Daily Archives: February 11, 2009

Kate Mackenzie

Raymond James analyst Bart Jaworski notes some signs that suggest uranium may be close to bottoming, after news that Lehman Brothers has sold 450,000 pounds of U3O8 with a floor price of $46 a pound compared to uranium’s current spot price of $47.

Uranium spot prices today are about $50 compared to a high of $140 in spring of 2007.

Gregor MacDonald, writing in Alphaville’s Longroom (members only) handily explains some of the reasons behind uranium’s rise and recent fall, along with other commodities – and why it is not just another “busted asset”.  Liberalisation of trade markets took place in the five years to the 2007 peak, and that year also saw ‘a big bang of sorts’ when Nymex began offering uranium futures contracts. Today, he writes, the global recession is presenting somewhat similar problems for nuclear power generation as it is for renewable – production has become more expensive, but fossil fuel prices make it a less attractive investment.

There’s a little more about the uranium trade here.

Kate Mackenzie

After mounting speculation over the past few days, the FT is reporting that Rio Tinto will address its large debt with an injection from Chinalco.

The deal comes days after Jim Leng, chairman of UK steelmaker Corus, quit Rio’s board just a month after he joined as a director and was nominated to succeed the outgoing chairman, and The Australian says the deal could raise yet more challenges for Rio’s management and strategy.

It will also face regulatory hurdles in Australia as the deal includes Chinalco buying $7.2bn in convertible bonds which would take the Chinese company’s share to 18%, when the Australian government had previously approved only a 14.99% holding.

Read more.

Kate Mackenzie

A blog we’ve never heard of raises the enticing idea that there might be more to Google’s PowerMeter software than the ‘Analyze, Save, and Share’ that it is touting. Could it be that Google is considering “crowdsourcing energy”, as more householders install solar cells and are able to put power into the grid.

Admittedly the project is from Google’s philanthropic arm, but the announcement about PowerMeter – software which “will show consumers their home energy information almost in real time” – came just a day or so after Amory B. Lovin’s guest post on Freakonomics advancing that big, centralised power stations have had their day. Lovin writes:

This evolution made sense at first, because power stations were costlier and less reliable than the grid, so by backing each other up through the grid and melding customers’ diverse loads, they could save capacity and achieve reliability. But these assumptions have reversed: central thermal power plants now cost less than the grid, and are so reliable that about 98 percent to 99 percent of all power failures originate in the grid. Thus the original architecture is raising, not lowering, costs and failure rates: cheap and reliable power must now be made at or near customers.

Big thermal plants’ disappointing cost, efficiency, risk, and reliability were leading their orders to collapse even before restructuring began to create new market entrants, unbundled prices, and increased opportunities for competition at all scales.

Google say they’ve been “participating in the dialogue in Washington, DC and with public agencies in the U.S. and other parts of the world to advocate for investment in the building of a “smart grid,” to bring our 1950s-era electricity grid into the digital age.”

But how realistic is distributed energy generation? As one commenter on Lovin’s post pointed out, an analogy between electricity and distribution of computing power and telephony because the latter involve information requiring less and less power:

For that reason you can have as much computing power on your desktop today as Univac had in an entire room in the 1960s. Computers can be distributed because they have become so powerful. But things don’t work that way with energy. A kilowatt is a kilowatt, whether it’s generated in your backyard or at a power station. You can “distribute” generation anywhere you want but you still have use the same amount of fuel or wind or whatever.

Executives from the UK’s ‘Big Six’ energy suppliers on Wednesday faced a grilling from MPs on the House of Commons energy and climate change select committee. While not quite as dramatic as yesterday’s parliamentary inquiry appearance by UK banking chiefs, the MPs on the committee had plenty of tough questions for the energy companies, ranging from what could be done to stop the rise in fuel poverty to what was holding up the roll out of smart meters.

They asked why, when wholesale gas prices have been falling in the UK for months, only two energy suppliers have so far announced reductions in bills and few customers have yet felt any benefit. One MP accused the energy companies of “squirrelling away profits” and pointed to widespread public support for the idea of a windfall tax on energy company profits.

The executives, including Scottish Power boss Nick Horler and British Gas managing director Phil Bently, were quick to point out that they had bought some of the gas currently being burnt in advance last summer, when oil and gas prices were sky high, so there would be a lag in cutting bills.

Ian Marchant, the ebulliant boss of Scottish and Southern Energy, commented that “it is an interesting question why British companies have cut first (referring to SSE and British Gas), and continental European companies (referring to Eon and RWE of Germany, EDF Energy of France and Spanish-owned Scottish Power) are taking longer”.

Executives from EDF, RWE, Eon and Scottish Power all sheepishly assured the MPs that they would cut bills “soon”.

Mr Marchant said he would expect another round of bill reductions “later  this year or early next year” but warned that forward gas markets currently showed higher prices for summer 2010 than summer 2009, meaning the lower bills are not a certainty.

