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Cleaning Up China

CHINA’S RENEWABLE ENERGY OUTLOOK
Even if China cuts energy per unit GNP by 50%, to
increase per capita income to 50% of the USA,
energy production will still need to increase 40%.

Editor’s Note: China and India, along with much of the rest of Asia, is industrializing at a pace that is astonishing by any historical standard. And with nearly double digit annual economic growth impacting literally 50% of the world’s population, roughly 3.0 billion people, comes an insatiable appetite for energy.

With reference to China in particular, we have covered their ongoing and epic transformation to a fully industrialized nation within mere decades before, in our reports “China’s Energy Demand,” “China’s Renewable Energy,” “Wind Power in China,” “China’s Energy Outlook,” “Fuel Cell Development in China,” “China, Canals & Coal,” and others. In all of these reports the message is the same – with over 1.3 billion people, the industrialization of China (along with India) is turning the global energy economy on its ears.

Between 1995 and 2005 China’s energy consumption has more than doubled – from 33 quadrillion BTUs to 67 quadrillion BTUs, and her economy has increased by a factor of 13x, from $700 billion to 10.1 trillion dollars. The perspicacious reader will take heart from the fact that these numbers mean China’s energy intensity – the efficiency whereby energy is converted into wealth – has improved by an impressive 86%, from 46,000 BTU’s per dollar of GNP in 1995 to only 6,600 BTUs per dollar of GNP in 2005. This is probably due to most of the new energy currently being produced in China going to manufacturing. As the Chinese middle class continues to grow, China’s energy intensity may become less efficient again. By comparison, the USA in 2005 had an energy intensity virtually tied with China’s – 7,000 BTUs per dollar of GNP.

In the following report by Sam Goffman and Peter Wang, part one of a five part series, China’s renewable energy prospects are explored in depth. In summary, renewable energy production in China is expected to increase from 7.5 percent of total energy produced today to over 15 percent by 2020. This is an impressive goal, but is overshadowed by the fact that total energy production in China must increase dramatically. As the above table demonstrates, even if the Chinese improve their energy intensity by another 50%, which would be an incredible achievement, in order for China’s 1.3 billion people to attain a per capita income only 50% that of the United States, energy production in China will still need to increase by 40%, from 62 quadrillion BTUs (“quads”) per year in 2006 to over 94 quads per year. If so, doubling China’s renewable energy sector to 15% of all the energy they produce would nonetheless require annual nonrenewable energy production to increase from 62 quads to 80 quads, an increase of nearly 30 percent. Can the global energy economy sustain this rate of depletion of nonrenewable energy resources, particularly since India and other rising nations will need to log similar overall increases in energy production?

One factor however that may be grossly underestimated in this report is the speed with which solar energy will grow. In this report, solar energy is projected to reach “1.8 gigawatts by 2020.” We think this projection is way too low. According to a white paper prepared by THT Research, China is projected to increase polysilicon production for photovoltaic cells from 230 tons per year in 2006 to 12,660 tons per year by 2011. In 2005 roughly 30,000 tons of polysilicon was produced worldwide, with one third of it going to production of photovoltaics (the rest was used by the semi-conductor industry). And in 2005 the worldwide manufacturing output of photovoltaics was about 2.5 gigawatts.

This means that unless China intends to export most of her polysilicon, by 2011 she will be manufacturing in excess of 2.5 gigawatts of crystaline photovoltaic capacity every year. And given the very recent viability of thin film photovoltaic manufacturing technologies which don’t require polysilicon, the ratio of gigawatt capacity to tons of polysilicon feedstock will not be nearly as relevant in the future as it is today, since thin film only accounted for about 6% of global photovoltaic production in 2005. Moreover, none of the projections in this report address the potential of utility scale solar thermal power, which has just become economically competitive with conventional electricity generation. The report to follow may well be underestimating the potential of solar power in China by several orders of magnitude, and if so, that is a very, very good thing. – Ed “Redwood” Ring

Renewable Energy – Helping China Clean Up
by Sam Goffman & Terry Wang, Interfax-China, November 29, 2007
Lake Tai, China
Lake Tai’s breathtaking beauty
belies the fact it is one of
the most polluted lakes in China.
(Photo: Wikipedia)

It’s no secret that China is on the brink of environmental crisis. As the country works to clean up its act, the development of the renewable energy industry could mean a big payoff to investors as well as Chinese society as a whole.

A recent article in the New York Times profiles a Chinese environmental activist named Wu Lihong. The article, part of the paper’s series on environmental degradation in China, documents Wu’s attempts to clean up Lake Tai, one of China’s most polluted bodies of water. As the article shows, Wu’s efforts have been truly heroic: he has campaigned vigorously against corrupt officials, has succeeded in generating public awareness about the problem and has risked his own livelihood – including possible jail time – for the cause.

Western reportage about the environment in China, such as the Times article about Wu, inevitably focuses on the disastrous environmental degradation that has accompanied the country’s rapid economic growth, noting that the government’s proclamations of concern for the environment mostly go unfulfilled. Such reporting usually carries with it the implication that pro-environment statements made by the Chinese government are just for show, and treats the government as a homogeneous entity and Chinese society as interested only in making money.

However, the reality is not so simple. China’s 5-year plans and far-reaching policies are indeed often bogged down in the obsession with economic progress, and the rapid pace of economic growth combined with the sheer size of the country means that effectively implementing those policies is difficult and prone to corruption and inefficiency. Focusing on activists such as Wu Lihong puts the problems of China’s embrace of capitalism in stark relief. Yet it should be noted that such cases may obscure the larger potential of China’s environmental efforts, specifically its renewable energy industry. Prominent officials and institutions in the Chinese government frequently indicate an awareness of the country’s environmental problems. China’s drive to build up its renewable energy industry will offer many opportunities for foreign investment, and the government’s plans for the future – the kinds of policies that will see fruit in the long term – are far from unpromising.

China’s plans for the future

The National Development and Reform Commission (NDRC), the institution responsible for the country’s macroeconomic planning, plans to have renewable energy account for 10 percent of China’s total energy consumption by 2010, and 15 percent by 2020, compared to 7.5 percent in 2005. (In comparison, in the United States about 7 percent of energy consumption was supplied by renewable energy in 2005 according to the U.S. Energy Information Administration, less than China’s figure for that year.)

Main Three Gorges Dam
The main dam at the Three Gorges Complex.
When complete, this hydroelectric project will
generate a staggering 17.5 gigawatts of electricity.
(Photo: NASA)

Breaking that figure down further, the NDRC aims for hydropower generation capacity to reach 180 gigawatts a year by 2010 and 300 GW by 2020, compared to 115 GW in 2005; annual wind power generation capacity to reach 5 GW by 2010 and 30 GW by 2020, compared to 1.3 GW in 2005; biomass capacity to reach 5.5 GW in 2010 and 30 GW in 2020, compared to 2 GW in 2005; and, finally, solar power to reach 0.3 GW in 2010 and 1.8 GW in 2020, compared to 0.07 in 2005.

As for the very long term, an energy development plan compiled by the China Academy of Sciences (CAS), a Chinese government think tank, recently recommended that the country should push to make nuclear power and renewable energy (besides hydropower) main elements of the country’s energy mix by about 2030, and ensure that dependency on fossil fuels falls under 60 percent by 2050.

Government projections of renewable energy in China’s overall energy usage, 2005-2020

Can China achieve its goals?

Are these goals feasible? It’s too soon to know for sure. On the one hand, the government has often expressed its seriousness in reaching its environmental targets, and has issued several preferential tax policies and subsidies to support the development of renewable energy. On the other hand, the country has fallen short of some of its yearly goals. Energy consumption per unit of gross domestic product fell by only 1.23 percent in 2006, one-third of the country’s annual target of four percent. The government has said it will stick to its previous plan of cutting energy consumption per unit of GDP by 20 percent between 2006 and 2010, or 4 percent annually, as well as emissions by 10 percent for the period.

Taking wind power, one of China’s fastest growing renewable energy sectors, as another example, the sector ranked sixth in the world in terms of wind power generation capacity in 2006, up from eighth in 2005, according to the NDRC. Figures released by the Global Wind Power Council indicate that wind power installed capacity in China went up from 1260 megawatts in 2005 to 2610 MW in 2006, an increase of 107 percent.

In short, China’s record is inconsistent – some projects succeed, while others stall. What is clear is that the country will have to be more rigorous in implementing energy-saving measures if it really plans to achieve its environmental goals.

China’s renewable energy potential: analyses and predictions

Many Western analysts are optimistic about China’s renewable energy potential. Dr. Eric Martinot, a former senior energy and environment specialist at the World Bank, told Interfax in June, “For all the [renewable] technologies [apart from biomass], I think they’ll all achieve [the targets] early. Wind will go definitely more than 30 GW by 2020 and it would very likely achieve its 2010 target two years early. Also for hydropower, I think they’ll achieve the target early.”

There have also been indications that many elements in the Chinese government, including prominent government officials and institutions, are increasingly willing to confront environmental problems head-on. The Three Gorges Dam hydroelectric project, a pet project of powerful Chinese officials, has caused landslides, stagnant pollution and excessive algae. All of these problems were finally admitted openly in September by government officials (though there was no mention of another problem with the project, the forced relocation of nearby residents). Wang Xiaofeng, the director of the Three Gorges Construction Commission on the State Council, which is in charge of building the dam, reportedly said, “We must never lower our guard against environmental problems caused by the Three Gorges project, and we cannot achieve economic prosperity at the cost of damaging the environment.” Such openness has earned praise from international commentators. “It’s the first time that Chinese officials have (openly) talked about the pollution issues and environmental effects of the Three Gorges Dam. It’s a milestone for the Chinese government to show a positive attitude towards solving the ecological problems caused by the project,” Dr. Li Lin, the Conservation Strategy Director for the World Wildlife Fund’s China branch, told Interfax.

The development of renewable energy in China: pitfalls and opportunities

Windmills at Dabancheng
The Dabancheng Wind Farm
At 100 megawatts, China’s largest

The country will face several hurdles in its development of the renewable energy industry. The biggest hurdle is also foreign companies’ biggest opportunity: the need to attract more foreign investment. As Francois Nguyen, senior policy adviser with Paris-based International Energy Agency, explained to Interfax in May, “The obstacle is that China needs to attract more foreign companies and in order to achieve that, China needs to provide more incentives.” Nguyen added that China needs a more diverse and competitive market that can ensure efficient allocation of resources, and needs to reorganize the government regulators in charge of the industry. “Right now the NDRC controls both policy-making and implementation,” he said. “If you have an independent market watcher and an independent regulator, that will give confidence to foreign investors.”

