 | Countdown to $200 oil: International Energy Agency says current prices justified... | The Oil Drum: Europe | Why oil costs over $140 per barrel: the failure of leadership |  |
The Fantasy World of the UK Government
Posted by Euan Mearns on July 4, 2008 - 11:00am in The Oil Drum: Europe
Topic: Policy/Politics
Tags: berr, Coal Prices, gas prices, oil prices, original, uk government [list all tags]
| This BERR report (small pdf) published in May 2008 provides 4 alternative price scenarios for oil, natural gas and coal. The high scenario is shown below. |
BERR are inviting comments and suggestions.
emissionsprojections@berr.gsi.gov.uk
Upstreamonline is a good source of oil and natural gas prices.
On 3rd July:
Brent is trading at $144 per barrel
Tapis is trading at $153 per barrel
UK day ahead natural gas is trading at 62p / therm
Business Enterprise Regulatory Reform (BERR) formerly known as the Department of Trade and Industry (DTI) has responsibility for advising HM government on energy matters (amongst other things). Basing policy decisions upon the figures in this report is unlikely to benefit the UK in the long run. The UK economy is founded upon abundant cheap supplies of fossil fuels. This report carries this trend forward into the future while ignoring a reality that is quite different.
Maybe a good suggestion would be to develop a high high high high high fu*king really high scenario.
But that would probably still be too low.
LOL.
Actually, I think they are wasting our taxes - 'fiddling while Rome burns'.
We are half-way through 2008 and the average price, to date, for Brent must be ~$115 already above the high-high prediction for 2010.
To be in error by such a wide margin in two months is pathetic - I am easily able to predict the actual price within ~$10 in that timeframe (the average moves even less), oil is trading in an escalating range, look at the graph on the Upstream site Euan links to, join all the high points with a curved line and join all the low points with a curved line and extrapolate both two or three months.
In reality nobody knows the future and predictions such as these are of no use to anybody. Best for BERR just to admit it and sack everybody involved and use the money saved to insulate poor housing stock.
What truly amazes me about the assumptions behind the predictions is that no allowance is made for reducing CO2 - all we see is IEA predicted growth despite the Government signing us up to binding severe CO2 reductions.
No cause for concern, they say "Because there is continued volatility in prices, BERR proposes to review these assumptions on a regular basis, annually in autumn (starting from next year), and if necessary bi-annually in spring and autumn."
So, IF NECESSARY they will look at the prices twice yearly starting from next year 2009 presumably. Just how difficult would it be for these civil servants to review the prices weekly?
I think they should develop a high - exponential scenario as this seems to be the shape of most of the curves we see in the prices.
Tell BERR what you think.
I have told them to include a scenario that assumes peak world 'net exports' of oil in 2005 - since that is what has actually happened!
http://netoilexports.blogspot.com/
Euan,
You recently wrote about the UK "State of Emergency", where North Sea depletion is resulting in larger and larger trade deficits which will continue to balloon going forward.
I think I have the answer!
According to BP Statistical review, the UK used 620 million barrels of oil in 2007. Lets assume this stays constant (e.g. economic growth is subsidized by increases in efficiency or energy substitution.) That means over the next 8 years, the UK will consume around 5 billion barrels of oil.
Using the BERR expections for "high case" of oil prices (meaning the risk is to the low side of these numbers), wouldn't it make sense for the energy experts at BERR and UK Finance Ministry get together and arbitrage their expertise vis a vis the futures markets?
To wit, the ENTIRE futures strip from now out to 2016 is above $140. (many of the contracts are above $146). By selling forward what are obviously significantly overpriced contracts compared to the 'high case', the UK Finance Ministry can pocket $275 billion in next 8 years ($142.5-$87.5 high price average times 5 billion barrels).
Much of the above budget deficit then disappears. If they also sell forward natural gas and coal vs their 'high case' as well, then the deficit would turn to a surplus!
Problem solved.
And we americans thought we had the monopoly on imbecility and cluelessness. What is the UK thinking?!! And what kind of deficits will they be running in the future if they persist in thinking they are a world power? Maybe an Irish Sea power.. And 2 new huge aircraft carriers...Jeez...http://www.timesonline.co.uk/tol/news/uk/article4262046.ece
Personally, I doubt whether these aircraft carriers will ever be completed. The French have had enormous problems with theirs and I believe they are heavily involved in this lot.
The "best" thing about them is that they so drain the "defence" budget that there is little left over to start new "fronts against terrorism".
