Lethal Heating: 12/27/15

27/12/2015

OPEC Faces A Mortal Threat From Electric Cars

Telegraph (UK) - Ambrose Evans-Pritchard

The oil cartel is living in a time-warp, seemingly unaware that global energy politics have changed forever

A charger stands on display next to a Toyota hydrogen-powered vehicle in Tokyo Photo: Bloomberg

OPEC remains defiant. Global reliance on oil and gas will continue unchanged for another quarter century. Fossil fuels will make up 78pc of the world’s energy in 2040, barely less than today.

There will be no meaningful advances in technology. Rivals will sputter and mostly waste money. The old energy order is preserved in aspic.

Emissions of CO2 will carry on rising as if nothing significant had been agreed in a solemn and binding accord by 190 countries at the Paris climate summit.

OPEC’s World Oil Outlook released today is a remarkable document, the apologia of a pre-modern vested interest that refuses to see the writing on the wall.

The underlying message is that the COP21 deal is of no relevance to the oil industry. Pledges by world leaders to drastically alter the trajectory of greenhouse gas emissions before 2040 - let alone to reach total "decarbonisation" by 2070 - are simply ignored.

Global demand for crude oil will rise by 18m barrels a day (b/d) to 110m by 2040. The cartel has shaved its long-term forecast slightly by 1m b/d, but this is in part due to weaker economic growth.
One is tempted to compare this myopia to the reflexive certainties of the 16th Century papacy, even as Erasmus published in Praise of Folly, and Luther nailed his 95 Theses to the door of Wittenberg’s Castle Church.
The 407-page report swats aside electric vehicles with impatience. The fleet of cars in the world will rise from 1bn to 2.1bn over the next 25 years – topping 400m in China – and 94pc will still run on petrol and diesel.
“Without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future,” it said. Electric cars cost too much. Their range is too short. The batteries are defective in hot or cold conditions.

OPEC says battery costs may fall by 30-50pc over the next quarter century but doubts that this will be enough to make much difference, due to "consumer resistance".
This is a brave call given that Apple and Google have thrown their vast resources into the race for plug-in vehicles, and Tesla's Model 3s will be on the market by 2017 for around $35,000.
Ford has just announced that it will invest $4.5bn in electric and hybrid cars, with 13 models for sale by 2020. Volkswagen is to unveil its "completely new concept car" next month, promising a new era of "affordable long-distance electromobility."
The OPEC report is equally dismissive of Toyota's decision to bet its future on hydrogen fuel cars, starting with the Mirai as a loss-leader. One should have thought that a decision by the world's biggest car company to end all production of petrol and diesel cars by 2050 might be a wake-up call.
Goldman Sachs expects 'grid-connected vehicles' to capture 22pc of the global market within a decade, with sales of 25m a year, and by then - it says - the auto giants will think twice before investing any more money in the internal combustion engine. Once critical mass is reached, it is not hard to imagine a wholesale shift to electrification in the 2030s.

Goldman is betting that battery costs will fall by 60pc over the next five years, driven by economies of scale as much as by technology. The driving range will increase by 70pc.
This is another world from OPEC's forecast. Even this may well be overtaken soon by further leaps in science. A team of Cambridge chemists says it has cracked the technology of a lithium-air battery with 90pc efficiency, able to power a car from London to Edinburgh on a single charge. It promises to cut costs by four-fifths, and could be on the road within a decade.
There is now a global race to win the battery prize. The US Department of Energy is funding a project by the universities of Michigan, Stanford, and Chicago, in concert with the Argonne and Lawrence Berkeley national laboratories. The Japan Science and Technology Agency has its own project in Osaka. South Korea and China are mobilising their research centres.
A regulatory squeeze is quickly changing the rules of global energy.The Grantham Institute at the London School of Economics counts 800 policies and laws aimed at curbing emissions worldwide.

An electric car is charged in Oslo, Norway Photo: Alamy
Goldman Sachs says the model to watch is Norway, where electric vehicles already command 16.3pc of the market. The switch has been driven by tax exemptions, priority use of traffic lanes, and a forest of charging stations.
California is following suit. It has a mandatory 22pc target for 'grid-connected' vehicles within ten years. New cars in China will have to meet emission standards of 5 litres per 100km by 2020, even stricter than in Europe.

