Saturday, 10 January 2015

Climate change: 'stranded assets' and 'unburnable oil' ...... or the pressures to leave oil and gas in the ground

A piece on this blog looked at some of the political issues around climate change:
Futures Forum: Climate change: "Conservatives don’t hate climate science. They hate the left’s climate solutions"

One of the hottest topics discussed was the notion of 'stranded assets':
Futures Forum: The growing economic cost of fossil fuels
Fossil industry is the subprime danger of this cycle - Telegraph

In other words, should we be keeping those oil and gas assets where they are?
To Save the Planet, We Need to Leave Fossil Fuels in the Ground—but Oil Companies Have Other Plans | The Nation

There are serious studies which think so - the latest just published in the Nature journal:
The geographical distribution of fossil fuels unused when limiting global warming to 2 °C : Nature

This has been widely reported:
Which fossil fuel reserves must stay in the ground to avoid dangerous climate change? -- ScienceDaily

This is from the New Economics Foundation:

Energy round-up: unburnable oil

Photo credit: Horia Varlan


1: Chart: Unburnable carbon

Source: The Guardian

2: Chart: Price Chart for Crude Oil Brent

Source: Baker Hughes

3: Commentary: Energy trends in 2014 and how they affect climate change - Here are the trends that defined the global climate and energy debate over the past 12 months.

The price of oil fell below $50/barrel this week, extending the recent rout and causing turmoil in financial markets, worsening economic crisis in Russia and Venezuela, and helping to push the Eurozone towards deflation. Most commentators have attributed the plummeting price to an increase in the global supply of oil, mainly caused by a surge in US shale oil production. But a fall in demand for oil has been just as important - this being the result of both good and bad news.

The bad news: oil demand is falling partly because Europe has failed to create a lasting recovery, and the Chinese economy is also slowing sharply. The good news is that oil demand is also falling because of dramatic improvements in energy efficiency - spurred by those same high energy prices - in some surprising places.

The US economy, for example, has grown by almost 9% since 2007, while demand for petrol and diesel has dropped by more than 10%, as motorists have traded in their gas guzzlers and driven fewer miles. According to Michael Liebreich of Bloomberg New Energy Finance, “The story should not be how falling oil prices will impact the shift to clean energy, it should be how the shift to clean energy is impacting the oil price.”

Mr Liebriech’s spectacles may have a rosy tint - it’s likely the oil price slump will reduce the economic imperative to cut consumption, something already evident in resurgent car sales at the end of last year, in particular of less fuel efficient cars. Regardless, the oil price slump seems unlikely to last.

Analysts have made clear that, at current levels, one third of global oil production is uneconomic. $1 trillion of planned investment is under threat and oil companies will need to slash spending by 40% this year, according to ratings agency Moody’s. As a result, the oil 'glut’ should evaporate soon enough. Analysts at Keppler Cheuvreux forecast that US shale production will stall in the second half of the year, sending prices upwards again.

It’s important to remember that not only are many oil projects now economic unviable, the majority of remaining fossil fuels are also incompatible with efforts to limit climate change to 2oC, as yet another academic study has confirmed this week.

Energy round-up: unburnable oil | New Economics Foundation

This is the piece from this week's Guardian - click on the link to see a short video:

Leave fossil fuels buried to prevent climate change, study urges

New research is first to identify which reserves must not be burned to keep global temperature rise under 2C, including over 90% of US and Australian coal and almost all Canadian tar sands

Trillions of dollars of known and extractable coal, oil and gas cannot be exploited if the global temperature rise is to be kept under the 2C safety limit, says a new report. Photograph: Les Stone/Les Stone/Corbis

Damian Carrington Wednesday 7 January 2015 18.00 GMT

Comments 1,691

Vast amounts of oil in the Middle East, coal in the US, Australia and China and many other fossil fuel reserves will have to be left in the ground to prevent dangerous climate change, according to the first analysis to identify which existing reserves cannot be burned.

The new work reveals the profound geopolitical and economic implications of tackling global warming for both countries and major companies that are reliant on fossil fuel wealth. It shows trillions of dollars of known and extractable coal, oil and gas, including most Canadian tar sands, all Arctic oil and gas and much potential shale gas, cannot be exploited if the global temperature rise is to be kept under the 2C safety limit agreed by the world’s nations. Currently, the world is heading for a catastrophic 5C of warming and the deadline to seal a global climate deal comes in December at a crunch UN summit in Paris.

