Friday May 6, 2016
WEEKLY ENERGY WATCH
by Karel Beckman
It’s a gas, gas, gas…for Iran
Gas industry: We are the world
If EVs can make it in Germany, they can make it anywhere
She’s got a Mercedes home storage unit
It’s getting cheaper all the time
It’s a gas, gas, gas – for Iran
Of all the many news reports that crossed my desk this past week, the one I found most intriguing was from Natural Gas Europe, drawing on a short item from the Iran-based petroleum news group Shana, which reported that Iran has “vast shale gas reserves in the western province of Lorestan”.
Source for this news was Mohammad Reza Kamali, director upstream faculty of Iran’s Research Institute of Petroleum Industry (RIPI), who said “said huge reserves of shale gas have been located in the region”. He said his faculty is currently working on a project to locate unconventional oil and gas reserves in Iran and the studies are now 47% complete.
RIPI is cooperating with RWTH Aachen University, a leading centre for shale oil and gas studies. He further said RIPI has recently found gas hydrates in the sea of Oman which are located 2,000 km beneath the sea bed.
This reminds me of a recent report from the World Energy Council, which finds that unconventional gas is gradually spreading from the US to become a “global phenomenon”. This report notes, among other things, that “Exploration and production (E&P) operators in Australia, China, and Argentina have made progress in growing unconventional gas supplies outside of North America.”
These countries, like Iran, will not hesitate to exploit those reserves if this can be done economically. For a long time we have been told that the US shale gas revolution cannot be exported abroad. But once the right economic conditions are in place, this picture may well see a drastic change.
Gas industry: We are the world
“Gas advocacy” (the push to position gas as the “bridge fuel” in the energy transition, complementary to renewables) has been around for quite some time, but with climate policies starting to bite, it will only get stronger. For the big oil companies, a switch to gas is their best bet to extend their existence for many decades.
The gas industry would like to see the gas market evolve into a global commodities market, just like in oil. The gas market was always different, because it was tied to pipeline transport, which was controlled by a limited number of suppliers (and customers), who operated on the basis of long-term contracts.
With the advent of LNG, which can be transported by ship to any place in the world, and the development of an increasing number of gas trading exchanges, the long-dreamed-of “global gas market” is increasingly becoming a reality.
And yet, despite what many described as a gradual “globalisation” of the gas market, until very recently, prices in the three main trading regions – North America, Europe and Asia – markedly differed and even saw increasing divergence. This is a typical example of a graph showing the divergence of gas prices in the three regions in the period 2005-2014:
So what was going on? Well, according to new research by Floris Merison at the Energy Delta Institute in The Netherlands, this standard picture of gas price divergence is actually wrong.
According to Merison, it is based on only a limited number of prices – in the US, the UK, Germany and Japan. But gas, he notes, is traded in over 100 countries. Using a much more extensive database, of the International Gas Union, Merison looked again at price development from 2005 and 2014, and found that prices in the world actually converged instead of diverged.
In other words, the globalisation of the gas market that the industry likes to see happening, and that many policymakers, particularly in Europe, are trying to bring about, has actually been going on for quite a while.
If EVs can make it in Germany, they can make it anywhere
The German government has officially announced its long-awaited plan to stimulate the purchase of electric cars. The government and German automakers will together spend €1.2 billion on incentives – 50% each, reports Bloomberg. Buyers will get up to a €4,000 rebate on the price of an electric car and €3,000 on the price of a hybrid.
“The goal is to move forward as quickly as possible on electric vehicles”, said Finance Minister Wolfgang Schäuble. Chancellor Merkel wants to see 1 million EVs on German roads by 2020, but up to now no more than 30,000 EVs have been sold – a fraction of the more than 3 million cars bought each year in Germany.
If Saudi Arabia is dependent on oil, and Russia on gas, then Germany may be said to be strongly dependent on auto manufacturing, which directly employs 790,000 people. Yet the country is behind in EVs. As Arndt Ellinghorst, a London-based analyst at Evercore said: “This is a significant incentive … but what needs to happen more importantly, German manufacturers need to make attractive e-cars and German e-cars just aren’t.”
