ODAC Newsletter - 17 July2009
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.
The Nabucco gas pipeline project came a step closer to reality this week as Austria, Turkey, Bulgaria, Romania and Hungary came together to sign a transit agreement. The project, aimed at reducing Europe’s reliance on Russia and the Ukraine transit route, still has significant hurdles to overcome. Gas supplies must be secured in a Russian-dominated market where the competing main players are Iran, Iraq or the ex Soviet states of Turkmenistan and Azerbaijan (and, longer-term, Kazakhstan). Geopolitics will no doubt continue to play a significant part in Europe’s energy dependency whatever the outcome.
Reducing UK dependence on imported gas and oil is just one of the drivers for the government’s energy white paper The UK Low Carbon Transition Plan released on Wednesday. The plan brings together many previously announced strategies and initiatives, but adds a timeline and structure along with increased government powers over the National Grid. A companion report the UK Renewable Energy Strategy 2009 maps out the path to the government’s 30% renewables target and a real shift from fossil fuels. A CBI report also released this week challenges the government bias towards renewables calling for a greater focus on nuclear and clean coal.
One area of energy security and policy which the white paper entirely misses out is peak oil. While the report acknowledges that the UK’s own oil and gas production is in decline and that “In the longer term we need to reduce our dependence on oil.” In the short to medium term, the plan actually sees UK oil consumption increasing – “Demand for oil is set to rise through to 2020 in the UK, driven by higher demand for diesel oil in motor transport and aviation fuel.” The dual assumptions that this will be possible and that the oil price by 2020 will be$80/barrel (described as the ‘Timely investment, moderate demand scenario’) ignores the warnings not just of peak oil commentators, but the International Energy Agency which has continually warned of the possibility of an oil crunch within that timeframe. Ed Miliband has stated previously that he is “in the business of optimism”. Where peak oil is concerned he appears to be in the business of ‘ostrichism’ – or burying his head in the sand.
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Crude oil fell from its highest in a week before a report forecast to show the U.S. shed more jobs, spurring concern that a recovery in fuel demand will be delayed.
The Labor Department is likely to say later today that 553,000 people made initial claims for unemployment benefits in the week ended July 11, according to a Bloomberg survey. U.S. gasoline and heating oil supplies increased last week, the government said yesterday. Prices will fall to $20 a barrel this year, former government adviser Philip Verleger predicted.
“The OECD economies are still deep in recession,” said Andy Sommer, an analyst at Elektrizitaets-Gesellschaft Laufenburg in Dietikon, Switzerland. “The Asian countries are coming out of the worst, but warning voices persist that growth is not stable yet.”
Crude oil for August delivery fell as much as 79 cents, or 1.3 percent, to $60.75 a barrel on the New York Mercantile Exchange, trading for $60.96 at 12:14 p.m. in London. Prices have increased 37 percent this year and jumped 3.4 percent yesterday to $61.54, the highest close since July 7.
China’s gross domestic product grew 7.9 percent in the second quarter. The nation overtook Japan as the world’s second- largest stock market by value for the first time in 18 months, as government spending and record bank lending boosted share prices. China’s industrial production increased 10.7 percent in June from a year earlier, the largest gain in nine months excluding seasonal distortions. Retail sales climbed 15 percent.
Lower Refinery Runs
“The economic situation is not getting better,” said Verleger, a professor at the University of Calgary and head of consultant PKVerleger LLC, in a telephone interview yesterday. “Global refinery runs are going to be much lower in the fall. If the recession continues and it’s a warm winter, it’s going to be devastating.”
A crude surplus of 100 million barrels will accumulate by the end of the year, straining global storage capacity and sending prices to a seven-year low, said Verleger, who correctly predicted in 2007 that prices were set to exceed $100. Supply is outpacing demand by about 1 million barrels a day, he said.
U.S. crude inventories fell 2.81 million barrels to 344.5 million last week, the Energy Department said yesterday.
“The huge rally across the board in equities helped boost crude oil,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “The weekly EIA report showed a drop in crude oil inventories by 2.8 million barrels, which lent support to higher crude prices as well.”
Growing Gasoline Stockpiles
Crude stockpiles were forecast to decline 2.1 million barrels, according to analysts surveyed by Bloomberg News. Refineries operated at 87.9 percent of capacity, the highest since August.
Gasoline inventories climbed 1.44 million barrels to 214.6 million, the highest since April, the Energy Department report showed. Supplies were forecast to increase 875,000 barrels.
Supplies of distillate fuel increased 553,000 barrels to 159.3 million in the week ended July 10, the highest since January 1985, the report showed.
Brent crude for August settlement was at $62.22 a barrel, down 87 cents, on London’s ICE Futures Europe Exchange at 12:15 p.m. in London. The more-actively traded contract for September, which becomes the front month tomorrow, slipped 50 cents to $62.08.
The Organization of Petroleum Exporting Countries expects world oil consumption will grow a modest 500,000 barrels a day in 2010 after two years of shrinkage, fueled by a stronger economy and demand in China, India, the Middle East and Latin America.
In its monthly oil market report, issued Tuesday, OPEC reaffirmed its view that world demand will fall about 1.6 million barrels a day this year to 83.8 million barrels a day, compounding a small decline in 2008 as the world economy stagnates. OPEC revised demand projections for the second half of the year, however, and now anticipates declines less severe than projected last month.
"World oil demand is settling down in line with the current world economic situation," the report said.
Energy forecasters have regularly revisited assumptions in the past year as the fast-changing economic landscape altered consumption patterns and toppled crude prices from highs above $145 a barrel. OPEC has struggled to cope with rapidly declining demand, cutting official production among its 11 quota-bound members by 4.2 million barrels a day.
The cartel's report follows similar forecasts issued last week by the U.S. Energy Information Administration and the International Energy Agency, a watchdog group for most heavily industrialized countries. The EIA also expects oil demand will spring back by 940,000 barrels a day in 2010, while the Paris-based IEA forecasts a 1.4 million barrel-a-day demand rebound.
In its June report, OPEC said the worst appeared to be over in the oil markets. Tuesday's update estimated world oil demand declined a "steep" 2.5 million barrels a day in the second quarter. OPEC still sees declines for the rest of the year, but now predicts declines of 980,000 barrels a day in the third quarter and 140,000 barrels a day in the fourth quarter. That's smaller than earlier forecast declines of 1.22 million barrels a day and 370,000 barrels a day in the third and fourth quarters, respectively.
According to the report, emerging economies will make up the bulk of the demand increase next year, adding 800,000 barrels a day. China's demand is projected to increase by 300,000 barrels a day, up from minimal growth this year.
U.S. consumption is expected to rebound somewhat, rising by a daily 200,000 barrels after a sharp decline of 700,000 barrels a day this year, though OPEC warned it will be a "wild card in 2010 given the uncertainty about the pace of the economic recovery."
Overall, demand among the developed economies of the Organization for Economic Cooperation and Development, or OECD, is forecast to contract by 300,000 barrels a day in 2010 after an anticipated decline of 1.8 million barrels a day this year.
"The pace of the global economic recovery continues to be the main risk for the outlook for next year," OPEC said.
Non-OPEC supply is forecast to increase by 300,000 barrels a day in 2010 to 50.9 million barrels a day, driven by Brazil, the U.S., Azerbaijan, Kazakhstan, Canada, China and India. Mexico, the U.K., Norway and Russia are expected to experience the largest declines, according to the report.
OPEC said it expects demand for its crude in 2009 to fall at a daily rate of 2.3 million barrels a day to 28.5 million barrels a day versus last year's levels. OPEC members' crude demand is seen dropping by 400,000 barrels a day to 28.1 million in 2010 from this year.
OPEC's reference basket fell to $59.66 per barrel on July 13 after surging by almost 20% to average $68.36 a barrel in June.
Also in June, OPEC's crude production averaged 28.4 million barrels a day, up 39,000 barrels a day from the previous month, 1.18 million barrels a day above the group's output quota of 24.845 million barrels a day.
David Bird contributed to this report
Nigeria’s release of rebel leader Henry Okah and his movement’s announcement of a 60-day cease- fire may not be enough to end the insurgency that has cut crude supply from Africa’s top oil exporter by a fifth.
President Umaru Yar’Adua’s administration dropped charges of treason and gun-running against Okah, 44, releasing him on July 13 from more than a year in jail, as part of an amnesty for rebels announced last month.
