American stockpiles of crude were falling faster than expected. The price of a barrel of London Brent crude rose after the US Energy Information Administration said that oil stocks had slipped by 4.4 million barrels last week.
Although demand for oil faltered, the BP report showed that global coal consumption had risen by 3 per cent last year to a total of 3.3 billion tonnes. “For a sixth consecutive year, coal was the fastest-growing fuel, with obvious implications for global carbon dioxide emissions,” Mr Hayward said. The gains were led by consumption in China, where dozens of new coal-fired power plants are being built every year to feed the country’s growing demand for electric power.
However, China plans to significantly increase its use of wind and solar power and aims to generate as much as 20 per cent of its energy from renewable sources by 2020, Zhang Xiaoqiang, vice-chairman of China’s national development and reform commission, said.
Raw material prices sink
• BHP Billiton has agreed a 58 per cent price cut for coking coal, a raw material used to make steel. The new price will be about $128 a tonne
• Collapsing demand for steel has forced miners to accept much lower prices for their raw materials this year. Rio Tinto said last month that it would cut the price of iron ore sold to Japanese and Korean steel producers by about 33 per cent
• Vale, the Brazilian miner, said yesterday that its iron ore contracts with Asian producers would be priced at between 28 per cent and 33 per cent below last year
• Iron ore producers have yet to agree new prices with Chinese producers, which are seeking hefty price cuts of 40 per cent to 50 per cent
BPs annual Statistical Review of World Energy for 2009, its 58th, was published this week, a collection of valuable statistics accompanied by press briefings and the regular anodyne platitude.
According to BP, 2008 experienced a small decline in global annual oil consumption of 0.6% (which, despite the Independent’s claim, was by no means the first in 15 years). There was, however, a slim rise in production, so stocks have presumably built up a little. Although OECD countries still account for more than half of consumption, they burned 3% less than they did in 2007, while emerging economies burned 3% more. Oil production outside OPEC fell by 1.4%, the largest decline since 1992; step forward USA, Canada, Mexico, Norway, UK and Russia (for the first time since 1998), with a total decline of almost 800 thousand b/d. A production decline, when world prices were at a record, is a real decline. OPEC’s share of global production rose by 2.7% to nearly 45%. Will OPEC grasp us by the hand or by the throat, we wonder?
“Proved” reserves did something interesting too; they fell, for the first time (in BP’s view) since 1998. The drop was just 3 billion barrels, or 10% of global annual production, and OPEC’s claims concerning proved reserves have long been challenged anyway, but all the same it is an interesting development. Even Saudi Arabia registered a tiny fall. The Guardian blamed this on reduced investment, but we disagree, because that investment reduction didn’t bite hard until this year. OPEC now owns 76% of the world’s proved reserves, up from 75.5%, making it that little bit harder for BP and its cousins to maintain their place in the oil world.
The accompanying narrative from Dr Tony Hayward, BP’s Group Chief Executive notes the probable role of energy prices in precipitating the 2008 financial crisis and subsequent recession. 2008 was the seventh successive year when the annual oil price rose, a first; BP reportedly needs a price of about $55/bbl to avoid increasing its debts. Renewables are still a very minor and still-subsidised player in the global energy scene, but Hayward sees the beginnings of a significant impact. Ethanol production rose by 31%.
Then comes the platitude: “The world has enough proved reserves of oil…to meet the world’s needs for decades to come.” ODAC repeats now what we have said before and will doubtless still be repeating when the peak is finally recognised, which is this: the quantity of oil is not the problem, it’s the rate at which it can be extracted, given that most fields are already in decline, and the rate of new oil discovery is nowhere near the rate of production.
Hayward’s spoken comments to the press are also interesting. For example, he observes that the developing world will require more energy as it industrialises, but oil demand in developed countries may have peaked. Dr Hayward believes that BP sales of conventional petrol peaked forever in the US in the first half of 2008. The reason given is increased energy efficiency and the growth of biofuels, but we wonder whether the higher cost of crude oil is also a factor. Are we approaching the point where expensive oil will still be available but the west can’t afford the price? UK oil production is in for a torrid time, with annual falls of at least 5%, or even more if investment is with-held.
Furthermore, if, as Hayward notes, renewables are becoming globally significant, what is his company’s position? BP is reported to be cutting investment by one to two thirds this year, and losing the division’s chief executive, Vivienne Cox. The company is abandoning wind power outside the US and closing many solar power manufacturing facilities. There are also doubts about BP’s joint venture with D1 Oils for producing biodiesel from jatropha. Doubtless these cuts will all be good for BP’s shorter term bottom line, but perhaps not so healthy for BP or anyone else if it means a misplaced, longer-term reliance on dwindling fossil fuels.
Dr. Richard Miller is an Independent Consultant, and former geochemist for the BP Exploration Department
Global proved oil reserves fell in 2008, led by declines in Russia, Norway and China, according to BP Plc.
Oil reserves totaled 1,258 billion barrels at the end of 2008, compared with a revised 1,261 billion barrels a year earlier, BP said in its annual Statistical Review of World Energy posted on its Web Site today.
“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said.
Major oil companies are struggling to replace reserves as their access to new deposits becomes harder and older fields in places like the U.K. and Mexico become depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits.
Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said.
None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report.
Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.
BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.
Global oil demand dropped for the first time in 15 years in 2008, falling at its sharpest rate since 1982, according to the industry-leading BP statistical review published yesterday.
Total worldwide consumption dropped by 0.6 per cent – equivalent to 420,000 barrels per day (bpd) – and demand from developing economies, particularly China, outstripped that from OECD countries for the first time. As the developed world curtailed its appetite for oil by 1.5 million bpd – spurred first by eye-watering prices and then by sharply braking economic growth – non-OECD countries also registered slower growth in demand at just 1.1 million bpd.
But the big story last year was China, and not just with regards to oil. Global energy consumption grew by just 1.4 per cent in 2008, its smallest rise since 2001. And China accounted for three-quarters of it.
The US is still the world's most energy-hungry nation, gobbling a whopping 20.4 per cent. But demand was down 2.8 per cent last year, the biggest contraction for a quarter of a century. Meanwhile, Chinese energy usage shot up by 7.2 per cent, its slowest rate for five years but still enough to take the rapidly industrialising nation to a 17.7 per cent share. No other country is even in double figures.
Tony Hayward, the chief executive of BP, said: "The centre of gravity of the global energy markets has tilted sharply and irreversibly towards the emerging nations of the world, especially China."
The shift is not likely to reverse, according to Mr Hayward. "This is not a temporary phenomenon but one that will only increase still more over time," he said. "It will continue to affect prices and bring with it new challenges over economic growth, energy security and climate change."
The short-term effect on prices has been significant – most notably for oil. After a run of price rises unprecedented in the oil industry's 150-year history, the average oil price rose for the seventh consecutive year to hit $97.26 per barrel last year, up 34 per cent from 2007. But it was enormously volatile – soaring to the all-time $147 per barrel high in late July before plummeting to below $40 by the end of the year. Prices are now back on the rise, more than doubling so far this year already (see below).
