Welcome to the revamped newsletter from the Oil Depletion Analysis Centre. ODAC is a UK registered educational charity working to raise awareness of peak oil, fossil fuel depletion more generally, and related issues. The newsletter will be published each Friday, and aims to provide a representative selection of the peak-related stories that have appeared in the media during the previous week, along with occasional guest commentary and analysis of the most important issues. We hope you find it useful, and would welcome any suggestions you might have about content and format.
The newsletter will cover not just oil, but also gas, coal, nuclear, electricity, renewables, biofuels, agriculture, transport, the economy, politics — in fact, anything relevant to, or affected by, peak oil.
Most of the newsletter's material will be generated by a network of volunteers, who input peak-related stories from mainstream and specialist internet news outlets into ODAC's newsgathering webpage. We already have a core of dedicated contributors, but we are still looking for more, particularly those who could commit to checking one or two specific news sources regularly. Inputting stories into the ODAC news page is quick and easy. To find out more about how to get involved, please email email@example.com.
The news stories from which the newsletter is produced will also appear in real-time on the ODAC website, and this news page will be visible to the public in about a week.
It's been a lively week for a relaunch with the Fed cutting rates sharply for the second time in as many weeks, suggesting a degree panic about the prospect of a US recession, with turmoil in the world coal markets as South Africa, Australia and China all suffer major production setbacks, and as Shell announces record profits but delays publication of its reserve replacement ratio.
1a) Shell Profit Misses Estimates on Falling Production Bloomberg, 31 Jan 2008
1b) Shell won't provide reserves replacement guidance in results Dow Jones Marketwatch, 29 Jan 2008
1c) BP makes 'significant' oil, gas finds offshore Egypt Platts, 31 Jan 2008
1d) Shell chief fears oil shortage in seven years The Times, 25 Jan 2008
1e) IEA Urges OPEC to Pump More; Says Stockpiles `Tight' Bloomberg, 25 Jan 2008
1f) EU energy chief warns about 'peak oil' Euractiv, 18 Jan 2008
1g) The Falklands is sitting on deep-sea oil riches that could turn out to be worth a fortune The Sunday Times, 27 Jan 2008
1h) Suncor unveils C$20.6bn oil sands growth Financial Times, 31 Jan 2008
1i) No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5% Decline Rate Means No Near-Term Peak CERA/IHS CERA, Press Release Text: CAMBRIDGE, Mass., 17 Jan 2008
2) Iran, Russia pushing for "gas OPEC" Tehran Times 26 Jan 2008
3a) Coal export problems in key areas create shortage Reuters, 29 Jan 2008
3b) Shortages force Asian coal to new high The Financial Times, 29 Jan 2008
3c) Burning issues - Can new technology make coal a green fuel for the 21st century? The Sunday Times, 27 Jan 2008
4) South Africa declares electricity emergency Sydney Morning Herald 26 Jan 2008
5) Nuclear clean-up bill £12bn higher than predicted The Independent, 30 Jan 2008
6a) EU outlines ambitious emissions goals Financial Times, 25 Jan 2008
6b) Lord Browne calls for climate agency The Daily Telegraph, 29 Jan 2008
7a) Fed cuts interest rates by 50 basis points Financial Times, 31 Jan 2008
7b) IMF slashes US growth forecast The Financial Times, 30 Jan 2008
7d) Energy watchdog looks at claims that suppliers collude on prices The Times, 22 Jan 2008
8a) Fury as fuel poverty soars close to a 10-year record The Observer, 20 Jan 2008
8b) Business piles on pressure over fuel duty rise The Times, 22 Jan 2008
9a) Shell set to stir petrol storm with record profits of £13.6bn The Guardian, 28 Jan 2008
9b) US Airways hurt by high oil price Financial Times, 25 Jan 2008
Fred Pals & Eduard Gismatullin
Royal Dutch Shell Plc, Europe's biggest oil company, said fourth-quarter profit climbed 60 percent, boosted by crude prices that approached $100 a barrel and countered lower production and earnings from refining.
Net income rose to $8.47 billion, or $1.36 a share, from $5.28 billion, or 83 cents, a year earlier, The Hague-based company said today in a statement. Excluding inventory changes and one-time items, earnings missed analyst estimates for the first time in two years.
Oil prices in New York were 50 percent higher in the fourth quarter from a year earlier, reaching a record $100.09 on Jan. 3. Production fell for a fifth straight year as Chief Executive Officer Jeroen Van der Veer struggled to replace depleted reserves and faced difficulties in Russia and Nigeria. Shell said output this year will be "slightly below" 2007 levels.
"It's very hard for Shell to keep coming up with new reserves, new big oil fields that can actually make a difference," Andy Brough, who helps oversee $6.5 billion in assets as executive director at Schroder Investment Management Ltd. in London, said in a Bloomberg Television interview.
Excluding gains or losses from holding inventories and one- time items, profit was $5.72 billion, missing the $6.03 billion median forecast from eight analysts surveyed by Bloomberg. Full- year net income was $31.3 billion.
Shell's London-listed Class A shares fell 1 percent to 1,771 pence as of 9:03 a.m. local time. The stock is down 16 percent this year, compared with a 15 percent decline for BP Plc, Europe's second-biggest oil company, which reports earnings on Feb. 5.
Of the 38 analysts tracked by Bloomberg who cover Shell, 21 have a "buy" rating and three advise selling the stock. Fourteen have `hold' recommendations.
ConocoPhillips, the third-largest U.S. oil company, said Jan. 23 that fourth-quarter net income jumped 37 percent to $4.37 billion on high oil prices. Exxon Mobil Corp., the world's biggest oil company, and Chevron Corp., No. 2 in the U.S., report earnings tomorrow.
Refining margins, or profits from turning crude into fuels such as gasoline and diesel, fell to $5.68 a barrel in the fourth quarter from $6.40 in the year-earlier period, according to data posted on BP's Web site.
A fire at Shell's 155,000 barrel-a-day Athabasca oil-sands mine in Alberta and repairs at the 458,000 barrel-a-day Pulau Bukom refinery in Singapore crimped output during the quarter.
Shell said that net capital spending will rise to between $24 billion and $25 billion this year, reflecting higher industry costs.
Van der Veer told a press conference that the company had 11 "material discoveries" last year while refining margins are expected to remain "weak" in 2008.
In a letter to employees dated Jan. 22, he said that global demand for energy will outstrip supply within seven years because of "population growth and economic development. After 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
Shell said full-year oil and gas production, including oil sands, fell to 3.32 million barrels of oil equivalent a day in 2007, compared with 3.47 million barrels a day the previous year. The company had previously expected full-year output of between 3.3 million and 3.5 million barrels a day.
Shell has been losing Nigeria production since late 2005 after militants attacked oil installations in the Niger Delta. The raids have forced Shell's venture in the country, Africa's biggest producer, to halt output of about 500,000 barrels a day, almost a quarter of the nation's output.
One-time items provided a net gain of $963 million to Shell's fourth-quarter profit, and that included exploration and production division divestment gains of $1.5 billion and a $716 million charge related to funding shortfalls and security in Nigeria.
In Russia, Shell suffered a setback at the hands of OAO Gazprom when the state-run company in 2007 completed its purchase of a majority stake in the Sakhalin-2 oil and gas project. That cut Shell's stake in half to 27.5 percent.
Shell slashed its proven oil and gas reserve estimates in January 2004, which led to fines, investor lawsuits and the removal of the company's top three executives, including Chairman Phil Watts.
The company will publish last year's reserve replacement ratio, which states the percentage of production replaced by new discoveries, in its annual report. The company is also due to give a strategy update on March 17.
Royal Dutch Shell PLC (RDSB.LN) won't provide oil and gas reserves replacement guidance - as it normally does - along with its annual results Thursday, despite its reserves having been an issue in recent years.
Correspondence released by the U.S. Securities and Exchange Commission, or SEC, suggests the U.S. market regulator has continued to pay particularly close attention to Shell's reserves accounting. In contrast to its closest European oil major rivals, Shell has on more than one occasion been asked by the SEC for additional details.
The company's fourth-quarter and annual "results will just be financial results only," a Shell spokesman said Tuesday. "We think the right place to update on reserves is in the annual report (to the SEC), so we will be updating then on the reserves replacement ratio."
Reserves - a key indication of future production - are a sensitive issue after Shell downgraded its reserves several times in 2004 and 2005, leading to a management shakeup, a share price slump and fines by U.S. and U.K. regulators.
Broker Dresdner Kleinwort said in a research note Monday, "We understand Shell won't comment on reserves in its (fourth-quarter results) essentially because the reserve replacement has been weak and made more complex by the impact" of Shell's losing control of the Sakhalin II project last year.
"We regard this as regrettable," the broker said. The Shell spokesman said, "This is simply a change in reporting timings and is in line with other competitors."
Following the series of reserves downgrades in 2004 and 2005, the SEC continued to send letters in 2006 requesting more disclosures on Shell's bookings, letters posted on the regulator's Web site show.
Although routine, Shell's correspondence contrasts with its two largest European rivals, BP PLC (BP) and Total SA (TOT), which didn't receive questions on their reserves disclosures during this period.
In a letter on Sept. 29, 2006, the SEC asks Shell to "disclose your net proved reserves for (all significant oil and gas) properties." In a Nov. 2, 2006, reply, Shell said the properties it didn't detail weren't individually material enough to be displayed separately.
In this Sept. 29 letter, the SEC also sought explanations for the large revisions to Africa and Asia-Pacific reserves, and to extensions and discoveries in the Middle East, which Shell had recently announced. Shell did then provide these explanations to the SEC - but they haven't been publicly disclosed.
Then in a Dec. 7, 2006 letter to Shell, the SEC requested more detailed disclosure for changes in natural gas bookings in Africa and Asia Pacific - to which Shell agreed in a Feb. 23, 2007 reply.