China will also have to improve its technology to develop the renewable energy industry. In the wind power sector, building wind turbines is expensive, and China still largely relies on foreign equipment. “In 2006, 60 percent of all wind power equipment in use in China was imported from overseas. Such equipment is expensive, as equipment prices have soared in recent years on the international market,” Qin Haiyan, secretary-general of the China Wind Energy Association, said in June, as cited by state media. He added that only three domestic companies are able to mass produce equipment with an individual capacity of more than 1.5 MW. Other sectors, such as solar and geothermal, face similar problems: the government will need to invest substantial resources in technological development to spur the renewable energy industry.

Another problem is that energy produced by renewable energy projects tends to be more expensive than traditional sources. The solar power sector is a good example. Eric Martinot, the former World Bank official, said that an important question is, “how soon will the cost come down so that there will be a domestic market for solar PV [photovoltaic]? We are looking at maybe at least five years. Actually a lot of people are thinking much longer. The first problem with solar in China is the acceptance by the utility companies to use power generated by solar power.”

Development of the industry may suffer from infrastructure problems as well. One potential obstacle that is often overlooked is the difficulty in connecting some renewable energy projects, especially wind power, to national and local grids. “The government likes to talk about how rapidly China is building up its wind power capacity, seeing it as a symbol of achievement in its renewable energy drive,” Shi Pengfei, the vice chairman of the China Wind Energy Association, told Interfax earlier this year. “However, to me, it means nothing, as it will only make a difference in our energy mix when the grid is able to receive a majority of the power generated.” Shi added that steps are being taken to address the problem, such as requiring wind power projects to consult with local and national grids before construction.

In the coming years, all sectors of the renewable energy industry – wind, solar, hydropower, biomass, nuclear, geothermal, waste-to-energy, clean coal and gas-fired power generation – will be expanded. All will face obstacles, but it is increasingly apparent that the Chinese government recognizes the reality of the environmental crisis, and will work to build up renewable energy in the country. As Li Lin from the WWF put it, “In recent years the central and local governments have gradually realized that sustainable economic development won’t happen without effective environment protection.”

Interfax China Logo

This article was originally published by Interfax-China, and is republished with permission. Author Sam Goffman is the Editor of the Interfax-China Energy Sector Team, with special thanks to Terry Wang, Sector Analyst, Interfax-China. This article is part one of a five part series written as part of the research efforts for Interfax-China’s “China Clean & Renewable Energy to 2010″ special industry report. To automatically receive the other parts of the series please send an email to andrew@interfax.cn.

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Arctic Cooling & The Global Warming Trend

You wouldn’t think so if you looked at the way mainstream media cherry-picked National Oceanic and Atmospheric Administration’s (NOAA) recent “Arctic Report Card,” released on 10-17-2007.

From CBS News we get the headline “Rapid Changes In Arctic, Experts Warn,” with the lead stating:

“The Arctic is under increasing stress from warming temperatures as shrubs colonize the tundra.”

From the BBC we get “Warm wind hits Arctic climate,” with the lead stating

“The Arctic is being hit by melting ice, hotter air and dying wildlife.”

Yet if you actually read the report from NOAA, you get a much less alarming story:

“The first update of a report tracking the state of the Arctic indicates that some changes in that region are larger and occurring faster than those previously predicted by climate models, while other indicators show some stabilizing.”

Not all indicators show extreme events, and some signals are mixed. For instance, North Pole ocean temperatures are returning to 1990s values, but currents are relatively warm around the edges of the Arctic Ocean.”

Permafrost temperatures are stabilizing in both North America and Eurasia, but permafrost melt remains a serious problem. Shrubs are moving northward into tundra areas, but causes for treeline movements are difficult to assess because forest management practices are as influential as climate change.”

If you talk with atmospheric scientists, like we do, you will have to wonder why mainstream journalists don’t bother to mention the “Pacific Decadal Oscillation” (ref. Wikipedia) a 60-70 year cycle, well documented, that causes Arctic warming lasting for decades, followed by cooling.

Here are the dates applying to this cycle:

  • 1905: After a strong swing, PDO changed to a “warm” phase.
  • 1946: PDO changed to a “cool” phase.
  • 1977: PDO changed to a “warm” phase.
  • 1998: PDO index showed several years of “cool” values, but has not remained in that pattern.

Based on 20th century records, therefore, the shift to warming occurred in 1905 and again in 1977, a 72 year cycle. On that basis, the shift back to cooling would occur 72 years after the last cooling shift which was in 1946. So of course the 1998 index suggesting cooling had not yet occurred is misleading. The documented length of the PDO cycle indicates sustained cooling may not begin until 2018.

Unfortunately, by then in the name of curtailing global CO2 emissions, we may have nationalized our energy industry and gone to war with China. Under such a scenario, which is frighteningly possible if we are not permitted to continue the “debate,” by 2018 we will live in a world where the global north (developed nations) strangled the economies of the developing world in the name of anti-CO2 alarmism, and brought global CO2 emissions down to preindustrial levels. And in that world we will be told the hundreds of millions killed through the resulting wars and increased poverty, and the implementation of socialist tyranny from Brussels to Barstow was worth it – because the Arctic cooled again.

In reality the Arctic was cooling right on schedule, and we could have had peace and prosperity instead of socialism, tyranny, thought police, international tension, economic misery, neo-colonialism in the name of fighting CO2, and WWIII.

Think about it. Global warming alarm is a very, very dangerous trend, because it stifles debate, foments panic, and calls for drastic measures. Rational debate must be ongoing both as to the extent of this warming, the cause of this warming, and what the appropriate response should be, both politically and economically.

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China's Energy Demand

IMPROVING ENERGY INTENSITY IS PROVING A DAUNTING TASK IN THE WORLD’S MOST POPULOUS NATION
Boat on a Lake in China
How much of the old China will remain?

Editor’s Note: China, like India, is a nation of staggering population – well over 1.0 billion people – that is careening into the modern industrial age. In this report by Gordon Feller, it is clear that China recognizes the need to “leapfrog” the technologies of the west, in order to avoid resource scarcity and hideous pollution. But how feasible is this?

There are several measures of leapfrogging – what is China’s CO2 footprint, what is their energy intensity, and how much are they removing pollutants during energy production? Only in the past year have economists generally acknowledged that China has now replaced the USA as the world’s greatest producer of industrial CO2. Is this just the beginning?

According to the U.S. Energy Information Administration, China relies on coal for 70% of their energy needs. EIA projections indicate that consumption of coal in China will nearly double in the next twenty years, and that if anything, the percentage of energy usage represented by coal in China is going to increase. Activists who want to shut down American industry need to remember two things: Over 90% of the fuel consumed in the world requires combustion, and the Chinese (and many other nations) are not going to shut down their industries just because we want them to.

Similarly, China’s (and India’s) energy intensity – how many units of energy they require to produce one unit of wealth – is currently only 25% as efficient as the United States or the European Community. Moreover, in their headlong rush to industrialize, China’s energy intensity has actually worsened in the last year, not improved.

The average American consumes 12 times as much energy and 4 times as much water as the average Chinese person – in spite of the fact that China’s energy intensity is only 25% as efficient as the America’s. If China were able to equal the U.S. or EU in energy intensity, and perhaps they will, and if at the same time their per-capita income were to equal that of the Americans, then China’s energy production would have to increase by a factor of 8x. As it is, projections from the EIA only show their energy production doubling between now and 2020. These projections could be low.

It is in the final measure of leapfrogging where we might find the greatest reason to hope. While unenthralled by the notion that industrial CO2 causes global warming – and recent findings indicate tropical deforestation might actually be a bigger cause of global warming – the Chinese are very concerned about the dangerous criteria pollutants they are spewing into into the atmosphere. But, unlike CO2, most forms of air pollution from industry can now be effectively removed at an affordable cost. Perhaps if the western nations joined to help the Chinese develop clean burning fossil fuel, it would be a great – and feasible – leap forward. – Ed “Redwood” Ring

China’s China’s Energy Demand – Improving Energy Intensity is Proving a Daunting Task in the World’s Most Populous Nation.
by Gordon Feller, May 20, 2007

China’s energy shortage in recent years has resulted in extensive efforts to obtain additional energy supplies….

Beijing has called for domestic production to be increased as alternative and renewable energy resources are now being strongly considered. This desire for energy security has also become an impetus in China’s foreign policy, with state-owned oil majors encouraged to secure production rights at oil fields throughout the world. Conservation, however, seemed to be the key word for China’s strategy for energy security in 2006. The government set compulsory targets for the first time in history, requiring the entire country to reduce energy intensity by 20 percent in unit GDP production by 2010. Yet, the target, announced in March 2006 as a part of the 11th Five Year Economic Program, may be a long shot for a country with an overheating economy.

In a recent study by the Chinese Academy of Social Sciences, entitled “China’s Energy Economic Situation and Policy Trends” (Woguo nengyuan jingji xingshi yu zhengce zouxiang), the authors acknowledged that little has changed in the wasteful consumption of energy in Chinese industries [1]. While China’s economy grew by 10.9 percent in the first half of 2006, coal and electricity consumption jumped by 12.8 percent and 12 percent, respectively. The energy consumption in producing every 10,000 yuan GDP did not decrease, but in fact increased by nearly 1 percent during the same period. This means that the 20 percent energy intensity reduction plan for 2006-10 already failed to achieve its target in its first year. Rather than meeting the annual energy efficiency goal of 4 percent as it had planned to do so last year, China must now reduce energy intensity by 5.4 percent per year in the next four years in order to meet the overall national energy conservation target for 2010.

KEY VARIABLES: MOST POPULOUS/WEALTHIEST NATIONS
Resource Use Among China, India, the United States, and Europe
China & India convert energy into wealth (BTUs per $1.00 of GNP)
at only about 25% the efficiency of the USA or European Community
-

Structurally speaking, high-energy consuming industries are still leading the way in China’s economic development. Large-scale investments have gone into nationwide energy development projects, many of which are low-tech, high-waste ventures. Yet, they are still profitable in a country with a voracious appetite for energy. While additional energy industries are moving into other industrial sectors, profit margins continued to grow in the 2000-2005 period with the profits from the energy industry accounting for over 30 percent of the total profits in China’s industries [2]. At the same time, most of the investments are still focused on traditional energy sectors rather than on conservation technologies or “green technologies” that can conserve energy. For instance, China continues to rely upon coal for nearly 70 percent of its energy needs, consuming 22.5 percent more coal than other advanced countries [3].

