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Jeremy’s Right On The Black Stuff, But Wrong On The Green!

December 4, 2015
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By Paul Homewood  

 

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http://www.telegraph.co.uk/finance/oilprices/12032020/Dont-write-off-the-future-of-oil-and-gas-just-yet.html

 

A welcome bit of common sense from Jeremy Warner in the Telegraph today, in stark contrast to some of nonsense we keep getting from Ambrose Evans Pritchard:

 

 

Remember “Peak Oil”, the theory popularised by Marion King Hubbert – a geologist at Shell – to the effect that worldwide production of petroleum would soon reach its maximum potential, after which it would go into terminal decline? By now, we were meant to be running out of oil, resulting in sky high prices, rationing and descent into international conflict for scarce energy resources.

"Russia’s Vladimir Putin once boasted that his country’s oil and gas reserves were a more potent weapon than nuclear bombs. He must think again"

In the event, it never happened. Thanks in part to the development of American shale, there is today an unprecedented glut of the black stuff, sending the oil price plummeting and helping to reshape the geopolitical state of the world, very probably for the better.

Russia’s Vladimir Putin once boasted that his country’s oil and gas reserves were a more potent weapon than nuclear bombs. He must think again. Likewise, the Gulf states are struggling to maintain their often malign influence on the region and the world economy. This week’s meeting in Vienna of the Organisation of Petroleum Exporting Countries (Opec) will confirm a cartel all at sea, having lost its once all-powerful grip on prices and supply.

 

In any case, worries about running out of oil have transmogrified into a different concern – that if we are to safeguard the future of the planet, much of the world’s known hydrocarbon reserves will have to be left in the ground. Efforts to limit man-made climate change, the theory goes, will render these reserves “stranded”, and therefore essentially worthless.

In terms of substance, the two ideas argue the same thing – that man’s use of hydrocarbons, the transformative energy source of the past two centuries, is essentially time limited and is fast running out. Coal is a different story, which I’ll come to, but as far as oil and gas are concerned, the “stranded asset” argument is as much of a red herring as “Peak Oil”.

 

Whatever the environmentalists at the COP21 Climate Change conference in Paris tell you, the reality is that oil still has a long future ahead of it. And it is one, moreover, which is perfectly compatible with any realistically framed shift to a low-carbon economy.

Here’s why. Let’s ignore the myriad questionable assumptions and arbitrary targets that lie behind the stranded asset argument, and assume that it is essentially right – that only a third of the world’s known remaining hydrocarbon reserves can be burnt if we are to prevent catastrophic climate change.

As it happens, the assumed two thirds of stranded assets correlates almost exactly to coal’s share of global hydrocarbon reserves. Of the remaining third, around 60 per cent are oil, and 40 per cent gas. Get rid of coal, then, and the problem would be substantially solved without so much as touching the other two.

With obvious exceptions in the developing world, where they are still building new coal-powered plants like topsy, this is essentially what’s already happening. In the US, replacement of coal with gas-fired generation is driving substantial reductions in emissions.

 

 

On any kind of a medium-term view, we know that coal is finished. Investors are voting with their feet, with the market capitalisation of American coal producers having collapsed 90 per cent. Emerging markets may extend coal’s shelf life a little longer, but should be regarded as no more than a transitional phase of investment in what everyone already knows to be an obsolete power source.

Underlying the demise of coal is a much swifter move to greener alternatives than generally appreciated. According to a fascinating new report by Goldman Sachs, low-carbon technologies have now achieved such momentum that global emissions are likely to peak within five years.

With wind and solar on track to exceed 100 gigawatts in new installations for the first time this year, 2015 is shaping up to be a watershed. Extrapolating from present trends, the investment bank finds that renewable energy sources will add the oil equivalent of 6.2 million barrels per day by 2020, or more than the entire US shale revolution in the previous five years. Eventually, critical mass will be achieved, closing the cost gap with hydrocarbons.

 

 

The speed of this change is extraordinary. In lighting, energy efficient LED technology is expected to take nearly 70 per cent of the market by 2020, against less than 30 per cent today, and in automobiles, some 22 per cent of the global market will be hybrid or electric in 10 years time, against just 3 per cent currently.

For the foreseeable future, however, there is always going to be a place for oil and gas. It is not just unrealistic to think otherwise, it is also plain silly. We do not need to return to the stone age to get on top of global warming. In the meantime, the shift to electric cars will progressively take the pressure off demand for oil, ensuring that prices remain relatively low for longer.

One day, “peak oil” may come true. But it is still a long way off, and by then there will be alternatives which may indeed render what’s left in the ground “stranded”.

 

Warner is right, up to a point, that energy production will gradually switch from coal to gas. However, there are some things he misses from his analysis which serve to understate the ongoing importance of fossil fuels.

