Every year, energy giant ExxonMobil presents its own "Outlook for Energy", its view of the world's energy future until 2030. Although ExxonMobil's outlook is based on essentially the same historical data as similar "outlook" reports from the International Energy Agency in Paris and the Energy Information Administration (EIA) in Washington, it offers in many ways a different - and fascinating - perspective on the world. It may well be - although this is something no one can say for sure - a more realistic, anticipatory vision than the one offered by the "official" energy institutions.

The realists at ExxonMobil, unsurprisingly, see continued dominance of fossil fuels over the next 25 years - coming mainly from growth in emerging markets as rich countries. There's a lot of interesting data in the full report (6MB PDF!), but I especially like this graph:

Source: European Energy Review
In dotted lines: the price of coal- and gas-fired electricity without any carbon pricing. Note that this is based on unknown fuel price hypotheses, but given how the report writes about the abundance of natural gas, one can expect them not to be too high...
Click for larger version

In other words, wind power is already amongst the cheapest source of electricity, and if any minimal accouting for some externalities is put in place (such as a price for carbon emissions), it becomes the cheapest. Of course, as we know, "cheapest" does not necessarily translate into "most profitable."

And as an aside, they are also sayign that carbon capture will never make any kind of sense.

And it's not me saying it, but ExxonMobil.

front-paged by afew

Dash for gas-fired power stations raises concerns over future supplies

A steep increase in the number of gas-fired power stations has been approved by the government, raising fears about the growing pressure on future gas supplies.

This new "dash for gas", along with the huge investment in wind power launched by the government on Friday, reinforces concerns that Britain's infrastructure may become more vulnerable to extreme weather and supply disruption.

The article notes that "[c]ombined cycle gas-fired plants remain the preferred choice for many utilities because of their relatively low cost and how quickly they can be built" but of course fails to point out that they are relatively cheap because they bear the least burden of debt per kWh (so the higher cost of capital of the private sector is less penalising for such plants than it is for nukes, wind of coal), and, even more importantly, they are more profitable even when they are (on average) more expensive because their costs are better correlated, for technical reasons, to market prices.

But the article actually blames the large wind developments being planned for the 'dash-for-gas':

Gas-fired plants are being developed to back up the thousands of new offshore wind turbines planned by the government. The recent run of cold and still days has highlighted the risks created by a growing reliance on wind power.

At the end of last week, while gas supplies were being cut off for some large industrial users, wind farms, which account for 5 per cent of Britain's generation capacity, were providing only about 0.2 per cent of the country's electricity, enough to power a town the size of Tunbridge Wells.

The reality is that the UK has a creaky power system that needs massive investment just to replace existing plants. Nukes are old and will be decommissioned over the next decade or so, and coal plans are being phased out because of their carbon emissions and pollution. So new plants need to be built in any case, and not specifically as backup for wind.

The fact that wind is also being built means that the new plants will be used rather less than if wind were absent, but not that they do not need to be built: indeed, at times they will be all needed. But not often. Gas-fired plants are actually a good thing in the context of a massive wind build-up, as they are flexible enough to be able to come in when needed, and their lower capital requirements means that it still makes economic sense to build them even for lower use (gas-fired "peaker" plants that function as little as 3% of the time can be profitable, by running only at times of very high demand and commanding extremely high prices at such moments).

But - wind provides power, not capacity. Capacity needs to be built in the UK. If left to market forces, it will be mostly gas-fired plants. If wind is indeed built on the scale proposed, such build up will be a lesser evil, indeed a necessary one. If not, then it will be the dangerous, but inevitable consequence of the deregulating policies of our times, which favor financial returns over proper policies with collective purposes.

Front-paged by afew

The Economist's Charlemagne has outdone itself this week in a gleeful column about Europe's decline: Lessons from "The Leopard" - Is Europe becoming too accustomed to genteel decline?. It packs so many of the usual neolib AND neocon arguments in one place that it's worth looking at it in full detail...

