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.
As temperatures dropped in Britain this week, the political heat over rising energy bills intensified. Prime Minister David Cameron hauled in the utility bosses and demanded action. Cameron claimed “everything that can be done will be done to help people bring their energy bills down”, but the meeting’s big idea was that energy companies should write to customers advising them to shop around. Much good that will do when bills are determined by a six-strong oligopoly based on rising international commodity prices.
Energy Secretary Chris Huhne argues the best way to keep energy costs down long term is to move away from fossil fuels, an argument strongly supported by the stubbornly high oil price, with Brent at just under $110 per barrel despite the economic gloom. He is however facing increasingly vociferous opposition in the Conservative party over “green taxes” and from those who foresee a new age of cheap energy from shale gas. That was the argument of Dieter Helm in The Guardian this week, which is demolished in this week’s commentary by ODAC trustee Dr. Richard Miller.
The British renewables industry had feared the anti-green-tax-brigade was getting the upper hand ahead of this week’s long-awaited revision of the Renewable Obligation Certificate (ROC) scheme. But the proposals, announced on Thursday, were met with relief. Good Energy chief executive Juliet Davenport concluded “they weren’t as bad as many of us had feared”.
Biomass was a winner, although Drax, which has piloted biomass co-firing in its coal-fired power station, said the economics of biomass were still “highly challenging”, and Marine energy which received more than double its current incentive is clearly an area in which the government feels the UK can be a world leader. There will be much disappointment though at a local level around the lack of support for energy from waste and biogas, and also at the strong rumours that solar feed in tariffs are to be cut drastically in the coming review.
The other big announcement in power generation this week was the collapse of the Longannet carbon capture and storage project, after Scottish Power and DECC failed to agree subsidy terms. Longannet was the only remaining bidder in the government’s CCS competition, which has dragged on farcically for four years. The government says a £1 billion subsidy is still available for new projects, and is due to make a further announcement in November.
The death of Muammar Qaddafi during the fall of Sirte on Thursday marked the end of an era, and there are hopes of a rapid improvement in security and oil production. But history suggests that getting rid of Qaddafi may have been the easy bit. In a note this week, analysts Barclays Capital argued that with no parliament, government or constitution, and with the Libyan military riddled with tribal divisions, the potential for a security and political vacuum remains high.
Qadaffi’s death also makes no difference to the damage suffered by the Libyan oil industry, say the analysts: “the potential loss of reservoir pressure from emergency shutdowns undertaken in February/March does not change with Gaddafi’s death – its extent still needs to be ascertained by the companies as they return to the fields. Some mature Libyan oil fields, such as those of the Sirte basin, require water or natural gas injection to maintain pressure in the reservoir, and that has not been done for over six months and the risk for failure on this front remains high”.
Barclays expects Libyan production, which stood at 1.6 million barrels per day before the revolution, to reach around 500,000 b/d by the end of the year.
Oil
The peak oil brigade is leading us into bad policymaking on energy
It is almost always a mistake to assume you know where energy bills are going. This is especially true for secretaries of state, and energy policy should never be based upon assuming you know what the future will bring. Unfortunately, it is the new conventional wisdom and an assumption prevalent across much of Europe.
Yet Chris Huhne, the British secretary of state for energy and climate change, is pretty sure that oil and gas prices are going ever upwards, that they will be volatile and that a core function of energy policy is to protect British industry and consumers from the consequences. It is a convenient assumption for renewables and nuclear: if the price of fossil fuel is going to get more expensive, then renewables and nuclear will be relatively cheap. Add in energy efficiency, and then it can be predicted that energy bills will fall if these technologies are supported…
There is always a certain wry amusement to be gained from watching an economist trying to explain why oil is not finite, and the rate of supply will not peak. Professor Dieter Helm at first glance is just another, and yet he may actually be stepping slowly backwards into the peakist lobby, although protesting loudly all the way.
As Helm notes, “Energy policy should not be based on assuming we know what the future will bring”. It’s the first of several red herrings. Nobody rational does assume they can know the future, we can only assess the evidence for various probabilities. Policy has to be based upon what presently appears to be most likely to occur, not upon what we would like to occur in defiance of the facts as presently known. At present, a peak of oil supply appears far more likely than not, driven by reduced demand which in turn will be driven by rising prices. The reasons have been presented, for example by UKERC in 2009[1], and at the Energy Institute’s London meeting on Oil Supply and Energy Security last December. Helm attended that day-long meeting for just long enough to present his own paper and leave, without listening to anything else…
Oil reserve volumes are not the problem. Officially, proved oil reserves in the ground today are equivalent to over 40 years of supply at current demand rates. The problem is that the rate of production from most oil fields is in decline, for reasons of basic physics. The total oil output from today’s operating fields is falling by about 4% every year. It isn’t the volume in the ground that matters but the rate at which it can be produced. Production rates could be raised by increased investment in exploration and production, but then the oil would cost more, demand would fall, and the peak would be behind us.
