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Ex govt adviser: “global market shock” from “oil crash” could hit in 2015

In a new book, former oil geologist and government adviser on renewable energy, Dr. Jeremy Leggett, identifies five “global systemic risks directly connected to energy” which, he says, together “threaten capital markets and hence the global economy” in a way that could trigger a global crash sometime between 2015 and 2020.

According to Leggett, a wide range of experts and insiders “from diverse sectors spanning academia, industry, the military and the oil industry itself, including until recently the International Energy Agency or, at least, key individuals or factions therein” are expecting an oil crunch “within a few years,” most likely “within a window from 2015 to 2020.”

Interconnected risks

Despite its serious tone, The Energy of Nations: Risk Blindness and the Road to Renaissance, published by the reputable academic publisher Routledge, makes a compelling and ultimately hopeful case for the prospects of transitioning to a clean energy system in tandem with a new form of sustainable prosperity.

The five risks he highlights cut across oil depletion, carbon emissions, carbon assets, shale gas, and the financial sector:

“A market shock involving any one these would be capable of triggering a tsunami of economic and social problems, and, of course, there is no law of economics that says only one can hit at one time.”

At the heart of these risks, Leggett argues, is our dependence on increasingly expensive fossil fuel resources. His wide-ranging analysis pinpoints the possibility of a global oil supply crunch as early as 2015. “Growing numbers of people in and around the oil industry”, he says, privately consider such a forecast to be plausible. “If we are correct, and nothing is done to soften the landing, the twenty-first century is almost certainly heading for an early depression.”

Leggett also highlights the risk of parallel developments in the financial sector:

Growing numbers of financial experts are warning that failure to rein in the financial sector in the aftermath of the financial crash of 2008 makes a second crash almost inevitable.”

A frequent Guardian contributor, Leggett has had a varied career spanning multiple disciplines. A geologist and former oil industry consultant for over a decade whose research on shale was funded by BP and Shell, he joined Greenpeace International in 1989 over concerns about climate change. As the organisation's science director he edited a landmark climate change report published by Oxford University Press.

Industry's bad bet

Leggett points to an expanding body of evidence that what he calls “the incumbency” – “most of the oil and gas industries, their financiers, and their supporters and defenders in public service” – have deliberately exaggerated the quantity of fossil fuel reserves, and the industry's capacity to exploit them. He points to a leaked email from Shell's head of exploration to the CEO, Phil Watts, dated November 2003:

“I am becoming sick and tired of lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings.”

Leggett reports that after admitting that Shell's reserves had been overstated by 20%, Watts still had to “revise them down a further three times.” The company is still reeling from the apparent failure of investments in the US shale gas boom. Last October the Financial Times reported that despite having invested “at least $24bn in so-called unconventional oil and gas in North America”, so far the bet “has yet to pay off.” With its upstream business struggling “to turn a profit”, Shell announced a “strategic review of its US shale portfolio after taking a $2.1bn impairment.” Shell's outgoing CEO Peter Voser admitted that the US shale bet was a big regret: “Unconventionals did not exactly play out as planned.”

Leggett thus remains highly sceptical that shale oil and gas will change the game. Despite “soaring drilling rates,” US tight oil production has lifted “only around a million barrels a day.” As global oil consumption is at around 90 milion barrels a day, with conventional crude depleting “by over four million barrels a day of capacity each year” according to International Energy Agency (IEA) data, tight oil additions “can hardly be material in the global picture.” He reaches a similar verdict for shale gas, which he notes “contributes well under 1% of US transport fuel.”

Even as Prime Minister David Cameron has just reiterated the government's commitment to prioritise shale, Leggett says:

“Shale-gas drilling has dropped off a cliff since 2009. It is only a matter of time now before US shale-gas production falls. This is not material to the timing of a global oil crisis.”

In an interview, he goes further, questioning the very existence of a real North American 'boom': “How it can be that there is a prolonged and sustainable shale boom when so much investment is being written off in America – $32 billion at the last count?”

It is a question that our government, says Leggett, is ignoring.

Crunch time

In his book, Leggett cites a letter he had obtained in 2004 written by the First Secretary for Energy and Environment in the British embassy in Washington, referring to a presentation on oil supply by the leading oil and gas consulting firm, PFC Energy (now owned by IHS, the US government contractor which also owns Cambridge Energy Research Associates). According to Leggett, the diplomat's letter to his colleagues in London reads as follows:

“The presentation drew some gasps from the assembled energy cognoscenti. They predict a peaking of global supply in the face of high demand by as early as 2015. This will lead to a more regionalised oil market, a key role for West African producers, and continued high and volatile prices.” More

 

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Operation Smart Island Economies

Operation Smart Island Economies aims to transition islands to 100% renewable energy by accelerating commercial investment.

The Carbon War Room's Mission


Islands face increasing challenges from their dependence on imported fossil fuels, which impacts the prices they pay for everything from electricity to food. This is further complicated by the added demand that tourism places on the island’s resources. Natural energy resources are abundant on islands. However, the systems required to use them have not been widely implemented and scaled.