These expensive toys are highly vulnerable to shore-based missiles and so cannot be used properly in restricted waters like the Persian Gulf. They are about as useful as the battleships the Prince of Wales and the Repulse were in 1941
Alfred,
You are right about aircraft carriers being obsolete dinosaurs with HUGE radar signatures. The War Nerd explains this in his usual amusing, snarky style (vulgar language warning):
http://www.exile.ru/articles/detail.php?ARTICLE_ID=6779&IBLOCK_ID=35
Errol in Miami
edited to fix link
Where do you think we Americans got our imbecility and cluelessness? The acorn doesn't fall far from the oak, as they say.
Frankly speaking, I'm not sure whether my brain is wired to grasp the real meaning and consequences following charts like this. But one thing comes to mind : Zimbabwe, but take it easy I don't understand that either.
How and where do they start... to make policy with such a chart on top of your political desktop ?
Ntae, I think this comment explains why you were / are a hedge fund manager and I am / was a geologist. To be fair to Gordon Brown he did sell most of the UK's gold at $10 per ounce just when no one else was expecting that, wrong footing the markets completely.
And back in 1999, when the UK was pumping more oil than it had ever done before we managed to sell some of it at below $10 / bbl proving how liberalised and informed markets can promote and support industrial civilistaion.
You just need to compare this with how the ex KGB Putin scum bag is managing Russian resources. It seems he wants to sell most of what is left of Russia's oil at over $300 / barrel. Talk about clueless commies, eh?
But I gotta say your running a bit close to the mark suggesting that the UK government may be speculating on the futures markets. There's a strange irony about Followers speculating on the future of a country that doesn't have one.
OOOOyn
€,
Sarcanol alert on.
Your comment proves that former British governments cannot be accused of being greedy!
Must those bloody capitalistic commies be damned!
They may be thinking about ……..“Back to the Future”.
Sarcanol alert off.
This illustrates some of the new rules, earlier discussed on this forum, coming into play.
What a brilliant idea!
That would be putting our money where their mouth is :(
Quoted market prices for calendar year 2009 as of 13:30 on 3rd July:
Brent $147.95 per barrel (175% x "high scenario 2010", 138% x "high high 2010")
ARA Coal (API2)$205.50 per mt (360% x high scenario 2010, 178% x "high high 2010")
UK nat gas 101.00 pence/therm (187% x high scenario 2010, 151% x "high high 2010")
My only suggestion to BERR is that if they intend to publish the report for mass market consumption, they should do so in a joint venture with Andrex so that the report will at least have some utility.
Does the UK have a grassroots activist organisation like GetUp which is dedicated to public awareness campaigns through the media?
See the GetUp advert which should hit the Aussie TV screens https://www.getup.org.au/campaign/FuelWatch?id=357 that lampoons the Australian govt's response to have a price watchdog (that at most is talking of tackling a few cents of profiteering at the bowser).
We have government sponsored campaigns, here's a couple to give you a flavour:
Chewing gum litter public awareness.
A public awareness campaign, designed to improve the understanding of the "12A" cinema rating.
It reminds me of that song
We're busy doing nothing
working the whole day through
trying hard...:-(
€, thanks for posting.
This clearly illustrates some of the dire consequences of the unbalances between energy supplies and demand, predictability completely vanishes.
Institutional forecasts are used by many public and private sectors for their long? term planning. With the kind of input now provided by many institutions expect to see some astonishing results.
The world we are headed for will be defined by a completely, and as of now poorly understood, new set of rules.
In their high-high scenario they say :
"In the high-high price scenario, strong oil demand, a lack of investment and a fast decline in spare capacity is assumed to drive prices upwards until the point of demand destruction—when alternative energy sources become competitive and oil consumption declines. The oil price is then assumed to remain around this point in the long-term."
We can see in the high-high scenario the price stabilising in 2015 at 150 $
So they assume two things
-alternative energy will succesfully replace oil since the price of oil will not rise further when they will be used.
-They will be used on a large scale (to replace oil) at 150$ for some mysterious reason
Well we will soon see if their previsons are correct, maybe in a few days..........
Duckrichard,
Biofuels will NEVER replace oil regardless of price! Using numbers from Brazil, then a sugar cane field can produce about 0.5 litre of ethanol/m2/year.
To put this into perspective, then different countries will need to plant:
Japan: 220% of total land area
Denmark: 78% of total land area
USA: 34% of total land area
This is just field areas, not including supporting roads and processing plants. In other words we will run out of space before we can produce any serious amount of bio fuels.
In EIA's Mid Term Oil Market Report (released last month) biofuels are seen as growing to max. 2.5 Mb/d supply in 2013.
That's below 3% of what we are consuming today and even less than that, if one takes into the fantastical assumption that we'll have 100-1100 Mb/d of supply by then.
Even that amount of biofuels would require burning 3-5 times as much food to fuel as we are doing today. This comes at a very bad time, now that a World Bank report has just been leaked on food prices rising exactly due to biofuels:
So much for sustainable current biofuels (ethanol out of food grains).