CHINA ENERGY PRODUCTION BY FUEL TYPE, 1980-2015
This projection from the U.S. Energy Information Administration shows
that China’s energy consumption could nearly double in the next twenty
years, and virtually all of this new energy will come from coal.
-

China also set a supposedly compulsory goal to reduce industrial pollutants by 2 percent in the same five-year plan. Yet, the record in the first half of 2006 showed an increase of 3-4 percent, making it impossible for China’s industries to reach the target for the year [4]. This increase in pollutants was largely due to the rapid rate of unregulated economic growth; from January to September last year, Chinese industries grew by 17.2 percent, while heavy industries increased by 18.2 percent [5].

In the past year, the central government attempted to curb pollution and encourage energy conservation by implementing a number of top-down measures:

March 2006 – Accompanying the announcement of energy intensity targets, the National People’s Congress began to draft the Energy Conservation Law.

April 2006 – Multiple government agencies launched a conservation campaign in 1,000 enterprises belonging to major high-energy consuming industrial sectors.

May 2006 – Beijing announced an ambitious plan to conserve and better utilize energy in nearly 1,000 categories.

June 2006 – Relevant government agencies set the unit GDP energy consumption standards for all provinces.

July 2006 – The National Development and Reform Commission (NDRC) held a national energy conservation conference, signing energy target responsibility agreements with local governments.

August 2006 – The State Council issued a new directive for strengthening energy conservation.

October 2006 – China Coal Industry Association held a conservation conference.

November 2006 – NDRC distributed provincial quotas for energy conservation targets in the 11th Five Year Program.

Such extensive administrative regulations and guidance have produced notable achievements. Shandong Province, for example, has implemented 100 large conservation projects. Hebei Province, ranking second nationwide in heavy industrial energy consumption, has added “energy conservation” as a category in its cadre performance evaluation. Ningbao, a major industrial city in the eastern part of China, has reported the reduction of energy intensity in all of its industries by over 10 percent in 2006 [6].

These are nonetheless isolated achievements. For most of the country, conservation remains a low priority. Many of the administrative announcements and measures are lost in the convoluted bureaucracy. Even for those local governments wanting to do more, concrete directions from the central government are unclear. Moreover, the market still favors traditional (and unclean) sources of energy, such as coal, and for many, achieving high GDP numbers through large-scale investments in energy, construction and other heavy industrial sectors remains the priority.

The Great Wall of China
China’s first major civil engineering project…

China’s domestic efforts in conservation have also extended into the foreign energy policy area. For years, Beijing has called on its major energy and resource companies to engage in a “go-out” strategy. Chinese firms have traveled around the world searching for oil and gas fields, securing exploration rights and purchasing multi-year contracted supplies. Under this plan, Africa has quickly become a major provider, supplying nearly a third of China’s imports last year (AFP, June 20, 2006). Large Chinese oil majors have negotiated $70 billion in energy exploration deals with Iran, purchased large assets in Kazakhstan and sealed multi-billion dollar, multi-year natural gas supply commitments from Australia.

Recently, though, there are some indications that the Chinese are looking beyond their borders in acquiring and developing conservation technologies and strategies. At a World Bank workshop with China’s State Council last June (at which this author was a part of the World Bank expert team), the consensus after two days of closed-door discussions was that China could not sustain itself if it continued to consume energy at the same rates as advanced industrialized countries. Neither the Chinese environment nor the world ecosystem is capable of supporting massive large-scale waste or pollution related to energy consumption. The workshop called for China to pursue innovative technologies, develop alternative and renewable energy sources and ultimately use “technology leapfrogging” to solve China’s future energy requirements. For that purpose, the Chinese government is eager to examine, evaluate and import advanced technologies from abroad.

Sino-Japanese relations offer an example of China’s changing priorities in international energy cooperation. Until last fall, Sino-Japanese relations were in a deep chill due to former Japanese Prime Minister Junichiro Koizumi’s insistence on visiting the Yasukuni Shrine. At the time, Beijing and Tokyo were also engaged in a bitter dispute over the potential oil and gas deposits in the East China Sea. Yet, when the NDRC organized an energy conservation and environment forum in Kyoto in May 2006, it attracted 900 participants, far exceeding initial expectations. Even Shinzo Abe, then Chief Cabinet Secretary and a contender to replace Koizumi, attended the conference. When Abe became the new Prime Minister in September, he made improving Japan’s relations with China a top priority and proactively propositioned to the Chinese leaders that both countries establish a “reciprocal relationship based on mutual strategic interests.” When asked to elaborate on his comments, Abe explained that the core of such a reciprocal relationship would consist of cooperation on environmental concerns and energy conservation, a message that rang sweetly in Beijing’s ears (Asahi Shimbun, October 9, 2006). While Beijing remains concerned with Abe’s nationalist tendencies on a range of defense-related issues, it is willing to engage Tokyo on projects of “mutual strategic interests.”

WHAT IF THE CHINESE HAD AN AMERICAN LIFESTYLE?
Chart of Energy and Water use by different parts of the World
In the late ’90′s Americans used, on average, 12 times as much energy and 4 times
as much water per person, compared to the Chinese during the same period.
-

China has also exhibited its willingness to work in multilateral settings as demonstrated by the recent second annual East Asia Summit. On January 15, the ten ASEAN countries as well as China, Japan, South Korea, India, Australia and New Zealand gathered in the Philippines to sign an energy security pact. The 16-nation group called for decreasing the dependency on oil; reduction of greenhouse gas emissions; promotion of bio fuels, hydropower or nuclear power; and enhanced cooperation among the participating parties for energy conservation and efficiency [7]. Although the meeting did not produce any hard targets in terms of emission reductions, it was nevertheless a good start for a region containing half of the world’s population and many major energy-consuming powers.

It will be a welcoming sign if China makes the decisive shift in its global quest for energy security from focusing on traditional energy supplies to seeking alternative and renewable energy sources as well as new technologies from other countries. This would enable China to greatly improve its domestic efforts in conservation and environment protection. In that regard, the United States, other advanced industrialized countries and the international community may play positive roles in encouraging China’s move in the direction of becoming a greener energy consumer.

Notes:

1. Available online at: http://www.cass.net.cn/file/2007011785915.html.

2. Ibid.

3. Ibid.

4. Available online at: http://www.zgxxb.com.cn/news.asp?id=6078

5. Ibid.

6. Available online at: http://www.sdpc.gov.cn/mtbd/t20070118_112022.htm

7. Available online at: http://www.int.iol.co.za/index.php?set_id=14&click_id=143&art_id=qw1168851060307B225.

About the Author:
Gordon Feller is the CEO of Urban Age Institute (www.UrbanAge.org). During the past twenty years he has authored more than 500 magazine articles, journal articles or newspaper articles on the profound changes underway in politics, economics, and ecology – with a special emphasis on sustainable development. Gordon is the editor of Urban Age Magazine, a unique quarterly which serves as a global resource and which was founded in 1990. He can be reached at GordonFeller@UrbanAge.org and he is available for speaking to your organization about the issues raised in this and his other numerous articles published in EcoWorld.

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The Photovoltaic Boom

In our feature “Photovoltaics – The Ultimate Renewable” we demonstrate why photovoltaics are a compelling long-term investment even at 2006 prices. In short, the reason you would pay a lifetime cost of $.20 per kilowatt-hour to install a photovoltaic system is because once you’d absorbed that initial installation cost, your annual cost to replace photovoltaics at the rate they degrade is well below the market price of conventional electricity, under $.02 per kilowatt-hour. For this reason, even at today’s high prices, photovoltaic manufacturers are selling them as fast as they can make them.

So why isn’t there more photovoltaic manufacturing capacity? Why is the installed base of photovoltaics in the world barely over 10 gigawatts?

Most photovoltaics are manufactured using polysilicon, the same semi-conductor substrate used for integrated circuits. For years, the photovoltaic manufacturers have bought their polysilicon from manufacturers who primarily produced this product for the computer industry. But in 2005, photovoltaic manufacturing output rose to over 1.6 gigawatts, and for the first time, the solar energy industry was competing with the computer industry to buy polysilicon. Photovoltaic panels consumed about one-third of the 30,000 tons of polysilicon produced worldwide in 2005, about 10,000 tons. Some people think there’s going to be a shortage of polysilicon, and in the short run, they’re probably right.

The economics of polysilicon production, however, rule out the possibility of a long term shortage. Currently polysilicon costs $60 per kilogram. According to an excellent report authored by Jesse Pichel and Ming Yang, Research Analysts with Piper Jaffray, posted on the website Renewable Energy Access, it costs $200 million to build a manufacturing plant capable of outputting 3,000 metric tons of polysilicon per year. That means that at $50 per kilogram, such a factory would gross $150 million every year. Considering the raw material, unprocessed silicon, is one of the most abundant materials on earth, the margins must be pretty good. When the photovoltaic industry only consumed 10% of the world’s polysilicon manfacturing capacity, manufacturers were reluctant to build new plants since the integrated circuit industry – their primary customer – is cyclical and experiences booms and busts. But now the solar cell manufacturers are consuming over 30% of worldwide polysilicon manufacturing capacity, with no end in sight. Demand from the photovoltaic segment is significant, sustainable, and growing fast.

This changes things. Look for the major polysilicon manufacturers – Hemlock, Tokuyama, Wacker, REC, and MEMC – to ramp up production significantly by 2008, and expect many new entrants.

Why, for example, aren’t the major solar customers for polysilicon – BP Solar, Energy Conversion, Evergreen Solar, Kyocera, Mitsubishi, Motech, Q-Cells, Sanyo, Sharp, Sunpower, Suntech, and Shell Solar – investing in their own polysilicon manufacturing?

For $200 million these value-added photovoltaic manufacturers can build their own polysilicon plants to create 3,000 tons of polysilicon per year, which at $50 per kilogram would have a market value of $150 million. When one considers that a kilogram of polysilicon can then be turned into a photovoltaic panel with an output of about 125 watts, then at a price of $2.00 per watt (much lower than today’s prices), another $750 million in revenue is possible per year per plant, or $600 million in margin after purchasing the polysilicon – plenty of money to cover the cost of the value-added processes to turn the polysilicon ingots into photovoltaic panels.