This lack of implementation is the result of multi-market barriers that islands and technology providers encounter. These multi-market barriers include local permitting, long-term fossil fuel contracts, and other legislative barriers. What is missing is a scaled regional approach to these barriers.


The Carbon War Room seeks to bridge this gap by working with islands to identify these barriers and create a regional roadmap for making the necessary changes. This roadmap would detail solutions that can attract both private sector investment and aggregated demand for large-scale renewable energy systems. Learn more about our island selection criteria in the background section. More

 

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2013 to be Record Year for Offshore Wind

Offshore wind power installations are on track to hit a seventh consecutive annual record in 2013. Developers added 1,080 megawatts of generating capacity in the first half of the year, expanding the world total by 20 percent in just six months.

Fifteen countries host some 6,500 megawatts of offshore wind capacity. Before the year is out, the world total should exceed 7,100 megawatts. Although still small compared with the roughly 300,000 megawatts of land-based wind power, offshore capacity is growing at close to 40 percent a year.

In 1991, Denmark installed the world’s first offshore wind farm, a 5-megawatt project in the Baltic Sea. The country’s offshore wind sector has since alternated between lulls and bursts of activity. Since 2008, Denmark’s offshore wind capacity has more than tripled, topping 1,200 megawatts by mid-2013. Over 350 megawatts of offshore wind power were plugged into the grid in the first half of the year—all of it to complete the 400-megawatt Anholt project, which is expected to meet 4 percent of Danish electricity needs.

Denmark already gets more than 30 percent of its electricity from wind—onshore and offshore—and aims to increase that share to 50 percent by 2020. At about one third the size of New York State, Denmark has the world’s highest wind power capacity per square mile, so it will rely mostly on offshore expansion to hit the 2020 target.

Denmark was first to put wind turbines in the sea, but today it ranks a distant second to the United Kingdom in total offshore wind generating capacity. More than 500 megawatts of new offshore wind power went online in U.K. waters in the first half of 2013, bringing the country’s grand total to over 3,400 megawatts—enough to power more than 2 million U.K. homes.

The bulk of this new offshore capacity went to completing the 630-megawatt first phase of the London Array, now the world’s largest offshore wind farm. It overtook another U.K. project, the 500-megawatt Greater Gabbard wind farm, which was finished in 2012. In all, the United Kingdom has some 12,000 megawatts of offshore wind capacity under construction or in earlier development stages.

Belgium’s offshore wind capacity grew 20 percent to 450 megawatts in the first half of 2013, placing it third in the world rankings. Germany reached 380 megawatts of offshore wind and will have at least 520 megawatts by year’s end. Beyond this, the German offshore industry expects another 1,000 megawatts will connect to the grid in both 2014 and 2015.

Countries in Asia are starting to make offshore wind power more than just a European affair. China, for example, brought its first offshore wind farm online in 2010. Since then, China has quickly climbed to fourth in the world, with 390 megawatts. The official goal is for 5,000 megawatts of wind capacity in Chinese waters by 2015, ballooning to 30,000 megawatts by 2020.

In Japan, where land is at a premium and where the future of nuclear energy is in question, offshore wind is gaining attention as a potentially huge domestic, carbon-free power source. A 16-megawatt project inaugurated in the first half of 2013 bumped Japan’s offshore wind capacity to 41 megawatts.

Because Japan lacks much shallow seabed in which to fix standard offshore turbines, new floating turbine technology is likely the future for offshore wind there. Off the coast of Fukushima prefecture, a 2-megawatt floating turbine will begin generating electricity in November 2013, the first stage of a 16-megawatt demonstration project. If it performs well, the hope is to expand the project’s capacity to up to 1,000 megawatts by 2020.

Floating turbines may actually be a big part of future offshore wind development at the global level. Not only do they greatly expand the area available for wind farms, they also have the potential to dramatically reduce the cost of offshore wind generation, which today is more than twice as expensive as that from turbines on land. While offshore wind manufacturers have managed to achieve cost reductions for the turbines themselves—through lighter, stronger materials and increased efficiency, for example—these savings have thus far been offset by the rising cost of installing and maintaining turbines fixed to the seabed as projects move into deeper waters.

The renewable energy consultancy GL Garrad Hassan notes that working around harsh weather becomes much easier with floating turbines: when conditions are favorable, relatively cheap tugboats can bring a turbine to the project site for quick installation, avoiding the need for specialized installation vessels. The turbine can be floated back to shore when the time comes for maintenance, lowering both cost and risk.

The world is gaining experience in using this young technology. In the last few years, Norway’s Statoil and Seattle-based Principle Power have both deployed floating wind prototypes successfully, in Norwegian and Portuguese waters, respectively.

In June 2013, the United States at last joined the offshore wind club when a 20-kilowatt (0.02-megawatt) floating wind turbine anchored off the coast of Maine first sent electricity to the state’s power grid. The turbine developer, DeepCwind, a consortium led by the University of Maine, plans to deploy two much larger versions, 6 megawatts each, in 2016.