Kate Mackenzie

Yale and George Mason University researchers have published a survey of 2,164 adult Americans which suggests great enthusiasm for saving energy. Some interesting points:

- Roughly half of respondents said they had already made energy-saving improvements to their home

- 94% of respondents said they ‘always’ (63) or ‘often’ (31) turn off lights when not needed

- cost (43%) was cited as the main barrier to saving energy; ‘I don’t know how’ (20%) was second

- 47% said they could not afford a hybrid car; 45% said they did not need a new car (respondents could select more than one answer)

- Saving money is the main motivation (note that the surey was carried out during September and October when apprehension about the economy would have been firmly setting in)

However attitudes to what can be achieved by taking such measures will be of interest to policy-makers:

Interestingly, only 13 percent of respondents think that they can reduce their own contribution to global warming “a great deal.” By contrast, 42 percent say that if most people in the United States took these actions, it would reduce global warming a great deal. Finally, 60 percent say global warming could be reduced a great deal if most people in modern industrialized countries
took these actions.

Read the news release and the full report.

Kate Mackenzie

Much of the focus yesterday at CERAWeek in Houston was on maintaining investment even while today’s low oil prices make it unattractive. Shell and BP both made clear in their recent Q4 results that they planned to maintain investment levels, and BP chief Tony Hayward called on the rest of the industry to do the same, saying “The world economy will recover. The future is not cancelled.”

Jeroem van der Veer, quoted in the Houston Chronicle:

Shell is maintaining a careful balance in its investment portfolio. For instance, here in North America, we’re investing in onshore (unconventional) gas projects that allow us to dial up and dial down the number of drilling rigs quickly, and hence the cost of activity. This allows us to react rapidly to a changing market environment.

He cited the example of the early 1990s to show how demand can quicky turn, adding:

. . but that demand is only one half of the story. The other half is supply. And supply moves much more slowly.

In today’s market, supply investments are under additional pressure because of the credit crunch.  This situation is further amplified by the cost-explosion of the past few years. The oil price may be still roughly double the “about $20″ of the 1980s/90s, but the amount the upstream industry is spending each year has risen five-fold, from $80bn in 1999, to over 400bn in 2008. Good intentions notwithstanding, this makes it very difficult for the industry to afford growth from a return on capital perspective.

On Monday Opec secretary general Abdulla al-Badri warned that 35 of 150 drilling projects in member countries were being delayed as a result of falling oil prices.

However Saudi Arabia’s oil minister Ali al-Naimi warned the CERAWeek audience of a ‘nightmare scenario’ if investment fell:

A nightmare scenario would be created if alternative energy supplies fail to meet overly optimistic expectations, while traditional energy suppliers scale back investments due to expectations of declining demand for their product.

Saudi Arabia, he said, is doing its bit to ensure that future pick-up in demand can be met:

We work very hard to make sure that the global oil market is well supplied and well balanced, and to that end it is our ongoing policy to maintain at least 1.5 to 2 million barrels per day of spare capacity to be used when there is an unexpected need. Given current oil market conditions, our spare capacity will be 4.5 million barrels a day by mid-year when we bring the Khurais mega-project of 1.2 million barrels per day on stream, which is significantly higher than our stated policy.

Full transcript at Reuters

Kate Mackenzie

The “refiners’ diet” according to CERA – the CERA vs peak oilists’ debate (partly) explained (Platts)

Mercedes interested in testing the market for a natural gas car in US – (CNet)

B&Q stops selling home wind turbines; Monbiot rejoices (Guardian)

Has solar demand hit bottom? (SeekingAlpha)

Geoengineering is risky, but likely inevitable, so we better start thinking it through (Grist)

We are moving towards the ‘Third Industrial Revolution’, says EU energy commissioner (EU Energy Policy blog)

Americans keen to reduce their energy usage (Yale University)

James Fontanella-Khan

- Crude rises as stimulus package may lead to fuel demand gain  (Bloomberg)

- ArcelorMittal sees weak first quarter, cuts dividend (Reuters)

- Rio Tinto shares jump on hopes for Chinalco deal (Reuters)

- Gazprom plans to start supplying UK power ‘in next few months’ (Platts)

- Gas Natural’s earnings rise 8.2 per cent (WSJ)

- China, Saudi sign oil and gas agreement (Saudi Agency via Bloomberg)

- Russian gas trading floor removes limits for independents (Platts)

- Saudi Arabia to More Than Double Spare Capacity, Al-Naimi Says (Bloomberg)

- Saudi oil minister warns on renewables (WSJ)

- US interior secretary delays Bush offshore oil, gas drilling plan (Bloomberg)

- US reduces forecasts for oil, natural gas demand (Bloomberg)

- Northern Ireland environment minister to quit over CO2 ad ban (Guardian)

- Canada oil sands prospects in doubt on crude price fall: CERA (Platts)

James Fontanella-Khan

Energy news from the FT:

Gazprom to cut costs and production
Russian group plans to reduce foreign borrowing

- Court of Appeal attacks British Gas
Utility companies could face a deluge of lawsuits

- Eon to cut costs after charges of E3.3bn
Utilities are being hit by the economic crisis

- Power generators suffer shock to the system
Industrial companies cut back on electricity consumption

- De Beers to reduce production as diamond demand hits rough spot
Diamonds prices down as much as 50%

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