FT: “For years, the global oil majors have been like Formula One cars, racing flat-out to grow. Investors now want them to take their foot off the pedal. Pressure has been building on them to curb their vast capital spending programmes and return more cash to shareholders. Those that do have seen their stock price rise.” Read more
Robert Litterman in Ensia: “….while it makes perfect sense to argue that acting solely on ethical or moral grounds is difficult to reconcile with the fiduciary responsibility to prudently invest the endowment, that may not be the end of the story. There is an opportunity for the Harvard endowment, and other investors, to tilt their portfolios in order to generate an attractive return while reducing climate risk if they consider the economics, not necessarily the ethics, of the situation.”
Guardian: “The attitude of British billpayers to saving energy remains unchanged by the roll-out of the government’s flagship energy efficiency scheme despite widespread concern over rising bills, according to the government’s own opinion poll. It found that 28% of people were giving a lot of thought to saving energy in their home, the same as in September 2012.” Read more
FT: “The world’s first sunshine-backed bond could be sold in the coming weeks after securing a coveted credit rating that should make it palatable to large investors. SolarCity said on Monday it would sell a $54.4m bond backed by cashflows from the rooftop solar panels leased to US home owners, who can then claim certain tax breaks from the government.” Read more
Energi og Clima: “Norway’s $800bn Sovereign Wealth Fund (NBIM) is likely to divest from coal assets as the Labour Party now signals that the Pension Fund should withdraw from coal. The Labour Party is now in opposition after their election defeat earlier this autumn, but can contribute to forming a majority in this issue as a handful smaller parties already support such a step.” Read more
REW.com: “The SEC has finally proposed its rules to allow crowd-funding under the Jumpstart Our Business Startups (JOBS) Act. What do they mean for small-scale investments in renewable energy companies and projects? ” Read more
Jeremy Leggett in Recharge magazine: “Five thousand delegates from more than 100 countries file into a cavernous convention centre in Daegu, South Korea, for the World Energy Congress 2013. A huge screen above them in the foyer is filled with a spinning globe, that blue pearl in space that we call planet Earth, along with some writing:”
“Nature has provided our energy needs for thousands of years. As we make the choices to meet our future energy needs” — the camera dives in to pan across sweeping rainforests — “nature is relying on us.”
Readers of the Intergovernmental Panel on Climate Change report by hundreds of the world’s best climate scientists would know for sure what nature is relying on us to do. Cut out the burning of fossil fuels, all the way to zero, by 2050 at the latest, beginning well within this decade. Otherwise we risk destabilising the climate, ending access to clean water and viable agriculture for most of us, collapsing civilisation in the process.
But most people at this congress share a deeply entrenched belief system. They are essentially priests within a kind of religion that is built around the burning of fossil fuel.
The first speaker, Saudi Aramco chief executive Khalid Al-Falih, is typical of many who will follow him over the week. “The Earth is blessed with a colossal endowment of fossil fuels,” he intones. Fossil fuels are the “crown jewels” of the world’s energy mix. We have 50 years of oil supply and 250 years of gas. And we must let market forces decide how much of it we use. He does not mention climate change, or the message on the giant screen outside.
Others are less comfortable ignoring the message, and so invent a mythology around it, in the way religions so often do.
A relaxed GDF Suez boss, Gérard Mestrallet, sits on a stage, being interviewed by a journalist who is unprepared to ask any hard questions. Mestrallet explains why he wants the US shale-gas boom exported across Europe, including to his own country, France, which has foolishly banned it. In parallel, he and the chief executives of nine other European utilities want to see subsidies for renewables ended. Why do they want this? “We are for the security of Europe,” he says. “We are for the climate.”
The journalist does not ask how he thinks such a proliferation of gas can lead to the end of fossil-fuel burning less than four decades from now. He does not ask how cutting renewables subsidies can be “for the climate”.
Had the uninquisitive journalist asked about the climate implications of all this gas, Mestrallet would doubtless have responded that burning gas creates fewer emissions than burning coal, which would have been true. But he would have omitted the worries about fugitive emissions of gas all the way from the well head to the home that cancel out the advantage of gas over coal. Big Energy bosses usually do. He would have dodged the issue of all the investment flowing to gas depressing the development of renewables. Big Energy bosses are good at that too.
The World Energy Council’s latest scenarios, published during the congress, offer a window on the dysfunctional group-think at work.
