Archive for April, 2009
On The Next Climate Change Talks
April 29th, 2009 | 
Author: The next conference on climate change is due to hold in Copenhagen in December. It will establish the next climate change protocol to replace the current Kyoto Protocol , KP, which lapses in 2012. The KP mandated binding targets for the respective parties to it but mainly 37 industrialized nations and the European community for the reduction of six main Greenhouse Gasses (GHGs) over the five-year period 2008-2012. Under the provisions of the protocol, industrialized nations were assigned larger reduction quotas in recognition of their principal contribution to GHGs due to over 150 years of industrial activity. The United States however was not a signatory, citing lower reduction quotas assigned to developing nations like China and India. Previous US administrations waffled on the issue and even questioned the reality of climate change. The United States is a major energy consumer accounting for example for about a quarter of all crude oil consumption and by far the largest single GHGcontributor. Any meaningful discussion on GHG reduction would require its participation.
The KP was essentially a forum for establishing the necessary framework for an effective emissions reduction program. Moderated by the United Nations, it provided for the negotiation and ratification by 2012, about 3 years away, of a proper regime of GHG emissions reduction. Such negotiations are often protracted and so as December approaches, a series of preliminary meetings has been scheduled by the Major Economies Forum on Energy and Climate Change, countries which account for about 75% of all GHG emissions. The meetings are designed to facilitate the substantive December conference.
The US may not have solutions to all the world’s ills, but as the world’s largest economy by far, it can certainly set and sustain the agenda. President Obama has risen to the occasion. He has signalled the intention of the US to lead the climate change talks, to the delight of many delegates of the first of the MEFECC meetings.
While the talks could certainly use a US leadership, the US may well ponder a note or two on environmental issues and renewable energy.
The current economic meltdown has really challenged the US business model and its perceived invincibility. The imminent collapse of its home-grown automobile sector is telling. It resisted calls for better emissions standards and therefore better fuel efficiency and environment-friendliness. Such resistance may have only postponed the inevitable. Aided by administrations of the day, the automobile companies racked up untenable production costs, skimped on quality and were effectively shielded from competition. Countries like Japan and Germany now build more efficient automobiles even in the US. A proper regime of good emissions standards, cost effectiveness, quality control among others would have stood these companies in better stead.
The current economic meltdown has really challenged the US business model and its perceived invincibility. The imminent collapse of its home-grown automobile sector is telling. It resisted calls for better emissions standards and therefore better fuel efficiency and environment-friendliness. Such resistance may have only postponed the inevitable. Aided by administrations of the day, the automobile companies racked up untenable production costs, skimped on quality and were effectively shielded from competition. Countries like Japan and Germany now build more efficient automobiles even in the US. A proper regime of good emissions standards, cost effectiveness, quality control among others would have stood these companies in better stead.
Cost and reliability of energy have been in recent times, of great concern to the world’s industrialized countries. The impact on the US, of last year’s oil price surge is still fresh. There was on outcry for energy independence. Some of the proposals for attaining such independence were unrealistic, not unexpected of politicians and their spin doctors in an election year. Reports attributed to the US Geological Survey that the Arctic may hold up to a fifth of undiscovered oil and natural gas reserves fueled demands for opening offshore regions including the Arctic for oil and gas exploration. Even if the whole arctic field belonged to the US (the said field lies mostly in Russian territory), it would at best provide only “3 years’ supply of gasoline, heating oil and other petroleum needs” for the world. As oil and gas explorations move to remote offshore terrains, it will become more difficult and expensive to make recoverable discoveries. Recourse to alternative energy sources then becomes imperative. The biofuels and renewable energy protocols were designed to bring cleaner environment and better energy management regimes. The US faces a possible power crunch as a result of increased demand and inadequate infrastructure. A significant and growing proportion of its energy requirement will come from renewable energy sources and its ageing power grid needs urgent upgrade. In its present state the grid may be unable to sustain the load from renewable energy sources. Also many of the renewable energy sources such as solar, are in unpopulated or sparsely populated areas and require new transmission lines to connect to the grid. Reportedly, as of January 2009, there were wind plants with 13,000 MW and solar plants with 30,000 MW waiting to connect to the grid in the state of California. There are similar accounts in other regions of the country. A spending boost in the current economic recession, to resuscitate the power grid will be constructive. It will not only provide the much needed jobs, but will also prepare the ailing power grid to meet the energy needs of the future.