What is most amazing is that the worldwide photovoltaic industry is still so small. The entire world output of polysilicon for photovoltaic panels could be doubled with an investment of $600M for three plants producing 3,000 tons per year each. World energy consumption from all sources, last year, topped 20,000 gigawatts – and only 10 of these 20,000 gigawatts (that’s 0.05% or one-twentieth of one percent) were supplied by photovoltaics – the ultimate renewable. This industry is going to take off in a very, very big way.

Posted in Consumption, Electricity, Energy, Energy & Fuels, Energy Industry, Solar9 Comments

China's Energy Outlook

FOR ENERGY PRODUCTION TO KEEP PACE WITH THE ECONOMY CHINA MUST DEVELOP EVERY FUEL SOURCE THEY POSSIBLY CAN
China Mountains
The Ancient Middle Kingdom Awakens

Editor’s Note: China and India both have over a billion citizens. Each of these colossal countries by itself holds nearly a fifth of all humanity within its borders.
But although India and China are nearly equal in their massive populations, China’s economy is more than twice that of India’s. China’s economic clout in the world is being felt as never before, and right behind China is India – together nearly 2.5 billion people!

The rising energy consumption of China and India is raising the ante for energy producers to the tune of ten quadrillion BTUs every few years. These rapidly industrializing, massive nations are turning the global energy economy on its ears.

To bestride the other half of the world are the western superpowers of America and Europe. Just considering the USA and the European Community, you have barely a quarter as many people enjoying nearly ten times the overall wealth of India and China combined. Per person these westerners consume twice as much water and over six times as much energy.

THE BILLIONS AND THE BUCKS
Table of Key Variables in China, India, the United States, and Europe
Key Variables about the Most Populous & the Wealthiest Nations
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But in terms of efficiently creating wealth from resource use, the USA and EU have actually increased their lead over India and China. How much energy it takes to produce a dollar of GNP – “Energy/GNP,” or “BTUs per dollar of GNP,” to be precise – is a key measure of how quickly a country is adopting clean technology, since only efficient energy use can cause a country to experience more prosperity without using proportionally more energy. Clean technology consumes fewer resources and creates less pollution per unit of wealth created.

In the USA and the European community the number of BTUs per dollar of GNP have lowered 18% in the last ten years, from 9,300 in the mid-1990′s down to 7,600 BTUs per dollar of GNP today. China and India have only improved 9% in the the same period, from 41,000 to 38,000 BTUs per dollar of GNP. Both east and west are converting energy into wealth more efficiently, but the lead held by the west is increasing. Clearly the technology-rich western nations have much still to offer the east. Today the USA and EU convert energy into wealth nearly five times as efficiently as India and China.

The wealth and technology of the fully-industrialized western nations can help countries like China and India to leapfrog the west. Clean technology is energy efficient and economical as well, especially using modern technology. The economic development potential of clean, modern energy and water technology is a bright and cooperative path for China, India, the USA and European Community to lead the world in sponsoring. – Ed “Redwood” Ring

China’s Energy Outlook, by Jeffery Logan
-
Shore in China
For 2.5 billion Chinese & Indians to equal the per-capita
wealth of the USA and European Community, without
more efficiently converting energy into wealth,
energy production in the world would have to triple.

For the last twenty-five years, China has charted a bold course of economic reforms.

In doing so China has achieved mixed, but often remarkable results given the development challenges it faces. Reported average annual GDP growth of over nine percent has improved living standards for hundreds of millions of Chinese people to a level unmatched in any point of Chinese history. China now plays a key role in the supply and demand of many global commodity markets including steel, cement, and oil. If sustained, China’s development will likely create the world’s largest economy, as measured in purchasing power parity, in about two or three decades. Per capita wealth, however, will remain far below OECD levels. Enormous opportunities and challenges await commercial, governmental and social interests across the globe as China develops.

Chinese energy demand has surged since the arrival of the new millennium, when a new round of investment-driven economic growth began. Preliminary Chinese data indicate that the energy elasticity of demand (the growth rate of energy consumption divided by that of GDP) surpassed 1.5 in 2004. In other words, for every one percent increase in GDP, energy demand grew by over 1.5 percent. The shift reverses China’s recent historical trend of maintaining energy elasticity below 1.0. For most developing countries, including India, Brazil, and Indonesia, energy elasticities greater than 1.0 are normal, but for China it is a groundbreaking change.

Many analysts rightly question the validity of Chinese economic and energy statistics; GDP is likely underreported right now, although from the late 1970s until the end of the 1990s, it was probably overstated. Likewise, Chinese energy consumption, coal in particular, is tracked poorly. Coal use from 1996-1999 is now regarded as massively underestimated by analysts both inside and outside of China due to untracked output from small coal mines. One of the contributing factors behind China’s current energy crunch is indeed these poorly tracked energy statistics: good energy policy and energy planning require accurate data.

Despite the problems with data quality, the general trend raises concern. Is this new energy-economy relationship in China temporary or does it indicate a deeper structural change within the economy? The difference could have a profound impact on future global energy markets, energy security, and environmental quality. Almost no authoritative research has been published to explain the surging elasticity. A clearer understanding of what is happening in Chinese energy markets may never be uncovered, but more research into the new energy-economic relationship would benefit the international community and China.

China surpassed Japan in late 2003 to become the world’s second largest petroleum consumer. In 2004, Chinese demand grew 15 percent annually to 6.37 million barrels per day (b/d), about one-third the level in the United States. Domestic crude output in China has grown only very slowly over the past five years. At the same time, oil demand has surged, fueled by rapid industrialization. Imports of crude oil grew alarmingly in 2003 and 2004 to meet demand, increasing nearly 75 percent from 1.38 million barrels per day (b/d) in 2002 to 2.42 million b/d in 2004. Imports now account for 40 percent of Chinese oil demand.

International Energy Agency Logo
International
Energy Agency

As described in the International Energy Agency’s “December 2004 Oil Market Report”, a significant driver of recent oil demand growth in China — perhaps on the order of 250-300 thousand barrels per day — has been the need for oilfired back-up power generation in the face of serious electricity shortages. Other contributing factors are the rise in personal car ownership and growing industrial petrochemical needs, which are likely to continue growing fairly steadily. However, the amount of fuel oil and diesel used for back-up power generation will likely decline, as China closes the generation shortage by installing new coal, natural gas, hydro, and nuclear power plants. It has also promised to institute tougher new demand-side efficiency measures.

Chinese policymakers and state-owned oil companies have embarked on a multi-pronged approach to improve oil security by diversifying suppliers, building strategic oil reserves, purchasing equity oil stakes abroad, and enacting new policies to lower demand.

Chinese Flag

Over the past decade, Chinese crude imports have come from a much wider and more diverse set of suppliers.

In 1993, almost all of China’s crude imports came from Indonesia, Oman, and Yeman. By 2004, Saudi Arabia was China’s largest supplier accounting for 14 percent of imports, with Oman, Angola, Iran, Russia, Vietnam, and Yemen together supplying another 60 percent, and the remainder which came from a long list of other suppliers.

China’s 10th Five-Year Plan (2001-2005) called for the construction and use of strategic petroleum reserves by 2005. Construction has begun at one of four sites slated to store government-owned supplies. Chinese officials plan to gradually fill up to 100 million barrels of storage by 2008 (equivalent to 35 days of imports then). Original plans called for boosting stocks to 50 days imports in 2010, but this may be slightly delayed. On the other hand, the recent surge in imports has led Chinese policymakers to consider an even more aggressive long-term plan for 90 days of stocks, perhaps by 2020. Western governments have shared experiences with China on stockpiling practices since 2001. Chinese officials have stated their intent to slowly fill their new stocks depending on global conditions. They have demonstrated less concern, however, in coordinating release of their future stocks as part of a larger global system. In other words, China may be more inclined to use strategic stocks to influence prices even without the threat of severe supply disruptions.

Chinese state-owned oil companies have accelerated their hunt for overseas oil assets as part of the country’s larger “going out” strategy. Growing foreign exchange holdings fuel the general outward drive of Chinese companies. While a significant number of oil-related announcements have been made in the press since 2001, much of this activity is still waiting to be finalized. The lack of transparency over investment amounts, production sharing contract details, and proven petroleum reserves may create a more successful image of Chinese companies than is actually the case.

Until recently, Chinese companies seemed most comfortable operating in locations not dominated by the oil majors. This meant countries like Sudan, Angola, and Iran. For example, over half of Chinese overseas oil production currently comes from Sudan. Activity has picked up in other areas recently, however, including Russia, Kazakhstan, Ecuador, Australia, Indonesia, and Saudi Arabia to name just a few. Chinese companies appear to be improving their ability to purchase assets without overpaying, as earlier reports suggested, but this conclusion is only supported with anecdotal information.

China National Petroleum Corporation
China National Petroleum & Gas Company

In 2003, Chinese state-owned oil companies pumped 0.22 million b/d of equity oil. The figure is projected to rise by 8 percent annually thru 2020 when it hits 1.4 million b/d. Leading the drive among Chinese state-owned companies, China National Petroleum and Gas Company (CNPC) claims to have petroleum assets in 30 countries. It plans to spend $18 billion in overseas oil and gas development between now and 2020. Most of CNPC’s overseas production currently comes from Sudan, Kazakhstan, and Indonesia. Many speculated that CNPC would take a share in the restructured assets of Yukos; rumors in late January 2005 foresaw a $6 billion “loan” to Rosneft for long-term oil purchases, but no equity investment.

A disappointment for China during 2004 included the Russian decision to build an oil pipeline to Nakhodka with Japanese contributions, rather than to Daqing in northeast China with CNPC’s participation. Discussions are still ongoing regarding a potential spur line that would feed China’s northeast. In contrast, China and Kazakhstan made rapid progress in negotiating and starting construction on a cross-border pipeline that will initially deliver 0.2 million b/d of crude and products to Xinjiang province, and possibly later doubling to 0.4 million b/d. China appears to have made a geopolitical decision to secure its oil supplies with this line as costs would probably not pass a commercial test.

