A Take-No-Prisoners World of Oil

It’s evident that we’re still on a planet where oil rules. The question increasingly is: What exactly does it rule over? After all, every barrel of oil that’s burned contributes to a fast-approaching future in which the weather grows hotter and more extreme, droughts and wildfires spread, sea levels rise precipitously, ice continues to melt away in the globe's coldest reaches, and... well, you know that story well enough by now. In the meantime, Planet Earth has a glut of oil on hand and that, it turns out, doesn’t mean -- not for the major oil companies nor even for the major oil states -- that the good times are getting ready to roll.

Of all the powers struggling with that oil glut and the plunging energy prices that have gone with it, none may be more worth watching than Saudi Arabia. While exporting its own extremists and its extreme brand of Islam from Afghanistan to Syria, and lending a decades-long hand to the destabilization of the Greater Middle East, that kingdom has itself been a paragon of stability. Nothing, however, lasts forever, and so keeping an eye on the Saudis is a must. That’s especially so since the latest version of the royal family has also made what might be called the American mistake (with the backing of the Obama administration, no less) and for the first time plunged the Saudi military directly into a typically unwinnable if brutal war in neighboring Yemen.

Combine the destabilizing and blowback effects of wars that won’t end, including the Syrian one, and of oil prices that refuse to rise significantly and, despite the kingdom’s copious money reserves, you have a formula for potential domestic unrest. Already the royals are cutting their domestic subsidies to their own population, pulling billions of dollars in aid out of Lebanon, and exploring a possible $10 billion bank loan.

As TomDispatch’s invaluable energy expert Michael Klare suggests today, when oil prices began plummeting in 2015, the Saudis launched an “oil war of attrition,” imagining that others would be devastated by it (as OPEC partners Nigeria and Venezuela already have been) but that the royals themselves would emerge triumphant.

Should the unimaginable happen, however, and should the kingdom itself begin to come unglued in a Greater Middle East that is increasingly the definition of chaos -- watch out. Tom

Energy Wars of Attrition
The Irony of Oil Abundance
By Michael T. Klare

Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity. The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations. More

© Climate War Room

The collapse of Saudi Arabia is inevitable

On Tuesday 22 September, Middle East Eye broke the story of a senior member of the Saudi royal family calling for a “change” in leadership to fend off the kingdom’s collapse.

Saudi King Salman bin Abdulazi

In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed incumbent King Salman for creating unprecedented problems that endangered the monarchy’s continued survival.

“We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” warned the letter.

Whether or not an internal royal coup is round the corner – and informed observers think such a prospect “fanciful” – the letter’s analysis of Saudi Arabia’s dire predicament is startlingly accurate.

Like many countries in the region before it, Saudi Arabia is on the brink of a perfect storm of interconnected challenges that, if history is anything to judge by, will be the monarchy’s undoing well within the next decade.

Black gold hemorrhage

The biggest elephant in the room is oil. Saudi Arabia’s primary source of revenues, of course, is oil exports. For the last few years, the kingdom has pumped at record levels to sustain production, keeping oil prices low, undermining competing oil producers around the world who cannot afford to stay in business at such tiny profit margins, and paving the way for Saudi petro-dominance.

But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.

This could well underestimate the extent of the problem. According to the Export Land Model (ELM) created by Texas petroleum geologist Jeffrey J Brown and Dr Sam Foucher, the key issue is not oil production alone, but the capacity to translate production into exports against rising rates of domestic consumption.

Brown and Foucher showed that the inflection point to watch out for is when an oil producer can no longer increase the quantity of oil sales abroad because of the need to meet rising domestic energy demand.

In 2008, they found that Saudi net oil exports had already begun declining as of 2006. They forecast that this trend would continue.

They were right. From 2005 to 2015, Saudi net exports have experienced an annual decline rate of 1.4 percent, within the range predicted by Brown and Foucher. A report by Citigroup recently predicted that net exports would plummet to zero in the next 15 years.

From riches to rags

This means that Saudi state revenues, 80 percent of which come from oil sales, are heading downwards, terminally.

Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5 percent over the last five years – driven largely by population growth.

The total Saudi population is estimated to grow from 29 million people today to 37 million by 2030. As demographic expansion absorbs Saudi Arabia’s energy production, the next decade is therefore likely to see the country’s oil exporting capacity ever more constrained.

Renewable energy is one avenue which Saudi Arabia has tried to invest in to wean domestic demand off oil dependence, hoping to free up capacity for oil sales abroad, thus maintaining revenues.

But earlier this year, the strain on the kingdom’s finances began to show when it announced an eight-year delay to its $109 billion solar programme, which was supposed to produce a third of the nation’s electricity by 2032.

