Wednesday, February 26, 2014

Richard Branson Launches A Green Energy Plan For The Caribbean

In 1979, when Richard Branson bought the 74-acre Necker Island in the British Virgin Islands, he paid less than $300,000. It was untouched, undeveloped, inhabited only by birds and jungle critters. Back then, no one worried a wit about carbon emissions, ocean acidification, rising sea levels. To bring electricity to his island retreat Branson, like virtually everyone else on the small islands of the Caribbean, installed diesel generators.

Necker Island

As far as fuels go, diesel is hard to beat. It’s easy to transport and contains a lot of energy in a small volume. It’s already ubiquitous in the islands as fuel for boats. And it’s never been cleaner, with U.S. government standards limiting sulfur content to no more than 15 parts per million. For decades, diesel was simply the way to go.

But Branson wants to change that. Because running on diesel means that the cost of electricity on Caribbean islands averages about 50 cents per kwh, about five times what it is on the mainland United States.

In early February, Branson leveraged his star power to convene a three-day meeting of dignitaries from 13 Caribbean nations including the Virgin Island, St. Kitts & Nevis, Turks & Caicos and the Cayman Islands. While enjoying both Necker Island and Branson’s neighboring Moskito Island, they discussed the costs of powering their island homes and the economics of switching over to clean, green renewable energy.

Working with The Carbon War Room (an anti-carbon group he co-founded) as well as the energy experts at the Rocky Mountain Institute, Branson is promoting something called the 10 Island Renewable Challenge. The idea is to get the island nations of the Caribbean to switch away from diesel. The argument is simple: going carbon-free won’t just help keep the air clean and reduce greenhouse gases in the atmosphere — it will save lots of money too.

To help the cause, Carbon War Room and RMI have worked with the World Bank and the U.S. Overseas Private Investment Corporation to earmark $300 million for new renewable energy projects in the islands.

Necker Island will be the first to make that shift. Within three years Branson aims to be using solar and wind, with battery backup, to provide for 80% of Necker’s energy needs, with a long-term goal of 100%. Branson has contracted with NRG EnergyNRG Energy to build Necker’s renewable micro-grid.

“What we hope to do is use Necker as a test island to show how it can be done,” said Branson in a statement. “The only way we’re going to win this war is by creative entrepreneurship.”

Among the world’s CEOs and billionaires, Branson has real environmentalist cred. Sure the founder of Virgin Records, Virgin Airways, and now Virgin Galactic is responsible for millions of tons of carbon emissions over the years. But he’s been trying to make up for it. As early as 2008 his airline flew a Boeing Boeing 747 from London to Amsterdam on a low-carbon fuel made of babassu oil and coconut oil. He’s also a backer of the new solar-powered airplane SolarImpulse.

Jon Creyts, a managing director at the Rocky Mountain Institute, was in attendance at the conference, and shared with the group RMI’s research on just how much sense it makes for the islands to shift from diesel. According to Creyts, when you factor in the costs of fuel, transmission and capital investment, the average cost of electricity in the Caribbean ranges from 32 cents to 65 cents per kwh. That’s as much as five times what the average American pays for electricity. Most of that cost is in the diesel; a 1,000 kw diesel generator running at 100% capacity gulps about 70 gallons in an hour. That equates to .07 gallons per kwh. At current diesel prices in the Virgin Islands of $3.50 per gallon that comes out to 25 cents per kwh in diesel.

Compare that with the U.S. Energy Information Administration’s figures for the all-in costs of other generation methods. Gas turbines can do about 7 cents per kwh, offshore wind 22 cents, and solar photovoltaic 14 cents.

The increased costs of building in isolated locations might add a couple cents per kwh, but overall it’s hard to argue that the islands should stick with diesel. Even before Richard Branson’s new efforts, Aruba had worked with RMI and Carbon War Room to institute a green energy revolution. In recent years Aruba invested $300 million to build a 20-turbine wind farm rated at 30 mw that meets 20% of the island’s power needs. It replaced its old electric turbines with more efficient models, and is building a solar panel park. Since beginning its efforts in 2006 Aruba has reduced its imports of heavy fuel oil from 3,000 barrels per day to 1,700 barrels, saving some $50 million a year.