The Movement for the Emancipation of the Niger Delta, or MEND, responded by calling a temporary cease-fire and saying it will seek talks with the government. Okah himself wasn’t sure he’ll be able to stop the violence.
“I’ll have to go into the creeks and meet the commanders,” Okah said in a telephone interview from the Nigerian capital Abuja yesterday. “I’ve been away for 23 months and it’s only after I have had time to talk to those involved that I can say anything.”
Armed attacks targeting oil infrastructure in the southern Niger delta, home to Nigeria’s oil industry, have shut plants operated by Royal Dutch Shell Plc, Chevron Corp. and Eni SpA, curbing production of the light, sweet variety of oil favored by U.S. refiners. Lost oil exports from Nigeria, the fifth-biggest source of U.S. oil imports, has contributed to crude’s 37 percent rally this year to more than $61 a barrel.
The truce, if it holds, may provide an opportunity for Yar’Adua to start to address grievances in the delta region, particularly the widespread demand for more local control of oil, said Antony Goldman, a London-based analyst specializing in West African countries.
Respite in Fighting
“The most you can get is a respite,” Nnamdi Obasi, West Africa analyst for the Brussels-based International Crisis Group, said yesterday by phone from Abuja. “Then after a while both sides will go back to the trenches.”
Demands for distributing more wealth locally have proved difficult for the authorities in Abuja to accept, since Nigeria’s government depends on oil exports for more than 80 percent of its revenue and 95 percent of foreign income, according to the Petroleum Ministry.
MEND is calling for a system of “fiscal federalism,” in which states in the delta region should receive 100 percent of the earnings from the oil industry and then pay a tax to the federal government.
A panel appointed by the government last September, known as the Niger Delta Technical Committee, recommended changing the current revenue-sharing system so that the share of states in the Niger delta would rise to 25 percent, from 13 percent now.
“It’s now eight months since the government received that report and it’s doubtful it wants to address that issue,” said Obasi of Crisis Group. “Addressing it and dealing with issues of mass poverty and infrastructure needs in the region is the only way there can be lasting peace.”
Communities in the Niger Delta, a maze of creeks and rivers feeding into one of the world’s biggest remaining areas of mangroves, are among Nigeria’s poorest, a Shell-funded report on the area said in 2004. It cited studies showing per-capita income in the region to be below the national average of $260 a year. Unemployment exceeds 90 percent in some areas. Nigerian oil production averaged 1.79 million barrels a day in June, according to Bloomberg estimates.
The truce remains fragile. Only hours after declaring it, MEND said the Nigerian military had dispatched troops to one of its camps. If attacked, MEND said it would call off the cease- fire. Colonel Rabe Abubakar, a spokesman for the government’s Joint Task Force in charge of security, denied any such raid was planned.
The day before Okah’s release, the most significant gesture of the government’s amnesty program so far, the rebel group brought its campaign from the delta to Lagos, Nigeria’s biggest city, in an attack on Atlas Cove, the main fuel receiving jetty.
Lagos Jetty Attacked
“Okah’s release happening propitiously” just after “MEND extended its attacks to Lagos does not bode well for the government’s amnesty plan,” said Sebastian Spio-Garbrah, West Africa analyst for Eurasia Group.
Armed groups in the delta have “no single unifying leader or command structure,” he said, so individual commanders may accept the government’s amnesty while others pursue attacks.
Since violence in the region intensified in May, when the government launched an offensive against MEND bases, both sides have seen that militarily neither can deliver a knock-out blow, Goldman said. While the government may have surprised the militants with the capacity it displayed, it also showed that it can’t defend all oil facilities, he said.
The government portrays the amnesty as the first step in a process to bring peace to the region.
It’s not intended as “a stand-alone solution,” Tamie Koripamo-Agarry, a spokeswoman for the Presidential Amnesty Committee, said in a statement e-mailed to reporters yesterday.
The government recognizes the neglect in the region and is prepared to help boost development, she said. “Peace will accelerate this process.”
The US is increasingly reliant on oil from West Africa for its daily energy needs and forecasts that up to 25 per cent of imports will hail from the Gulf of Guinea by 2015.
Ghana, which discovered oil offshore only recently, is set to become a producer next year. Some Ghanaians say Barack Obama’s choice of the country for his first presidential visit to sub-Saharan Africa was partly related to ambitions to ensure an interest in the country’s estimated 3-4bn barrel reserves. The US is still Africa’s foremost trading partner ahead of the European Union and China. But the vast majority of US investment in Africa is in oil and gas, and to a lesser extent mining. Given its growing strategic importance to the US economy, African security has become a growing priority for Washington too, with spending on training and operations rising to nearly $1bn in recent years.
In 2008, George W. Bush launched the first separate command structure for Africa, but neither he nor Mr Obama have persuaded any African country to host the base. Only Liberia has offered and for now Africom is in Germany. There has been widespread opposition on the continent to the militarisation of relations and suspicion that the US wants to pursue the war on terror and fend off rivalry for resources from China.
Venezuela's oil workers will be suspected of conspiring against President Hugo Chavez's socialist revolution if they do not join socialist workplace groups in the OPEC nation, the oil minister said on Tuesday.
Ramirez, who told oil workers to support Chavez ahead of his 2006 reelection, has long headed the president's drive to bring politics into Venezuela's main industry.
"By now, there should not be a single counter-revolutionary in the heart of our company, our industry," Ramirez said at a rally with workers taken on by state-oil company PDVSA after it nationalized dozens of oil service companies earlier this year.
"There cannot be a single PDVSA installation where socialist committees do not exist," he said. "Whoever is not in a committee will be suspected of conspiring against the revolution."
Socialist committees are loosely defined political groups often organized by Chavez's Socialist Party. Some are dedicated to voluntary work.
Chavez fired about 20,000 workers after a crippling shutdown of the oil industry at the end of 2002 aimed at toppling his government. Chavez bounced back from the strike as rising oil prices paid for popular social projects.
Public sector workers in Venezuela often say they are obliged to attend pro-government rallies. Many people are excluded from government jobs if they are included in a document listing thousands of names of those who supported an attempt to cut short Chavez's first term in a referendum.
Venezuela's electoral authorities criticized Ramirez for telling oil workers they had to be "red, really red," ahead of the 2006 election. Red is the color of Chavez's political party, as well as being associated with socialism globally.
PDVSA is now one of Latin America's largest companies having grown under Chavez on the back of higher oil prices and through a series of nationalizations of major foreign-owned projects and smaller service companies.
It directs a large chunk of its profits to government social projects and also runs a food production and import business.
Ramirez on Tuesday said only other state companies should be allowed to sell the food PDVSA produces via a large dairy and the import business.
Additional reporting by Eyanir Chinea; Writing by Frank Jack Daniel; Editing by David Gregorio
With memories of freezing houses, schools and offices still looming large, five countries will sign up to an ambitious pipeline project intended to break Russia’s grip on European gas supplies.
The Nabucco project, a 2,000-mile (3,300km) pipeline to pump gas from Azerbaijan to Europe via Turkey, has been given extra urgency by the ongoing payment dispute between Russia and Ukraine, which saw supplies to a dozen EU countries suspended in the depths of last winter.
Turkey, Bulgaria, Romania, Hungary and Austria will sign a transit agreement today to give Nabucco — which has hit investment problems during the recession — fresh impetus and increase credibility with suppliers.
The project has been dogged by fears that it could turn out an €8 billion (£6.8 billion) white elephant. Delays in securing start-up funding and political agreement mean that Nabucco will not be ready until 2015. Even then Russian efforts to buy up Azerbaijan’s reserves and the unpredictability of potential suppliers, including Iran and Turkmenistan, mean that there may not be enough gas to make the pipeline viable.
Furthermore, Russia is planning its own €10 billion Caucasus pipeline, called South Stream, to bypass Ukraine and deliver gas to southeastern Europe under the Black Sea, although it is still struggling to forge agreements with transit countries over the route and ownership rights.
Gazprom, the state-owned Russian company, has done a deal for 50 billion cubic metres of Azerbaijan’s gas but the EU believes that once Nabucco is built it will draw in supplies from Egypt, Iran, Iraq and Turkmenistan if there is not enough from Azerbaijan. “Major obstacles to Nabucco still stand, and supply is number one,” said Ana Jelenkovic, an analyst at Eurasia Group. “Without securing the supplies you cannot have the pipeline — but without the pipeline you cannot secure the supplies.”