We are burning food for the poor in our tanks and that is look to triple in the next 5 years.
The results will not be pretty if we do that.
Brace yourself for huge food inflation, if we implement this on a global scale. The price rises so far have just been a warm up. Farmers will sell to the highest bidders and with bio-ethanol subsidies in the US... well everybody can figure it out for oneself.
Once again the mistake is made that corn or sugar based ethanol is the only biofuel in existence. Biofuels will soon be made from just about any form of biomass via gasification or simply burned as boiler fuel as a coal replacement. The ultimate biofuel feedstock will be algae grown on land unsuitable for other crops and using brackish or sewage filled water unsuitable for other purposes. An area covering a square only 300 miles on a side could produce enough algae to replace all the fossil fuels used by America with some left over for export. To match current depletion rates we need to build 8 sq mi of ponds every day so we better get started soon.
Love it, "only" 90,000 square miles of dense industrial infrastructure. That's only a patch the size of virginia.
So, how do you DRY the algae?
How do you clean the tubes, how do you keep the wild algae out of the ponds, how do you... oh, never mind.
If the goal is to gasify the algae rather than maximize veggie oil production then open ponds using whatever spieces is natural for that location. Oil bearing algae float on top of the pond and and are easily skimmed off. Once the oil is extracted the remaining biomass could then be fed while still wet to an anaerobic digester. If used as boiler fuel then waste heat from the power plant could be used to dry the feedstock. Experiments with tubes look like an economic dead end compared to pond methods. Energy from algae is still an infant industry and different approaches will be tried to find which method is best. The potential is huge and could meet our energy needs using only 3% of the land.
$150 could be both demand destruction and substitution of unspecified alternatives. If those alternatives include unconventional oil, then their number may not be all that far off. If world consumption is cut 15% over the next five years, seeing tar sands as roaring in rather than trickling in might be a little easier since the market would be smaller.
Chris
Everything is of course possible. At least in fairy tales.
IEA is usually very very conservative and not prone to pessimistic outlooks on price, capacity or supply.
In fact, they have been consistently and with an increasing error on the upside. That is, they have had to repeatedly to cut back on their supply estimates.
What does the watchdogs (IEA/EIA/et al) tell about unconventional oil till 2013?
Biofuels: 2.0 ( or up to 3.5 theoretical potential) Mb/d
Unconventionals: 2-3 Mb/d (optimistic)
Even if all liquids consumption fell to 73 Mb/d (-15%), unconventionals are at max c. 7 Mb/d in 2030 in the optimistic IEA scenario.
I doubt that is enough, considering mature oil field decline rate of 5% p.a. (IEA current figure).
I suppose though that the optimistic 2030 scenario is based on low prices relative to $150.
A high price makes all kinds of stupidity financially attractive. We are willing to pay a high price today to fuel a car that won't even exist in 15 years when we might be much better off cutting back enough now so that we don't encourage tar sands and other foolish schemes.
Chris
Indeed. But there is a huge vested interest in BERR NOT altering its forecasts; when it does so, thousands of plans for everything from motorway widening schemes to village centre speed bumps to new airport runways (one of my pet beefs) will need to be suspended, reviewed, redrawn and in many cases remitted to the waste bin.
That means telling the local stakeholders what is happening to these schemes and why. At that point the Government will have no option but to admit we're facing the national emergency signalled by Euan in his recent post on the future of UK oil and gas.
Given the time needed for the Government to get a very large number of ducks into a row before it can do that, I suspect that BERR will have to carry on gritting its teeth and standing by this patently silly forecast for quite a while yet.
Here's hoping that someone in there is at least trying to get their head round the new set of rules.
I am constantly amazed that people put a lot of faith in the government in reguards to planning for the future.
Governments are consistently BEHIND THE CURVE as one sees in the report above. "Policy" is a response and not a strategy. The governMental question is not: how do we plan our country's future in light of falling FF production, but: how do we react to falling production and rising prices? Since there haven't been major shortages at the pump, there is no reason for the govt to react, now, is there?
Cheers, USDom
That doesn't have to *always* be the case. And it's not even a question of money. Look at Cuba. They managed to restructure their oil use and food production (with pain, but no starvation) after the fall of the USSR. (Contrast to North Korea which doesn't seem to have done so well.) And in 2004 (year before Katrina) they had a massive hurricane (Charley I think) hit the west side of Cuba and destroyed thousands of homes. But they were prepared and moved about 1 million people (almost 10 percent of the population) out of the way ahead of time. Not a single person died. (The contrast here is obvious!)