Shell's 108,000 employees earned "an obscene" £14 billion in profits last year.
If, as I imagine, Shell keeps a similar number of contractors off the books to keep the head-count down, the profit per head is about £70k. If you earned £70k as profit in a business, you probably wouldn't expect to be sand-bagged with a windfall tax by a starving Chancellor. There is also some truth to Shell's defences, "We can't invest profits if we can't keep them", and "We don't profit from petrol, it's tax which is hammering consumers." And nobody gave Shell a handout when the oil price fell below $10.
What is more interesting about Shell's results is this: they didn't publish their reserves. Memorably, they've been known to publish the wrong numbers, but none at all? The most Shell have revealed is that in 2007 they discovered 1 billion barrels of new "resources", including 11 "material discoveries". A field of well under 100 million barrels of "resource" is now material? How have the mighty fallen!
A billion barrels of "resources" means very little. It is not a reserve, it could indicate something or nothing. It's a quantity of petroleum which might or might not be recoverable. Usually less than half of any oil field is actually produceable.
How does this stack up? In 2006 Shell added 2 billion barrels of oil equivalent (i.e. oil + gas) to their "resources". During 2007 they produced almost 1.2 billion barrels of oil and gas. However you look at it, Shell did far worse than in 2006, they have not replaced last year's production, and they are not revealing the actual reserve data.
This is ugly if one of the best explorers just can't find any more conventional oil. And Jeroen Van der Veer, Shell's boss, commented only last week that the world looked set to reach peak oil by 2015. This is not so much joined-up thinking as joined-up consequences.
And don't expect anything better from the other majors - they're all in the same boat. There is nowhere left to look. There are few spots left in the world where a billion barrel field could be hiding. Those few spots are increasingly closed to foreigners as a predictable wave of resource nationalisation sweeps through the industry. Shell not only failed to find much in 2007, Putin even forced them to sell back what they'd already found in Sakhalin-2.
But Shell can't postpone the evil reporting day forever. Eventually it will have to make its annual statement to the American authorities, which must include reserves data. That could make woeful reading.
BP announced Thursday a "significant" gas discovery at record depths in Egypt's Nile Delta and an "important" oil discovery in the country's North Shadwan concession in the southern part of the Gulf of Suez.
The Satis gas discovery is located in the North El Burg Offshore, Nile Delta concession, some 50 km north of Damietta. The well was drilled to a Nile Delta record depth of more than 6,500 meters and is the first significant high-pressure, high-temperature, offshore Oligocene discovery, BP said.
The North Shadwan oil discovery was drilled in shallow water 7 km from the Hilal field. The well penetrated 68 meters of oil-bearing sandstones in the highly-productive Nubia formation.
"Oil samples recovered from the well indicate excellent quality light crude oil," BP said without giving reserves estimates.
BP said the Satis gas find demonstrates the potential of the deeper reservoirs within the Nile Delta and will require further appraisal.
Partners in the North El Burg offshore concession agreement are BP and Eni, with a 50% equity stake.
The North Shadwan concession is jointly held by BP, (operator 50%) and TriOcean Energy 50%, a subsidiary of the Egypt Kuwait Holding Co.
SATIS - Egypt (offshore) announced in January 2008 Another gas discovery in a proven area Egyptian oil liquids production peaked in 1993 at just under 950,000 barrels per day, mostly from the Gulf of Suez and the Western Desert. It has been declining by an average of 2.5% per year ever since, despite increasing condensate and natural gas liquids production from its newly developed offshore shallow and deep water gas fields located in the gas-prone Nile Delta. Gas production has grown very rapidly in recent years, almost all as a result of these Nile Delta discoveries and LNG exports from a plant at Damietta began at the end of 2004. New finds are regularly announced.
In January 2008 BP announced a gas discovery in this Nile Delta region, which it described as "significant". The Satis field, in the North El Burg Concession, is said by BP to "demonstrate the potential of the deeper reservoirs within the Nile Delta and will require further appraisal." There is little here to suggest that it is an exceptionally large find, and it will certainly require further wells before BP will contemplate announcing a reserves number. It is probably "significant" in that it has located a new deep gas play, which could itself be large, although this is hardly surprising in such a geological basin.
Satis appears to lies nearby to other developed and developing gas fields on the east of the delta but it will still be a challenge to develop with its Oligocene reservoir reported to lie at a depth of over 6,000 metres below sea level. It is defined as high pressure/high temperature (HP/HT) and will require expensive and specialised equipment to exploit. The Satis find certainly once again confirms the excellent gas potential of this region and there is little doubt that other deep reservoir accumulations will eventually be discovered on trend with this one. However its impact, in an already important region for meeting future global LNG and pipeline gas demand, will be very long term.
World demand for oil and gas will outstrip supply within seven years, according to Royal Dutch Shell.
The oil multinational is predicting that conventional supplies will not keep pace with soaring population growth and the rapid pace of economic development.
Jeroen van der Veer, Shell's chief executive, said in an e-mail to the company's staff this week that output of conventional oil and gas was close to peaking. He wrote: "Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
The boss of the world's second-largest oil company forecast that, regardless of government policy initiatives and investment in renewables, the world would need more nuclear power and unconventional fossil fuels, such as oil sands.
"Using more energy inevitably means emitting more CO2 at a time when climate change has become a critical global issue," he wrote.
Mr van der Veer is expected to discuss Shell's energy outlook today at the World Economic Forum in Davos.
In his e-mail, which was reported on RoyalDutchShellplc.com, an independent website that monitors the company, Shell's chief set out two scenarios for the world's energy future.
The first scenario, "Scramble", envisages a mad dash by nations to secure resources. With policymakers viewing energy as "a zero-sum game," use of domestic coal and biofuels accelerates.
It is a world, said the Shell chief, where "policymakers pay little attention to energy consumption — until supplies run short."
The alternative scenario, "Blue-prints", envisages a world of political cooperation between governments on efficiency standards and taxes, a convergence of policies on emissions trading and local initiatives to improve environmental performance of buildings.
Shell has not committed to either scenario. The oil company regularly uses scenario-planning to test the likely impact of widely divergent economic and political scenarios on its long-term strategy.
Unsurprisingly, Mr van der Veer indicated that Shell preferred the Blueprints scenario but he expressed caution over the likelihood of it coming to pass without a global approach to emissions trading.
The Blueprints scenario assumes that 90 per cent of CO2 is captured by coal and gas power plants in developed countries by 2050, and at least half of the CO2 emitted by power stations in the developing world. No such plants are in operation today, noted the Shell chief. "It will be hard work and there is little time," he said.
Mr van der Veer's comments emerged in the same week that the European Commission launched reforms to its carbon trading system, with plans to force power stations to buy permits to emit CO2.
In an acknowledgement of the challenge of securing global acceptance of the need to curb carbon emissions, the Commission President, JosÈ Manuel Barroso, said that the Commission would consider the possibility of taxing imports into the EU by countries that failed to take equivalent measures to curb carbon emissions.
Mr van der Veer's prediction that the oil industry would soon struggle to deliver sufficient conventional oil and gas to meet demand echoes growing concern from other oil bosses.
Francine Lacqua & Stephen Voss
OPEC should pump more oil to replenish inventories and ease high prices, while state-owned oil companies must keep up the pace of investment in new capacity, the head of the International Energy Agency said.
Oil stockpiles are still "very tight," IEA Executive Director Nobuo Tanaka said in an interview today in Davos, Switzerland, where he is attending the World Economic Forum. "The price level is quite high, so we want OPEC to see the current situation and get the market signals right. But we cannot order them to produce more."
Abdullah bin Hamad Al-Attiyah, Qatar's energy minister, said yesterday in Davos that there's no need for the Organization of Petroleum Exporting Countries to increase production at a Feb. 1 meeting in Vienna. The Paris-based IEA is a policy adviser to 27 consuming nations, including the U.S., Japan and most of Europe, and was set up in the 1970s to counter the influence of the OPEC.
The Qatari minister reiterated today that inventories are "very comfortable." The price of oil has dropped 9 percent since reaching $100.09 a barrel on Jan. 3.
The rising power of state-owned companies within the oil industry is a concern for the IEA because there's less certainty those companies will invest profits in boosting capacity, and may use oil as a "political weapon."
"The problem of the so-called resource nationalism is that national oil companies are getting revenues, sales from very high prices, but governments try to use this for something else and that prevents oil companies investing in the upstream, downstream capacity and creates the shortage of production capacity -- and that bothers us," Tanaka said.
A lack of investment could spur an oil supply crunch by "2010, 2012, some time like that," Tanaka said. In its annual World Energy Outlook report in November, the IEA said a supply crunch in the period to 2015 cannot be ruled out.
OPEC's net oil export revenue may rise to $850 billion this year, a 26 percent gain over 2007, the U.S. Energy Information Administration estimated in a report earlier this week.
China is becoming the "center of gravity" for growth in energy demand, and efforts to reduce carbon dioxide emissions and combat global warming have "no chance" without a contribution from China and India, IEA Chief Energy Economist Fatih Birol said at a press conference in Davos today.
"We are missing the train on climate change," Birol said. Tanaka said the best way to tackle climate change is to improve energy efficiency.