“We’ve now got tangible figures of the quantities and locations of fossil fuels that should remain unused in trying to keep within the 2C temperature limit,” said Christophe McGlade, at University College London (UCL), and who led the new research published in the journal Nature. The work, using detailed data and well-established economic models, assumed cost effective climate policies would use the cheapest fossil fuels first, with more expensive fuels priced out of a world in which carbon emissions were strictly limited. For example, the model predicts that significant cheap-to-produce conventional oil would be burned but that the carbon limit would be reached before more expensive tar sands oil could be used.

It was already known that there is about three times more fossil fuel in reservesthat could be exploited today than is compatible with 2C, and over 10 times more fossil fuel resource that could be exploited in future. But the new study is the first to reveal which fuels from which countries would have to be abandoned. It also shows that technology to capture and bury carbon emissions, touted by some as a way to continue substantial fossil fuel use in power stations, makes surprisingly little difference to the amount of coal, oil and gas deemed unburnable.

Major fossil fuel companies face the risk that significant parts of their reserves will become worthless, with Anglo American, BHP Billiton and Exxaro owning huge coal reserves and Lukoil, Exxon Mobil, BP, Gazprom and Chevron owning massive oil and gas reserves.

If the world’s nations keep their pledge to combat climate change, the analysis finds the prospects are bleakest for coal, the most polluting of all fossil fuels. Globally, 82% of today’s reserves must be left underground. In major coal producing nations like the US, Australia and Russia, more than 90% of coal reserves are unused in meeting the 2C pledge. In China and India, both heavy and growing coal users, 66% of reserves are unburnable.

While the prospects for gas are better, the study still found 50% of global reserves must remain unburned. But there are stark regional variations, with the giant gas producers in the Middle East and Russia having to leave huge quantities underground, while the US and Europe can exploit 90% or more of their reserves to replace coal and provide local power to their large cities. Some fracking for shale gas is consistent with the 2C target, according to the study, but is dominated by the existing industry in the US, with China, India, Africa and the Middle East needing to leave 80% of their potential shale gas unburned.

Oil has the lowest proportion of unburnable fuel, with a third left unused. However, the Middle East is still required to leave 260bn barrels of oil in the ground, an amount equivalent to Saudi Arabia’s entire oil reserve. The study’s conclusion on the exploitation of Canada’s oil sands is blunt, finding production must fall to “negligible” levels after 2020 if the 2C scenario is to be fulfilled. The research also finds no climate-friendly scenario in which any oil or gas is drilled in the Arctic.

FacebookTwitterPinterest The Syncrude Canada Ltd mine in Alberta, Canada. The report says Canada oil sands production must fall to ‘negligible’ levels after 2020 if the 2C scenario is to be fulfilled.Photograph: Ben Nelms/Getty Images

The new analysis calls into question the gigantic sums of private and government investment being ploughed into exploration for new fossil fuel reserves, according to UCL’s Professor Paul Ekins, who conducted the research with McGlade. “In 2013, fossil fuel companies spent some $670bn (£443bn) on exploring for new oil and gas resources. One might ask why they are doing this when there is more in the ground than we can afford to burn,” he said.

“The investors in those companies might feel that money is better spent either developing low-carbon energy sources or being returned to investors as dividends,” said Ekins.

“One lesson of this work is unmistakably obvious: when you’re in a hole, stop digging,” said Bill McKibben, co-founder of 350.org which is campaigning to get investors to dump their fossil fuel stocks. “These numbers show that unconventional and ‘extreme’ fossil fuel – Canada’s tar sands, for instance – simply have to stay in the ground. Given these numbers, it makes literally no sense for the industry to go hunting for more fossil fuel,” McKibben said. “We’ve binged to the edge of our own destruction. The last thing we need now is to find a few more liquor stores to loot.”

Financial experts, including the Bank of England and Goldman Sachs, have begun taking seriously the risk that expensive fossil fuel projects will be rendered worthless by future climate action. James Leaton, research director at the Carbon Tracker Initiative (CTI) said: “Investors are already using the detailed CTI cost curves to start identifying how low demand and price scenarios could play out.”

The research also highlights the contradiction of governments seeking to maximise their nation’s fossil fuel extraction, as in the UK, while simultaneously pledging to limit global warming to 2C. Ekins said if governments approved new fossil fuel production, they should be asked what resources elsewhere would not be exploited.