State revenues also have been hit through blowback from the kingdom’s own short-sighted strategy to undermine competing oil producers. As I previously reported, Saudi Arabia has maintained high production levels precisely to keep global oil prices low, making new ventures unprofitable for rivals such as the US shale gas industry and other OPEC producers.

The Saudi treasury has not escaped the fall-out from the resulting oil profit squeeze – but the idea was that the kingdom’s significant financial reserves would allow it to weather the storm until its rivals are forced out of the market, unable to cope with the chronic lack of profitability.

That hasn’t quite happened yet. In the meantime, Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from their August 2014 peak of $737 billion to $672bn in May – falling by about $12bn a month.

At this rate, by late 2018, the kingdom’s reserves could deplete as low as $200bn, an eventuality that would likely be anticipated by markets much earlier, triggering capital flight.

To make up for this prospect, King Salman’s approach has been to accelerate borrowing. What happens when over the next few years reserves deplete, debt increases, while oil revenues remain strained?

As with autocratic regimes like Egypt, Syria and Yemen – all of which are facing various degrees of domestic unrest – one of the first expenditures to slash in hard times will be lavish domestic subsidies. In the former countries, successive subsidy reductions responding to the impacts of rocketing food and oil prices fed directly into the grievances that generated the “Arab Spring” uprisings.

Saudi Arabia’s oil wealth, and its unique ability to maintain generous subsidies for oil, housing, food and other consumer items, plays a major role in fending off that risk of civil unrest. Energy subsidies alone make up about a fifth of Saudi’s gross domestic product.

Pressure points

As revenues are increasingly strained, the kingdom’s capacity to keep a lid on rising domestic dissent will falter, as has already happened in countries across the region.

About a quarter of the Saudi population lives in poverty. Unemployment is at about 12 percent, and affects mostly young people – 30 percent of whom are unemployed.

Climate change is pitched to heighten the country’s economic problems, especially in relation to food and water.

Like many countries in the region, Saudi Arabia is already experiencing the effects of climate change in the form of stronger warming temperatures in the interior, and vast areas of rainfall deficits in the north. By 2040, average temperatures are expected to be higher than the global average, and could increase by as much as 4 degrees Celsius, while rain reductions could worsen.

This would be accompanied by more extreme weather events, like the 2010 Jeddah flooding caused by a year’s worth of rain occurring within the course of just four hours. The combination could dramatically impact agricultural productivity, which is already facing challenges from overgrazing and unsustainable industrial agricultural practices leading to accelerated desertification.

In any case, 80 percent of Saudi Arabia’s food requirements are purchased through heavily subsidised imports, meaning that without the protection of those subsidies, the country would be heavily impacted by fluctuations in global food prices.

“Saudi Arabia is particularly vulnerable to climate change as most of its ecosystems are sensitive, its renewable water resources are limited and its economy remains highly dependent on fossil fuel exports, while significant demographic pressures continue to affect the government’s ability to provide for the needs of its population,” concluded a UN Food & Agricultural Organisation (FAO) report in 2010.

The kingdom is one of the most water scarce in the world, at 98 cubic metres per inhabitant per year. Most water withdrawal is from groundwater, 57 percent of which is non-renewable, and 88 percent of which goes to agriculture. In addition, desalination plants meet about 70 percent of the kingdom’s domestic water supplies.

But desalination is very energy intensive, accounting for more than half of domestic oil consumption. As oil exports run down, along with state revenues, while domestic consumption increases, the kingdom’s ability to use desalination to meet its water needs will decrease.

End of the road

In Iraq, Syria, Yemen and Egypt, civil unrest and all-out war can be traced back to the devastating impact of declining state power in the context of climate-induced droughts, agricultural decline, and rapid oil depletion.

Yet the Saudi government has decided that rather than learning lessons from the hubris of its neighbours, it won’t wait for war to come home – but will readily export war in the region in a madcap bid to extend its geopolitical hegemony and prolong its petro-dominance.

Unfortunately, these actions are symptomatic of the fundamental delusion that has prevented all these regimes from responding rationally to the Crisis of Civilization that is unravelling the ground from beneath their feet. That delusion consists of an unwavering, fundamentalist faith: that more business-as-usual will solve the problems created by business-as-usual.

Like many of its neighbours, such deep-rooted structural realities mean that Saudi Arabia is indeed on the brink of protracted state failure, a process likely to take-off in the next few years, becoming truly obvious well within a decade.

Sadly, those few members of the royal family who think they can save their kingdom from its inevitable demise by a bit of experimental regime-rotation are no less deluded than those they seek to remove.

- Nafeez Ahmed PhD

 

©

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

Why Peak Oil Refuses To Die

Perhaps you’ve seen one of the recent barrage of articles claiming that fears of an imminent peak and decline in world oil production have either been dispelled (because we actually have plenty of oil) or are misplaced (because climate change is the only environmental problem we should be concerned with). I’m not buying either argument.