Front-paged by afew

The IEA puts a date on peak oil production

FATIH BIROL, the chief economist of the International Energy Agency (IEA), believes that if no big new discoveries are made, "the output of conventional oil will peak in 2020 if oil demand grows on a business-as-usual basis." Coming from the band of geologists and former oil-industry hands who believe that the world is facing an imminent shortage of oil, this would be unremarkable. But coming from the IEA, the source of closely watched annual predictions about world energy markets, it is a new and striking claim.

I don't know what's most striking: the claim the Economist refers to, the fact that it's actually mentioned by the article, or the fact that it's mentioned with so little prominence.

In other words, this is like the articles about asset bubbles 4 years ago: there's enough publicly available information out there that there is little doubt about the underlying reality, the newspapers will be able to claim that they did cover the topic appropriately, and the topic can safely continue to be ignored by politicians, pundits and deciders. The topic is dismissed and neutralised and no policy conclusions need to be reached - and in particular no change to the system - and to the profits made by the incumbents and insiders need to be made.

Funnily enough:

The IEA reckons that co-ordinated action to restrict the increase in global temperatures to 2ºC will restrict global demand for oil to 89m b/d in 2030, compared with 105m b/d if no action is taken. That, Mr Birol says, "could push back the peak of production, as it would take longer to produce the lower-cost oil that remains to be developed." Action on climate change may yet save the world from an early supply crunch.

If any action or event is going to save the world from catastrophe, it's much more likely that fossil fuel scarcity will reduce carbon emissions, by reducing economic "growth" as we know it (and, possibly, but we can't put our hopes on this, because there simply won't be enough carbon around to burn). The good news is that the solutions to both problems (climate change and resource scarcity) are pretty much the same: energy efficiency, renewables, a re-definition of what economic propserity is. The bad news is that there's still a large consensus amongst serious people to do as little as possible to actually implement these.

It's hard for me to take sides in the debate between those sorely disappointed by Obama's policies and those that point out that his policies, however flawed, still represent very real progress and are so much better than the alternative. Or between those that feel betrayed by Obama's centrist behavior and those that remind us that he has to deal with a fairly conservative Congress.

The reality is that Bush was a hard-right, fundamentalist, administration, and we're now getting a centrist (but right of center) - and maybe more importantly, sane - administration. The reality is also that this is largely in line with what Obama promised. The reality is also, sadly, that, in today's political and media environment, this is probably close to the best (ie leftiest) we can get.

Thus, the questions we need to ask are - (1) why is it that the range of political discourse and policies considered possible in the US ranges from the hard right to the center right? And (2) what needs to be done to change this?

Of course, there's a third question pending: will center-right policies be enough to solve the current economic catastrophe? And if not, what happens then?

We get yet more hints of a "New Cold War" being revved up by the Wall Street Journal via the usual rhetorical flourishes (in this case, a "new Iron Curtain"):

But while at the moment Western Europe can bring this international gas into its networks, Eastern Europe can't. This divide, an affront to the idea of a single European market, is a "new iron curtain" that splits East from West, Pierre Noël of the European Council on Foreign Relations told a Brussels audience this week.

West of the divide, gas flows in two directions. East of it, the legacy of the past means that the pipelines allow gas to flow only from East to West, bringing gas from Russia but not allowing gas from the West.

In other words, Western Europe is relaxed about supposed Russian threats to cut gas deliveries, becuase it has alternatives, while Eastern Europe is stuck with that single supplier.

There is, of course, a basis in truth in such an assertion. Eastern Europe built its energy system to a good extent on the instruction of the Soviet Union, as it expanded its pipeline network and gas flowing from Siberia to these countries was one of the ties binding vassals tightly to their imperial master. Western Europe also connected itself to the Russian energy network, but on a more controlled way, and without giving Moscow a dominant place. And, as I've said enough, gas is an infrastructure business, and infrastructures cannot be changed overnight. However, as was noted rather prominently recently, it's been 20 years since the Berlin Wall fell, time enough to re-orient infrastructure.

First, an apparently legal obstacle:

One giant obstacle, however, is that Gazprom owns some of the key pipelines bringing Russia gas to the West. Why would it allow the building of so-called interconnectors that will allow competitors' gas to enter Eastern Europe from the West?