 

1) For a start, the massive number of coal fired plants, not to mention the mines, which China, India and much of the developing world are busy building currently, are not going to be suddenly shut down on a whim in twenty years time.

Just as with any other projects, they will want to get their full economic life out of them, which means 40 to 50 years.

 

2) Secondly, the demand for energy will continue to increase in leaps and bounds, as countries seek to grow their economies and increasing populations demand better standards of living.

There is absolutely no way wind and solar can begin to fulfil even this increase, never mind replace existing sources of energy. Can all of this extra demand come from oil and gas, or will coal still be needed?

 

3) There is much talk of energy efficiency, but in reality improvements in this have been taking place for decades. Yet at the same time these are offset as societies use more energy using devices.

A good example is transport. Cars are much more efficient in terms of fuel consumption than they were even a couple of decades ago. Yet, because they are so much more affordable, there are more cars on the road, and people tend to drive more miles.

 

4) The competition from renewables is grossly overstated. Last year, for instance, wind/solar only supplied 1.6% of global energy.

 

image

 http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

 

 

One of the tricks used by the renewables lobby, and I would certainly include Goldman Sachs in this, is to highlight “big numbers” for wind and solar without putting them into perspective. Let me give two examples from the Goldman report which Warner refers to:

 

a) With wind and solar on track to exceed 100 gigawatts in new installations for the first time this year, 2015 is shaping up to be a watershed

See the big number? Impressed? But what does it mean?

Based on the generous assumption of that they produce at 15% of capacity, these new installations will generate 131 TWh pa. However, wind/solar are already producing 881 TWh annually, so the new build will only increase that by 15%.

Even if we maintain that rate of increase, it will only succeed in doubling their share of global energy output from 1.6% to 3.2% by 2022. (And that assumes total demand stays the same)

 

b) Extrapolating from present trends, the investment bank finds that renewable energy sources will add the oil equivalent of 6.2 million barrels per day by 2020

Again, this is not as significant as it sounds.

6.2 mbd equals 308 Mtoe. But total global primary energy consumption was 12928 Mtoe last year, so all the huffing and puffing amounts to is an extra 2.4% of that total.

Since 2001, global demand for energy has risen by 36%. Is it remotely likely that it will increase by less than 2.4% in the next five years?

 

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http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

 

 

I am a little bit surprised that. as an experienced, and generally sensible, journalist, Jeremy Warner, has fallen for most of this Goldman guff. In ten years time, fossil fuels will be playing a bigger role in the global economy than it even does now.

17 Comments leave one →
  1. December 4, 2015 6:37 pm

    Why does everybody bleat on about electric cars helping to green the planet, when they are using the stuff that still has to be made by hydrocarbons. Another red (or black!) herring.

    • Ben Vorlich permalink
      December 4, 2015 10:39 pm

      If there are 2 million electric cars on the road and 50% require a full charge of 75kWh spread over 12 hours over night where at the current state of generation in the UK is that coming from? I make it about 6 GW continuously over the 12 hours. On still winter nights when wind isn’t contributing anything and demand is high STOR operators would be coining it in.

  2. Ian Magness permalink
    December 4, 2015 6:51 pm

    “On any kind of a medium-term view, we know that coal is finished.”
    Oh really Jeremy? So, what happens when:
    a) there is no financially viable alternative for many nations and/or industries (think India and similar scenarios)? or
    b) the “pause” and lack of demonstrable climate change (eg beyond historically normal storm, heatwave etc activity) go on for so long that even the media and politicians stop deluding themselves that “climate change” is happening?
    Guess what Jeremy? Yep, the mines will be opened up again, mothballed power stations will be re-born etc etc. Oh yes, it’ll take governmental believers in countries like the UK and Germany quite a while to catch up, but more nimbler, and less religious countries who didn’t destroy their coal-fired capacity will be off to the races far sooner.
    Now, taking a long term view, where can I buy those coal-related shares?

    • David Richardson permalink
      December 4, 2015 7:13 pm

      Couldn’t agree more Ian – the only problem is that unless it starts getting cooler soon (and it might) I will probably be 6 foot under by the end game. Sadly being a heathen I have no prospect of even hearing the outcome.

      An excellent post over at Euan Mearns blog “Energy Matters” today

      http://euanmearns.com/food-population-energy-and-climate-change-in-mena/

      – it once again emphasises that moving to “renewables” is not a zero-sum game and that those meddling in demonising fossil fuels probably don’t understand anything about the consequences of their actions.

      OR – perhaps they do? Worth remembering that the likes of Sir David Attenborough are signed up members of the “Humans are a plague and need culling” movement.

      • Ben Vorlich permalink
        December 5, 2015 9:11 am

        David Attenborough is an interesting case. Flies round the world and interferes with animals in their own space and then tells us that we’re wrecking the world. A serious case of hypocrisy or cognitive dissonance not sure which, but he seems to enjoy the lifestyle.