Energy Commissioner Andris Piebalgs has drawn attention to the 'overlooked' issue of dwindling oil reserves coupled with rapidly growing and unprecedented global demand. His comments were made in the run-up to the publication of a widely-anticipated package of Commission legislative proposals on energy and climate change. Speaking to the Swiss Energy Congress on 14 January, Piebalgs warned that global energy demand is expected to more than double by 2030, and questioned whether the provision of oil can "keep up" with demand in this period. With the Commission set to release on 23 January a series of proposals designed to help the EU realise its commitment of reducing CO2 emissions by 20% by 2020, Piebalgs argued that while tackling climate change is crucial, policymakers should not lose sight of the issue of security of fossil fuel supply. The combined challenge of climate change and supply security leads to the conclusion that the EU cannot "hang on" to its "old, fossil energy system', he said. Piebalgs referred to varying predictions about when the oil production peak will be reached, with some experts saying it will be in 20 years and others arguing that the world is already at peak production. Highlighting the potential gravity of the problem, Piebalgs noted that the oil crisis of the 1970s presented a discrepancy between oil supply and demand of only 5%, but that in a post-peak oil scenario, the gap between supply capacity and demand could widen by 4% annually, leading to a 20% gap within five years. While the Commissioner did not mention the names of the experts or organisations he was referring to, a number of studies have appeared on the issue, including one by the International Energy Agency, or IEA (See EurActiv's LinksDossier on peak oil). To date, the Commission has not dealt extensively with peak oil, at least not in public fora. It is unclear if Piebalgs' speech is a sign that the EU executive intends to devote more attention to the issue. The oil industry appears to be divided on the question of oil reserves, with some companies, like Chevron, launching publicity campaigns to raise awareness about potential shortages. But other firms, such as BP, argue that concerns about oil scarcity are 'misguided'
Later this year, the Falklands' 3,000 islanders should learn whether it will become the richest nation on earth. A floating oil rig will drill up to a dozen test wells deep into the sea bed around the British overseas territory. The findings should settle a decade of speculation over whether the islands lie in a particularly lucrative oil field.
Over the past few years, cutting-edge technology has been used to probe the bed for the likely location of black gold. Now the last surveys are drawing to their close, the data is being analysed and interpreted and shortlists of promising possibilities are being drawn up. The oilmen are waiting on the rig to put their educated hunches to the test.
Tim Bushell, chief executive of Falkland Oil and Gas Limited (FOGL), says: "There could be billions of barrels of oil but we can't definitively say until we drill some wells."
The hunt for Falklands oil has been led by four firms that, between them, employ no more than two dozen geologists, legal and financial experts — FOGL has just five employees. Although based in small offices in London, Malvern and Salisbury, each company holds licences to exploit vast swathes of the south Atlantic sea bed.
When the search for Falklands oil was first taken up, a consortium of big companies, led by Shell, carried out survey work. In 1998, it drilled a cluster of six test wells. Traces of oil were found, but none of the deposits appeared to be commercially viable. Many, however, felt the matter had remained unresolved.
John Brooks, former head of exploration and licensing at the Department of Trade and Industry (now the Department for Business, Enterprise and Regulatory Reform), described Shell's test wells as "a bit of a tease", certainly insufficient to write the Falklands off. About six years later, the four smaller players — Desire Petroleum, Borders & Southern Petroleum, Rockhopper Exploration and FOGL — reassessed the geological data, acquired their licences and resumed the hunt.
The millions of pounds of investment raised by the firms — Rockhopper alone has attracted £17.9m — have been spent scouring rocks for hints of oil two miles beneath the sea bed in submarine basins to the north and south of the islands.
Rockhopper and FOGL have employed a new technique using electromagnetic rather than sound waves to explore the subterranean landscape. The technology is called controlled source electromagnetic (CSEM) surveying, and Rockhopper recently unveiled the first CSEM image of what could prove to be oil in the Falklands area. It shows a patch of high electrical resistance beneath the sea bed at a site called Ernest. This patch could be a pocket of hydrocarbon, surrounded by rock saturated with sea water. "We think that's oil trapped in that structure," says Sam Moody, managing director of Rockhopper, based in Salisbury.
None of the companies has the resources to do this work themselves. They buy in what they need, when they need it — reflecting a trend towards outsourcing exploration and production throughout the industry. Big companies are retaining fewer in-house technical specialists and increasingly relying on consultants, many of whom are former employees. Small companies do not have the full range of necessary expertise in the first place.
"FOGL is more like an informed investment bank than a traditional oil company," says Bushell. Not only are specialists hired to carry out particular tasks for FOGL, but firms such as RPS, an energy and environmental consultancy, are brought in to manage each subcontracted step of the exploration process. RPS has three staff on a survey ship working in the area, including an observer to ensure that whales and dolphins are not affected. They are supervised, in the field and from the UK, by Jon Perry, a 36-year-old environmental manager.
"I am an environmentalist and I try to make concrete changes to how things are done, so that when operations go ahead, they do so in the best possible way," he says.
Perry worked in the oil industry after getting a degree in geophysics at Durham University. He then took a masters degree in environmental impact assessment and has been a consultant ever since. His work with RPS takes him all over the world.
Oil exploration can be challenging work. "In the Falklands, rough weather disrupts survey work, while getting to the islands is not easy," says Bill Patterson, marine projects manager with RPS. "The history with the Argentinians, who still claim the islands 25 years after the war with the UK, makes access from South America difficult." But the oil companies are in high spirits.
Experts at the British Geological Survey (BGS) have estimated that the geological conditions in the North Falkland Basin alone could have created about 100 billion barrels' worth of oil. Moody says: "We know there's oil — I've seen it myself. The question is whether we find enough to make it commercial."
Phil Richards, who works for the BGS and advises the Falklands Islands' government, puts the chances of success at between one in five and one in 12. But with the price of oil at a record high and the Falkland Islands charging a corporate tax rate of 25% and royalties of just 9%, the potential rewards make it worth the risk.
Moody says a big discovery would boost the value of Rockhopper from about £40m today to more than £500m. The oilmen also calculate that their success might make Falkland Islanders the richest people on earth.
Suncor Energy of Calgary has outlined details of a C$20.6bn (US$20.7bn) expansion of its oil sands operations in northern Alberta, expressing confidence that it can contain escalating costs and environmental damage associated with the oil sands boom.
The project, known as Voyageur, is designed to lift Suncor's oil output by 200,000 barrels a day to 550,000 b/d in 2012. It is the latest in a flurry of multi-billion dollar investments in the oil sands, encouraged by surging oil prices.
Royal Dutch Shell is in the midst of expanding its Athabasca project, which could cost as much as C$27bn over the next two decades.
Suncor expects a 15 per cent return on capital from its oil sands business from 2012 onwards, based on an oil price of $60 a barrel. On Wednesday, Nymex crude oil was trading at $92 a barrel.
Rick George, chief executive of Suncor, on Wednesday acknowledged "a few challenges" in bringing the expansion to fruition on schedule and on budget. Labour shortages have become a huge headache in Alberta and inflation is well above the national average.
Suncor expects to employ 7,800 workers on the project in 2009 and 2010. Its return-on-capital target assumes a 5 per cent inflation rate.
Nonetheless, Mr George said that "our cost advantage really relies on scale. The technology choices are well known and well proven".
He noted that several other projects had slowed and others could be affected by the credit squeeze. "It's not as if all these projects are going to go ahead full steam," he added.
William Lacey, analyst at FirstEnergy Capital in Calgary, said that Suncor's capital spending assumptions were "in the ball park of where the other guys are or are planning to be".
The Voyageur project marks a shift by Suncor from open-pit mining to so-called "in-situ" extraction, in which deeper deposits of bitumen are separated from sand by injecting steam. The expansion includes four additional stages of in-situ production and a third upgrader to convert bitumen into crude oil.
Responding to mounting concerns about the impact of oil sands extraction on the environment, Mr George said that "we're working very hard to minimise our impact on water, land and air resources".
Thanks to the oil sands, Canada ranks second to Saudi Arabia in oil reserves.
1i) No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5% Decline Rate Means No Near-Term Peak
CERA/IHS CERA, Press Release Text: CAMBRIDGE, Mass., 17 Jan 2008
The missing link for understanding the future of world oil supply — a solidly based view of oil field decline rates — has now been filled by a new field-by-field analysis of production data by Cambridge Energy Research Associates (CERA) and IHS Inc. The aggregate global decline rate is 4.5 percent, rather than the eight percent cited in many studies, based upon CERA's analysis of the production characteristics of 811 separate oil fields.
"Some of the more gloomy, pessimistic 'peak oil' views about the future of oil supplies that are current today result from an assumption of high decline rates," said CERA Oil Industry Activity Director Peter M. Jackson, author of the Finding the Critical Numbers report. "This new analysis provides the basis for more confidence about the future availability of oil.
"The absence of definitive, comprehensive analysis of production timelines and decline rates has led to widely differing estimates of the potential future availability of oil: an information vacuum that has contributed to the 'peak oil' theory of future liquids production capacity," he added. "We hope that this study will contribute to a more informed understanding of the issues, both below ground and above ground."
Puzzling report from CERA
CERA, the prominent Boston based Cambridge Energy Research Associates (www.cera.com) issued a puzzling 4 page press release on January 17, titled "No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5% Decline Rate Means No Near-Term Peak". This is a new annual depletion rate for existing oil fields CERA has developed that "provides the basis for more confidence about the future availability of oil".They predict "World Liquids Productivity Capacity" will climb to 112 mbd by 2017, just 10 years from now and an accompanying graph shows level production after that point. CERA adds that some 350 new projects will bring an additional 6.5 mbd of new oil to market by 2017 that is included in the 112 mbd Capacity prediction. Looks like a plateau-peak in 10 years.
Let's do the math: a 4.5% annual decline, starting with today's 86 mbd production, means 32 mbd less in 2017. Add back the 6.5 mbd of new oil and we're still short 25 mbd compared to today.