This suggests that for pipelines that are inside the territory of the relevant countries, and within the EU for those countries that are members, the local government or the EU cannot decide how such pipelines can be regulated? How much bad faith can there be? The EU Commission, prodded by the neoliberals, has been able to impose third party access on pipelines owned by the national utilities, which have rather more political power in their countries than Gazprom, and they wouldn't be able to impose anything on pipelines (partly) owned by Gazprom? And what about building other, independent, pipelines to ship gas from West to East if that's so important? Is it that these pipelines are not profitable? Or that States are not willing to subsidize them for the oh-so-important purpose of energy security? Is it because that would be a distortion of competition (the ultimate evil for neoliberals), or is it that governments cannot put a price on security of supply?

So new pipelines are vital, but both companies and States are apparently powerless to build them or control them? How can that be?

But wait:

Recently, there have been worried or outraged articles in the blogosphere (and here on dKos) about the stimulus money going to help create jobs in Canada, China, or going into the pockets of foreign multinational companies.

I'd like to make a few comments on this.

part of my series on wind power

Front-paged by afew

The Economist has yet another column moaning about more distance between Europe and the US and suggesting ominously that this is a bad thing.

But the arguments used are rather revealing - although maybe not of what the Economist would want us to focus on.

The main gripes are that (i) the Americans feel Europeans are not doing enough on Afghanistan and Iran and (ii) the Europeans are disappointed by Obama's policies on various topics.

Yesterday, Die Zeit published an article, translated by presseurop about Turkey's supposed rise as an energy superpower, and Europe's careless lack of reaction to its apparent increasing leverage.

All these pipelines put together will swell Turkey's sway over Europe. A peripheral country? An unloved aspirant to accession? "We expect to be treated with respect," says Suat Kiniklioğlu, foreign policy spokesman for the governing AKP party. Will Turkey's growing clout also open the door to the European Union? That alone probably will not suffice, but it should cement EU ties to Turkey. So we are going to have more to do with the Turks than, say, the French would like.

To which all I can say is "bah" and "bleh."

Front-paged by afew

As many of you know (and are reminded daily by the link on the front page...), my wife is active in L'Etoile de Martin, an association created by families of children with cancer, several of which, unfortunately, have died. The association organises activities for children who are in hospitals for long stays, and has also decided to help research in pediatric cancers by funding research stipends at l'Institut Gustave Roussy (IGR), Paris's main cancer hospital. Over the past 2 years, over 180,000 euros have been raised, and they have been used to provide research grants to post-graduate students at IGR - 2 full time positions have been funded on the basis of yearly grants.

We're trying to sustain this effort and, hopefully, expand it, and we need your help. Some of you may have already received an email about this, but I'd like to kindly request you to drop by this page and contribute to support an extraordinarily dynamic and hope-inspiring group of volunteers - which have already brought about some real results.

No donation is too small and, if you are a French taxpayer, you will get a tax credit equal to 2/3 of your donation.

So please click here to donate!

Goldman chief hits at `useless' banking

Lloyd Blankfein, chief executive of Goldman Sachs, has attacked some investment banking products as socially useless and said that the controversy over bankers' pay was both understandable and appropriate.

In a speech to the Handelsblatt banking conference in Frankfurt on Wednesday, Mr Blankfein said: "The industry let the growth and complexity in new instruments outstrip their economic and social utility as well as the operational capacity to manage them."

Belgian and Dutch investors join EIB and banks in Belwind rescue (24 Jul 2009)

Banks have signed the most important European renewable energy project financing of 2009 so far, after a band of Low Countries investors bought the Belwind offshore wind farm from the failed Econcern group.

The deal, one of the most encouraging pointers so far that the worst of the credit crunch may be easing for clean energy, sees the European Investment Bank agree to lend EUR 300m towards a EUR 482.5m (USD 686.4m), 15-year debt package for Belwind.

