Israel's Gas Dream – The End Is Nigh

In the five years since the discovery of the Tamar and Leviathan natural gas fields off the coast of Israel, the Israeli energy discourse has focused on questions like what to do with the gas, how much of it to export and to whom, and what the fairest distribution of profits would be among the gas partners, headed by Noble Energy and Delek Energy, and the Israeli public.

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But after years of delays and billions of dollars spent, a new and increasingly likely scenario should be considered – the premature – and tragic – death of the Israeli gas dream. I alluded to this option in an August 2013 article titled "Israel's Zero Gas Game" in which I warned that Israel has become so busy dividing the pie that its leaders forgot it must first be baked and that due to the failure of the government to present a clear vision for the country's energy sector, articulate the rights and responsibilities of foreign investors and most importantly set rules and stick to them, "the gas will be left in the ground and the startup nation will be more worthy of the title 'shutdown nation'." Perhaps that sounded crazy at the time. Today, with the decision of the Israeli Anti-Trust Authority to revoke an arrangement permitting Noble-Delek partners to develop Leviathan, declaring them a cartel - a move that will require the separation of Leviathan from Tamar and the sale of Leviathan to a new partnership, effectively postponing the development of Leviathan indefinitely - the scenario of "zero gas" - and perhaps even the withdrawal of Noble from Israel altogether - should be considered seriously.

In deciding to enter Israel Noble has taken a huge financial, regulatory and geopolitical risk. However, the size of the discoveries, the potential of finding oil under the gas layers and the doubling of the company's market capitalization made the move easy to justify to its shareholders. But the Texas company, the only international energy company that was willing to set foot in Israel, was welcomed with no red carpet. Instead it was ushered through a Via Dolorosa of bureaucratic torture which eliminated any chance for gas production before the end of 2018 – ten years from the beginning of exploration. A ten year lead time from discovery to production is a lot to ask of a publicly traded company which has to satisfy quarterly thinking and profit hungry shareholders. But in light of Noble's recent stock performance, dropping from $80 in the summer to $50 today, the decision of the Israeli government provides an impetus to the company's leadership, not to mention the new CEO David Stover, to reconsider the commitment to Israel and begin to seek greener pastures.

There are very few oil and gas companies who have both the experience of drilling in deep waters and the willingness to associate themselves with Israel, especially in light of Noble's experience.

The Israeli government's ruling has huge implications for the future of the region as it means that at best the supply of gas from Leviathan will be delayed into the 2020s. At worst it will not happen at all. The government's concern about a gas monopoly is a legitimate one, especially during an election campaign when issues of cost of living dominate the local political discourse. But its hopes that the hot potato called Leviathan can somehow be sold to new partners require a lot of faith. There are many people with money who may be tempted to buy into a partnership in a 22 trillion cubic feet (tcf) field, but owning a stake in a gas field without an operator at hand is like owning a gold mine on the moon. There are very few oil and gas companies who have both the experience of drilling in deep waters and the willingness to associate themselves with Israel, especially in light of Noble's experience. With falling energy prices worldwide, the chance of a Noble-like operator popping out of nowhere is slim. This means that in its desire to avoid the creation of a monopoly, Israel is taking the risk that Leviathan, the world's largest offshore gas discovery of the past decade, will not be developed for many years to come - if ever. The losers will first and foremost be the Israeli people who will lose not only billions of dollars in tax revenue and the main engine of growth of their economy but also the prospects of securing their energy supply for generations. The scenario is equally bad for Jordan, Egypt and the Palestinian Authority who are counting on Leviathan gas for their economic well-being and which have all signed letters of intent to buy Israeli gas despite local opposition from their respective Israel-hating Islamists. Europe will also be a casualty since a portion of Leviathan was aimed for two LNG terminals in Egypt from where it would have been shipped to European countries aspiring to become less dependent on Russia's gas.

Other than the handful of lawyers who will earn millions litigating the dispute between Noble and the Israeli government in international courts, the biggest winner will be Cyprus. In December 2011 Noble announced the discovery of 7 tcf in a field northwest of Leviathan called Aphrodite (block 12). Other blocks have been opened for bids since attracting interest from a handful of large oil and gas companies including Total of France, Kogas of South Korea, ENI of Italy and Petronas of Malaysia. But with all eyes on Leviathan, Cyprus became an uninteresting side show. This may soon change. Cyprus may not be a paragon of regulatory stability and certainly not an investors' haven and its tense relations with Turkey pose some geopolitical risk, but the fatigue from Israel's energy shenanigans could bring about a shift from Israel to Cyprus as the new center of gravity in the East Mediterranean energy play.

There is no polite way of saying this. Israel's latest decision is tantamount to nationalization of the kind seen in Argentina, Venezuela, Mexico and Russia. All of those governments sugarcoated their decision invoking the need to protect the public interest. The investment community and global oil industry got the message and wrote off those countries. With this miserable decision, Israel has just lodged itself into this notorious club. The price will be paid in spades – and sooner than most Israelis realize. More

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As the map above shows the gas field in offshore Gaza who should be the benefliciaries. Under international law Israel has no legal claim and Gaza most certainly does. I would give Gaza an income to rebuild the infrastracture destroyed by Israel as well as giving them fossil fuel to generate electricity. Editor

 

© 2014

Israel’s looming gas empire requires a final solution in Gaza

“The destruction which I have seen coming here is beyond description,” said UN secretary-general, Ban Ki Moon, after his October tour of the Gaza Strip.

