Triple Crunch Log Jeremy Leggett

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Triple Crunch Log © Jeremy Leggett

1989 - 1997

1998 - 2005
21st century history

of the triple crunch

…a log compiled by Jeremy Leggett emphasising matters relevant to the energy-, climate-, and financial crises, and issues pertinent to society’s response to this triple crunch
Editor’s note
This log represents one person’s reading experience of the unfolding dramas that most preoccupy him, among the all-too numerous dramas inherent in the human condition. I have compiled it while pursuing a full time day job in a solar energy company, and further part-time roles as a director in a private equity fund (throughout) and trustee of a charity (since 2006). Accordingly, there is far more source material from newspapers than academic journals and books, most of it culled and processed in evenings, weekends, and journeys. I have selectively added references wherever facts or quotes I consider particularly important appear. The frequency of the entries picks up from 2005, at which time it occurred to me for the first time that I might at some point make this log available for use by others. Unless otherwise stated, entries are from newspaper reports published the day after the news event. Magazine and journal reports are on the day of publication, some time (days) after the actual events referred to. Entries from monthlies appear on the first of each month. After the creation of the website (June 2009), references use url format.
boe: barrels of oil equivalent; CCS: Carbon capture and storage; CTL: Coal to liquids; mbd: million barrels per day; mcf: million cubic feet (bn: billion; tn: trillion etc); L: author’s library copy for further detail (either digital or paper); mcm: million cubic metres; oe: oil equivalent; p.a. per annum.
1.1.06. Russia turns off Ukraine’s gas supply in squabble over price, threatening supplies to Europe. Gazprom, the state-owned Russian gas giant, accuses Ukraine of siphoning from the main pipeline to western Europe, and turns off the gas. Ukraine’s Prime Minister denies this, but also says Ukraine has the right to take 15% of the gas as a payment for transit. This crisis has erupted because Gazprom wants to increase the price of gas from $50 to $230 per thousand cubic metres, to bring charges to the former Soviet state in line with exports to the west. Hungary and Poland are the first countries affected.

2.1.06. Russia restores gas supplies to Europe in the face of a blizzard of international protest. Gazprom accuses Ukraine of stealing about $25m worth of gas. Supplies have dropped 40% in Hungary, with sharp drops in Germany, Austria, Poland and Slovakia too. EU buys a quarter of its gas from Gazprom.

13.1.06. US scientists slam Michael Crichton’s global warming novel. Key arguments made in “State of Fear” are demolished one by one.1 (L)

17.1.06. Gazprom deputy Chairman, visiting UK, promises not to turn off European gas. Gazprom plans to provide 20% of UK gas by 2015. Maybe he will try to buy Scottish Power, he says. Gazprom invests $10bn a year.

18.1.06. Six former Administrators of the US EPA call on Bush to impose mandatory greenhouse controls. 5 of them are Republicans.

19.1.06. Kuwait’s reserves are only half those officially stated, Petroleum Intelligence Week reports. Their reporter sees records saying there are only 48 billion barrels of proven and non-proven oil. Official statistics say 99 billion, c. 10% of the global total. Kuwait is the 12th largest producer in the world. Only 24 billion are fully proven (15 in Burgan). PIW says the official figures do not distinguish between proven, probable and possible. 24.1.06: Burgan has produced 28bn barrels in 60 years with only minimal investment in technology. Parliament needs to agree a $8.5 bn investment, called Project Kuwait, in order to double production of the northern fields of Kuwait.

Russia suffers a big freeze and keeps some European gas exports for itself. It is 30C below in Moscow, 20 under the seasonal norm. Hungary’s supplies are 20% down. Electricity to Finland is under threat. Russian business daily headline: “The Country does not have enough gas.” 16.3.06: Gazprom’s output is flat: it’s three biggest fields, Urengoy, Yamburg and Komsomolskoye, are in decline while its export obligations are growing each year. Gazprom, which owns dozens of TV channels, radio stations and newspapers, including Izvestia, is effectively an agent of the state.

29.1.06. Exxon posts biggest corporate profit in history, $31 (£18) billion for 2005. But it only replaced 83% of its reserves in 2004.

30.1.06. Front page headline contrasts energy company profits vs 2.3 m Britons unable to afford gas to heat homes. Meanwhile, the 5 biggest listed energy groups will give as much as $250bn back to shareholders in share buy-backs and dividends in the next three years, according to UBS. BP says it will give back $65 b over 3 years.

30.1.06. Trial of Ken Lay and Jeff Skilling begins.
31.1.06. Iran threatens to use the “oil-supply weapon” if Europe & US continue to pressure their nuclear programme with the threat of sanctions or worse.

Investors with $30 trillion assets ask world’s largest companies to disclose climate-change stance, and report their own emissions. The Carbon Disclosure Project letter now comes from 1,933 companies, up from 500 last year, collectively with $30 trillion under management, up from $20 trillion in 2005, $10 trillion in 2004. Questions to companies include emissions, emissions reduction strategy, risk from weather etc. Even Exxon will have to answer this year’s letter.