Richard Heinberg

Why? Let’s start with the common assertion that oil supplies are sufficiently abundant so that a peak in production is many years or decades away. Everyone agrees that planet Earth still holds plenty of petroleum or petroleum-like resources: that’s the kernel of truth at the heart of most attempted peak-oil debunkery. However, extracting and delivering those resources at an affordable price is becoming a bigger challenge year by year. For the oil industry, costs of production have rocketed; they’re currently soaring at a rate of about 10 percent annually. Producers need very high oil prices to justify going after the resources that remain—tight oil from source rocks, Arctic oil, ultra-deepwater oil, and bitumen. But oil prices have already risen to the point where many users of petroleum just can’t afford to pay more. The US economyhas a habit of responding to oil price hikes by swooning into recession, and during the shift from $20 per barrel oil to $100 per barrel oil (which occurred between 2002 and 2011), the economies of most industrialized countries began to shudder and stall. What would be their response to a sustained oil price of $150 or $200? We may never know: it remains to be seen whether the world can afford to pay what will be required for oil producers to continue wresting liquid hydrocarbons from the ground at current rates. While industry apologists who choose to focus only on the abundance of remaining petroleum resources claim that peak oil is rubbish, the market is telling Houston we have a problem.

Meanwhile some environmentalists have abandoned the subject of peak oil because they believe it’s just not relevant. For them, climate change is the only thing that matters. Society must deal with its collective carbon habit by going cold turkey on all fossil fuels. We can make the needed energy transition through the strategies of substitution and efficiency. Develop low-carbon energy sources (solar and wind, possibly nuclear), and use energy smarter! Electrify transport with battery-powered cars! Get with the program and stop wasting time on side issues!

Like the abundant-resource argument, this line of thinking proceeds from an unassailable premise. Anthropogenic climate change is indeed the nastiest, gnarliest environmental issue humanity has ever faced. The potential consequences stretch centuries or millennia into the future and imperil not just humanity, but thousands or millions of other species. But peak oil won’t go away just because it’s an inconvenient distraction from addressing that gargantuan issue. In fact, the two problems are closely linked and society will need to address both by way of a realistic, comprehensive strategy. I’ll get back to that point toward the end of this essay.

Is the necessary transition to renewable energy a simple matter of politics and regulation, as many climate campaigners seem to suggest? Hardly. Transitioning the electricity sector is a huge task in itself (the variability of wind and solar power implies soaring costs for energy storage, capacity redundancy, and grid upgrades once these sources start to provide a substantial portion of total electrical energy consumed). But liquid fuels pose an even bigger hurdle. Even the most advanced batteries do a poor job of storing energy when compared to oil; that’s why we’re unlikely ever to see electric airplanes, tractors, ships, 18-wheel trucks, or bulldozers. Some energy pundits tout compressed natural gas as a viable bridge fuel for transport, but that assumes sufficient availability and continued affordability of fracked shale gas—a prospect that seems highly unlikely in view of the results of Post Carbon Institute’s ongoing research into possible shale gas drilling locations and per-well production profiles. Hydrogen could be a niche fuel in some instances, but conversion from other energy sources (electricity or natural gas) to hydrogen implies energy losses, as does hydrogen storage. Further, if we were to make lots of H2 from water, using electricity, in order to fuel much of the transport sector, this would place an enormous extra burden on solar and wind, which already face a daunting job replacing coal and natural gas in the power generation sector.

How about energy efficiency? Good idea! We need to cut energy waste, and the folks at Rocky Mountain Institute have proposed many good ways of doing that. But, at the end of the day, efficiency is subject to the law of diminishing returns; so, while the tie between energy consumption and economic output is somewhat elastic, it cannot be severed. Specifically regarding oil: yes, many nations have reduced petroleum consumption in the last few years as a way of adapting to higher prices. But the fact that their economies have weakened suggests that efficiency gains have tended to lag behind oil price increases. Average vehicle fuel economy has improved, but not fast enough—so our main “efficiency” strategy has in reality simply been to travel less, and then deal with the withdrawal of economic benefits that cheap transport formerly provided.

None of this is trivial: oil is essential to the functioning of the modern industrial world. We use it for just about all transportation, which is key to trade. It’s also the fuel for construction, resource extraction (mining, fishing, forestry), and agriculture. Together, these sectors form the backbone of the real, physical economy of industrialized nations.

Again: the costs of oil production are rising and oil is stubbornly hard to substitute. As I argued in a recent book, this effectively spells the end of the historic period of rapid economic growth that began shortly after World War II. There is no way out; inevitably, society will become less mobile and—this should be cause for much greater concern—it will either produce less food or produce it in more labor-intensive ways.

