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PeakOil is You

PeakOil is You

Prepare now for fossil-free future

General discussions of the systemic, societal and civilisational effects of depletion.

Prepare now for fossil-free future

Unread postby Graeme » Mon 07 Apr 2014, 18:33:48

Prepare now for fossil-free future

The Norwegian government has created an expert group to consider whether its $840bn sovereign wealth fund should divest from fossil fuels. Leaving aside the irony of this particular fund choosing to go fossil free, the oil fund is two orders of magnitude larger than the biggest investor to have done so to date, so it marks a significant escalation in the debate.

One of the most striking things about the fossil divestment campaign is that it is not content merely to make a moral case, it also claims that divestment makes sense from a financial perspective: to avoid a growing “carbon bubble” that might pop soon.

This argument has proved harder to dismiss than many expected. The share prices of most of the world’s coal-mining companies have fallen steeply in the past two years – by more than 75 per cent in several cases. In the US, new air pollution regulations are making coal an expensive option in power generation and utilities are switching to cheap shale gas instead. Coal demand has fallen by 20 per cent as a result, and 50GW of additional coal closures are expected in the next three years.

True, coal demand has been stronger in Europe, but this is temporary. EU clean-air directives require closure of much coal-generation capacity over the next decade. Even in China, which now accounts for half of global coal demand, analysts are starting to point to the possibility that economic rebalancing, slower growth and air pollution worries may mean demand will start to fall before 2020.
This would mean that coal is not simply facing the downswing of the usual commodity cycle, but the possibility that the sector may be entering permanent decline.

This gloom, coupled by coal’s small total market cap, means that Norway’s expert committee could come to the painless conclusion that the fund need not invest in pure-play coal miners in the future.
But is the same true for oil? All is not well in the oil sector either. Oil company share prices have underperformed the market as a whole in the past two years – in some cases by 20-30 per cent, though they have not fallen in absolute terms.
Oil majors have been deploying capital expenditure at record levels, but have delivered much lower returns than they managed in the past. Their mature fields are in decline and require high levels of maintenance investment, while too many of their new fields are located in challenging basins that are proving extremely expensive to develop. Costs have skyrocketed.

Adding to the industry’s woes is a new theory from analysts that oil demand might peak by 2020, decades ahead of industry expectations. Demand is already starting to fall in rich countries as a result of aggressive fuel-efficiency standards and changing driving habits. The theory suggests that in emerging economies high oil prices will make current fuel subsidies unaffordable, exposing drivers to the full rigours of market prices, and slowing demand growth as a consequence.

These bearish views have certainly got investors’ attention, but, unlike coal, few investors seem to have been persuaded to divest. Oil companies are still hugely cash generative – they are responsible for a generous slice of the world’s dividend payments. Unlike pure-play coal, it would by no means be a painless decision to divest.
Instead investors are calling for oil companies to place much more emphasis on capital discipline and cost control. Rather than abandoning the sector, investors want to make it more resilient to risk by encouraging companies to spend capital more frugally, on projects that generate higher returns and would still break even in the event the peak-demand theory turns out to be true.

Oil companies seem to be listening. Capital discipline is the new watchword. In recent weeks both Exxon and Shell have announced reductions in their capital-expenditure plans, and a renewed emphasis on cost control and high-quality projects.

Perhaps this offers the right recipe for Norway’s oil fund: selective divestment from the fossil fuels least likely to have a future in a carbon-constrained world, together with the judicious use of its muscle as a large oil industry shareholder to push companies to take a more cautious and resilient approach to future capital expenditure.

Divestment campaigners may not be satisfied, but this strategy does address their concerns about “stranded assets” and “carbon bubbles” directly. Lower rates of capital expenditure focused on high-quality projects will reduce the risks of a carbon bubble inflating.


ft
Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.
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Re: Prepare now for fossil-free future

Unread postby Antaris » Tue 08 Apr 2014, 01:05:11

$840bn ? They must have it invested somewhere. Maybe in a Country, County or Province. What will they have after Default ? All that warmth gone, burnt up in some engine in another country, and then nothing to show for it!
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Re: Prepare now for fossil-free future

Unread postby Perfector » Tue 08 Apr 2014, 02:58:44

Adding to the industry’s woes is a new theory from analysts that oil demand might peak by 2020

LOL. Do people seriously believe there'll be an actual peak in demand? That demand for the best energy source ever discovered will somehow just level off? Only if it becomes so expensive people are priced out of the market.
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Re: Prepare now for fossil-free future

Unread postby Graeme » Fri 11 Apr 2014, 18:45:42

Norway’s sovereign wealth fund renews commitment to renewable energy investment

Just a few weeks after news broke that Norway’s oil-generated sovereign wealth fund, Government Pension Fund Global (GPFG), would focus 5% of its NOK5 trillion (US$800 billion) on the renewables sector, a new report was published to the Norwegian parliament on 4 April that expands on the new mandate.