The U.S. Virgin Islands had taken tentative steps toward solar, signing long-term deals with solar developers to buy power from three systems with peak capacity of 18 mw. That will meet about 18% of the territory’s peak demand. A 20-year deal with Toshiba Toshiba will cost an average of 17 cents per kwh. The islands also require that all new construction use solar power for hot water heating.

It sounds good, but even on the islands, reality is a challenge. According to a study last year by the National Renewable Energy Laboratory, solar developers need an average of 10 acres of land to put up 1 mw of solar panels. That implies that if the U.S. Virgin Islands were to go totally solar and replace its two big oil-burning generators that put out about 100 mw around the clock, they would likely need at least 1,500 acres of land (or roofs) covered in panels, a bunch of wind turbines to provide power at night, plus some sort of ingenious energy storage system smooth out the peaks. That could be doable on St. Croix, which consists of about 53,000 acres and the 1,500-acre Hovensa oil storage terminal on its south side. A 1,100-acre chunk of land adjacent to the terminal is now in process of being cleaned up and redeveloped.

An even better idea for the very long term is for these islands to tap their enormous and endless domestic energy opportunity: geothermal. Most of the islands in the eastern Caribbean were formed by volcanic action. The volcano on Montserrat erupted violently in 1997, killing 19. Because they are located close to the boundaries of two tectonic plates, the islands have plenty of natural volcanic heat that they could tap at relatively shallow depths. Already Iceland Drilling Company, based in the world’s capital of geothermal energy, is reportedly working on exploratory geothermal projects in Dominica and Montserrat. Projects are also being drawn up for Nevis and St. Vincent.

In time each of these islands could be powered by steam turbines running on virtually endless supplies of cheap energy harnessed from the Earth’s own internal furnace.

But solar, wind and geothermal are all expensive. Another part of the challenge, says Creyts, who was a McKinsey consultant before joining RMI, is that most of the Caribbean islands have pretty lackluster credit ratings and not much borrowing capacity. Indeed, Jamaica, St Kitts-Nevis, Grenada, Barbados and Antigua and Barbuda all have public debt loads approaching or surpassing 100% of GDP. That’s why it was so vital to get the World Bank and OPIC on board to help arrange low-cost financing.

There’s no shortage of potential projects for the islands to pursue, with energy-hungry hotels, hospitals and schools offering the lowest-hanging fruit. Naturally, there’s plenty of corporate partners ready to help the islands make the shift. Executives from Philips, Johnson Controls, Sungevity, Vestas and NRG were present at the Necker Island retreat.

There’s some incentive for these island nations to think about moving a little quicker in their renewables plans. Many Caribbean nation’s have joined the PetroCaribe pact created by Venezuela’s late President Hugo Chavez, whereby Venezuela has for years sent them discounted oil. Though Chavez’ successor Nicolas Maduro has continued the oil discounts, there is concern that amid Venezuela’s slow-motion economic collapse the largesse will soon end, forcing the islands to pay more on the world market.

Renewable, carbon-free energy doesn’t yet make economic sense in the most densely inhabited parts of the world that are already well served by reliable energy sources. But islands like these represent a motivated laboratory of energy evolution. In time, the lessons learned in the islands will be ripe for application across the other energy-starved corners of the world. More

 

Monday, February 24, 2014

Kirby McInerney to Lead Brent Crude Manipulation Case

Kirby McInerney LLP was selected to act as lead counsel in litigation over alleged manipulation of Brent crude oil prices despite earlier claims by a rival firm that its lawyers are too inexperienced.

New York-based Kirby McInerney will now control more than a dozen suits alleging some of the world’s biggest oil companies, including BP Plc (BP/), Statoil ASA (STL)and Royal Dutch Shell Plc (RDSA), conspired with Morgan Stanley (MS) and energy traders including Vitol Group to manipulate spot prices for Brent crude for more than a decade. A judge selected the firm today at a hearing in Manhattan federal court, saying its clients had the most particularized allegations in the case.

In December, the law firm challenged allegations that it broke court rules and its attorneys weren’t the best to act as lead class action law firm, a role that includes directing the litigation, assigning tasks to other firms and managing trial strategy or negotiations with the defendants. Lead counsel also usually takes the biggest share of any verdict or settlement.

New York-based Lovell Stewart Halebian Jacobson LLP had alleged that Kirby McInerney broke court rules in filing a sworn declaration with the court under seal. Kirby McInerney also claimed it had Lovell Stewart’s support as lead counsel in litigation over manipulation of the London interbank offered rate, or Libor. More

To contact the reporter on this story: Christie Smythe in Brooklyn atcsmythe1@bloomberg.net

 

Monday, February 17, 2014

Will Water Constrain Our Energy Future?