Operation Protective Edge, Israel’s military incursion into Gaza this past summer, wrought an unprecedented level of devastation on the tiny strip of land inhabited by 1.8 million people. The operation had damaged or destroyed over 100,000 homes, affecting more than 600,000 Palestinians - a third of the population.

Mowing the grass

“Basically the town is unliveable,” said Mayor Mohammed al-Kafarna about Beit Hanoun. “There is no power, water or communications. There are not basics for life.” One major sewage pipe serving nearly half a million people had been severed, sending huge quantities of raw sewage into the sea and on fields.

In 2012, a UN report warned that Gaza “will not be liveable by 2020”. The following year, Israel’s tightening of its blockade prompted Filippo Grande, commissioner-general of the UN Works and Relief Agency (UNWRA), to say that “Gaza is quickly becoming uninhabitable.”

Israel’s massive bombardment of Gaza this summer has fast-tracked that outcome. This is no accident. While Israeli officials will not admit it, this strategic goal can be surmised from the statements of those close to key officials in Netanyahu’s administration.

Dismantling Gaza

“The only durable solution,” wrote Martin Sherman in the Jerusalem Post during the summer onslaught, “requires dismantling Gaza, humanitarian relocation of the non-belligerent Arab population, and extension of Israeli sovereignty over the region”: a recipe for ethnic cleansing and colonisation. He complained that the elected Israeli government is constrained by an unelected “left-wing” political discourse wedded to “the two-state concept and the land-for-peace doctrine,” both of which must be rejected.

For Sherman, the current strategy of periodically “mowing the grass” – “a new round of fighting every time the Palestinian violence reaches levels Israel finds unacceptable” – must be replaced by a final solution: “The grass needs to be uprooted – once and for all.”

Sherman is no pariah. On the contrary, his ideas increasingly represent the thinking of senior Israeli cabinet officials. As founding director of the Israel Institute for Strategic Studies (IISS), an initiative dedicated to laying “the foundations of a new assertive Zionist-compliant paradigm,” Sherman’s platform is endorsed by the following key Israeli leaders: Yaakov Amidror, Israel’s national security adviser until 2013; Uzi Landau, minister of tourism and ex-minister for energy; and Moshe Ya’alon, vice prime minister and incumbent defence minister.

Colonisation

These connections reveal critical elements of Israel’s security strategy. Amidror, for instance, has long advocated that Israel directly occupy Gaza “for many years,” to prevent a situation where “Hamas is strengthened into an entity similar to Hezbollah.”

His successor, Yossi Cohen, who presided with Ya’alon over Operation Protective Edge and who has previously served as deputy head of Shin Bet (Israel’s domestic security agency), told Israeli Army Radio that the operation had successfully created conditions that would facilitate the Palestinian Authority’s (PA) return to power in Gaza at Hamas’ expense. Hamas needed to be “demilitarised”, he said.

Israeli foreign minister Avigdor Lieberman agreed: “As long as Hamas controls Gaza, we won’t be able to ensure the safety of Israel's citizens in the South and we won't be able to make a peace agreement.” Earlier during the latest invasion of Gaza, Lieberman recommended that Israel consider re-occupying Gaza to end rocket attacks.

Palestinian statehood: A threat to Israel’s energy hegemony?

Another Sherman endorser, Uzi Landau, who is currently minister of tourism, was minister for energy and water from 2009 to 2013. There he oversaw Israel’s resource policies, especially concerning gas discoveries and export options. In 2011, when the PA was bidding to secure formal UN recognition of Palestinian statehood, Landau told Israeli radio that Israel should unilaterally declare its sovereignty over the Jordan Valley, West Bank settlements, and all of Gaza to head off the bid. He had previously been dispatched by the foreign ministry to Chile, Colombia and Australia to lobby against the PA campaign.

Why would Landau, then energy and water minister, be sent to lobby against Palestinian statehood?

In recent years, Israel had made increasingly significant energy discoveries throwing light on the link. In December 2010, the Texas based energy company Noble energy announced that it had discovered 25 trillion cubic feet of gas in the offshore Leviathan field (downgraded more recently to 17 trillion). This followed the US Geological Survey’s (USGS) assessment earlier in the year of an estimated 122 trillion cubic feet of technically recoverable gas in the Levant basin, encompassing the waters of Israel, Syria, Lebanon, Cyprus and Gaza. This is “bigger than anything we have assessed in the United States,” said a USGS spokesperson at the time.

Landau’s advisers: Israel’s gas could deplete in decades

The new discoveries would turn Israel into a gas-export powerhouse, with potentially transformative implications across the region. But there were potential pitfalls.

In 2012, the chief scientists of Landau’s energy and water ministry warned the government that Israel did not have sufficient gas resources to sustain both exports and domestic demand. Citing a gap of “100 to 150 billion cubic metres between the demand projections that were presented to the committee and the most recent projections,” they said that Israel’s “gas reserves are likely to last even less than 40 years!"