But what about growth in demand? Interestingly the press release does not mention growth. The International Energy Agency in Paris just predicted a 2.3% increase in oil demand this year. But let's use the historical growth rate of 1.5% for the next 10 years. That's an additional 15 mbd needed by 2017 for growth. This increases the projected global shortfall in 2017 to 40 mbd, equivalent to 4 Saudi Arabias of new oil coming on-stream in the next 10 years. How likely is that? This math predicts production in 2017 will be only 46 mbd, not 112 mbd, and proves how devastating a 4.5% depletion rate is in a very few years.
MOSCOW (PIN) -- A group of gas-exporting states led by Iran and Russia is moving towards creating a formal body similar to the Organization of the Petroleum Exporting Countries, a Russian daily said on Thursday.
The charter for the proposed "gas OPEC" would be presented for approval at the seventh annual meeting of the Gas Exporting Countries Forum in Moscow in June, the Kommersant broadsheet said, citing unnamed Russian government sources.
"The main issue being discussed by the Gas Exporting Countries Forum is the transformation of an informal club that has no centralized organization... into a serious international organization of gas suppliers," the paper said, AFP reported.
The paper noted that a draft charter of the organization, almost identical to that of OPEC, had been drawn up by Iran last year.
Talk of a "gas OPEC" aimed at coordinating issues such as pricing has contributed to worries among Western countries that they are threatened by over-dependence on gas supplying states.
Quoting experts, Kommersant predicted the body was likely to be created, but that strong opposition by the European Union and the United States could limit its influence.
Russia has the world's largest proven gas reserves, while Iran has the second-largest.
At least 10 million tonnes has disappeared from global coal supply for the next two months, industry sources said. The figure could be higher if the South African authorities make a substantial call on the country's export coal, they said.
Asian consumers expecting Chinese shipments will be the worst affected but traders and utilities in Europe and India due to receive South African coal are extremely anxious about the potential difficulty in replacing lost coal.
"There's something going wrong in just about every coal exporting country," one major European consumer said. "Where isn't there a problem?," he added.
The world's largest coal producer last week halted coal exports for February and March in a bid to alleviate the worst power shortages the country has experienced. Based on China's exports of 4.5-5.00 million tonnes a month in the second half of 2007, this will remove up to 9 million tonnes of coal from the Asian market, traders and industry sources said.
Almost all of China's 2007 coal exports were sold under rolling term contracts to utilities in Korea, Japan and Taiwan.
Floods in Queensland have slashed coking coal exports but relatively little thermal coal is exported from there, the bulk coming out of Newcastle. Queensland exporter Ensham declared force majeure as a result of the floods, losing 700,000 tonnes a month. Xstrata's Newland mine is also affected but the tonnage lost is not known.
State utility Eskom last Friday implemented power cuts which shut down the country's mining industry and heavy industrial users because the grid had become unstable.
Eskom, which burns over 100 million tonnes a year of low-grade coal, was forced to ask coal producers to find an extra 5.5 million tonnes within the next few months to prevent power cuts through the winter in July and August.
Public Enterprises Minister Alec Irwin stated that Eskom will call upon coal producers' export coal if necessary to feed domestic power generation.
Last Friday coal producers said the domestic coal crisis would mean a cut in coal exports but that it was too early to tell how steep the cut would be.
South Africa exports 64-66 million tonnes a year, mostly to Europe. India and Pakistan in 2007 became significant buyers, taking over 10 million tonnes, due to a lack of Chinese coal.
South African exports were expected to be below 66 million tonnes this year prior to the power crisis because heavy rains had hindered production for a few months and rail transportation had been below target, producer sources said.
Korean, Japanese and Taiwanese consumers bought a few South African cargoes in 2007 and had been expected to buy more this year. South African producers said they are unlikely to have spot coal available until mid-year. Limited quantities are in the hands of traders.
The world's largest exporter at close to 150 million tonnes a year but Indonesia is rapidly building coal-fired power plants to meet growing demand. Government has warned producers it may, at some unspecified time, need to call upon export coal to meet domestic demand.
Indonesian coal of various qualities -- sub-bituminous, low-grade, medium and high-grade -- is in tight supply.
Indonesia cannot make up the lost Chinese Feb/Mar tonnes but can make up part of it, probably less than half, traders said.
A significant source of supply, around 70 million tonnes a year to Europe, to a lesser extent to the U.S. and Mexico.
Colombia's exports have been smooth over the past several months but the rainy season has just begun and there are fears among buyers that heavy rains will affect rail transportation and flood out mines, as they have during the past few years.
Drummond Coal, one of the largest mine-operators, faces bi-annual wage negotiations in May. Two years ago Drummond experienced a three-month long strike over pay and benefits.
There is more Colombian coal available and unsold through 2008 than other origins, traders and consumers said, but much of what is uncommitted is likely to be kept for the Mexican market, they said.
Mexican state utility CFE in January tendered for around 5 million tonnes of coal for 2008 with deliveries from February. CFE is expected to struggle to find the whole tonnage it seeks from its usual origins Colombia and Australia.
Russia exports around 62 million tonnes a year to Northwest Europe, the Mediterranean and to Japan, Korea and Taiwan. Russia supplies more than half the UK's imported coal.
A combination of rail car shortages, political disputes with former Soviet Union states, severe weather and production problems has forced Russian exporters to be a month or more late with deliveries to customers through 2007.
Russian exporters will not be catching up with late shipments until mid-2008 and have almost no spot coal available. Exporters said they have been turning away enquiries for months.
American coal producers have sold around 20 million tonnes of coal for export to Europe in 2008 but buyers are doubtful that the full 20 million can be shipped smoothly.
This tonnage is stretching the rail and port capacity beyond its limit, some buyers said.
In January U.S. producer Consol halted shipments from Baltimore after a pier sank into the seabed. European buyers, especially those who bought U.S. coal partly to replace delayed Russian shipments, said earlier this month that they were preparing themselves for further hiccups with U.S. exports. (Reporting by Jackie Cowhig; editing by James Jukwey)
Coal prices in Asia jumped to a record high on Monday as the region suffered acute shortages because of disrupted supply in Australia, South Africa and China.
Cold weather, meanwhile, increased regional demand for power and hampered the transport of coal in China.
Weekly prices for the regional benchmark, Australia's Newcastle coal, rose to $93.35 a tonne, up almost 75 per cent in the past year, according to the GlobalCoal trading platform. Analysts reported daily prices on Monday at over $100 a tonne.
The impact is spilling into other regions, with coal costs rising sharply in the US, Latin America and Europe. Rotterdam spot coal prices, the European benchmark, jumped to $130 a tonne, up from $68.5 a tonne a year ago.
Australia: Mining companies in Australia, the world's largest producer, announced force majeure at several mines last week after flooding in the state of Queensland. Among those was one owned by BHP Billiton and Mitsubishi, which produce nearly half of Australia's coal exports.
South Africa: Coal mines here, which produce about 10 per cent of the world's coal exports, were evacuated last week after the country had extensive electricity blackouts. Some mines have restored production since then, but others are still halted.
China: Miners and port authorities were told last week to stop coal exports for two months to ensure the local market remains well supplied and to help end a severe power crisis.
In the short term, the price rises will raise the cost of electricity generation. The price rises also cast doubt on the long-term sustainability of coal as a cheaper option to fuel power stations than crude oil and natural gas.
The coal industry has witnessed a renaissance in the past five years, thanks to the development of so-called clean-coal technologies that reduce carbon dioxide emissions, and because coal is relatively abundant in Europe and the US. It has been presented as a more secure alternative to reliance on Middle East-dominated oil supplies.
But coal's recent success has pushed up demand. The market has turned from one of abundant and cheap supplies to one of more scarce resources, in which even small supply disruptions can force large price jumps.
Emmanuel Fages, a coal analyst at Société Générale in Paris, said the coal market was already tight before the recent supply disruptions. It would take weeks rather than days, he said, before supply and demand balanced and prices eased.
"We will not see a downturn in prices, but we will see an easing after some weeks, starting in March or April," Mr Fages added. On top of rising demand in China, the coal market is facing a short-term increase in consumption in Japan, as the country's power utility, Tepco, relies more heavily on its coal thermal power plants to offset the impact of the closure of the Kashiwazaki-Kariwa nuclear plant after an earthquake in July.
The company imported 400,000 tonnes of coal last month, more than double the 187,000 tonnes it bought in December 2006.
Japanese and South Korean utilities are buying on the spot market to secure supplies after China imposed a ban last week on coal exports to keep its local market better supplied.
The coal market's tightness and the supply disruptions suggest that the outcome of the current annual secretive price negotiations between the mining companies and the Japanese steelmaking industry will result in much higher prices.
We hear a lot about the threat of climate change, but could we ever do without coal? Last year the world burned 5.3 billion tons of it, representing an 8.8% increase over the previous year and 92% growth over the past 25 years.
Coal is vital — not just to economic growth but for keeping the lights on and people warm. There is growing interest in technologies that might make coal, along with gas and oil, into a green fuel. Here we look at how some of them might work.
Carbon capture and storage (CCS) is the great white hope of the fossil fuel industries. If it can be made to work economically then, in theory, we could continue burning carbon-based fuels such as coal and gas without accelerating global warming.
In principle CCS is simple. First, CO2 is separated from its sources, such as flue gases, then it's transported away from where it was generated and finally buried away from the atmosphere, ideally for millions of years. In practice, each of those stages has problems — and underlying them is the issue of how much energy they cost. There is little point in generating carbon-free power if a large chunk of it goes into extracting and pumping to its final resting place. CO2 Robin Irons, who works for E.ON Engineering, the energy company, is tackling such issues. A chemical engineer, he is applying his skills to try to minimise the energy losses of 10%-40% that can result when a traditionally fuelled power station has to deal with its own pollution.
The focus of CCS is going to be on new or refurbished stations. E.ON has planning permission to build a coal-fired plant at Kingsnorth, Kent, one of a generation that will be made ready for carbon capture — although the kit to do this will be fitted only once government policy has become clear, and the final decision to approve the project lies with the Department for Business, Enterprise and Regulatory Reform.