Energy and water security are crucial to human and economic development. The two resources are now more interconnected than ever -- significant amounts of water are needed in almost all energy generation processes, from generating hydropower, to cooling and other purposes in thermal power plants, to extracting and processing fuels. Conversely, the water sector needs energy – mainly in the form of electricity – to extract, treat and transport water. Both energy and water are used in the production of crops, including those used to generate energy through biofuels.

But energy and water resources are under unprecedented pressure, and there is growing competition for their use from people, industries, ecosystems, and growing economies. As the world’s population reaches 9 billion, demand will require a 50 percent increase in agricultural production and a 15 percent increase in already-strained water withdrawals. By 2035, the world’s energy consumption will increase by 35 percent, which in turn will increase water use by 15 percent and consumption by 85 percent, according to the International Energy Agency.

Climate change will add more uncertainty through increased water variability and more frequent and severe floods and droughts. Energy systems are becoming ever more vulnerable to the impacts of climate change. As temperatures get warmer, so do the rivers and lakes that power plants draw their cooling water from - which makes it harder to generate electricity in the coming decades.

“We cannot meet our global energy goals of extending access to the poor, increasing efficiency and expanding renewables without water. The water energy interrelationship is critical to build resilient as well as efficient, clean energy systems. The time to act is now,” said Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change.

Risks to the energy sector

Water scarcity is already threatening the long-term viability of energy projects worldwide. Last year alone, water shortages shut down thermal power plants in India, decreased energy production in power plants in the United States and threatened hydropower capacity in many countries, including Sri Lanka, China and Brazil. More

 

Saturday, February 8, 2014

Caribbean Islands Agree to Swap Diesel Power for Renewable Sources

Necker Island

Several Caribbean nations committed on Thursday to start replacing diesel generators, the most common means of producing electricity on islands, with renewable sources like wind, solar or the earth’s heat.

Sir Richard Branson

The countries, which have already taken steps toward developing the new energy projects and include St. Lucia, Turks and Caicos and the British Virgin Islands, signed the pact at a multiday meeting organized by the Carbon War Room, a nonprofit organization that Richard Branson, the billionaire founder of the Virgin Group, established to fight climate change.

As part of the effort, Mr. Branson announced on Tuesday a deal with the independent power producer NRG Energy to install solar and wind power on Necker Island, a private enclave he owns, to cover about 80 percent of the power needs. Islands throughout the Caribbean have extremely high electricity costs, and the new renewable projects can help reduce them sharply, he said.

“What we hope to do is use Necker as a test island to show how it can be done,” he said in an interview. “The only way we’re going to win this war is by creative entrepreneurship,” to make the price of clean energy cheaper than that of energy from fossil fuels.

“What we’ve learned in the renewable world is everyone wants to save the world,” said David W. Crane, NRG’s chief executive, “but very few people want to pay more for energy.”

The cluster of nations, like islands elsewhere, have lacked access to low-cost power because of the small size of the market — the British Virgin Islands’ population, for example, is around 31,000 — and a dearth of up-to-date infrastructure and equipment, said José María Figueres, a former president of Costa Rica who is now president of the Carbon War Room. On many islands, he said, a longstanding supplier has a virtual monopoly over the system.

Lynn Tabernacki, managing director of renewable and clean energy programs at the Overseas Private Investment Corporation, said that persuading banks to lend money for energy projects had been a challenge because the projects were often too small or they lacked standardized contracts and regulations. She has been advising developers and government officials to help clear those hurdles.

The effort at the Carbon War Room — which aims to sign up 10 islands looking to move away from diesel without turning to natural gas — started with Aruba.

There, a wind farm is up and running, and more are on the way. There are also plans for solar arrays and experimental storage systems involving underwater compressed air and flywheels, said Peter Lilienthal, chief executive of Homer Energy, a technical adviser to the Caribbean program.

The British Virgin Islands is looking into using waste-to-energy plants and has already started changing streetlights to more efficient LEDs. It has also created a climate change policy and is establishing an environmental trust fund that would be financed by fees or taxes collected from residents and visitors, said Kedrick D. Pickering, deputy premier.

