The Peak Oil Crisis: A $4 Trillion Hole

Last week reporters at the Wall Street Journal sat down and did some arithmetic.

Tom Whipple

They looked at how much oil was selling for in the spring of 2014 (over $100 a barrel); looked at what it is selling for today (under $50); and concluded that if prices stay low for the next three years, the global oil industry and the countries it finances will be out $4.4 trillion in revenues. As these oil companies, nationalized and publically traded, will be producing roughly the same amount of oil in the next few years, the $4 trillion will have to come mostly out of profits or capital expenditures.

This is where the problem for the future of the world’s oil supply comes in. The big oil companies, especially those that export much of their production, have been doing quite well in recent years. National oil companies have earned vast profits for their political masters. Publically traded ones have developed a tradition of paying out good dividends which they are loathe to cut.

This leaves mostly capital expenditures on exploring for and producing more oil in coming years to take a dive as part of the $4 trillion revenue hit. Even if oil prices of $50 a barrel or less do not continue for the next three years, this still works out to a revenue drop of $1.5 trillion a year or about three times the planned capital expenditures of some 500 oil companies recently surveyed.

The International Energy Agency just came out with a new forecast saying that while current oil prices have the demand for oil products increasing rapidly, there is still so much over-production that the oil glut is expected to last for another year or more before supply/demand comes back into balance. The return of Iran to unfettered production would not help matters.

In looking at the next five years there are several trends or major issues that are likely to impact the supply and demand for oil. First is the recent price collapse that no longer makes it profitable to start projects to produce new oil, most of which now comes from deepwater, tar sands, or shale oil fields and is far more expensive to produce than “conventional” oil. As a result, investment in new oil production projects has dropped substantially in the last year and is likely to fall further.

On the demand side of the equation China is the biggest unknown. For the last 30 years the Chinese have enjoyed unprecedented economic growth, but recently the “world’s factory” has not been doing as well. Its government has been thrashing around wildly trying to stimulate growth and fend off a collapse in its stock market. Some believe China is a huge economic bubble that is about to collapse taking much of the world with it, and obviously reducing its ever-increasing demand for more oil.

The other 800-pound gorilla looming out there is climate change. Except for the drought in California and the storm that flooded New York a few years back, much of America and China for that matter has not been hurt badly enough by anomalous weather to reach an agreement that stopping climate change is the number one priority of all of us. Reports of “feels like” 159°F coming out the Middle East this summer have little impact on those convinced that climate change is a hoax. Should the effects of climate change worsen in the near future to the point that “do something before life on earth becomes impossible” becomes the majority perception of the issue, consumption of fossil fuels could be severely restricted. Although not widely appreciated, there do seem to be viable alternatives to fossil fuels waiting to be exploited.

The violence in the Middle East has grown worse in recent years. Although oil production in some areas has been restricted by geopolitics and violence, most of the oil continues to be produced. It is useless to talk about the next five years in the Middle East; however, we should keep in mind that there are at least a half dozen confrontations going on in the region that could morph into situations where oil production becomes more restricted.

When we net this all together, what do we have? Conventional wisdom currently says that oil prices are likely to be closer to $50 a barrel than to $100 for the next year or more. Capital spending on new production to offset declining production from existing oilfields is likely to drop still further leaving us in the situation where depletion may exceed the oil coming from new wells or fields. This is the argument that those who believe that we are at or near the all-time peak of world oil production about now are using.

The International Energy Agency says that the demand for the cheaper oil is rising rapidly, that production of shale oil currently is falling and the rest of world’s production is relatively static so we should be seeing oil prices rising again by 2017. This is where the turning point in the history of oil production could occur. In recent history rising prices have led oil producers to increase drilling for new oil production again. However the next time around, as mentioned above, there are new factors that may come into play. Will China be increasing its demand for oil in another two years? Will the Middle East still be exporting as much oil, and producing oil given the turmoil and the need to increase air conditioning? Will the world have decided the time has come to clamp down seriously on carbon emissions?