Gas and coal prices have followed a similar trajectory. Overall gas consumption grew more slowly in 2008, below the decade average at 2.5 per cent. Again the fastest rise was in China, with consumption up by 15.8 per cent, compared with just 0.6 per cent in the US and 3 per cent in the UK. Even though last year's 3.1 per cent rise in coal usage was below the 10-year trend, it is still the fastest growing fuel source. Some 43 per cent of global demand for coal is from China, as was an 85 per cent share of last year's growth. With prices rising faster than for any other fossil fuel, demand grew by a measly 0.6 per cent outside the Middle Kingdom. Inside China, it was up 6.8 per cent.
Despite lower demand for oil, production rose by 0.4 per cent – equivalent to 380,000 bpd – as Opec, the 12-strong cartel of oil-producing countries, tried to cash in on the high prices. Opec production grew by 2.7 per cent, almost 1 million bpd, last year, largely thanks to big increases in the Middle East. Saudi Arabia boosted its output by 400,000 bpd and Iraq by 280,000.
Worldwide proven oil reserves, excluding the controversial Canadian tar sands, stand at 1.26 trillion, enough for another 42 years of production at last year's rates. There is enough gas for another 60 years and enough coal for another 122, says BP.
The oil price bubble: Up, up and away
The steadily rising oil price broke through yet another psychological barrier yesterday, breaking $70 per barrel for the first time since October.
So far this year, oil has nearly doubled and members of the 12-country Opec oil producers' cartel have made the first hints that supply could increase if the price keeps rising.
After an all-time high of $147 last July, the price fell through the floor as the world slid into recession, dropping below $40 by the end of December.
Opec has cut 3.2 million barrels per day (bpd) from production since the autumn to try to halt the collapsing price. But at the group's meeting in Vienna last month, it decided that rising demand obviated the need for further cuts.
Saudi Arabia, the biggest Opec member, is thought to favour a price upwards of $80 per barrel. The Kuwaiti oil minister, Sheikh Ahmad al-Abdullah al-Sabah, intimated a similar target yesterday. "At $75 [Opec] will not increase output, but if it reached $100, then maybe," he said.
Meanwhile, Gazprom, the Russian energy giant, is supporting calls for a new Global Oil Agency to stabilise prices while ensuring investment and avoiding future spikes.
Alexei Miller, Gazprom's chairman, said: "It is only by ensuring a reliably high oil price that we will be able to support investment programs of producers and to launch real projects to increase energy efficiency among consumers."
An oil price of $60-$90 is arguably the “right sort of level”, BP’s chief executive said on Wednesday, while warning the actual price could easily go either higher or lower than that range.
Tony Hayward said most countries in Opec, the oil producers’ cartel, needed oil to be higher than $60-$70 per barrel to be able to fund their social programmes while investing in their production capacity.
In addition, sources of new oil such as Canada’s tar sands needed a similar level to be commercially viable.
As a result, that price would be an effective floor for the oil price, below which supply would start to shrink quite rapidly.
Meanwhile, prices of $100 per barrel or higher had been shown to have a significant effect in choking off demand, he said. So the equilibrium range for oil would be between those two points.
Christof Rühl, BP’s chief economist, said the collapse in oil prices last year had come as demand fell at its fastest rate since 1982, while Opec’s production rose following increases decided in the first half of the year as prices rose.
The recovery in the oil price this year had been supported by Opec’s production cuts agreed in the second half of last year, helped by a steep fall in non-Opec production last year, from countries such as Mexico, the US and the UK.
Opec members’ compliance with those agreed cuts, he said, had been “solid” by historical standards.
However, he added that those production cuts had created large spare capacity in Opec, of perhaps 5.5m barrels per day, which could keep a lid on the oil price in the future.
While that spare capacity persists, there seems to be little danger of a “supply crunch” that would send prices soaring.
Oil and gas players are slashing spending on new projects amid the current recession, but as energy demand climbs over the long term, "the next [oil] price spike may already be in the making," the chief executive of Royal Dutch Shell, Jeroen van der Veer, warned Monday.
The steep slide in oil prices from their historic peak of July 2008 was "only a dent in a graph that goes up all the time," van der Veer said in an address to the 14th Asia Oil and Gas Conference in Kuala Lumpur.
Citing the International Energy Agency's estimate of a 20% drop in oil and gas project investment this year compared with 2008 and a 40% slump in renewable energy sector investment, van der Veer said the current overcapacity in the market would disappear as in the long term, energy demand was bound to climb.
As the world's population increases from 6 billion to 9 billion by 2050, "energy demand, even taking into account energy saving, will double," he said.
Oil and gas would not be able to supply the incremental demand, "in what I call more of the same," van der Veer said. "You need renewables, unconventionals and conventionals."
LONG LEAD TIME
The Shell executive, who retires at the end of this month after 38 years with the oil and gas giant, reminded delegates that construction of oil and gas projects, be they in the LNG sector, refining, or the proposed development of oil reserves in the Arctic, takes "at least four to five years" after the final investment decision. "The system is very slow to react," he said.
While Shell itself plans to maintain investments "at a relatively high level" in 2009, the same might not be true for the whole sector, van der Veer said.
The Shell chief also underlined the importance of curbing carbon dioxide and greenhouse gas emissions. The role of the oil companies, he said, "was not to try and second-guess" the scientific community on the effects of emissions, but to see how it could provide "green energy."
Shell estimates renewables could meet around 30% of global energy demand by 2050, but that means the remaining 70% would still come from fossil fuels and nuclear energy, van der Veer said.
As a result, it is important to focus on fossil fuels to address the climate change challenge, he added. Renewable energy still needs technological breakthroughs to lower costs, he said.
The executive also called for better targeted reduction of carbon dioxide emissions. For instance, it is far more easy to reduce CO2 at a power station than from cars on the road, he said. "So get carbon dioxide reduction with the lowest price."
Calling for carbon capture and storage at power plants, especially the coal-fired ones, van der Veer said Shell itself was also in favor or
ROLE OF GOVERNMENTS
However, governments, not producers, ought to lay down the rules on whether power plants should be fitted with CCS or not, the executive said.
Efforts in this direction need to be "on an international scale," he added, so that oil companies are assured a level playing field.
Similarly, it is the role of governments to decide the ideal energy mix for a country, van der Veer said.
The energy mix in the US, for instance, would be different from the combination in Malaysia. "There is no need that it be the same," he said.
Oil and gas being a highly capital-intensive industry also needs fiscal stability, he said. "Every future barrel of oil, cubic meter of gas, will need more investment."
Companies would feel confident to invest only if governments ensured fiscal stability, he added.
Van der Veer also called upon oil companies to become energy-efficient in their upstream and refining operations, employ enhanced oil recovery to squeeze out more output from existing fields, and forge partnerships for new projects.
National oil companies and international oil companies will need to partner, especially if they are to go after unconventional oil and gas, such as in the Arctic, the executive added.
The Brazilian government is preparing legislation that will set new regulations for the country's enormous off-shore “pre-salt” oil reserves, discovered in 2007.
International oil companies have been anxiously awaiting the regulations as they cover some of the world's few big unexploited oil reserves, which industry leaders say will be as significant as the North Sea discoveries of the 1970s.