Of course, peak oil and climate change aren’t the only looming challenges we should be concerned about. Economists rightly worry that the world is mired in far too much debt. Ecologists warn us about biodiversity loss, pervasive chemical pollution, and human overpopulation. Food system analysts try (usually in vain) to direct public attention toward the predicaments of topsoil degradation and depletion of aquifers from over-irrigation. Public health professionals caution us about the specter of pandemics as antibiotics lose effectiveness due to rapid microbial evolution. For city managers, the crumbling of water, sewerage, bridge, gas, and electricity grid infrastructure implies countless disasters just waiting to happen. I could go on. It’s all so overwhelming! Perhaps the only way to avoid crisis fatigue these days is simply to stop paying attention. But amid all these priorities and problems, peak oil refuses to die.

Those of us who insist on paying attention sooner or later get around to doing a form of mental triage. What are the worst crises that humanity faces over the long run? Which are the worst in the short term? What are the deeper issues, of which many problems are mere symptoms? This sorting process has led many systems thinkers to the conclusion that our species, in essence, faces an ecological dilemma of overpopulation, resource depletion, and environmental degradation resulting from a relatively brief period of rapid expansion enabled by a huge but temporary energy subsidy in the form of fossil fuels. We discovered buried treasure and went on a spending binge, adopting a way of life that cannot be supported long-term. Peak oil, climate change, mineral depletion, soil degradation, species loss, and the rest are justwords that blind men use to describe an elephant.

What we must do now is treat symptoms while keeping in mind the root disease, seeing why and how various crises are related. I have a couple of suggestions in this regard. One is that we begin to speak of peak oil and climate change as two sides of the same coin. The coin itself represents our reliance on fossil fuels and their unique energetic benefits. Both side-problems (the declining economic value of fossil fuels as they deplete, on one side, and the increasing environmental cost of burning them, on the other) demand that we reduce our fossil fuel dependency as rapidly as possible, even though that means sacrificing benefits we have come to depend on. If we maintain this holistic view of the situation, we’re more likely to understand that there is no way to keep eating our cake while having it too, either by continuing to burn fossil fuels of declining quality or by relying on new technology to fix what is actually an ecological problem. We can’t frack our way back to economic prosperity; nor can we unplug a coal plant, plug in a solar panel, and go on expanding population and consumption. We will have to adapt to the quantities and qualities of energy that are actually available from renewable sources alone, and that will mean changing the way we do just about everything.

Which brings me to the second, related suggestion. The constellation of challenges before us ensures that economic growth, as we have known it, is over, finished, kaput. That’s a terrible thing, in that the end of growth will almost certainly entail financial and political turbulence with real human casualties. But from the standpoint of diagnosis and treatment, it simplifies everything marvelously. If our impending crises stem from fossil-fueled expansion of population and consumption, their resolution surely starts with a coordinated, planned, and managed program of decarbonization and degrowth. We must reduce population and energy consumption from fossil fuels, while minimizing the human and environmental impacts of both past growth and the process of contraction. Easily said, not so easily done. But if civilization is to maintain itself in any recognizable form, this is what’s necessary. It would really help if those of us working at treating the various symptoms of the global meta-crisistogether acknowledged that growth is a core part of the underlying problem, not a solution, and that it is effectively over in any case.

Ignore peak oil (this could equally be said of climate change), and our view of the global problem-set immediately becomes distorted. We grasp at apparent solutions that turn out to be a useless waste of effort, or worse. Peak oil helps us understand what we’re faced with, and what we must do. It’s a gift wrapped in a curse. And it refuses to go away no matter how often it is pronounced dead.

By. Richard Heinberg

 

© 2014

Energy Efficiency Simply Makes Sense

What simple tool offers the entire world an extended energy supply, increased energy security, lower carbon emissions, cleaner air and extra time to mitigate climate change? Energy efficiency. What’s more, higher efficiency can avoid infrastructure investment, cut energy bills, improve health, increase competitiveness and enhance consumer welfare — all while more than paying for itself.

Maria van der Hoeven - IEA

The challenge is getting governments, industry and citizens to take the first steps towards making these savings in energy and money.

The International Energy Agency (IEA) has long spearheaded a global move toward improved energy efficiency policy and technology in buildings, appliances, transport and industry, as well as end-use applications such as lighting. That’s because the core of our mandate is energy security — the uninterrupted availability of energy at an affordable price. Greater efficiency is a principal way to strengthen that security: it reduces reliance on energy supply, especially imports, for economic growth; mitigates threats to energy security from climate change; and lessens the global economy’s exposure to disruptions in fossil fuel supply.

In short, energy efficiency makes sense.