Irons, 45, took a degree and PhD at Imperial College London, following which he worked in engineering and research departments providing technical support to coal-fired power stations. He found his role changing as the construction of a new generation of cleaner power stations began to loom large. "We're having to consider building large chemical plants to strip CO2 from flue gases, and that's a new departure for the industry," says Irons.
Six of Britain's coal-fired power stations are getting upgrades that will lift their efficiency and make them ready for fitting with carbon capture technology. Elsewhere, progress is slow. Last spring Progressive Energy, a venture involving Centrica, owner of British Gas, announced plans to build the first CCS power station in Britain. The coal-fired plant, to be built on Teesside, needed government support to get off the ground. But six months later the government published its technical requirements for supporting such projects, which excluded the approach planned by Progressive. "It was a great disappointment and now it looks as if the project will never happen," says a Centrica spokesman.
There are other problems. Designing and building sequestration plants on the scale needed would require huge investment. And sequestration is useful only on large combustion plants and would never be viable for cars, homes or businesses — the source of about 70% of emissions.
In gasification, coal is heated in the presence of steam and a restricted amount of oxygen. This means that, rather than burning, the coal breaks down, producing "syngas", containing mainly hydrogen plus some carbon monoxide. This can then be burned in a gas turbine to make electricity.
The system can be made more efficient by capturing waste heat from the gas turbine to drive a steam turbine. This can push efficiency levels well over 50% — comparable with gas. The CO2 emerges as a concentrated gas stream, making it easier to capture and sequester underground. Other pollutants are easily removed.
That's the theory — and interest in it is growing. A recent report by the former Department of Trade and Industry says: "UK coal resources suitable for deep-seam gasification on land are estimated at 17 billion tons (300 years' supply at current consumption) and this excludes at least a similar tonnage where the coal is unverifiable. The largest areas are in Yorkshire, Lincolnshire, the Dee area and Warwickshire, with smaller deposits in central Scotland and south Wales."
There are two basic ways of gasifying coal. One is to dig it up, take it to the surface and treat it in combustion chambers. Adapting to this technique would be within the abilities of Britain's power utilities. The other is to burn the coal underground by pumping oxygen and steam into a seam, igniting it and then capturing the resulting gases. This would require precision drilling but we have the relevant skills thanks to the North Sea oil and gas industry.
The Coal Authority, which oversees the British coal industry, says: "The concept of gasifying coal underground and bringing the energy to the surface as a gas for use in heating or power generation has considerable attraction. Underground coal gasification has the potential to provide a clean source of energy from seams where traditional mining methods are impossible or uneconomical."
RWE, the German owner of Npower, one of Britain's leading generators, plans an underground gasification trial plant in Germany. Kevin Akhurst works for RWE Npower, generator of about 10% of Britain's power, where he oversees the development of renewable and clean energy.
New technologies that extract energy from coal without releasing carbon will be crucial, he believes: "In Britain, our focus is on absorption postcombustion CO2 is stripped technology [where CO2 from flue gases]."
Methane explosions have been the bane of the coal mining industry for centuries. The gas forms, alongside coal, from the decay of organic matter and is released by mining operations, causing a serious hazard.
Even today, when most deep coal mines have closed, the gas is a problem. Reports commissioned by the Department for Environment, Food and Rural Affairs from environmental consultants White Young Green in 2005 found that the UK's abandoned coal mines emit more than 60,000 tons of methane per year. Since methane is a powerful global warming gas, these emissions are equivalent to approximately 1.4m tons of CO2 Such reserves are proving a valuable resource in their own right, with private sector operators tapping the methane from a number of abandoned coal mines around Britain to generate electricity. There is greater potential in extracting methane from unworked coal deposits — so-called coal-bed methane. There are vast reserves of this gas trapped in the billions of tons of coal still lying under Britain.
Until now it has been too difficult to access but the engineering and drilling techniques perfected in the North Sea for accessing deep deposits of oil and gas are changing that. UK Coal, Britain's largest producer, with four deep mines, seven surface mines and more than 3,000 employees, has been using both approaches. "We have developed and implemented projects to maximise savings, generate revenue and significantly reduce coal mine greenhouse gas emissions," it says.
Leading South African gold and platinum mines stopped production today because of a lack of power, as the Government announced emergency steps to deal with outages causing chaos and misery and threatening economic growth.
Neighbours like Botswana and Namibia, which rely heavily on South African energy exports, have also been badly hit by the disruptions in the region's economic and political powerhouse. The outages have undermined confidence in South Africa, with incidents such as the stranding of hundreds of people on tourism icon Table Mountain because of a power cut gaining international media attention.
"The unprecedented unplanned power outages must now be treated as a national electricity emergency situation that has to be addressed with urgent, vigorous and co-ordinated actions," Public Enterprise Minister Alec Erwin told journalists after a cabinet meeting today.
"We are viewing the next two years as being critical," he said, as government officials unveiled measures, including rationing, price hikes and a massive switch to solar power.
The crisis reached a new peak when mining companies including AngloGold, Harmony and Goldfields suspended virtually all operations for fear power cuts would trap workers underground. The stoppage is likely to cost hundreds of millions of rands to one of South Africa's most important industries and shatter already shaky investor confidence.
Goldfields - whose South African operations produce 7000 ounces per day - said Eskom, the state power utility, had said the disruption could last up to four weeks after Eskom asked mines to cut electricity consumption by 60 per cent per month.
What most angers business and consumers alike is that the rolling blackouts come without warning and so are particularly crippling.
Nearly 40 people were trapped in a cable car in high winds for two hours and hundreds more were stranded until after midnight on the top of Table Mountain earlier this month. Simon Grindrod, a Cape Town city councillor, said that the incident could have been avoided if Eskom had just given 10 minutes' warning.
"The knock-on effect on Cape Town is immeasurable," he said. "A headline today is lost business tomorrow."
The South African Tourism Services Association said earlier this week that the crisis jeopardised the hosting of the soccer World Cup in 2010.
"Stadia may have all the most wonderful generators in the world to broadcast the games, but will people come to SA to see them if they know they will be going back to hotels and guest houses with no power? That means no hot meals, no clean laundry, no lights," said the tourism association's Michael Tatalias.
Understanding the energy crisis in South Africa
How did South Africa come to this? Whereas we once had a huge surplus of generating capacity, now the entire country faces regular blackouts, and some of our key economic sectors are under threat. Mines have been forced to shut down as their electricity supplies cannot be guaranteed, while energy hungry aluminum smelters continue to operate so that we can have our beer dispensed in cans.
There are many factors that contribute to the current crisis. We know that Eskom, the state-owned electricity utility, has been warning of a power crunch for some 10 years now, of the fact that government wouldn't invest in new power plants, of denial by ministers and other government officials, of hemorrhaging of skills from Eskom, of rain-soaked coal, of allegations of bad planning and incompetence. But while all of these factors may contribute to the problem, they don't give us a picture of the systemic issues. Perhaps the scale of the electricity issue can best be explained by understanding exponential growth and its implications.
Our current economic strategy is aimed at achieving 6% growth over a long period of time. This has been determined by looking at the rate at which we need to be creating employment, by our increase in population, by levels of poverty and the need to alleviate it and a range of other factors. A constant 6% growth rate means that we will be doubling the size of our economy in roughly the next 11 years. In order to double what we produce we will need to double what goes into what we produce — including energy.
Each exponential doubling is greater than the sum of all previous doubling cycles combined. In the next 11 years we will consume more than we have in our entire history. So in order to double the size of our economy, which we will do at 6% growth in 11 years, we will require more resources than we have required during our entire history, including electricity.
This might come some way to explaining why it is that Eskom has been unable to keep up with electricity demand on our current growth path, why we keep experiencing power cuts on such a wide scale and why they are likely to worsen. It also gives us a clue to the scale of the issue we face. If Eskom is going to meet demand, it is going to have to generate more electricity than it has in our entire history during the course of the next 11 years. Where is the coal, the uranium, the skilled and unskilled labour going to come from? Who is going to be training the engineers and the artisans required?
According to its 2007 Annual Report, Eskom's timeframe for new capacity shows that it plans to double its capacity to 80 000 MW by 2024, in other words in 16 years time. This assumes an annual growth rate of 3.64%. To do this Eskom is going to have to burn nearly as much coal as we have burned in our entire history. This is a frightening thought, given that per capita, we are among the world's worst polluters. Hopefully this is beginning to paint a picture of the challenges we face that are consequences of our growth path.
But the current blackouts provide us with unique opportunities. Firstly, it is a huge wake-up call. We are being offered a glimpse of the limits of our current models and an opportunity to change course to a more sustainable path. We are seeing too, the consequences of these limits. Mines and factories are being forced to shut down during outages. The cost to the economy is huge. Costs to industry of the blackouts vary, with some estimates in the order of R1 billion (£70m) a day. Large numbers of people have their livelihoods threatened and confidence in the country's economy as an investment destination is being questioned. The upside is that it provides Eskom and the government with the opportunity to take energy conservation and efficiency, as well as renewable energy sources, more seriously. We have for decades been very wasteful with our energy resources and this must change, for reasons of depletion as well as carbon emissions and climate change mitigation.
The era of very cheap electricity in South Africa is now over. Consumers will face price hikes of between 14 and 20% per annum for at least the next few years. This will encourage necessary conservation and efficiency measures, but will be especially hard on poorer consumers. Thus the government will come under pressure to increase its expenditure on social support programmes and grants. What has happened, has happened, and cannot be changed. The question we need to ask now is, "Will our solutions make us more or less dependent on fossil fuels? Will they take us closer to sustainability or further from it? Are we seeking long-term solutions or short-term quick fixes? What price will we pay in the future if we make the wrong choices now?"