If global oil production does reach some kind of a peak this year and is lower in 2016, can it recover to reach new highs in the years following? Anything from inadequate investment stemming from persistently low oil prices to a major conflict in the Middle East could keep production from rebounding to new all-time highs. We are living in interesting times and just could see peak oil before we realize it. More

 

 

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Is the Caribbean a paradise for renewable energy?

caribbeanclimate

The Caribbean nations have all the incentives and resources to convert to 100% renewable energy. But is it happening?

With plentiful natural resources and expensive fossil fuels, Caribbean countries have a strong incentive to be at the forefront of renewable energy development. Photograph: David Noton Photography/Alamy

Derek’s one-door shop selling cakes, sweets and soft drinks in Barbados appears at first glance to be just like any other, until you lift your eyes upward. On the roof is an array of solar panels arranged in a less-than textbook design, but the aesthetics don’t matter. What’s important is that it produces usable energy.

What motivated Derek to get into solar power? Was it a desire to be green or combat climate change? “Climate change? I don’t even know what that is,” he says. “I just didn’t want to depend on the power company.” Electricity is expensive in Barbados. Derek bought a solar…

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What’s Really Warming the World? New Study

caribbeanclimate

Methodology

NASA’s Model

Researchers who study the Earth’s climate create models to test their assumptions about the causes and trajectory of global warming. Around the world there are 28 or so research groups in more than a dozen countries who have written 61 climate models. Each takes a slightly different approach to the elements of the climate system, such as ice, oceans, or atmospheric chemistry.

The computer model that generated the results for this graphic is called “ModelE2,” and was created by NASA’s Goddard Institute for Space Studies (GISS), which has been a leader in climate projections for a generation. ModelE2 contains something on the order of 500,000 lines of code, and is run on a supercomputer at the NASA Center for Climate Simulation in Greenbelt, Maryland.

A Global Research Project

GISS produced the results shown here in 2012, as part of its contribution to an international climate-science…

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Op-Ed: The Challenge of Small Island Developing States

The United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States defines small island developing states, or SIDS, as “a distinct group of developing countries facing specific social, economic and environmental vulnerabilities.”

These countries are across the globe in the Caribbean, the Pacific, Atlantic and Indian Oceans, and the Mediterranean and South China Sea.

In addition to common difficulties faced by developing countries, SIDS have an additional series of challenges to cope with that require special assistance from the international community.

These challenges were highlighted in the 1994 Barbados Programme of Action (BPOA) and the Mauritius Strategy of Implementation (MSI) of 2005, both of which stated that the difficulties SIDS face in the pursuit of sustainable development are particularly severe and complex.

Recognition of these issues was reinforced in September of 2014 when Member States of the United Nations officially adopted the Small Island Developing States Accelerated Modalities of Action, known as the SAMOA Pathway.

The challenges that SIDSs face are varied, but all conspire to constrain their development processes.

They typically do not have a wide base of resources available to them, and thus do not benefit from cost advantages that this could potentially generate.

Coupled with small domestic markets, they experience difficulties in profiting from globalisation and trade liberalisation and are cripplingly reliant on external and remote markets with limited opportunities for the private sectors.

The cost of provision of energy, infrastructure, transport and communication are high, and along with high population densities, creates increased pressure on these already limited markets.

These developing countries generally have a heavy reliance on tourism and services; however, as a consequence of their low resilience and location, they are also heavily affected by disasters due to frequent natural hazards.

The unique characteristics and vulnerabilities facing SIDS were first addressed by the international community at the Earth Summit (United Nations (UN) Conference on Environment and Development) in Brazil in 1992.

The SIDS case was the focus of Agenda 21, a non-binding, voluntarily implemented plan of action of the Summit, committed to addressing the problems of sustainable development of SIDS.

This plan involved adopting methods to enable SIDS to function and cope effectively with environmental change, and to mitigate the impacts and reduce the threats posed to their marine and coastal resources.

Following Agenda 21, the Barbados Programme of Action was introduced in 1994, in an effort to provide further aid and support to SIDS. Similarly, its ultimate aim was to improve sustainable development.

It highlighted the challenges of converting Agenda 21 into precise strategies, movements and procedures at the national, regional and international level and listed fifteen areas of priority for specific action.

