Rising Energy Prices Could Bust Australia’s Resources Boom  

Dan at The Daily Reckoning has an interesting look at the possible impact of rising energy prices on resource projects in WA.

A scintillating report from the Economic Regulation Authority in Western Australia titled “Discussion Paper: Gas Issues in Western Australia” laid out all of the industry’s energy concerns. The issue is simple: supplies are tight and costs are rising. After surveying up-stream suppliers and downstream users (retail and industry), the report summarises the major issues. “These concerns were that the gas supply market is very tight and that gas supply contracts are difficult to secure and that long term contracts are no longer available.

In some cases, companies noted that they have been unable to obtain gas supply contracts because the gas producers are not interested in small contracts. If users or energy retailers cannot obtain appropriate gas supplies from gas producers then the ability to develop a competitive market for gas is significantly impeded.” What does it mean when “a competitive market for gas is significantly impeded”? It means gas - the preferred, relatively clean-burning fuel of choice for future mining projects - will be neither cheap nor abundant.

The cost of energy changes the economics of a project. Many mining upstarts in WA have been lured into projects that were uneconomic at lower commodity prices. Do those projects return to “uneconomic” status with higher energy prices, even if you assume commodity prices will stay high? Hmm.

More from the report. “It appears that the supply of gas to the Western Australian market is likely to depend largely on NWSG (North West Shelf Gas) for the next few years, until additional gas fields are discovered, and brought to production.”

And just how soon will new and cheap gas be brought into production? Not as soon as everyone thought. “Three known potential new sources of gas which may come into the WA market at some stage in the future are the Macedon, Gorgon and Pluto gas fields. However, there is no definitive domestic gas production development timetable for these projects.”

There is a timetable. It’s just not going to make a difference any time soon. “Gorgon’s construction timetable is uncertain with recent approval delays and cost blowouts affecting the planning for this project. It is doubtful that the earliest timeframe for domestic gas production of end 2012, as outlined in the State Agreement (and subject to a positive economic evaluation by Gorgon in 2010), is now achievable.”

Uh oh.

What does it all mean? “There could be potential problems looming in the supply of domestic gas to the WA market at various periods over the next five to seven years.”

Who wins and who loses in this scenario? Well, cashed-up big mining companies with long-term energy contracts should be okay. The trouble is gas suppliers are entering shorter contracts which give them more upside to the rising gas price. This squeezes out all but the biggest players. It leaves the big boys with the energy and capital to undertake projects…even if they don’t have the land. The land can be acquired. So watch for the land grab.

On the energy side of the equation, it’s possible to replace natural gas with coal. It’s just that coal is, well, so unpopular these days. It’s dirty. It’s old fashioned. It’s killing the planet, we are told. We don’t expect a boom in coal-fired power. But we wouldn’t be surprised to see a consolidation in coal stocks as coal assets enjoy a new-found appeal.

Nuclear? Well sure, it makes sense as a long-term solution to industrial power needs. But nuclear power is years away from making any meaningful contribution to current economic needs, and that’s assuming lame-brained politicians ever move forward with it.

Now - I don't share Dan's enthusiasm for nuclear power (do you see any companies here begging to build nuclear power stations ? or just an aging Rodent sucking up to uranium mining companies and trying to find a wedge to use against St Kevin ?) or his cynicism about global warming (a few alarmists on the far fringes aside) - I think the question of where WA resource projects are going to get their energy from is an interesting one.

I can't see anyone in their right mind building a nuclear power plant - these things, "the most capital-intensive form of energy generation", only ever get built with massive government support (aka. your tax dollars), though more coal fired power isn't totally out of the question unfortunately. The most likely option is that the WA state government will mandate a percentage of gas production be reserved for domestic use as a condition for developing any of the big new proposed fields.

One look at the available sun and, to a much lesser extent, wind resources in the area (coupled with the massive amount of unused land in the region) should make the solution obvious - solar thermal power and wind power (with an appropriate amount of energy storage) could meet the energy needs of the mining industry - with the cost mostly fixed up front. The only real risk is cyclone damage, so you'd probably want to site the facilities a reasonable distance inland.

Meanwhile, The Age has a report that "Gas is emerging as natural choice to lower emissions. For the next 20 years or so anyway, unless we manage to get that PNG pipeline built...

ONGOING uncertainty about the design of a greenhouse gas emissions trading scheme has resulted in investors turning to natural gas as a transitional source of energy from coal. A global report on utilities by PricewaterhouseCoopers, which surveyed about 120 senior executives from utilities in 44 countries, found rising interest in gas, which has a significantly lower carbon content than coal.