Helm also states, “We are led to believe that the world’s fossil fuel resources are finite and known.” Actually, this being a finite world, fossil fuel resources are finite, as I’m sure he secretly realises. I am not aware of anyone who claims to know the exact quantity of conventional oil on the planet, so that’s another red herring. But geologists do have a good idea about what quantities are most likely, and what quantities are not (and unconventional oil costs more, so it doesn’t fix the problem). More importantly, not knowing the precise quantities of fossil fuel in existence cannot be an excuse to avoid making energy policy decisions, based upon the most probable numbers, any more than our ignorance of the exact state and future trajectory of the nation’s health or finances should prevent government from making NHS or Treasury policy. Our uncertainty of the exact volumes of fossil fuels is blatantly a false argument against an energy policy of which Helm doesn’t approve.
Helm backs slowly into the peak lobby when he notes that the cost of producing oil is rising. It’s the last, expensive, marginal barrel that sets the global price for all oil, and which has now set the stage for shale-sourced oil and gas. He might think about this more. These fuels are not as easy and cheap to extract as conventional oil. Perhaps one day they will be, but only an economist would be prepared to bet the farm on that. On present evidence, shale sources of oil and gas may improve the security of supply but are most unlikely to lower the price. Does Professor Helm think the Minister can logically make any other assumption in setting policy?
Helm then briefly condemns renewable and nuclear energy on the grounds of price, and offers up gas as the logical, cheaper, low-carbon alternative for the next two decades. Clearly he thinks he knows where the gas price is going, but of course that is the precise criticism he levelled at Chris Huhne in his opening paragraph. Nobody knows the future for sure, but no Minister should bet on the lower probabilities. If Helm thinks it’s too expensive to invest in renewable energy, he might want to estimate the future cost of not investing. He’ll find that was the real strength of the Stern review.
1. “Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production”, UK Energy Research Centre, September 2009.
Dr. Richard Miller is an Independent Consultant, and former geochemist for the BP Exploration Department
Oil Rises Before Europe Debt Talks; Libya Says Crude Production Returning
Oil rose, trimming its first weekly loss in three before European leaders meet Oct. 23 to decide on a rescue fund to ease the debt crisis threatening the region’s economy. Brent’s premium narrowed amid speculation that Muammar Qaddafi’s death will increase Libyan crude output.
Futures climbed as much as 0.9 percent after closing yesterday at a one-week low. European governments may deploy as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, two people familiar with discussions said. The death of the former Libyan leader will expedite the return to normal output levels, according to the state-run National Oil Corp…
Gaddafi’s death to hasten return of Libyan oil
Libya’s oil chief said the death of ousted leader Muammar Gaddafi and an end to NATO’S bombing campaign would hasten the return of the OPEC country’s oil to world markets by improving road links and quelling security concerns.
“This will improve transport to fields and we can now concentrate on rebuilding the sector,” the chairman of the National Oil Company (NOC), Nouri Berouin, told Reuters in an interview on Thursday…
BP gets $4 bln from Anadarko for oil spill costs
Anadarko Petroleum Corp will pay BP Plc $4 billion toward clean-up and victim compensation for the Gulf of Mexico oil spill. The amount is less than BP might have won in court, but it softens the blow of overall spill-related costs to the British group.
As part of the settlement announced on Monday, Anadarko also said it will no longer pursue allegations of gross negligence against BP. It is unclear what impact this development will have on the remainder of the morass of litigation pending in federal court in New Orleans, legal experts said…
Oil Trades Near Highest in a Month as Goldman Sees ‘Upside Risk’
Oil traded near the highest price in more a month after Goldman Sachs Group Inc. (GS) cited “upside” potential, countering forecasts for rising U.S. inventories.
Futures were little changed after advancing 2.3 percent yesterday before Energy Department data today that may show supplies climbed 2 million barrels. An industry report that is often a precursor for U.S. stockpiles indicated yesterday that they dropped for a third week. An improving economic outlook in Europe and declining crude supplies may present “a real upside risk” to Brent prices, Goldman Sachs said in a report yesterday…
It’s Official: ‘Age of Shale’ Has Arrived
Shale is rocking the U.S. energy industry to its core.
The technique of cracking open shale rock to release oil and natural gas has spurred hundreds of billions of dollars worth of deals, including Monday’s $4.4 billion proposed purchase of Brigham Exploration Co. by Norway’s Statoil ASA. And it has delivered enormous profits and revenues to those in its midst, including Halliburton Co., which reported a record $6.5 billion in third quarter revenue…
Saudi oil exports see threat from within
The world may have to live on a lot less Saudi Arabian crude towards the end of this decade as rampant internal demand eats into oil exports and the kingdom’s alternative energy plans may prove too little too late.