But the proposed legislation has caused alarm among many in the industry, who fear it may be open to political interference and give unfair advantage to Petrobras, Brazil’s government-controlled but publicly traded oil company.
In a recent interview with the Financial Times, Edson Lobão, mines and energy minister, said international oil companies should “prepare their treasury reserves” as the government would introduce regulations in time to auction new concessions in the pre-salt fields next year.
The statement surprised many in the industry, who had expected the process to take longer.
The ministry confirmed on Wednesday local press reports, saying three bills were being prepared to go before Congress. They would create a new, 100 per cent state-controlled oil company to take ownership of the fields and award concessions; production sharing agreements in the fields, in which oil companies would give part of the oil they produced to the government, replacing the existing concession system in which companies take ownership of whatever oil they discover; and a fund to channel proceeds from the fields to social spending.
Several concessions in the fields were sold before their potential became clear. Almost all are controlled by Petrobras, in partnership with foreign companies.
Those concessions will not be affected by the new rules and are likely to keep Petrobras and its partners busy for several years.
But because about 60 per cent of Petrobras’s capital is held by private investors, the government has been keen to create a new company to secure ownership of the remaining pre-salt fields for the Brazilian state. Government officials estimate that pre-salt concessions already granted could contain more than 50bn barrels of oil; the remaining area is likely to be much larger.
The proposed new structure is based on that in Norway, where Petoro, entirely controlled by the state, oversees the industry in which StatoilHydro, controlled by the state but with private investors, plays a dominant role.
Brazil’s ministry said the new regulations would follow the Norwegian model, including measures that allow the new state company to grant concessions without putting them out to tender – a move widely seen as protecting Petrobras from being squeezed out by wealthier foreign competitors.
“This is worrying,” said Eric Smith of the Tulane Energy Institute in New Orleans. “There is likely to be a lot less transparency in Brazil than there is in Norway. This could allow for political interference and favours.”
Three British companies have been shortlisted to bid for contracts to work on Iraq's oil and gas fields, pitting themselves against 32 other non-Iraqi companies in a televised, two-day bidding procedure revealed at Baghdad's Oil Ministry.
BP, which provided technical assistance to the Iraqi state oil company in 2004-2006, BG International and Premier Oil were among the 120 companies who put themselves forward in June last year, and which now appear on the shortlist of 35 companies who are invited to submit proposals for consideration by a panel of experts at the Ministry.
Along with other oil majors including Exxonmobil and Total, they are due to present proposals on June 29 and 30 to work on one of six oil fields and two gas fields. It will be the first major foreign investment in Iraqi oil for 40 years, which has the world's third-largest oil reserves but needs massive foreign investment to resurrect the country's energy infrastructure.
BG International, however, told The Times that it was unlikely to submit a proposal. "Iraq does not currently form part of BG Group's plans," a spokeswoman said.
The oil and gas fields are already operational. The agreements due to be awarded are service contracts, whereby companies provide technical assistance to increase capacity, and are paid according to how much production of oil or gas increases, rather than production contracts, where revenue is shared.
Oil Minister Hussein al-Shahristani gave Iraq's current oil output as 2.4 million barrels per day, the highest since 2003, and anticipated that after this round of contracts is awarded, production would increase to 4 million barrels per day.
The country has reserves of 115 billion barrels, but poor security and bureaucratic stalemate have stalled its exploitation. The country's controversial hydrocarbon's legislation, which was proposed in February 2007 but mired in disagreement about how to distribute oil revenue, remains in doubt.
However, Mr al-Shahristani offered his assurances that companies' concerns about operating without legislation would be addressed, as all proposals would be given cabinet approval.
“If it is going to be delayed for any reason, then the existing laws allow the oil ministry to approve these contracts,” he said. While concerns still exist, the bidding companies have largely given tacit approval to working in this way, and also to strict conditions including a 35 per cent corporate tax.
This flexibility on the part of foreign investors has been attributed to the falling oil prices. "Given the size and attractiveness of the reserves," Robert Foulkes, associate with advisory firm Critical Resource, told The Times, "and the fact that the companies are looking beyond the recent oil price slump when making new investments, they will do what they need to to get access."
Three fields in this round of bidding are in Basra, two in Kirkuk in the north, and one in Maysan, also in the south. The two gas contracts are for sites in Anbar and Diyala provinces.
There are none in Iraqi Kurdistan, the northern region where revenue from resources is heavily disputed. However, Mr al-Shahristani slammed the semi-autonomous Kurdish Regional Government (KRG), who began exporting oil at the beginning of this month, calling the deals "illegal" as they had not been seen by the Iraq Oil Ministry.
"The KRG has signed some contracts and created a backlash," he said, adding that the revenue from the oil would go directly to central government, who would not pay firms who signed independent deals with the KRG.
The KRG would continue to receive 17 per cent of oil revenue, he said, and no more. Companies, including Norway's DNO International, Toronto-listed Addax Petroleum and Turkey's General Enerji who signed independent deals with the KRG must be paid by the KRG, he said, adding that, "we will not discuss any compensation for these companies under any circumstances."
The Senate Energy and Natural Resources Committee approved expanded oil and gas leasing today in the eastern Gulf of Mexico in a bipartisan vote that would upend a 2006 compromise with Florida senators that provided their state at least a 125-mile buffer in most areas until mid-2022.
The committee voted 13-10 in favor of Sen. Byron Dorgan's (D-N.D.) plan to allow leasing as close as 45 miles from Florida's coast. It also allows leasing in a gas-rich region called the Destin Dome off the Florida Panhandle that is even closer to shore.
The drilling amendment vote was part of the committee's ongoing markup of a broad energy bill.
Dorgan said the measure should be part of a bill that also addresses alternative energy and efficiency. "I am interested in doing this to increase production," Dorgan said.
But Sen. Robert Menendez (D-N.J.) said wider drilling in the eastern gulf would endanger Florida's environment and tourist economy while failing to reduce gasoline prices. "This continues our dependency and at the end of the day just helps the oil industry," he said.
Florida Democratic Sen. Bill Nelson slammed the plan in a prepared statement, arguing it could hamper military training, while blaming prices at the pump on financial speculators.
"Congress ought to be looking at that and at a real alternative energy program, instead of trying to put oil rigs off the world-class tourist spots all along Florida's coast," Nelson said.
Nelson vowed to block the effort in remarks to reporters after the vote. "We will have a bunch of senators filibuster this if we have to to protect the interests of the United States military," he said.
Environmentalists oppose Dorgan's effort. "The Dorgan amendment would threaten Florida's coasts with oil spills and pollution while increasing our dependence on oil and increasing global warming pollution," said Anna Aurilio, director of the Washington office of the group Environment America, this morning.
But American Petroleum Institute President Jack Gerard praised the action after the vote. "By allowing greater access to oil and natural gas leasing in promising areas of the eastern Gulf of Mexico, Senator Dorgan's amendment stands to help the American people by creating new jobs, adding new energy resources and providing new revenues to federal, state and local governments," he said in a prepared statement.