Derek Kidley, energy sector leader at PricewaterhouseCoopers, said despite Prime Minister John Howard's plan for a domestic emissions trading scheme to be established no later than 2012, investors were still unclear as to its impact on the energy sector. "Obviously there is a lot of uncertainty in investing in new coal, nuclear is a bit too far off and there are many issues that need to be worked through," Mr Kidley said. "So really it is gas that cuts a swathe right down the centre. We are seeing that from the major players such as Origin Energy, AGL and TRU Energy, which are investing in gas-peaking generation as a 'no regrets' strategy."

Globally, sustainability issues including the increased use of renewable energy topped the list of power companies' priorities. In Australia, the drought provided additional concerns, Mr Kidley said.

Respondents to the PwC report expressed concerns about the ability of gas supplies to keep up with demand in Australia. ...

Dave Cohen at Peak Watch has an article on the paradigm shift in the plastics industry (no - not the conversion to bioplastic that will eventually happen - the regular horrible old petro-plastic industry).

Mr. McGuire: I want to say one word to you [about your future]. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.
— from the movie The Graduate

In a recent personal communication sent to ASPO-USA, former Saudi Arabian exploration and production head Sadad Al-Husseini made the following statement.

There has been a paradigm shift in the energy world whereby oil producers are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity. This sentiment prevails inside and outside of OPEC countries but has yet to be appreciated among the major energy consuming countries of the world.

Saudi Arabia's production declined 8% in 2006. This is a fact which requires interpretation, and there are two opposed views: they can't or they won't raise exports. Matt Simmons has doubts about current Saudi capacity, most prominently raised in his book Twilight in the Desert. At The Oil Drum, Stuart Stanford's analysis attempts to buttress Simmons' position, but is hampered by a lack of current production data from Ghawar, which the Kingdom will not reveal. The "won't" position has gotten scant attention in the peak oil community. Al-Husseini's statement points to a fundamental reorganization of the world's future oil supply. Downstream investments in the Persian Gulf states lends support to his view that these producers will exert greater and greater control over their fossil fuel resources in the future.

The paradigm shift reflects the historical trend toward resource nationalism....

Oil consumers expect Middle Eastern nations to invest heavily in upstream activities to keep the oil flowing. In fact, major investments are being made, in the downstream refining and petrochemical sectors. ... Of the $70 billion Saudi Arabia is investing by 2012, only $18 billion is for upstream expansions. ...


The Middle East push into petrochemicals rivals the refining investments. Saudi Aramco has a joint venture with Japan’s Sumitomo Chemical to build a complex at Rabigh. The Gulf Cooperation Council (GCC) nations spent almost $70 billion in 2006, with Saudi Arabia leading the way at $44 billion (Gulf News).

The Persian Gulf states are expanding downstream capacity to meet rising internal consumption of refined products, but that's only a small part of the story. Due to their substantial comparative advantage, refining and petrochemicals is where the money is. Oil and condensate can be provided for refining at below market costs. Saudi Arabia can refine its own heavy, sour (sulfur-laden) crude. Cheaply produced naphtha or natural gas or gas liquids can be used as a petrochemical feedstock for olefins (e.g. ethylene). From the Gulf News:

Investment in petrochemical facilities is driven by availability of cheap feedstock and the region's proximity to large markets of Asia such as China and India. More than 30 million tonnes per year of ethylene capacity will be added in the Middle East by 2012-13, according to London-based Chemical Week.

The new capacity is also likely to put pressure on global petrochemical markets. Steam crackers coming onstream from 2008 in Kuwait, Qatar and Saudi Arabia will cause an imbalance in worldwide supply and demand, lowering petrochemical plant operating rates and leading to a softening in prices, it quoted industry analysts as saying....

General Electric has already capitulated, selling its petrochemicals division to Saudi Basic Industries for $11.6 billion. The Kingdom's future is plastics. ...

George Monbiot has been engaging in a Debate with Clive Hamilton - "In which we battle over carbon targets, green tokenism and the economics of climate change". From Hamilton's criticism of Monbiot's book "Heat":

Although Monbiot identifies the psychological and political barriers as the principal obstacles to deep cuts in greenhouse gas emissions, the largest part of his book is devoted to finding a technologically feasible solution. Climate change is a subject that has drawn in thousands of experts from across a range of disciplines—most of the physical sciences, energy systems, economics, finance, ethics, politics, international relations and, increasingly, psychology and the sociology of knowledge. It is difficult for anyone to have expertise in more than one or two of these disciplines: one must decide not what to believe, but whom to believe. Yet Monbiot casts humility aside.