The “Jazz” scenario envisages total primary energy increasing by 61% to 2050, amid little multilateral effort to co-ordinate fossil-fuel reductions. The “Symphony” scenario envisages an increase of 27%, with a degree of policy co-ordination. In 2010, fossil fuels provided 79% of the world’s primary energy. Their share by 2050, by which time climate scientists tell us they must be phased out, would be 77% in the Jazz scenario and 59% in the Symphony scenario. In both scenarios, gas expands significantly from its current share.
And the climate implications? The target set by the EU is a 2°C temperature increase. A likely chance of staying below that requires returning CO2 equivalent concentrations below 400 parts per million (ppm). At present the figure is more than 420ppm. The Jazz scenario would take us to 590-710ppm of CO2 equivalent. The Symphony scenario would take us to 490-535ppm. Both would torpedo civilisation.
The top 20 European utilities, including GDF Suez, were worth $1trn in 2008. Today they are worth half that. The growing success of renewables, plus their own mistakes and oversights, have done this to them.
These are dying companies, with unworkable business plans. They should be embracing renewables with open arms, but instead seem set on a last ferocious assault on them. Their inculturated, institutionalised belief system compels them to do this.
Guardian: “Some of Britain’s biggest energy companies have been accused of raising households bills for no reason and systematically overcharging customers by £3.7bn a year as they were grilled by MPs over their soaring prices and profits.” Read more
Daniel Davis and Jeremy Leggett in The National Interest: “On October 16, Foreign Policy published an article written by Ed Morse and Amy Jaffe entitled “The End of OPEC,” in which they argued that emerging technology and American production of tight oil and gas is revolutionizing the energy industry.”
“This transformation, they argue, will allow the United States to “use its influence to democratize global energy markets” and as it does so, “the United States becomes an energy exporter—at competitive prices—[and] that should seal the deal.” The views contained in this article reflect a growing body of published works over the past two years that claims to herald the dawn of “energy independence” for the United States. The fundamentals of global oil supply and demand, however, suggest a very different scenario to us: a supply-constrained future. The consequences of such an occurrence could have severe economic implications for the U.S. and global economies.
America’s view of future world oil supply experienced an abrupt change about two years ago. In this short period of time, the pendulum swung dramatically from a concern over insufficient supplies during the mid-2000s to “energy independence” by early 2011. We believe a hard scrub of the facts shows such optimism was never justified, and combined with an analysis of tight oil production data over the past decade, indicates the potential for near-term supply problems.
The pivot point for the abundance meme probably dates to September 2011, when well-known energy consultant Daniel Yergin published an article in the Wall Street Journal entitled, “There Will be Oil.” In this opinion piece Mr. Yergin denigrated those warning of future imbalance between oil supply and demand as having no credibility and reassured all that to the contrary, “the world has decades of further growth in production before flattening out into a plateau—perhaps sometime around midcentury.” Six months later Ed Morse grabbed headlines around the world with the publication of a Citigroup study which claimed “there is little doubt that the U.S. tight oil play lies at the heart of U.S. energy independence and North America becoming the new Middle East.” The facts about global oil supply we present below, however, suggest claims of “independence” amount to misplaced hype.
According to Forbes, China by itself is expected to increase oil consumption by an additional 4 million barrels of oil per day (mbd) by just 2020. Meanwhile, according to EIA data, during the same time the world as a whole increased its consumption of oil by 13% (2000-2010), OPEC countries as a group increased domestic consumption almost four times faster over the same timeframe (56%): the world’s major oil-exporting countries are consuming ever-increasing amounts of their own oil leaving progressively less available for global export. And given the explosive population growth expected in OPEC countries in the coming decades, this trend is likely to intensify.
Moreover, while countries of the developed world are trending towards lower consumption (owing to a combination of constrained economic activity, conservation and efficiency measures), it will not likely be sufficient to offset the increase in demand from the rapidly industrializing oil-importing Asian giants of China and India and the rising domestic consumption OPEC producers. To compound matters, approximately 80% of the world’s largest conventional oil fields are already in post-peak decline, and as a group suffers between 4.5% to 6% annual production declines—all of which has to be replaced each year just to keep production level.