“If some UK shale gas resources turn out to be economically viable, and provided the local environmental impacts can be made acceptable, I would say we should use them,” he said. “But the caveat is what fossil fuels should we then not be using from somewhere else, if we are going to keep within the carbon budget. That is a question I have never heard asked by a policy maker in this country.”

If a global deal is signed in December to keep most fossil fuels in the ground, then compensating the losers will be key, according to Michael Jakob, a climate change economist at the Mercator Research Institute on Global Commons and Climate Change in Berlin. “If you really want to convince developing countries to leave their coal in the ground, you have to offer something else and I don’t think the Saudis will leave that oil in the ground if they get nothing for it,” he said, citing green technology including CCS, as well as financial compensation.

Jakob said the challenge was enormous, but that it provided benefits as well as costs: “There are huge sums at stake, but not just on the losers’ side but also on the winners’ side. Some assets will lose value, but others will gain value, like solar and wind power and land for biomass production.” In 2014, the Intergovernmental Panel on Climate Change concluded that tackling global warming by diverting hundred of billions of dollars from fossil fuels into renewable energy and cutting energy waste would shave just 0.06% off expected annual economic growth rates of 1.3%-3%.

Leave fossil fuels buried to prevent climate change, study urges | Environment | The Guardian

Here's George Monbiot's comment on the issue:

Why leaving fossil fuels in the ground is good for everyone

‘To deliver a 50% probability of no more than 2C of warming this century, the world would have to leave two-thirds of its fossil fuel reserves unexploited.’ Photograph: Odd Andersen/AFP/Getty Images

Wednesday 7 January 2015 18.00 GMT George Monbiot 

As you read this, a monster of a bill is passing smoothly and quietly through Britain’s parliament. It’s so big and complex, and covers so many topics, that it makes a mockery of democracy.

The infrastructure bill epitomises the rising trend of legislation-stuffing: cramming so many unrelated issues into one bag that parliamentary votes become meaningless. MPs must either accept this great bundle of unrelated measures in its entirety or reject it in its entirety. So laws can pass which no one in their right mind would have voted for.

Bills like this are good places for burying bad news, and this one is a graveyard.

Among its outrageous and scarcely-debated provisions, slipped in by the government some time after parliamentary debates began, is a measure that undermines every claim it has made about preventing dangerous climate change. It is a legal obligation on current and future governments to help trash the world’s atmosphere.

The government already has a legal obligation to do the opposite. The Climate Change Act 2008, supported by all the major parties, commits successive governments to minimise the UK’s greenhouse gas emissions. The Infrastructure Act 2015 will commit successive governments to maximise them.

Needless to say, that’s not quite how it is expressed. The bill obliges governments to produce strategies for “maximising the economic recovery of UK petroleum”: in other words for getting as much oil out of the ground as possible. Oil is extracted to be burnt; burning it releases greenhouse gases; maximising recovery means maximising greenhouse gases.

The Infrastructure Act, if passed – and so far it is scarcely being contested (hello Labour, do you still exist?) – will be the Climate Change Act’s evil twin. Both acts oblige current and future governments to report at fixed periods on how they will achieve their contradictory objectives. The same person, the secretary of state for energy and climate change, will be responsible for both policies: ensuring that the UK both consumes less oil and produces more. Perhaps he’ll seek to minimise climate change by day, then, after a stiff dose of potion, come out at night to maximise it.

But there could not be a greater contrast between the ways in which the two acts (or their relevant clauses) were developed. The Climate Change Act was the result of a massive campaigning effort, over many years, by citizens’ movements that mobilised public opinion and pressed MPs to act on it. The provisions in the infrastructure bill were slipped surreptitiously into the back of a legislative juggernaut that was already rolling down a six-lane motorway. In other words, the first act was an example of how democracy is supposed to work; the second is an example of how it gets corrupted.

Now, on the day that MPs sit down in committee to discuss this bill, the journal Nature publishes the most detailed scientific paper yet on how much fossil fuel should be left in the ground if we’re to have a chance of preventing more than 2C of global warming.

To deliver a 50% probability (which is not exactly reassuring) of no more than 2C of warming this century, the world would have to leave two-thirds of its fossil fuel reserves unexploited.

I should point out that reserves are just a small fraction of resources (which means all the minerals in the Earth’s crust). The reserve is that proportion of a mineral resource which has been discovered, quantified and is viable to exploit in current conditions: in other words that’s good to go.