The remaining EUR 182.5m of the long-term debt is being provided by [commercial banks]

This is the transaction I have been working on for over a year and a half and, between my bank's bailout, the credit crunch or my client's bankruptcy, it's been a rather stressful process - and an altogether too busy one, as may have attested my patchy presence on ET in recent months.

It's the biggest offshore wind farm to be project-financed, it's the first to be financed since the credit crisis, and it's the first time the EIB is involved in taking project risk in the sector, despite the clear push from EU governments over the past year. It took coordinating 6 banks (including a multilateral and two quasi-public institutions), 6 equity investors, 2 large contractors and 1 bankruptcy administrators, jointly with a client with excellent engineers and permits to a great project, but with no money and management in chaos. It took bringing together on the same terms at the same time people who were all indispensable to the deal, all knew they were indispensable and all too often were tempted into brinkmanship to get a better seat at the table.

Quite honestly, I'm still stunned that it actually happened. I never gave up, took up an obviously big role in keeping it alive throughout but at times the odds seemed overwhelming and it took its toll on my morale and energy. It's going to take more than a bit of time to stop obsessing about clauses of the financial documentation, or the conflicting conditions imposed by the various parties, and it's going to be hard to forget the past several months, toiling away day and night in desperate efforts, but t least now I can think it was worth it.

I DID IT!!!

I saved a windfarm (a collapse of the project this month would have delayed it by at least 2 years). I gave a significant, and much needed, boost to the nascent offshore wind project finance market. I bring my bank good publicity. I help save the planet. I'm quite proud. Downright giddy, in fact.

More later.

part of the Windpower series

Brought across by afew

US Marines launch Afghan offensive

Thousands of US Marines descended upon the volatile Helmand River valley in helicopters and armoured convoys early Thursday morning, mounting an operation that represents the first large-scale test of the US military's new counter-insurgency strategy in Afghanistan.

The operation will involve about 4,000 troops from the 2nd Marine Expeditionary Brigade, which was dispatched to Afghanistan earlier this year by President Obama to combat a growing Taliban insurgency in Helmand and other southern provinces. The Marines, along with an army brigade that is scheduled to arrive later this summer, plan to push into pockets of the country where Nato forces have not had a presence.

In many of those areas, the Taliban has evicted local police and government officials, and taken power.

in rather pointed fashion...

Merkel attacks central banks

Angela Merkel, the German chancellor, criticised the world's main central banks in surprisingly strong terms on Tuesday, suggesting that their unconventional monetary policies could fuel rather than defuse the economic crisis.

The attack on the US Federal Reserve, the Bank of England and the European Central Bank is remarkable coming from a leader who had so far scrupulously adhered to her country's tradition on never commenting on monetary policy.

"What other central banks have been doing must stop now. I am very sceptical about the extent of the Fed's actions and the way the Bank of England has carved its own little line in Europe," she told a conference in Berlin.

"Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds," she said. "We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years' time."

Ms Merkel's decision to ignore one of the cardinal rules of German politics - an unwritten ban on commenting monetary policy out of respect from central bank independence - suggests Berlin is far more concerned about the route taken by the ECB than had hitherto transpired.

I don't see this as an attack on central banks, quite the contrary - this is a defense of the independence of the Central Banks - at least the ECB - against the massive pressure from bankers, pundits and others who have said that salvation can only come from massive monetary injection into the financial system. But it is interesting that the angle chosen to describe her words are strongly critical - under the very rules that the Germans are supposed to uphold.

edited by whataboutbob

House prices rose by 1.2 per cent during April and May, according to Nationwide Building Society. It said that the increase was because of huge demand from buyers and a shortage of properties to choose from. Estate agents have reported that good-quality homes are in such short supply that gazumping -- when a buyer makes a higher offer than one already accepted by the seller -- is making a comeback in some areas.

The Times of London: Gazumping is back as house prices rise and buyers fight over fewer properties

The General Motors Corp. bankruptcy means months of shedding plants, brands, jobs and dealers just as the recession shows signs of abating. But part of the gamble is that it will prove to be better for the economy than the alternatives.

