Blowout week 41

I lead off this week with one of Roger’s links to sliding oil prices. Are lower oil prices a good thing? The answer depends on who you are. If you are a consumer the answer is clearly yes (or is it?). If you are one of the new global dictators planning the world economy from the IMF or World Bank then you too will be pleased since lower oil prices should help stimulate global growth. But if you are an oil producer with expensive production then the answer is probably no since lower oil prices may herald losses, decreased investment and lower future supply. The high cost of marginal supply is an economics conundrum that the Keynesian economists have not yet got to grips with.

Forbes: Oil price slide continues

The slide in oil prices continued on Thursday with Brent crude prices dropping below $90 a barrel for the first time in two years and West Texas Intermediate prices entering bear market territory. The price drop comes amid general concerns over weakening demand globally and oversupply from the U.S. because of increasing shale oil production.

Rigzone: Eni Review Raises Questions about ‘Age of Gas’

A review of the global oil and gas industry by Italian oil major Eni has raised a question mark over whether the world is about to enter a so-called “Age of Gas”, with data showing that growth in oil consumption worldwide far outstripped growth in gas consumption last year.

Utility week: Supply concerns lift power market prices in Q3

Wholesale power prices in the UK market climbed steadily over the third quarter of this year, in increasingly volatile trade, due to supply concerns over European gas imports and nuclear availability, market analysts said.

NASA: Study Finds Earth’s Ocean Abyss Has Not Warmed

The cold waters of Earth’s deep ocean have not warmed measurably since 2005, according to a new NASA study, leaving unsolved the mystery of why global warming appears to have slowed in recent years.

Scientists at NASA’s Jet Propulsion Laboratory (JPL) in Pasadena, California, analyzed satellite and direct ocean temperature data from 2005 to 2013 and found the ocean abyss below 1.24 miles (1,995 meters) has not warmed measurably. Study coauthor Josh Willis of JPL said these findings do not throw suspicion on climate change itself.

Utility Week: Davey turns on Tories as Lib Dems set out energy plans

Speaking at the Liberal Democrat conference in Glasgow, Ed Davey said he had to “battle” with the Conservative communities secretary in relation to onshore wind projects.
Davey said that by calling in every onshore wind planning application “Mr Pickles is in danger of bringing the planning system into disrepute, of abusing ministerial power.”

Guardian: EU approves Hinkley Point nuclear power station as costs raise by £8bn

The European commission on Wednesday gave Britain the green light for a huge government subsidy that will open the way for the first atomic power stations to be built for nearly 20 years.

The ruling was welcomed by ministers and the nuclear industry but Austria threatened legal action against it, while consumer champions said it could add more than £5bn a year to energy bills.

Marketwatch: Can Saudis beat North Dakota in an oil price war?

With oil prices tumbling — and dragging gasoline prices at U.S. pumps further below $4 a gallon — investors wonder if Saudi Arabia will cut production in an effort to stop the slide.

Don’t count on it.

Bloomberg: We’re Sitting on 10 Billion Barrels of Oil! OK, Two

Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage.

That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators.

USA Today: Nigeria succeeds at containing Ebola

LAGOS, Nigeria — People here are shaking hands again, kissing, hugging, touching. These days, shops are open, people are working, and children are finally going back to school.

That’s because Nigeria — Africa’s most populous country — is officially Ebola-free, the health ministry said, even as the deadly virus rages on in neighboring countries, where lockdowns and quarantines are common and death rates are rising.

Telegraph: France is doing badly, but German energy sector is a disaster – EDF

France’s economy may be doing badly but Germany’s energy sector is a “disaster”, the head of French state-owned energy company EDF has said.
Henri Proglio, EDF chief executive, acknowledged his country was “in a poor situation” and “under pressure”.
But he said different industries should be considered in their own right, highlighting the German energy sector, where the country’s phase-out of nuclear power and drive for renewables has severely damaged its two biggest companies.

Telegraph: Ed Davey: Labour will destroy the stability of the energy sector

Labour’s energy policies would destroy the certainty and stability the industry so desperately needs, Ed Davey has warned.

The secretary of state for energy and climate change went on the attack against Labour’s policies at the Liberal Democrat Conference in Glasgow. Speaking at a Guardian fringe meeting, he lambasted opposition plans to get rid of Ofgem, the energy regulator, and introduce an energy price freeze for consumers.

Daily Mail: LUNACY! The Lib Dem energy minister switched our biggest power station from coal to wood brought by diesel-guzzling ships from the U.S. The result? It costs us all a fortune and emits MORE pollution

This afternoon, just when many delegates might fancy a post-lunch snooze, the Lib Dem Cabinet Minister Ed Davey will stride on to the stage at his party’s conference in Glasgow.
The Energy And Climate Change Secretary will doubtless trumpet the success of the Coalition’s ‘green’ policies, which have mostly involved carpeting Britain with evermore wind farms and solar panels.
He may also boast about how, under his stewardship, we have moved away from relying on coal-powered energy and entered a brave new world in which ‘biomass’ — or plant-based fuel, mostly made up of wood chips — is used to run our power stations.

Roger’s links

SMH: Labor won’t bring back carbon tax in Australia

While urging the government to address China’s recently introduced tariff on Australian coal, Mr Shorten said the Australian people had spoken on the carbon tax at the last election, which saw Labor lose office. “We will not have a carbon tax, the Australian people have spoken and Labor is not going to go back to that,” Mr Shorten told reporters in Sydney on Saturday.

WSJ: The Global Warming Statistical Meltdown

Mounting evidence suggests that basic assumptions about climate change are mistaken: The numbers don’t add up.  At the recent United Nations Climate Summit, Secretary-General Ban Ki-moon warned that “Without significant cuts in emissions by all countries, and in key sectors, the window of opportunity to stay within less than 2 degrees [of warming] will soon close forever.” Actually, this window of opportunity may remain open for quite some time. A growing body of evidence suggests that the climate is less sensitive to increases in carbon-dioxide emissions than policy makers generally assume—and that the need for reductions in such emissions is less urgent.

PhysOrg: French parliament votes to cut nuclear power reliance

Lawmakers in France, the world’s most nuclear-dependent country, on Friday voted to cut reliance on the energy source from more than 75 percent to 50 percent within a decade. The vote comes as part of an ambitious makeover of France’s energy use promised by President Francois Hollande during his 2012 election campaign. The measure calls for renewables to increase in the energy mix for electricity production, rising from 23 percent in 2020 to 32 percent in 2030.Use of fossil fuels should drop to around 30 percent. The measure also sets a goal for a reduction of 40 percent in greenhouse gas emissions from the 1990 levels by 2030 and a 75 percent reduction in 2050. It also targets a 20-percent reduction in energy consumation by 2030, in line with a draft project EU leaders are set to consider at an October 23-24 summit in Brussels.

Forbes: China Tariff On Imports Could Dramatically Impact Already Hard-Hit Coal Producers

China’s move to impose a tariff on coal imports starting on Oct. 15 could have an “unquantifiable impact” on liquidity-constrained coal producers which have already suffered dramatic losses in bond valuations as declining coal prices pose a limitation on cash-flow generation. The decision by China – the world’s top coal importer – to put a 3% tariff on anthracite and coking coal and 6% tariff on thermal coal reverses a near decade-long policy to remove barriers to imports, making a near-term rebound in coal prices increasingly less likely, analysts say.

Platts: Rosneft announces major oil, gas discovery in Arctic Kara Sea

Russia’s Rosneft has made a major oil and gas discovery in the Arctic Kara Sea following the drilling of the northernmost well in the world in the East-Prinovozemelsky 1 block, which it explores together with ExxonMobil, the company said Saturday. “According to preliminary results, the resource base of the first hydrocarbons trap discovered through the drilling is estimated to hold 338 billion cubic meters of gas and over 100 million mt (730 million barrels) of crude,” Rosneft’s CEO Igor Sechin said in a statement.”This is light crude comparable to the Siberian Light blend, according to the initial tests,” he added.

Forbes: U.S. Sanctions Compromise Arctic Oil Discovery

Exxon Mobil’s joint venture partner in the Arctic exploration program, Rosneft, recently confirmed the discovery of oil in Kara Sea. The commercial viability of producing this oil under current market conditions is yet to be determined but the size of the find (estimated at around 750 million barrels of oil) seems to be huge. While this is great news for both Exxon and Rosneft, the current geopolitical scenario, where the U.S. and European companies are being increasingly banned from cooperating with Russian peers, clouds the development prospects of these reserves with uncertainty.

NYT: How Grid Efficiency Went South

Almost every rooftop solar panel in the United States faces south, the direction that will catch the maximum energy when the sun rises in the southeast and sets in the southwest. This was probably a mistake. The panels are pointed that way because under the rules that govern the electric grid, panel owners are paid by the amount of energy they make. But they are not making the most energy at the hours when it is most needed.

Shale Energy Insider: Fracking less damaging than solar panels and wind turbines

According to a new study, installing offshore wind turbines and solar panels are more environmentally damaging than fracking. The study conducted by the University of Manchester suggests that the production of panels and turbines result in a greater depletion of natural resources which have an impact on freshwater and marine organisms also heavy metals and other toxic elements used in the life cycle of solar panels and wind turbines give them a ‘human toxicity’ rating at least three times greater than for shale. The study also found that solar panels cause more damage to the ozone layer than shale gas because of the use of tetrafluoroethylene in the production of cells, furthermore the silver and tellurium used to produce silicon cells for panels and steel used in turbines mean these renewable energy sources score far worse for resource depletion.

CleanTechnica: 14 European Union Member States Will Miss 2020 Renewables Targets

The EU Tracking Roadmap released by the Keep on Track! monitoring body warned that Belgium, the Czech Republic, Spain, France, Greece, Hungary, Luxembourg, Latvia, Malta, the Netherlands, Poland, Portugal, Slovenia, and the UK are all likely to miss their 2020 renewable energy targets. There is uncertainty that Germany, Finland, Ireland, and Slovakia will make their targets, while predictions show Austria, Bulgaria, Cyprus, Denmark, Estonia, Italy, Latvia, Romania, and Sweden will all comfortably hit their targets by 2020.

Guardian: Why is Antarctic sea ice at record levels despite global warming?

While Arctic sea ice continues to decline, Antarctic levels are confounding the world’s most trusted climate models with record highs for the third year running.

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10 Responses to Blowout week 41

  1. Roger Andrews says:

    Euan: You ask “Are lower oil prices a good thing?”

    There maybe once was a time when oil created wealth, but the world has now reached the stage of development where wealth creates oil. This is evident in the relationships between world GDP, oil consumption and price. Low oil prices simply reflect the fact that the world’s wealth isn’t increasing very fast, if at all, these days, and the result has been suppressed demand and lower prices. When and if wealth begins to increase again oil demand and price will go back up. What we’re seeing here is a market reaction, not a fundamental change.

    • sam Taylor says:


      Some people have been suggesting that the recent high oil price has largely been sustained by consumers going into debt, certainly in places like China where consumer debt has risen sharply in the last decade. Balance sheets are now approaching saturation and ability to take on more debt to afford high price oil is limited. This may mark the beginning of another phase change in oil behaviour.

    • Euan Mearns says:

      I see things differently. Wealth creation was a function of high and rising ERoEI. The Net Energy (ERoEI-1) was the wealth component. Oil created wealth when it had rising ERoEI. Now with falling ERoEI it is consuming the wealth it created. Sam’s point about debt is also valid. We have substituted Net Energy with debt trying to fool thermodynamics for a while.

      • Rune Likvern says:

        So we are now using growth in global total debt to transmute future wealth into income?

        The revenge of Thermodynamics, sounds like a title for a movie soon coming to a theater in everyone’s neighborhood.

        • Euan Mearns says:

          Rune, I’m writing a post on oil prices, and as we all know the oil price is impossible to predict, apart from the pink patch 2002 to 2008 where the formula was Y2=Y1*0.3. If you have any links to share that casts light on the debt issue I would sure like to see them. Thus far, this is the most significant chart I’ve come up with:

          • Rune Likvern says:

            I have a post in the pipeline to come up on Fractional Flow (sometime next week hopefully) dealing with global oil supplies, the oil price and credit/debt changes.

            Short story and my view:
            Any forecasts of oil (and gas) supplies and its price trajectories is not very helpful if they do not incorporate forecasts for changes to total credit/debt and consumers’/societies’ affordability.

            Link to some good reports on credit;

            Deleveraging? What Deleveraging? Geneva 16 th report issued late September 2014.
            84th BIS Annual Report, 2013/2014 BIS; Bank for International Setllements issued late June 2014.

      • Ed says:

        Here is my two penny worth.

        Wealth creation is a function of Net energy production. ie the energy available to society after the energy used by the energy sector has been subtracted. We may be already beyond peak Net energy production for this planet. ie wealth creation has also peaked.

        Debt is just a claim on future Net energy production. e.g. Borrow £10 today to afford to drive x miles today, x/2 miles in 10 years time or x/5 miles in 20 years time etc. as Net energy of oil production declines. However paying back this debt becomes harder over time if Net energy production is declining. ie as you get poorer.

  2. sam Taylor says:

    A link to the paper which assesses the impacts of fracking can be found here:

  3. John Williams says:

    I’m interested (as a complete lay person who follows your blog but is no scientist) that nobody remarked on the announcement this week by Ewing that he has granted permission to those 4 offshore wind farm sites. This brings the total of constructed and consented schemes in Scotland to 15.784 GW — which equates to about 116% of annual electricity consumption. You may recall that the “target” announced with such fanfare by Alex Salmond was to reach 100% by 2020. Well they are there already, and no sign of any sense that maybe now is the time to slow down perhaps.

    Our paper by Jack Ponton FREng on this is available if anyone wants to see it. At the last wind farm appeal we won the Reporter commented on our paper favourably as part of the reasoning for refusal. Naturally there have been attempts to brush it aside from the Executive and wind industry.

    Still, it looks like Owen Patterson is going to blow a much bigger hole in the whole wind energy lunacy on Wednesday.

  4. John Williams says:

    Reverting to the week’s news in general, I thought an interesting event was the announcement by Ewing that he has consented 4 off shore wind farms, adding over 2 GW capacity at a single stroke. This addition brings the total of operational and consented renewables to just short of 16 GW capacity.

    The Scottish “target” is for 100% equivalence of electricity consumption by 2020. The SG has estimated that 14 – 16 GW capacity is the comparable generation target — our recent published paper looks at this more closely and we estimate the figure is now more like 115% of required capacity. Cloud cuckoo land? Well maybe, but someone has to pay for this — and the signs are that this week Owen Patterson may at last start a serious debate on this monstrous folly.

    Paper available if anyone wants a look — SG tried to brush it aside.

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