By 2055, the chief scientists argued, even if Israel chose not to export any gas, it would entirely exhaust its offshore reserves. But if Israel exports significant quantities of gas, and if it turns out that much of its gas turns out to be not commercially extractable, then the breaking point could arrive decades earlier. “The more gas we use now, the sooner we'll need to start importing gas or oil or to find alternative technology.”

Landau and his colleagues obviously took the report seriously enough that, according to Ha'aretz, they excluded the report’s findings from the committee determining Israel’s gas export policy.

Threat of war

Complicating matters further, many of the recently discovered oil and gas resources Israel is claiming for itself are in disputed territorial waters where maritime boundaries are not clearly defined.

In the summer of 2010, Landau said that Israel would “not hesitate to use force” to protect its offshore gas discoveries. He was responding to claims that Leviathan’s deposits extend into Lebanon’s territorial waters.

Similarly, two offshore fields that Israel is already exploiting have been claimed by the Palestinian Authority to extend into Gaza's offshore territory – Mari-B, which is near depletion, and Noa North, both of which are being developed by Noble Energy.

Gaza’s gas: The key to peace?

In March 2014, just a few months before the IDF launched Operation Protective Edge in Gaza, the German Marshall Fund of the United States published a policy brief on Israel’s interests in Gaza’s gas fields by Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy (WINEP) in Washington DC. WINEP is notable for its influence amongst US foreign policymakers. Current and former WINEP members have had senior roles in successive US administrations, including Obama's, and its alumni have gone onto serve across various US government agencies on Middle East policy.

Henderon’s policy brief in particular pinpointed the Gaza Marine, where just over 1 trillion cubic feet of gas was discovered by BG Group in 2000. Gaza Marine could supply all of Palestinian power for up to 20 years. Although the election of Hamas in 2006 in Gaza left negotiations over the gas between Israel and the PA at a stalemate, according to Henderson: “In late 2011 and early 2012, there was renewed Israeli interest in devising a way to exploit the natural gas of Gaza Marine.”

International diplomatic interest further increased in 2013, with Quartet Middle East envoy Tony Blair and US secretary of state John Kerry seeing the Gaza Marine as integral to a potential peace package. In October 2013, Israeli officials conceded that the Israeli government was “very supportive” of the project. All this is corroborated by British Foreign Office files released under Freedom of Information.

Israel’s vision for the Gaza Marine includes a range of options. Apart from boosting PA revenues dramatically, “Using Gaza Marine gas may also reduce the need of Israel to consume its own natural gas to generate electricity for the Palestinians,” observed Henderson. “Such usage will also marginally lower Israel’s dependence on fields controlled by the Noble Energy/Delek group, which currently holds the licenses for the Tamar field and all the other Israeli fields likely to come on stream in the next few years.”

Gaza’s gas, Henderson continued, “would be available for transfer into Israel’s natural gas main network, feeding power stations and petrochemicals across the country.” The gas could also be used for Gaza’s power plant, or even to power the West Bank. In the latter case, “the Gaza Marine natural gas would be fed to an Israel power plant to generate electricity. That electricity would then be supplied to the West Bank.”

Gaza’s gas: The key to exports?

But there is another dimension to the strategic significance of the Gaza Marine: Israel’s gas ambitions. This was alluded to by Ariel Ezrahi, senior energy adviser in Tony Blair’s Office of the Quartet Representative in east Jerusalem, who noted that the biggest obstacle to Israel becoming a regional gas exporter is the opposition of domestic Arab populations in Jordan, Egypt, Turkey and elsewhere.

This opposition could, however, be overcome if Israel finds a way to integrate Gaza’s gas into the export equation, so that Arab publics find a way to see gas deals with Israel as acceptable: “… it would be wise for Israel to at least consider the contribution of the Palestinian dimension to these deals,” said Ezrahi. “I think it’s a mistake for Israel to rush into regional agreements without at least considering the Palestinian dimension and how it can contribute to Israeli interests.” Israel should use the Gaza Marine “as an asset as they strive to join the regional power grid, and as a bridge to the Arab world,” by selling Palestinian “gas to various markets,” or promoting a deal with the corporations developing Israel’s “Tamar and Leviathan [fields] that will allow for the sale of cheap gas to the [Palestinian] Authority.”

Hamas: The obstacle

For Israel, the existence of Hamas remains the chief obstacle to any of these scenarios. According to Simon Henderson: “The main challenge to Secretary Kerry’s vision is that the Gaza Marine natural gas field is offshore the Gaza Strip, controlled by Hamas, whose authority is not recognised by the PA, which is based in Ramallah. Additionally, the United States regards Hamas as a terrorist organisation and Washington is therefore legally constrained from cooperating with it.”

In other words, from the perspective of Israeli hawks and the entities of the Quartet - the US, EU, UN and Russia - the fundamental obstacle to both the proposed ‘peace package’ and Israel’s interests in becoming a regional energy hegemony, is the continued existence of Hamas in Gaza.