The first full-fledged offshore wind farm in the United States, though, will likely be of the traditional variety fixed to a foundation in the seabed. Three proposals—Massachusetts’ 470-megawatt Cape Wind project, Rhode Island’s 30-megawatt Block Island Wind Farm, and New Jersey’s 25-megawatt Fisherman’s Energy I project—are the closest to beginning construction.

U.S. offshore wind’s potential is staggering. According to the U.S. Department of Energy, shallow waters along the eastern seaboard could host 530,000 megawatts of wind power, capable of covering more than 40 percent of current U.S. electricity generation. Adding in deeper waters and the other U.S. coastal regions boosts the potential to more than 4.1 million megawatts.

This is consistent with the findings of a 2009 Harvard study that calculated wind energy potential worldwide. The authors estimated that in most of the world’s leading carbon dioxide-emitting countries, available wind resources could easily meet national electricity needs. In fact, offshore wind alone would be sufficient.

Clearly, the world has barely begun to realize its offshore potential. Indeed, in some countries, regulatory and policy uncertainty seem to be sapping offshore wind’s momentum just as it really gets going, clouding the picture for future development. The U.K. government, concerned about costs, recently changed its target date for 18,000 megawatts of offshore wind from 2020 to 2030. In Germany, turbine orders are scarce as developers await the new coalition government’s plans for regulations and incentives. And in China, offshore wind companies say the guaranteed price for the electricity they generate is set too low to stimulate rapid growth, calling into question whether the country can hit its ambitious goals for 2015 and 2020.

Reflecting the hazy outlook in these and other key countries, projections for global offshore wind capacity over the next decade or so—from research and consulting firms and from industry publications—range anywhere from 37,000 to 130,000 megawatts. Despite the impressive growth of recent years, it seems that the lower end of these forecasts is much more likely. We know there is practically no limit to the available resource. What remains to be seen is how quickly the world will harness it and give offshore wind power a more prominent place in the new energy economy.

For more information on wind power, see “After Record 2012, World Wind Power Set to Top 300,000 Megawatts in 2013,” by J. Matthew Roney, at www.earth-policy.org.

Copyright © 2013 Earth Policy Institute – Reblogged with premission

 

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Small islands push for new energy

Most islands are well endowed with one or more renewable energy source — rivers, waterfalls, wind, sunshine, biomass, wave power, geothermal deposits — yet virtually all remain heavily or entirely reliant on imported fossil fuels to produce electricity and power transport.

With rising oil prices, fuel import bills now represent up to 20 percent of annual imports of 34 of the 38 small island developing states (SIDS), between 5 percent to 20 percent of their Gross Domestic Product — and even up to 15 percent of the total import bills of many of the European Union’s 286 islands.

Action advocated under “The Malta Communiqué On Accelerating Renewable Energy Uptake For Islands” adopted by a 50-nation two-day conference that ended here last week will hopefully slash, in some cases eliminate, reliance on fossil fuels and related pollution, while increasing energy security, employment as well as economic and social wellbeing.

“The Renewables and Islands Global Summit” in Malta was co-hosted by the 100-nation International Renewable Energy Agency (IRENA) based in Abu Dhabi and by the government of Malta — a 316 sq km Mediterranean island republic of 410,000 inhabitants, and EU’s smallest member state.

The Malta Communiqué On Accelerating Renewable Energy Uptake For Islands will hopefully help slash or eliminate reliance on fossil fuels, while increasing energy security, employment as well as economic and social wellbeing.

The meeting represents a key milestone in IRENA’s initiative on renewables and islands launched by its governing council last January, as well as a follow-up to the Rio+20 conference in June and the “Achieving Sustainable Energy for All in Small Island Developing States” ministerial meeting in Barbados in May.

The communiqué invites IRENA to establish a global renewable energy islands network (GREIN) as a platform for sharing knowledge, best practice, challenges and lessons learnt while seeking innovative solutions.

GREIN will also help assess country potential, build capacity, formulate business cases for renewables deployment involving the private sector and civil society while identifying available finance as well as new ideas for innovative financing mechanisms.

In addition, the network will develop methodologies for integrating renewables into sustainable tourism, water management, transport, and other industries and services.

IRENA’s Kenyan director-general Adnan Amin told the 120 delegates that “we have confirmed the enormous potential for renewables in small island developing states as well as for developed island countries, not to mention coastal countries with remote, energy-deprived islands of their own. Ambitious policy targets appear increasingly attainable because of great strides forward in technology and cost-effectiveness.

“We are laying the groundwork for a business council to bring investors — from major energy companies to innovative SMEs (small- and medium-sized enterprises) and also financial institutions — into the discussion,” Amin added. “Academics and NGOs can also contribute to the search for practical solutions. Developed island states can do much by sharing their experience with small-island developing states that face broadly similar challenges.”

Representatives (including 15 ministers) from 26 developing Pacific, Caribbean and African developing island nations and from coastal developing states with islands reported a wide range of renewables deployment, from detailed long-term plans and ongoing activities to reach up to 100 percent renewables, to admissions of very low deployment and no firm goals or plans yet. More

 

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