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Energy Crunch: Budgeting for Resilience?
Three things you shouldn’t miss this week
- The Oil and Gas Weapon Won’t Work – Russia produced 10.6 million barrels per day (mbd), consumed 3.2 mbd, leaving 7.4 mbd available for export. The United States produced 8.9 mbd, consumed 18.5 mbd, and imported 10.5 mbd.
- Budget 2014: Key climate and energy announcements – Among a few pre-election treats for voters were some important changes to the government’s energy and climate policies.
- Big public majority agree that benefits of tackling climate change at least equal the costs:
East-West tensions spiralled to levels not seen since the end of the cold war as Russia annexed Crimea this week. Energy supplies have not yet been affected but Russian Foreign Minister Sergei Lavrov ominously threatened “consequences” in response to any sanctions imposed by the US and EU.
When Russia cut off gas supplies to Ukraine in 2006 and 2009 the impact was felt throughout Europe. Europe still imports more than a third of its crude from Russia and about a quarter of its gas, meaning sanctions are a two way street – particularly if the crisis drags on. Paolo Scaroni, the chief executive of the Italian oil and gas group, Eni, told the Financial Times the balance of power lies with Russia: “If, in the middle of a tough winter, we don’t have Russian gas, we are in trouble. But Russia is not in trouble if they get our money the day after.”
The Ukraine crisis was briefly mentioned in George Osborne’s budget speech on Wednesday because of the risk of higher commodity prices, but the main theme was building a “resilient economy”. Will his latest budget help deliver this?
The headline measure was to cap the carbon tax at £18/tonne until the end of the decade instead of £30/tonne as originally intended, just two years after it was established. The cap was one of a number of measures aimed at protecting industry from the cost of decarbonising the energy sector, but some commentators worry it could also now revive coal, skewing the market against cleaner alternatives and creating an uncertain environment for investment. The carbon tax cap is also anticipated to cut £15 from retail consumer bills, another area of high political pressure.
If resilience means an economy fit for a future of greater resource competition and the impacts of climate change, then there was little on offer in this week’s package – no additional measures to support renewables or energy efficiency, a frozen fuel price escalator, and the December deal with energy companies to slow the pace of home energy efficiency measures is still in place.
The Chancellor also flagged shale gas as another way to cut energy costs for manufacturing: “To those who say manufacturing is finished in the West, I say: look at America”. But since even shale’s biggest British cheerleader, Lord Browne, accepts fracking is unlikely to deliver cheaper gas, this doesn’t look like a strategy for real resilience.
8 Comments on "Energy Crunch: Budgeting for Resilience?"
mo on Sat, 22nd Mar 2014 2:36 am
Every article I read gives a different number on the amount of oil we import daily. Ive seen everything from 5 million to 10 million. Does any one out there have an accurate number? Maybe rock man ( did I get that right) being in the oil buissness you seem to posses a lot of knowledge on the industry.
Davy, Hermann, MO on Sat, 22nd Mar 2014 12:30 pm
FROM ARTICLE – The cap was one of a number of measures aimed at protecting industry from the cost of decarbonising the energy sector, but some commentators worry it could also now revive coal, skewing the market against cleaner alternatives and creating an uncertain environment for investment. The carbon tax cap is also anticipated to cut £15 from retail consumer bills, another area of high political pressure….no additional measures to support renewables or energy efficiency, a frozen fuel price escalator, and the December deal with energy companies to slow the pace of home energy efficiency measures is still in place.
Europe is broke facing diminishing returns to a diversified energy effort. I have always admired Europe. I admire their discipline for the swift and significant move into AltE energy sources. I admire the effort in Germany to phase-out Nuk. Continent effort to reduce coal. Yet, these efforts at some point become very expensive. Like all areas of human concern when the low hanging fruit, sweet spots, and acceptable marginal cost increases have been taken cost rise fast and significant. This article describing the efforts from “European lobby of plenty and exceptionalism” to cut cost and reduce this effort proves a point of an action right or wrong. Money speaks more than policy dreams. If Europe can’t make the AltE work at a greater level than today we will see the same phenomenon in the rest of the world. At some point the cost from other grid supplied energy sources multiply. The AltE and efficiency effort this is particularly true because you have a 5-10yr payback. Even when the payback becomes positive it is still low. The grid modifications needed for more than 20% inclusion in the grid require large expenses with grid hardware, yet to be proven large storage, and fossil backup. The fossil backup investment likewise has a poor ROI being used with AltE power sources. This is proof to people like Kenz that the whole renewable driven post carbon man is a fantasy. I always objected to the renewable driven folks not facing up to the potential devastating consequences of leaving fossil fuels. I am a tree hugger but a realistic and honest one. Make a choice but don’t mislead or be mislead about the consequences. At this point in limit of growth and overshoot fossil fuels are vital to status quo BAU. A population die off is the consequences of leaving BAU even a little. I say a little because a little change can cause systematic changes that greatly reduce huge effort needed now to feed the world now. In a complex interconnect global system that is brittle and ready to break to a lower level of complexity bad policy and market discipline can have unintended consequences that will kill. If we want to decarbonize in the name of AGW, population policy, mitigation efforts, and adaptation efforts will have to come from the top and bottom. I doubt any efforts will be made with a top down worried about the status quo BAU effort of wealth transfer and growth. Choose your pill please.
ghung on Sat, 22nd Mar 2014 12:42 pm
Yo mo, if by “we” you mean the US (there are a lot of other ‘WEs’ here):
h ttp://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_m.htm
They’re showing total US imports for Dec. 2013 as 9,502 million BPD. Some of that gets refined and exported. It’s all there at eia dot gov.
mo on Sat, 22nd Mar 2014 2:21 pm
Sorry should have specified US. Thanks for the info ghung
ghung on Sat, 22nd Mar 2014 2:35 pm
In US notation that would be 9.502 MMBD (million barrels per day). The US has a long way to go for ‘energy independence’. My wife’s stock broker said that’s where we’re headed. She’s done pretty well growing things, but I’m trying to figure out a way to explain to my wife that things aren’t as they seem. She gets it on one level, but as long as her portfolio is growing, she doesn’t want me to rock that boat.
Maybe folks here can help me compile a list of simple facts to send to her broker; solid numbers that will get her attention such as upstream investments vs. production returns, and majors divesting from certain plays, etc.
I’ll send her a link to Steve Kopits latest, but have to get her attention so she’ll watch it. Another would be David Korowicz’s “Trade Off: Financial system supply-chain cross contagion”, but again, it’s hard to get peoples’ full attention when “they think they’ve got a good bead on things”.
rollin on Sat, 22nd Mar 2014 8:31 pm
ghung – have her red the Black Swan. The author is very risk averse due to the occasional dramatic reversal of economics that occurs. He understands uncertainty and works it.
Kenz300 on Sat, 22nd Mar 2014 10:55 pm
Some people just keep hitting their heads against the wall and can not figure out how to make it stop hurting.
The transition to safer, cleaner and cheaper alternative energy sources under way. Die hard fossil fuel supporters will continue to fight, kick and scream but the the tipping point is here.
The energy transition tipping point is here – SmartPlanet
http://www.smartplanet.com/blog/the-take/the-energy-transition-tipping-point-is-here/?tag=nl.e660&s_cid=e660&ttag=e660&ftag=TRE4eb29b5
Makati1 on Sun, 23rd Mar 2014 3:22 am
Kenz, there can be no real ‘transition’ except to a level of existence equal to the days before coal, oil and NG. Even that will be difficult because we no longer enjoy the luxury of clean, fresh, potable water or productive soil.