Archive for the ‘Energy’ Category

file6071284660910We are not good at learning the lessons of the past. Alas, we are not so good at learning the lessons of the recent past. Take the oil price and the way the markets are failing to grasp that there is a thing called a cycle.

This is the theory. When the oil price is high, at first we just carrying on demanding it as before. Economists say that oil demand is price inelastic. But over time, things change. For one thing, when the oil price is high we see masses of investment into finding new sources of oil. For another thing, we change our habits.

So in the 1970s, for example, the US government imposed a speed limit on the roads, so that less petrol was consumed.  In recent years, people have been saving money by opting for more fuel efficient cars, putting solar panels on roofs, insulating lofts, while the likes of Elon Musk promote the electric car and battery bandwagon.

At the same time, we see innovation on the supply side, and we get oil from the Alberta tar sands, and shale gas and oil.

But always, the markets, and even the wise people at the top of business, fail to spot it. Oil is going to be expensive forever, we are running out of it, we are told. “We are at peak oil.”

But things change. Even the rise of China failed to have the impact on the oil price that had been expected, for the simple reason that China made very inefficient use of energy. As it grew, it became more efficient in its use of energy, and its demand did not rise at the pace that had been expected.

So the oil cycle turned, and the oil price collapsed. That is how the market cycle works. Always we seem to forget, and say this time it is for good.

Now the International Energy Agency has warned that Middle East oil producers, such as Saudi Arabia and Iraq have their highest share of world oil markets since the 1970s.

At the same time, the imperative of energy efficiency slowly seems to be in the process of being forgotten. According to the FT, https://next.ft.com/content/a36bfe6e-4367-11e6-9b66-0712b3873ae1 sales of sports utility cars have risen such that sales of these cars now exceed ordinary cars by two and half times. Our habits are changing; we are slowly adjusting to cheaper oil.

Investment into new energy resources has been cut, less money is being spent on oil exploration. Shell maintains its dividend, and invests less in the future, less for the day when oil price starts to rise.

That is why the oil cycle will turn again. And why I suspect that the oil price will surge over $100 before this decade is out.

Now gaze even further into the future. I wonder whether the next turn in the cycle may be the last upwards one. The slump in the oil price has delayed alternatives but that is all it has done.  The internet of things will create unprecedented efficiency. Solar power is becoming ever more efficient. Battery technology is advancing, nano technology may even make it possible for us to create synthetic oil.

The oil cycle will turn upwards within a few years, and then a few years later it will turn down, but then it may not turn anymore.

This article originally appeared at Fresh Business Thinking: http://www.freshbusinessthinking.com/this-is-why-oil-prices-will-shoot-up-again-eventually/

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Did you read the one about wind farms that can only produce enough electricity to make a few cups of tea? What a scandal! Why do we need these cursed wind farms? Yet take another look, and it turns out that actually wind farms are growing in importance all the time. The problem is not so much with wind energy; it is the way in which it is portrayed.

The ‘Telegraph’ ran the expose, and its report was widely cited across the Twittersphere. To use the nerdy jargon, it trended. “Some of Britain’s biggest wind farms are at times producing only enough electricity to make a few cups of tea,” stated the ‘Telegraph’ article.

It turns out that official government data has drawn the shocking conclusion that wind farms are not very productive when there is no wind. Here is some more news for you, hot off the press: it is much hotter during the summer. Is that a story? Of course not, to use the jargon, it is somewhat obvious.

So why then run an entire article saying that wind farms don’t do much when the wind is quiet?

But then you might as well ask: why it is that some politicians appear to find it impossible to utter the words wind farm without prefixing them with the word ghastly?

Stuck near the bottom of the ‘Telegraph’ piece, Maf Smith — a spokesperson for RenewableUK — said: “We hit a new record in March, when we generated enough electricity from wind at one point to power four in ten British homes.”

To be fair, the stat saying wind energy powered 40 per cent of British homes is about as meaningless as the one that says at other times it hardly generated wind at all. Presumably this point in March occurred when it wind conditions were optimum and probably in the middle of the night when electricity usage was minimal.

A more interesting quote from the same Maf Smith said: “Government figures show that in 2012 , more than 11 per cent of the UK’s electricity came from renewable sources, with wind providing the lion’s share.”

What we are lacking in the UK is any sense of objectivity. David Cameron jumps on the fracking bandwagon – maybe he is right, but frankly there is no evidence to support the pro or anti lobby yet, so why support it so wholeheartedly at this point?

What we lack in the debate about UK energy be it renewables, shale gas, algae, synthetic energy, or whatever, is any attempt at objectivity.

In fairness, the greens are just as bad as the oil lobby. Bear this in mind, however. According to James Martin in his book ‘The meaning of the 21st century’, the world’s reserves of oil, not counting the undiscovered ones, have a value of about 60 trillion UK dollars. You could say there is an awful lot of money at stake in this one, and the last thing those who hope to make money from these 40 trillion worth of oil reserves want is for us to find a cheaper, and inexhaustible alternative. The last thing they want is an objective debate based on evidence.

© Investment & Business News 2013

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The problem with electric cars is that while they might save petrol, the cost of buying the car in the first place is so high that it is very hard to come up with an equation which shows that buying such a car makes economic sense for the individual purchaser. As far as the environment is concerned, the jury is out on whether electric cars really make a difference. They still need energy; it is just that the energy is generated centrally at power stations, rather than in the car’s engine as it burns fuel.

Then there are renewables. The problem with them is that they only work under certain conditions; wind turbines are not very effective when the wind is becalmed. Solar power isn’t very effective at night time, and is less effective on a dark and miserable day. As for domestic users, renewable energy comes with a high start-up cost, and it takes years to get your money back via savings on energy. But add it all up, electric cars and renewables and throw in a third ingredient, – more about that in a moment – and suddenly the story changes. And since the car seems so very impressive, the new BMW i3 is a good place to start.

The new BMW i3 has a number of very interesting unique selling points. For one thing it has slightly longer range than most electric cars – 80 to 100 miles as opposed to 75 to 80 miles. For a second thing the car also comes with an option to include a 34-horsepower rear engine, which doubles the range. For a third thing the car is less expensive relative to comparable BMWs than other electric cars compared to their comparable petrol models. Fourthly, the car can be fully recharged in three hours.

But supposing the electric car of the future is recharged primarily by renewables.

The problem with wind power is that it only works when it is windy, but when it comes to charging a car-up overnight, who cares if it’s windy for just a few hours, as long as the car is fully charged in the morning. Providing energy is distributed intelligently, with intermittent energy sources used to provide energy for products that don’t need recharging at specific times, such as cars being recharged overnight, or storage heaters, and so the intermittent nature of renewables matters less – it still matters, but a lot less than before.

The start-up costs of renewables are such that it can take years before households get their money’s worth. But if all of a sudden electric cars are thrown into the mix, then suddenly the time it takes to cover the start-up costs is brought forward by a long margin. Many households spend far more on petrol for their cars than they do on domestic energy.

And now we turn to the third ingredient. If you are a regular reader here you may have guessed at that already. It is called Moore’s Law. Not Moore’s Law in its literal sense relating to the number of transistors on intergraded chips doubling every 18 months or so, but rather as a metaphor for certain types of technology changing rapidly.

The point that critics of both electric cars and renewables forget, is that their cost is falling rapidly, and their cost effectiveness is improving all the time. And just as was the case with silicon chips, the more we make use of this type of technology, the faster this technological progress occurs.

At the moment, electric cars are still primarily the domain of early adopters. Renewables need subsidies to give them a kick-start. Critics say such subsidies distort the market. But they are wrong. The market is lousy at pricing-in technological progress; it is lousy at allowing for deeper forces at play, such as peak oil and climate change.

© Investment & Business News 2013

Something went wrong with the commodity cycle during the year after the financial crisis of 2008, and that something may explain why the recovery took so long. Now there are reasons to believe that this time the commodity cycle is turning.

That is good news for commodity importers everywhere – and that includes the UK. It is not so good for commodity exporters, however – expect tears in Brazil and Russia, for example.

On paper it is supposed to work like this. Commodity price are high, therefore commodity producers – be they oil companies, miners or in the agriculture sector – invest and try new ideas, until eventually supply increases, forcing the price of commodities down.

Cheaper commodities mean that commodity producers invest less, supply falls – or at least fails to keep pace with demand – until price rises, and the cycle begins again. That is how cycles are supposed to work in business, the economy and nature. See: Arctic Hare and Lynx: the business cycle working in nature 

Lots of theories are put forward to explain why the recession of 2008/09 was so nasty, but it is possible that we just suffered a perfect storm: a banking crisis, too much debt, and commodity prices at record highs.

Price collapsed in late 2008, as the theory of commodity cycles said it should have, and the UK, the US and Europe came out of recession. So far, so very predictable.

Then in 2010/11, things went topsy turvy. Commodity prices rose again, oil surged from around $35 a barrel, to over $100 within 18 months. The UK and the EU went back into recession. Some believed it was as a result of peak oil – that is to say that oil production had permanently peaked. Others looked at demographics, at the rising population, and said: “Well, that’s it then. This time it is different, the cycle has broken down forever. We have simply used up too much of this planet’s scarce resources.”

The pessimists may have been overlooking something. The recession of 2008 had multiple causes, amongst them a banking crisis, and the banking crisis meant lack of demand and lack of finance, so the normal rise in investment in commodities – which occurs when prices are at a new high – didn’t happen, not at first, anyway.

It is different now. According to the latest Statistical Review of World Energy from BP, 2012 saw the largest increase in oil production ever recorded.

You don’t need to look far for an explanation. Massive investment in shale gas and oil, especially in the US, into this particular resource is as far as you need to go.

In other words, the cycle is at last working the way it should.

This is how the World Bank put it: “Since early 2011, industrial commodity prices have been weakening, a process that appears to be intensifying in 2013, despite signs that the global economy is gaining strength Indeed, since their peak in early 2011, the price of metals and minerals is down 30 per cent and that of energy is down 14 per cent, with prices off 12 and 5 per cent, respectively, between January 2013 and the end of May 2013.

This price weakness has sparked discussion about whether a super-cycle in commodity prices is coming to an end—particularly within the metals industry, where large increases in supply are coming on stream in response to investments spurred by the high prices of the past several years.”

If the idea that the super-cycle in commodities has turned and prices are set for an extended period of falls is right, then this is good news for commodity importers – such as the UK, US, most of Europe, China and most of South East Asia. It is not so good for most of Latin America, although Mexico is less vulnerable.

But is this really good news? If you still sign up to the idea of manmade climate change, then that means you probably want energy prices to stay high for a little longer, while investment in renewables grows. The shale gas and oil miracle may not be quite so good for Earth PLC, or Gaia.

© Investment & Business News 2013

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Shale gas and oil – -it is everywhere, or at least if feels that way. It is in Russia, and the US, China, Argentina, Venezuela, Brazil and Mexico. It is in Libya and Algeria, Pakistan and Indonesia. It is in Australia and South Africa, and, at the other end of the world, it is in Canada.

For some more good news, there is some in the UK too, and for the really good news, most of it is up north, so there will be no need to spoil the aesthetic qualities of southern England’s rolling hills with wind farms. Instead all we need to do is dig up the Yorkshire Dales, and other areas that Londoners hardly ever visit.

Here is some bad news. There are also deposits in the south – bring back wind farms.