In 2007, incumbent defence minister Ya’alon advised in an influential policy paper that there was only one way to solve this problem: “It is clear that without an overall military operation to uproot Hamas control of Gaza, no drilling work can take place without the consent of the radical Islamic movement.” Ya’alon is yet another Israeli government official who endorses Martin Sherman’s IISS initiative.

Since then, successive Israeli military operations - including Operation Protective Edge - have aimed at degrading Hamas’ power in Gaza by making the entire civilian population of the strip pay the price. Through excessive military action to devastate Gaza’s critical infrastructure until much of the strip is virtually “uninhabitable,” Israel has successfully accelerated this process.

Strangulating Gaza

Under the new ceasefire agreement with Hamas after the operation, Israel had secured even more Draconian powers to enforce its ongoing siege of Gaza. This included a partial military re-occupation by maintaining a 100 metre buffer zone inside Gaza; a joint Israeli, UN and PA committee to supervise the process for goods being permitted into Gaza; tight monitoring of imports of construction materials, as well as their use inside Gaza, to guarantee they would not be used by Hamas to build ‘terror tunnels’ and weapons; and on the table for discussion, Israel’s top priority was to make the total demilitarisation of Gaza a precondition for reconstruction and rehabilitation.

Under this extraordinary scheme, Gaza will be under constant surveillance by Israeli drones, and the PA-UN supervisory committee will submit all details of homes needing rebuilding to an Israeli database for close monitoring and approval.

Against this context, the decision by the EU General Court to remove Hamas from a list of terrorist groups along with the European Parliament’s new resolution recognising “in principle… Palestinian statehood and the two-state solution,” takes on new meaning.

To move forward, what remains of the aborted Kerry-Quartet vision for ‘peace’ encompassing the exploitation of Gaza’s gas, requires Hamas’s military capabilities – already infinitesimal compared to Israeli’s $15.5 billion military budget – to be degraded to the point of being utterly negligible.

The EU’s latest measures appear designed to incentivize the Palestinians and Hamas to comply with this vision of a pliable, demilitarised Gaza as a step toward a ‘two-state’ solution dominated and controlled by Israel: the carrot. Israel’s threat and use of force to smash Gaza into an uninhabitable no-man’s land, in which the US and the EU are complicit through extensive trade and military aid to Israel, is the stick. More

 

© 2014

Peak Oil Notes December 11 2014

Peak oil notes - Dec 11 - by Tom Whipple,

The drop in oil prices continued this week as US crude stocks increased, OPEC lowered its demand forecast for next year, several OPEC countries reduced their selling prices to Asian customers, and the Saudi Oil Minster reaffirmed his intention to maintain production.

By the close on Wednesday London's Brent was down to $64.24 a barrel and NY futures were at $60.94. London’s close, below $65 a barrel, was the lowest in five years.

The drop in oil prices spread to the equities markets on Wednesday which also saw major losses. Shares in shale-drilling companies have dropped sharply as the drillers revenues have gone down. The financial press is filled with stories about “survival of the fittest” as many anticipate that several of the weaker shale oil drillers will go under unless oil prices revive soon.

The OPEC secretariat announced that the cartel’s production in November was 30.05 million b/d down by 390,000 b/d from October, but this was after the October figure was revised up by 190,000 b/d leaving a net drop of only 200,000 b/d. The secretariat has never had much proprietary information on how much oil its members are producing and is forced to rely on third parties and the press for production numbers. The cartel also reduced its forecast for its demand in 2015 to 28.9 million b/d as compared to demand of 29.4 million b/d this year.

This week's stocks report showed that US refiners are taking advantage of the low crude prices to bump up US oil refining to 16.5 million b/d, the highest level in records going back to 1989. Even with the record refining, US crude stocks increased by an unexpected 1.5 million barrels. All the refining last week left US gasoline inventories up by 8.2 million barrels and distillate inventories up by 5.6 million barrels. US “oil” production rose to 9.1 million b/d last week, the highest since 1983.

Months of steady declines in oil prices have lead to consternation across the world. Although oil importers are celebrating lower gasoline prices and the likelihood that their economies will receive an economic boost, other countries are seeing serious problems ahead as oil revenues drop precipitously and budgets must be slashed. In the US, numerous companies have announced plans to cut back on drilling next year, but in general, prices have fallen so fast that there has not been time to see all the implications of the price drop.

Comments on the current situation and just how low oil prices will go continues unabated. Tom Kloza of the Oil Price Information Service says that $35-$50 a barrel is a possibility next year if OPEC does not reduce production. In this case, average US gasoline prices would be below $2 a barrel. Iran’s President says his country is the victim of a gigantic conspiracy that is causing grave damage to his country’s economy. More

Originally published by ASPO-USA | DEC 11, 2014

 

© 2014

Scientists predict green energy revolution after incredible new graphene discoveries

A recently discovered form of carbon graphite – the material in pencil lead – has turned out to have a completely unexpected property which could revolutionise the development of green energy and electric cars.

Researchers have discovered that graphene allows positively charged hydrogen atoms or protons to pass through it despite being completely impermeable to all other gases, including hydrogen itself.

