In a move that caught many by surprise, the world’s richer oil-importing countries will soon tap into emergency oil reserves, the International Energy Agency (IEA) announced, arguing: “Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”
In total, over the next 30 days, IEA member countries plan to release 60 million barrels of crude—less than one day’s worth of global consumption. Half that oil would come from the U.S., and the rest from a dozen other countries, including many European Union members, Turkey, Korea, and Japan. The IEA has coordinated a release of oil from its members’ reserves only twice before, in response to the 1991 U.S.-Iraq war and to Hurricanes Katrina and Rita in 2005.
U.S. Secretary of Energy Steven Chu said, “We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries.” However, the Obama administration began considering tapping the strategic oil reserve in January.
Speculation of Motives
Reactions to the oil release ran the gamut, with the chairman and the managing director of oil analysis firm IHS CERA saying the new release is “an unprecedented use of strategic reserves as an economic stimulus.” Some said the move is symbolic, to boost market optimism and to give the sense that the government is doing something about high gasoline prices while others said the real motivation was to hurt oil speculators by catching them by surprise.
Some speculators, it seems, may have gotten a jump on it: oil started trading suspiciously in the hours before the IEA announcement, driving prices down and prompting an investigation by the Commodity Futures Trading Commission. In fact, oil prices fell more than 5 percent in the day of the IEA announcement, but the following day rebounded, in part because of fears about supplies getting tighter later this year.
Spare a Barrel
Many members of the Organization of Petroleum Exporting Countries (OPEC) criticized the decision, saying the IEA had not given them time to boost their production. In late May, OPEC countries decided against formally raising their production quotas, but some members—in particular Saudi Arabia—signaled they would boost production anyway.
OPEC members in the Persian Gulf—such as Saudi Arabia and Kuwait—are widely considered to hold most of the world’s spare capacity for oil production. But oil expert Euan Mearns noted that despite a sharp rise in drilling activity in Gulf nations in February 2011, their production hasn’t risen much. He interprets this as a sign of goodwill, and as an indication that “usable spare capacity does not exist”—or that it must be of relatively undesirable heavy, sour crude.
A Natural Gas Bubble?
In the U.S., “fracking” to get natural gas out of underground shale has been booming—but the vast majority of fracking wells are “inherently unprofitable” and the fast-growing industry is a “Ponzi scheme,” according to industry e-mails obtained by the New York Times. Much of the shale gas activity has been financed by a rush of investment money into the sector, rather than by profits from production, the e-mails say.
In a companion article, the New York Times reported e-mails from the Energy Information Administration reveal internal doubts over their forecasts of shale gas production, such as projections it would triple from 2009 to 2035.
California Carbon Cap Stalled
California’s legislation for a cap-and-trade system for many of the state’s largest greenhouse gas emitters had faced a legal battle—but the court hearing the case ruled the state can go ahead. The project was scheduled to start in January 2012, but Air Resources Board Chairwoman Mary Nichols, who oversees the program, announced enforcement for major polluters would will be delayed until 2013.
Efficiency from Detroit to Afghanistan
The Obama administration is trying to cut demand for oil by boosting vehicle efficiency. In closed-door talks with Detroit’s big three—General Motors, Ford and Chrysler—officials called for average mileage for cars and light trucks to reach 56.2 miles per gallon by 2025.
Meanwhile, Obama announced plans for troop withdrawals from Afghanistan, prompting renewed discussion of the costs of the war—including NPR’s report that U.S. military operations in Afghanistan and Iraq spend an estimated $20 billion a year on air conditioning.
The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.
With oil prices high, the International Energy Agency (IEA) last month made a rare plea for the world to produce more oil. So the latest meeting of the Organization of Petroleum Exporting Countries (OPEC), where they set their production quotas, was closely watched. After a rancorous meeting, most member countries refused to raise quotas.
Before the OPEC meeting, the chief economist of the IEA, Fatih Birol, told the New York Times: “Oil prices are hurting the economy.” He added, “I hope to see more oil in the markets soon.”
Saudi Arabian Oil Minister Ali al-Naimi declared it “one of the worst meetings we ever had,” with opposing views from the “haves” and “have-nots”—in terms of spare production capacity.