The Nature paper estimates that a third of the world’s oil reserves, half its gas reserves and 80% of its coal reserves must be left untouched to avert extremely dangerous levels of global warming. 2C is dangerous enough; at present we are on course for around 5C by the time the century ends, with no obvious end in sight beyond 2100.

The only sensible response to such findings, which some of us have been advocating for years, is a global agreement to leave these unburnable fossil fuels in the ground. But it’s not just that no such agreement exists, no such agreement has ever been mooted.

Researching Don’t Even Think About It, which I see as the most important book published on climate change in the past few years, George Marshall discovered that there has not been a single proposal, debate or even position paper on limiting fossil fuel production put forward during international climate negotiations.

“From the very outset fossil fuel production lay outside the frame of the discussions and, as with other forms of socially constructed silence, the social norms among the negotiators and policy specialists kept it that way.”

I would guess that it is not altogether inconvenient for governments to ignore the role of fossil fuel companies in causing climate change.

FacebookTwitterPinterest The infrastructure bill obliges governments to produce strategies for ‘maximising the economic recovery of UK petroleum’. Photograph: WPA Pool/Getty Images

While most states have not taken the astonishing, ecocidal step of making it a legal obligation, almost all are pursuing the same policy as the United Kingdom: maximising the production of fossil fuels. And almost all pay lip service to the idea of minimising greenhouse gas emissions.

There is no attempt to resolve this contradiction, or even to acknowledge it. They don’t have to. They know that it will resolve itself. If the stuff keeps coming out of the ground, it will be burnt, without regard to the feeble policies seeking to limit its consumption.

I believe I might have been the first person to suggest in the media that the best means of addressing climate change is to leave fossil fuels in the ground, in a Guardian column in 2007. Since then, this solution has been championed by the indefatigable Bill McKibben, through his Do the Math tour and 350.org, and it has been picked up by many other organisations.

But still our politicians pretend not to hear. Even the current secretary of state for energy and climate change in the UK, Ed Davey, who is often fairly responsive, blocks his ears and sings loudly when the crashing contradictions in his role are mentioned. Otherwise, how could he creep out at night to reverse the policies he pursues by day? Like Dr Jekyll, he could not live with himself if he was fully aware of what Mr Hyde was doing.

Were the world’s governments to regulate the wellhead rather than just the tailpipe, logistically the task would be a thousand times easier. Instead of trying to change the behaviour of 7bn people, they would need to control just a few thousand corporations.

These companies would buy permits to extract fossil fuels in a global auction. As a global cap on the amount of fossil fuel that could be burnt came into force, the price would rise, making low carbon technologies, such as wind, solar and nuclear, much better investments. The energy corporations would then have no choice but to start getting out of dirt and into clean technologies. The money from the auction could be used either to compensate poorer nations for not following us down the coal hole or to help them survive in a world in which some dangerous warming – but hopefully no more than 2C – will inevitably occur.

For 23 years, governments have been wasting precious time by pursuing an unworkable solution. Perhaps that was their intention? But if the climate talks in Paris in December are to have any meaning or purpose, they should abandon the self-defeating policy of addressing only consumption, and concentrate on restricting production. This, I believe should be the focus of our campaigns. Through groups like 350.org, we must make this such a potent electoral issue that we drag governments out of the clutches of the fossil fuel industry.

You think that’s tough? Well try the alternative: living in a world with 5C of global warming, in other words a world of climate breakdown. By comparison, almost anything looks easy.


oilfor future said...

In order to maintain a grip on market share by pushing U S shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike. Saudi Arabia 10. 3 million barrels per day in the month of March, a 658,000 barrel-per-day increase over the previous month. That is the in three decades for the leading OPEC member. On top of the Saudi increase, Iraq boosted output by 556,000 barrels per day, and Libya succeeded in bringing 183,000 barrels per day back online. OPEC is now collectively producing nearly 31. 5 million barrels per day, well above the cartel’s of just 30 million barrels per day.

Jeremy Woodward said...

Thank you for your comment.

Yes, why are the Saudis doing this? Some would say, in order to weaken the Russians, on behalf of the United States:

Others would say that it is Big Oil that wants to glut the market and so destroy the competition from renewables:

And both Saudis and Big Oil do not want to give the notion of 'peak oil' any credibility:

But the movement does seem to be going the other way:

And there doesn't seem much future in coal either:

But, yes, these traditional players see a threat from shale producers: