No Hot Air

Stored Solar: This year's model

One story we got real excited about in August 2008 about the same time we discovered shale, was the work of Daniel Nocera from MIT on storing solar power:

In one hour enough sunlight falls on the earth to power the world for a year. There are just two problems with solar energy: it's still expensive- and night. But now researchers at the Massachusetts Institute of Technology have figured out a way to store solar energy when the sun don't shine. To accomplish the technological trick, the scientists sort of turned over a new leaf: their innovative process imitates what nature does: photosynthesis.

Whatever happened to that?  Daniel Nocera is still around, still at MIT and still thinking of creating energy through chemistry:

What if you had a solar panel on your roof that could easily make hydrogen from the sun, use the sun's rays to make hydrogen? And you power up your own personal fuel cell, you store that solar energy in the form of hydrogen over time and you just click a switch and use it when it's needed. Well, with the right chemistry and the right catalyst, it might be possible.

Will anything happen here?  We don't know.  But we should think of possible game changing technologies like these instead of game freezing technologies such as CCS.  Carbon Capture and Storage is incredibly expensive and may not work.  But even worse it locks the mid 21st century into electrical generation technology from today. Spending a huge amount of money on something like CCS will prolong an already doubtful technology long after it can be supplanted by the likes of stored solar or oilgae or any number of breakthroughs in producing, using and storing energy.

In 2050 CCS may work.  It also may be as useful as an electric typewriter, or a fax machine or a video cassette is to us today.

Obama in China. And in the planet UK...

President Obama on Copenhagen:

"We should not make the perfect the enemy of the good"

The DECC in an off-the-record conversation today:

"I'm interested in 80% reduction by 2050, not CO2 reductions in the short term". She also said that shale is a "US phenomenon".  So that means it wasn't David MacKay.  But it is the old story.  Spend a huge amount of money on some pie in the sky scheme like CCS instead of immediate actions.

Meanwhile back in the two countries that matter:

It may have been toward the bottom of the list. But US President Barack H. Obama and Chinese President Hu Jintao did include a shale gas resource initiative in their Nov. 17 announcement of measures to strengthen clean energy cooperation between the two countries.

“Under the initiative, the US and China will use experience gained in the United States to assess China’s shale gas potential, promote environmentally-sustainable development of shale gas resources, conduct joint technical studies to accelerate development of shale gas resources in China, and promote shale gas investment in China through the US-China Oil and Gas Industry Forum, study tours, and workshops,” the White House said in a statement posted at its Web site.

The China as energy bull story: soon to be bull?

We've remarked before on how common, yet outdated, perceptions of China's energy demand and resultant carbon emissions are used by a variety of energy market participants to talk up their own book at the expense of end-users and or tax payers. The basic approach of the various actors is to talk up China as some sort of bottomless energy pit, but the results depend on who is talking up the bull market.

Energy consultants, oil traders, peak oil theorists, CCS developers, climate change deniers are among those who in general want to talk up energy as a big problem.  Some have political axes to grind. Others are only in it for the money;  for describing the big problem, they can offer a solution with a fee relative to the size. A big part of the problem is to have an alarmist, hysterical and unrealistic view of China which describes a narrative of China as bottomless energy pit.  

China is often used for example, as an excuse not to act on carbon reductions at the  company, local and/or national level.  Similarly, those who want to push up prices, or finagle end users into fixing long term,  or bullish traders on oil and gas markets often use China as a threat to scare people into acting emotionally instead of rationally.

Those who expected me to mention shale gas in China, will be disappointed here.  China seems to be doing just fine on the supply/demand balance even before any shale gas comes into play.

China's domestic gas production will increase 50% in 2010 according to Sinopec's Xie Dan.  Most of that is due to the Puguang gas field coming on line.  China seems to have not exhausted any possibilities yet on conventional natural gas, as a recent discovery in Chonqing is allegedly three times the size of Pugang.

Where does this leave China in a few years?

China's natural gas consumption has been growing at double-digit rates for the past few years, but industry officials said the growth is likely to slow in the next few years.

"With a number of LNG projects, the second West-to-East gas pipeline, the volume of imported natural gas will grow quickly in the next few years," Xie told the conference, adding that the annual supply of natural gas is expected to increase by 2 bcm a year.

Demand from industrial users may weaken due to rising prices and the introduction of alternative energy forms, Xie said.

"Some regions may see an oversupply of natural gas," he said

Where will that leave us?  Without China sucking up every spare molecule on the planet, it means simply there will be more for everyone else.  Which means less for those pushing China as a problem.

Gas: the scenario which changes everything.

Geneva's Le Temps  has an article on gas on the back of the IEA report, interesting to see a more general perspective and an international one:

The translation is ours and Google's:

The most essential part of the report contained other information that was more surprising. The world's gas reserves are probably much larger than expected. So far, it was commonly accepted that the planet could meet its gas needs for the next 60 years, drawing on stocks from three countries (Russia, Iran, Qatar), which share a good half of the reserves. In reality, reserves could cover two centuries of consumption if we combined the unconventional gas, particularly gas contained in shale and transition zones (Coal Bed Methane, very deep reservoirs)...Shale gas is producing an investment frenzy..experts predict 60% of US production will come from shale by 2030, an enormous quantum jump considering it is only a few per cent today...One can imagine the practical consequences. Europe, which feared becoming increasingly dependent vis-à-vis Russia, would find untapped resources to loosen the vise is closing on it. The major pipelines, designed to connect Europe to the new fields in Siberia and the Caspian Sea, and perhaps one day Iran and Iraq are at the heart of a war in which geopolitical threats and diplomatic gamble poison our relations with Russia. However, in a throw of the dice, everything could change. This perspective would explain in part the financial difficulties encountered by proponents of new gas routes and he major liquefied gas projects which should allow the United States and Europe to diversify their sources of supply.

...we are witnessing a handover between gas and oil which the magnitude and consequences seem to confuse the International Atomic Energy which has just began to sketch these issues.

The Gas Oil Link

In UK natural gas prices,  2009 has seen a paradigm shift, a game changer and a revolution.

The paradigm shift has been the drop in energy consumption.  Although the recession had a big part in this, energy consumption of oil, gas and electricity started to go down in 2005 in what are called "developed" economies which signifies that the "recovery" if it ever shows up, does not mean a return to the bad old days.

The revolution has been shale.

The game changer is the globalisation of natural gas prices, primarily  deriving from the sudden emergence of shale reserves  pointing toward a future permanence of prices divorced from a link to oil prices.

The gas oil link has always been controversial among UK end-users but had been considered permanent due to the power of the link's big fans at Gazprom and Algeria's Sonatrach among others.

The link is over 50 years old and in Europe started out in the Netherlands. At the time, natural gas was a disappointment; the real prize was oil. Natural gas didn't have anywhere near the infrastructure or popularity it does today and gas had to compete with oil. Gas was naturally cheaper than oil, but had to remain priced in comparison to oil.  This made sense when comparing gas versus oil in fuel switching at generators or as feedstock in chemicals or for very large end users.  It wasn't very rational in pricing at small users - no one we know has dual fuel central heating. The link was logical in the days when oil was plentiful and carbon was a non-issue. Today, gas has two major advantages to oil: it has 31% less carbon content and doesn't have any of the supply issues, actual or imagined, that surround oil.

This year the link seems to have cracked as in May as this comparison of UK NBP gas and Brent Crude shows:

Is this permanent?  Via the FT's Energy Source Blog, we asked Fatih Birol, chief economist of the International Energy Agency the following.  I've highlighted  some key points:

The link between oil and natural gas prices is getting very frayed. Do you see it breaking permanently?

A. Dear Nick Grealy, in Europe and Asia-Pacific, gas is imported mainly under long-term contracts, which, in most cases, link the price of the gas to changes in the prices of oil under what are called indexation formulae. The original logic behind this arrangement is that gas competes against oil products, though increasingly gas competes more against other fuels, including coal and electricity. For now, the exporters and many importers are happy to stick with oil indexation. But the glut of gas that is building up does could put increasing pressure on both sides to adjust their pricing terms and even move towards an alternative pricing system, the most obvious of which would be direct indexation to spot or future gas prices. Russia’s Gazprom and Algeria’s Sonatrach – the two biggest external suppliers to Europe – have lost market share over the past year to cheaper spot LNG. They may decide at some point that enough is enough, and opt to move away form oil indexation, though they have made it absolutely clear that they have no intention of doing so for the time being. And the big importers may also start asking for it, as the gap between the price of cheaper spot gas and the price of gas under their long-term contracts widens. For now they don’t want to upset the status quo, but again that could change – especially if their confidence in pricing on the basis of spot markets increase. Certainly, the gas glut proves a window of opportunity for Europe and Asia to move to a more rational system of market-based pricing

No surprise

From PA:

• British Gas parent Centrica has said its residential utility arm was on track to see profits soar by an expected 43% this year, despite a 7% fall in energy consumption.