Beijing's pilot scheme to promote electric cars has fallen short - chiefly because there are not yet enough charging sites - but this will change soon with drastic rationing of permits for petrol cars. If you want a car as the authorities grapple with 'airpocalypse', it may have to be electric.
China's Geely Automobile aims to generate 90pc of its sales from electric vehicles by 2020. Bill Russo from Gao Feng Advisory in Shanghai says China is about to "leapfrog" the rest of the world and become the epicentre of the electrification drive.
OPEC does not deny that the Paris accords change the energy landscape, but they view this as a problem strictly for the coal industry. There will be a partial switch from coal to gas, with a little nuclear thrown in, along with a risible contribution from wind and solar.
Their own charts seems to show that coal, gas, and oil will together emit a further 1,200 gigatonnes of carbon by 2040. This would blow through the maximum carbon budget deemed allowable by scientists if we are to stop temperatures rising by more than 2 degrees above pre-industrial levels by 2100 - let alone to achieve the 1.5 degree 'ambition' agreed by world leaders in Paris.
Saudi Arabia's belief that it can carry on with business as usual into the mid 21st Century is what informs the current OPEC strategy of flooding the crude market to eliminate rivals.
The report admits that this is proving to be a costly undertaking. Tight oil and shale in North America has not buckled - as presumed in last year's forecast - and OPEC now expects it to keep rising slightly in 2016 to 4.5m b/d, and again to 4.7m in 2017.

In the meantime, OPEC revenues have crashed from $1.2 trillion in 2012 to nearer $400bn at today's Brent price of $36.75, with fiscal and regime pain to match.
This policy has eroded global spare capacity to a wafer-thin 1.5m b/d, leaving the world vulnerable to a future shock. It implies a far more volatile market in which prices gyrate wildly, eroding confidence in oil as a reliable source of energy.
The more that this Saudi policy succeeds, the quicker the world will adopt policies to break reliance on its only product. As internal critics in Riyadh keep grumbling, the strategy is suicide.
Saudi Arabia and the Gulf states are lucky. They have been warned in advance that OPEC faces slow-run off. The cartel has 25 years to prepare for a new order that will require far less oil.
If they have any planning sense, they will manage the market to ensure crude prices of $70 to $80. They will eke out their revenues long enough to control spending and train their people for a post-petrol economy, rather than clinging to 20th Century illusions.
Sheikh Ahmed Zaki Yamani, the former Saudi oil minister, warned in an interview with the Telegraph fifteen years ago that this moment of reckoning was coming and he specifically cited fuel-cell technologies.
"Thirty years from now there will be a huge amount of oil - and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones."
They did not listen to him then, and they are not listening now.

It's Not Easy Being Green On The ASX

AFR - Patrick Commins

The powerful mood for change following this month's historic Paris climate accord may have left you, as an investor, itching to get involved.
Well, you'll be hard-pressed to find opportunities on the local stock exchange.
To recap: for the first time nations have committed to "pursue efforts to stop warming beyond 1.5C" – before the target was 2 degrees. According to the UN's Intergovernmental Panel on Climate Change, to achieve that target energy-related emissions would need to be cut to zero by around 2050.
Serious steps towards achieving those goals would clearly also force businesses all over the world to sharply reduce their use of fossil fuels.
The agreement has "absolutely" moved us forward towards a lower-carbon future, says Australian Ethical Investment chief investment officer David Macri.
"The fact that they mentioned the need to stick to a 1.5-degree limit is a huge step forward," Macri says. "Increasing more than 2 degrees would be pretty catastrophic for large parts of the world."