The implications of the discovery are immense as it could dramatically increase the efficiency of fuel cells, which generate electricity directly from hydrogen, the scientists said.

The breakthrough raises the prospect of extracting hydrogen fuel from air and burning it as a carbon-free source of energy in a fuel cell to produce electricity and water with no damaging waste products.

“In the atmosphere there is a certain amount of hydrogen and this hydrogen will end up on the other side [of graphene] in a reservoir. Then you can use this hydrogen-collected reservoir to burn it in the same fuel cell and make electricity,” said Professor Sir Andrei Geim of Manchester Univeristy.

Ever since its discovery 10 years ago, graphene has astonished scientists. It is the thinnest known material, a million times thinner than human hair, yet more than 200 times stronger than steel, as well as being the world’s best conductor of electricity.

Until now, being permeable to protons was not considered a practical possibility, but an international team of scientists led by Sir Andre, who shares the 2010 Nobel Prize for his work on graphene, has shown that the one-atom thick crystal acts like a chemical filter. It allows the free passage of protons but forms an impenetrable barrier to other atoms and molecules.

“There have been three or four scientific papers before about the theoretical predictions for how easy or how hard it would be for a proton to go through graphene and these calculations give numbers that take billions and billions of years for a proton to go through this same membrane,” Sir Andrei said.

“It’s just so dense an electronic field it just doesn’t let anything through. But it’s a question of numbers, no more than that. This makes a difference between billions of years and a reasonable time for permeation. There is no magic,” he said.

The study, published in the journal Nature, shows that graphene and a similar single-atom material called boron nitride allowed the build-up of protons on one side of a membrane, yet prevented anything else from crossing over into a collecting chamber.

In their scientific paper, the researchers speculate that there could be many applications in the field of hydrogen fuel cells and in technology for collecting hydrogen gas from the atmosphere, which would open up a new source of clean energy.

“It’s really the very first paper on the subject so what we’re doing is really to introduce the material for other experts to think about it,” Sir Andrei said.

“It was difficult not to speculate. If you can pump protons from a hydrogen-containing gas into a chamber that doesn’t contain anything, you start thinking how you can exploit this?” he said.

“One of the possibilities we can imagine, however futuristic, which has to be emphasised because everything has been shown on a small scale, is applying a small electric current across the membrane and pushing hydrogen though the graphene or boron nitrite membrane,” he explained.

“Essentially you pump your fuel from the atmosphere and get electricity out of this fuel, in principle. Before this paper, this wouldn’t even be speculation; it would be science fiction. At least our paper provides a guidance and proof that this kind of device is possible and doesn’t contradict to any known laws of nature,” Sir Andre added.

Graphene: potential uses

Graphene is tough, about 200 times stronger than steel, yet incredibly light. It is considered the first two-dimensional material because it forms sheets of crystal that are just one atom thick.

It is also an excellent conductor of electricity, so is useful for anything involving electronics, such as bendable mobile phones and cameras, and wearable electrical devices attached to clothing.

Medical applications include its possible use as a material for delivering drugs to damaged sites within the body, which could open new avenues for treating patients with brain conditions such as Parkinson’s disease or cancer.

Graphene is also being developed as a new material for membranes involved in separating liquids. It could be used to purify water in the developing world or to create more efficient desalination plants.

Scientists also believe that graphene’s high strength and low weight can be harnessed in the making of new composite materials and polymers for the transport industry, making travel safer and more fuel efficient.

Now, it seems, graphene might also be used to generate new forms of generating clean electricity using hydrogen fuel cells, and even as a technology for harvesting hydrogen fuel from air. More

 

© 2014

Signs of stress must not be ignored, IEA warns in its new World Energy Outlook

Energy sector must tackle longer-term pressure points before they reach breaking point

Events of the last year have increased many of the long-term uncertainties facing the global energy sector, says the International Energy Agency’s (IEA) World Energy Outlook 2014 (WEO-2014). It warns against the risk that current events distract decision makers from recognising and tackling the longer-term signs of stress that are emerging in the energy system.

In the central scenario of WEO-2014, world primary energy demand is 37% higher in 2040, putting more pressure on the global energy system. But this pressure would be even greater if not for efficiency measures that play a vital role in holding back global demand growth. The scenario shows that world demand for two out of the three fossil fuels – coal and oil – essentially reaches a plateau by 2040, although, for both fuels, this global outcome is a result of very different trends across countries. At the same time, renewable energy technologies gain ground rapidly, helped by falling costs and subsidies (estimated at $120 billion in 2013). By 2040, world energy supply is divided into four almost equal parts: low-carbon sources (nuclear and renewables), oil, natural gas and coal.

In an in-depth focus on nuclear power, WEO-2014 sees installed capacity grow by 60% to 2040 in the central scenario, with the increase concentrated heavily in just four countries (China, India, Korea and Russia). Despite this, the share of nuclear power in the global power mix remains well below its historic peak. Nuclear power plays an important strategic role in enhancing energy security for some countries. It also avoids almost four years’ worth of global energy-related carbon-dioxide (CO2) emissions by 2040. However, nuclear power faces major challenges in competitive markets where there are significant market and regulatory risks, and public acceptance remains a critical issue worldwide. Many countries must also make important decisions regarding the almost 200 nuclear reactors due to be retired by 2040, and how to manage the growing volumes of spent nuclear fuel in the absence of permanent disposal facilities.