In 2006, the IEA presented to the Group of Eight leading industrialized nations its 25 energy efficiency recommendations, which identify best practice and policy approaches to realize the full potential of energy efficiency for our member countries. Every two years, the Agency reports on the gains made by member countries, and today we are working with a growing number of international organizations, including the European Bank for Reconstruction and Development, the Asian Development Bank and the German sustainable development cooperation services provider GIZ.

The opportunities of this “invisible fuel” are many and rich. More than half of the potential savings in industry and a whopping 80 percent of opportunities in the buildings sector worldwide remain untouched. The 25 recommendations, if adopted fully by all 28 IEA members, would save $1 trillion in annual energy costs as well as deliver incalculable security benefits in terms of energy supply and environmental protection.

Achieving even a small fraction of those gains does not require new technological breakthroughs or ruinous capital outlays: the know-how exists, and the investments generate positive returns in fuel savings and increased economic growth. What is required is foresight, patience, changed habits and the removal of the barriers to implementation of measures that are economically viable. For instance, as the World Energy Outlook 2012 demonstrates, investing less than $12 trillion in more energy-efficient technologies would not only quickly pay for itself through reduced energy costs, it would also increase cumulative economic output to 2035 by $18 trillion worldwide.

While current efforts come nowhere close to realizing the full benefits that efficiency offers, some countries are taking big steps forward. Members of the European Union have pledged to cut energy demand by 20 percent by 2020, while Japan plans to trim its electricity consumption 10 percent by 2030. China is committed to reducing the amount of energy needed for each unit of gross domestic product by 16 percent in the next two years. The United States has leaped to the forefront in transportation efficiency standards with new fuel economy rules that could more than double vehicle fuel consumption.

Such transitions entail challenges for policy, and experience shows that government and the private sector must work together to achieve the sustainability goals that societies demand, learning what works and what does not, and following the right path to optimal deployment of technology. Looking forward, energy efficiency will play a vital role in the transition to the secure and sustainable energy future that we all seek. The most secure energy is the barrel or megawatt we never have to use.

Maria van der Hoeven is the Executive Director of the International Energy Agency, an autonomous organization which works to ensure reliable, affordable and clean energy for its 28 member countries and beyond. This commentary appeared first this month in IEA Energy, the Agency’s journal.

 

© 2014

Major Companies Push for More, Easier Renewable Energy

Some of the largest companies in the United States have banded together to call for a substantial increase in the production of renewable electricity, as well as for more simplicity in purchasing large blocs of green energy.

A dozen U.S-based companies, most of which operate globally, say they want to significantly step up the amount of renewable energy they use, but warn that production levels remain too low and procurement remains too complex. The 12 companies have now put forward a set of principles aimed at helping to "facilitate progress on these challenges" and lead to a broader shift in the market.

"We would like our efforts to result in new renewable power generation," the Corporate Renewable Energy Buyers’ Principles, released Friday, state. The companies note "our desire to promote new projects, ensure our purchases add new capacity to the system, and that we buy the most cost-competitive renewable energy products."

The principles consist of six broad reforms, aimed at broadening and strengthening the renewable energy marketplace. Companies want more choice in their procurement options, greater cost competitiveness between renewable and traditional power sources, and "simplified processes, contracts and financing" around the long-term purchase of renewables.

Founding signatories to the principles, which were shepherded by civil society, include manufacturers and consumer goods companies (General Motors, Johnson & Johnson, Mars, Proctor & Gamble), tech giants (Facebook, HP, Intel, Sprint) and major retailers (Walmart, the outdoor-goods store REI).

These 12 companies combined have renewable energy consumption targets of more than eight million megawatt hours of energy through the end of this decade, according to organisers. Yet the new principles, meant to guide policy discussions, have come about due to frustration over the inability of the U.S. renewables market to keep up with spiking demand.

"The problem these companies are seeing is that they’re paying too much, even though they know that cost-effective renewable energy is available. These companies are used to having choices," Marty Spitzer, director of U.S. climate policy at the World Wildlife Fund (WWF), a conservation and advocacy group that helped to spearhead the principles, told IPS.

WWF was joined in the initiative by the World Resources Institute and the Rocky Mountain Institute, both think tanks that focus on issues of energy and sustainability.

"The companies have also recognised that it’s often very difficult to procure renewables and bring them to their facilities," Spitzer continues. "While most of them didn’t think of it this way at first, they’ve now realised that they have been experiencing a lot of the same problems."

‘Too difficult’

In recent years, nearly two-thirds of big U.S. businesses have created explicit policies around climate goals and renewable energy usage, according to WWF. While there is increasing political and public compunction behind these new policies, a primary goal remains simple cost-cutting and long-term efficiencies.

"A significant part of the value to us from renewable energy is the ability to lock in energy price certainty and avoid fuel price volatility," the principles note.