She’s got a Mercedes home storage unit
The joint EV push given by government and industry, shows that Germany may still be backward in electric cars, but with the diesel scandal fresh in everyone’s minds, the country may well start to get serious about catching up. And that could make all the difference.
In this context it is interesting to note that car company Daimler has just started to sell its first home energy storage systems in Germany, as CleanTechnica reports.
They are not the first to do so, but what is significant is that they see synergies between car batteries and home storage – like Tesla does. The lithium-ion battery units which Daimler supplies through its subsidiary Accumotive, are based on the technologies developed for use in electric Mercedes-Benz vehicles, notes CleanTechnica. Daimler has already been making commercial deliveries successfully for some months before it entered the home market.
The new home energy storage units are currently available via a Germany-wide network of sales partners and distributors, which includes the energy service provider Energie Baden-Württemberg (EnBW), the solar technology specialist SMA, and others.
“There is tremendous interest in our energy storage units and we have already received numerous orders. Over the coming months, we will continue to step up and expand sales both in Germany and on the international market,” commented Harald Kröger, the Head of Development Electrics/Electronics and E-Drive Mercedes-Benz Cars.
Who knows, once Mercedes gets into the groove, the Eagles might want to change the lyrics of Hotel California some day. “Her mind is Tiffany twisted, she’s got a Mercedes home storage unit.”
It’s getting cheaper all the time
Finally, we should not fail to mention a recent report from KIC InnoEnergy, which concludes that “solar photovoltaics (PV) will be one of the cheapest sources of electricity generation in Europe by 2030.”
The report is the final one in a series of fourin which KIC InnoEnergy analyses future costs of renewable energy sources specifically for Europe. The other three are on onshore and offshore wind and on solar thermal electricity.
The analysis, based on a methodology (Delphos) developed by UK-based consultancy BVG Associates in cooperation with KIC InnoEnergy, examines in detail how a range of specific elements of PV installations are impacted by a range of technological innovations. It concludes that the cost of solar PV can be reduced 37-49% by 2030.
However, despite this positive news, Emilien Simonot, Renewable Energy Technology Officer at KIC InnoEnergy and coordinator of the report, notes that Europe should be concerned about recent declines in investment in the renewable energy sector in Europe, in particular compared to China. “We still have a good technology base and important R&D centres in solar technology, but no manufacturing industry anymore to transfer the results to. How can we maintain leadership if we have no industry?”
THIS WEEK: Energy Innovation in Europe
A single market could make all the difference
You ain’t seen nothing yet! That sums up the view of Elena Bou on the innovation we can expect to see happening in the European energy sector.
Bou, Innovation Director at KIC InnoEnergy, an EU-supported company that invests in renewable energy technology across Europe, is convinced we are at the beginning of a new era of innovation in European energy. “Energy companies will be opening up to new collaborations, investing in startups, creating new technologies and developing new business models that will be much more service and customer oriented”, she says in an interview with Energy Post.
She notes that innovation is about much more than just technology. “The most interesting type of innovation that I see going on is in business models.” And we are only at the start of this new trend, she adds. “We haven’t seen real disruptive changes yet in business models, with the exception perhaps of Eon’s split-up. Eon’s example will be closely studied across Europe, although each company will follow its own model, depending on its specific circumstances.”
Bou should know, being in charge of innovation in a company that was set up for the sole purpose of boosting innovation. KIC InnoEnergy was incorporated in 2010 under the umbrella of the European Institute of Innovation and Technology (EIT).
It was founded by 27 shareholders, including a number of prominent European research institutes and universities as well as large European energy companies, such as Total, Gas Natural Fenosa, EDF, ENBW, Vattenfall and ABB. The company supports entrepreneurs and startups building sustainable businesses that expand and enhance Europe’s ecosystem (133 supported to date).It connects innovators and business partners by investing in commerically viable products and services (71 launched to date) and runs Master’s, PhD and further educational programmes at top European universities.
