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06 June 2015

Press review 06-05-2015 - Peak Coal getting louder

This was a week of nerves as media, markets and pundits tried to guess the outcome of the OPEC meeting yesterday. The cartel did not change their present policy and Brent broke down from its 65 $/b plateau after moments of great volatility.

Meanwhile the Peak Coal talk intensifies. For a decade we got used to see double digit growth figures on everything related to China; an 8% decline in coal consumption in just four months is well beyond unexpected. Almost 2 years ago I wrote a short article on the water demands of the Chinese coal industry; at that time it seemed clear China was reaching the limits of its mining industry and would have to take up a considerable share of the international markets to meet its needs. Facing such scenario, the Chinese government has opted to tackle down consumption and the results are visible. The visions of infinite growth fed on the public by the IPCC and the IEA are now definitely in question.

But is this really the end of the line for coal? It could well be, but I won't be joining the Peak Coal camp so soon. It is not clear yet how fast electricity consumption in China will grow; the price collapse in international markets might drive other countries to extend their consumption a while longer. However, something substantial is clearly changing in the world energy system.

OPEC keeps output unchanged
Summer Said, 05-06-2015

OPEC delegates said Friday the cartel would keep its collective output level unchanged at 30 million barrels a day, the second time in six months it decided to take no action amid a global glut of crude and weak oil prices.

In the past, the Organization of the Petroleum Exporting Countries, which pumps about one in three barrels of oil consumed each day, has throttled back on output to support prices. But in a break from that strategy, OPEC held production steady at its meeting in November.
The coal industry around the world is facing rough times; in market economies the loss of capitalisation within the sector is striking. The mainstream media often touts the slowdown of GDP growth in China as the reason, but analysts paying attention note that something else is at play.
Coal Facing Worst Year Yet in 2015
Nick Cunningham, 28-05-2015

After coal prices tumbled from their highs in 2011, the industry hit a rough patch. Years of buildup in mining capacity hit the markets at the same time, sending prices crashing. By the beginning of 2014, things were looking pretty grim. But optimists hoped it would be merely temporary; a supply glut that would ease once demand picked up.

However, demand has not been nearly as strong as expected. The US has been moving away from coal for a few years now, with cheap natural gas, more renewables, and energy efficiency.

China’s economic growth slowed a bit, but its efforts at reining air pollution have gone a long way at reducing coal demand. In fact, China may have already hit a peak in its coal consumption, which would be a shocking development considering the country was aiming to hit its peak no later than 2020.
The following article offers a more refined explanation to the present decline of coal consumption in China: the country is simply closing down outdated coal-burning industries. Peak or no peak, the Chinese industry must be surely undergoing some structural transformation.
China’s Coal Use May Have Peaked Years Ahead Of Schedule
Joe Romm, 27-05-2015

China’s coal use fell by nearly 8 percent in the first four months of 2015 versus the same period in 2014, according to analysis by Greenpeace’s Energydesk team. Given China’s aggressive commitments to slash urban air pollution levels and reverse carbon pollution trends, we may have witnessed the peak in Chinese coal consumption years ahead of schedule. That would be another climate and clean energy game changer.

[...] On the other hand, given the scrutiny China is under now, a number of analysts say it is reasonable to have higher confidence in these numbers now. Hart notes that is particularly true of the industrial coal numbers because the Chinese “have an official plan to shut down heavy industry.”

“There’s a must-close-down list and they are really making it harder for those plants to operate,” she said in an email. “Formerly local government could just hide them but now it’s getting much harder. The critical thing now is the party is 100 percent convinced that the old heavy industry model will run them into the ground (no room for more growth, consumes too much energy, too much air pollution).”
Russia remains for now the world's largest petroleum extracting economy. It is not part of OPEC and as so far failied to convince the cartel to reign in its exports. However, Russia seems to have dealt better than expected with the petroleum price rout of 2014 (that compounded with economic sanctions consequent to the coup d'état in Ukraine). According to the World Bank the worst is now through and GDP growth could soon be a reality again.
Russia Weathering Oil Price Plunge Better than Expected
Andy Tully, 02-06-2015

The World Bank says Russia’s economy may not be headed for as bad a recession as previously forecasted, yet it stressed that global economic ambiguities leave the outlook uncertain.