In part due to political deadlock in Washington, particularly around issues of climate and energy, renewable production in the United States remains too low to keep up with this corporate demand. According to the U.S. government, only around 13 percent of domestic energy production last year was from renewable sources.

Accessing even that small portion of the market remains unwieldy.

"We know cost-competitive renewable energy exists but the problem is that it is way too difficult for most companies to buy," Amy Hargroves, director of corporate responsibility and sustainability for Sprint, a telecommunications company, said in a statement.

"Very few companies have the knowledge and resources to purchase renewable energy given today’s very limited and complex options. Our hope is that by identifying the commonalities among large buyers, the principles will catalyse market changes that will help make renewables more affordable and accessible for all companies."

One of the most far-reaching sustainability commitments has come from the world’s largest retailer, Walmart. A decade ago, the company set an "aspirational" goal for itself, to be supplied completely by renewable energy.

Last year, it created a more specific goal aimed at helping to grow the global market for renewables, pledging to drive the production or procurement of seven billion kilowatt hours of renewable energy globally by the end of 2020, a sixfold increase over 2010. (The company is also working to increase the energy efficiency of its stores by 20 percent over this timeframe.)

While the company has since become a leader in terms of installing solar and wind projects at its stores and properties, it has experienced frustrations in trying to make long-term bulk purchases of renewable electricity from U.S. utilities.

"The way we finance is important … cost-competitiveness is very important, as is access to longer-term contracts," David Ozment, senior director of energy at Walmart, told IPS. "We like to use power-purchase agreements to finance our renewable energy projects, but currently only around half of the states in the U.S. allow for these arrangements."

Given Walmart’s size and scale, Ozment says the company is regularly asked by suppliers, regulators and utilities about what it is looking for in power procurement. The new principles, he says, offer a strong answer, providing direction as well as flexibility for whatever compulsion is driving a particular company’s energy choices, whether "efficiency, conservation or greenhouse gas impact".

"We’ve seen the price of solar drop dramatically over the past five years, and we hope our participation helped in that," he says. "Now, these new principles will hopefully create the scale to continue to drop the cost of renewables and make them more affordable for everyone."

Internationally applicable

Ozment is also clear that the new principles need not apply only to U.S. operations, noting that the principles "dovetail" with what Walmart is already doing internationally.

In an e-mail, a representative for Intel, the computer chip manufacturer, likewise told IPS that the company is "interested in promoting renewables markets in countries where we have significant operations … at a high level, the need to make renewables both more abundant and easier to access applies outside the U.S."

For his part, WWF’s Spitzer says that just one of the principles is specific to the U.S. regulatory context.

"Many other countries have their own instruments on renewable production," he says, "but five out of these six principles are relevant and perfectly appropriate internationally."

Meanwhile, both the principles and their signatories remain open-ended. Spitzer says that just since Friday he’s heard from additional companies interested in adding their support. More

 

 

© 2014

IEA says ‘peak oil demand’ could hit as early as 2020

Little more that a year after the International Energy Agency added its voice to the chorus chiming that peak oil was dead, a new report from the uconservative adviser to industrialised nations suggests it has changed its tune. Only this time it is not peak supply that is on its radar, but peak demand.

The IEA’s Medium-Term Oil Market Report 2014 has predicted that global growth in oil demand may start to slow down as soon as the end of this decade, due to environmental concerns and cheaper alternatives, and despite boosting its 2014 forecast of global demand by 960,000 barrels per day.

While supply is forecast to remain strong – thanks largely to the unconventional, or “tight” oil revolution currently underway in north America – the IEA says it expects the global market to hit an “inflexion point”, by the end of 2019, “after which demand growth may start to decelerate due to high oil prices, environmental concerns and cheaper fuel alternatives.”

These factors, says the report, will lead to fuel-switching away from oil, as well as overall fuel savings. In short, it says, “while ‘peak demand’ for oil – other than in mature economies – may still be years away, and while there are regional differences, peak oil demand growth for the market as a whole is already in sight.”

It’s worrying news for the over-invested and under-prepared; not least of all oil importing nations, to which, as Samuel Alexander noted in this article last September, the economic costs of peak oil are especially significant.

“When oil gets expensive, everything dependent on oil gets more expensive: transport, mechanised labour, industrial food production, plastics, etc,” he wrote. “This pricing dynamic sucks discretionary expenditure and investment away from the rest of the economy, causing debt defaults, economic stagnation, recessions, or even longer-term depressions. That seems to be what we are seeing around the world today, with the risk of worse things to come.”

This then adds to the peak oil cycle, increasing governments’ motivation to decarbonise their economies – better late than never – “not only because oil has become painfully expensive, but also because the oil we are burning is environmentally unaffordable.”