After a long debate, the committee rejected, 10-13, an amendment by Sen. Mary Landrieu (D-La.) to provide states with offshore production in adjacent federal waters with a 37.5 percent share of revenues, while steering 50 percent of their revenues to federal deficit reduction and 12.5 percent to the Land and Water Conservation Fund.
A 2006 gulf leasing law created a revenue-sharing program for Louisiana, Texas, Mississippi and Alabama. Landrieu's plan would have provided this share to Alaska and to states that might have offshore leasing in the future, which she calls a critical state incentive for allowing oil and gas drilling in the outer continental shelf.
Landrieu also argued that revenue-sharing compensates for the impact of infrastructure for offshore development on coastal states, and she also cited the conservation funding in an effort to corral support.
But revenue-sharing opponents said the OCS is a national resource and cited future losses to the Treasury if a large share of leasing and royalty payments is directed to coastal states.
Chairman Jeff Bingaman (D-N.M.) said the Interior Department has estimated that total future federal losses from revenue sharing could be between $653 billion and $790 billion dollars. "We are not in a position as a country today where we can give away $653-$790 billion in future revenue," Bingaman said.
Several lawmakers said they will look to revisit the revenue-sharing issue to seek a compromise as the bill proceeds toward the Senate floor.
Every year, federal employee George Warholic calculates America's vast coal reserves the same way his predecessors have for decades: He looks up the prior year's coal-reserve estimate, subtracts the year's nationwide production and arrives at a new official tally.
Coal provides nearly one-quarter of the total energy consumed in the U.S., and by Mr. Warholic's estimate, the country has enough in the ground to last about 240 years. A belief in this nearly boundless supply has led officials to dub the U.S. the "Saudi Arabia of Coal."
While there is almost certainly as much coal in the ground as Mr. Warholic's Energy Information Administration believes, relatively little of it can be profitably extracted. Last year, the U.S. Geological Survey completed an extensive analysis of Wyoming's Gillette coal field, the nation's largest and most productive, and determined that less than 6% of the coal in its biggest beds could be mined profitably, even at prices higher than today's.
"We really can't say we're the Saudi Arabia of coal anymore," says Brenda Pierce, head of the USGS team that conducted the study.
No one says the U.S. is facing a coal shortage. But the emerging ranks of "peak coal" theorists argue that current production levels may be unsustainable and, if anything, create a false sense of security. David Rutledge, an electrical-engineering professor at the California Institute of Technology who has studied global coal production, figures the U.S. has about half as much recoverable reserves as the government says, which would work out to about 120 years' worth.
The Energy Information Administration, part of the Department of Energy, says it is reassessing its coal tally in light of the new Geological Survey data. It intends to create a new coal baseline from which it will begin its annual subtraction "as soon as we can," says William Watson, a member of the energy analysis team at EIA in Washington, D.C.
In the field, challenges are becoming more apparent. Mining companies report they have to dig deeper and move more earth to extract coal from aging mines, driving up costs. Utilities have grown skittish about whether suppliers can ship promised coal on time. American Electric Power Co., the nation's biggest coal buyer, says it has stepped up its due diligence to make sure its suppliers can make deliveries after some firms missed shipments last fall. It even bought a mine to lock down supplies.
"We are very much concerned, and it's getting worse," said Tim Light, senior vice president for AEP.
Coal mines began appearing in America in the early 1740s in Virginia. A century later, as the nation's railroads branched out, coal provided fuel for steamships on the Mississippi and blast furnaces that made steel. The U.S. came to rely on abundant coal to generate electricity, too. About half of the electric power in the U.S. still is produced by coal combustion, more than in most other industrialized nations.
The country's coal supplies have been seen as a bulwark of energy security. In 1979, as the U.S. was reeling from an oil shock, President Jimmy Carter pushed for projects to create liquefied gas from America's vast coal reserves. Today the U.S. produces 1.1 billion tons of coal annually, more than any nation but China.
Concerns about supplies are out of the spotlight now, masked by what could be a short-term lull in the appetite for coal.
Recession has reduced demand from the two biggest users of coal, electricity producers and steelmakers. A proposed law capping greenhouse-gas emissions could make coal-generated electricity -- currently one of the cheapest power sources -- significantly more expensive. At the same time, the country has found itself awash in cleaner-burning natural gas after recent big discoveries, prompting some power companies to pull the plug on proposed coal plants and shift toward gas-fueled power generation.
Experts expect coal production to drop this year by 5% to 10%, or as much as 100 million tons. Prices for coal from Wyoming's Powder River Basin are down nearly 30% from a year ago, to about $8.50 a ton. (Prices of Eastern coal, which burns hotter and typically doesn't have to be transported as far to customers, have also fallen.)
Coal is down but hardly out. It remains the electric-power industry's dominant fuel. Emerging "clean coal" technology could help improve coal's environmental profile. And coal remains an energy ace in the hole, available to substitute for other fuels if shipments are disrupted.
Some in the coal industry believe concerns about future supplies are overblown. Coal advocates argue that improved technology could increase the amount of coal that can be extracted profitably. Coal "is certain to remain an enormously competitive energy resource by virtually any conceivable measure," says Kim Link, spokeswoman for Arch Coal Inc., which produced about 12% of the nation's coal last year.
The U.S. isn't the only nation employing improved drilling data and computer modeling to reassess its supplies. Germany cut its proven hard-coal reserve estimates by more than 99% in 2004 as it explored reducing mining subsidies, which would make coal more expensive to extract. Overall, assessments of total world reserves dropped by half from 1980 to 2005, according to a study by Energy Watch Group, an independent group based in Germany.
The U.S. Geological Survey, the Department of the Interior's science agency, attempted to get a clearer picture of the nation's coal supplies beginning in 2004. Its full study of the Powder River Basin in Wyoming and Montana will be completed next year.
The agency began with the Powder River's rich Gillette coal field, an 80-mile-long strip in northeastern Wyoming that contains the nation's 10 top-producing mines. About one-third of all coal in the country is produced there. Some 1.2 million short tons leave the field daily, a river of coal filling more than 75 trains of 125 to 150 cars each.
For the Gillette study, USGS engineers, geologists and economists spent three years analyzing data from 10,200 drill holes, the most comprehensive study ever attempted of the region. The team concluded there are 201 billion short tons of coal in the Gillette field. Environmental rules and physical challenges put much of that out of reach, leaving what they figured were 77 billion short tons of recoverable coal.
Little is presently worth mining. Analyzing coal beds that contained 82% of the Gillette deposits, the team determined that with coal selling for $10.50 a ton, the prevailing price two years ago, less than 6% of the coal could be extracted profitably enough to leave mining companies an 8% rate of return.
If Powder River prices were to hit $60 a ton in current dollars, as much as 47% could be extracted. But at that price, coal would have a tough time competing with other fuels and technologies.
By adding an economic component, the study broke ground. Jim Luppens, an industry veteran who is now chief of the coal-assessment project for USGS, says policy makers often confuse the total coal resource -- which he describes as the "blood, guts and feathers" number -- with coal reserves, which he likens to the edible meat. "They mix up the R-words," he says.