Set to lose about a quarter of its generating capacity by 2015 due to ageing plants, the United Kingdom also faces its own power crunch problems and is looking towards renewable energy sources for solution.
In Copenhagen, the developing countries which have in the main been leery of their motives will be looking up to the developed, hoping for sincerity and commitment. Energy being a driver of industrial growth, the developed countries will do well to help make energy use among the developing cleaner, not to seek its reduction. With his global appeal, President Obama is certainly poised to bring in the necessary level of trust for a successful conference.
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Christianity And Homosexuality
The homosexual or gay marriage debate has been a passionate one especially in the United States. The society at large has been polarized. Gay rights activists have compiled lists of, and attacked, “enemies” (including churches, African Americans, etc) for their stand against gay marriage. Christians and moralists on the other hand have galvanized to extirpate a “social serpent” crawling into the moral fabric of the nation. They have drawn to their respective poles, strident opinions on personal liberties and faith. The electronic media is awash with acerbic campaigns akin to those of an election year; indeed some voting has taken place in many states to determine the propriety or otherwise of the issue. The states of California, Arizona and Florida have voted against gay marriage while for gay rights activists, decisions in the states of Iowa and Vermont have gone their way. More states are pending.
More worrisome is the increasing polarization of the church. Some denominations have accepted homosexuality and have even ordained homosexual bishops while others have vehemently rejected it. The leadership of the Catholic Church for example is stridently opposed to it while the Anglicans and Episcopalians are so irreconcilably divided by it that many provinces opposed to it, including the very populous African Anglicans have decided to breakaway.
For the Christian, the Bible is the Constitution for earthly living. It refers to Christianity as the “Way“; the way of life.
The biblical nation of Israel inherited a land evicted of its inhabitants because of their (inhabitants’) “detestable practices”; and when Israel fell into the same practices, it too was expelled from the land. The Bible clearly abhors and prohibits homosexuality and exhorts Christians to be ambassadors of the Way; they are not to do as the world does, the world here referring to the body of non-Christians.
The church as a whole has been infected with secular practices, practices not in keeping with its foundation. Church leaders chisel their message slates to fit socially or politically “acceptable” templates. Christian values are masked in order to gain acceptance and followership. Abortion for example has become a rallying point of the “moral”; with fiery passion it is flagged even as a tenet of political correctness. Such passion is quickly doused when issues of fornication or adultery are raised. The zeal pales in comparison; euphemisms such as affairs or flings are often applied when outright silence is not maintained. Some have even elevated abortion to the sole defining tenet of Christianity. It was recently reported that Harvard Law Professor Mary Ann Glendon, a Catholic conservative will, in protest of his position on abortion, decline an award from the University of Notre Dame rather than stand on the same podium with President Barack Obama; the President was also due to receive an award from the same University. Well, she could also have decided not to board the same aircraft or shop in the same malls or boutiques with adulterers. There is almost no condemnation of say movie stars with their brazen lifestyles of sex and drugs, at least not with the same passion. The adulterer or homosexual is no less sinful than the pro-abortionist; the Bible clearly states that anyone who stumbles on just one point of the law has broken all of it.
When the church begins to pick and choose which laws to obey and which to discard, or to accept and condone homosexuality and other detestable practices, it is failing in its ambassadorial role and is breaking the whole law. Judgment awaits it, for the same Bible warns that judgment will begin with the church.
Of Oil Prices And Reportage
Professor Sydney Finkelstein of Dartmouth’s Tuck Business School in a recent podcast shared his findings on why good business leaders make bad business decisions (or why people who are otherwise well-informed make uninformed decisions). He outlined a series of recent corporate decisions which have turned out to be woefully uninformed and proffered four “red flags” or warning signs to guide such decision making. One red flag, misleading or inappropriate attachments is strikingly pertinent: He held that many victims of the Bernie Madoff scandal for example were senior financial staff at organizations like JP Morgan and Morgan Stanley and certainly were in the position to evaluate such investment schemes but never did because they believed friends or friends’ friends who were involved. They let their sentiments or emotions becloud their sense of rationality.