Sinopec Corp Logo

The China Petroleum Company (SINOPEC) is newer to the international game than CNPC and hopes to start pumping smaller quantities of equity oil in 2005 from activities in Yemen, Iran, and Azerbaijan. Perhaps the largest story in 2004 was SINOPEC’s agreement in Iran to spend $70 billion over 25 years to purchase LNG cargoes and participate in upstream oil activities there. Many uncertainties remain, however, before the investment is sealed.

Cnooc Limited Logo
China National Overseas Oil Company

The China National Overseas Oil Company (CNOOC), the most progressive and outwardly-oriented of the Chinese state-owned oil companies, has been very active in Australia and Indonesia. In 2004, it succeeded in securing significant natural gas stakes in both countries. CNOOC surprised the global community in early 2005 when it was rumored to want to purchase Unocal for roughly $13 billion. Little additional information has appeared in the press since then. These types of announcements tend to create an image of Chinese companies wearing bigger shoes than they actually do.

In summary, Chinese companies are increasingly active abroad and appear to be improving their business skills. They have not yet demonstrated that they can improve long-term oil security in a cost effective manner, however, as other Asian state-owned oil companies have learned.

Per capita oil consumption in China is only one-fourteenth the level in the US, indicating that strong growth could continue for many years. The transport sector in China will likely experience the strongest demand for oil over the mid to long-term. Currently, there are roughly 24 million vehicles in China, with projections anticipating 90-140 million by 2020. This would push transport demand from 33 percent of total Chinese petroleum demand to about 57 percent (from 1.6 million b/d in 2004 to roughly 5.0 million b/d in 2020).

To partially address this problem, China enacted new automobile efficiency standards in late 2004. In Phase I, running from mid-2005 until January 2008, no increase in fleet fuel consumption will be allowed without penalties. Phase II would then begin and require a 10 percent reduction in fleet fuel consumption.

Another measure that has gained renewed attention is the imposition of a vehicle fuel tax. This policy would ban all road use fees instituted at the local level and replace them with a nationwide tax ranging from 30-100 percent of the current price of vehicle fuel. Gasoline prices in most Chinese cities, for example, are currently the equivalent of about $1.60 per gallon. The fuel tax, if enacted, would raise gasoline prices to $2-$3 per gallon. The initiative has been discussed for years but lacked uniform support from policymakers. It has gained new steam over the past year with the surge in imported crude volumes.

WORLD ENERGY OUTLOOK
World Energy Outlook Cover

Without measures to limit demand or create alternative fuels, Chinese oil consumption appears set to grow rapidly for the foreseeable future. “The World Energy Outlook 2004″, an authoritative volume, forecasts Chinese petroleum demand in 2030 at just under 14 million bpd, about one-third less than current demand in the United States. China’s import dependency will continue to grow, however, reaching 75 percent. In 2030, China would be importing as much oil as the United States did in 2004. China itself forecasts a lower figure in the future, but analsysts will wait until the necessary policies are in place and in effect before anyone will adjust the number down. Analysts increasingly believe there are enough worldwide petroleum reserves to meet global demand through 2030 and beyond. More important uncertainty relates to marshalling the necessary upstream investments, maintaining stable petroleum output in major producer countries, mid and downstream infrastructure among consumers, and dealing with environmental issues like climate change.

Offshore Oil Rig
Like a giant dragonfly hovering above the waters,
another drilling rig looms in the Pacific sunshine

China has taken major steps since 1997 to boost natural gas use, mainly as a way to improve urban air quality.

But gas was largely ignored for most of China’s modern history and new market-oriented measures are needed to fully encourage natural gas use.

Domestic gas production currently stands at 40 billion cubic meters (BCM) and accounts for roughly 3 percent of the country’s total energy demand. Chinese policymakers envision gas use rising substantially through 2020, when demand would reach 200 BCM and account for 10 percent of total energy demand. Baseline estimates are currently less optimistic of future gas markets in China, but the potential for dramatic change in China cannot be discounted. With the right policy framework, gas use could be significantly higher than even Chinese government forecasts.

Chinese policymakers increasingly view natural gas as the fuel of choice for its environmental, security, and industrial advantages. But the gas industry is in its infancy and many barriers must be overcome before this relatively clean energy source can make a significant impact.

Why is China promoting the development of the gas sector, what are the challenges it faces, and how will these barriers be addressed?

China is taking new measures to promote the use of natural gas for three reasons. First, natural gas used in place of coal can help China address environmental problems that have become urgent economic and social issues. Replacing coal with natural gas basically eliminates emissions of sulphur oxides and particulates, the two most serious local and regional pollutants. Gas also offers steep reductions in nitrogen oxide and greenhouse gas emissions.

Second, natural gas can help China diversify its energy resources and address growing concerns over energy security. Imported crude oil now accounts for 40 percent of annual demand and will likely continue to grow rapidly. Additionally, coal demand has soared since 2002, resulting in localized transportation bottlenecks. China could help alleviate these energy security concerns by increasing reliance on natural gas.

Finally, natural gas has the potential to accelerate modernization of the country’s industrial facilities. Most of China’s industry is based on coal-burning technology, which is inherently less efficient than gasfired equipment. Modern natural gas boilers, for example, convert about 92 percent of the energy contained in natural gas to useable heat. Coal boilers on the other hand, waste 20 percent or more of the input energy in the process. Similarly, advanced combined-cycle gas turbines used to generate electricity are nearly 60 percent efficient, while coal-fired steam turbines convert only about 40 percent of the energy in coal into useful electricity.

Important gas projects have been launched to support China’s ambitious development targets for natural gas. An important 3,900 kilometre, $24 billion ‘West-East Pipeline’ started commercial operation in late 2004. Throughput will slowly ramp up to 12 BCM in 2007 as downstream projects and distribution networks are completed. The fact that CNPC completed the pipeline one year ahead of schedule, and without participation from its planned investment partners (Shell, Exxon-Mobil, and Gazprom), is testament to the drive and ability of Chinese energy companies. Although many outside observers question the economics of the pipeline, similar doubts were raised when China built its first gas pipeline to Beijing. The economics were shaky at the time, but that line is now oversubscribed and a second line will begin delivering gas to the capital in 2006.

DEVELOPING THE YANGTZEE RIVER BASIN
Yangtzee River
Barges and cruise ships venturing well beyond the locks
at the Three Georges will reach points far further inland;
several gigawatts will stream from the dam;
cubic kilometer volumes of river water will
flow to China’s arid north in new canals.
Photos: Michel Dalle

Two LNG terminals are also under construction in southeastern China, with perhaps a dozen more under discussion and consideration. LNG imports in China became an extremely hot topic in 2004 as coal prices rose substantially, along with incomes and air pollution. If even half of the LNG terminals currently under discussion are built, China could be importing 30-35 BCM of natural gas by 2015. Talks continue on international natural gas pipelines with Russia and Kazakhstan as well, but progress has been slow. A joint feasibility study funded by Russia, China, and South Korea that would deliver 20 BCM of Russian gas to China and 10 BCM to South Korea is currently under evaluation. This pipeline may also have been ahead of its time, but Russia’s Gazprom blocked any further discussion of the deal.

Important hurdles exist for natural gas market development, including: -Natural gas is expensive compared to coal if environmental costs are not included; -China is not believed to be endowed with abundant and cheap gas reserves; -Known supplies are often located far from the main centers of demand;

Gas supply infrastructure is fragmented and huge investment is needed to finance its expansion; China lacks a legal and policy framework to encourage investment in the gas sector, and: There is a lack of knowledge over how to best develop natural gas technology and markets. Perhaps the weakest link in China’s current natural gas chain is the perception of high costs that results in weak demand for gas. Without stronger market pull for gas, the entire natural gas chain will remain weak, no matter how much the government tries to development the market by administrative dictate.

Jiang Zemin
Jiang Zemin
President of the People’s Republic of China

Steps that can be taken to improve the energy outlook in China include:

1. Publishing a “White Paper” on natural gas policy as part of a coherent national energy policy framework;

–To realize the ambitious target for gas market development in China, there is a need for the government to go beyond the “project-by-project” approach by publishing a comprehensive national natural gas policy. Such a policy could address issues of gas exploration, development, distribution, pricing, marketing as well as imports. It should be part of a coherent national energy policy, as China’s gas industry is intertwined with the coal and the electrical power industry, and with environmental policy. Through the elaboration of the “White Paper”, the government can make a clear and formal statement of its policy objectives and long-term strategy for natural gas in China. The process of elaboration and consultation is critically important: the government should consult as many actors as possible within and outside the central administration.

2. Establishing a legal basis for natural gas;

–Preparation of a national natural gas law is an urgent priority. Such a framework would provide a clear legal expression of the government’s policy and strategy for gas industry development and the ground rules for operation of the gas industry. Almost every country where a natural gas industry has been established, whether based on indigenous resources or imports, has adopted a gas law in the early stages of market development. Adopting such a law would help create a more stable environment for investment and operation, reduce uncertainty and investment risk, and consequently lower the cost of capital. It should codify the roles, rights and responsibilities of different players as well as regulatory principles in the industry to reduce conflicts of interest and to ensure a level playing field for all. It should provide the legal basis for short-term gas market development activities, such as gas contract negotiations and enforcement. It should also be flexible enough to cope with market evolution over the medium and longterm.

3. Making environmental protection a component of energy pricing;

–Theoretically, environmental protection, in particular the reduction of local atmospheric pollution, is the key driving force for increased gas use in China. However, important challenges remain in turning this theoretical driver into a real market mover. China has put in place a whole set of environmental laws and regulations on air pollution, but a lack of adequate means for enforcing implementation makes most of them ineffective. In power generation and industrial boilers, in addition to strengthening the enforcement of existing regulations, the use of economic instruments must be extended. To start with, the price penalty per ton of emissions (SO2, NOx, particulates) should fully reflect the market value of emission permits and take into consideration the health damage to the public. Many OECD countries include the price of environmental externalities in power generation, at least in planning exercises to determine the best choices for future power plant additions.

4. Creating a central administration for energy;

–China has, until very very recently, lacked a central body to address the country’s overall energy strategy. Since the abolition of the Ministry of Energy in 1992, China did not have a single central-government entity in charge of energy policy and regulatory matters. Energy sector responsibilities were spread across several ministries. As the government is strongly committed to removing the policy-making and regulatory functions from state-owned companies, it needs to strengthen its own resources for governing them. This recommendation was recently implemented by the Chinese, although the newly formed Energy Bureau within the National Development and Reform Commission does not have enough staff or resources to perform all the necessary functions. There are roughly 30 employees at the Energy Bureau in China, while most OECD countries would have hundreds, if not thousands, of employees to create the policy framework and oversight needed to steer a modern energy industry. Given the current shortages of electricity and coal, Chinese planners are again considering restructuring of the central energy planning body.