Five further areas were selected by the UN General Assembly in 1999, recognising their urgency. These five were: climate change, as the rising sea level could render some low-lying SIDS submerged; natural and environmental disasters and climate variability, with an emphasis of improving disaster preparedness and recovery; freshwater resources, preventing water shortages as demand increases; coastal and marine resources, promoting the protection of coastal ecosystems and coral reefs; energy, developing solar and renewable energy in order to lessen dependence on imported oil; and finally tourism, focusing on the management of the growth of the tourism industry and the protection of the environment and cultural integrity.

The 2005 Mauritius Strategy of Implementation further complemented the BPOA.

It gave recognition to the challenges that are unique to SIDS, and proposed further action towards their sustainable development.

The MSI emphasised the location of SIDS in the most vulnerable regions of the world with respect to natural and environmental disasters and their rapidly increasing impact.

It made call for a global early warning system covering threats such as tsunamis, storm surges and cyclones, and stressed that some major adverse effects of climate change are already being observed.

Further, the MSI recognised the importance of international trade for building resilience and sustainable development in SIDS, and established the necessity for international institutions, including financial ones, to pay more specific attention to the structural drawbacks of SIDS.

The MSI went further on matters of trade, stating that “most small island developing states, as a result of their smallness, persistent structural disadvantages and vulnerabilities, face specific difficulties in integrating into the global economy”.

More recently, in September 2014, the Small Island Developing States Accelerated Modalities of Action, also known as the SAMOA Pathway, was adopted. As in the case of the previous adoptions, the strategy recognises the need to support and invest in SIDS so that they can achieve sustainable development. Distinguishing the Samoa Pathway slightly from the BPOA and the MSI is the idea of investing in the education and training of the people of SIDS.

The aim of this idea was to create “resilient societies and economies, with full and productive employment, social protection and decent work for all”, and to provide “full and equal access to quality education at all levels”, the latter which is a vital ingredient for achieving sustainable development.

The promotion of education for sustainable development is especially crucial for SIDS that are under direct threat from climate change, as it will “empower communities to make informed decisions for sustainable living rooted in both science and traditional knowledge”. Finally, the SAMOA Pathway supports efforts “to promote and preserve cultural diversity and intercultural dialogue, which provide a mechanism for social cohesion and, thus, are essential in building blocks for addressing the challenges of social development”.

Many SIDS have recognized the need to embrace sustainability through their own internal processes, however, without external aid from the international community, the required change will not come quickly enough. Following on the adoption of the Samoa Pathway, 2015 is rapidly becoming a watershed year for global processes of importance to SIDS.

Convergence is occurring across a broad spectrum of activities as this year has seen the international community deliberate on the Post 2015 framework for disaster risk reduction which culminated in the adoption of the Sendai Framework, new expected agreements in the post 2015 development agenda with Sustainable Development Goals replacing the Millennium Development Goals. New agreements are also expected on how development is financed and there remains expectation of a new international agreement on climate change.

Given their far reaching impact, these developments are critical, particularly when viewed from the perspective of the small island developing state.

Notwithstanding the global consensus, serious challenges remain for SIDS and for the foreseeable future; they will remain a special case for sustainable development.

However, with a global consensus and an avid commitment to the advancement of sustainable development in these countries, positive change is most certainly on the horizon.

George Nicholson is the Director of Transport and Disaster Risk Reduction and Anastasia Ramjag is the Research Assistant of the Directorate of Transport and Disaster Risk Reduction of the Association of Caribbean States.

Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal. More

 

 

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What is holding back the Cayman Islands from implementing more solar and wind energy?

The Caribbean appears to be the ideal location for renewable energy development. Petroleum resources are scarce and renewable resources such as solar, wind and geothermal are plentiful. Energy prices are high as there is no opportunity for economy of scale benefits that large land masses enjoy. Added to that, climate change impacts pose a major threat to the region’s small-island economies that are largely dependent on tourism and agriculture.

Despite this, most Caribbean nations still use imported diesel or oil to generate 90-100% of their energy. So what has been the barrier to using renewables? Many people have pointed to the cost factor. Small economies mean that in most cases countries have difficulty in financing renewable energy projects that require high upfront capital. Also, regulations have been slow in setting clear rules for grid interconnection. These factors have led some international investors and developers to be cautious about entering the Caribbean market. http://bit.ly/1NeB0fj

 

 

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July 2015 Sustainable Energy Finance Update

1 August 2015: During the month of July, the African Development Bank (AfDB), the Caribbean Development Bank (CDB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Global Environment Facility (GEF), the Inter-American Development Bank (IDB) and the World Bank announced sustainable energy project funding and initiatives.