The top crude exporter is already burning more than 10 percent of its output in power plants on hot summer days. Meanwhile huge fuel subsidies, which have helped sedate Saudi social unrest throughout the Arab Spring, are exacerbating a demand boom that is lapping up the world’s largest oil reserves…
Gas
Vale of Glamorgan refuses fracking gas test drilling
Councillors in the Vale of Glamorgan have unanimously rejected an application to test drill for shale gas in the county.
They said the potential risk of pollution to ground water following a letter from Welsh Water made the application difficult to accept…
Earthquakes along Lancashire coast WERE caused by drilling for gas, experts warn as energy operation is threatened with closure
Controversial gas drilling did cause a series of earthquakes along the Lancashire coastline, a report today confirmed.
Gas company Cuadrilla Resources, which is extracting shale gas in the region, commissioned the independent study after two tremors shook Fylde coastline in April and May this year.
Energy chiefs have now sent a stark warning to the firm – either stop the earthquakes or be shut down…
Renewables
EU 2050 energy road map sees big shift to renewables
The European Union must make a drastic shift from fossil fuels and derive more and more of its power from renewable sources, driving up electricity costs over the next two decades, according to a draft document seen by Reuters on Monday.
The 2050 energy road map to be published by the end of the year complements a 2050 low carbon road map released by the European Commission earlier this year, which seeks to chart a way to reducing carbon emissions by more than 80 percent by the middle of the century…
Analysis: Renewable “gold rush” powers Germany’s north shore
Renewable energy has created a “gold rush” atmosphere in Germany’s depressed north-east, giving the country’s poorhouse good jobs and great promise.
The natural resources attracting investors and industry are of a simple variety: wind, sunshine, agricultural products and farm waste such as liquid manure…
Bird’s-eye view of solar plant that works at night
Sunshine can be turned into electricity at night in this thermosolar plant. Gemasolar, in Fuentes de Andalucía near Seville in Spain, is the first commercial-scale plant to use an innovative “battery” that stores energy as molten salts.
More than 2600 heliostats – flat mirrors – over 185 hectares reflect and concentrate sunlight onto the top of a tower. In the “power tower”, potassium and sodium nitrate salts are heated to 565 °C and then pass through a heat exchanger where they turn water into steam to drive turbines in the 19.9 megawatt plant…
UK
Renewables Obligation review: the winners and losers
First the good news: after years of campaigning for stability, clarity and certainty for green investors, the government’s proposed changes to the Renewables Obligation scheme promise to deliver just that.
It is rare for the renewables industry and green NGOs to be united in their praise of government environmental policy, but the reaction to the launch today of the consultation has been largely, if not universally, positive…
Solar panel subsidy to be slashed
Subsidies for households to install solar panels are about to be slashed by ministers in a controversial move which could make a further dent in the coalition’s green credentials…
Longannet carbon capture project cancelled
A pioneering £1bn state-funded carbon capture and storage (CCS) project at the Longannet power station in Fife has been cancelled, as the government announced that “a decision has been made not to proceed with Longannet but to pursue other projects with the £1bn funding made available by the government.”
Earlier this month, the Guardian revealed that Longannet, the only remaining project in the government’s competition for CCS funding was on the brink of collapse because Scottish Power and its partners, Shell and the National Grid, were concerned about its commercial viability without more public backing…
Thousands of streets left in darkness to save money
Almost three quarters of councils have already reduced street lighting in their area, or are considering doing so.
The blackouts are being rolled across thousands of streets in rural areas, suburbs and city centres in almost every county in the UK, despite concerns from residents and police that the moves will lead to an increase in traffic accidents and crime…
Ofgem vows to crack down on ‘confusing’ energy tariffs
As household bills soar, big-six suppliers may be forced to offer consumers a single no-frills option
Ofgem, the energy regulator, vowed to clamp down on the big-six suppliers yesterday by dismantling the complex system of tariffs that it says stifles competition by confusing customers…
Cameron urges work to bring down energy bills
David Cameron admitted the Government needed to work “harder and faster” to bring down energy bills today ahead of a summit.
The Prime Minister said the meeting at the Department for Business, Innovation and Skills with representatives of the “Big Six” power firms, consumer groups and regulator Ofgem would discuss how to create a “trusted, simple and transparent” market…
Climate
Change needed to avoid ‘dire’ energy future: IEA
The world faces a “dire” future unless a complete change of course is made to deal with the huge problem of surging energy demand, the International Energy Agency warned on Wednesday.
“Unless much stronger action is taken, global energy demand is set to continue on a long term upward trend with fossil fuels accounting for the bulk of the increase,” the IEA said in a statement at the end of a two-day ministerial meeting in Paris…
Companies call for tougher climate action
Leaders of nearly 200 major companies around the world have called for tougher action on climate change.
The 2C Challenge, co-ordinated by the Prince of Wales Corporate Leaders Group, says that climate change puts society’s future prosperity at risk…