This view has been echoed in numerous recent reports. US investment banks Sanford Bernstein raised the prospect of “energy price deflation”, caused by the plunging cost of solar and the taking up of market share by that technology as it displaced diesel, gas and oil in various economies. It predicted that could trigger a massive shift in capital.

Analyst Mark Fulton last month also questioned the wisdom of the private-sector investing over $1 trillion to develop new sources of high-cost oil production. While Mark Lewis, of French broking firm, suggested that $US19 trillion in revenuescould be lost from the oil industry if the world takes action to address climate change, cleans up pollution and moves to decarbonise the global energy system.

The IEA report also includes an updated forecast of product supply, which draws out the consequences of the shifts in demand, feedstock supply and refining capacity.

“Given planned refinery construction and the growth in supply that bypasses the refining sector, such as NGLs and biofuels, the refining industry faces a new cycle of weak margins and a glut of light distillates like gasoline and naphtha as a by-product of needed diesel and jet fuel,” it says.

It also predicts that “the unconventional supply revolution that has redrawn the global oil map” will expand beyond North America before the end of the decade, just as OPEC supplies face headwinds, and regional imbalances in gasoline and diesel markets broaden.

The report projects that by 2019, tight oil supply outside the United States could reach 650 000 barrels per day (650 kb/d), including 390 kb/d from Canada, 100 kb/d from Russia and 90 kb/d from Argentina. US LTO output is forecast to roughly double from 2013 levels to 5.0 million barrels per day (mb/d) by 2019.

“We are continuing to see unprecedented production growth from North America, and the United States in particular. By the end of the decade, North America will have the capacity to become a net exporter of oil liquids,” IEA Executive Director Maria van der Hoeven said as she launched the report in Paris. “At the same time, while OPEC remains a vital supplier to the market, it faces significant headwinds in expanding capacity.”

Beyond ageing fields, the major hurdle facing OPEC producers is the escalation in “above-ground woes,” as security concerns become a growing issue in producers like Iraq, and investment risks deter investment and exploration.

The report notes that as much as three-fifths of OPEC’s expected growth in capacity by 2019 is set to come from Iraq. The projected addition of 1.28 mb/d to Iraqi production by 2019, a conservative forecast made before the launch last week of a military campaign by insurgents that subsequently claimed several key cities in northern and central Iraq, faces considerable downside risk. More

 

© 2014

Russia's gas deal with China underlines the risks to Europe's energy security

The gas deal announced last week saw agreement between Russia and China after 10 years of negotiation. The implications of Russia's turn eastward to seek a new energy partner should raise concerns in Europe over its own gas supply and wider energy security.

Gas metering station

Gazprom's share of Europe's gas market reached approximately 30% in 2013. As the Ukraine crisis has soured relations between Russia and Europe, both sides are looking to diversify.

Europe's need to diversify away from Russian gas is hardly new. Russia's tendency to use gas as a political tool to put pressure on Ukraine and Europe has demonstrated the risks of relying on one partner. More globally, growing concern around climate change and its impact on national security as a "threat multiplier" has lent support to the world's reduced use of fossil fuels. Yet events in Ukraine and the Sino-Russian gas deal have accelerated the urgency with which Europe needs to seek new energy sources.

We still have some time to do so. Despite the deal with China, Russia in the short term will continue to need the European market. The 38bn cubic metres it plans to export to China is small compared to the 161.5bn cubic metres it exported to Europe in 2013. It is likely that China received some concession on price, given that this was the major sticking point delaying the deal since the discussions began, but it means that Russia's exports to China will not replace the revenue Russia relies on from its European exports. Russia will also have to pay to build the pipeline infrastructure to China, and gas will only be transported from 2018.

But there is no doubt that, in the long term, Russia gains the upper hand in pipeline politics over Europe by engaging with an alternative gas partner. It may threaten to divert gas earmarked for Europe to China. In theory, this may be an empty threat, given that even the optimum target capacity of 60bn cubic metres to China is still low compared to Russian exports to Europe. But even so, any leverage Europe had in such gas disputes with Russia will diminish. Ukraine and eastern Europe would suffer most from this decline given Ukraine's current instability. Ukraine seems unlikely to recover its political relations with Russia.

The challenge for Europe is that there is no single alternative that could fully displace Russia's supply volumes or match its price. Developing alternative sources will take time. Liquid nitrogen gas is an option available from a number of sources, namely Qatar, Nigeria and the US, but the cost of importing it will be higher than the cost of importing gas, and new infrastructure will be required to receive shipments.