The findings are percolating through the coal and power industries. "USGS made a leap forward with this study," says Vic Svec, spokesman for Peabody Energy Resources, the U.S.'s biggest coal company. He adds that when his company plugs in prices as the USGS study did, it reaches similar conclusions.
Modern estimates of the U.S. coal resource began in 1907, with field geologists reporting on outcroppings -- places where coal stuck out of the ground -- and mines. Based on consumption at the time, the USGS concluded there were three trillion tons of coal, enough to last 5,000 years. By the 1950s, armed with more mining data, the USGS and the now-defunct U.S. Bureau of Mines reduced their estimate of the total resource to 500 billion tons.
The federal method for calculating U.S. coal reserves has changed little in 35 years. In 1974, the Bureau of Mines established a baseline reserve level, considered good for its era. Each year since, the government -- currently, the DOE's Energy Information Administration -- has subtracted each coal region's production and mine waste to get a new estimate of what's left in the ground.
In 2007, the EIA said the U.S. had a "demonstrated reserve base" of nearly 500 billion tons of coal. It regarded 267 million tons of that as "economically recoverable," enough for 240 years.
Even Mr. Warholic, the EIA analyst, says he's skeptical about the results. "It's kind of crazy" to postulate how long U.S. reserves will last, he says. "It could be 110 years or 225 years or something completely different. It all depends on your assumptions."
After many decades of mining, some of the country's coal fields are showing their age. "What's left to mine is not as easy as what we mined even 10 or 20 years ago," says Janine Orf, spokeswoman for Patriot Coal Corp. in St. Louis. "The seams are getting thinner and there are more limestone intrusions."
Even at the Gillette field, where surface mining started around 1924 and production still is buoyant, obstacles are emerging.
Coal at its Gillette's eastern edge lies mostly close to the surface but the seams generally slope downward in a westerly direction, forcing miners to dig progressively deeper to extract it. At Arch Coal's Black Thunder mine, five pits are moving westward and will intersect the main Burlington Northern-Santa Fe railroad line at some point. Arch then will have to move heavy equipment to the other side of the tracks and dig a new pit down several hundred feet, which it says could cost $100 million or more.
Coal's big buyer, the power industry, has grown increasingly nervous about securing reliable suppliers for power plants that often have a useful life of 50 or 60 years. Plants fine-tune their equipment to burn the coal they expect to receive and to remove its particular pollutants from the waste stream. That makes it problematic to switch suppliers.
Last fall, production problems caused some coal producers in the East to struggle to fulfill contracts. Utility executives say the delays were a wake-up call.
American Electric Power has 9,100 railroad cars and 2,480 river barges dedicated to keeping its power plants furnished with coal. In May, AEP, together with a partner, Cleco Corp., bought a coal mine in Louisiana after a coal source faltered that had been furnishing fuel to a power plant they own together.
Buying the mine outright, says AEP's Mr. Light, was the best way to understand -- and control -- how much coal the power company could expect to receive. "We don't know what the future holds," he said.
A game-changing moment could be upon us. In recent years, the world has grown used to condemning China as a climate criminal. But over the next few weeks and months, don't be surprised if you hear the same nation being hailed as the planet's first green superpower.
The State Council, China's cabinet, will soon release the details of a staggeringly large "new energy" programme that could propel the world's biggest greenhouse gas emitter past Europe and the US into a global leader in renewable energy and low-carbon technology.
This is no short-term economic boost or sop for climate change negotiations; it is a long-term investment aimed at making China a dominant force in the global low-carbon economy for decades to come. Power plays do not come much bigger.
The size of the energy stimulus has not yet been revealed, but reports in the domestic media and from foreign diplomats suggest between 1.4 trillion (US$200 bn) and 4.5 trillion yuan (US$600bn) will be invested over the next ten years in nuclear power plants, solar and wind farms, hydroelectric dams, "green transport", "clean coal" and super efficient electric grids.
The consequences will be staggering. If the bigger figure proves correct, China will be spending the equivalent of its 2009 military budget on "new energy" for each of the next ten years. Even the smaller figure would mean that China, which represents just 6 per cent of the global economy, would exceed the amount the entire world invested on new power generating capacity last year, including fossil fuels.
China already makes most of the world's solar panels and wind turbines. Its carmakers, such as BYD, are pushing ahead faster than established Japanese and American rivals to mass produce electric vehicles. Its carbon capture technology and high-efficiency "ultrasupercritical" coal plants are close to the global cutting edge. With the new package, the government will commit itself to developing domestic markets for these "sunrise" industries.
The speed at which the country can move has already been shown in the wind sector, where installed capacity has been doubling every year. According to Changhua Wu, director of the Climate Group's China operations, the pace will be quicker for solar. "They are learning from best practice. It took 15 years to do it in the wind sector. They want to go more quickly now."
The government's targets for wind power have already risen threefold, solar is likely to go up two to fourfold and nuclear sixfold. Overall, China will raise its target for renewables from 15 per cent of total energy by 2020, possibly even surpassing Europe's goal of 20 per cent by that date. By that time, China should also have a super high voltage grid.
If a substantial amount of the new package goes on renewables and efficiency, Julian Wong, an energy analyst at the Center for American Progress in Washington DC, says the potential is enormous.
He says: "If those expectations are fulfilled, China could emerge as the unquestioned global leader in clean energy production, significantly increasing its chances to wean [itself] off coal, and at the same time ushering in an era of sustainable economic growth by exporting these clean-energy technologies to the world."
This is not being done because of international obligations, but as an investment in national security. Renewable energy eases China's dependence on foreign fuel supplies, which are a growing concern. In an age of soft power, asymmetric warfare and carbon anxiety, an investment in solar and wind energy will help the country to stake a claim to the moral high ground.
Todd Stern, the top climate change envoy for President Barack Obama, recently warned that the US could fall behind.
"We need to recognise that if we aren't careful, we may spend the next few years chasing China to do more, but then spend all the years after that chasing them," he said before heading to Beijing for talks with his Chinese counterparts this week.
The US team is pressing China to do more in terms of slowing the growth in emissions. They are right. Regardless of the massive "new energy" investment, the country will remain dependent on coal and pump out more greenhouse gas than other nations for decades to come. True to its ability to produce superlatives and contradictions, China is likely to be both a black and a green superpower at the same time.
But the new energy plans may change the perceptions and parameters of the climate debate. While a proper assesment must wait until the details are released, the stimulus package ought to force Europe and the US to be more ambitious. The world might finally start to see a race to the top rather than the bottom.
The National Institute for Economic and Social Research, who use a similar economic model as the Treasury, said there were indiciations the economy grew by 0.2% in April and 0.1% in May.
The group attributed the small, but significant growth, given the scale of the economic downturn, to the performance of the industrial and service sectors.
While official GDP statistics will not be released until July, the findings are consistent with a range of recent economic figures suggesting the economy is beginning to stabilise.
These include figures showing that industrial production expanded in April for the first time since February 2008, and a variety of reports that the housing market is beginning to pick up.
Alan Clarke, economist at BNP Paribas, told Sky News: "This report from NIESR provides more confirmation that the recession is over."