One important change that Bou notes is that the major players in the energy sector are all increasingly opening up to outside influences. They all have their own corporate venture arms that invest in startups. For example, ABB has set up a collaboration with Belgian energy software developer Enervalis; Alliander, the largest distribution system operator (DSO) in the Netherlands, is working with startup Watch-E, which provides end users with an overview of their personal energy consumption; REE, the Spanish TSO, has signed an agreement with SteadySun, which provides solar power forecast services, etc.
However, there is still a big question mark hanging over the future of the European energy sector, notes Bou. The biggest bottleneck, she says, is the lack of coherent policies across Europe and the lack of an integrated market. If we want European energy companies to be successful in the competition with China and the US, the best thing we can do for them “is provide them with a single market”. Support policies “should be harmonised”, European market design will be “crucial”.
It is a powerful message to lawmakers in the EU, who are currently looking at new enery market designs. It is all the more important since Europe is falling behind in clean energy investment, as the most up to date figures from Bloomberg New Energy Finance (BNEF) show. Whereas last year clean energy investment surged in China, Africa, the US, Latin America and India, with the highest spending in years, Europe was an exception with the lowest clean energy investment since 2006.
(Editor’s Note: our Brussels correspondent Sonja van Renssen was out-of-office this week; she will return next week.)
The future of nuclear
This is how it looks
A wave of innovation is sweeping across the nuclear sector, with half a dozen different reactor types in the race to be developed. In fact, there are so many new ideas out there, writes specialised nuclear energy journalist Dan Yurman, that it’s difficult for investors and energy companies to pick the winners.
Yet perhaps the most important innovation going on, says Yurman, is a new investment paradigm which is emerging in the US. More and more private investors are becoming interested in the nuclear market. According to Yurman, this signals a profound shift taking place from government-led, and funded, nuclear R&D to private sector-led efforts by people with strong entrepreneurial goals, often linked to a social purpose.
However, developing a new nuclear reactor design is not a one-to-two year rush similar to creating a new computer chip, notes Yurman. Even the timescale for the development of a small modular reactor like NuScale’s 50MW one, is in the range of 10-15 years, even though it is based on mature light-water reactor technology.
One solution private investors are pursuing is to form partnerships with public institutions that will give them access to the expertise – and the high-powered computers and simulation software – to solve difficult engineering design problems. Todd Allen, former deputy director of Idaho National Laboratory, and visiting fellow at the Washington D.C. based think tank The Third Way, believes that such public-private partnerships are the key to success for the new breed of nuclear energy entrepreneurs.
Allen says that the creation of federally funded “innovation centers” is especially effective, because they help give private actors gain access to materials testing facilities, and in developing and testing new nuclear fuels for innovative reactors. He believes that out of this cooperation “a culture of innovation” will emerge which will be able to accommodate a “range of new nuclear technologies of varying size and purpose.”
One example is the Gateway for Accelerated Innovation In Nuclear (GAIN), founded in January by Idaho National Laboratory, Argonne National Laboratory and Oak Ridge National Laboratory, which aims to provide nuclear innovators with the technical, regulatory, and financial support necessary to move new nuclear reactor designs towards commercialisation. The Obama administration has opened a $12.5 billion loan guarantee programme for advanced nuclear technology projects including covering the costs of design certification by the U.S. Nuclear Regulatory Commission (NRC).
Yurman also describes a number of concrete new, widely differing projects that are under development. For example, Terrestrial Energy, a small startup, is developing a small stand-alone Integral Molten Salt Reactor, which could be used by “remote communities”, such as those in the far northern provinces of Canada or island nations in the vast Pacific ocean, or by industrial plants such as chemical facilities, mining operations, petroleum refining and desalinisation installations.
On the other side of the spectrum, TerraPower, supported by the Bill Gates Foundation, has developed a 1150 MW traveling wave reactor (TWR), which uses depleted uranium as a fuel. TerraPower has inked a deal with the China National Nuclear Corporation (CNNC) to build a half-size, first-of-a-kind unit in China. Once testing of the prototype is complete, between 2018 and 2023, the idea is for the two firms to collaborate to build and export full-size units for customers worldwide, starting in 2023.