“As our global energy system grows and transforms, signs of stress continue to emerge,” said IEA Executive Director Maria van der Hoeven. “But renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world’s number one source of electricity generation.”

The report sees a positive outlook for renewables, as they are expected to account for nearly half of the global increase in power generation to 2040, and overtake coal as the leading source of electricity. Wind power accounts for the largest share of growth in renewables-based generation, followed by hydropower and solar technologies. However, as the share of wind and solar PV in the world’s power mix quadruples, their integration becomes more challenging both from a technical and market perspective.

World oil supply rises to 104 million barrels per day (mb/d) in 2040, but hinges critically on investments in the Middle East. As tight oil output in the United States levels off, and non-OPEC supply falls back in the 2020s, the Middle East becomes the major source of supply growth. Growth in world oil demand slows to a near halt by 2040: demand in many of today’s largest consumers either already being in long-term decline by 2040 (the United States, European Union and Japan) or having essentially reached a plateau (China, Russia and Brazil). China overtakes the United States as the largest oil consumer around 2030 but, as its demand growth slows, India emerges as a key driver of growth, as do sub-Saharan Africa, the Middle East and Southeast Asia.

“A well-supplied oil market in the short-term should not disguise the challenges that lie ahead, as the world is set to rely more heavily on a relatively small number of producing countries,” said IEA Chief Economist Fatih Birol. “The apparent breathing space provided by rising output in the Americas over the next decade provides little reassurance, given the long lead times of new upstream projects.”

Demand for gas is more than 50% higher in 2040, and it is the only fossil fuel still growing significantly at that time. The United States remains the largest global gas producer, although production levels off in the late-2030s as shale gas output starts to recede. East Africa emerges alongside Qatar, Australia, North America and others as an important source of liquefied natural gas (LNG), which is an increasingly important tool for gas security. A key uncertainty for gas outside of North America is whether it can be made available at prices that are low enough to be attractive for consumers and yet high enough to incentivise large investments in supply.

While coal is abundant and its supply relatively secure, its future use is constrained by measures to improve efficiency, tackle local pollution and reduce CO2 emissions. Coal demand is 15% higher in 2040 but growth slows to a near halt in the 2020s. Regional trends vary, with demand reaching a peak in China, dropping by one-third in the United States, but continuing to grow in India.

The global energy system continues to face a major energy poverty crisis. In sub-Saharan Africa (the regional focus of WEO-2014), two out of every three people do not have access to electricity, and this is acting as a severe constraint on economic and social development. Meanwhile, costly fossil-fuel consumption subsidies (estimated at $550 billion in 2013) are often intended to help increase energy access, but fail to help those that need it most and discourage investment in efficiency and renewables.

A critical “sign of stress” is the failure to transform the energy system quickly enough to stem the rise in energy-related CO2 emissions (which grow by one-fifth to 2040) and put the world on a path consistent with a long-term global temperature increase of 2°C. In the central scenario, the entire carbon budget allowed under a 2°C climate trajectory is consumed by 2040, highlighting the need for a comprehensive and ambitious agreement at the COP21 meeting in Paris in 2015.

The World Energy Outlook is for sale at the IEA bookshop. Journalists who would like more information should contact ieapressoffice@iea.org.

Download the following resources:

• The WEO-2014 executive summary
• IEA Executive Director Maria van der Hoeven and Chief Economist Fatih Birol's presentation

About the IEA

The International Energy Agency is an autonomous organisation that works to ensure reliable, affordable and clean energy for its 29 member countries and beyond. Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply. While this remains a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative research, statistics, analysis and recommendations.

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© 2014

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.

Russian President Vladimir Putin and Chinese leader Xi Jinping

Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia's Gazprom and China's CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.

"We have reached an understanding in principle concerning the opening of the western route," Putin said. "We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements."

RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.

"First of all these documents stipulate that the "western route" is becoming a priority project for our gas cooperation," Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.

Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas client. More:

Miller, who heads Russia's state-run energy giant, told reporters that "taking into account the increase in deliveries via 'western route,' the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective."

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China's energy giant CNPC to deliver gas to China via the western route pipeline.

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.

The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.

The facts and figures of the Altay deal are broken down in the following map courtesy of RT

Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:

Russia's President Vladimir Putin and China's President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

"Much attention has been paid to the topic of mutual payments in diverse fields ... in yuans which will help to strengthen the yuan as the region's reserve currency," Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: "China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum."

The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on "ongoing regional undertakings"—a reference to TPP and other regional trade deals.

"The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model" for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP "is a battle that we absolutely must win." Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. "How the ITA negotiations proceed is an important and useful data point" on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.

Good luck trying to "increase US leverage with Beijing" using a trade conference being held in Beijing as the venue.

In other words instead of actual trade agreements, the US merely jawboned and "shared visions."