In a recent BusinessWeek essay, Ed Wallace detailed an intriguing media trend. He correctly cited data (the bloated US oil inventory, the largest in 19 years as well as those of China and Europe, reduction in demand projection for 2009 by Organization of the Petroleum Exporting Countries,OPEC, high US gasoline stockpiles, reduction in rail car loadings, etc) and queried the basis for the projection by the Energy Information Administration,EIA of an imminent price rebound. More importantly, he indicted the business media for failing to adequately report less widely held opinions, which in the case of the oil price surge of 2008 proved true.
To be fair, EIA’s projections may well turn out true and l really hope they do, but when OPEC held that the oil price surge of 2008 could not be explained by market fundamentals, since prices were spiralling higher while the market was well-supplied, not many accepted. Today, OPEC’s argument seems justified.
More worrisome though is the response of a couple of analysts l called and who spoke off-the-record, on their bases for imminent oil price rebound: they simply cited other analysts. Cases of misleading or inappropriate attachment?
Biofuels And The Future Of Energy
For centuries now, fossil fuels have been used around the world to power various industrial and domestic processes. As economies grew, and so demand, and as most onshore provinces matured, exploration moved to the more technologically, financially and physically challenging offshore terrains. Some of these offshore terrains such as the North Sea are already mature and production economics may not justify their continued operation. Even some production companies are struggling with reserve additions. With improved technology and fair oil price regimes, reserves such the tar sands of western Canada have become economically exploitable. Exploration is still moving into increasingly challenging terrains and to the extent that current rates of extraction far exceed those of formation, fossil fuels constitute a finite resource. There are various estimates for residual reserves, some of them unrealistic. Fossil fuels may never completely run out but future recovery may be defined by economic and technological limitations. Ultimately, the cost, size and “produceability” of any possible future discovery will determine availability and prices of fossil fuels.
Since the oil crises of the 1970′s, the developed world which was severely affected has sought more reliable and price-worthy sources of energy. The current wealth of global oil reserves is held mostly outside the developed countries. The cartel, Organization of the Petroleum Exporting Countries OPEC, holds about three quarters and can readily influence global prices. Total’s Michel Mallet adds that in the 1970′s, the world’s 7 largest oil companies held 70% of world reserves but today they control only 7%. The rest is mostly held by state-owned companies. Except a few such as Saudi Arabia’s Aramco and Brazil’s Petrobras, many of them lack the requisite technical and other resources for efficient production. The United States deems producer-states like Iran (and until recently Iraq and Venezuela) unfriendly. Russia with pipelines through Ukraine supplies about 20% of Europe’s natural gas consumption. In the middle of last winter, Russia turned off their taps citing disagreements with Ukraine over transmission fares and other dues. This seemingly annual event may have informed plans by west European nations to seek alternative gas supplies. East European nations as well, may for similar reasons have sought alternative crude oil supplies.
Recent campaigns for sustainably cleaner environment led leaders of developed countries to seek ways of ameliorating climate change problems especially where they are deemed anthropogenic. Fossil fuels are widely regarded as substantial contributors through automobile emissions and coal-fired power plants for example.
Biofuels programs especially bioethanol and biodiesel began as a means of reducing cost and dependence on, and the deleterious emissions of fossil fuels through blending with gasoline and diesel respectively; not, as often commonly and erroneously expressed, to replace them.
Unfortunately, the biofuels program in the US has been a monumental disappointment. It was doomed from onset because of its choice of feedstock, maize (corn). Maize is a prime food crop particularly in the US and the recent steep food price increases and severe grains inventory drawdown were attributed in the main to its diversion for use in biofuels programs. The increasing cost of maize feedstock as well as its low ethanol productivity and poor energy balance (ratio of energy obtained to that expended in its production) set the program on its own unnoticed grave.
Brazil on the other hand has been much more successful. After the oil crises of the 1970′s, she began a carefully planned and faithfully executed bioethanol program using sugarcane as feedstock. Sugarcane has an energy balance value of between 8 and 10 times that of maize and ethanol productivity (which has been increasing through research) double that of maize. Sugarcane is not a food crop per se and so does not bear biofuels-food conflicts. With synergies in sugar and ethanol production, it has given Brazil near self-sufficiency in energy. Ethanol blends range from E25 to E100 (0% gasoline). Almost all service stations are ethanol stations and cars have been designed to run on such fuels. The milling residue known as bagasse is also used for auxilliary power generation. Many milling plants generate all the power they require and sell the excess to power utilities, raking in additional income sometimes in millions of dollars.