    • Graeme No.3 permalink
      December 4, 2015 7:18 pm

      For coal shares ask George Soros.

      Depending on quality coal supplies the energy of nearly 4 barrels of oil. At the present time a ton of Coal is roughly the same price as a barrel of oil. Guess why there are 2400 new coal fired power stations coming.

  3. Dave Echell permalink
    December 4, 2015 7:10 pm

    Long term the coal will need to be used as a chemical feedstock. This will mean re opening coke works so that the benzole etc can be extracted from the coal. This will leave huge piles of coke. Will the green nuts want this throwing away or will they let us burn it in power stations. Which if they are designed right, using the technology developed by British Coal researchers, before it was closed down. Could be massively efficient using the combined heat and power designs which they pioneered.

  4. William Abbott permalink
    December 4, 2015 7:49 pm

    Paul is right about AEP. He is very intelligent, but absolutely nutters about “renewables” becoming economically competitive …someday soon.

  5. Green Sand permalink
    December 4, 2015 8:35 pm

    ‘Peak Glut’ set to continue

    ‘OPEC Meeting Ends With No Production Cuts’

    http://www.wsj.com/articles/opec-meeting-ends-with-no-production-cuts-1449248892

  6. Paul2 permalink
    December 4, 2015 9:17 pm

    First we have Piers Corbyn royally messing up an opportunity to put across our point of view on the BBC and then we have this fool of a UKIP Mep. You really couldn’t ask for a worse pair to explain the folly of the climate change myth.
    It’s the last question on the programme:

    http://www.bbc.co.uk/programmes/b06qmyyl

    • December 4, 2015 10:10 pm

      My God she’s awful: “I don’t pretend to be something I aren’t”. OK she’s up against a hostile audience of smug, condescending London lefties but she needs to put the case much better. Especially when up against polished bullsh***ers like Moonbat and Beckett. That said, her mistakes were minor compared to the nonsense talked by Beckett, Willetts and Moonbat. Can we run a fact check on some of those claims: Beckett’s claim that China are installing more wind and solar than coal? That China would be unable to feed itself if temperatures rose by 2 degrees? Willets’ claim that the COP is about reducing harmful air pollution (not CO2). All easily refuted by someone who’s done their homework first. I liked her rejoinder that life expectancy is higher in Bejing than Glasgow. Not sure if it’s true – going to check now…

      • December 4, 2015 10:15 pm

        Yup, 81 in Beijing vs 74 in Glasgow. Pretty good putdown by Ms Collins.

  7. catweazle666 permalink
    December 4, 2015 9:57 pm

    Warner is right, up to a point, that energy production will gradually switch from coal to gas.

    I doubt it.

  8. December 4, 2015 10:02 pm

    Great analysis Paul. Keep at it!

  9. Bitter&twisted permalink
    December 4, 2015 10:36 pm

    The sooner we are self-sufficient in oil and gas, the better.
    It is stupid beyond belief to pay OPEC to export its Medievalism around the world.

  10. John F. Hultquist permalink
    December 5, 2015 6:54 am

    Goldman Sachs is not the best place or even a good place to look for unbiased information. Mr. Warner will maybe read your post and learn something.

    When dealing with efficiency advances, economists have coined the term
    “rebound or take-back effect” for the reduction in expected gains from new efficiency of products. You mention this regarding cars. Many autos in the 1960s got about 12 miles per US gallon. Now we (wife and I) have much better cars that get 30. These use regular gas. Yes, we could have autos that get better mileage but we like what we have. (Subarus, if it matters.) Improvements continue – the new 2016 models get 32 or 33. US auto sales in 2015 will be 18.24 units. (I mentioned this on your Nov. 30 spiegel-commentary-on-cop21 post.

  11. December 7, 2015 10:12 am

    All you need to know about coal investors is this. American Coal companies have lost 90% of market value because of Obama and his trying to shut them down. Guess who has purchased the shares of the biggest company, our good green friend George Soros. Hypocrisy doesn’t even begin to describe these people. Criminals only just scrapes the surface. Any way you look at it they are contemptible human beings.

    One point about hydrocarbon fuels. They are not fossils, hydrocarbons are not only an intrinsic part of earth, but of the solar system and the cosmos. They are not millions of years old but some could be much younger. If you put all the pieces together in science (something our specialist teaching these days fails to do) then the accepted story of coal and oil formation starts to fall apart. What it also highlights is that our current understanding of many thing in science is seriously flawed and this is hindering human progress and prosperity. Oil and gas could and probably are even more abundant than even the most optimistic oilman believes. We certainly keep finding it everywhere.

    Jeremy Warner is reading the tealeaves and being a little more circumspect than the green nutters, but I suspect he has very little idea about oil and gas or coal, and no idea what’s really behind green madness.

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