Monbiot has decided that his task in Heat is to achieve emission reductions that might prevent the globe warming by more than two degrees: a more ambitious target than most. That this target requires stabilizing greenhouse gas emissions at the equivalent of 440ppm of carbon dioxide is suggested to Monbiot in an unpublished paper, sent by a man who—he concedes—‘is not a professional climate scientist but [who] appears to have done his homework’, with supporting evidence from the Potsdam Institute for Climate Impact. Proposing an egalitarian division of carbon emissions per person by 2030—rather than a longer convergence period during which the developing world might ‘catch up’—Monbiot then calculates his aggressive target for the rich world: a 90 per cent reduction by the same date, far beyond the cuts proposed by anyone else.

Seemingly determined to be more audacious than any other environmentalist, Monbiot ends up endorsing the global coal industry’s golden bullet, the technology that it prays will allow it to survive and prosper in a carbon-constrained world. Carbon capture and storage—also known as geosequestration—involves building coal-fired power stations with the ability to separate out the carbon dioxide from the flue gases, then concentrating and pumping the carbon dioxide through pipelines to long-term storage in saline aquifers deep beneath the earth. As a solution to global warming this is a political ruse first and foremost—even its supporters concede that it will not make a significant difference to global emissions for 15–20 years, and it is likely to be more expensive than existing alternatives. Monbiot should know better than to give it his blessing; after all, both the Bush Administration and the Howard government in Australia have put most of their policy eggs in that basket.

The argument of Heat is marred by a number of misunderstandings, especially in Monbiot’s consideration of the economics of his proposed solution to the climate change problem. After arguing against reducing carbon emissions purely by way of taxes—which would allow the rich to live as they choose, or necessitate unwieldy rebate systems—he proposes a rationing system for international allocations of carbon emissions. Yet his system for allocating carbon budgets within a national economy is a kind of emissions trading system—it would ‘create a new currency’ that could be ‘traded with other people’—that would again allow rich lifestyles to continue, largely unimpeded. He argues that the European Emissions Scheme is flawed because it allows polluters to avoid cutting their carbon emissions, by paying others to cut theirs; but that is the point of any trading system, including his own. He argues that if the required cuts are deep enough ‘every sector must cut its emissions by roughly that amount’. This must be wrong, but it serves his purpose of wanting to show how every sector can achieve 90 per cent cuts. Monbiot does not seem to grasp that a carbon tax and an emissions trading system are very similar, except that the first fixes the price of emissions and allows the market to determine the quantity emitted, while the latter sets the quantity of emissions and allows the market to set the price. The system he proposes is largely embodied in the Kyoto Protocol, and the European Emissions Trading Scheme is part of that framework. ...

Given my loathing of the idea of carbon rations and strong preference for a carbon tax over carbon trading, I'd have to say I agree with Clive...

TreeHugger has a post about a Recycling Machine That Miraculously Transforms Auto Parts into Fuel.

Hot off our coverage of the latest in advanced optical sorting technologies now being incorporated into recycling facilities, we bring you news of a new eco-friendly auto scrap recycling machine that turns car waste into fuel.

The HAWK 10, invented by the Global Resource Corporation and recently put to use by Gershow Recycling, is 100% emission- and pollutant-free and can reduce landfill waste by close to 65%. In addition, it recycles excess metal that businesses can then reuse and uses a system of high microwave frequencies to convert "autofluff" (i.e. textiles, foams, plastics, etc) into oil and gas.

While most companies tend to dispose of the residue (dubbed automobile shredder residue, or ASR) produced from the recovered steel by dumping it into a landfill, polluting the surroundings and wasting valuable components in the process, the HAWK 10 gasifies the different materials and turns them into 80% light combustible gases and 20% oil. The machine fuels its next round by cycling the gas through a closed-loop system to use it, thus avoiding the production of emissions. ...

TreeHugger also has a look at the variability of solar power production.

Wind is often characterized as an unreliable power source because 'when the wind dies, so goes the power.' This is easily countered by explaining that wind does not blow uniformly across a geographic region in which multiple wind farms are connected to the same grid, and by the corollary thought - the height at which wind velocity has historically been recorded does not always represent the heights at which wind turbines do their work. However, scientific investigation, not logical debate, is needed if renewable power is to become a common source of electricity. Good thing, then, that the parallel issue for regionally dispersed solar photo voltaic power systems is examined with some rigor in The Character of Power Output from Utility-Scale Photovoltaic Systems, a study conducted by Aimee E. Curtright and Jay Apt, published as Carnegie Mellon Electricity Industry Center Working Paper CEIC-07-05. Following is a brief excerpt from the Discussion section of the paper.