In the meantime, Russia and China are busy developing fast-neutron nuclear reactors, which are able to reprocess spent fuel from commercial reactors and depleted uranium from enrichment plants. Up to now, fast reactors have always been too costly to be competitive, but Russia has recently connected a 790 MW to the grid.
What this all means for the future of nuclear energy is difficult to say, but it is clear that the nuclear sector is making great efforts to gain a new lease on life, after many years of relative stagnation. The sector does need regulatory support, though, to be able to grow. As Simon Irish, CEO of Terrestrial Energy, notes: “The biggest challenge we all face is that today’s market and policy realities disadvantage all baseload technologies. Ten times more tax-payer’s dollars in 2015 flowed into support renewables compared to nuclear. By comparison, nuclear energy provides two-thirds of current clean power. History clearly shows it can provide close to 100%.”
The clean, the dirty and the ugly
The coming world of Peak Oil Demand
One of the great appeals of “clean energy” is that it’s clean not just for the environment, but also in the sense that it has none of the corruption attached to it that fossil fuels have. There are no “Solar Curses” or “Solar Diseases”. There are no “Big Wind Sisters” or “Offshore Wind Kings” fighting over the lucrative spoils that renewable energy brings.
Until quite recently Big Sisters and Oil Kings paid little attention to alternative energies, but those days may be coming to an end. The sharp decline of the oil price has severely curtailed the means the oil despots have at their disposal to do the things that despots tend to do with their money. It is also putting pressure on the mighty western oil multinationals to start looking for new ways to produce and deliver energy.
Not that the old oil order is giving up without a fight. On 17 April, representatives from the world’s leading oil exporters, both OPEC and non-OPEC (e.g. Russia, Mexico), assembled at Doha, Qatar to take action to move the oil price back up again. The intention was to freeze output at current levels.
Yet the meeting turned into a debacle, as Michael T. Klare, professor at Hampshire College and author of many books on the geopolitics of energy, describes in another one of his fascinating articles in which he looks at the big energy picture. Many analysts were convinced that Doha would prove the decisive moment when the big oil producers, particularly Saudi Arabia, would finally agree on a plan to push oil prices back up.
Yet the plan failed at the last moment. “According to people familiar with the sequence of events”, writes Klare, “Saudi Arabia’s Deputy Crown Prince and key oil strategist, Mohammed bin Salman, called the Saudi delegation in Doha at 3:00 a.m. on April 17th and instructed them to spurn a deal that provided leeway of any sort for Iran. When the Iranians — who chose not to attend the meeting — signaled that they had no intention of freezing their output to satisfy their rivals, the Saudis rejected the draft agreement it had helped negotiate and the assembly ended in disarray.”
It would be tempting to ascribe the failure of Doha purely to geopolitical factors. “The failure to reach an agreement in Doha is a reminder that Saudi Arabia is in no mood to do Iran any favours right now and that their ongoing geopolitical conflict cannot be discounted as an element of the current Saudi oil policy,” said Jason Bordoff of the Center on Global Energy Policy at Columbia University.
But according to Klare there is a deeper reason for the Doha debacle as well. “Whatever the Saudis think of the Iranians or vice versa”, he notes, “their industry is being fundamentally transformed, altering relationships among the major producers and eroding their inclination to cooperate.” This transformation has everything to do with the world’s gradual energy transition to renewable energy.
Until recently, writes Klare, oil producers could always count on the oil price bouncing back again: lower oil prices led to lower output and higher demand, in turn leading to higher prices. “Under such circumstances, and at such a moment, it was just good sense for individual producers to cooperate in lowering output, knowing that everyone would benefit sooner or later from the inevitable price increase.”
But what happens, Klare asks, “if confidence in the eventual resurgence of demand begins to wither? Then the incentives to cooperate begin to evaporate, too, and it’s every producer for itself.”