Eskom provides 95% of the country's electricity. Of this, some 90% is generated in coal-fired power stations, and another 6% is generated by two pressurised water reactors at the Koeberg nuclear power station near Cape Town. There is a small contribution from hydroelectricity and a negligible contribution from solar and wind power.
As we look out into the future from where we are now, do we aim to centralize our energy production or do we create the mechanisms for decentralizing it? Centralising the provision of our electrical power in the hands of one utility makes us very vulnerable to its weaknesses. This is a classic case of poor national risk management. Hopefully we can see what the consequences of this are. Centralising the production of electricity means that solutions will inevitably have long timelines. Many people have started to make their own arrangements anyway and are buying generators, and their own solar water heaters and so forth. The problem is that there are no national guidelines, no goal to which we are aiming, no incentives or dis-incentives and so we could be creating other problems. Installing an emergency generator which uses either diesel or petrol only creates further dependence on another equally vulnerable fossil fuel and is likely to exacerbate our increasingly fragile liquid fuels situation. Decentralising the production of power reduces dependency and enables many people to find solutions to their own energy needs. Do we build more power stations fired by "dirty" finite resources (coal), or do we begin to use the clean solar or wind energy supply that we have in abundance and channel our investment and research resources into harnessing it? Coal fired power stations have high capital costs, long planning and construction timelines and ongoing running costs as its feedstock is continuously required. Coal is a finite resource and could according to the German based research unit, the Energy Watch Group, reach its global production peak by 2025. As we approach that point and go beyond it, coal will begin its production decline and its price will rise dramatically. Is this a resource we want to become further reliant on, even though we do have large reserves in South Africa? Solar and wind power stations also have high capital costs but once complete, their energy feedstock is free. Eskom is planning the construction of a 100MW solar power station in order to reduce our "dependency" on fossil fuels. This represents 0.3% of our current usage.
It is time, too, that we settle the score with the bean counters that tell us that the unit cost of solar and wind powered electricity is higher than the unit cost of electricity derived from coal fired power. Doing a financial analysis of pure costs in this respect is insufficient for making crucial long-term strategic decisions. The financial analysis needs a comparative analysis of the full life-cycle costs, the environmental costs and crucially a vulnerability risk analysis. This would provide us with a more complete picture and allow better decision making. It will provide us with a holistic picture of which path to take as we take this journey from the current crisis we find ourselves in.
Finally, putting growth and sustainability into a global context, let's look at China and India both of which are growing at a rate of about 10% per year. So, their economies are doubling every 7 years. Some might argue that this is growth from a low base, but each of these countries has a population of over a billion people, so absolutely their consumption is enormous, even if per capita it is less than ours right now. Both of them will in the next 7 years consume more than they have during their entire histories. Is it any wonder that most of the world's steel, coal, cement and other critical resources are on ships heading east? China is currently experiencing both electricity and fuel shortages as it begins to experience the limits of its growth. As long as it keeps on its current growth path its energy problems will continue and so will the rest of the world's. Exponential growth is assured to bring with it exponential resource depletion, the effects of which will look a lot like we are experiencing now. Continued exponential growth will ensure that the experience is long lasting. It will last until we understand that long-term sustainability and growth are mutually exclusive.
Simon Ratcliffe, is an energy and sustainability consultant and is the Chairperson of the Association for the Study of Peak Oil South Africa (ASPO South Africa)
Jeremy Wakeford is an economist specializing in energy and sustainable development and is Research Director of ASPO South Africa.
Decommissioning Britain's growing radioactive waste mountain is likely to cost the taxpayer £12bn more than previous highest estimates, raising fresh questions about the expense of the new generation of nuclear power stations.
Environmental campaigners and Tory MPs said the costs of decommissioning — likely to reach £73bn - were now "out of control". They called for an urgent clean-up at the Sellafield recycling plant in Cumbria after the report by the public spending watchdog, the National Audit Office (NAO).
The NAO reported that decommissioning costs for the existing 19 nuclear plants had risen by 18 per cent — about £11.7bn between 2005 and 2007 — and are expected to reach £73bn but could go higher. Part of the reason for the rise is that previous plans failed to include the cost of cleaning up the ponds and silos at Sellafield, and the method of decommissioning was changed from manual to remotely operated work to reduce risks to staff.
"Today's report reveals the staggering cost of trying to safeguard Britain's growing mountain of radioactive waste," said Neil Crumpton, a Friends of the Earth campaigner. "And it's the taxpayer who will have to foot the bill. We can meet our energy needs and combat climate change without building new reactors.
"The Government should invest in clean safe renewable power, energy efficiency and low-carbon technology, rather than adding to a nuclear legacy that we still don't know what to do with."
The Government is still pondering the best way to store future waste but has been advised that deep storage under the sea is probably the safest method. The cost of building new storage facilities is not included in the latest estimates.
Edward Leigh, the Tory chairman of the Public Accounts Committee, which will investigate the figures, said: "It is particularly worrying that cost estimates for work about to begin are still on the rise." He warned that the taxpayer was facing higher costs because of the "start and stop" nature of the work at some of the sites.
A member of his committee, the Tory MP Richard Bacon, said the cost of cleaning up the UK's first nuclear reactors was "running out of control". He said problems encountered in cleaning up the Sellafield recycling plant were proving "toxic" for the decommissioning authority's finances, disrupting work at other sites and creating additional costs for the taxpayer. He added: "The authority needs to reduce the pressure the work at Sellafield is putting on its operations by cleaning up Sellafield as a matter of priority".
The authority said the increase in costs partly reflected "a more complete assessment of the range of work that needs to be taken forward, including the action necessary to address hazards at some of the legacy facilities at Sellafield.
"Our analysis of the plans also indicates, however, that cost estimates on work expected to be undertaken in the near to medium-term, which might be expected to have stabilised by now, have risen significantly. Between 2005 and 2007, the estimate of likely costs for the first five year period covered by those plans in a consistent manner — April 2008 to March 2013 — rose by 41 per cent."
A growing proportion of the UK's nuclear facilities have reached, or are nearing, the end of their operational life. By December 2007, 14 facilities had shut down and were in the process of being decommissioned, which included cleaning up the sites.
The Prime Minister has made it clear that he wants to go ahead with new nuclear power stations to reduce Britain's reliance on Middle East oil and to reduce the country's carbon emissions.
Andrew Bouds & Tony Barber
The European Union proclaimed a new era in the fight against climate change on Wednesday as it announced sweeping measures to cut greenhouse gases and boost renewable energy use, and called on the world to join forces in "the great project of our generation".
JosÈ Manuel Barroso, the European Commission president, said the EU was supporting its words with actions that laid foundations for an international deal to cut greenhouse gas emissions. "If we want a global agreement it is absolutely indispensable that Europe . . .leads the way to get others to follow," he said.
Acknowledging that the 27-member EU would face costs - about Ä60bn ($87bn, £45bn) a year, or 0.45 per cent of gross domestic product - from the policy, he stressed the gains. The costs of inaction were 10 times greater, he said, according to the Stern Report from the UK government.
The plan delivers on a decision by national governments last March that the EU should by 2020 reduce greenhouse gas emissions by 20 per cent from their 1990 levels, or 30 per cent if other countries match it, and ensure that 20 per cent of energy use comes from renewable sources, such as wind and solar power.
By 2005 the bloc had cut greenhouse gas emissions by 6 per cent from 1990 levels and was relying on renewable sources for 8.5 per cent of its energy. Mr Barroso said the proposals would give Europe more energy security and make it less dependent for oil and gas supplies "on regimes that are not our friends". He promised special treatment for heavy industries, which say higher costs would drive them out of Europe to areas with laxer controls. "We want to create jobs, not destroy jobs," the former Portuguese premier said.
The Commission would begin assessing which sectors would suffer most if there was no global deal on curbing emissions, expected to include iron, steel, aluminium, paper and chemicals. By 2011 it would decide whether they could then continue to receive all permits free after 2013.
Importers could also be required to buy the same carbon emission allowances for non-European goods that EU manufacturers will themselves have to purchase, Mr Barroso said. The effect of power price rises - put at 10-15 per cent - would also be taken into account.
Eurofer, a lobby group for the iron and steel industry, welcomed the safeguards but said the plan was "unacceptable". "We still have a lot of uncertainty," said a spokesman, since there were no immediate concrete guarantees, a fact that that would limit investment.
Mr Barroso said the climate change plan was a good example of how the EU can sometimes act more effectively at supra-national level than can its individual members.
The Commission's proposals, hotly contested by business groups and environmentalists alike, must be approved by the European parliament and a qualified majority of the 27 member states to take effect.
Andris Piebalgs, energy commissioner, said several governments were unhappy with their renewable energy targets. Mr Barroso said there was broad support for the plan, although there were bound to be debates.
Another point of friction is a target that biofuels should make up 10 per cent of vehicle fuels by 2020, a fivefold increase. Only fuels that meet environmental criteria can count towards the goal. Accordingly, plant-based fuels must emit 35 per cent less carbon in their production than fossil fuels. Green groups and some governments consider this too lax.
The parliament has previously called for a 50 per cent emissions saving, but this would have ruled out many European-grown crops such as rape seed and sugar beet. The EU would like to finalise agreement by the end of the year, ahead of a 2009 UN conference in Copenhagen.
BP'S former chief executive, Lord Browne of Madingley, has called for the creation of an international climate agency with the power to force national governments to tackle carbon emissions.
In a speech last night, he said the agency was essential to help deal with two of the greatest challenges mankind has faced - energy security and climate change.
Lord Browne said that in an uncertain world of competing interests it was necessary to have "fixed points" to navigate the "swirling currents" and Europe, which has taken the lead on trying to tackle CO2 pollution, "has the credibility to be a leader in international negotiations".