1.2.06. President Bush speaks of America’s “oil addiction” in his State of the Union address, and says the habit must be kicked. His goal is to replace 75% of US ME imports by 2025. But his Energy Act involves tens of billions in subsidies, nothing to promote carbon trading, no mention of carbon taxes, and no vehicle fuel economy measures.

OPEC says that the President’s proposal could impact their plans to invest in new production, and so harm the world economy. OPEC ministers and oil lobbyists say they fear a return to ‘70s and ‘80s when billions were invested and the oil price then fell.

2.2.06. Shell posts a UK record corporate profit of $23 billion (£13bn) on $379bn revenues for 2005. Reserves replacement has been 70-80% lately, but will be 100% in 2008, the company says (*It falls short). CEO Jeroen van der Veer says: “The theory of peak oil is correct if you look at easy oil close to markets like west Texas and the North Sea. But think about deep-water drilling, think about the Arctic.”

Venezuela demands oil companies cut reserves reported to the SEC. BP, Chevron and others have been reporting reserves that are ours, they say. Repsol had to cut one quarter of proved reserves (1.25 b barrels) because of threatened law changes in Venezuela, Bolivia and Argentina, plus technical reasons.

5.2.06. NASA climate modeller Jim Hansen says Greenland ice cap could collapse explosively fast. He claims NASA is trying to gag him from making such predictions. Water is pouring down crevasses. The sheet is 3 km thick, and could fail gravitationally as a result of lubrication at the base, Hansen warns. Global sea level could rise 2 m this century and several more next century if it did. Previously scientists had thought the the sheet would melt very slowly, over the next thousand years or so.

7.2.06. BP posts record £11bn profit for 2005. The City is disappointed nonetheless: they expected 19.3bn. BP have replaced their reserves for the 13th successive year.

Sweden announces plans to be world’s first oil-free economy by 2020. The minister of sustainable development announces the government’s plans after work by a committee of industrialists, car makers Saab and Volvo, plus academics, farmers, and civil servants. Renewable energy is now 26% of the energy mix in Sweden. Oil is 32%, down from 77% in 1970. Ethanol will be produced from forestry residues. (Note that Brazil intends 80% transport from ethanol within 5 years).

A majority of American evangelicals lobby Bush for federal legislation on GHG reductions. 86 leaders sign a letter saying “many of us have required considerable convincing before becoming persuaded that climate change is a real problem and that it ought to matter to us as Christians. But now we have seen and heard enough.” Many did not sign. 22 earlier signed a letter saying “global warming is not a consensus issue.” The National Association of Evangelicals has 30 million members.

Mexico’s biggest oilfield, Cantarell - providing 60% of the 3.4 mbd Mexico produceshas peaked. Pemex says this year’s production will fall 6%, but experts fear a collapse within 3 years to a quarter of today’s production. Mexico expropriated foreign companies’ operations in 1938, since when Pemex has been banned from contracting with private operators. Pemex lacks the experience to produce in deep water, and so has little chance of replacing Cantarell with new discoveries.

11.2.06. Two of the largest glaciers in eastern Greenland have doubled their speed over the last decade. Now moving at around 14 km per annum, they drain 10% of Greenland. A glacier in western Greenland was found to be speeding up in this way in 1998.

Greenhouse gases are already past concentration that will trigger disaster, UK scientist calculates. At an expert conference in Exeter, Feb. 2005, the consensus conclusion was that 2C (the level beyond which lies unacceptable danger) would be inevitable at 400 ppm CO2. This puts the “point of return” 10 years away. The CO2 increase pa has been 1.84 ppm, except in the last two years a worrying 3ppm. The 400 ppm in the Exeter conclusions referred to CO2 equivalent (based on a paper presented at Exeter by Malte Meinhausen). We are now at 425 ppm CO2-equivalent, Keith Shine calculates: CO2 at 379 ppm, methane at 40 ppm equivalent and nitrous oxide at 6 ppm equivalent. The Met Office latest best estimate for the temperature change at CO2 doubling (520ppm) is 3.5C (range 2.4 C to 5.4C).

11.2.06. Treasury model for calculating social costs of carbon leaves BP’s £11bn profits as £18bn loss. The New Economics Foundation applies the Treasury model to calculate a £29bn bill for environmental damages. NEF calls for a windfall tax on oil companies earmarked for renewable and decentralized energy investments.

12.2.06. Credit Suisse predicts oil will go above $100 in the next few years, triggering a “frantic” investment in alternatives. Hydro, nuclear, solar and coal will all benefit.

14.2.06. North Sea exploration is hampered by shortage of drilling rigs: all 80 are under contract. Rental prices are going through the roof, and long contracts are being negotiated, penalizing small explorers who have raised money on assumptions of drilling now rendered false.

16.2.06. Fire at UK gas storage facility creates 40% UK gas price surge. Centrica says its Rough facility will stay closed until further notice. 10% of UK supply is stored there.

25.2.06. Terrorists launch an abortive attack on the Abqaiq oil facility. Abqaiq processes about 75% of Saudi oil and most Saudi oil is exported through it. It is the world’s most protected oil installation. 25,000 troops protect the infrastructure not counting air patrols.