In all, the Energy Information Administration (EIA) reckons there are 26 trillion cubic feet of shale gas and 0.7 billion barrels of shale oil in the UK. So what does that mean? Well, the UK currently consumes around 3 trillion cubic feet of gas a year, so 26 trillion would last around ten years. Click here .

Actually, compared to some countries the UK is small fry. The EIA reckons that China has over 1,000 trillion cubic feet of shale gas – or a quadrillion, as they also call numbers with nine noughts. The countries that make up the top ten, in terms of reserves of shale gas – with the largest first – are: China, Argentina, Algeria, US, Canada, Mexico, Australia, South Africa, Russia and Brazil. As for shale oil, Russia has 75 billion barrels, followed by the US, China, Argentina, Libya, Venezuela, Mexico, Pakistan, Canada and Indonesia. You may have noticed there is a pretty good correlation with size of country – Venezuela, perhaps, is the exception.

All in all, analysts are talking about there being enough shale gas and oil to feed world demand for ten years. You may have noticed that the global economy slipped into recession just as oil started to approach $150 a barrel. The good news on the US economy went from a trickle to gushing torrent, just as the price of gas fell. The cost of energy matters, and may yet be the key to determining economic strength.

Stop: let’s repeat that STOP. The EIA says its estimates of shale oil and shale gas resources outside the US are highly uncertain and will remain so until they are extensively tested with production wells. As for the UK, the jury is out on how practical it is to access shale gas and oil deposits, and not everyone is all that keen on the idea of digging up Yorkshire, or fracking in a country as small as Britain. Some might choose to switch the r in the word ‘fracking’ to a u and then add the suffix awful.

We keep hearing about how shale is not a global warming gas. Well, maybe that is right, but as this article points out: “Gas fracking involves the release of significant amounts of methane into the atmosphere in the form of ‘fugitive emissions’ – an extremely powerful greenhouse gas (72 times the warming potential of carbon dioxide over 20 years).” See: Gas fracking will cause ‘irreversible’ damage, says Conservation Council of WA 

The clue may be in the name. On the south coast of England there are what the EIA calls Jurassic-age shale formations. We have all heard of the Jurassic-age and know it happened a long time ago. Less of us have heard of the Carboniferous age, which occurred from around 359.2 million years ago, to 299 million years ago. There are reserves of Carboniferous age shale gas in northern England. In other words, we are talking about reserves of shale gas and oil that have been sitting in the ground for a very long time. And in just ten years we are talking about digging up a big chunk of these reserves that have sat in the ground for hundreds of millions of years; that took hundreds of millions of years to form. Does that strike you as a good idea? How do you think future historians, from say 200 years in the future, will respond when they read about all this so-called “good news on shale gas” in 2013?

What we forget is that the Earth’s climate has changed over millions of years, and it changed as carbon dioxide was sucked out of the atmosphere and deposited in the ground. In just a few years we are reversing a process that took place over millions, maybe even a billion years.

Just to play devil’s advocate, here is question for you: what will shale gas exploration do for renewables? Will investment into shale gas and fracking crowd out investment in renewable energies?

Remember Moore’s Law. In its literal sense, this refers to computers doubling in speed every 18 months or so. But use Moore’s law as a metaphor for rapidly increasing technology and maybe it can be applied to renewables.

Where renewable technologies differ from other energy industries and yet are similar to the computer industry is that the generation gap between each stage in their development is quite small. It can take three decades to build a nuclear power plant, months to build wind farms, and just days to install solar panels.

The more we invest in renewables, the cheaper they get, and the progress rate in the efficiency of the technology can be very rapid.

Forward wind the clock 20 years, and assume that in 2013 the world moved away from carbon fuels and instead invested billions, even trillions, in renewables. Is it not possible that by 2033 our energy would be much cheaper than it is today?

James Martin, in his book ‘The Meaning of the 21st Century’, said: “The world’s reserves of oil, not counting the undiscovered ones, have a value of about 60 trillion US dollars… coal reserves have a similarly high value. If humanity set out to save energy and move to non-carbon forms of energy… much of this vast amount of energy would be abandoned. Both oil-rich countries and petroleum companies want to hang on to their potential wealth.”