Nabucco was conceived to diversify Europe’s gas supply after Russia turned off the taps during the winter of 2006 in a dispute with Ukraine, through which the gas flows.
With a capacity of 31 billion cubic metres a year it would supply only 5 to 10 per cent of EU demand, but it would break Russia’s monopoly over countries that have suffered the worst during the winter cut-offs, such as Bulgaria, Slovakia and Romania. In some cases schools and factories were closed as heating was severely rationed to conserve fuel; several countries, mostly in eastern Europe, reported a halt in Russian gas shipments while others — including Austria, France, Germany, Hungary and Poland — reported substantial drops in supplies.
The project is rich in geopolitical significance, not least because Russia is quick to use its huge energy reserves as a political tool. In May, Turkmenistan, Kazakhstan and Uzbekistan — all in Russia’s “backyard” — held off their support for Nabucco at a meeting in Prague. Azerbaijan signed an agreement in June to export gas to Russia from its Shakh Deniz reserve.
However, after a dispute with Russia which has seen Moscow halt gas imports, Turkmenistan said last week that it was now ready to provide gas for Nabucco. “Currently Turkmenistan has excess gas for trade. We are ready to send it abroad to any customer. This includes Nabucco,” President Berdymukhamedov said.
EU officials insist that there is enough gas from the Caucasus region to supply both Nabucco and South Stream, which they see as Russia’s attempt to escape reliance on the Ukrainian transit routes.
“A lot of fanfare was made about the deal for 500 million cubic meters of gas between Azerbaijan and Russia, but that is one sixtieth of the size of Nabucco. It is a very small deal,” said a European Commission gas expert.
“Our strategic aim is to reach new sources of gas, and for every deal in gas and oil you get agreement on the pipeline first. Even Russia does it that way around.”
José Manuel Barroso, the European Commission President, said: “The Nabucco project is of crucial importance for Europe’s energy security and its policy of diversification of gas supplies and transport routes.”
The European Commission today has adopted a new regulation to improve security of gas supplies in the framework of the internal gas market, the European Commission press office announced. The proposed Regulation would strengthen the existing EU system for gas supply security by ensuring that all Member States and their gas market players take effective action well in advance to prevent and mitigate the consequences of potential disruptions to gas supplies. It also would create mechanisms for Member States to work together to deal effectively with any major gas disruptions which might arise.
Commission President, José Manuel Barroso said, "Increasing energy security will be one of the top priorities in the coming years. We need to work for the best but make sure we are prepared for the worst. Europe must learn the lessons of previous crises and make sure that European citizens are never again left in the cold through no fault of their own. This proposal of the Commission would oblige member states to be prepared and work together in case of further gas disruptions".
Energy Commissioner Andris Piebalgs called on the Council and the European Parliament to adopt the proposals quickly. “We have known for some time that the existing arrangements to deal with gas emergencies are insufficient. The Russia-Ukraine gas dispute in January 2009 confirmed our fears. All Member States recognise that we need common standards for security of gas supply for the whole EU. And those are the standards we propose today", said Commissioner Piebalgs.
The new regulation call Member States to be fully prepared in case of supply disruption, through clear and effective emergency plans involving all stakeholders and incorporating fully the EU dimension of any significant disruption. The plans will be based on appropriate risk assessments.
The proposed Regulation on security of gas supply would provide a common indicator to define a serious gas supply disruption. This is known as N-1, i.e. the shutdown of a major supply infrastructure or equivalent (e.g. import pipeline or production facility). It would require all Member States to have a competent authority that would be responsible for monitoring gas supply developments, assessing risks to supplies, establishing preventive action plans and setting up emergency plans. It would also oblige Member States to collaborate closely in a crisis, including through a strengthened Gas Coordination Group and through shared access to reliable supply information and data.
The proposed Regulation would ensure that all EU consumers benefit from high levels of gas supply security. It would improve the framework for investment in new cross-border interconnections, new import corridors, reverse flows capacities and storages, supported also by the European Economic Recovery Plan. It confirms the greater interdependence of gas supplies within a single European gas market. And it provides a sound basis for the EU to defend its interests more effectively in its relations with external gas suppliers.
The proposed Regulation has been prepared in close collaboration with Member States and the gas industry, including the Gas Coordination Group. It responds to a specific request from the European Council, the European Parliament and the Energy Council, which asked the Energy Commissioner on 19 February 2009 to prepare as a matter of urgency a new instrument to improve the EU emergency response framework for gas to replace the 2004 Gas Security Directive.
The EU is a major gas consumer, and the January 2009 gas crisis demonstrated weaknesses in the current mechanisms for dealing with supply disruptions. Gas now represents more than one quarter of energy supply in the EU. Over half of this gas comes from external sources, and by 2020 over 80% of EU gas is likely to be imported. Some Member States are already totally dependent on imported gas.
A new report by consultants McKinsey, commissioned by the CBI, says failure to act could result in electricity prices for both industry and consumers rising 30pc by 2030.
It gives warning ahead of the Government's renewable energy strategy and White Paper on low-carbon economy, due to be published this week, that the current plans do not go far enough to maintain energy security, stop price volatility or hit climate change targets.
The study calls for the Government to change the energy mix within the next 12-15 months. Its suggestions include raising nuclear spend by £15bn and carbon capture by £7bn, while cutting investment in expensive gas projects by £11bn and wind by £12bn.
The Government's "overly ambitious" targets on renewable energy generation ought to be offset by nuclear, the report says, "which is likely to produce equivalent low carbon electricity for lower investment cost".
The business lobby group argues that this alternative path will lead to an 83pc reduction in carbon emissions compared with a projected drop under the Government's plans of just 64pc by 2030.
"This is last chance saloon stuff," said John Cridland, deputy director-general of the CBI. "It's all about things that need to be done within the next 12 to 15 months. Delay or risk of delay on energy is probably the biggest single concern business has got."
The CBI's recommended policy changes include tighter energy efficiency standards and incentives, such as an accelerated roll-out of smart meters; a lower renewable energy target for 2020 dropped from 32pc to 25pc; and accelerated investment in the energy grid.
"The CBI's report is a very good piece of work," said Steve Holliday, the National Grid chief executive. "There is no difference in the cost of implementing its model, but its carbon reduction is greater and there's a better energy mix."
The report comes as the Government prepares to say that £100bn must be spent on wind, solar and other alternatives by 2020. This ambitious projection follows an agreement by G8 nations to cut carbon dioxide emissions in each country by 80pc by 2050.
Research from Inenco, the UK's largest energy consultancy, today predicts that hitting these targets will cost the UK up to £1 trillion. "If you think about de-carbonising electricity generation, making all transport run in a low carbon way and ripping out all gas heating systems to replace them with alternatives, you're looking at a huge bill," said Ian Parrett, an energy analyst at Inenco.
The world's most ambitious green energy project is about to take shape. It is a plan for a chain of mammoth sun-powered energy plants in the deserts of North Africa to supply power to Europe's homes and factories by the end of the next decade.
In a few days' time a consortium of 20 German firms will meet in Munich to hammer out plans for funding the giant €400bn (£343bn) project, named Desertec. The scheme is being backed by Chancellor Angela Merkel's government and several German industry household names including Siemens, Deutsche Bank, and the energy companies RWE and E.ON. The Munich meeting will also involve Italian and Spanish energy concerns, as well as representatives from the Arab League and the Club of Rome think-tank.
Energy experts have calculated that Desertec could meet at least 15 per cent of Europe's needs, and be up and running by 2019. By 2050, they estimate the contribution could be between 20 and 25 per cent. Although no host countries have been named, Desertec envisages a string of solar-thermal plants across North Africa's desert. The plants would use mirrors to focus the sun's rays, which would be used to heat water to power steam turbines. The process is cheaper and more efficient than the usual form of solar power, which uses photovoltaic cells to convert the sun's rays into electricity.
The project also envisages setting up a new super grid of high-voltage transmission lines from the Mahgreb desert to Europe. Hans Müller-Steinhagen, of German Aerospace, has researched the project for the German government. He said that although the idea behind the scheme had been around for several years, investors had been deterred by the high costs of setting up the infrastructure.
Professor Müller-Steinhagen said that similar projects have been operating in the American West for years, but these had failed to gain the appropriate recognition. "Solar thermal power plants were built in California and Nevada, but people lost interest in them because fossil fuels became unbeatably cheap," he said.