And this is exactly the “new reality” of today, writes Klare. The energy transition is putting a lid on demand growth. In western countries, fuel efficiency standards and alternatives for oil have already resulted in a drop in demand (consumption in advanced industrialised nations declined from 50 million barrels per day in 2005 to 45 million barrels in 2014.) In the developing world, growth rates are slowing down, and with countries increasingly imposing tougher constraints on carbon emissions, this is only likely to get worse.
If this is true, then the days of the old Oil Order are numbered. And things could get ugly again – not in a scramble for oil spoils – but, as Klare puts it, “in a mad scramble to protect market share”.
Replacing fossil fuels with renewables
It’s not as simple as that
To many people the solution to the climate and corruption problems of oil is simple: phase it out and replace by renewables.
Certainly Anthony James, lecturer at the National Centre for Sustainability at Swinburne University of Technology in Australia, and Josh Floyd, of the independent research organisation the Understandascope and partner of the Centre for Australian Foresight, agree that the world needs to reduce greenhouse gas emissions to zero. However, they have done new research that suggests that such a transition may face significant challenges.
Most models, they say, look at the “balance” in an energy system: they calculate what the energy demand is or will be and how future renewable energy sources could meet that demand. What this approach ignores, however, write James and Floyd, is what takes place during the transition itself.
The model that James and Floyd have developed includes the concept of “net energy services”. Net energy services are “the total work and heat that energy sources – for instance solar photovoltaic (PV) systems or petroleum – make available to end users, minus the energy services required to provide that supply.”
A rapid, large-scale energy transition creates extra demands for energy services: the old systems are dismantled and new systems have to be built up. The faster the transition rate, the greater the energy services required. A 50-year fossil-fuel phase-out, which represents a relatively modest transition rate, sees net energy services decline by more than 15% before recovering.
And that recovery is not certain, say the authors: “The model doesn’t consider how this decline in energy services might affect the transition effort. If less energy services are available, then energy transition will come at the expense of other economic activity. That may impact the collective will to continue.”
If fossil fuels were to be phased out over 50 years, “wind and solar plants need to be installed at eight to ten times current rates by 2035”. This would require capital investment in wind and solar PV plants bus batteries of around US$3 trillion per year (in 2015 dollars), 50% more than the International Energy Agency forecasts for all energy supply in 2035.
“This implies that total expenditure on energy supply will increase its share of world spending, reducing scope for other expenditure”, note James and Floyd. “Compounding the decline in energy services during transition, this has potential to apply contractionary pressure to the global economy. This has implications in turn for financing and maintaining the political will for the renewables rollout.”
The authors conclude that if greenhouse gas emissions are to be reduced to zero, “complementary measures” need to be taken. What is more: a lifestyle change may be required, accompanied by much lower energy use.
No doubt it is not a message that many would like to hear – but intuitively one feels that it may well be true. Nothing is ever as simple as it seems – and that certainly goes for ditching our fossil fuel system and building something new from scratch.
Where does this leave us?
Up Climate Creek with just one paddle!
We could be in for a pretty ugly period then. One in which oil demand reaches a peak, and oil producers (and thereby many economies) get hurt, while at the same time the replacement of oil and other fossil fuels will be having serious economic repercussions – certainly in the short to medium term.
This may be the underlying reason why the national climate plans the nations of the world have submitted to the UN, are as yet far from convincing. The governments that made those plans are probably acutely aware that too ambitious plans will upset their economic stability.
But that means of course that the climate targets the world has adopted will not be reached. A new study from MIT Joint Program on the Science and and Policy of Global Change confirms this. A team of climate scientists led by Andrei Sokolov has simulated the effects of policies in the 188 Nationally Determined Contributions (NDCs) that have been submitted to the Paris Climate Agreement and extended those to the end of the century.
Their conclusion, in a nutshell, is that the world will warm between 2.7 and 3.6C by the year 2100. As one of the researchers put it: “The Paris agreement is certainly a step in the right direction, but it is only a step.”