Seven per cent drop in sales, 43% increase in  profits.  Why can't the rest of UK industry do this well?  Probably because they don't have an as blind, toothless and incredibly naive regulator as Ofgem.

Ofgem believes, solely because the Big Six told them so, that they simultaneously had the misfortune (ours, not theirs evidently) to buy July, August and September 2009 gas during the highest prices ever recorded in July 2008.  Ofgem has resisted calls to have an open book investigation of suppliers on the grounds of commercial confidence.

Unless the Big Six are complete morons,  they would have  contracted for that gas at the time, with the price set at the prices in effect on the wholesale markets at the time of delivery.  They would have perhaps bought an option to buy the gas at that price, or any number of derivatives to protect themselves but they probably didn't bother.  This was the time of $143 oil, and everyone knew which way that was going.

Wholesale prices today are up  to 70% lower than they were last year.  And that is the price that the big six are paying, which explains  how they increase profits even as sales decrease.  Ofgem is naive on the verge of incompetence if they believe, with no proof, that suppliers bought into iron clad agreements last year.

Utility bills are as unavoidable as taxes.  Utilities are essential a tax for modern life.  And they have a similar impact as taxes.  If they are higher than they could or should be, they have a macro economic impact that should take precedence over the narrow interests of Big Six shareholders.  Better economists than I can say what the £50 a month that the average user over pays would be equivalent to:  It would surely be equivalent to a point or two on income tax or VAT. Energy bills are an incredible downward drag on consumption and may explain why the UK is doing worse than other economies.  I don't believe this is deliberate, as it imputes competence they don't have , but the net impact of Ofgem sabotages the recovery. That £50 a month could be going from energy payers, which is just about everyone who also pays taxes (and those who don't like the unemployed and pensioners) into retailer tills, or paying down debt or even investing in companies like Centrica.

But we can do something about those who raise taxes.  We can't do anything about energy bills, because Alistair Buchanan says that British Gas's prices are just fine with him.  The Tories are allegedly planning to ditch Ofgem. 

What"s the betting that Alistair Buchanan ends up on one of the boards of the Big Six sometime in the future? 

IEA on gas again:

Two countries, two views:

Apart from the FT, we couldn't find much in the UK press where the International Energy Agency talks about the gas glut, so we have to find out their views from the German press:

Unconventional gas is unquestionably a game-changer in North America with potentially significant implications for the rest of the world,” said Mr. Tanaka. The share of unconventional gas in total US gas output jumped from 44% in 2005 to around 50% in 2008 and, in the Reference Scenario, is projected to rise to almost 60% in 2030. The boom in North American unconventional gas production, together with the recession’s impact on demand, is expected to prolong the glut of gas supply for the next few years. The analysis of WEO-2009 shows that the annual under-utilisation of inter-regional pipeline and LNG capacity could rise from around 60 billion cubic metres in 2007 to 200 bcm by 2015. This glut could have far-reaching consequences for the structure of gas markets, with suppliers to Europe and Asia-Pacific coming under pressure to modify pricing terms under long-term contracts, to de-link gas prices from oil prices, sell more gas on a spot basis and to cut prices to stimulate demand.

But The Times doesn't want to hear from someone like the head of the IEA, when they can give a forum to the cheerleader in chief for nuclear, CCS, gas storage and everything with a government subsidy attached, Dieter Helm.  Mr Helm is an Oxford man, but he hasn't heard of gas:

How did we get to this state? Partly because energy policy has never been taken seriously. Without a crisis, it is always someone else’s problem — and one for the future. Most solutions require customers (and voters) to pay more now — and that is something politicians are loath to admit. But bad news on bills — and an energy crisis — is coming unless radical action is taken soon.

But what about un-radical action, like gas for example?  It's a strange world where the right is seeking radical action and old lefties like myself are promoting free market solutions.

Gas is barely mentioned on Planet Dieter and it's the same old story.

North Sea gas reserves have been running out

So?  Big deal in a gas glut.