Wasteland for renewable energy
So for the far-sighted investor, putting some of their long-term savings into companies set to benefit from "clean and green" future would make sense.
But where?
"Australia has been a bit of a wasteland for renewable energy," Macri says. "Most of the clean energy exposure we have is via international shares; it's a big part of our international equities portfolio."
Thanks to an abundance of cheap coal in our country, the economics of clean energy have been particularly unfavourable in the absence of legislated penalties for carbon emissions.
More recently, industries such as wind and solar power generation endured a period of actively antagonistic government policies under the prime ministership of Tony Abbott. The change of government has brightened the prospects of more favourable policy support.
"Renewable energy listed plays on the ASX are few and far between, but obviously [wind power business] Infigen is going to be one," Macri says.
He also points to two Kiwi hydroelectric companies he holds in his portfolio: Mighty River Power and Meridian Energy. The dual-listed utilities-style stocks will satisfy investors looking for a clean energy investment, but it's doubtful they will benefit from a move towards lower emissions: New Zealand already derives most of its power from renewable sources such as hydro and geothermal.
Energy-efficient technology But there are other ways to play the theme, such as "cleantech" businesses. These do, however, tend to be small and in the early stages of development, limiting their appeal to more mainstream investors.
"We would be happy to invest in those sorts of things, but it's often the case they are not profitable," says Nathan Parkin, who runs Perpetual's SRI Ethical Australian shares fund.. "If it's unproven technologies, we'd prefer to wait and see how they go."
Macri is more open.
"There are a lot of names, you just need to be prepared to go into the small cap space," he says. "We love that space, that's where we generate our outperformance."
A big area of interest for Macri is in technology that helps businesses become more energy-efficient. He points to companies such as Energy Action, which specialises in helping businesses monitor and manage their energy use.
Macri also mentions a business which has just listed on the ASX, Building IQ, which uses CSIRO software to predict temperature changes in buildings using weather data and to ensure the most efficient operation of air-conditioning systems.
"The first thing you can do is underweight the high carbon emitters," Macri adds. "There are a lot of high intensive industries that are still on the ASX which we call 'old economy', and in this low carbon world that Paris has committed the world to, you really don't want to be exposed to the old economy."

Companies that fit the vibe
Parkin's ethical fund uses what is called a "negative screen" that removes not only high carbon-emitting businesses but also removes other stocks that investors may believe are involved in industries that have negative effects on the community or environment.
But based solely on the size of a company's carbon footprint, Perpetual's screen would remove around 16 per cent of the ASX 300 by market cap. That's the other way to play the green theme, if more indirectly, by avoiding those companies that are going to come off second best in the move to a more clean and green future.
Freedom Foods is a company that is not directly tied to the low carbon theme but fits "the vibe".
Parkin says it's a major holding in his ethical fund. The firm produces nut-free, gluten-free and allergan-free muesli bars and cereals. Freedom Foods has gone from strength to strength, and the share price has tracked that success all the way. After a period of consolidation, the company has "grown into its share price", Parkin says.
"We're quite confidence about the company's future prospects," Parkin says. "They have been investing a lot in growth projects and efficiencies."
"From here on, we'll start to see some interesting results from all the work they've done over the past three years.
Freedom Food, he says, "is operating the right way producing a product that people genuinely see as helpful".
That might not save the world, but for Aussie investors starved of options, it might have to be enough for now.

Australia's Carbon Emissions Are Increasing, Government Report Shows

The Guardian

A report quietly released on Christmas Eve shows Australia’s emissions rose by about 1% in 2014-15, compared with the previous year

Loy Yang coalmine in the Latrobe Valley, Victoria, which supplies emissions-intensive brown coal to nearby power plants. Australia’s energy market increased its brown coal use in 2014-15, environment department figures show. Photograph: Bloomberg via Getty Images

Australia’s greenhouse gas emissions increased in 2014-15, a report released with obscure timing by the Australian government has shown.
The December 2015 quarterly update of carbon emissions, which covers the period to the end of June 2015, was released with no fanfare on Christmas Eve. The quarterly update forms part of Australia’s international reporting of its emissions.
It shows that Australia’s emissions increased by 0.8% last financial year compared with the previous one, and 1.3% when land use and deforestation were taken into account. Australia generated 549.3 mega-tonnes of carbon dioxide in 2014-15.
The Australian government promised at the Paris climate talks to reduce emissions by 26% to 28% by 2030 and will likely come under pressure to do more after the world agreed to work to keep the global temperature rise to 2C.
The report points to increases in electricity, stationary energy (excluding electricity), transport, fugitive emissions, and industrial processes and product use. However it says there was a steep decline – 3.8% – in emissions from agriculture.
Emissions from electricity generation rose 3% in 2014-15, despite demand from consumers remaining flat in 2014-15. Power generation from black coal increased by 1.4%, and brown coal generation increased by 9.7%.
Electricity from wind and other renewables (excluding small-scale solar) increased 12.2% on the previous 12 months, but hydroelectric generation fell by 30.3%.
Electricity generation was the largest source of emissions, accounting for 34% in 2014-15.
Prof Will Steffen from the Climate Council told Fairfax Media the December figures showed Australia needed to urgently wean itself off coal to meet its global commitments.
“If we’re putting more into the atmosphere than the year before, than we’re heading in the wrong direction,” he said. “We’ve got to drop emissions fast. We’ve got to get out of fossil fuels very quickly, coal first – there can no new coalmines anywhere in the world.”

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