Second generation biofuels use lignocellulosic biomass as feedstock. They have much higher biofuels productivity. (Miscanthus for example has about five times the ethanol productivity of maize.) They can thrive on marginal soils and so use less resources like fertilizer and water. They are not food crops so will not interfere with food prices or availability.
That first generation US biofuels programs failed does not mean biofuels technology failed. Labelling biofuels programs as failures is like saying democracy is a failure just because countries like Zimbabwe and Myanmar have failed at it. Peddlers of such labels are either economical with the truth or are downright ignorant.
Another pillar of the Brazilian bioethanol success is institutional support; loan guarantees, power purchase agreements, blend mandates, automotive engine specifications etc. The US government has taken steps in this direction. It has mandated the use of 21 billion gallons of biofuels per year by the year 2022. It is also proposing loan guarantees and tax breaks as incentives. This has spawned a series of biofuels companies boasting different fuels, feedstock and processes. In addition to ethanol, the fuel butanol has attracted interest because of its capacity for higher blend values and ease of transportation with extant pipelines. Biodiesel has also been produced using algae. The major oil companies are not left out. At its startup, Solazyme received support from the second largest US oil company, Chevron to develop its algae-derived biodiesel. Chevron is currently in a joint venture to produce ethanol from lignocellulosic feedstock. The oil major Shell is also collaborating with other companies in algae-diesel projects. When the large ethanol producer VeraSun Energy filed for bankruptcy, seven of its plants were bought by the oil refiner Valero Energy. Also, a tax on fossil fuels as well as a gradual increase in blend ratios in step with flex vehicle specifications will ensure proper production and utilization synergies.
Next generation biofuels technology is evolving rapidly. The competition is keen and the stakes are high. Small startup companies hope to develop a viable program that will attract venture capital. Venture capitalists will also scrutinize programs to optimize their investment. Only a few of these programs will probably become viable. The economics of feedstock and energy balance will ultimately determine which.
As a guest and in a recent podcast, Professor Sydney Finkelstein of Dartmouth’s Tuck Business School shared his findings on why people who should know better make very bad decisions. He revealed that a large proportion of investors who lost their investment in the Bernie Madoff scandal were people who were well-positioned to perform due diligence but never did, because of inappropriate attachments. The race, particularly in the US, to produce ethanol from maize may have been plagued by the same sentiment. Hopefully the next generation biofuels will be duly evaluated.
Biofuels will increasingly feature in the global energy mix. The oil major, Royal Dutch Shell adds that biofuels will probably makeup 10% of the energy mix in the next decades. Some other estimates are higher.
Oil And The Causes Of The United States Recession
The world economy is in a meltdown and the United States is in an economic recession. These are not deniable. There has been however, a series of studies and discussions on the causative factors. A recent study blames oil strong demand and production stagnation for the price surge of 2008 and consequently the US recession, a conclusion that even surprised the author. These are plausible causes; even in my passing assessment in 2008, l referred to such fundamentals as drivers in the unusually steep oil price rises.
But this is only one side of the discussion coin. In a December 2008 presentation to the 13th Annual IIES Oil and Gas Conference in Tehran, the Secretary General of the Organization of the Petroleum Exporting Countries OPEC, blamed speculation for the oil surge. He argued that the flight of investment capital in the wake of the United States subprime mortgage crises, as a hedge against inflation and the falling dollar and into commodities, mostly oil futures, was responsible for the volatility which impacted crude oil prices. His argument is certainly bolstered by the fact that crude oil prices were rising even while the market was well-supplied. The inability of fundamentals to explain the oil price surge weakens the strong demand argument. As reported by the Oil and Gas Journal, at a recent conference convened by the Energy Information Administration of the US Department of Energy on the causes of the 2008 oil surge, it was revealed that while market fundamentals like supply and demand cannot explain the oil price surge, the complete role of speculative trading on the oil surge can not at this time be fully ascertained due to non-availability of data especially from the unregulated OTC markets. Similar unregulated market activity has also been widely cited in the US financial market crises. Since these markets are not regulated, complete activity data may never be available. A case can certainly be made for regulation of such markets.
Speculative trading may well bear a more plausible explanation for the 2008 oil price surge.