Gavin Friend, Markets Strategist at National Australia Bank, also responded positively to the findings.
"The analysis gives more weight to the idea that providing the improvement continues into June, Q2 GDP could show a small positive reading - perhaps +0.1% or +0.2%."
However, he stopped short of seeing the report as a sign that the economy is in recovery.
"While this shows the worst of the downturn is passing and we should embrace the idea that an economic depression appears to have been averted, we should remember the economy won't recover from a once in 70-year event and the near collapse of the banking system in a straight line.
"Economic growth for 2009 as a whole will still likely fall by 3% or so, even if we see small positive quarterly growth readings from here."
British production in the North Sea is set to drop to levels not seen since the late 1970s, BP statistics suggested.
Chief executive Tony Hayward said output will fall by at least 5 per cent a year in the coming years, and if investment is not stepped up the declines could be even steeper.
Just 1.54million barrels of oil were produced in 2008, compared with a peak of 2.9million in 1999, and continued declines will leave output at its weakest since 1978. Combined oil and gas production has fallen to 2.6million barrels a day.
'The North Sea is a mature and declining province,' said Hayward. 'It will decline for sure at 5 per cent per year, and if the investment doesn't go in - and this year it is not going in - it will probably decline at a faster rate.'
The report is grim news for the Treasury, which expects to generate almost £7billion of tax revenue from the North Sea this year alone.
At the current rate of production, the UK has six years of oil left and just under five years of gas, BP's annual Statistical Review of Energy showed.
Making matters worse, the credit crunch is likely to lead to a halving of North Sea investment in 2010 compared with last year, according to industry lobby group Oil and Gas UK.
A spokesman said: 'The UK has been producing for 40 years and it's a mature basin. The challenge is to slow the decline to make it as flat as possible.'
Across the world, proved oil reserves fell by 3billion barrels to 1.26trillion last year, BP said.
Global oil consumption fell 0.6 per cent in 2008, the largest drop since 1982, as the recession eroded demand and high prices encouraged Americans to cut back.
But Hayward was upbeat about future world output, saying many of the impediments to oil production were political rather than geological.
Overall there are 42 years of proved reserves left around the world, BP's figures showed.
And the lifespan of our remaining resources has held above 40 for the past decade as explorers uncover additional fields.
As such, the long-term oil price should remain at between $60 and $90 a barrel, Hayward said.
Russia's state gas champion Gazprom offered a rather less optimistic outlook, however.
Chairman Alexei Miller reiterated forecasts that crude prices could spike an unprecedented $250 a barrel.
The cost of a barrel exceeded $147 last summer, before falling dramatically back into the $40s this year as the recession bites.
Yesterday it continued its recent rally, as Brent crude advanced 2 per cent to $71 a barrel - the highest since last November.
The UK could save 10m tonnes of carbon dioxide every year if the waste heat from some of the country's biggest power stations was diverted to warm homes and offices, according to a study by engineers.
They say attaching heat capture technology to stations such as Kingsnorth and Drax would meet 5% of the UK's heat requirements. And in future, any new big power stations should be built to capture and distribute heat as well as electricity. In addition, new housing developments should be designed and built with small local combined heat and power (CHP) plants.
Heat accounts for around 49% of all primary energy needs in the UK. This is mainly fuelled by gas – in 2006, the heat sector used 735 TWh compared with 653TWh and 393TWh used by transport and electricity sector respectively.
Currently, coal and nuclear power stations are around 35% efficient which means that, for every 1,000MW of electricity the stations produce, around 2,000MW of heat is dumped into the atmosphere via the cooling towers. Theoretically, if half of that energy could be captured for domestic or commercial heating, it could meet 25% of the UK's current heat demand, according to a new study by researchers at the University of Southampton and the Institution of Civil Engineers (ICE).
The study acknowledged that attaching CHP equipment to all of the UK's power plants and then building the piping infrastructure needed to distribute it would not be practical for all the current power stations. One practical problem is that many nuclear and coal stations are built in remote locations, far away from places that could usefully need their heat.
But the report did identify some power stations that are near to population centres: the region around Drax, Ferrybridge and Eggsborough near Leeds and the Kingsnorth and Tillbury power stations near London. The installation of heat recovery schemes in these power stations could meet 5% of the UK's demand for heat and cut CO2 emissions by 10m tonnes.
Keith Tovey of the Institution of Civil Engineers' energy panel said that, although installing CHP would make a power plant produce less electricity, because it would produce useful heat, its fuel efficiency could more than double from 35% to around 80%.
Speaking at the launch of the report, Tovey said: "What we need to do is look closely at introducing district heating networks in areas surrounding viable existing power stations in the UK and ensure we assess potential heat capture possibilities for any new facilities."
District heating networks would replace the need for boilers in homes and offices. Residents would use whatever heat they needed from the mains and it could be metered in the same way that electricity is now. Dr Patrick James of Southampton University said that such scheme would remove the need for householders to pay upwards of £2,000 for gas boilers, along with the associated servicing and repair costs.
Dr Doug Parr, chief scientist at Greenpeace UK, said: "We're pleased to see the growing recognition that our inefficient, centralised electricity grid is losing over half of its energy in waste heat. At a time when profligate energy use is threatening our survival, this makes less sense than ever."
"However, once the problem has been recognised, we need to be more ambitious than just shaving a few per cent off the waste with bolt-on additions to a badly designed system – we need a decentralised grid where the power stations are sited in the correct places to make efficient use of the fuel they burn, not a continuation of the current model with some small token improvements. CHP should be at the heart of our planning, not an afterthought."
Tovey said that, in the longer term, the UK should consider the potentially huge benefits that decentralised CHP could bring to the UK. "With the current generation of thermal power stations coming to the end of their lifespan, there is a real opportunity to vastly improve the efficiency of our energy sector and drastically lower its carbon footprint."
According to the ICE report, the most efficient method for using heat is a decentralised CHP and district heating network, of the kind routinely found in Scandinavia and other parts of Europe, where small power stations are located close to the centre of population. In addition the engineers encouraged places such as hospitals and universities to use small CHP stations for their energy needs.
Tovey acknowledged that delivering the kind of decentralised CHP across the UK that the ICE report recommended would require significant new infrastructure and a large reorganisation of the sector. "But if we are to guarantee security of supply, whilst meeting tough carbon targets, radical change may be what is needed."
An ambitious "War on Waste" campaign to tackle Britain's mountains of food-based rubbish with a range of radical new measures is to be launched tomorrow.
The programme will scrap "best before" labels on food, create new food packaging sizes, build more "on-the-go" recycling points and unveil five flagship anaerobic digestion plants, to harness the power of leftover food and pump energy back into the national grid. The government hopes that its plans will reduce the 100 million tons of waste the country produced last year, which included 20 million tons of food waste and 10.7 million tons of packaging waste.
On Tuesday, Hilary Benn, Secretary of State for the Environment, will announce plans to dispense with "best before" labels, in an attempt to reduce the estimated 370,000 tons of food that is thrown away despite being perfectly edible. The latest government research into food labelling showed that the British are very cautious when it comes to eating anything that has passed its "best before" date: 53 per cent of consumers never eat fruit or vegetables that has exceeded the date; 56 per cent would not eat bread or cake; and 21 per cent never even "take a risk" with food close to its date.