Apologies if this sounds like a conspiracy theory, which is not something this column tends to support, but why don’t we hear as much hype about renewables as we do about shale gas, when, by the way, surveys show that most people do not think wind farms are aesthetically ugly at all.

For the EIS report, go to Shale oil and shale gas resources are globally abundant 

© Investment & Business News 2013

And so UK firm IGas reckons there is between 15 trillion cubic feet and 170 trillion cubic feet of gas in northern England. That’s enough to meet the UK’s gas needs for several years – current annual consumption is around 3 trillion cubic feet.

A spokesperson from IGas said, “Our estimates for our area alone could mean that the UK would not have to import gas for a period of 10 to 15 years.”

What is especially good about the shale gas findings is that the reserves are in the north. So that means there will be no need to dig up the south east or create not so aesthetically pleasing farms.

But the UK is not alone; they are talking fracking across Europe and Africa. Is the era of cheap fuel returning?

It is probably no coincidence that the US economic recovery has coincided with cheaper fuel, created by its own investment into shale gas.

But, just to play devil’s advocate, here is question for you: what will shale gas exploration do for renewables? Will investment in this area crowd out investment into renewable energies?

Remember Moore’s Law. In its literal sense, this refers to computers doubling in speed every 18 months or so. But use Moore’s law as a metaphor for rapidly increasing technology and maybe it can be applied to renewables.

Where renewable technologies differ from other energy industries and yet are similar to the computer industry, is that the generation gap between each stage in their development is quite small. It can take three decades to build a nuclear power plant, and weeks to build wind farms or lay down solar powers.

The more we invest in renewables, the cheaper they get, and the progress rate can be very rapid.

Forward wind the clock 20 years, and assume that in 2013 the world moved away from carbon fuels and instead invested billions, even trillions, in renewables. Is it not possible that by 2033 our energy would be much cheaper than it is today?

James Martin, in his book The Meaning of the 21st Century, said, “The world’s reserves of oil, not counting the undiscovered ones, have a value of about 60 trillion USA dollars… coal reserves have a similarly high value. If humanity set out to save energy and move to non-carbon forms of energy… much of this vast amount of energy would be abandoned. Both oil-rich countries and petroleum companies want to hang on to their potential wealth.”

Apologies if this sounds like a conspiracy theory, not something this column tends to support, but why don’t we hear as much hype about renewables as we do about shale gas, when, by the way, surveys show that most people do not think wind farms are aesthetically ugly at all.

© Investment & Business News 2013

China is not happy with the EU, the EU is not happy with China, and the British Solar Trade Association seems to side with China.

The EU has imposed anti-dumping duties on China’s solar panel exports. China has responded with tariffs on Europe’s wine exports.
Actually, this is the EU compromising. It is phasing in the tariffs much more slowly than originally intended, and they will, in any case, be at a much lower rate.

The EU says China is using subsidies to sell its panels on the cheap, and reckons they should be some 88 per cent more expensive.
On the other hand, the solar industry has received large subsidies in Europe, too.

Ray Noble, PV Specialist at Solar Trade Association (STA), reckons that the real problem for the EU is that the European industry has not invested as much as it should have. It has taken the money from subsidies, and, as it were, run. China has invested far more and consequently enjoys greater scale. That is why it can sell panels for less money than European companies.

STA CEO Paul Barwell recently said, “If duties are imposed, panel prices will rise across the board, and consumers and installers alike will lose out. It makes no sense to safeguard 8,000 manufacturing jobs by sacrificing up to 200,000 jobs in the wider industry.”

Mr Noble said, “I suggest David Cameron and Angela Merkel work together to sort out these absurd rules and remove this lingering market uncertainty, so that industry can get on with installing low cost, clean and affordable solar energy.”

© Investment & Business News 2013