Until now, projects of Desertec's scale have failed to get off the ground because of the huge problems involved in delivering electricity to consumers hundreds of miles away. The main stumbling block is that the further electricity is transported, the more is lost. However, Siemens claims that it has come up with a solution. Alfons Benziger, a spokesman for the engineering giant which has been involved in the construction of major hydro-power plants in India and China, said: "We have developed so-called high-voltage direct current energy transmission. This can transport energy over long distances without heavy losses. We use the process at the power plants in India and China."
Andree Böhling, an energy expert for Greenpeace Germany, has heaped praise on Desertec: "The initiative is one of the most intelligent answers to the world's environmental and industrial problems," he said. Munich Re, meanwhile, which insures major insurance companies across the globe, was persuaded to invest in the project after seeing a steady rise in the number of claims the company had to meet as a result of climate-change-induced damage.
Yet Germany's largest solar energy company, SolarWorld, argues that North Africa is too risky a location. "Building solar power plants in politically unstable countries opens you to the same kind of dependency as the situation with oil," said Frank Asbeck, the firm's managing director.
Other critics claim that by singling out comparatively poor North African countries as a location for a sophisticated European solar energy project amounts to a form of "solar imperialism". Lars Josefsson, the head of the Swedish energy giant Vattenfall, has also rejected the idea because of a potential risk of terrorist attacks. However Desertec supporters, including the German conservative politician Friedbert Pflüger, argue that a far greater threat is posed by the prospect of nuclear power plants being subjected to such attacks. He points out that a number of nuclear reactors are scheduled to be built in North Africa – Egypt alone plans to build five. Mr Pflüger claims that the risk of politically motivated Russian-style energy stoppages by host countries could be avoided if the solar grid has enough supply channels.
But he warns that politics is likely to be the main stumbling block. "It's not Europe that will decide whether the desert can be used as an energy resource, but the countries of North Africa," he said last week. "So far these countries have either not been involved in the dialogue at all or only at a very limited level."
ExxonMobil's (XOM) plunge into alternative energy doesn't mean it is going green. Instead, like its recent decision to proceed with a relatively high-polluting Canadian oil shale project, Exxon's entry in algae-to-fuel research demonstrates yet again its willingness to weather criticism while it pursues a go-it-alone strategy toward investment.
On July 14, Exxon announced that it would spend at least $300 million in an algae-to-fuel research and development deal with J. Craig Venter's Synthetic Genomics—the oil giant's first big investment in biofuels. Previously, CEO Rex W. Tillerson ruled out the prospects for corn-based ethanol, which he called "moonshine," and said that no other current alternative fuel technology is worth investing in, either.
It turns out, however, that while environmentalists were criticizing Exxon for failing to follow Big Oil rivals into large investments in alternative energy, it was conducting what it calls an exhaustive internal review of nonfossil fuel technologies. The result? The company continues to be suspicious of alternative fuels, but has determined that one of them might prove commercially viable: algae. "Essentially we did a lot of analysis," company spokesman Alan Jeffers says, explaining how Exxon selected algae as worthy of research investment.
Late to Russia
The investment demonstrates an inclination—one maddening to Exxon's critics and admirers alike—that, even when it joins others in an investment, it does so only when it is fully ready. Exxon was also late getting into Russia and onto the Caspian Sea in the 1990s, for instance, watching as rivals slugged it out to obtain oil and natural gas properties. The company eventually secured prize properties, in a couple of cases by buying in through merger.
Now, although others have been investing in algae for some years, Exxon has emerged with a high-profile partnership with the world's best-known private genomics scientist. In 2000, Venter succeeded in a partnership with a federal program in sequencing the human genome for the first time.
"I have always maintained that Exxon is smart and disciplined," said Robin West, CEO of PFC Energy, a consulting firm in Washington. "They were always skeptical that wind or solar could be scalable and profitable. If Exxon takes algae-based fuel seriously, then I do."
Venter's role in the deal is to figure out how to turn algae into oil. Exxon's task is to engineer an economically replicable plant design so that the process can be scaled to produce commercial volumes. The algae oil is meant to be fed into conventional refineries for conversion to finished products, such as gasoline, jet fuel, diesel, etc. In January, Continental Airlines (CAL) conducted a test flight in Houston using a Boeing 737 run on a 50% blend of biofuel derived from algae and says the test was successful.
Algae-to-fuel is one of the hottest areas of biofuels research. But as with the rest of the alternative-fuels industry, private and public laboratories are attempting a variety of approaches to make algae commercially feasible as a large-volume fuel source, and no one is sure which technology—if any—will work. Among the approaches are the use of closed, loop systems and open ponds.
In Venter's case, he thinks the best approach may be to genetically modify algae to produce a strain tolerant to viruses and intense sunlight. Skeptics, however, say algae strains are exceptionally competitive biologically, and that a genetically modified variety might not be able to withstand attack by other algae species.
For Exxon, the relatively small investment—the company will spend $29 billion overall this year on capital and exploration—provides it a high-profile entry into alternative fuels. "I think it's part R&D, part PR," says Paul Sankey, an oil industry analyst at Deutsche Bank (DB). As for Venter, he stands to earn a $300 million fee if he reaches certain unspecified milestones in the process, making the deal worth up to $600 million. "If I were Rex Tillerson, I'd have done the same, because Craig is the king of genomics," said Lissa Morgenthaler-Jones, CEO of LiveFuels, a San Carlos (Calif.) algae-to-fuel rival of Venter's.
But Venter noted what every company studying algae has discovered: It is highly complex—and difficult to turn into oil cheaply. "The real challenge to creating a viable next-generation biofuel is the ability to produce it in large volumes, which will require significant advances in both science and engineering," Venter said in a statement.
Exxon, like many companies, has also withstood much criticism over its heavy investment in Canadian oil sands. Two months ago the company announced it would proceed with an $8 billion project in the Kearl oil sands in the Canadian province of Alberta. Exxon spokesman Jeffers says the company regards the sands as "an important source of supply for the U.S. from a very stable neighbor."
Proven Reserves in Oil Sands
Unlike the highly speculative algae venture, the oil sands are a core Exxon investment. The company is heavily relying on the oil sands for maintaining its base of proven oil reserves. Last year, the company booked 1.1 billion barrels of oil from the sands, or 73% of the 1.5 billion barrels it added to its cache of proven reserves.
In addition, the oil sands have long been crucial to maintaining the company's smooth record for reserve replacement. For the last nine years, for instance, Exxon has announced an unbroken trajectory of replacing more than 100% of the oil and natural gas that it pumps out of the ground. Yet, according to its 10-K filings with the Securities & Exchange Commission, it has reached that mark in just four of the past nine years; in the other five years—in 2001, 2002, 2004, 2007 and 2008—its volume of proven oil reserves actually dropped, according to the reports. The difference—the reason Exxon was able to announce publicly that it had fully replaced its reserves—was its holdings of oil sands, which in each year pushed the company over the 100% mark. SEC rules do not permit the oil sands to be combined on the 10-K with a company's other oil and natural reserves, but companies can do so in public announcements such as press releases and statements to investors, according to an SEC spokesman.
Starting next year, the SEC will allow companies to combine the oil sands with other reserves, yet Alberta will remain a key strategic holding for the company because of its supergiant size—it holds more than 1.2 billion barrels of oil—and proximity to the U.S. market. As with the long period that Exxon withstood pressure to invest in alternative fuels, Kearl also demonstrates the company's willingness to go against the political current. At the same time that U.S. politics has been fixated on carbon-trading legislation moving through Congress, Exxon in May officially approved construction of Kearl's first phase. Environmentalists criticize oil sands projects because of the comparatively high greenhouse gases they produce while being refined into fuel.
Exxon says there is some dispute as to how much more oil sands projects contribute to greenhouse as compared with other unconventional fuels that already are used in U.S. refineries, such as the heavy oil found in places such as Venezuela, which is far more difficult to process. Gordon Wong, a spokesman for Exxon's Imperial Oil subsidiary in Canada, said the company is committed to investing in technological research that could greatly reduce the greenhouse gases associated with oil sands production.
The UK has today announced its strategy for meeting carbon emissions targets and to a massive increase in renewable energy.
Plans announced this morning by UK Energy and Climate Change Secretary, Ed Miliband have been met with cautious praise by industry and environment groups.
The plan has three components:
The UK Low Carbon Transition Plan sets out how the UK will meet the cut in emissions set out in the budget of 34% on 1990 levels by 2020. (According to figures from the government, emissions have already fallen by 22% from 1990.)