"One of the things we found in our research is that confusion over date labelling is one of the major reasons for throwing food away. Often people don't realise the difference between 'best before' and 'use by'," said Richard Swannell, director of retail and organics at Wrap, the Government waste watchdog. It is working with the Food Standards Agency (FSA) and leading retailers to get rid of the "sell until", "display until" and "best before" tags, which confuse customers, causing them to throw away edible food.
"It is an issue that we want to address, but there has to be a balance, as we have to protect consumer safety," said an FSA spokesman. "Not eating out-of-date food is one of the simplest ways of preventing food poisoning."
Ahead of the launch, Mr Benn said: "It's time for a new war on waste. It's not just about recycling more – and we are making progress there – it's about rethinking the way we use resources in the first place.
"We need to make better use of everything we produce, from food to packaging, and the plans I'm setting out over the next few days will help us to achieve that. We all have a part to play, from businesses and retailers to consumers."
The minister added: "Too many of us are putting things in the bin simply because we're not sure, we're confused by the label, or we're just playing safe. This means we're throwing away thousands of tons of food every year completely unnecessarily. I want to improve labels so that when we buy a loaf of bread or a packet of cold meat, we know exactly how long it's safe to eat."
On Tuesday, the Government will also unveil plans for dealing with packaging, including increased glass collection from pubs, clubs and restaurants, a huge expansion of "on-the-go" recycling points for aluminium cans, and new packaging sizes for supermarkets.
In addition to tackling food waste and packaging, the Government will reveal plans to use the waste we do produce as fuel. Tomorrow Mr Benn will announce the location of five new anaerobic digestion plants, built with the help of £10m in state funding. The facilities compost waste in the absence of oxygen, producing a biogas that can be used to generate electricity and heat.
Mr Benn said: "We need to rethink the way we deal with waste – to see it as a resource, not a problem."
The UK produces 100 tons of organic waste a year. If processed anaerobically this would produce enough energy to power two million homes, or Birmingham five times over. Anaerobic digestion plants are widely used across Europe, and are already being used by high street retailers such as Sainsbury's and Marks & Spencer to tackle their food waste.
Michael Warhurst, senior waste and resources campaigner for Friends of the Earth, said: "This should be happening across the country, instead of councils still putting money into building incinerators. They are the technology of the past – this is the future."
Don't read the label: 'If it looks old, cook it for longer'
Edmund Luxmoore, 39, from London, hates waste and never pays any attention to "best before" dates:
"I get most of my vegetables from the supermarket near my house, picking up bits and pieces throughout the week. I get the heavy stuff delivered. We plan meals, making lots of lists. I like to cook and we make curries and lots of other dishes.
"I'm a vegetarian, and I suppose if I was eating meat I would be more wary about eating off food, but a dodgy potato probably isn't going to do much, is it? The proof of the pudding is in the eating. Just look at it and see if it's OK: if it looks a little bit old, cook it for longer.
"I totally understand the difference between the 'best before' and the 'use by' dates. I've certainly got friends who will bin just about anything. Money used to be a factor in not wasting stuff in the days when I had a lower income but now it's just a personal choice. I intensely dislike waste – I think that is a family tradition. My dad used to make us stop the car by the side of the road to pick up plastic bags and clean up the countryside!"
Cautious eater: 'I don't want to poison my mother'
Julie Andrew, 48, from Wakefield, is nervous about eating food that is even approaching its "best before" date:
"I must admit that I'm a bit wasteful. I throw things away when they are near the date. If it's in the fridge and it passes the best-before date I throw it out, even if it's just one day over. I always check both the 'best before' and 'use by' dates in the supermarket and know the difference, but when I get home I just throw things in the bin if they pass any date on the packaging. I do end up throwing out a lot – day-old yoghurts or the end of Flora pots. If I have meat and it looks at all suspicious, I put it straight in the bin.
"With ready meals I worry about the date too and if I've had them in the freezer too long I chuck them out. I had food poisoning once and since then I've been more careful. I try to not be as wasteful because I know there are starving people out there, but I just like to know the food we eat is OK. I live with my mother, who's in her 70s, and I don't want to poison her."
While Gordon Brown is playing musical chairs on the deck of the Titanic, normal people are worrying far more about paying their bills.
Motorists will have noticed that we are back up to £1-a-litre for unleaded petrol at many garages.
We may have not yet reached the heady heights of last summer, but the trend is unmistakable.
Even in a recession, there is the danger of inflation for some essential products such as petrol.
Stagflation is back - and perhaps, not too far off, another 'oil shock'.
Most of the pump price is made up of tax, so motorists don't see the full effect of the dramatic changes in the price of crude oil.
It rose steadily from a low of about $25 a barrel before the Iraq war to a peak of $140 last summer.
The world economy then crashed in the 'credit crunch' and crude fell back to $45 a few weeks ago. Prices at the pump also fell, but British motorists didn't get the full benefit.
One reason was that, until very recently, our currency was falling heavily against the dollar.
This meant that oil prices in pounds fell much less than in dollars.
But, still, prices were generally falling, giving some relief at a time when workers' pay and pensioners' living standards were being squeezed. No more.
While the boys in the City get excited over a recovery in share prices, the rest of the population sees altogether less welcome news on other prices.
But why should we have to worry again about high oil prices? It doesn't seem to make sense.
The United States, Britain, Europe and many other countries are still experiencing recession.
There is less demand for oil: fewer company cars travelling to work, fewer lorries on the road, fewer flights. The price should be falling, but it is doing the opposite - rising to $65 a barrel last week.
One reason is that the big Asian economies - China and India - haven't been too badly hit by the global slowdown.
China has offset its decline in exports to the West by launching vast infrastructure projects, sucking in more oil.
And anyone who has been to an Indian city recently will have been struck by the explosion of middle-class car ownership on top of the millions of scooters.
Yet, with the exception of Saudi Arabia, the main oil-producing countries are unable or unwilling to produce more to meet demand.
There is violence (Nigeria, Iraq until very recently), nationalism (Russia, Venezuela, Mexico, Iran) and depleted supplies (the UK).
We squandered our oil reserves in the Eighties and Nineties when prices were very low.
There is still plenty of oil in the world but it is very expensive to produce - as in the vast Saudi-sized fields recently found off the coast of Brazil - or very dirty and polluting, like the Canadian 'tar sands'.
Private companies such as my former employer, Shell, and BP are investing in these new fields, but they will make money only if prices are even higher than today's.
So with rising demand in developing economies, rising production costs and restrictions on supply, it is clear where prices are heading - up.
Exporting countries are tempted to squeeze supply even more to profit from any speculative spike.
We must think about how to cope with another surge in oil prices, even while we struggle with recession and rising unemployment.
Motorists would look to the Government to lower taxes. But the budget deficit is now so dire that there is simply no money to pay for tax cuts.
It might be possible to help people in the more remote rural areas where there is no alternative to a private car, as they do in France. But don't expect tax breaks for motorists in general.