The Asian Development Bank (ADB), AfDB, the European Commission, EIB and the World Bank also released publications on financing and deploying clean energy

The announced sustainable energy initiatives are being implemented in Anguilla, Argentina, Burkina Faso, Cambodia, Chile, Denmark, France, Georgia, Guinea-Bissau, Kenya, Mali, Montenegro, Spain, Turkey, the UK, Ukraine, Uruguay, Zambia and the Middle East and North Africa (MENA) region.

In Argentina, IDB approved US$14.4 million in financing from the GEF for a housing project that integrates energy efficiency and renewable energy to improve the quality of life of residents and reduce greenhouse gas (GHG) emissions. Using renewable energy schemes adapted for each of Argentina's eight bio-climactic zones, 128 prototypes will be built and monitored for a year. US$70.7 million in local funds and a US$1 million IDB technical cooperation grant will also support the project. [IDB Press Release]

In Burkina Faso, AfDB granted €25.35 million from the African Development Fund (ADF) to support the programme for budget support in the energy sector (PASE). The funds will be largely directed to improving the electricity supply for basic social sectors, public services, the private sector and households. The funds are intended to increase reliability and energy access, as just 17.6% of the population currently has access to electricity. [AfDB Press Release]

In Cambodia, the UN Industrial Development Organization (UNIDO) launched a project promoting commercial biogas plants with US$1.5 million in funding from the GEF. The project aims to increase rural electrification and energy access by installing plants with 1.5 MW in cumulative generation capacity and mitigate climate change by avoiding 1.3 megatons carbon dioxide equivalent (MtCO2e) in emissions directly and 3.3 MtCO2e indirectly over 15 years. [UNIDO Press Release]

In Chile, the World Bank Group's International Finance Corporation (IFC) signed an agreement with Banco Consorcio in support of non-conventional renewable energy projects. Under the agreement, IFC will provide a US$60 million credit line to finance, inter alia, small hydropower, biomass, solar, geothermal and wind. [IFC Press Release]

In Denmark, EIB announced the first transaction in the country under the Investment Plan for Europe: up to €75 million in equity-like financing to Copenhagen Infrastructure Partners (CIP) for the Copenhagen Infrastructure II fund. The fund is an “innovative” renewable energy infrastructure fund focusing primarily on newly established greenfield energy-related investments, such as large-scale offshore wind, biomass and transmission projects, in Western and Northern Europe. [EIB Press Release]

In France, EIB undertook its first equity participation under the Investment Plan for Europe, providing €50 million for Capenergie 3, an investment fund dedicated to renewables and managed by Omnes Capital. It is anticipated that the investment will finance 500 MW of generating capacity. [EIB Press Release]

In Georgia, EBRD facilitated the sale of over 400,000 carbon credits from the Enguri Hydro Power Plant to Statkraft, a Norwegian electricity company. EBRD's Carbon Project and Asset Development Facility (CPADF) provided technical assistance for the sales strategy and emissions reductions verification. The project, registered under the Kyoto Protocol's Clean Development Mechanism (CDM), was able to partially recover costs associated with carbon project development through the sale of the credits. [EBRD Press Release]

In Guinea-Bissau, AfDB announced the approval of a €9 million loan and a €7.7 million grant for a three-year programme aimed at reducing daily power outages and increasing electricity access in the capital, Bissau. The funding will connect 10,500 new subscribers to electricity, rehabilitate facilities for 31,000 existing subscribers, improve the efficiency of the system's infrastructure and improve management and governance of the National Electricity and Water Corporation. [AfDB Press Release]

In Kenya, the World Bank's Climate Investment Funds (CIF) approved US$218,000 for the second tranche of the Electricity Modernization Project under the Scaling Up Renewable Energy in Low-Income Countries Program (SREP). The funds are for implementation and supervision services for the project, which is aimed at increasing electricity access and reliability in the country. [CIF Document Page] [Project Proposal]

In Mali, IFC and Scatec Solar announced a partnership to develop the US$55 million Scatec Segou solar power project in cooperation with Africa Power 1. IFC is investing US$12.5 million in the 33-MW plant, in addition to taking on a 20% equity stake in the project company for US$2.5 million. The project will support Mali's goals of increasing the share of electricity generated from renewables and enhancing energy supply and access. [IFC Press Release]

In Montenegro, EBRD is providing a senior secured loan of up to €48.5 million to Krnovo Green Energy, a subsidiary of the French company, Akuo Energy, to develop the country's first commercial wind farm. KfW Development Bank is providing an equivalent loan for the 72-MW plant through its subsidiary, KfW IPEX-Bank. [EBRD Press Release]

In Spain, EIB granted the Spanish company Abengoa a €125 million loan for research, development and innovation (RDI) activities related to, inter alia, advanced electrical systems and renewable energies. The company's RDI programme is focused on clean/green energy and environmental technology breakthroughs that significantly benefit the environment. [EIB Press Release]

In Turkey, EBRD announced US$180 million in financing for mid-sized renewable energy projects, including solar, hydropower, wind, geothermal, waste-to-energy and energy efficiency. The funds, sourced from the Turkey Mid-Size Sustainable Energy Financing Facility (MidSEFF), will be on-lent by Turkey's Garanti Bank and Yapi Kredi Bank to private sector companies. [EBRD Press Release]

Also in Turkey, IFC approved a US$75 million long-term financing package for energy efficiency investments by the Turkish flat glass manufacturer, Trakya Cam. The company will use the funds for improving waste heat recovery and rehabilitating furnaces in plants located in both Turkey and Bulgaria. In addition to significantly reducing costs, the project is expected to cut GHG emissions by over 60,000 tons annually. [IFC Press Release]

In the UK, the National Trust, a conservation charity, revealed plans to invest £30 million in renewable energy projects, including a 200-kilowatt (kW) lake source heating project, two biomass boilers and a 250-kW hydropower project. [National Trust Press Release]

In Ukraine, the Nordic Environment Finance Corporation (NEFCO) signed five grant agreements for five cities in the eastern part of the country to implement energy efficiency measures. The funding is sourced from the NEFCO-administered Nordic Energy Efficiency and Humanitarian Support Initiative (NIU), which focuses on refurbishing municipal buildings and social infrastructure, especially schools, day care centers and health centers, in vulnerable areas of eastern and southern Ukraine. [NEFCO Press Release]

Also in Ukraine, medium and large municipalities will benefit from EIB loans totaling €400 million for 25-40 public infrastructure energy efficiency projects. The funds will be directed to central, regional or local government agencies, public utilities and municipalities by the Ministry of Regional Development, Construction, Housing and Communal Services of Ukraine. EIB's financing will cover up to 50% of total costs, with supplementary financing coming from other international financial institutions (IFIs). [EIB Press Release]

In Uruguay, US$55.7 million in loans from IDB will finance six solar PV plants, totaling 69.9 MW in generating capacity. The IDB-administered China Co-Financing Fund and the Canadian Climate Fund for the Private Sector are co-financing the project with additional loans of US$19.3 million and US$10 million, respectively. Producing an estimated 154.4 gigawatt-hours (GWh) per year, the plants will reduce CO2 emissions by approximately 74,000 tons annually. [IDB Press Release]

In Zambia, IFC signed a memorandum of understanding (MoU) with the Industrial Development Corporation (IDC) of Zambia to explore development of the country's first utility scale PV projects as part of IFC's Scaling Solar programme. The two 50-MW projects would help address a hydropower shortfall caused by low rainfall. [IFC Press Release]

In the MENA region, IFC announced a US$25 million investment for renewable energy projects, especially wind and solar plants. The investment takes the form of equity in Alcazar Energy, which will develop and operate the projects in Africa, the Middle East and Turkey. [IFC Press Release]