Then again, as noted here since 2010, in a world in which one can merely "print one's way to prosperity", what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world's only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that "world reserve currency." More

 

 

 

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Reducing European Dependence on Russian Gas

Executive Summary

The main finding of this paper is that there is limited scope for significantly reducing overall European dependence on Russian gas before the mid-2020s.

However, countries in the Baltic region and south-eastern Europe which are highly dependent on Russian gas, and hence extremely vulnerable to interruptions, could substantially reduce and even eliminate imports of Russian gas by the early 2020s, by a combination of LNG supplies and pipeline gas from Azerbaijan. Similar measures could reduce (but not eliminate) the dependence of central Europe and Turkey on Russian gas. In the majority of countries, there is limited scope to reduce gas with oil products, and to the extent that it is replaced by coal in power generation carbon emissions will increase significantly.

Up to the mid-2020s, European companies are contractually obliged to import at least 115 bcm/year of Russian gas (approximately 75 per cent of the 2013 import level), a figure which reduces to around 65 bcm by 2030. Even if long-term contracts disappear, our modelling shows a requirement of at least 100 bcm/year of Russian gas up to 2030, and in some scenarios up to twice that volume. The main additional source of non-Russian gas for Europe up to 2030 will be LNG; pipeline gas imports from domestic and other imported sources are not envisaged to increase substantially and may decline. Russian gas deliveries to Europe will be highly competitive with all other pipeline gas and LNG (including US LNG) supplies throughout the period to 2030, and Gazprom's market power to impact European hub prices may be considerable.

Countries with strong geopolitical fears related to Russian gas dependence will need to either terminate, or not renew on expiry, their long-term contracts with Gazprom. This will result in substantial additional infrastructure costs for LNG import terminals and pipeline connections, or investments in alternative energy sources, energy conservation, and efficiency measures.

Whatever the political relationship between Russia, the European Union, and individual European countries, a continued natural gas relationship will be necessary and needs to be carefully managed. The most immediate problems are: a resolution of the Ukrainian transit situation, and a successful conclusion of the EU's regulatory treatment of the South Stream pipeline. Once the immediate crisis has passed, both sides need to discuss the future role of gas in EU energy balances, together with its potential contribution to the EU's ambitious carbon reduction targets. Download PDF

 

 

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World on the brink of oil war as Opec bickers over price

Oil prices ended last week in freefall as the world’s largest group of producers from petro-states in the Middle East dithered over whether to cut output.

A secretive group of the world’s most powerful oil ministers will soon gather in Vienna to take arguably one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 per barrel, or keep open the spigots as winter looms among the biggest energy-consuming nations?

A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump.

Some members, led by Iran, have called for immediate action to stem the drop in oil prices, while the Arab sheikhdoms of the Gulf have so far argued that it could be another three months before it becomes clear whether the group should cut production for the first time since December 2008.

Whatever they decide, oil remains the lifeblood of the global economic system due to its direct impact on inflation and input prices. Brent crude – a global benchmark of oil drawn from 15 fields in the North Sea, dipped last week to multi-year lows below $92 per barrel as a perfect storm of a strong US dollar, oversupply in the system and declining demand shattered confidence in the market. Brent has tumbled 20pc in the last three months after touching $115 per barrel in June.

In the US – the world’s biggest consumer – crude for November delivery at one point last week dropped below the psychologically important $90 pricing level, raising fears that a prolonged slump could put many of America’s shale drillers out of business. Shale oil, which can cost up to $80 per barrel to produce, has spurred an energy revolution in the US, which has started to threaten the dominance of producers in the Middle East.

However, at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable.

Like the situation in the US, falling oil prices are also a double-edged sword for Britain’s economy and investors. Although George Osborne, the Chancellor, is less reliant on tax revenues from the North Sea than some of his predecessors, prices are approaching the point when many of the developments planned offshore west of Shetland by international oil companies could be placed on ice.

A sharp drop-off in domestic oil production and associated tax receipts from the North Sea would give Mr Osborne an unwelcome hole to fill in the government’s public finances heading into next year’s general election. However, falling oil prices will help to keep inflation low.

For Britain’s motorists the current declines have been good news that has trickled through to the price of petrol on forecourts. A litre of unleaded petrol in the UK has fallen a few pence over the past month to an average of around 127.21p on average, a figure last seen in 2011, just before Mr Osborne raised the value added tax on fuel to 20pc, from 17.5pc.

All eyes are now firmly focused on the next move by Opec, which controls 60pc of the world’s oil reserves and about a third of daily physical supply. The group has been branded an unaccountable “cartel” by free-market critics in North America who claim its system of limiting production by setting an output ceiling and quotas is tantamount to price rigging.

Although this is an accusation that the group’s secretariat which is based in Vienna strongly denies, its mostly unelected group of policymaking oil ministers undeniably pull the strings of the global energy industry in the same way that central bankers can control currencies.

Opec states have largely managed to maintain cohesion over the last decade as prices over $100 per barrel have enriched their economies and encouraged adherence to quotas. This consensus is now starting to break down, creating more uncertainty in the market and a potentially destabilising situation for the global economy.

Next month’s meeting promises to be the most tense held since the onset of the Arab Spring in 2010, with the Shi’ite Muslim faction of Iran and Iraq already appearing to line up against Saudi Arabia and the United Arab Emirates (UAE).