Renewable energy is attractive from an energy security perspective, but it is not reliable and will not produce quantities comparable to fossil fuels. Azerbaijan and, more promisingly, Turkmenistan are options. But this will not satisfy European demand in full and is only set to come online for Europe in 2019. Shale gas is a potentially powerful alternative, but it comes with its own challenges. Governments have faced social protest against fracking at home; France and Bulgaria have banned it. Reserve estimates can turn out to be underwhelming, as seen in Poland. More

 

© 2014

Ex govt adviser: "global market shock" from "oil crash" could hit in 2015

In a new book, former oil geologist and government adviser on renewable energy, Dr. Jeremy Leggett, identifies five "global systemic risks directly connected to energy" which, he says, together "threaten capital markets and hence the global economy" in a way that could trigger a global crash sometime between 2015 and 2020.

According to Leggett, a wide range of experts and insiders "from diverse sectors spanning academia, industry, the military and the oil industry itself, including until recently the International Energy Agency or, at least, key individuals or factions therein" are expecting an oil crunch "within a few years," most likely "within a window from 2015 to 2020."

Interconnected risks

Despite its serious tone, The Energy of Nations: Risk Blindness and the Road to Renaissance, published by the reputable academic publisher Routledge, makes a compelling and ultimately hopeful case for the prospects of transitioning to a clean energy system in tandem with a new form of sustainable prosperity.

The five risks he highlights cut across oil depletion, carbon emissions, carbon assets, shale gas, and the financial sector:

"A market shock involving any one these would be capable of triggering a tsunami of economic and social problems, and, of course, there is no law of economics that says only one can hit at one time."

At the heart of these risks, Leggett argues, is our dependence on increasingly expensive fossil fuel resources. His wide-ranging analysis pinpoints the possibility of a global oil supply crunch as early as 2015. "Growing numbers of people in and around the oil industry", he says, privately consider such a forecast to be plausible. "If we are correct, and nothing is done to soften the landing, the twenty-first century is almost certainly heading for an early depression."

Leggett also highlights the risk of parallel developments in the financial sector:

"Growing numbers of financial experts are warning that failure to rein in the financial sector in the aftermath of the financial crash of 2008 makes a second crash almost inevitable."

A frequent Guardian contributor, Leggett has had a varied career spanning multiple disciplines. A geologist and former oil industry consultant for over a decade whose research on shale was funded by BP and Shell, he joined Greenpeace International in 1989 over concerns about climate change. As the organisation's science director he edited a landmark climate change report published by Oxford University Press.

Industry's bad bet

Leggett points to an expanding body of evidence that what he calls "the incumbency" - "most of the oil and gas industries, their financiers, and their supporters and defenders in public service" - have deliberately exaggerated the quantity of fossil fuel reserves, and the industry's capacity to exploit them. He points to a leaked email from Shell's head of exploration to the CEO, Phil Watts, dated November 2003:

"I am becoming sick and tired of lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings."

Leggett reports that after admitting that Shell's reserves had been overstated by 20%, Watts still had to "revise them down a further three times." The company is still reeling from the apparent failure of investments in the US shale gas boom. Last October the Financial Times reported that despite having invested "at least $24bn in so-called unconventional oil and gas in North America", so far the bet "has yet to pay off." With its upstream business struggling "to turn a profit", Shell announced a "strategic review of its US shale portfolio after taking a $2.1bn impairment." Shell's outgoing CEO Peter Voser admitted that the US shale bet was a big regret: "Unconventionals did not exactly play out as planned."

Leggett thus remains highly sceptical that shale oil and gas will change the game. Despite "soaring drilling rates," US tight oil production has lifted "only around a million barrels a day." As global oil consumption is at around 90 milion barrels a day, with conventional crude depleting "by over four million barrels a day of capacity each year" according to International Energy Agency (IEA) data, tight oil additions "can hardly be material in the global picture." He reaches a similar verdict for shale gas, which he notes "contributes well under 1% of US transport fuel."

Even as Prime Minister David Cameron has just reiterated the government's commitment to prioritise shale, Leggett says:

"Shale-gas drilling has dropped off a cliff since 2009. It is only a matter of time now before US shale-gas production falls. This is not material to the timing of a global oil crisis."

In an interview, he goes further, questioning the very existence of a real North American 'boom': "How it can be that there is a prolonged and sustainable shale boom when so much investment is being written off in America - $32 billion at the last count?"

It is a question that our government, says Leggett, is ignoring.

Crunch time

In his book, Leggett cites a letter he had obtained in 2004 written by the First Secretary for Energy and Environment in the British embassy in Washington, referring to a presentation on oil supply by the leading oil and gas consulting firm, PFC Energy (now owned by IHS, the US government contractor which also owns Cambridge Energy Research Associates). According to Leggett, the diplomat's letter to his colleagues in London reads as follows:

"The presentation drew some gasps from the assembled energy cognoscenti. They predict a peaking of global supply in the face of high demand by as early as 2015. This will lead to a more regionalised oil market, a key role for West African producers, and continued high and volatile prices." More

 

© 2014