1.3.06. Exxon takes out an ad in the New York Times saying “peak production is nowhere in sight.” (Or could have been 2nd). “Theory does not match reality.” See JL Guardian blog 1, 15.3.06.

Antarctica losing c.152 cubic km ice p.a., satellite measurements of gravity changes 2002-5 show. This is equal to 0.4mm p.a. sea-level rise. The range of uncertainty is 72 cubic km on the low side or as high as 232. Thermal sea level expansion is 1.8 mm p.a.

3.3.06 Poll shows huge majorities of both Republicans and Democrats favour renewables spending. 58% of Americans rate “dealing with the nation’s energy problem” a top priority, up from 40% in 2003. “Protecting the environment” as top priority: 57%, up from 39% 2003. 82% favour increased federal spending for research on wind, solar and hydrogen (82% Republican, 77% Democrat, 87% Independent). A majority opposes nuclear: 49% against, 44% for. (Based on Pew Research).

7.3.06. China’s biggest coal company will open the country’s first coal-to-liquids (CTL) plant next year. Shenua Group will produce 1 million tonnes a year in N China. Building began in 2004. Shenua has spent $37m on research. Coal is turned direct into oil, with no crude intermediary. Last week Shenua signed an MoU with Shell to build another CTL plant, in NW China’s Ningxia Autonomous Region.

Brussels proposes big reforms in EU energy policy to safeguard gas supplies, including creation of bloc-wide energy giants. The EC wants more storage, greater liberalisation, a cross border regulator. Questions are being asked of France and Spain as to why they are blocking the creation of the kind of bloc-wide companies that would have enough clout to build interconnectors and compete across the bloc of 25 and target all 450 m customers. (Spain is opposing Eon’s bid for Endesa). But why even talk about a “European gas market” when 23 out of 25 EU countries rely on imports?

9.3.06. Many oil rigs damaged by hurricanes Katrina and Rita are being written off: 17% of total Gulf oil production. 3 refineries are still shut with the driving season looming. 17% is equivalent to 255,000 bd. 4% of gas is also offline, some 400 mcf in all.

13.3.06. The rate of atmospheric carbon dioxide buildup accelerated last year: double the annual rate of increase of 30 yrs ago. CO2 ppm rose 2.6 to 381. This continues a worrying trend in recent years.

Arctic ice cap melts to an all time low, failing to re-form for the second year running. Satellite evidence shows that for the second consecutive winter, the Arctic ice cap has failed to grow back as far as it melted in the summer. The long-term melting trend is now clear, and it will feed on itself. The less bright ice to reflect light, the more dark water to soak the light up, and hence to warm up. This melting, and the amplifying feedback it produces, may be beyond the point of no return, some scientists say.

In freezing conditions recently the UK has been burning so much gas it is in danger of running out. The UK cold snap has boosted gas use just at the time a fire has shut the Rough storage facility, a disused gas field that provides 75% of Britain’s gas storage. The National Grid issued its first-ever “gas balancing warning,” saying that businesses may have to shut down to conserve supplies so that the millions of all-important voters who live in homes aren’t affected. This move quadrupled prices. Our problems of gas supply are all to do with infrastructure and geopolitics. Rough provides only enough storage for 13 days supply. Germany, in contrast, has storage for 75 days and France 66. Geopolitics kicks in whenever someone holds gas that somebody else wants at the end of a pipeline. Netherlands, for example, has plenty of gas, and it sells for a third the price of UK gas. Somehow, in Europe’s liberalised energy markets, not enough gas gets traded down the pipeline under the English Channel to poor old Britain. See JL Guardian blog 2, 17.3.06.

15.3.06. Denmark opens world’s largest carbon-capture-and storage (CCS) power plant. The CASTOR pilot project at Elsam will be zero emissions, storing emissions underground. It is funded by the European Commission.

16.3.06. US Army Corps of Engineers report concludes that approaching oil peak threatens the military. Conclusion: “world oil production is at or near its peak” and major steps are needed in energy efficiency and “massive expansion” of renewables, with a move towards distributed generation, including solar PV, solar thermal, microturbines and biomass.

21.3.06. ING analyst says oil industry profitability may have peaked: frontier exploration and cost of heavy oil infrastructure is too much of a drain. Rates for some drill rigs jumped 250% last year, but the industry tends to plan for inflation on costs at 10% pa.

22.3.06. US study forecasts 1m sea level rise this century. If so, the Thames barrier would be raised 300 days a year. A Univ. Arizona / NCAR study published in Science looks at a time of higher (4-6 m) sea levels 129,000 years ago. Temperatures then were 3-5C warmer. The study concludes half of Greenland and vast areas of Antarctica will melt. A 1m rise this century should be viewed in the context of risk of a tipping point beyond which lies unstoppability. “An Arctic warming of 3 to 5 C is enough to cause 4-6 m of sea level rise” (Prof Jonathan Overpeck of University of Arizona).

26.3.06. Global warming headline on the front page of Time magazine: “Be worried, be very worried.” “Global climate systems are booby trapped with tipping points and feedback loops.” See JL Guardian blogs 3 & 4, 23.3.06 & 4.4.06.

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