OECD
Organization for Economic
Cooperation & Development

China’s rapid economic growth is creating dislocations both at home and, increasingly, around the globe. These changes create both challenges and opportunities. China’s rapid growth over the past few years should also be kept in perspective: China’s 1.3 billion people currently consume only one-half the energy as the 290 million citizens in the US, and Chinese oil demand is only one-third as large. While Chinese policymakers have done a laudable job of steering economic reform, a huge number of challenges — from population imbalances and environmental pollution to corruption and AIDS — await solutions before the country can raise individual standards of living to anywhere near current OECD levels. The international community must engage China in order to minimize the challenges and maximize the opportunities that lie ahead.

About the Author:
Jeffery Logan is the Senior Energy Analyst and China Program Manager for the International Energy Agency. The text of this article is from his February 3rd, 2005 testimony on the EIA’s Annual Energy Outlook for 2005, delivered before the U.S. Senate’s Committee on Energy and Natural Resources.

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India's Energy Outlook

New Alliances with Neighbors, the Global South, & the Energy Axis of Russia, Iran and China
Indian Woman
India’s youth inherit a nation with a
rich heritage of democracy and diversity

Editor’s Note: Now importing over 70% of her oil, India registered a trade deficit in 2004 for the first time in several years. In searching for more oil India must navigate global markets that point her towards an emerging energy-trading bloc comprising Russia, Iran and China. India has also forged new partnerships with Burma and Venezuela, strengthened ties with Middle Eastern nations, and explored unprecedented economic cooperation with Pakistan.

In all of this India has displayed creativity and zeal, and has realized measured success, but the potential for India to grow her economy through increasing an already fragile dependence on oil imports can only be one part of a temporary solution. Eventually the carefully constructed cooperative relationships India forges to secure oil will put her in conflict with other equally determined nations; eastern and western.

A successful long-term energy strategy for India must emphasize next-generation ways to use energy efficiently, and increase energy independence. India is too big and too late in the game to develop an oil-based energy economy, and she must leapfrog the industrial development model of the west. Lifting the huge Indian economy to higher economic standards will require creativity, vision, diplomacy, innovation.

As India competes for conventional sources of energy, she must also prioritize developing energy efficient vehicles and buildings, and direct her financial and technological prowess towards developing alternative energy: photovoltaics, solar thermal power, bio-diesel, wind-power, and green dams. All of these incremental sources of energy will help relieve India’s dependence on oil imports.

Diversity and a democratic heritage in India distinguish her from many other rapidly emerging nations, and these attributes will hopefully be a source of strength, adaptability and peaceful growth as she addresses her energy challenges for the new century. But this is not a certainty. Democracy and diversity are valuable assets only if there is a shared national will and national vision embracing inspiration over demogoguery, creativity over conformity, inclusiveness over tribalism, ecumenicalism over extremism, and participation and leadership from the grassroots to the top. – Ed “Redwood” Ring

India is very keen to secure overseas energy resources,

in order to meet its accelerating energy demands. As a result, Indian energy corporations have emerged as significant rivals to established Western multinational energy companies in the overseas oil and gas markets. However, inadequate diplomacy and weaknesses in the structure of the domestic energy industry have plagued their efforts.

Flag of India

While Petroleum Minister Mani Shankar Aiyar is seeking to restructure the domestic energy sector in order to boost its overseas competitiveness, this is unlikely to lead to any major privatisations. Aiyar has imparted new momentum to India’s energy diplomacy, leading to breakthroughs with energy-rich regional neighbours, such as Iran and Burma. These projects promise to boost the prospects for peace with Pakistan and ease long-standing tensions with Bangladesh. Venezuelan President Hugo Chavez’s visit to Delhi in early 2005 to sign a bilateral agreement on energy cooperation and the activities of Indian energy corporations in Kazakhstan show the growing reach of India’s energy diplomacy, which may soon involve greater cooperation with China, Russia and Iran.

Oil and Natural Gas Corporation India Logo

Chavez’s visit follows Caracas’s offer in 2004 to India’s state-owned Oil and Natural Gas Corporation (ONGC) of a share in the production and exploitation of five Venezuelan oil fields. It also underlines the growing overseas activities of Indian energy corporations as Delhi searches for ways to meet accelerating domestic energy demands.

Over the last 20 years, India’s domestic production of oil has stagnated while its consumption of petroleum products has almost trebled. India imports 70% of their oil, which has had a significant impact on the balance-of-payments position. Indeed, last year’s rise in international oil prices has taken the current account sharply into deficit after several years in surplus.

In the next ten years, even if the latest series of domestic oil exploration discoveries (for example, by UK-based Cairns Energy in Rajasthan) are fully exploited, India will still struggle to keep its imports down at current levels. Domestic demand for petroleum products is increasing relentlessly at 5% per year.

Ganges Delta from Space
The Ganges delta from space
India has abundant sun, adequate water, but
scarce conventional energy resources

Meanwhile, demand for natural gas, which stood at 0.6 trillion cubic feet (tcf) in 1995 had reached 0.9 tcf by 2002 and is expected to touch 1.2 tcf by 2010 and 1.6 tcf by 2015. Domestic sources of supply met over 90% of demand as late as 2003. However, despite the increased reserves discovered by recent exploration, the country will need to import up to one-third of its projected consumption needs by 2015. Moreover, volatilities in the international gas market threaten not only India’s balance-of-payments position, but also the underlying growth rate of its industrial and agricultural sectors — where gas is a fast-rising substitute fuel and is used extensively to produce chemical fertilisers.

India: Energy Reserves:

OIL (billion barrels) 1983: 3.6, 1993: 5.9, 2003: 5.6

GAS (billion cubic metres) 1983: 460, 1993: 720, 2003: 850

In 1998, when the Hindu nationalist Bharatiya Janata Party-led government conducted nuclear tests, it also inaugurated a new policy of securing the country’s future energy needs. The government broadened its engagement with multi-national companies, widening opportunities for them to participate in oil and gas exploration within India and proposed building up a buffer stock of oil to protect against market volatilities.

Nevertheless, the foremost aspect of this strategy involved encouraging leading public-sector energy companies — such as ONGC — to secure energy resources overseas by participating directly in the global energy market.

Square in India
A legacy of changing the world peacefully:
The Raj Ghat Memorial for Mahatma Gandhi
Photo: Michel Dalle

In recent years, India’s Oil and Natural Gas Corporation has bought equity stakes in oil fields in Iraq, Sudan, Libya, Angola, Burma, Sakhalin in Russia, Vietnam, Iran and Syria.

Other Indian public-sector undertakings have become involved — not only in acquiring exploration and exploitation rights, but also in establishing sales outlets for Indian petroleum products and in offering a variety of technical services.

In the gas market, the Gas Authority of India Limited (GAIL) has started to invest heavily in equity stakes in liquefied natural gas (LNG) plants in Oman and Iran, and is building port facilities and pipelines at home to handle large imports. GAIL is also pursuing plans for direct pipelines from neighbouring Bangladesh, Burma, Iran and even Pakistan.

However, the success of the new energy strategy has thus far been limited by two main factors:

In more developed oil markets, it has brought India into direct conflict with leading multinational corporations and the policies of Western governments (especially those of the United States), which support them. Thus, while Saudi Arabia is by far India’s largest supplier of crude oil, Indian companies have made little progress in acquiring rights in the Saudi oil industry.

Saudi Prince Abdul Aziz Al Saud and Indian President Abdul Kalam
Saudi Prince Abdul Aziz Al Saud visits with
India’s President Dr. A.P.J. Abdul Kalam

Instead, Indian companies have had to pursue opportunities in regions on the margins of the global energy market. This has led ONGC to pursue rights in countries such as Burma, Sudan, Libya, Russia, Iran and (pre-US invasion) Iraq — where political instabilities and other pressures have often disrupted its activities. ONGC’s investments in Iraq are now of doubtful value while cost factors have risen sharply for its investments in Sakhalin — not least because it has had to make large loans to its failing Russian partners.

Indian companies have also had to compete with other ‘late-comer’ national oil companies also seeking to improve their country’s energy security. In particular, ONGC has faced stiff direct competition with the China National Petroleum Corporation (CNPC), which is much larger and more active. Until 2003, India’s international spending on oil rights was just 3.5 billion dollars, while that of CNPC was over 40.0 billion.

Recently, in both Angola and Sudan, ONGC has lost bids for oil-prospecting rights to CNPC and, in Sakhalin, it was obliged to offer Rosneft a 2 billion-dollar ‘loan’ simply to keep its place in a market where CNPC had already offered Yukos 4 billion. These competitive pressures have pushed Indian companies ever further towards the peripheries of the global oil market — in recent months, even towards Ecuador and the Ivory Coast. Domestic problems. Three main domestic factors have constrained the oil industry’s ability to secure investments abroad:

The large amount of bureaucratic red-tape surrounding Indian PSUs has proved a significant disadvantage. One of the reasons why ONGC lost out to CNPC in both Sudan and Angola was because it had to wait to have the financing for its bids cleared by Delhi.

Successive Indian governments have exploited PSU energy companies to fulfil their political mandates and to ease their own fiscal difficulties. Until recently, the government administered petroleum and gas prices to keep them at artificially low levels — and, although these mechanisms have now been removed, pressures continue to be exerted on PSUs to hold down their prices and thus their profits.

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Even where PSUs make significant profits, they can rarely be kept for corporate investment strategies. In recent years ONGC and the Indian Oil Corporation (IOC) have had to declare very high dividends which — because the Government of India holds more than 80% of their stock — have disappeared into the public treasury.

The public-energy sector is plagued by a lack of organisation and coordination. This has largely been because the government has encouraged energy companies to operate independently. Thus, they rarely cooperate and frequently compete against each other. For example, ONGC has recently been seeking to enter the domestic market for processed petroleum products, while IOC — most of whose business is based in that market — has started prospecting for oil rights overseas. This has led to duplication of functions and effort. Nevertheless, to a degree this may prove advantageous because success in the international market for oil rights can depend on offering diversified services. This may explain why IOC has been successful at acquiring exploration rights in countries where it also provides petroleum products and distribution services, while ONGC has been unable to do the same.

