It’s hard to focus on the fundamental energy environment, whether conventional or renewable, without continued consideration of the Macondo explosion and massive oil spill. I’m going to try, since so much else is ongoing, but, first….
Macondo Comment du Jour
Just as noted in the last Issue, the estimated flow rate from the wellbore continues to rise, as has the temperature of the animosity from all afflicted, and politicians, too. The surprising element, to me, is that, while the operator apparently committed several misjudgments during the design and drilling of the well, the critical mistake of changing out seawater for mud, barely gets attention anymore. Perhaps this is because, on the political stage, it’s too hard to talk about that, but a lot easier to focus on spill control. It will be interesting to see where the next scapegoat, the Minerals Management Service (MMS) points its finger, when hearings resume in the near future. It seems, to me, that, without evidence of how different/safer, others (non BP, non GOM) operate, around the world, the investigations, public and private, will go nowhere. Now, on to other issues.
Other
If one outgrowth of the disaster is to commit to shifting from oil and gas, the headwinds are ‘a plenty.’ One is the matter of subsidies. Roughly 25% (and former Energy Secretary Bodman claimed 35%) of global oil demand (largely the Middle East, other OPEC markets, and non-Japan Asia), is subsidized, either at the wellhead or the pump. “Coincidentally,” those markets comprise the highest demand growth rates, while, ‘coincidentally,’ the slowest growth rates are where 20% of global oil products are most taxed (Europe). The International Energy Agency reports that, in 2008 ($100 oil average), total subsidies added to over $312 billion or, on a per barrel, basis, about $45/barrel!!!! Assuming 2008 was an aberration, let’s go with the 2007 figure ($75 average WTI), roughly $200 billion, or over $25/barrel. Coal and natural gas subsidies add another $250 billion to 2008, and (estimated) $150 billion to 2007). The IEA forecasts that, without subsidies, demand would fall roughly 6.5 million b/d, or 8%. Of course, given the internal risk, countries like Iran, Saudi Arabia, Venezuela, and others, are caught between subsidies and stability. This is one reason behind moves in several markets to add solar, wind, nuclear, and conservation to their (currently) monolithic energy portfolio.