It's not an issue of ideology, it's an issue of will. It *is* possible to plan ahead, to have standing procedures to deal with problems and to do so even when resources are limited. Some western countries have been capable of this during certain periods as well.
So, the problem isn't government in general, it is government in particular. :)
This being Independence Day it is appropriate that Americans have a long tradition of not doing what the government at any particular point in time tells them to do. The Revolutionary War and the Civil War are two big examples of how far some Americans have gone in defiance of the central government. There is always a certain percentage of our population who will always defy evacuation orders. GOP ideology is rooted in the concept that government is incompetent at doing anything other than punishing wrong doers. It is up to the individual to deal with pending natural disasters in their own way. If what they do or don't do leads to their own death then it not the Governments fault. Their failure to provide evacuation assistance to the poor of New Orleans was completely within accord with GOP ideology.
The history of Cuba has been one of dictatorships going back to the late 1490s. It has not been a culture of freedom of individual choice but one where defiance of governments edicts have led to swift punishment. When Castro gave the order to move out with the government providing nearly all the transportation then the people moved out. Any deaths which happened during the storm then are the result of not following orders and are not counted as storm caused deaths.
I love the way the GOP is selectively picked out here. Excuse me but wasn't all local and State government democratically controlled, or were they all under some GWB hypnotic trance. When will all of you partisan people realize that neither party is willing or able to do the square root of f@#k all about any problem which disturbs the status quo. Westexas is right to advise people to plan ahead. The government will only be in the way.
You seem to be assuming that I am defending Cuba as an ideological example for the world. I certainly am not. (And in case there's any confusion, I have large disagreements with the cuban government if we really need to get into that.)
In fact I will take a very simple position. The failures and uselessness of the Cubans, surely, can be easily disproven. Let's not waste time talking about it. Money talks. Rather than trying to disprove something through speech, why not disprove it through action? A rich country like the US can surely put to shame the health care and social system of Cuba, no? Enough to make it look pathetic?
Why not setup a superior system to make them look like nothing? No arguments are necessary. Surely a rich and flexible system like you have in the US can make any third world health care system look like nothing?
Why do we need something so costly as universal healthcare for actual conditions, as long as we have plenty of pharmaceuticals to make us feel happy? Medical conditions that are contrived and marketed, and misery certainly abounds enough, and we've got the drugs to make us realize how miserable we were, side effects be damned. Why shop anywhere else?
/sarc etc.
Dictatorship? Really? Back to the 1490s? Seriously? You're going back to colonial times. All the original popluation was actually put to so much slave labour they all died. So new slaves had to be brought in from Africa. I can't believe you'd even think to blame *Cuba* (or any south american country) for the genocide that the western countries caused. (Ok, the US isn't Spain, fair enough, but when they got their turn, they sure made up for lost time.)
Castro may be a bastard (and again, I disagree with a lot of his policies) but even the US has admitted (US intelligence, State Department, etc.) over the years, that as much as they don't like him, he really is *genuine* in his beliefs. (They may be wrong, but he's not pretending.)
Most people in Cuba are doing better than any other Central or South American country. Again, why not disprove them? Show them your system works better? Surely you can, right?
Chris
So, let me get this straight. You're blaming Castro for having sufficient authority to get everyone to move out of the way of the hurricane, and subsequently survive. And perhaps the soldiers weren't always nice about it. I'll grant you that. So, compare that to Katrina? Where would you rather live?
Btw, it wasn't that easy. A lot of the regular Cubans were worried about leaving because they didn't want to leave their fridges behind (worth a lot and they were worried they might get stolen.) So, the soldiers even arranged to take their fridges too (I assume they did it to avoid panic and having to argue with the citizens, but still, kudos.)
We can disagree with the methods, but the fact is Cuba was organized, not just at the federal level, but at the local level. Frankly, this is the sort of thing I could imagine the British doing back in the 40s. You can't get that many people to move without local organization and *support*. (Otherwise people will ignore you or tell you where to go.)
Again, it's easy to criticise any evacuation. But here, everyone lived. In the US, thousands died. They had no plan, or if they did, they didn't know how to do it. I would feel much, *much*, safer as a tourist in Havana (and yes, I have visited there before) than a tourist in Mexico or an American citizen living outside the beltway.
I think you meant "was."
I thought that you put that particularly well and that it is worth restating.
France planned ahead and invested in rail and nuclear. Brazil planned ahead and now: Brazil is the world's second largest producer of ethanol and the world's largest exporter, and it is considered to have the world's first sustainable biofuels economy. Norway planned ahead setting high taxes on domestic oil consumption and saving the tremendous profits for a rainy day.
Whether or not Brazil's ethanol or France's nuclear industries are truly sustainable is of course subject to debate, but the glaring lack of planning by other nations is clearly in sharp contrast.
-Tim