On publications, ADB released three volumes in a series on power planning as part of the ADB project ‘Ensuring Sustainability of the Greater Mekong Subregion (GMS) Regional Power Development.' The series explains how strategic environmental assessment contributes to better policymaking in the power sector, how indicators are used to analyze power development plans, and how sustainability assessment and the consideration of wider impacts can affect decisions in power planning. [ADB Press Release, Vol 1] [Integrating Strategic Environmental Assessment into Power Planning] [ADB Press Release, Vol 2] [Identifying Sustainability Indicators of Strategic Environmental Assessment for Power Planning] [ADB Press Release, Vol 3] [How Strategic Environmental Assessment Can Influence Power Development Plans: Comparing Alternative Energy Scenarios for Power Planning in the GMS]

ADB also published a series of three reports on the potential of renewable energy and energy efficiency in the GMS. The publications are part of a study under the ADB project ‘Promoting Renewable Energy, Clean Fuels, and Energy Efficiency in the GMS.' [ADB Press Release, Report 1] [Renewable Energy Developments and Potential for the GMS] [ADB Press Release, Report 2] [Energy Efficiency Developments and Potential Energy Savings in the GMS] [ADB Press Release, Report 3] [Business Models to Realize the Potential of Renewable Energy and Energy Efficiency in the GMS]

AfDB released the Sustainable Energy Fund for Africa (SEFA) annual report, highlighting that it reached US$6.5 million in commitments in its project portfolio in 2014. The report also underscores achievements such as launching the Africa Renewable Energy Fund, distributing enabling environment grants to help attract private sector investment and co-sponsoring the Second West Africa Forum for Clean Energy Financing (WAFCEF-2) business plan competition. [AfDB Press Release] [SEFA 2014 Annual Report]

The European Commission's Joint Research Centre (JRC) issued its 2014 wind status report, finding that wind meets 8% of Europe's electricity demand and predicting a 12% electricity share by 2020. With a focus on the EU, the report outlines the state of the economics, market and technology in the wind sector, with relevant comparisons to other regions. [JRC Press Release] [2014 JRC Wind Status Report]

EIB released an information brief on Africa's energy challenges, describing EIB's financial and technical support for the continent's efforts to build accessible and efficient power generation from sustainable sources. According to the brief, almost 25% of EIB operations in Sub-Saharan Africa and more than 33% in North Africa are dedicated to the renewable energy sector. [EIB Press Release] [Tackling the Energy Challenge in Africa]

EIB also released the annual report of the EU-Africa Infrastructure Trust Fund, which highlights the significant renewable energy investments of the Fund, including €33 million for the Sustainable Energy for All (SE4All) initiative. [EIB Press Release] [EU-Africa Infrastructure Trust Fund 2014 Annual Report]

The World Bank, in partnership with Bank of America Merrill Lynch, the Brazilian Development Bank (BNDES) and the SE4All Finance Committee, published recommendations for increasing the world's investment in clean energy. The report suggests four thematic areas that could collectively mobilize US$120 billion. [World Bank Press Release] [SE4All Press Release] [UN Press Release] [Scaling Up Finance for Sustainable Energy Investments] [IISD RS Story]

The World Bank's Energy Sector Management Assistance Program (ESMAP) conducted wind resource mapping in Tanzania and published the interim results. [Wind Resource Mapping in Tanzania: Candidate Site Identification Report]

The World Bank also released a study highlighting the positive energy access outcomes that can be achieved through energy efficiency measures. The report recommends factoring energy efficiency into development projects, based on an examination of eight recent World Bank projects. [World Bank Press Release] [EA + EE: Enhancing the World Bank's Energy Access Investments Through Energy Efficiency]

On events, IDB hosted an event, titled ‘LAC2025: Water Energy Food and Mining Nexus,' on 6 July 2015. The event considered how resource-related policy decisions today will affect future generations in Latin America and the Caribbean (LAC). Topics ranged from the depletion of aquifers and water pollution to resource rights. [IDB Event Announcement]

The World Bank sponsored an Indian delegation's visit to Brazil to learn about the country's experience in scaling up renewable energy to meet growing demand. As a result of the exchange, the two countries are working toward an MoU to cooperate on matters related to integrating variable renewable energy into the grid. [World Bank Press Release]

Climate finance news and developments outside of the sustainable energy sector are published in IISD RS's monthly Climate Finance Update, available via the Climate Change Policy & Practice portal. [IISD RS Climate Finance Updates]

read more: http://larc.iisd.org/news/july-2015-sustainable-energy-finance-update/

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