Also published today is the Renewable Energy Strategy which maps out the UK Government's strategy for reaching the EU target of 15% of the UK's total energy consumption from renewables by 2020, from around 2% today.
And finally, the Government's Low Carbon Transport Plan which sets out how to reduce carbon emissions from domestic transport by up to 14% over the next decade.
The strategy identifies a range of low carbon sectors with potential for job creation and growth. These include: wave and tidal power; civil nuclear power; offshore wind; and ultra-low carbon vehicles. It also sets out the Government's strategy for removing barriers that are blocking the development of Britain's full potential in these areas.
Publication today of the Renewable Energy Strategy follows a year-long consultation process. It recommits the Government to a massive increase in renewable electric power generation going up from 5% today to 30% by 2020.
Among key points of the Low Carbon Transition Plan are a huge increase in employment in the low-carbon sector, energy efficiency measures in buildings and transport, and for an increase in low-carbon power:
*More than 1.2 million people will be in green jobs
*7 million homes will enjoy pay-as-you-save home energy makeovers, and more than 1.5 million households will be supported to produce their own clean energy
*40% of electricity will be from low carbon sources, from renewables, nuclear and clean coal
The average new car will emit 40% less carbon than now.
Responding to today's government energy announcements, John Sauven, executive director of Greenpeace, said: "If this plan becomes a reality, it will create hundreds of thousands of green jobs and make Britain a safer and more prosperous country. This will be good for the British economy and, in the long-run, save householders money as we reduce our dependence on foreign oil and gas."
The Government announcements said that around 50% of the annual emissions cuts between now and 2020 will be achieved by further greening of the electricity mix.
"We expect 40% of the electricity we use in 2020 to come from low carbon sources - 30% from renewables, the rest from nuclear (including new build) and clean coal. We need to all-but eliminate carbon from electricity by 2050."
The UK Renewable Energy Association said that "While delivery will be the crucial test, and concerns remain, the announcements made today undoubtedly demonstrate a step-change in political leadership that is desperately needed to ensure renewables can tackle the serious threats of UK energy security and climate change."
The strategy also sets out the first investments from the £405 million for low carbon industries and advanced green manufacturing announced at Budget 2009. Key investments related to renewables include:
Up to £60 million to capitalise on Britain's wave and tidal sector strengths, including investment in Wave Hub ? the development of a significant demonstration and testing facility off the Cornish coast ? and other funding to make the South West Britain's first Low Carbon Economic Area.
Up to £120 million to support the development of a British based offshore wind industry.
Up to £10 million for the accelerated deployment of electric vehicle charging infrastructure.
£11.2m to help regions and local authorities prepare for and speed up planning decisions on renewable and low carbon energy whilst protecting legitimate environmental and local concerns.
Up to £6m to start development of a 'smart grid', including a policy road map next spring.
Other related actions include:
DECC (Department for Energy and Climate Change) to take direct responsibility from Ofgem for establishing a new grid access regime within 12 months.
Launch of the new Office for Renewable Energy Deployment in DECC to speed up the growth of renewables in the UK.
The final shortlist of the schemes for the Severn Tidal Power feasibility study is confirmed as three barrages (including the Cardiff-Weston barrage) and two lagoons. Three innovative schemes have also won funding to support their development.
A consultation covering the changes to the existing Renewables Obligation, such as extending the life-time of the RO to at least 2037 and the introduction of a 20 year limit on support, to make it capable of delivering some 30% of our electricity from renewables.
Approval for the UK's largest biomass power station on Teesside. The £500m ($815m USD) 295 megawatt, Tees Renewable Energy Plant, located at Teesport in northeast England and being developed by British company MGT Power Limited, will be one of the largest-ever biomass plants to be built in the world, and one of the largest of all renewable energy projects. The Tees Renewable Energy Plant will begin commercial operation in late 2012.
Up to £15 million capital investment in order to establish a Nuclear Advanced Manufacturing Research Centre consisting of a consortium of manufacturers from the UK nuclear supply chain and universities.
A £4 million expansion of the Manufacturing Advisory Service, to provide more specialist advice to manufacturers on competing for low carbon opportunities, including support for suppliers for the civil nuclear industry.
Commenting on the strategy, Trade Union Congress General Secretary Brendan Barber said: "That will require a highly-skilled workforce, and it is very welcome that the Government is recognizing today the need to help re-train workers who have lost their jobs in traditional manufacturing to give them the skills they need to take up jobs in the new, greener firms, and become part of the transition to a new style, low carbon economy - There is no conflict between economic success and a low-carbon world. Indeed the only prosperous future for the UK is to use our know-how to ensure that we become world-leaders in low carbon industries."
While the focus is on electric power generation on transport, heat is also an important issue. The Renewable Energy Association said that the announcement that renewable heat projects being built today will be eligible for the forthcoming Renewable Heat Incentive (RHI) should help ease the paralysis in the renewable heat industry. A similar announcement has been made for Renewable Electricity Tariffs. However REA is still pressing for the RHI to be expedited as heat is the biggest single use of energy in the UK and renewable heat still has no dedicated support.
Graham Meeks, Director of the UK Combined Heat and Power Association welcomed the announcements, "but they are still only half the picture. No comprehensive energy strategy can be thought complete without fully factoring heat into the equation. And it is noticeable that it is still the junior partner in the strategy documents published today - We need to see a fundamental change in perspective in energy policy if we are to meet the challenge of arresting climate change in the most cost-effective way. Integration is key, as is a holistic vision. Compartmentalising energy policy in the way we have seen today is simply no longer an option. Such an approach to energy policy may be convenient, but it isn't clever."
Thousands more wind turbines, millions of "smart" electricity meters for homes and new cars emitting 40 per cent less pollution than they do now all are on the way in the next decade under ambitious plans to slash CO2 emissions from every sector of the economy.
They form part of the UK Low Carbon Transition Plan, a national government strategy for cutting greenhouse gas emissions in the fight against climate change, which was launched by the Energy and Climate Change Secretary, Ed Miliband, yesterday.
Although the detail may sound familiar – many of these projects are already on the drawing board – it is the bringing them together into an all-inclusive society-wide plan which is new, as the Government faces up to its legally-binding target of cutting UK carbon emissions to 34 per cent below 1990 levels by 2020.
Under last year's Climate Change Act, ministers have bound themselves to hit the target with a system of rolling five-year "carbon budgets", and the strategy shows in detail for the first time how they intend to do this.
Its central component is a seven-fold increase – in just a decade – in the amount of Britain's energy for power generation, transport and home heating supplied from renewable sources such as wind, wave and solar power (from just over 2 per cent to 15 per cent).
This leap will mean that by 2020 about 30 per cent of electricity alone will come from renewables (up from 5.5 per cent today) and this huge expansion will derive principally from much more wind power. Although no precise figure was given yesterday, this will involve, Mr Miliband said, "thousands" of new wind turbines, both onshore and offshore (one current estimate is about 7,000).
By the 2020 date another 10 per cent of electricity will come from non-renewable low-carbon energy sources, principally the new nuclear power stations whose construction the Government is backing, and the infant technology of carbon capture and storage (CCS), which takes the CO2 emissions from power stations and buries them underground. Demonstration power plants fitted with CCS should be coming onstream by 2020.
The Government accepts that low-carbon energy will be more expensive for consumers and yesterday gave two sets of estimated increases on power bills. Just paying for the new system might add £77 to electricity and £172 to gas bills each year but when all climate change measures are taken into account – such as home insulation which will save consumers money – the total addition is likely to be between £75 and £92 by 2020, the Government said. On the other hand, the White Paper foresees a substantial increase in employment from the changes, with as many as 400,000 new green jobs being created.
The Low Carbon Transition Plan: Major cuts in five sectors of society
Energy Generation (responsible for 35 per cent of UK emissions)
The plan envisages 40 per cent of UK electricity coming from low-carbon sources by 2020 – 30 per cent from renewable energy sources and 10 per cent from nuclear and clean coal. Later this year there will be a national Policy Statement on Nuclear Power which will assess potential sites for new atomic power stations. The Government has already said that any new coal-fired power stations will have to be fitted with Carbon Capture and Storage technology. Later this year plans will be published for a "smart" version of the National Grid which will be more flexible.