Saudi Arabia had been pushing to boost production by more than 1.5 million barrels per day, above current levels. Already OPEC members have gone beyond their quotas, producing an estimated 28.8 million barrels per day, compared to the current overall quota of 24.8 million barrels per day. “Everybody in OPEC is cheating and everyone knows that,” an oil analyst told the New York Times.
The Saudi oil minister suggested his country would decide on its own production levels, telling Platts, “let the buyers come and we will supply them with what they want, whatever they need.” The Wall Street Journal quoted one Gulf-state delegate as saying it’s “the end of the quota system,” and the Guardian reports some analysts say the split could mark the beginning of the end for the cartel.
Some analysts argued OPEC doesn’t matter, and Russia is the big winner, since they have added more to exports in the past few years than Saudi Arabia, and have the ability to boost their production further.
Is Increasing the Gas Tax the Answer?
The head of General Motors’ North American unit predicted gasoline prices will continue to climb in coming years. While, General Motors’ CEO, Dan Akerson, called for higher gas taxes to push people to buy more efficient cars. “We ought to just slap a 50-cent or a dollar tax on a gallon of gas,” Akerson said.
Meanwhile, the Liveable Communities Taskforce in the U.S. House of Representatives issued a report titled “Freedom From Oil.” “Providing a range of transportation choices can help break auto dependence,” the report said, and it encouraged a range of measures from more efficient cars, to better city planning, to “pay-as-you-drive” auto insurance.
Clean Energy Trade Wars
Subsidies for clean energy and emissions trading schemes were also a source of discord, within countries and internationally. China agreed to end subsidies that favored wind power firms using domestic parts, after the U.S. complained it was protectionism that broke World Trade Organization rules.
Starting next year, the European Union plans to include flights in and out of Europe in its greenhouse gas emissions trading system. But China may threaten a trade war over this issue, following on U.S. carriers, who have already started a legal battle to fight European Union levies on flights.
In several countries, feed-in tariffs that subsidize renewable energy are on the chopping block. The United Kingdom is considering slashing its subsidy by 40 to 70 percent for installations producing more than 50 kilowatts, but the solar industry pleaded for a re-think, saying the move would “decapitate” the industry. The chief policy director of the Confederation of British Industry said “business confidence has clearly been bruised by sudden and unexpected policy shifts,” including the reversal of these tariffs.
Climate Talks Stumble, Coal Rises
A few countries are starting to oppose an extension of the Kyoto Protocol. The climate treaty expires in 2012, and countries have been trying to negotiate a successor, but with limited success. At the latest round of talks in Bonn, Germany, one of Canada’s delegates said their country would not take on any emissions targets under an extension of the treaty. Russia and Japan also took a similar stance. The European Union’s lead negotiator said it may take until 2014 or 2015 to create a full successor treaty.
To help cut emissions and cope with a decline of nuclear power, the world could create a “golden age of gas,” according to a new IEA report. However, renewable energy such as wind and solar is often competing with natural gas—so the rise of natural gas could “muscle out” renewables, delaying their deployment.
Only six months ago, the IEA was warning about a gas glut, but that is already beginning to dissipate as gas demand has surged. In part this is due to increased imports by Japan of liquefied natural gas, after shutting another of its nuclear power plants.
The world may be moving increasingly toward coal, according to numbers published in the latest BP Statistical Review. Coal consumption rose to 29.6 percent of the world’s energy—its highest share of the energy mix since 1970—with China’s use growing 10 percent in 2010, but richer countries also consuming 5 percent more in 2010. To reflect the rise of renewables, BP added them to their report for the first time, reporting that in 2010, solar grew 73 percent and wind close to 25 percent.
A New Kind of Crude
Instead of relying one kind of black goop—crude oil—to power cars, researchers at MIT developed another liquid they call “Cambridge crude.” The conductive liquid can store electrical charge, so that the battery could be slowly charged by plugging it in, or could be quickly “refueled” by draining the liquid and pumping in a new, pre-charged batch—giving electric cars the flexibility of fuel cars.
The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.