Lord Browne positioned BP as a "green" company long before it became fashionable.
Now the managing partner in Europe for Riverstone, which invests in power and energy projects, the former BP boss returned to the green theme in a keynote lecture at the European Business School, in London.
Europe needed a common energy policy, he said, but this should include a "stronger, more flexible and cross-border electricity grid [which] would make the delivery of power in Europe far more efficient, reducing overall consumption and lowering costs." He criticised the lack of "clear, unbiased data" on energy matters and "cumbersome planning laws" within Europe. "Common standards will be critical," Lord Browne said.
Europe's lead on climate change will be key in persuading the rest of the world. "As a global first mover on climate change targets, the EU has the credibility to be a leader in international negotiations...
"This is critical. I believe addressing climate change will be impossible without a new international climate change agency: an organisation with the power to lay down and enforce terms on national governments," he said.
Krishna Guha & James Polti in Washington, Michael Mackenzie in New York
The Federal Reserve on Wednesday cut interest rates by another 50 basis points and signalled that the door was open to further reductions in an aggressive move to combat the risk of a US recession.
The move to cut rates to 3 per cent initially triggered a broad rally in stocks — the S&P 500 jumped 1.7 per cent in the first 45 minutes after the announcement — only for the market to turn lower just before the closing bell.
The dollar meanwhile fell to a record low against the euro before closing slightly higher.
The 50 basis point reduction in the Federal Funds rate came hot on the heels of last week's emergency 75 basis point cut. The combined 125 basis point reduction represents the most abrupt easing of monetary policy by the US central bank since the early 1980s.
The scale of the move reflects chairman Ben Bernanke's determination to get ahead of the deterioration in the US economy following criticism that the Fed was "behind the curve" on monetary policy.
In addition to offsetting the decline in its base case forecast for the economy, the Fed wants to buy some insurance against the possibility that the worst-case outcome for growth — a deep and protracted recession — could materialise.
This represents a reassertion of the Fed's "risk management" approach to policy. But it also stimulated debate as to whether the Bernanke Fed is starting to move away from the Greenspan-era practice of gradualism — moving interest rates in a series of small incremental moves.
Earlier, fresh data showed that a sharp reduction in business inventories had cut US growth to 0.6 per cent in the fourth quarter, its lowest growth rate since 2002.
In a statement, the Fed said its actions would "help promote moderate growth over time" and "mitigate the risks to economic activity". But, it said, "downside risks to growth remain". The US central bank said it would continue to assess the effects of financial and other developments and "act in a timely manner as needed to address those risks".
The focus on the downside risks to growth and the pledge to act in a "timely manner" suggest the Fed will consider cutting interest rates again, although it will probably hope not to have to do so before its next scheduled policy meeting in March.
But the Fed signalled that investors should not assume it will carry on cutting rates in 50 or 75 basis point increments by toning down its description of growth risks from the phrase "appreciable downside risks" in its inter-meeting statement.
The 50 basis point cut was approved by a nine to one margin, with Richard Fisher, president of the Dallas Fed, dissenting. The Fed also unanimously approved a 50 basis point cut in the discount rate at which it lends directly to banks. The move came in spite of data that showed that core inflation moved higher in the final quarter of 2007 and indications that the US labour market is not collapsing.
The Fed said "financial markets remain under considerable stress" and "credit has tightened for some businesses and households". It said recent information indicated a "deepening of the housing contraction" as well as "some softening in labour markets".
It left its language on inflation unchanged, saying it would "continue to monitor inflation developments carefully".
The S&P 500 closed down 0.5 per cent at 1,355.81.
The yield on the two-year Treasury note closed down 5 basis points at 2.22 per cent, while the yield on the 10-year note closed up 4 basis points at 3.74 per cent. The dollar was lower by 0.6 per cent at $1.4869 against the euro.
The International Monetary Fund on Tuesday slashed its forecast for US growth and warned that no country would be immune from what it termed a "global slowdown".
The Fund said global growth would fall from 4.9 per cent in 2007 to 4.1 per cent this year, 0.3 percentage points lower than it forecast in October. US growth would fall from 2.2 per cent to 1.5 per cent, with the eurozone slowing from 2.6 per cent to 1.6 per cent.
Simon Johnson, the IMF's chief economist, said emerging markets would continue to be "the engine of global growth" but said "here too we expect growth to slow this year", from 7.8 per cent last year to 6.9 per cent this year.
"Reports of decoupling have been greatly exaggerated," Mr Johnson said. The slowdown in the US was spilling over into Europe and would affect emerging nations' exports, he added.
"It is going to be a story of how are you linked to the US and to what extent can your policies deal with the repercussions."
He said emerging economies would be affected by classic "trade linkages" but so far seemed to be relatively insulated from "financial linkages". By contrast, European economies would be affected by trade and financial linkages.
Mr Johnson said that all economies needed to be "alert to signs of a sharper global downturn". Nations with sound structural positions should be prepared "to apply counter-cyclical policies if conditions warrant".
But he said for now, fighting inflation remained the top priority in most of the developing world.
The US annual growth rate masked the true extent of the deterioration in its growth, he said, because the average size of the economy this year was boosted by growth that took place over the course of 2007.
He said the US would grow by only 0.8 per cent in 2008, down from 2.6 per cent during 2007, on a fourth-quarter to fourth-quarter basis.
These figures assume the Federal Reserve cuts interest rates in line with market expectations and there is a fiscal stimulus of roughly $150bn. Without the fiscal stimulus, growth would be as low as 0.5 or 0.6 per cent, Mr Johnson told the FT.
But, he said the pattern of growth would probably be quite flat, with the US growing "way below potential" through 2008 but likely escaping recession. "Housing is just this persistent drag on everything," he said.
Mr Johnson defended the European Central Bank's decision to keep rates on hold, saying there was a serious risk of "second round" effects on wages and prices in the eurozone. But he said "monetary policy would need to respond flexibly" to future developments.
While house prices were high and had begun to decline in the UK, Spain and Ireland, there was as yet no firm evidence that these economies would suffer a US-style housing bust, he said.
South Africa's mining industry should return to full operation today after Eskom, the state-owned power company, said it would increase power to the industry by 90 per cent.
The public enterprise minister, Alec Erwin, yesterday introduced a raft of measures to bring a quick end to the energy crisis that saw many of the nation's mines, a pillar of Africa's largest economy, shut down in recent days. In addition to the pledge for the increased power destined for the industry, the world leader in gold and platinum production, Mr Erwin said the government would introduce energy rationing from March, and that individuals who exceed their allocation would have to pay a penalty tariff.
Economists warned that the episode had badly shaken investor confidence, and that the measures to reduce consumption would create a serious drag on the overall economy. Razia Khan, the chief economist for Africa at Standard Chartered, said that the power shortages and its fallout "could knock one or two percentage points" off her forecast 4.8 per cent in 2008 GDP growth. The emergency measures to deal with the shortfalls are totally focused on reducing demand, rather than increasing supply, which will have a knock-on effect for growth, she said.
Crucial to minimising the impact is to get the mining industry back to operating at peak capacity. Anglo American, Africa's biggest miner, said yesterday that it was working closely with the government to resume full production as soon as possible. But yesterday its Kumba iron ore mines were still operating at partial capacity, its platinum operations were idle, while its base metals mines were running at a severely reduced level. The company said: "Anglo American and the mining industry have already made proposals to reduce electricity consumption in the short term and it will be of critical importance for all major industries to act in South Africa's best interests and play their part in resolving this national emergency. Anglo American has formed an energy task team to address the critical issues, and meetings with the ministerial committee charged with resolving the power emergency have taken place."
Tobias Woerner, a mining analyst at MF Global Securities, said that beyond the short-term outages, the energy situation did not bode well. "This is not a short-term problem, but something that they'll have to deal with over the medium to long term." Indeed, Rio Tinto said this week that it may put major capital expenditure plans on hold until its is sure about the security of supply.
Mr Woerner added, however, that any fall in production would probably be offset by the new heights scaled by several commodities that came in reaction to the outages. He said: "Estimates could be at risk to a certain extent, but a shortfall in production should probably be offset by higher prices in platinum, iron ore and other commodities."
In a note to clients, Mr Woerner said the South Africa travails could increase the likelihood that BHP Billiton would raise its £65bn bid for rival Rio Tinto, both of which have operations in the country. He said: "The need for mining companies to have access to both reliable and low-cost sources of power becomes increasingly prevalent, particularly for highly energy intensive metals such as aluminium. It is primarily for this reason that Rio Tinto favoured Alcan for its sources of hydro-power, which no doubt BHP Billiton will be viewing with interest."
Ofgem, the energy watchdog, is examining claims of cartel-like behaviour by Britain's top six gas and electricity suppliers. The regulator has written to Britain's Energy Retail Association (ERA) demanding assurances that meetings of the industry lobby group are not being used to discuss illicit pricing, The Times has learnt.
Ofgem issued a statement last week insisting that it believes that the British gas and power market is competitive and is functioning properly. However, a spokesman acknowledged that the group was still seeking "categoric assurances" that the ERA is not being used to discuss pricing issues, after allegations that its members, including British Gas, npower, EDF, ScottishPower, E.ON and Scottish and Southern Energy, were colluding to exploit consumers.
A spokesman for Ofgem said: "We have no evidence of anti-competitive behaviour, but it is our duty as an industry regulator to look at these allegations carefully. "If anybody has any proof of such behaviour, they should approach us immediately." He said that Ofgem had the power to launch a formal investigation, including dawn raids on companies, and to impose fines of up to 10 per cent of global turnover on any group found guilty of market abuse.