In response to this last problem, Aiyar has called for a restructuring of the industry through the creation of one or two petroleum ‘giants’ out of the dozen or so PSUs that currently occupy different segments of the market. However, his proposals contradict the government’s policies of pursuing economic liberalisation and increasing the influence of market forces over corporate performance.

India’s Petroleum Minister
Mani Shankar Aiyar

The implications of Aiyar’s position came out most clearly at recent meetings with the Iranian authorities during which he convinced the latter to grant exploration rights to ONGC in return for signing a large LNG import contract, which will be administered by GAIL. Aiyar has now become central in coordinating policy among the supposedly autonomous corporations that make up India’s oil and gas industry. In this respect, liberalisation and privatisation in the industry remain distant prospects.

In contrast, the gas sector has attracted significant private and foreign investment. This has largely been because its late development has meant that the state has struggled to retain its authority over the internal structure of the gas industry. Reliance Industries — India’s largest industrial conglomerate — has made major gas discoveries, especially in the Krishna-Godavari basin. Furthermore, Shell has become an important player in the LNG market and British Gas in the supply of intra-state pipelines. These private interests have started to challenge the control of PSUs in several areas.

For example: Reliance is threatening not to develop its holdings in the Krishna-Godavari basin unless GAIL concedes its current statutory monopoly on inter-state pipeline connections; while Tata Industries and GAIL are in open competition for access to neighbouring Bangladesh’s gas supplies.

Tata Logo

However, as the competition between Tata and GAIL suggests, private-sector interests will have to find a means of compromise with the public sector. This is because the solution to India’s energy problems lies overseas and thus can only be tackled through diplomacy — a prerogative of the state. In this respect, India’s neighbouring countries possess the resources to meet its energy shortages. However, Delhi’s diplomatic relations with them have traditionally been difficult:

For more than a decade, Iran and India have agreed in principle to the construction of a pipeline bringing natural gas to India. However, the pipeline has never gone beyond the planning stages, largely because it has to pass through Pakistan, whose hostility to India has precluded construction. Dhaka doubts. Bangladesh has been prepared to frustrate the development of its own gas industry rather than agree to selling gas to India, which is essential to justifying investment costs. Instead, India has been obliged to pursue an import strategy based on LNG, whose costs per unit of gas are at least 60% higher.

Nevertheless, over the last year, there have been breakthroughs on several fronts:

Burma

With strong government support, GAIL has brokered agreement with Burma for a gas pipeline to India — which Bangladesh has finally agreed to join, largely for fear of being left out. A network of pipelines around the northern Bay of Bengal is now in prospect. Iran. More significantly, the new climate of negotiation between India and Pakistan has promoted the revival of the Iran-Pakistan-India pipeline. While India remains cautious — and thus far has pledged no active investment — Aiyar has agreed (on behalf of GAIL) to take the gas on a cash-on-delivery basis, which will improve the prospects of financing the project.

Pakistan

In other moves, Pakistan — which faces its own energy problems — has opened its domestic petroleum product market to international investors, including, in principle, Indian investors. Both Reliance and Indian Oil are considering bids in Pakistan’s market.

Besides helping to solve India’s energy shortages, if these projects come to fruition, they could significantly diminish tensions between the countries of the region. For example:

Pakistan may hesitate to promote hostilities against India, which could see it lose potential revenues in excess of 1 billion dollars — earned from transit duties from the Iran to India pipeline — and, in turn, harm its own domestic petroleum market; while Bangladesh’s traditional suspicion towards India could evaporate if Dhaka were to gain from several billion dollars per year in gas revenues through its cooperation over the pipeline from Burma.

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Energy projects have the capacity to exert much wider influence. While China and India have been in open competition for energy resources, there are signs that they are beginning to appreciate how far they share common interests against the multinational corporations and Western governments, who currently dominate the field.

Russia, Iran & China

Furthermore, leading energy suppliers, such as Russia and Iran, are also encountering deepening difficulties with the same multinational corporations and governments. An energy axis between Iran, Russia and China is already starting to form — centred on the Caspian region. India’s energy diplomacy is beginning to draw it towards this new axis where its PSUs have also been active in seeking investments in the Kazakhstan oil and gas industries. To this extent, India’s quest to secure overseas energy resources could lead its future diplomatic trajectory even further afield.

India’s energy diplomacy is promoting a restructuring of its domestic oil and gas industry, though public-sector interests are likely to remain dominant. This is largely because of the growing importance attached by the government — especially under Aiyar’s guidance — to energy diplomacy as means to promote regional stability. Nevertheless, tough overseas competition has obliged Indian energy diplomacy to concentrate on the newer energy markets of the Caspian and Central Asian regions.

About the Author:
Gordon Feller is the CEO of Urban Age Institute (www.UrbanAge.org). During the past twenty years he has authored more than 500 magazine articles, journal articles or newspaper articles on the profound changes underway in politics, economics, and ecology – with a special emphasis on sustainable development. Gordon is the editor of Urban Age Magazine, a unique quarterly which serves as a global resource and which was founded in 1990. He can be reached at GordonFeller@UrbanAge.org and he is available for speaking to your organization about the issues raised in this and his other numerous articles published in EcoWorld.

EMAILS TO THE EDITOR

—–Original Message—–

From: Laxman Behera – Jawaharlal Nehru University

Sent: Friday, November 18, 2005 4:05 AM

To: ed@ecoworld.com

Subject: India Energy Update – Lessons from PetroKazakhstan Deal

Editor:

The “unconditional” final order of October 26 by the Alberta Court of Queen’s Bench, Canada, in favour of China’s China National Petroleum Corporation (CNPC) has dealt a severe blow to the last Indian hope of getting PetroKazakhstan from the Chinese hands. The defeat in securing an important energy deal does not auger well for India’s energy security concerns considering its growing energy needs. The event reminds how vulnerable India is in competing and securing depleting international energy sources. At the same time it opens up for a greater debate on Indian energy minister’s fervent argument that Asia’s two emerging economic giants should co-operate rather than compete in securing international energy deals. The event also reinvigorates the debate on reevaluating India’s energy policies that are being pursued over a long period of time.

Kazakhstan’s importance to world energy markets is growing because of the changing geopolitical factors in the international scene. Apart from this, its oil and gas sector is in seventh place in the world in terms of explored hydrocarbon reserves. According to latest EIA (USA) estimates, Kazakhstan’s estimated proven and probable oil reserves stood at approximately 29 billion barrels and about 70 trillion cubic feet (TCF) of proven gas reserves. Oil and gas being the prime movers in Kazakhstan’s foreign revenue sources, it depends heavily on external finances to develop its resource bases. This provides much needed opportunities to countries like India and China, who are desperately trying to diversify their sources and enlarge their supply bases for their energy security, to step into this land-locked Central Asian country.

One of the largest foreign energy companies operating in Kazakhstan, PetroKazakhstan, a Canadian oil company with all its assets in the Central Asian State and with proved and probable oil equivalent reserves at approximately 550m barrels, accounts for about 12 percent of oil production in the country. PetroKazakhstan produces 150,000 barrels per day and importantly, owns the best (Shymkent refinery) of only three oil refineries in Kazakhstan. In June 2005 PetroKazakhstan announced it had been approached for a possible takeover or merger, sending stock prices up significantly. The most frequently mentioned possible suitor was India’s ONGC with its partner, steel mogul, Mr. L. N. Mittal who offered around $3.9 bilion against China National Petroleum Corporation’s (CNPC) $3.6 billion. However, on August 22, 2005 the company declared that it has reached an “agreement whereby a wholly-owned subsidiary of CNPC will offer US$55.00 per share in cash for all outstanding common shares of PetroKazakhstan. The aggregate value of this transaction is approximately US$4.18 billion.”

The fact of the matter remains is that India was not outbid by the CNPC in a ‘fair auction’ as “rules were changed mid-way through the bidding for the Canadian-based company, which helped China National Petroleum Corp (CNPC) win control of the group.” More importantly, China won despite initial Kazakh inhibitions of a Chinese takeover. What clearly underlined the whole Kazakhstan event is that Indian diplomacy failed to its Chinese counterpart in clinching this important deal. The failure came at a time when India and its partner have significant presence in Kazakhstan. China went ahead with the deal after signing with Kazakhstan government an agreement whereby some equity of around 30-33 per cent would be transferred to the state-owned KazMunaiGas after the sale is completed by the end of October. The last Indian aspirations of reversing the company’s decision bit dust when the Canadian court approved CNPC’s acquisition agreement.

India’s failure at the hands of China has clearly marked a ‘low point’ for Mr. Mani Shankar Aiyar who, for some time now, has been strongly advocating closer cooperation between India and China in securing energy supplies in international markets. Kazakhstan is not the first instance where India was defeated to China. It had also lost oil bids in Sudan, Angola, Indonesia and Ecuador to China. The minister should know that in international deals, especially the energy deals, which are now closely associated with national security, are purely guided by self interest. Besides, Mr. Aiyar is among few who believe that Chinese companies would share their real business plans with their rival Indian counterparts. It is worthwhile to mention that China’s desire to acquire foreign resources – a recent example being China National Offshore Oil Corporation’s (CNOOC) exorbitant bid for Unocal – is something that is beyond the issue of only energy security. Besides, even if India cooperates with China the former has always to play a second fiddle to the latter in securing outside energy sources. More importantly, despite Indian cooperation there are possibilities of competing against China in some cases. So, why can not India build partnerships with other countries for bidding foreign sources to ward off such possibilities? In this regard, India has an energy partnership with Japan which needs to be strengthened.

Of course, what clearly lacked in the Kazakhstan episode was that India’s energy policy was not fully backed by an adequate dose of foreign policy. When securing international energy sources has become a part of the national security the government needs to be proactively involved. Besides, India has to do a lot more in the domestic front. It has to scrupulously accept that there have been severe bottlenecks in the structure of the domestic energy sector and these needs to be sorted out. Similarly, India’s bidding capacity is very poor compared to that of China or other countries. Until 2003, its international spending on oil rights was mere $3.5 billion against over $40.0 billion by CNPC of China. To improve the bidding capacities several energy entities, both private and public, have to come together to form a large-equity based company to compete in international markets.