Iran’s Oil Minister Bijan Zanganeh has placed his cards on the table early by calling for Opec to urgently cut output to stem the sharp recent decline in prices, which threatens the Islamic Republic’s fragile economy after years of restrictive sanctions.

According to research from Deutsche Bank, Iran has the highest fiscal break-even price for its budget at over $130 per barrel of Brent, compared with the UAE at around $70 per barrel and Saudi Arabia at about $90. More

 

 

© 2014

Solar power could be world's top electricity source by 2050

Solar energy could be the top source of electricity by 2050, aided by plummeting costs of the equipment to generate it, a report from the International Energy Agency (IEA), the West’s energy watchdog, said on Monday.

IEA Reports said solar photovoltaic (PV) systems could generate up to 16% of the world’s electricity by 2050, while solar thermal electricity (STE) - from “concentrating” solar power plants - could provide a further 11%.

“The rapid cost decrease of photovoltaic modules and systems in the last few years has opened new perspectives for using solar energy as a major source of electricity in the coming years and decades,” said IEA Executive Director Maria van der Hoeven.

Solar photovoltaic (PV) panels constitute the fastest-growing renewable energy technology in the world since 2000, although solar is still less than 1% of energy capacity worldwide.

The IEA said PV expansion would be led by China, followed by the United States, while STE could also grow in the United States along with Africa, India and the Middle East. More

 

© 2014

The Peak Oil Crisis: It‘s All Around Us

Ten years ago peak oil was assumed to be a rather straight forward, transparent process. What was then thought of as "oil" production was going to stop growing around the middle of the last decade.

Shortages were going to occur; prices were going to rise; demand was going to drop; economies would falter; and eventually a major economic depression was going to occur. Fortunately or not, depending on your point of view, the last ten years have turned out to a lot more complicated than expected. Production of what is now known as "conventional" oil did indeed peak back around 2005, and many of the phenomena that were expected to result did occur and continue to this day.

Oil prices have climbed several-fold from where they were in the early years of the last decade – surging upwards from $20 a barrel to circa $100. This rapid jump in energy costs did slow many nations’ economies, cut oil consumption, and with some other factors set off a "great" recession. Real economic hardships have not yet occurred

What is so interesting about all this is that a temporary surge in what was heretofore a little known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation

Much of this is due to the reaction that set in from high oil prices and increased government intervention into the economy. In the case of the U.S., Washington turned on the modern day equivalent of the printing presses and began handing out money that was used to develop expensive sources of oil and gas. The high selling price per barrel, coupled with cheap money led to a boom in U.S. oil production where fortuitous geological conditions in North Dakota and South Texas allowed the production of shale oil at money-making prices provided oil prices stay high.

U.S. unconventional oil production soared by some 3.3 million barrels a day (b/d) in the last four years, and, if the US Energy Information Administration is correct, is due to climb by another million b/d or so in 2015. While this jump in production was unexpected by most, it was just another phenomenon resulting from unprecedentedly high oil prices, which in turn resulted from the lack of adequate "conventional" oil production. As is well known, economic development can have major reactions and feedbacks

What is so interesting about all this is that a temporary surge in what was heretofore a little known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation. The simple answer is that except for the U.S. shale oil surge almost no increase in oil production is taking place around the world. No other country as yet has gotten significant amounts of shale oil or gas into production. Russia’s conventional oil production seems to be peaking at present, and its Arctic oil production is still many years, or perhaps even decades, away. Brazilian production is going nowhere at the minute, deepwater production in the Gulf of Mexico is stagnating and the Middle East is busy killing itself. On top of all this, global demand for oil continues to increase by some million b/d each year – most of which is going to Asia.

If we step back and acknowledge that the shale oil phenomenon will be over in a couple of years and that oil production is dropping in the rest of the world, then we have to expect that the remainder of the peak oil story will play out shortly. The impact of shrinking global oil production, which is been on hold for nearly a decade, will appear. Prices will go much higher, this time with lowered expectations that more oil will be produced as prices go higher. The great recession, which has never really gone away for most, will return with renewed vigor and all that it implies.

An additional factor which has grown considerably worse in the last ten years is climate change, largely brought about by the combustion of fossil fuels. We are already seeing global weather anomalies with record high and low temperatures and record floods as well as droughts. This too will take its toll on economic development as mitigating this change will soon become enormously expensive. We are already seeing migrations of restive peoples. Thousands are dying in efforts to get from the Middle East and Africa into the EU. Millions are already homeless across the Middle East and recent developments foretell hundreds of thousands if not millions more being added to ranks of refugees as decades and even centuries-old political arrangements collapse.

All this is telling us that the peak oil crisis we have been watching for the last ten years has not gone away, but is turning out to be a more prolonged event than previous believed. Many do not believe that peak oil is really happening as they read daily of surging oil production and falling oil prices. Rarely do they hear that another shoe has yet to drop and that much worse in terms of oil shortages, higher prices and interrupted economic growth is just ahead.

We are sitting in the eye of the peak oil crisis and few recognize it. Five years from now, it should be apparent to all. More

 

© 2014