The report states that the fund will nearly double its investments in renewable energy from US$5 billion to 8.4 billion. The set allocation to environmental mandates will rise from NOK20-30 billion (US$3.3-5 billion) to 30-50 billion (US$5-8.3 billion). Norges Bank, the central bank of Norway, will also report separately on the Fund’s investments in both emerging sectors and renewable energy.

The report also announced that the Ministry of Finance will commence research to further determine the risk from climate change on the Fund’s future efforts.


pv-tech

Driving Into an Age of Increasing Oil Freedom

We are living in exciting times when it comes to the nation’s oil and energy dependence. You could call this era the age of increasing oil freedom. From the mid-1980s to the mid-2000s the U.S. used and imported more oil every year, but since the mid-2000s that trend has reversed, with lower oil consumption and lower oil imports every year. To be clear, I’m not claiming that we are at or near energy independence, a clarion call that has been sounded by U.S. Presidents since Nixon; and I will not be discussing oil production, which is only one half of the equation. I am simply making an observation that is obvious from examination of recent trends in U.S. oil consumption, specifically in our transportation sector which accounts for the lion’s share. Whether and how this trend of lower oil consumption continues is up to our national and state governments.

First, let’s examine how efficiently we’re using this resource in our world-leading fleet of cars and trucks. In the early 2000s oil prices began rising at an alarming rate. I still recall a comment made by one of NRDC’s communications experts as we worked on a study: the scenario in which the price of oil would rise to $100 per barrel just didn’t “pass the laugh test.” Just three short years later the price of oil broke the $140 mark. This is a reminder that ~$100 per barrel prices are a relatively new normal, and this backdrop has added a boost to policy drivers described below.

This oil-price rocket boosted the chances that new policies could be implemented to reduce the nation’s oil dependence, and that’s in fact what happened, especially from 2007 on. In 2007, one short year after stunning the world by declaring that “America is addicted to oil” in his State of the Union address, President Bush signed the Energy Independence and Security Act into law. This law gave Bush’s successors the tools to dramatically raise the fuel-economy-performance bar for our fleet of cars and trucks. And that is what President Obama has done, in a series of historic rulemakings such as those in 2012 and 2013. These policies are driving record jumps in fuel economy and help explain the plateauing of long-term oil consumption projections.

Beyond vehicle efficiency, another discontinuity is putting the squeeze on oil consumption: flattening vehicle-miles-of-travel (VMT) trendlines. As I wrote recently, this has spurred analysts to reduce their projections of VMT growth, which forms the baseline for energy use and pollution estimates for the transportation sector. By 2030, projected demand drops more than one-fifth compared to the 2008 baseline, so one-trillion vehicle miles vanish every year! Conventional wisdom said this would turn around once the economy recovered, but as the trend continues more analysts think change may be structural and therefore lasting. Even bureaucratically calcified state highway agencies are changing their projections.

This is all very good news for energy security and the environment. However, while federal policy drives the first set of efficiency trends by raising the standards for fuel economy, it has yet to contribute to the second set by shaping the nation’s transportation infrastructure so people can drive less.



And last, thanks to the fiscal crunches and ensuing scrutiny of public expenditures, we may be at a turning point for state transportation policy. The best evidence of this for me is a new evaluation of one of the largest state highway agencies, the California Department of Transportation (Caltrans), by the State Smart Transportation Initiative at the University of Wisconsin. This remarkable report, commissioned and then embraced by Caltrans’ parent agency, the California State Transit Agency (CalSTA), recommends that the agency reform itself from top-to-bottom. It must become, among other things, better at collaborating with and supporting metropolitan area planning and investment, and more balanced in terms of its focus on modes of transportation (i.e., less focused on sprawl-inducing, oil-guzzling highways).

That’s the kind of balance ISTEA promised for transportation, and in the wake of historic federal fuel-efficiency policymaking it is high time Caltrans and other state highway agencies get serious about fulfilling that promise so the nation can continue up the road to increased freedom from oil.


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Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.
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