The report, posted on the bank’s website on June 1, said Russia’s economy, hit hard by the drop in energy prices over the past year as well as by Western sanctions, attributed its improved forecast to a modest revival of oil prices, a stronger ruble and “a slightly faster retreat of inflation.”

As a result, the Bank of Russia, the country’s central bank, would be able to ease its monetary policy more quickly, further bolstering the economy, according to Birgit Hansl, the World Bank’s lead economist for Russia.
Money continues flowing to the US petroleum industry, keeping afloat the so called "shale oil" business. With extraction rates now on decline through the source rocks and tight reservoirs that feed the "boom", companies are still able to raise funds in the bond and stock markets to keep going what is now pretty much a zombie industry. Most of the investors feeding the zoobie will never get their money back.
The Daily Impact
Oil Money: Too Dumb to Fail
Tom Lewis, 01-06-2015

I have been waiting since mid-April for the next phase of the fracking disaster to kick in, when producers unable to raise new debt or capital in the face of collapsed prices and devalued assets would drop like flies, production in the fracking patch would decline sharply, the junk bond market would crash and burn, possibly taking the regular bond and stock markets with it. Seemed like a slam dunk. Why hasn’t it happened?

The first evidence to come to my attention appeared this morning in The Wall Street Journal — “Easy Access to Money Keeps U.S. Oil Pumping” — and Forbes — “What Is The ‘Smart Money’ Telling Us About Oil?” Incredibly, the “dumb money” — and that is the term used by the Forbes contributor, Jesse Colombo — is still betting that oil prices are going to rebound soon and everything will be the way it was.

But wait. The way it was, back in the summer of ‘14, when oil was selling for more than $100 a barrel, was that the frackers were losing their shirts. Oh, they were showing nice operating profits per well, and paying dividends and all, but the horrendous decline rate of production from fracked wells, up to 60-70% in the first year, 90% in three years, meant that every $8 million well had to be replaced in about three years to keep the company going. The expense of doing that was far more than the operating profits, so the actual; cash flow of virtually all the producers was negative from the start.
The maintenance of OPEC's free flow policy is often attributed to a drive to gain market share from the US ( a country that actually imports petroleum). Market share may be a reason, but OPEC certainly isn't targeting importing countries, it might even be targeting rogue elements within its ranks.
India's May Iran oil imports hit highest since March 2014
Nidhi Verma, 02-06-2015

India's imports of Iranian crude oil rose last month to their highest level since March 2014 as refiners boosted purchases ahead of a final push by international negotiators to reach a deal on Tehran's disputed nuclear programme by end-June.

The jump to a 14-month high comes just two months after India dropped its crude imports from Iran to zero under U.S. pressure to limit its purchases of the Islamic republic's oil. In March this year India did not take any Iranian oil for the first time in at least a decade.

Many analysts say Tehran, the United States, Britain, France, Germany, Russia and China will reach an agreement by or shortly after a June 30 deadline for a deal, although the sanctions that have cut Iran's oil exports to less than half of pre-2012 levels aren't likely to be lifted until next year.
Since early days, Mitchell Prothero has been (one of) the most relevant source of information on the Sunni/Shiite war in Iraq. This week he painted a gloomy picture of the Shiite Army trained by the US, that to a great extent explains the recent reversal of the war to the Sunni's advantage. I doubt the Shiites can win this war without decisive external intervention.
The Iraqi Army is Too Exhausted to Fight
Mitchell Prothero

Secretary of Defense Ash Carter infuriated his Iraqi allies last Sunday when he blamed the loss of Ramadi on the Iraqi Army’s unwillingness to fight, a bold and accurate statement by a U.S. official, perhaps the most candid and realistic I’ve heard from a U.S. official in the 12 years I’ve been covering Iraq. As harsh an assessment as that might have been, it still doesn’t come close to recognizing the myriad of problems that any coalition hoping to free much of Iraq and Syria—where the Islamic State now controls three provincial capitals spanning two countries—must address.