He said something that since we know that Ireland generated just under 40% of it's power from wind recently, we got a bit suspicious about:

We not only pay among the highest bills for wind, but in Europe only Cyprus and Malta generate a lower proportion of their electricity from it

What is he trying to say?  That we generate too much wind or not enough?  Is he saying that our pitiful contribution to wind power is among the best in Europe?  If that is the case we didn't have to look far. Same newspaper, same day:

High winds across Spain on Sunday meant that for over five hours, over 53 per cent of the country’s power came from wind energy. The towering white wind turbines which loom over Castilla-La Mancha — home to Cervantes’s hero Don Quixote — and which dominate other parts of Spain, set a new record in wind energy production.

Red Electrica said this year wind power is expected to produce 13 per cent of all electricity, hydroelectric power 10 per cent and solar power 2.5 per cent. Spain’s solar industry is one of the fastest growing in the world.

Less Hysterical Tones on European Gas

From Datamonitor via iStockanalyst a story which starts out plainly noting that Nord Stream, the Russia/Germany pipeline under the Baltic has all the necessary approvals but then provides some of the best analysis of European gas going, and that includes us:

Thus it appears that the fundamental beliefs which have underpinned European states' energy planning for the past five years may soon be turned on their heads. From 2011, Nord Stream will increase the security of Russian supplies to Europe. LNG regasification capacity will also be far higher and it is reasonable to assume that LNG supply will remain strong for at least the next four years. Finally, indigenous supplies may not actually be declining at the rate previously assumed. Hence, over-reliance on gas (the central obstacle facing policy makers between now and the new generation of nuclear plants' activation around 2020) may not present such a critical flaw as previously thought. Of course, under-investment in new infrastructure resulting from the financial crisis could yet leave the gas market tight by 2015 (particularly if the global economy were to rebound powerfully) but perhaps the debate surrounding Europe's energy strategy might now be conducted in less hysterical tones.

Less hysterical, and less paranoid. And dare we ask realistic to boot?  It will take a while for the gas Chicken Littles to get worked out of the system, but their days may be numbered

Lower Carbon Future? Try Natural Gas.

 Tony Hayward of BP,  unable to find space in UK newspaper pages busily proposing outdated solutions to obsolete energy shortage scenarios has been reduced to writing op-eds for The Washington Post.

...shaping our energy future will be more complex than simply using less fossil fuel and more alternatives. Getting to a lower-carbon world while also providing the increasing energy needed to power a growing economy requires a more nuanced approach.The issue, then, is not a choice between fossil fuels and alternatives but, rather, what combination can achieve the fastest carbon reduction at the lowest possible cost using available technology?

Hayward then goes to the usual arguments about how gas can replace coal, CCS is unproven and doesn't work yet and ramping nuclear up won't be quick.  He doesn't deny they'll ever happen but:

..providing the increasing energy needed to power a growing economy requires a more nuanced approach.

Renewable energy sources -- wind, solar, biofuels -- have an important role, and BP, the energy company I head, is investing significantly in all. Still, the shift to alternatives can't happen overnight.

Meanwhile here in the UK, it's going to be nuclear's day today, which is pushing an expensive, divisive and long winded solution to a problem of energy security that no longer exists. 

Gas as back-up to renewables and bridge to the future.

Natural gas can buy us time and be the bridge fuel to a no carbon future based on a energy mix every bit as diverse as the current coal, gas, nuclear, renewable mix. A no/ultra low carbon future might arise from any one or many sources: wind, tidal, stored solar, oilgae, solar batteries, hydrogen or fusion for example.

Robert F Kennedy Jr of the US environmental organisation Waterkeeper's Alliance is a supporter of gas as an alternative to coal.  He recently proposed using gas as back up to solar:

The solar power sector and the natural gas industry need to build an alliance to get more government support and take over the energy sector from incumbents like Big Oil and King Coal, Robert F. Kennedy, Jr. said on Wednesday....

The alliance is just forming,” Kennedy told reporters after his remarks. He added that the natural gas industry has been “hiding under oil and they think Big Oil is going to take care of them. But they’re realizing Big Oil is never going to let them make a profit” and that companies like Chesapeake are realizing “that their future is with the environmental community and the renewable community.”

He said the team-up also makes sense because power from natural gas can help balance out solar and wind-generated electricity on the grid, eliminating the problem of inconsistency on sunny days, for instance.

What about UK environmentalists?  Where do they stand on the new world of abundant natural gas?

Many of them are as unaware of the game changing events in natural gas everyone else, simply due to the (diminishing) silence in the UK MSM.  But some greens are starting to educate themselves, and will be popping up in unexpected places shortly.