Further, as a 30-year veteran of the Geological Survey of Canada, geoscientist David Hughes recently confirmed evidence is piling up that American tight oil production is not likely to continue its stratospheric rise for much longer. In a recent interview, Hughes told us that after conducting an analysis of over 65,000 tight oil wells he expected tight-oil production to continue rising until about 2017. However, as the first-drilled “sweet spots”are used up and owing to dramatic field decline rates—currently averaging between 30% and 44% per year—“the higher production grows the more wells you have to drill just to offset decline.
He estimates at current drilling rates of a 5,500 wells per year, the Bakken and Eagle Ford (the top two tight oil plays which combined generate two-thirds of US tight oil production) will peak in the 2017 timeframe at a combined production of 2.3 mbd. From this zenith, production from these fields will decline to about 1.7 mbd by 2021 and less than 0.5 mbd after 2025. At approximately $8 million per well, these fields will require up to $44 billion per year in capital expenditures to maintain this peak-and-decline production profile. The prognosis for other tight-oil fields is similar owing to the extraordinary field declines that are endemic with tight oil.
The trend is clear for anybody willing to look at the data: if all the above developments continue between now and 2020, there will be insufficient supply at affordable prices to meet the global demand. If consumption in the developing world continues to increase, consumption of oil producing nations continues to rise, and American tight-oil production peaks in the 2017 timeframe (and then begins even a modest decline), the cumulative impact on global supplies could be significant. The economic and security consequences of such a series of events would be considerable.
Based on available evidence and reasonable projections, we believe the chances of a near-term oil-supply crisis to be sufficiently high to warrant the development of contingency planning by Western governments. The global economic implications of the onset of a crisis in which no plan for mitigating actions have been contemplated could be severe. The problems that would confront the world will require multilateral solutions; no one nation can independently thrive under such conditions. Though the hour is late, prudent analysis and planning now could stave off some of the worst possibilities later. We must not fail now to make contingency plans for an increasingly uncertain future.
Daniel L. Davis, a Lieutenant Colonel in the US Army, is a widely published researcher on national security including energy policy. Dr. Jeremy Leggett is author of the critically acclaimed book The Energy of Nations—Risk Blindness and the Road to Renaissance. The views in this article are those of the authors alone and do not reflect the position of the US Government.
Terry Macalister in the Guardian: “The bosses of the big six energy companies will appear before the energy and climate change select committee on 29 October. The powerful group of MPs, chaired by Tim Yeo, will grill them on green levies, profit levels – and why consumers face such big increases in their bills. These are the questions they should ask:” Read more
Washington Post: Headline: Climate regulations could cost fossil-fuel firms trillions. Should they be worried? “If the world ever gets serious about addressing climate change, fossil-fuel companies could stand to lose billions of dollars — if not trillions. That’s because these firms all have vast reserves of oil, gas, and coal that would need to stay in the ground in order to avoid severe warming.” Read more
Tim Morgan on cityam.com: “Although the economy is improving, this is turning out to be “a recovery, but not as we know it”. Britain may be getting better off, but people keep getting poorer, as the costs of essentials continue to grow much more rapidly than incomes. Yet far from being a uniquely British problem, this is a worldwide phenomenon. Read more
CERES: “A group of 70 global investors managing more than $3 trillion of collective assets today launched the first-ever coordinated effort to spur the world’s 40 top oil and gas, coal and electric power companies to assess the financial risks that changes in demand and price pose to their business plans.” Read more
Telegraph: “The Deputy Prime Minister said he does not “fully agree” with Mr Cameron, who on Wednesday said he will next year “roll back” the environmental levies. Mr Clegg hinted that he could be prepared to take some green levies off energy bills and on to taxes. However, he made it clear that he will prevent any attempts to “scrap a whole system of levies”. Read more
Greentechgrid.com: “We may be about to witness one of the most profound transitions ever to occur in the utility industry. Challenged by the surge in distributed renewables and a strong decline in revenues, one of Europe’s largest largest utilities, RWE, is reportedly planning to completely transform itself from a traditional electricity provider into a renewable energy service provider.” Read more
REW.com: Germany is racing past 20 percent renewable energy on its electricity grid, but news stories stridently warn that this new wind and solar power is costing “billions.” But often left out (or buried far from the lede) is the overwhelming popularity of the country’s relentless focus on energy change (energiewende).” Read more
REW.com: “Oracle Corp. Chief Executive Officer Larry Ellison plans to build one to power the Hawaiian island he bought last year. EBay Inc. has one to run a data center. The University of California at San Diego and the federal government have invested tens of millions of dollars in the technology.” Read more