About a month before Ramadi fell, in an effort to bring a realistic tenor to the debate about when an operation to liberate Mosul might begin, I pointed out that Iraq had perhaps 10,000 combat effective troops spread among three special forces units and that beyond that, the Iraqi security forces lacked training, equipment, leadership or even the basic logistical competence to put men into combat and supply them with ammo, food and water, let alone coordinate operations in a coherent manner. Worse yet, I wrote that these effective units were exhausted after a year of being plugged into every military need that arose around the country. In the wake of Ramadi, I realized that I’d grossly underestimated their fatigue and flagging morale, as evidenced by their flight from Ramadi at the height of a battle. Today, the Iraqi government would be lucky if 5,000 of its effective troops are still in fighting shape.
Reality often defies fiction - this is one of such cases. It is perhaps important to remind that Odessa was the stage of the massacre of 46 civilians last year.
Neocon Fugitive Given Ukraine Province
Robert Parry, 02-06-2015

The latest political move by the U.S.-backed “pro-democracy” regime in Ukraine was to foist on the people of Odessa the autocratic Georgian ex-President Mikheil Saakashvili, a neoconservative favorite and currently a fugitive from his own country which is seeking him on charges of human rights violations and embezzlement.

[...] Now Poroshenko has given Saakashvili his own province to govern, rescuing him from an obscure existence in the Williamsburg neighborhood of Brooklyn, New York. According to a New York Times profile last September, Saakashvili was there “writing a memoir, delivering ‘very well-paid’ speeches, helping start up a Washington-based think tank and visiting old boosters like Senator John McCain and Victoria Nuland, the assistant secretary of state.”
Another big corporation is embracing household electricity storage. Governments insist on keep technologies such as PV out of the electrical grid, but the gap between grid rates and household generation costs keeps widening. This gap has grown so much that even immature storage technologies can look interesting in auto-consumption schemes. With Toshiba and Panasonic (through its partner company Tesla) already in the field, this market seems set to heat up the coming months.
Benz to power houses too
Michael Taylor, 29-06-2015

While Tesla has stolen the headlines by suggesting it will sell its Model S batteries to help houses store off-peak and renewable electricity, Daimler already has a lithium-ion battery working on Germany’s electricity grid and will go fully commercial in September.

With no German government support for electric vehicles, Daimler has changed tack to help recoup decades of research and plans to offer battery storage set-ups for heavy industry, mid-sized facilities like supermarkets and, soon, households.

Its ACCUmotive subsidiary already has its first large industrial storage setup, with Daimler christening it a “stationary energy storage”, which sounds a lot like the thinking – and practice – behind stationary internal combustion engines.
Interesting news out of France, where Geothermal home heating is undergoing a revival. It remains a subsidised energy source, but at this moment public funding only covers 20% of the cost.
Paris Geothermal Boom Brings Deep Drilling to Crowded Suburbs
Tara Patel, 02-06-2015

Electricite de France SA is also developing a new project at Bagneux, south of Paris. Nearby, independent utility Semhach SA operates a geothermal heating network with two new wells for the towns of Villejuif, Chevilly-Larue and L’Hay-les-Roses. New projects will bring the number around the French capital to about 40 by the end of this year, environment agency Ademe says.

With a capacity of 10 megawatts, Engie’s Noisy-le-Sec plant is part of a plan to double its geothermal capacity around Paris to about 100 megawatts in 2016, Terouanne says. Drilling is complete at another of its projects at Arcueil and Gentilly, south of the capital.

Geothermal heat for homes will be competitive with natural gas, according to Joelle Colosio, director of Ademe’s Paris-region office. Subsidies decided by the government fund about a fifth of the cost of projects including drilling insurance and have helped get geothermal “back on the map.”
Have a good weekend.

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