Workplaces: Industry and Business (20 per cent of emissions)
High-carbon industries will be included in the EU Emissions Trading Scheme which will save around 500 million tonnes of carbon dioxide a year by 2020. There will be financial incentives to save energy and invest in low-carbon technologies. The Government will seek to boost green industries with £405m for new technologies, up to £120m of investment in offshore wind, and £60m for marine energy and to help develop the South-west as the UK's first Low Carbon Economic Area.
Homes and Communities (13 per cent of emissions)
Emissions will be cut from homes by 29 per cent on 2020 levels by much greater energy efficiency achieved through the wider use of insulation. Smart meters, which enable people to understand exactly how much energy they are using in real time, and maximise their energy saving opportunities, will be rolled out to every home – 26 million – by 2020. The obligation on energy suppliers to help households save energy will be extended. From 2016 all new homes will have to be zero-carbon and rental properties may have to have Energy Performance Certificates.
Farming, Land Use and Waste (11 per cent of emissions)
Farmers will be encouraged to cut emissions by 6 per cent by 2020 through more efficient use of fertiliser and better management of livestock and manure. Although the UK now recycles or composts a third of its waste, more must be done. There will be support for anaerobic digestion (a technology which turns waste and manure into renewable energy) and there will be a push to reduce the amount of waste sent to landfills, and also for better capture of landfill emissions.
Transport (20 per cent of emissions)
By 2020 transport emissions will be cut by 14 per cent on 2008 levels, and the first step will be to improve the fuel efficiency of conventional vehicles : C02 emissions from new cars will have to fall by 40 per on current levels across the EU by 2015, to 95 grams per kilometre. British government vehicles will comply with this by 2011. £30m will be invested to deliver several hundred low-carbon buses and there will be more support for new technology for low-carbon cars. £140m is being invested to promote cycling and £5m is being spent on new cycle storage at rail stations.
Investments in renewable energy, nuclear power, fuel-efficient vehicles and other forms of low-carbon manufacturing were laid out by the government on Wednesday morning as it unveiled the UK’s industrial strategy for tackling global warming.
Aid worth up to £120m to support the development of a British offshore wind industry makes the sector the big winner of the government’s strategy to reduce greenhouse gas emissions associated with climate change.
The government said the UK would be the biggest single market in the world for energy-generating offshore wind.
Recognising the dearth of skills in nuclear power generation in the UK, the government also announced £15m to establish a nuclear advanced manufacturing research centre, made up of universities and a consortium of manufacturers from the nuclear supply chain.
“There is no high-carbon future,” said Lord Mandelson, the secretary of state for business. “But if the transition to low carbon is inevitable, what is not inevitable is that we use the transition as a chance to develop new jobs, new industries here in Britain.”
He said the government would assist the private sector “to make the most of the potential benefits for innovation, growth and job creation in the UK”.
The south-west of England will become the UK’s first “low-carbon economic area”, where wave and tidal energy will be the focus, he said.
Up to £60m of government money will be invested round the country in wave and tidal energy, with targets for funding including the “wave hub” in the south-west, a test bed for buoys that generate energy from waves.
Blyth in Northumberland will also benefit, with testing infrastructure for wave and tidal energy components. There will also be £8m for the expansion of testing facilities at the European Marine Energy Centre in Scotland. Up to £22m will be available for a new marine renewables proving fund that will help companies to test and demonstrate newly developed renewable energy technology.
In order to assist workers in high-carbon industries, the government will also set up a Forum for a Just Transition, with representatives from government, trade unions, charities and businesses.
Lord Mandelson said: “We must ensure that we equip businesses and the workforce with the capabilities and skills to take advantage of the potential benefits as the world moves towards a low-carbon future.”
The low-carbon industrial sector will grow by about 4 per cent a year in value for the next several years, the government said. Currently, the sector’s estimated value to the UK economy is £106bn, employing 880,000 people, according to government estimates.
However, the definition of the sector is broad, taking in the waste industry, water, parts of electrical utilities and parts of the car sector, as well as jobs in finance and consulting.
Ed Miliband, Secretary of State for energy and climate change, gave Ofgem greater powers to fight market abuse and issue financial penalties.
As part of the reforms, Ofgem will also be responsible for ensuring the UK has enough energy and reducing emissions.
However, the Government took the power to grant companies access to the national power grid from the regulator. Mr Miliband will take on this role in a move understood to stem from concerns that big electricity producers were trying to stop plans allowing rival generators from renewable sources selling their supplies.
National Grid, the company in charge of the network, had tabled plans giving new companies quicker access to the grid, which currently takes up to a decade.
But Ofgem last month accused a group of electricity suppliers, including Scottish and Southern Energy, the Association of Electricity Producers (AEP), Eon and EDF of "filibustering" by vetoing the proposed changes. The industry dismissed the accusations.
Ofgem welcomed the "stronger powers to tackle abuse in the wholesale electricity market, which could add hundreds of millions of pounds a year to electricity costs, and for more robust financial penalties".
Ian Parrett, an energy analyst at Inenco, said the tougher regulation was "extremely positive" in an electricity market still dominated by regional blocs.
The reforms are part of a White Paper looking at the UK's transition to a low carbon economy, which Mr Miliband claims will create thousands of jobs by 2020.
The paper set out plans to use renewable energy to generate 15pc of UK's energy needs by 2020, though admitted this was likely to create huge price volatility on the wholesale market.
It also insisted that a focus on renewables means the UK will not have to increase expensive gas imports over the next decade, despite falling North Sea production.
However, Mr Miliband's focus on alternative energy was immediately dealt a blow when Vestas, the UK's only wind turbine manufacturer, said it still plans to close its Isle of Wight plant today with the loss of 600 jobs.
Many in the energy industry questioned whether the subsidies were enough to make private investment in renewables economically viable.
"Question marks remain over the ability of these plans to attract the £150bn of private sector investment needed
to renew our energy infrastructure, improve energy security, and allow us to meet climate change targets,"
said Dr Neil Bentley, CBI director of business environment.
A senior source at one of the big six utility companies said the company had doubts that it would be able to justify spending on renewables. "Wind power costs five times as much to produce as nuclear. It's a very tough decision whether to go ahead with our own plans for a big renewables plant at the moment."
Centrica and RWE Npower welcomed the paper's focus on renewables, but EDF said its team was still examining the new proposals.
But such a change in the way our most important piece of national infrastructure works will require vast sums of capital. Those sums need to be committed very soon if we are to make a start in building the wind farms, nuclear power stations and clean coal plants needed to meet Labour's environmental targets – while still keeping the lights on.
I've been reading a very interesting document produced by Ofgem, the regulator, which describes the UK's energy needs and our position in the national and international energy markets that might satisfy them. Its evidence is shaping Ofgem's Project Discovery, a major piece of work looking ahead at the challenges to our energy supplies on behalf of consumers.
In the document it refers to the "2016 cliff face" – the point when 35pc of our traditional oil and coal-fired power stations will be closed under the EU's Large Combustion Plant Directive. So, seven years to go. If this race against time were depicted in an admittedly hackneyed television drama, you'd start to hear a clock ticking at this point.
Eye-catching measures such as green energy makeovers for 7m homes address the demand side of the energy equation. But it's the supply side I'm worried about. Wind power was highlighted on Wednesday as a significant contributor to providing the green energy desired by Government. I've no doubt, technically, enough wind turbines could be erected. But at what price and by when?
The London Array is a case in point. It will be the world's biggest offshore wind farm if both phases of the 1,000 megawatt (MW) site, 12 miles off the South-East coast, are built – for the uninitiated, 1,000 MW equals one gigawatt (GW). But until May even the 630MW first phase looked a dream. However, a German, Danish and Abu Dhabi-backed consortium has finally given the go-ahead for work to start on phase one and the £1.97bn investment programme is under way.
Sounds impressive. But here's a bit of context. At the moment we generate 75GW of power in the UK, of which wind accounts for about 2.2GW. The Government wants us to generate 33GW from wind by 2020. The 630MW to be generated by the London Array first comes on stream only in 2012. You can see the enormous investment still needed, and needed very soon, if wind power is going to hit its target. Is it just me or is that ticking clock getting louder?
New nuclear stations, which the Government is right to back, won't appear until 2017 at the earliest. And as for clean coal technology, we'll only have demonstration sites by 2014. So we'd better get spending or we risk closing the old power stations without the new, clean ones being up and running.
Except we are in the mother of all credit crunches. The Government hasn't got the money to pay for the capital expenditure itself, so needs the markets to deliver the cash.