WSJ: Filing Has Potential to Lift Economy in Long Term

We briefly discussed the study by the Columbia Journalism Review about the responsibility of the media in the (non-)coverage of the early signs of the financial crisis and I wanted to revisit this here a bit.

The CJR article is an indictment of the business media, which it says did not do its job of bringing up the recklessness, irresponsibility and sheer fraud that characterised the housing and banking boom of the past decade. The CJR acknowledges that there were a number of articles in various publications (in particular the Financial Times) pointing to problems, but none that really brought about a change in behavior. They contrast this with some isolated cases where well-researched articles (usually about local scandals) led to actual investigations and punishment of financial firms, and note that enforcement of rules by public authorities is intimately linked to critical coverage of the issues by an investigative media corps.

COULD there be a better time to be a bank? If you have capital and courage, the markets are packed with opportunities--as they well understand at Goldman Sachs, which is once again filling its boots with risk. Governments are endorsing high leverage and guaranteeing huge parts of the financial system, so you get to keep the profits and palm off the losses on the taxpayer. The threat of nationalisation has receded, reinvigorating the banks' share prices. Money is cheap, deposits plentiful and borrowers desperate, so new lending promises handsome margins. Back before the crash, banks' profits just looked big; today they might even be real.

The bonanza is intentional. Governments and regulators want the banks to make profits so that they regain their health faster after roughly $3 trillion of write-downs. It is part of the monstrous bargain that bankers have extracted from the state (see our special report this week). Taxpayers have poured trillions of dollars into institutions that most never knew they were guaranteeing. In return, economies look as if they have been spared a collapse in payment systems and credit flows that would probably have caused a depression.

Change is slowly coming to Germany's dysfunctional electricity market

The competition regulator is trying to work out why energy prices in Europe's biggest economy are so stubbornly high, and in some cases still rising, even though oil and gas prices have fallen sharply. It suspects that generators may have been keeping prices artificially high by, for instance, shutting power stations in concert to limit supplies. Finding evidence of that sort of skulduggery may be difficult, and proving it even more so. But regulators need not look too hard to see that Germany's electricity market is broken and that a flawed liberalisation of the market over the past decade seems only to have entrenched many of its problems.

The first sign that the market is not working is in Germany's electricity prices, which are among the highest in Europe, even though it has access to abundant cheap coal.

Setting aside for now the issue as to whether coal is "cheap" (it is under current regulations which do not make coal pay for its externalities), I had to choke here. Market prices are not set by the cheapest source, but by the most expensive: it's called "marginal cost", and it's supposed to be one of the first things you learn in economics class. So coal is almost never the price setting generation source.

That a journalist from the Economist would so blatantly contradict a basic rule of economics had me stunned (yeah, I should know better)

Oil, gas and the IFIs: Sketching some lines on the horizon

The sun has still not set on taxpayer support for oil and gas projects via the international public banks. A November 2007 resolution in the European Parliament calling for the "discontinuation of public support, via export credit agencies and public investment banks, for fossil fuel projects" has been studiously shepherded into the long grass by the mantra of "energy security", as IFI investments into oil and gas show no sign of letting up.

Jérôme Guillet, an energy banker and the editor of European Tribune, and Steve Kretzmann, Executive director of Oil Change International, get together to debate what the IFIs have brought to the sector in recent times, and where any future involvement fits in with the need to massively ramp up global investment in clean energy initiatives.

Reposted with the kind permission of BankWatch.

Promoted from Diaries

As a number of you know. I am a banker. I've been financing projets in the energy sector for close to 15 years. I'm aware this diary can and will be seen as self-serving, and indeed it is. But I hope it will also be seen as a useful explanation.

Banking has always been both a utility and a casino. On the one side, you have the vast payments and cash management network, the retail business, the basic corporate lending or brokerage business and a lot of advisory work. On the other, you have the more market driven activities, the support and/or participation to corporate mergers & acquisitions, commodities and securities trading, all the way to own-account speculative risk-taking. The two used to be mostly apart (indeed, the Glass-Steagall Act kept them legally separated in the US), but the line has become increasingly blurred.

From the diaries - afew