"The intermittency of large-scale PV power for four sites in the American southwest desert is significant, even during daylight hours. These data also imply that site diversity over a ~280 km range does not dampen PV intermittency sufficiently to eliminate the need for substantial firm power or dispatchable demand response. The high correlation between geographically dispersed arrays may indicate that high, widespread clouds are responsible for a portion of the intermittency. Observed rapid and deep fluctuations at time scales of 10 seconds to several minutes may indicate that a component of the intermittency is due to low, scattered clouds with significant opacity. We observe a number of examples of output power rising above nameplate capacity before and after deep drops in power. This may be due to focusing of sunlight around the edges of low clouds."

Pharyngula has a post on yet another attack on civil liberties - "When chemistry is outlawed, only outlaws will do chemistry" - one more outrage in the war on nerds. But don't call him a libertarian, whatever you do...

Hank Fox has brought a significant problem to my attention, one that I've addressed before: one of the consequences of growing American cowardice and these trumped-up Wars on Terror and Drugs (let's call them what they are: a War on Civil Liberties) is that science and science education are collateral damage. Memepunks has an excellent post on this subject:

In an attempt to curb the production of crystal meth, more than 30 states have now outlawed or require registration for common lab equipment. In Texas, you need to register the purchase of Erlenmeyer flasks or three-necked beakers. The same state where I do not have to register a handgun, forces me to register a glass beaker. In Portland, Oregon, even pH strips are suspect. Modern off the shelf "chemistry" sets are sold without any of the questionable chemicals or equipment. For example, when a current company tried re releasing a kit based on the one marketed by Mr. Wizard himself back in the 1950s, they found that they could only include five of the original chemicals in the set. The rest of the items were replaced with inane things like super balls and balloons. Even a non neutered modern chemistry set like the C3000 from Thames and Kosmos is forced to ship without many key chemicals, suggesting to their customers that they acquire the missing ingredients elsewhere.

In the name of child safety, in order to inhibit drug peddlers, because we don't want to make things easy for terrorists, we have put up bureaucratic barriers to the purchase of laboratory glassware — while encouraging unimpaired, unchecked access to guns.

Is this a screwed-up country, or what?

The memepunks site has some suggestions for getting around the restrictions. ...

That's right, people, this is what it is coming down to: you need to break the law to do science. We're criminalizing nerds.

At least making science dangerous and illicit and illegal ought to make us romantic outlaws look cool.

Word of the day is "terrornoia", from Cory Doctorow's review of a book called "The Execution Channel".

Ken MacLeod's invented an entirely new genre -- the Blogothriller, the infinitely weirder cousin of the technothriller. More improbable, hilarious, and engrossing than 70,000,000 conspiracy sites, a trillion trackbacks, a heptillion message-board posts. This book feels like the future, like our futuristic present. The book is called "The Execution Channel." It scared the shit out of me.

The Execution Channel is set in an ever-so-slightly alternate future, in which the War on Terror is being lost, where terror and terrornoia has destroyed every semblance of decency and humanity. Britain is rocked by race-riots, America is a vast, festering stew of conspiracy nuts and debt-shattered indenture slaves, China and Russia are retreating into old-line Communism, and France is spying on all of them (!).

The story follows a number of engaging, sharply drawn characters -- a soldier in the middle east, a peacenik camped outside a US base in Scotland, a paranoid Brit engineer turned French spy, an American warblogger in the midwest, a clade of disinformation sock-puppeteers who maintain great handsful of fake provocateur blogs.

The action is set in motion when a new weapons system -- a nuke? a propulsion system? a beam weapon? -- explodes at a US base in Scotland. As the plot unfolds in enough twists and turns for three spy novels, the players are haunted by The Execution Channel, a warporn Internet video stream of people being murdered, tortured, shot in war on killed in riots. No one knows where the Execution Channel emanates from -- maybe it's CIA black propaganda, maybe it's some snuff-artist's wank-fodder.

The spies and civilians and nutters and radicals circle and snarl, falling on each others' necks like wolves, as scene after scene of gripping action pound relentlessly past one another. This is one hell of a book.

TimP also has a review of the book (along with the movie "300").