No chance, is my considered opinion. The economics of the wind power business, for instance, is fragile to say the least. The UK's only large-scale manufacturer of wind turbines, Vestas, is closing its Isle of Wight factory. One large energy company after another has announced a scaling back in wind investment over the past 12 months including British Gas-owner Centrica. So hitting environmental targets and ensuring a secure supply of energy isn't merely a challenge but a crisis in the making.
You heard of the credit crunch, and its devastating effects, after the event. We can't afford to wait that long to discover the energy crunch. The disruption to society of even brown-outs, never mind black-outs, could be far worse than rising unemployment.
Which is why I was slightly puzzled by Miliband's decision to skate over security of supply in Wednesday's White Paper. The Government believes the threat to electricity supply is "low". It might be today but by 2012, for instance, it could easily be much higher. I suppose presentationally, highlighting security of supply as the most important short-term issue would have distracted from the green energy makeovers.
Malcom Wicks, Gordon Brown's international energy specialist, is due to deliver a report on the topic and Ofgem will be addressing it in September. Intriguingly, Wednesday's White Paper proposes altering the regulator's remit to include both ensuring security of supply but also allows it to use measures "other than competition" to protect consumers interests.
This clearly raises the prospect of the state intervening more directly in energy markets including the strategic ownership (nationalisation) of assets such as our gas storage facilities.
These will become increasingly important as we compete for natural gas, globally, which remains the one obvious way to help plug the energy gap. Is the sound of that clock really loud now? It should be.
Millions of households could slash their fuel bills by £220 a year if the government cut the red tape around its green energy schemes, according to a new report published today.
In the report, published to coincide with the release today of the Government’s White Paper on climate change and renewable energy, the Local Government Association, which represents more than 350 councils in England and Wales, says streamlining Britain’s efforts to cut the energy we use would save £2billion and allow councils to embark on a national home insulation plan to lag every loft in the country. It would also allow councils to install other energy saving measures in the homes that need it most.
The report, “From Kyoto to Kettering, Copenhagen to Croydon”, is a town hall manifesto for building a low carbon Britain. It calls for the Government’s myriad schemes aimed at cutting household carbon emissions to be merged into a single £7 billion fund. This would allow councils to embark on a cost-effective programme of local action to cut energy use, permanently cutting household fuel bills and combating climate change.
Councils want to build on the example of Kirklees Council which has offered to insulate every house in its area for free. If a similar council led scheme was expanded across the country, it would save £2 billion on current plans to put basic insulation into every home.
Other proposals in the manifesto include:
- Offering stamp duty relief for all new houses that meet the highest current energy saving standards, which would boost the building of new green homes.
- Offering discounted electricity or other energy saving measures to local residents when wind farms are built in their area.
- Requiring all energy suppliers to work with councils when issuing smart meters, which can help householders save energy, so that people get the best advice on cutting their fuel bills.
- More help for remote rural areas to cut energy use.
Cllr Paul Bettison, Chairman of the Local Government Association Environment Board, said:
“Millions of homes across Britain are still draughty, cold and energy inefficient. Councils want to make homes that are fit for the 21st century. Home insulation saves the average family around £220 a year. Lagging lofts is a fast, effective way of helping people cut their fuel bills but at the moment, many homes are missing out.
"Too much money is being wasted on a raft of green schemes and people who need help insulating their homes are not getting it. A national insulation programme would dramatically reduce carbon emissions and harness the desire of householders to make their homes more energy efficient.
“It is only councils that have both the knowledge of a local area and a strong connection with households. Councils are already proving they can deliver home insulation and make this money go further. It’s time the government cut the red tape around its green schemes and created a single pot of money so council can get on with the job in hand.”
Homeowners who install solar panels and wind turbines will be paid for any electricity that they feed back into the National Grid, the Government confirmed yesterday.
The payments will be based on a fixed price per unit of electricity and will be set high enough to encourage hundreds of thousands of homes to invest in renewable sources of power.
Local energy suppliers will adjust the bills that they issue according to the number of units fed back into the grid. Homeowners with low energy consumption and a solar panel could receive net payments from their energy company.
Ed Miliband, the Energy and Climate Change Secretary, said that the “feed-in tariffs” would be available from next April. He added: “The crucial thing about feed-in tariffs is that they do speak to people’s wish to do their bit and to see benefits flowing back to their community from renewable energy generation.
“We can harness people’s enthusiasm for getting involved, doing their bit, to help create the clean energy of the future.”
However, small-scale electricity production is expensive and the feed-in scheme will need to be funded either by a government subsidy or through higher bills for ordinary households without their own generators.
Thousands of miles of railway track will be electrified under a government plan to reduce carbon dioxide emissions from transport.
The Midland Main Line and the Great Western Main Line, currently used by diesel trains, are likely to be converted to electricity over the next decade.
At present only 40 per cent of the 20,000-mile network is electrified, one of the lowest levels in Europe.
Lord Adonis, the Transport Secretary, pledged a “major programme of electrification” today as part of his department’s strategy for reducing CO2 emissions from transport by 14 per cent by 2020.
He also announced a tough emissions standard for cars that will qualify, from 2011, for purchase grants of up to £5,000. Only electric and plug-in hybrid cars that emit 75g per km of CO2 or less will be eligible.
There are a handful of small electric models with a limited range that will qualify but no hybrids, which are far more practical. The best performing existing hybrid, the 2009 version of the Toyota Prius, emits 89g/km.
Lord Adonis announced a new emphasis on “reducing the need to travel”, a phrase the Department for Transport has avoided using in the past five years as it has concentrated on enabling greater mobility.
Much of the low-carbon transport strategy, published today, focuses on measures to encourage walking and cycling for short journeys.
The document says that 21 per cent of CO2 emissions from transport arises from journeys of less than five miles.
Lord Adonis said: “Transport accounts for a significant amount of our domestic emissions. Therefore decarbonising this sector has to be front and centre of efforts to meet our obligations and commitments to tackle climate change.
“Our strategy sets out a long-term vision for a fundamentally different transport system in our country, where carbon reduction is a central consideration in the way we do business.
“If we are to safeguard the future of transport then we must also safeguard the environment that it impacts upon — I am determined to do that.”
He said the strategy would save an additional 85 million tonnes of CO2 over the period 2018-22.
His department forecasts that the number of rail passengers will double over the next 30 years.
Lord Adonis confirmed plans to spend £5 million on improving cycle parking facilities at rail stations.
Although about 60 per cent of the population lives within a quarter of an hour cycle ride of a railway station, only 2 per cent of journeys to and from stations are made by bike, the document says.
The strategy also suggests that advanced speed limiters could reduce emissions from cars by cutting the number of drivers who break the 60mph and 70mph limits. However, the department said it had no plans to make the limiters mandatory.
A leading business lobby group appealed on Monday to the Conservative party to reverse its opposition to the building of a third runway at Heathrow airport, warning the policy would cost the economy billions of pounds in lost productivity.
A study published on Monday by the British Chambers of Commerce said the direct economic benefit of adding capacity at Heathrow would be in the region of £300m ($488m)-£500m a year.
Not building the runway would cost the economy between £8.6bn and £12.8bn in lost productivity over 60 years and would jeopardise wider economic benefits totalling £20bn.
David Frost, director general of the BCC, said: “We must invest now to safeguard our economic future or we risk wasting £30bn fumbling around for an alternative.”
The report, written by Colin Buchanan, the economics and transport consultancy and paid for by pro-Heathrow expansion lobby groups including BAA, the airports operator, and British Airways, said the wider economic benefits of increasing capacity at the only UK hub airport were greater than those found for major rail schemes, including a proposed high-speed line to the north of England or Crossrail in London.
The government finally backed the plan for the third runway early this year and urged BAA, the owner of Heathrow, to accelerate its plan.
Ministers said the runway, fiercely opposed by environmental campaigners and local residents, should come into operation as soon as possible after 2015. Both BAA and British Airways have previously said a third runway was unlikely to be in use before 2020.
BAA expects to take up to two years to prepare the planning application to build the runway and a sixth terminal. However, a general election must be held by next May. The Conservatives have opposed the third runway project outright since last autumn’s party conference.
John Stewart, chairman of Hacan, the leading campaign group opposing the expansion of Heathrow, said the BCC report “smacks of desperation ... It is a sign that they have lost the battle for a third runway. The Conservatives and the Liberal Democrats have said they would scrap it.
“The major failing of this report is that it has not factored in the environmental and social costs – the cost of noise, pollution, climate change, community destruction, traffic congestion etc. That makes a mockery of its figures.”