Greenhouse gas emissions dropped in 2009 in the wake of the Great Recession. Research now shows emissions rebounded quickly in 2010, setting a new all-time record.
In a press release, the International Energy Agency (IEA) said the prospect of limiting the global increase in temperature to no more than 2 ºC is getting bleaker. Commenting on the new data, economist Nicholas Stern said emissions are “now close to being back on a ‘business as usual’ path.”
Nonetheless, Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change, called for an even stricter goal in a speech at an emissions trading conference. “Two degrees is not enough – we should be thinking of 1.5 ºC,” she said.
Canada’s emissions likewise fell in 2009, as described in the government’s emissions report to the United Nations. However, they deliberately omitted details on tar sands operations’ emissions, which showed a 20 percent rise in pollution in 2009.
Despite record emissions, international carbon trading shrank for the first time since the program began in 2005, from $143.7 billion to $141.9 billion. The portion for the Clean Development Mechanism, aimed at helping developing countries put low-emission options in place, fell by nearly half, in large part because of uncertainties about the successor to the Kyoto Protocol. Because of this drop, Andrew Steer, the World Bank’s Special Envoy for Climate Change, told the Guardian, “The [carbon] market is failing us.”
Germany, Others Flee Nuclear
Germany had planned to expand its nuclear program, until Japan’s Fukushima disaster led to fresh debates over nuclear power. Now the government has announced it will close all the country’s nuclear power plants by 2022. The country had already shut down seven of its oldest nuclear plants in March, and those will remain off.
Germany’s largest utility, E.ON, is upset about the policy reversal and plans to sue the government for damages. E.ON and other big operators are facing big losses, not just because of the policy change but also because “customers are fleeing in droves” to companies that offer nuclear- and coal-free electricity.
Grid operators had already warned that Germany may suffer blackouts this summer if these nuclear plants were to remain off, and other European countries may likewise face blackouts due to a spring drought that has left river and reservoir levels low.
To make up for lost electricity from nuclear plants, Germany may turn to higher-emission sources like coal in the short run, boosting its carbon dioxide emissions by about 40 million metric tons, or around 5 percent. The move is a “shot in Russia’s arm,” said Steve LeVine of Foreign Policy, since it will make Germany even more reliant on natural gas from Russia, holder of the world’s largest proven reserves. Already Germany has become more reliant on heavily-nuclear France, becoming a net importer of electricity from them.
In the longer term, the government is raising its targets for renewable energy, aiming to double its share, from 17 percent today to 35 percent by 2020. In 1997, Germany set a target of achieving 14 percent renewables by 2010, but met the target early, in 2007. Integrating a large share of renewables is easier than thought before, according to a new analysis by the IEA.
Switzerland also decided to phase out nuclear power, albeit on a slower schedule—by 2034. Nuclear power supplies 40 percent of the country’s electricity, making it one of the world’s most nuclear-reliant countries.
Plea for Oil
Meanwhile, oil prices have remained high, with Brent crude remaining above $110 a barrel, leading the International Energy Agency in mid-May to make a rare formal plea to the world’s oil producers to raise their production, because continued high prices could hurt economic growth.
Saudi Prince Al-Waleed bin Talal agreed oil prices are too high, saying he would like them to be around $70 to $80 a barrel. “We don’t want the West to go and find alternatives, because, clearly, the higher the price of oil goes, the more they have incentives to go and find alternatives,” Talal told CNN.
But more than a dozen experts surveyed by Reuters said members of the Organization of the Petroleum Exporting Countries (OPEC) are unlikely to raise production quotas at their upcoming meeting.
In part this is because there’s disarray over who will even attend the meeting. Iran’s president Mahmoud Ahmadinejad sacked the country’s oil minister and announced he would take on the job himself, and planned to represent Iran at the OPEC meeting. But a few days later this was reversed, after the country’s Guardian Council said Ahmadinejad wasn’t allowed to take on the oil minister job.
Who might represent Libya has also been up in the air, after Shokri Ghanem, head of the national oil company, was reported to have defected from Muammar Gaddafi’s government. He showed up recently in Italy, announcing at a press conference that he had in fact defected, but is undecided about working with the rebels.
The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.