It is more obvious than ever that the future lies with fuel-efficient and low-carbon cars.
Those who are able to switch now will save a lot of money. The Government should therefore be more intelligent when it comes to helping the car industry.
Labour's scrappage scheme for old bangers is largely a waste of taxpayers' money.
It would be more useful to concentrate on swaps for the new generation of hybrid cars or others offering economical mileage or new British technology.
Last week, I criticised Lord Mandelson's offer to underwrite a deal 'saving' Vauxhall, which risks becoming a handout to Russian billionaires.
Help for new technology for the whole UK car industry to get greener would make far more sense than a dodgy deal with Deripaska.
Long-term thinking is difficult in the current political crisis, when most politicians are obsessed by tomorrow's headlines, our Prime Minister is powerless and he clearly has no confidence in his Chancellor.
But our future as a country depends much more on our ability to plan ahead for the next oil shock and the post-oil world.
Most of the world’s big economies are close to emerging from recession, according to data published on Monday by the Organisation for Economic Co-operation and Development that pointed to a possible recovery by the end of the year.
The Paris-based organisation reported in its latest monthly analysis of forward-looking indicators that a “possible trough” had been reached in April in more developed countries that make up almost three quarters of the world’s gross domestic product.
The composite index for 30 economies rose 0.5 points in April, the second monthly rise in a row, after falling for the previous 21 months. The index seeks to identify turning points in the cycle about six months in advance.
The OECD said its overall measure of advanced member countries – ranging from the eurozone and the UK to the US, Mexico and Japan – now pointed to “recovery” instead of the “strong slowdown” they had been suffering since last August.
“It is still too early to assess whether it is a temporary or a more durable turning point,” the organisation said. But the data “point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the United Kingdom”.
The improved global outlook came amid evidence that the US jobs market strengthened in May for the first time in 16 months. The Conference Board said its employment trends index moved up to 89.9 last month from 89.7 in April. This follows data last week that showed the US shed far fewer jobs than expected in May.
”The moderation of the last two months is certainly a sign that the decline in job losses is real and signals that the worst is over,” said Gad Levanon, economist at the Conference Board.
Twenty-two out of the 30 OECD countries saw a rise in forward-looking measures of activity.
The US saw its first improvement in the outlook since July 2007, while Germany and Japan both among the worst hit economies in the developed world, saw an improvement in their outlook for the first time since early last year.
China had seen a “possible trough”, though India, Brazil and Russia were still facing a sharp slowdown, the OECD said.
The OECD measure is based on data such as share price moves, inventory levels and consumer and business confidence in its member nations.
They are earning billions, costs are coming down and the oil price is rising. Having stepped over the crude price trough without serious mishap, the oil majors were well-placed to celebrate an early end to recession.
The mood inside the petroleum club ought to be serene — yet within the top two energy companies the atmosphere is funereal. The Grim Reaper is striding the corridors at Shell and BP, cutting, chopping and shredding careers.
The process started more than a year ago at BP, when Tony Hayward, its chief executive, put his stamp on the organisation with a decision to cut overheads by a fifth.
Overall, 5 per cent of the workforce was to be shed but the accent was on desk-top, not well-head workers. Of the top 500 senior BP managers, a third were to go or be redeployed.
Last month it was the turn of Peter Voser, recently appointed to the top job at Shell, to frighten the horses.
At a management conference in Berlin, he told colleagues that jobs were not secure and the magical formula — one out of three — popped up again. More uncanny was Shell’s decision to abolish an entire division, Gas and Power, making redundant its chief executive, a year after BP did the deed, folding its gas business into upstream oil exploration.
No doubt this is more than a simple grab from the BP strategy book. For the ranks of Shell mid-career middle-managers who turned up in Berlin, it will have been a rude shock.
Shell has a collegiate culture, where every initiative is discussed, sometimes to exhaustion. The company has not suffered a big corporate upheaval since it was created in 1907. Its executives are not used to looking to the person seated on the left and on the right and wondering which will survive.
Tempting as it is to believe that BP and Shell share the same management consultant, this urgent and brutal cull of managers is not merely a display of muscle by a new chief or even corporate oneupmanship; it is about survival.
These companies are timid giants that fear a low-growth future of shrinking opportunities and shrinking dividends. Denied access to new oil reserves by volatile nationalists, they fear that a failure to deliver fatter dividends will, ultimately, lead to their takeover.
Taunting BP and Shell is a different model — ExxonMobil’s.
Its consistently higher profits and shareholder returns are a continuing reproach to the Europeans and there are signs that investors are finally losing patience and the top brass at Shell and BP are feeling the heat.
These three companies are of a piece, each one integrated with upstream exploration and downstream production. ExxonMobil is the refining giant, while BP is weaker in that department.
The Europeans have dabbled extensively in renewable energy, a business that Exxon has studiously ignored.
Within a slender margin, each company is producing about four million barrels per day of oil and gas, Exxon a bit more, Shell a bit less, but out of its package of investments Exxon delivers about 50 per cent more profit than BP or Shell. Exxon is valued by the stock market at $356 billion (£224 billion), while Shell is worth $169 billion and BP $158 billion.
Why is this so? American investors like success and typically give it greater reward. Yet performance tells. BP and Shell have both suffered very public humiliations over, and delays in, big projects.
BP acquired a reputation for failing to meet its oil output targets and then suffered a series of engineering mishaps at Thunder Horse, a huge oil platform in the Gulf of Mexico, and a deadly explosion at a Texas refinery.
BP’s internal disciplines were found wanting. So, too, was Shell, pilloried over the past decade for cost overruns and delays at big projects, for lax standards and lack of discipline in the boardroom, notably in the scandal over reporting its oil and gas reserves.
Look for the big humiliation at Exxon and you must reach back to 1989, when the Exxon Valdez supertanker ran aground in Alaska while the captain was drunk and in charge.
It may not be too fanciful to imagine that it was that disaster that persuaded ExxonMobil its business was not the romance of drilling wildcat wells but something more humdrum, such as steering a ship on a true course.
Crude oil can be bought cheaply, if you time it right, but selling petrol every day for a good profit is the real challenge. ExxonMobil has a reputation for topping up its tank of reserves with clever takeovers. BP and Shell suspect that this might be the horrible truth. Mr Voser is said to be fed up with the “chatting clubs” of disputatious senior managers. Mr Hayward wants fewer arguments about strategy.
The executive team at Shell has shrunk. Lines of communication are shorter. The fluffy world of Communications and Corporate Social Responsiblity is relegated. Shell’s upstream business in the Americas becomes a separate unit, reflecting its enhanced importance in a world of fewer opportunities.
More efficiency should lead to more profit and less vulnerability to a predatory raid. No one yet thinks that ExxonMobil is plotting a bid for either BP or Shell, but the American company will soon need to fill its tank and the oil price is currently weak.
All three companies are knocking at the doors of Pashas in the Middle East, Russia and Africa seeking favours. But the easier prize may be at home. In the end, BP and Shell may decide that going it alone is a wasted effort. Together, they could eliminate even more chit-chatting managers.
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