The ERA faces pressure to minute its regular meetings, which are held every two months, ostensibly to discuss policy and other matters of common concern, and to make those minutes public. "Why don't they just publish them?" one industry official asked. "If the market is, indeed, functioning properly and the organisation has nothing to hide, why can't they just make them public?" Last week Sir John Mogg, the chairman of Ofgem, was called to a meeting with Alistair Darling, the Chancellor, to discuss rising UK energy prices.
The meeting was arranged after npower, one of Britain's biggest suppliers, announced price rises on January 5. EDF and British Gas have since announced rises of their own. All three cited more than 60 per cent increases in wholesale power and gas prices over the past year, as well as increased distribution and transmission costs. Wholesale gas supply contracts are frequently linked to the global price of crude oil, which touched a record of more than $100 this month.
Two other companies, E.ON and ScottishPower, are expected to follow suit with increases within the coming weeks. Scottish and Southern Energy has promised to keep its prices on hold until spring.
Malcolm Wicks, the Energy Minister, said yesterday: "Ofgem would take strong action if there was evidence of anti-competitive behaviour. The fact of the matter is that global demand for energy is soaring and prices would have to increase by more than the levels seen recently to compensate energy suppliers for the increases in wholesale costs.
The ERA said that it "fundamentally refuted" any suggestion that the UK market was anti-competitive and pointed to the high number of customers who switched suppliers as evidence of this.
One in six British households is living in fuel poverty, the highest for almost a decade, according to new figures that threaten the government's target to eradicate the problem in England by the end of the decade.
Fuel poverty is defined as when a household spends more than a tenth of its income on utility bills. The consumer group Energywatch said yesterday there are now about 4.4 million of these in the UK, with just over 3 million in England alone.
Charities and other groups, led by the Association for the Conservation of Energy, are preparing a legal challenge in the next few weeks to force the government to meet the 2010 target, to which it is committed by law.
The figures came at the end of a week in which the UK's largest energy supplier, British Gas, said it was increasing bills by 15 per cent. This month EDF Energy and Npower raised prices by up to 27 per cent, and two-thirds of British households will have to pay higher tariffs. Other suppliers are likely to follow suit soon.
The regulator Ofgem's estimate of 4 million UK households living in fuel poverty in 2006 does not take into account the price rises announced this month. According to government figures, the last time there were as many fuel-poor households was in 1999 when the figure was 4.5 million. Numbers then fell until about 2005, when fuel poverty started increasing again.
Despite the likelihood of meeting the 2010 target becoming ever more remote, last month the government was accused of underfunding its 'Warm Front' programme, which provides grants for poor households to insulate their homes. It allocated £800m until 2010 but a government quango, the Fuel Poverty Advisory Group, says £1.3bn is now needed.
Gordon Brown will be embarrassed by the new figures. The Warm Homes and Energy Conservation Act was passed in 2000 committing the government to the legally binding targets of eradicating fuel poverty in England among the vulnerable - pensioners, the disabled and long-term ill - by 2010. By 2016-18, the government is committed to eradicating fuel poverty entirely across the UK.
Its 2003 energy white paper made the issue one of its four principal goals. Yet in the most recent energy bill, published this month, the government made no mention of fuel poverty or how to tackle it.
Energywatch wants the state to force suppliers to offer subsidised 'social tariffs' to poorer customers. But the government and Ofgem insist it is better to allow suppliers to offer these lower tariffs voluntarily.
The Secretary of State for Regulatory Reform, John Hutton, defended the energy industry last week in the Commons. He pointed out it was spending £56m this winter to fund social tariffs. Yet the six largest energy suppliers made profits of £2bn in six months alone last year.
According to a report last week from Energywatch, social tariffs only help one in 15 of those living in fuel poverty. Last week regulator Ofgem had to assure Brown it had found no evidence that companies were colluding to increase their prices.
Andrew Johnstone, 45, from Dunfermline in Fife, lives in a four-bedroom bungalow with his wife, disabled daughter and son. As full-time carers, he and his wife are unable to work, and receive £179 income support per week.
The Johnstones' electricity bill for the last six months was for £588, which they haven't been able to pay yet. Their last quarterly gas bill was £78. This means they spend more than 15 per cent of their income on energy, even before British Gas's latest price rise on Friday is factored in. 'It seems to be spiralling out of control,' said Mr Johnstone.
Pressure to scrap the next planned increase in fuel duty mounted yesterday when more than 700 businesses signed an appeal to the Chancellor. The protest, organised by the British Chambers of Commerce against the next 2p rise, came after similar calls from road hauliers who complain that that they are being driven out of business by the high cost of fuel. The Freight Transport Association has said that the next rise, due in April, will cost hauliers £170million, or an extra £15,000 per vehicle per 100,000 miles on the road. The increase will follow a 2p rise in October - and another rise is expected next year. Last month there were muted protests from hauliers attached to the Transaction pressure group. However, only a small number turned out and did not threaten the widespread chaos caused by the fuel protests of 2000.
Speculation about civil unrest has spread as fuel prices have continued to rise, hitting $100 a barrel. Haulage companies complain that the UK charges more tax than any other European country. David Frost, director-general of the BCC, said: "The message being sent from government to our logistics industry is particularly worrying. The ability for hauliers to compete with other European firms is looking increasingly threatened, especially considering the UK economy faces a slowdown in 2008."
The BCC said that a large cross-section of businesses had put their names to the letter, including hauliers, logistics companies and many organisations with a vehicle fleet. The letter stated: "With the price of oil hovering around the $100 a barrel mark, British hauliers are finding it increasingly difficult to compete with their European competitors due to the high taxes levied on fuel in the UK. The new rise will only compound the problems, with many small hauliers likely to be the worst hit as they will find it difficult to pass on the extra costs to customers."
The BCC echoed calls from the haulage industry for the Treasury to draw up a different taxation system that separates the taxes on fuel for commercial vehicles.
Regular tax increases
— The last increase in fuel duty of 2p was in October. Before that it rose by 1¼p in November 2006
— The Treasury no longer operates a “fuel duty escalator” but hauliers say that it operates in all but name
— The escalator was scrapped in 2000 after widespread protests. It was introduced in 1993 and meant that fuel duty rose by 3 per cent above inflation
— Road vehicles must use duty-paid fuels. Agricultural ones can use rebated “red diesel”
— Petrol duty was first introduced in 1909, at a rate of 3d per gallon
Oil group to post highest earnings by a British firm RAC urges the chancellor to cancel rise in fuel duty
Shell will be at the centre of a political storm this week when it posts profits of almost $27bn (£13.6bn), the highest earnings ever made by a British company.
The record-breaking profits, on the back of soaring oil prices, seem likely to stir fresh allegations of profiteering. The price of petrol has been increasing sharply, rising from 71p a litre five years ago to about 104p a litre today, according to the AA.
Texas-based Exxon Mobil, the world's largest privately-owned oil company, is expected to improve on its own previous record on Friday by reporting earnings of $39.6bn, the biggest annual profits that the US has ever seen.
Kate Gibbs at the Road Haulage Association described Shell's profits as "absolutely scandalous" but reserved her strongest criticism for the chancellor of the exchequer, Alistair Darling, who is planning to add another 2p a litre in fuel duty in April. More than 65% of the cost of unleaded petrol goes to the exchequer in fuel tax and VAT.
"If it is not Shell reporting record figures, it is BP," Gibbs said. "We don't like it but what's the point in criticising? But we have a chancellor who is hellbent on adding to the fuel duty and we are doing all we can to lobby parliament."
The RHA is meeting members of the transport policy committee in Westminster on Wednesday.
The RAC Foundation, a group that champions the interests of motorists, has begun conducting research about the impact of rising petrol prices on car owners and on business and hopes to persuade the chancellor to scrap the latest fuel duty increase.
"The price of petrol at the pump isn't very much to do with the profits of the oil companies - it is the chancellor who is responsible and he is the one person who can do something," said acting director Sheila Rainger.
"We would very much like to see the April increase put on ice and to see the October increase rolled back again. When these decisions were made, crude was half the price it is today. We are now very worried about the effect of petrol prices on motorists and on the economy, because if people are being forced to pay more, they are cutting back spending on other things."
City analysts are forecasting that Shell, due to announce its results on Thursday, will have made around $26.6bn in 2007. The Anglo-Dutch company reported profits of $25.4bn during 2006. By comparison, Tesco, Britain's biggest retailer, made £2.7bn last year.
The oil price hovered at $90 a barrel in the last three months of 2007. After spiking this month and briefly breaking through the $100 level, it is trading at about $90.66.
A Shell spokesman declined to comment ahead of the results. But the company has previously defended its profits, arguing that the lion's share is re-invested - capital expenditure in 2007 was forecast to be in the range of $22bn-$23bn.
Production is getting more expensive as easily accessible resources become more difficult to find. The industry reckons that the cost of production has gone up from $5 a barrel in 2000 to $14 in 2006 and many analysts believe that oil company profits may have peaked.
Jeroen van der Veer, Shell's chief executive, warned last week that by 2015 supplies of easy-to-access oil and gas would no longer keep up with demand. Governments are also demanding higher cuts from new oil fields.
US Airways, one of six legacy air carriers in the US, joined many of its peers in reporting a quarterly loss on record fuel costs.
Mounting oil prices have wiped out profits, grounded planes and spurred airline executives to temper expansion plans for 2008. American Airlines, United Airlines and Delta Air Lines have also posted losses.
The latest victim, US Airways, had a net loss of $79m, or 87 cents a share, in the fourth period.
"As we begin 2008, our industry appears to be headed for another difficult period due to extremely high oil prices and a potentially softening economy," said Doug Parker, chief executive.
Operating revenue fell 0.4 per cent to $2.78bn. The carrier filled about 80 per cent of its seats during the period, up 1.9 percentage points from a year ago.
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