St. Lucia has been testing the use of solar on various buildings, but it also plans to explore wind and geothermal development, said James Fletcher, minister for sustainable development and energy.

“With our economy, with the level of unemployment that we have, if you can create some more green jobs, if you can reduce some of the expenditures that we’re seeing right now, particularly on oil, it would increase the island’s economic competitiveness,” he said,

The Necker Island project still needs the approval of regulators in the British Virgin Islands, but it seeks to establish a microgrid made up of solar, wind and battery technologies. It is also to include energy-efficiency and control software to help reduce overall energy use and balance supply and demand on the grid.

Mr. Crane said NRG would pursue similar projects throughout the Caribbean and, eventually, in the United States once the costs came down.

Mr. Lilienthal said that creating microgrids fueled by renewable energy is still too expensive for most of the United States, but that it made sense for the Caribbean and remote places like Alaska.

“There’s tens of thousands of islands burning diesel fuel that’s really destroying their economies because it’s so expensive,” he said. “This is just the beginning.”

 

Tuesday, February 4, 2014

Cayman's Delegation at Creating Climate Wealth Summit

Hon Marco Archer and Hon Wayne Panton

The Hon Marco Archer, MLA, Minister of Finance & Economic Development and the Hon. Wayne Panton, MLA, Minister of Financial Services, Commerce and Environment at the Carbon War Room's Creating Climate Wealth Summit on Moskito Island, BVI.

The Carbon War Room's Mission states 'Islands face increasing challenges from their dependence on imported fossil fuels, which impacts the prices they pay for everything from electricity to food. This is further complicated by the added demand that tourism places on the island’s resources. Natural energy resources are abundant on islands. However, the systems required to use them have not been widely implemented and scaled.


This lack of implementation is the result of multi-market barriers that islands and technology providers encounter. These multi-market barriers include local permitting, long-term fossil fuel contracts, and other legislative barriers. What is missing is a scaled regional approach to these barriers.
Sir Richard Branson addressing the plenary session

We seek to bridge this gap by working with islands to identify these barriers and create a regional roadmap for making the necessary changes. This roadmap would detail solutions that can attract both private sector investment and aggregated demand for large-scale renewable energy systems. Learn more about our island selection criteria in the background section.

Our finish line has islands rich with renewable energy systems–and with a strong commitment to fast track becoming completely fossil-fuel-free'.

 

Saturday, February 1, 2014

Peak Oil becomes an Issue Again after the IEA Revised its Predictions

Among the big energy stories of 2013, “peak oil” -- the once-popular notion that worldwide oil production would soon reach a maximum level and begin an irreversible decline -- was thoroughly discredited. The explosive development of shale oil and other unconventional fuels in the United States helped put it in its grave.

As the year went on, the eulogies came in fast and furious. “Today, it is probably safe to say we have slayed ‘peak oil’ once and for all, thanks to the combination of new shale oil and gas production techniques,” declared Rob Wile, an energy and economics reporter for Business Insider. Similar comments from energy experts were commonplace, prompting an R.I.P. headline at Time.com announcing, “Peak Oil is Dead.”

Not so fast, though. The present round of eulogies brings to mind the Mark Twain’s famous line: “The reports of my death have been greatly exaggerated.” Before obits for peak oil theory pile up too high, let's take a careful look at these assertions. Fortunately, the International Energy Agency (IEA), the Paris-based research arm of the major industrialized powers, recently did just that -- and the results were unexpected. While not exactly reinstalling peak oil on its throne, it did make clear that much of the talk of a perpetual gusher of American shale oil is greatly exaggerated. The exploitation of those shale reserves may delay the onset of peak oil for a year or so, the agency’s experts noted, but the long-term picture “has not changed much with the arrival of [shale oil].”

The IEA’s take on this subject is especially noteworthy because its assertion only a year earlier that the U.S. would overtake Saudi Arabia as the world’s number one oil producer sparked the “peak oil is dead” deluge in the first place. Writing in the2012 edition of its World Energy Outlook, the agency claimed not only that “the United States is projected to become the largest global oil producer” by around 2020, but also that with U.S. shale production and Canadian tar sands coming online, “North America becomes a net oil exporter around 2030.”