Meanwhile, Ken Macleod, hitherto known for imaginative and wry sci fi space operas that are certainly fun but cannot be called works of Dante-like status, has turned his hand to a hybrid political and espionage thriller (with sci fi characteristics and a homage to James Blish) that is on the very edge of genius. The Execution Channel (Orbit, 2007) is a natural outgrowth of his earlier work - his readers will recognise strong female protagonists, the centrality of Scotland and a fascination with the rhetoric of hard-line Communism. There is a new fact around page 100 that shifts it sharply back from the world of John Le Carre to the world of Philip K. Dick. But the distancing of the reader, similar to the distancing through graphics and formal rhetoric in 300, brings into focus the core ideology that Macleod, wittingly or unwittingly, is drawing out of the early years of the war on terror.

Place these two bits of popular culture alongside each other and patterns begin to emerge. The core of 300, if you strip away the stylistic accretions and pretend you know no history, is brutally simple - that the West exists and is under threat, that few realise the extent of the threat, that we need to be awakened and that the necessary response is to move forward, engage with the enemy and turn back the tide. Moreover, there are enemies within. The tone is one of heroes with a weak mass that needs leading.

The Execution Channel is very different. More muddied, like real life. There are no simple bad guys. If there is a villain, then it lies within that generic class of Great Powers whose less-than-competent and paranoid leaders bring us to the brink of disaster through secrecy and manipulation. The book can be compared to that great dystopian British science fiction masterpiece of the 1970s Fugue for a Darkening Island. It represents that sense of things being out of control because of forces we will not control. An oddly sympathetic if fundamentally cynical attitude to Chinese communism will puzzle American readers but it represents a preference, found lurking in many places outside the US, for community order over the murderous anarchy created by competing amoral elites.

In fact, Macleod is far from anti-American. All Westerners are much of a muchness - confused and blundering and a bit dim about the big picture. The Europeans and British officials are not much better and no-one seems to be particularly sadistic though sadistic things happen. The clue to the anger not only in the book, but also outside America about America, lies in an almost throwaway comment from Roisin, the woman it will be hard not to identify as the voice we are supposed to identify with. One of the contemporary themes in the book is the world of extraordinary rendition and of Guantanamo Bay that disturb Europeans far more than most Americans may understand:-

“Tears sprang to her eyes, as they always did when the thought struck her that particular prerogative was back: the right of the sovereign to condemn, to put to the question, without due process and for reasons of state; that on that sore point all the Revolutions in Britain and America had been for nothing, That America had been for nothing: that dismayed her.”

Dismay - what a British understatement! So this film and this book, appearing at the same time, express, in popular cultural terms, the great split that is taking place within the Western Enlightenment. On the one side there is a new defensive aggression, the fear that the Enlightenment is under siege from dark forces and that the forces of Light must learn to be hard and do what is necessary against the forces of Darkness. On the other side is a deep sadness and 'ressentiment' that the Enlightenment is going into reverse and that the little people are becoming pawns once again in the battles between self-seeking and self-interested elites.

It might be interesting to speculate on how these two attitudes will develop as political movements within the West in the coming decades - we have our theories and our suspicions - but Zaadz is not a place for politics. My interest here was only in the place where cinema and popular literature are expressing deeper shifts in culture. These two trends - of defensive aggression ['Festung West'] and of individual and community resistance ['neo-socialism', if you like] - are becoming established across Europe, and even within US domestic politics, as alternative reactions to the stresses of the post-Soviet era. It is well worth keeping an eye on the balance of power within the networks that will decide what we watch and what we read. ...

Links:

Venture Beat - Infinia gets $9.4M to push the Stirling engine for solar
TreeHugger - Underwater Power-Generating Buoys Make Waves
TreeHugger - Who Are They Kidding: Exxon Says Never Doubted Climate Change
TreeHugger - Will Mankind Be Extinct In Four Years If We Lose Our Honeybees?
Jerusalem Post - Israel fears bee-killing disease heading this way
PhysOrg - Stretchable Silicon May Inspire A New Of Electronics
BLDG Blog - Phoning glaciers at 3am . Listen in on global warming.




The Age - Energy Efficiency key to greenhouse cuts
Transition Culture - How Much Can the Transition Movement Do? Holden/Skrebowski/Leggett.
SMH - Dam Relief - Wild Weather's Silver Lining
SMH - Spy For Us And We'll Drop Charges. On the front page - how embarrassing...
SMH - The End Is (Not Quite) Nigh. Forget 2012 - Isaac Newton said its 2060 we have to worry about...
Cryptogon - Oil Industry Scales Back Refinery Plans
Cryptogon - Rationing Mechanisms In Place: Credit Cards Cut Off Gas Purchases
The Onion - After 5 Years In U.S., Terrorist Cell Too Complacent To Carry Out Attack