CNPC won PetroKazakhstan right from under the nose of Indian company despite its initially higher first round bid. The defeat is not about the cooperation/competition but about the problem in Indian policies. The concerned minister should understand this very clearly and while dealing with Chinese authorities next month in China, he should act wisely. If these problems are not sorted out first, then many PetroKazakhstans will follow. Unfortunately, oil reserves are finite and India and China being energy-hungry neighbours will have to compete against each other for dwindling resources.

Laxman Kumar Behera

Senior Research Scholar

Center for West Asian and African Studies

Jawaharlal Nehru University, New Delhi

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Government Funding to Help Curb Our Energy Crisis

Energy Crisis Insider: Can Government Work? It has in the past. It can do so again.

Editor’s Note: Here’s the latest installment from EcoWorld Editors-at-Large John Hulls and John Joss’s “National Energy Plan.” The writers envision the federal government funding a hydrogen “backbone” pipeline, fueled by energy from windmills, photovoltaic arrays and other renewable sources. This installment describes the U.S. federal government’s successful efforts in the 1940s and 1950s to build oil and natural gas pipelines, setting a precedent for action today.

An amazing aspect of recent political history is how Newt Gingrich and his ilk, up to the present day, convinced themselves and the American public that Government can do nothing successfully. This ‘Newtering’ of American political thought has huge implications for the nation’s energy policy and overlooks that, repeatedly, the Federal Government has taken a leadership role in energy development. It needs to do so again, to create the Hydrogen Backbone of the New National Energy Plan that will benefit all citizens and enterprises for the next 50-100 years (and also provide huge and legitimate benefit to the energy industry). Some aspects of the national interest, such as utility services, transcend private profit motives.

Are there two sides to this story? Can the ‘bumbling’ Federal government take a leadership stance? Should we always rely on ‘swift, efficient, private industry’ to work not only for reasonable profit but also for the national interest? Consider history, and the creation of America’s natural gas industry.

Take a trip back in time . . .

It is 11 December 1941, four days after Pearl Harbor. Hitler has directed Admiral Doenitz and his U-boats to attack the tankers carrying virtually all the oil from loading docks in the Gulf of Mexico to consumers in the Northeast. Attacks on tankers carrying oil across the North Atlantic for the Royal Navy and aviation gasoline for the beleaguered Royal Air Force have reduced fuel reserves in England to a few days. The outcome of the war itself is in the balance. Backlit by Miami’s lights, where hotel owners have refused to douse the lights during tourist season, the easily recognizable tanker profiles stand out like arcade targets for the waiting U-boats. On the Atlantic City beaches, people watch for the explosions and massive glare of blazing tankers. The U-boats are sinking tankers at four times the rate at which they can be replaced. Brave men are dying. Disastrous shortages on all war fronts seem inevitable.

President Roosevelt calls on Interior Secretary Harold Ickes, a man hated by the oil industry for his anti-monopoly stance, to solve the problem. Blackouts are imposed and coastal convoys formed. But the brilliant stroke is the wholesale change of the industry’s means of transportation. Authorizing use of crucial steel supplies for a project the petroleum industry says is doomed to fail, the government builds two pipelines—”Big Inch” and “Little Inch”—to carry oil from Texas to the East Coast, in one of the great, unsung engineering feats of WWII. In less than one and a half years, “Big Inch” is carrying more than half the East Coast’s oil 1,250 miles from the Texas oil fields; soon “Little Inch” is carrying gasoline and refined products to New England. Ickes is promoted to Petroleum Administrator for War, the “Oil Czar”. By the war’s end, over 42% of American oil moves through government-owned and -financed pipelines.

Inching Forward. More Government energy action-and success

The government is not finished with “Big Inch” and “Little Inch” to rationalize the energy industry. As the war ends, the House Armed Services Committee decides that the risk of depending on foreign oil is unacceptably high, presaging OPEC-created crises, Saddam Hussein and Desert Storm by half a century. They see the solution in the thousands of plumes burning across Texas night skies, as annoying and ‘worthless’ natural gas, a ‘waste’ by-product of oil production, is flared off. They tell the industry to collect and sell the natural gas to reduce dependence on foreign energy. Led by Defense Secretary James Forrestal, the government sells “Big Inch” and “Little Inch” to the Texas Eastern Transmission Company on the condition that they carry natural gas to East Coast markets. They also allocate scarce steel to build “Biggest Inch,” the El Paso Natural Gas Pipeline from Texas and New Mexico to Los Angeles (the very same pipeline so controversial in the energy crisis of 2001).

The birth of the natural gas industry

Did it matter? Was an industry created? Commercial natural gas, long considered an orphan waste product, went from virtually zero until by 1950—just three years after the program started—the market for natural gas was 2.5 trillion cubic feet per year, saving nearly a million barrels of imported crude oil per day. And enriching private industry in the process.

History shows that Government led the energy industry effectively. Winston Churchill, in his “History of the English Speaking Peoples,” credits much of America’s success on the Federal Governments willingness to invest in infrastructure to create new industries and markets. That is what the Government must do now. Just as it created the pipeline industry and the natural gas industry, it must lead the way to a sustainable energy infrastructure for the Millennium.

By taking the lead in promoting the Hydrogen Backbone, (www.ptreyeslight.com articles of February 8, 15 and 22, 2001, and EcoWorld: National Energy Plan) the Government will create a whole new aspect of the energy industry, as they did with the “Inch” pipelines and natural gas. Much of the technology exists, delivering surprising economic advantages which we will discuss in the next installment. Implementation is merely a matter of leadership and management.

‘Dirty Harry’ wins a small battle but loses (along with us) the war

Meanwhile, on the energy insider front, Clint Eastwood went to Sacramento recently to get the government to “make his day” on a fair shake for photovoltaics, such as those he installed at his Monterey Peninsula golf course. They did so, but vigilant utility lobbyists got the legislators to make sure the fair treatment lasts only until 2002. If the State had let the rules stand, so that PV could be financed over a 10-year period, we might have ended the energy crisis without the IOU’s (Investor Owned Utilities) or the State spending a cent. But then the utilities wouldn’t get to profit. Clint, go on back and explain to them in words they can understand.

Does PV really haul the freight? For a fascinating article on how PV power is competitive under the existing rate structure with a combination of net metering and time-of-day purchase, see the current (June/July) issue of Homepower entitled “Practical Solar” by Phillipe Habib. It is a well documented, fascinating story that gives details of rates, metering and structuring a system to make PV pay, along with a between-the-lines look at the perfidy of certain utilities . . .

‘Deep Volt’ strikes again, to the heart of the matter

Back to Deep Volt and the computer-controlled grid. The New York Power Authority is installing a FACTS-type technology to enable the State Independent System Operator to balance two major power lines feeding from Quebec Hydro to New York-one through Albany and one through the Catskills-moving hundreds more megawatts through a system at near capacity with the obsolete control technology. Even San Diego Gas and Electric is purchasing four units (from Mitsubishi, in Japan) to bring hundreds of extra megawatts into Southern California. Both these systems are still a far cry from the promise of FACTS/computer-controlled national grid , but they’re a step in the right direction. But the technology players are all foreign-Siemens, ABB and Mitsubishi-despite the technology signposts erected by EPRI in Palo Alto, California and by thyristor technology owned by General Electric. Do we really want to let others lead the way on this technology?

For more history of the oil and gas industry, read Daniel Yurgin’s excellent, Pulitzer Prize- winning book, The Prize, the Epic Quest for Oil, Money and Power. For more information on the computer control of the grid, including information on the New York project, see MIT’s Technology Review magazine July/Aug issue, “A Smarter Power Grid,” which shows how deregulation will bring ever larger numbers of independent power generators, who will not collaborate effectively, to create even more instability on an already overloaded grid.

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Energy Crisis Insider

Editor’s Note: EcoWorld continues its work with the John Hulls, John Joss and the Pt. Reyes Light to expose inside information about the California energy crisis as well as elucidate a workable framework for a national solution: The Pt. Reyes Light National Energy Plan.

Our articles on the California Energy Crisis have triggered communications from power-industry insiders, informed sources we call Deep Volt and Passing Gas. In addition to providing technical and expert information, they brought the following to the LIGHT’s attention:

Deep Volt claims that PG&E filed for Federal Ch. XI bankruptcy protection from creditors due to concern that asset transfers to the parent company made ‘legal’ by AB 1890 (the deregulation bill) might crumble under legal scrutiny. There was the suggestion, for example, that acquisitions by the ‘parent’ made with ratepayers’ revenue sources might be sold to discharge the debts of the utility ‘subsidiary.’ Could the Ch. XI filing take precedence over any shareholder or other legal action that might put those parent’s assets back on the table? The mess is reminiscent of the egregious asset-transfer manipulations, now banned by numerous federal laws, dating back to the 1864-1869 Union Pacific/Credit Mobilier scandals, and the 1920s Insull/Utility Trust manipulations that significantly caused the Great Depression.

Deep Volt also reports PG&E’s contempt for the Davis Administration and Davis’ appointment of a “totally inexperienced political hack” as PUC head. But they were surprised at similar Federal-level incompetence, given newly appointed DoE Secretary Abrahams’ lack of energy expertise. Apparently PG&E, whose ‘parent’ owns pipeline facilities, never believed that FERC would let things get so out of hand, and that an increase to the ‘realistic’ market rates PG&E anticipated when they sued to get California rate caps removed would merely have made PG&E, its parent and their suppliers more money. PG&E never envisioned that Houston’s oil-boom mentality of over a century would go unchecked, with prices reaching more than 30 times production costs.

Passing Gas claims that gas-pipeline operators have played a game of ‘Simon Says’ on pipeline ‘capacity,’ to energize the effective economics of scarcity. Ask them if their pipelines into California are at contractual or physical capacity. Why? How could they claim that their pipelines are operating at full physical capacity during lower winter demand, while blaming lack of capacity as a reason for rolling blackouts?

Passing Gas also wonders why the Wyoming/CA natural gas facilities got FERC (the Federal Energy Regulatory Commission, which refuses to use its authority to cap the rates!) approval just three weeks after the company applied? Could it relate to Governor Gray Davis locking California into paying for expensive gas-fired plants that will burn expensive gas? Why is Wyoming gas acceptable now, while the Alberta pipeline, proposed over two years ago, was lobbied against and blocked by Houston’s energy industry?

There is undoubtedly more to come . . .

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