That November 2012 report highlighted the use of advanced production technologies -- notably horizontal drilling and hydraulic fracturing (“fracking”) -- to extract oil and natural gas from once inaccessible rock, especially shale. It also covered the accelerating exploitation of Canada’s bitumen (tar sands or oil sands), another resource previously considered too forbidding to be economical to develop. With the output of these and other “unconventional” fuels set to explode in the years ahead, the report then suggested, the long awaited peak of world oil production could be pushed far into the future.

The release of the 2012 edition of World Energy Outlook triggered a global frenzy of speculative reporting, much of it announcing a new era of American energy abundance. “Saudi America” was the headline over one such hosanna in the Wall Street Journal. Citing the new IEA study, that paper heralded a coming “U.S. energy boom” driven by “technological innovation and risk-taking funded by private capital.” From then on, American energy analysts spoke rapturously of the capabilities of a set of new extractive technologies, especially fracking, to unlock oil and natural gas from hitherto inaccessible shale formations. “This is a real energy revolution,” the Journal crowed.

But that was then. The most recent edition of World Energy Outlook, published this past November, was a lot more circumspect. Yes, shale oil, tar sands, and other unconventional fuels will add to global supplies in the years ahead, and, yes, technology will help prolong the life of petroleum. Nonetheless, it’s easy to forget that we are also witnessing the wholesale depletion of the world’s existing oil fields and so all these increases in shale output must be balanced against declines in conventional production. Under ideal circumstances -- high levels of investment, continuing technological progress, adequate demand and prices -- it might be possible to avert an imminent peak in worldwide production, but as the latest IEA report makes clear, there is no guarantee whatsoever that this will occur.

Inching Toward the Peak

Before plunging deeper into the IEA’s assessment, let’s take a quick look at peak oil theory itself.

As developed in the 1950s by petroleum geologist M. King Hubbert, peak oil theory holds that any individual oil field (or oil-producing country) will experience a high rate of production growth during initial development, when drills are first inserted into a oil-bearing reservoir. Later, growth will slow, as the most readily accessible resources have been drained and a greater reliance has to be placed on less productive deposits. At this point -- usually when about half the resources in the reservoir (or country) have been extracted -- daily output reaches a maximum, or “peak,” level and then begins to subside. Of course, the field or fields will continue to produce even after peaking, but ever more effort and expense will be required to extract what remains. Eventually, the cost of production will exceed the proceeds from sales, and extraction will be terminated.

Related article: Kashagan, Down but not Out

For Hubbert and his followers, the rise and decline of oil fields is an inevitable consequence of natural forces: oil exists in pressurized underground reservoirs and so will be forced up to the surface when a drill is inserted into the ground. However, once a significant share of the resources in that reservoir has been extracted, the field’s pressure will drop and artificial means -- water, gas, or chemical insertion -- will be needed to restore pressure and sustain production. Sooner or later, such means become prohibitively expensive.

Peak oil theory also holds that what is true of an individual field or set of fields is true of the world as a whole. Until about 2005, it did indeed appear that the globe was edging ever closer to a peak in daily oil output, as Hubbert’s followers had long predicted. (He died in 1989.) Several recent developments have, however,raised questions about the accuracy of the theory. In particular, major private oil companies have taken to employing advanced technologies to increase the output of the reservoirs under their control, extending the lifetime of existing fields through the use of what’s called “enhanced oil recovery,” or EOR. They’ve also used new methods to exploit fields once considered inaccessible in places like the Arctic and deep oceanic waters, thereby opening up the possibility of a most un-Hubbertian future.

In developing these new technologies, the privately owned “international oil companies” (IOCs) were seeking to overcome their principal handicap: most of the world’s “easy oil” -- the stuff Hubbert focused on that comes gushing out of the ground whenever a drill is inserted -- has already been consumed or is controlled by state-owned “national oil companies” (NOCs), including Saudi Aramco, the National Iranian Oil Company, and the Kuwait National Petroleum Company, among others. According to the IEA, such state companies control about 80% of the world’s known petroleum reserves, leaving relatively little for the IOCs to exploit.

To increase output from the limited reserves still under their control -- mostly located in North America, the Arctic, and adjacent waters -- the private firms have been working hard to develop techniques to exploit “tough oil.” In this, they have largely succeeded: they are now bringing new petroleum streams into the marketplace and, in doing so, have shaken the foundations of peak oil theory.