The latest research from S&P shows that most fund managers in the sector believe emerging economies are in better shape than developed markets and will lead the world out of the current recession.
Although the theory that emerging markets would "decouple" from Western economies because of their lack of exposure to subprime debt seemed to be proven wrong by last year's collapse of global stock markets, many experts on the region believe it will help emerging economies to recover sooner.
Roberto Demartini, lead analyst at S&P Fund Services, said: "Looking forward, the managers' view is that the market will be led more by fundamentals and earnings. In particular, stockpickers with a Garp (growth at a reasonable price) approach feel this is their time to outperform, as they believe the focus will shift towards quality growth names trading at attractive valuations."
There are much stronger signs of economic growth in the emerging markets, with forecasts for growth of GDP in China expected to be 6pc this year, according to Goldman Sachs – compared to negative growth in Western countries – and some are expecting it to be as much as 8pc. The MSCI China index of shares has risen by more than 60pc since March. India's GDP is projected to grow by 5.8pc this year.
Investment advisers cautiously share this view. Tim Cockerill at investment adviser Rowan & Co said: "It has to be a sensible assumption that the emerging markets will be the first out of the recession. They have not got the indebtedness at the consumer or the corporate level of the West, and they did not get into subprime debt to the same degree.
"Furthermore, there is a growing middle class, which is huge compared to the West – in India there are now 250m people in the middle class – giving good prospects for domestic consumption, and these are still low-cost centres for business."
Adrian Lowcock, from independent financial adviser Bestinvest, added: "Although the world economy has been largely driven by Western demand, over the longer term the US consumer's position will become less important and these countries will need to look inwards to find demand." He added that exports accounted for a lower proportion of India's GDP compared with other emerging markets, so it was better placed to weather the recent downturn in Western consumer spending.
Spending on infrastructure would also contribute to growth, said Mr Cockerill. "China and India, in particular, are spending a lot of money expanding infrastructure, which enables economic growth, whereas in the West we are spending money on replacing infrastructure rather than expanding it."
Martin Bamford, from independent financial adviser Informed Choice, advised caution. "It is important to remember that these are emerging markets. China's economy is likely to grow to take second place in the world after the US, but it will still be a long way behind the US. There are also significant risk factors in China with political unrest in several regions. Emerging markets are a great story and probably have lots of potential, but it is going to be a very bumpy ride for investors," he said.
For investors who would like to put a cautious toe back into the emerging market pool, the advisers recommended First State Global Emerging Market Leaders, which is described by Mr Cockerill as a "good-quality fund". He added: "It looks for companies which will be around for a while. It comes into its own when things are not so good because it picks stocks which are likely to be more resilient – good, solid companies."
Mr Bamford added: "The First State fund is not completely focused on the BRIC [Brazil, Russia, India and China] countries, as so many other funds are, so it has a much wider spread of emerging market countries. In the longer term, it aims to pick more robust stocks." The First State fund levies a 4pc initial charge and a 1.5pc annual management charge.
For a more adventurous approach to emerging economies, Mr Bamford and Mr Lowcock suggested Aberdeen Emerging Markets, which takes a similar geographical approach to the First State fund but also branches out into smaller companies. It has a 4.25pc initial charge and a 1.5pc annual management charge.
For an aggressive approach, Mr Cockerill recommended Axa Framlington Emerging Markets, which takes more risk with smaller companies. It has an initial charge of 5.25pc and an annual management charge of 1.5pc.
For investors who prefer shares in investment trusts, Mr Cockerill recommended JP Morgan Emerging Markets Investment Trust, which costs 1pc per year, and Templetons' Emerging Markets fund, which is managed by Mark Mobius and also has a 1pc annual charge.
He said: "The Templeton fund is currently heavily weighted in commodities and takes a more aggressive approach than the JP Morgan fund."
A billion dollars a day - that's how much Saudi Arabia was making when oil prices were high.
Now it's earning just $700m (£432m).
It might seem like a marginal difference, but for the oil exporting nations of the Middle East, those falling revenues are hitting hard.
As demand for oil wanes, in the wake of the global recession, prices have more than halved. And whilst that's good news for consumers, it's not good news for producers.
"If oil prices fall further, concerns over public spending will surface again," says analyst Mohammed Ali Yasin, chief executive of Shuaa Securities in Abu Dhabi.
"Governments in the region get between 75% and 95% of their income from oil. So any change in price has a big impact."
But for a region that's used to record oil prices and the record revenues they bring, being forced to cut public spending is an unfamiliar concept.
So much so, many have been forced to dip into their cash reserves to fund big infrastructure projects like motorways, airports and public transport systems.
And whilst those reserves will help cushion the current slide in prices, a prolonged downturn could mean those reserves start to run low.
"Saudi Arabia and Kuwait are the most vulnerable to fluctuations in the oil price," says Farouk Soussa, at Standard and Poor's in Dubai.
"They derive almost 90% of their national income from oil exports.
"But at the same time, they are also the two countries with the biggest cash reserves. That could see them through the worst of the storm.
"The real problem will be in countries like Oman and Bahrain. They could suffer the most because they have smaller cash reserves and less oil wealth."
Yet those cash reserves could now become more important than ever.
Just six years ago, Gulf countries could sell oil at $20 a barrel and still balance their budgets.
But with today's increased public spending, ambitious construction projects and heavy infrastructure development, they now need to sell oil at around $50 a barrel. Even at that level, most will just break even.
"Oil prices and government spending go hand in hand," says Imad Al Jamal, chairman of the UAE Contractors Association.
"That means some projects are being put on hold as the price of oil falls and funds run out. Those nearing completion will still be finished, but many new projects are likely to be delayed or scrapped altogether."
And that could have implications for the wider economy too.
"What people need to understand is that in the Middle East economic activity is directly linked to government spending," says Mr Soussa.
"Governments are the biggest employers and biggest spenders. When they're earning more, they're spending more.
"There has now been some de-linkage between oil prices and economic growth, as countries try to diversify, but at the end of the day, oil revenues are what drive the economies of the region."
And that means the price of oil is being watched more closely than ever.
In a year that's seen prices soar as high as $150 a barrel and as low as $40, that volatility has hit both consumers and producers.
"It's been a turbulent year," says John Cross, an oil trader at Daman Quattro on the Dubai Mercantile Exchange.
"But now the general feeling is that prices won't rise again until there's some solid evidence of an economic recovery.
"It's no longer an issue of how high prices can go, instead it's about how low they can go."
And it's that concern that has reignited calls for Gulf economies to speed up their diversification.
Countries across the region are planning for a future after oil, but progress has been slow.
"Governments are balancing their budgets for the years ahead," says Mr Ali Yasin.
"So if oil prices do continue to fall, they'll either spend less or find other ways of making the money.
"Dubai for example is supplementing its income with tourism, banking and even simple things like road tolls.
"Everyone now recognises that by diversifying, they're better prepared to deal with oil price volatility."
But just as the rest of the world relies on Middle Eastern oil, Middle Eastern governments rely on its income.
Consumers are slowly learning to wean themselves off oil. Now could be the time for producers to do the same.
MIDDLE EAST FACTS
Oil accounts for more than 90% of Saudi Arabia's exports, and nearly 75% of the government's revenues
The Middle East controls more than 60% of the world's oil reserves and 40% of supplies
Oil exporting nations could face a 53% fall in revenues this year as oil prices remain low
From tourism to financial services, real estate to renewable energy - governments are desperately trying to reduce their reliance on oil revenues, and find alternative sources of income.
An extra 41,700 people are expected to have signed up for jobless benefits in June, City economists forecast, taking the total number of people in dole queues to nearly 1.6 million.
Analysts also expect that official figures, out this morning, would show that the wider measure of unemployment, which includes those not claiming jobless benefits, rose for the thirteenth consecutive month in May, taking the total number of people out of work to around 2.3 million, up from 2.26 million.
While the pace of the rise in unemployment has eased slightly in recent months, analysts have warned that it could pick up again next month as tens of thousands of school leavers and graduates struggle to find jobs.
While those out of work are bearing the brunt of the recession, as employers seek to cut their wage bills, those who have clung on to their job are also being affected.
Recent figures showed that of the number of people on "short-time" working has trebled over the last year.
The number of workers working fewer hours or taking leave on reduced pay soared to 123,000 in the first three months of the year, up from 36,000 in the same period last year.
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