Those who say that “peak oil is dead” cite just this combination of factors. By extending the lifetime of existing fields through EOR and adding entire new sources of oil, the global supply can be expanded indefinitely. As a result, they claim, the world possesses a “relatively boundless supply” of oil (and natural gas). This, for instance, was the way Barry Smitherman of the Texas Railroad Commission (which regulates that state’s oil industry) described the global situation at a recent meeting of the Society of Exploration Geophysicists.

Peak Technology

In place of peak oil, then, we have a new theory that as yet has no name but might be called techno-dynamism. There is, this theory holds, no physical limit to the global supply of oil so long as the energy industry is prepared to, and allowed to, apply its technological wizardry to the task of finding and producing more of it. Daniel Yergin, author of the industry classics, The Prize and The Quest, is a key proponent of this theory. He recently summed up the situation this way: “Advances in technology take resources that were not physically accessible and turn them into recoverable reserves.” As a result, he added, “estimates of the total global stock of oil keep growing.”

From this perspective, the world supply of petroleum is essentially boundless. In addition to “conventional” oil -- the sort that comes gushing out of the ground -- the IEA identifies six other potential streams of petroleum liquids: natural gas liquids; tar sands and extra-heavy oil; kerogen oil (petroleum solids derived from shale that must be melted to become usable); shale oil; coal-to-liquids (CTL); andgas-to-liquids (GTL). Together, these “unconventional” streams could theoretically add several trillion barrels of potentially recoverable petroleum to the global supply, conceivably extending the Oil Age hundreds of years into the future (and in the process, via climate change, turning the planet into an uninhabitable desert).

But just as peak oil had serious limitations, so, too, does techno-dynamism. At its core is a belief that rising world oil demand will continue to drive the increasingly costly investments in new technologies required to exploit the remaining hard-to-get petroleum resources. As suggested in the 2013 edition of the IEA’s World Energy Outlook, however, this belief should be treated with considerable skepticism.

Among the principal challenges to the theory are these:

1. Increasing Technology Costs: While the costs of developing a resource normally decline over time as industry gains experience with the technologies involved, Hubbert's law of depletion doesn’t go away. In other words, oil firms invariably develop the easiest “tough oil” resources first, leaving the toughest (and most costly) for later. For example, the exploitation of Canada’s tar sands began with the strip-mining of deposits close to the surface. Because those are becoming exhausted, however, energy firms are now going after deep-underground reserves using far costlier technologies. Likewise, many of the most abundant shale oil deposits in North Dakota have now been depleted, requiring an increasing pace of drilling to maintain production levels. As a result, the IEA reports, the cost of developing new petroleum resources will continually increase: up to $80 per barrel for oil obtained using advanced EOR techniques, $90 per barrel for tar sands and extra-heavy oil, $100 or more for kerogen and Arctic oil, and $110 for CTL and GTL. The market may not, however, be able to sustain levels this high, putting such investments in doubt.

2. Growing Political and Environmental Risk: By definition, tough oil reserves are located in problematic areas. For example, an estimated 13% of the world’s undiscovered oil lies in the Arctic, along with 30% of its untapped natural gas. The environmental risks associated with their exploitation under the worst of weather conditions imaginable will quickly become more evident -- and so, faced with the rising potential for catastrophic spills in a melting Arctic, expect a commensurate increase in political opposition to such drilling. In fact, a recent increase has sparked protests in both Alaska and Russia, including the much-publicized September 2013 attempt by activists from Greenpeace to scale a Russian offshore oil platform -- an action that led to their seizure and arrest by Russian commandos. Similarly, expanded fracking operations have provoked a steady increase in anti-fracking activism. In response to such protests and other factors, oil firms are being forced to adopt increasingly stringent environmental protections, pumping up the cost of production further.

Related article: Buffett Looks at Pipelines after North Dakota Train Wreck

3. Climate-Related Demand Reduction: The techno-optimist outlook assumes that oil demand will keep rising, prompting investors to provide the added funds needed to develop the technologies required. However, as the effects of rampant climate change accelerate, more and more polities are likely to try to impose curbs of one sort or another on oil consumption, suppressing demand -- and so discouraging investment. This is already happening in the United States, where mandated increases in vehicle fuel-efficiency standards are expected to significantly reduce oil consumption. Future “demand destruction” of this sort is bound to impose a downward pressure on oil prices, diminishing the inclination of investors to finance costly new development projects.

Combine these three factors, and it is possible to conceive of a “technology peak” not unlike the peak in oil output originally envisioned by M. King Hubbert. Such a techno-peak is likely to occur when the “easy” sources of “tough” oil have been depleted, opponents of fracking and other objectionable forms of production have imposed strict (and costly) environmental regulations on drilling operations, and global demand has dropped below a level sufficient to justify investment in costly extractive operations. At that point, global oil production will decline even if supplies are “boundless” and technology is still capable of unlocking more oil every year.

Peak Oil Reconsidered

Peak oil theory, as originally conceived by Hubbert and his followers, was largely governed by natural forces. As we have seen, however, these can be overpowered by the application of increasingly sophisticated technology. Reservoirs of energy once considered inaccessible can be brought into production, and others once deemed exhausted can be returned to production; rather than being finite, the world’s petroleum base now appears virtually inexhaustible.

Does this mean that global oil output will continue rising, year after year, without ever reaching a peak? That appears unlikely. What seems far more probable is that we will see a slow tapering of output over the next decade or two as costs of production rise and climate change -- along with opposition to the path chosen by the energy giants -- gains momentum. Eventually, the forces tending to reduce supply will overpower those favoring higher output, and a peak in production will indeed result, even if not due to natural forces alone.

Such an outcome is, in fact, envisioned in one of three possible energy scenariosthe IEA’s mainstream experts lay out in the latest edition of World Energy Outlook. The first assumes no change in government policies over the next 25 years and sees world oil supply rising from 87 to 110 million barrels per day by 2035; the second assumes some effort to curb carbon emissions and so projects output reaching “only” 101 million barrels per day by the end of the survey period.

It’s the third trajectory, the “450 Scenario,” that should raise eyebrows. It assumes that momentum develops for a global drive to keep greenhouse gas emissions below 450 parts per million -- the maximum level at which it might be possible to prevent global average temperatures from rising above 2 degrees Celsius (and so cause catastrophic climate effects). As a result, it foresees a peak in global oil output occurring around 2020 at about 91 million barrels per day, with a decline to 78 million barrels by 2035.

It would be premature to suggest that the “450 Scenario” will be the immediate roadmap for humanity, since it’s clear enough that, for the moment, we are on a highway to hell that combines the IEA’s first two scenarios. Bear in mind, moreover, that many scientists believe a global temperature increase of even 2 degrees Celsius would be enough to produce catastrophic climate effects. But as the effects of climate change become more pronounced in our lives, count on one thing: the clamor for government action will grow more intense, and so eventually we’re likely to see some variation of the 450 Scenario take shape. In the process, the world’s demand for oil will be sharply constricted, eliminating the incentive to invest in costly new production schemes.

The bottom line: global peak oil remains in our future, even if not purely for the reasons given by Hubbert and his followers. With the gradual disappearance of “easy” oil, the major private firms are being forced to exploit increasingly tough, hard-to-reach reserves, thereby driving up the cost of production and potentially discouraging new investment at a time when climate change and environmental activism are on the rise. More

Where would you rather live? In a clean sunny environment?

Or here in the midst of an unhealthy shale oil environment.


 

PV Solar’s Path To 2 Cents Per KWh

Today’s Graph of the Day is a follow-up to our article on Thursday on Trina Solar, and its forecasts for the coming years for the solar PV industry.

One aspect we touched on was the levellised cost of electricity. Trina’s goal is to bring the cost of solar PV down to around 6c/kWh, which it thinks can happen within 5 years. At that price it will be competitive with gas in most countries, coal in some countries, and new build fossil fuels just about everywhere.

But how does it get below that – to say, perhaps, the 2c/kWh mark imagined by solar research leaders such as Eicke Weber, of the Fraunhofer Institute for Solar Energy.

That’s what makes this graph so interesting. It seems to suggest that solar PV will have a natural base at some point. The biggest gains can be made in the efficiency levels. But the other key measure is the cost of manufacturing. Trina’s initial goal is to lift efficiency to an average 20 per cent and reduce the cost of manufacturing by nearly one third.

To get it much below that would require the sort of manufacturing cost reductions that might only be envisaged by the sort of multi-gigawatt plants envisaged by Weber for the EU, or even the 3GW manufacturing complex announced recently by Hanergy - although that is for thin film solar PV.

The other graph points out that even with the savings in modules, it actually only represents less than one quarter of the costs that make up the LCOE of the technology. This graph below illustrates the point – inverters, labour, cables and racking and interconnection costs make up the rest. More