Friday, 14 June 2013

Big Oil heading for Big Crunch or big Crash

Now that peak-oil has come and gone where are we now? Peak Oil described the period of time when oil production from traditional and relatively easy land based oil drilling would be at its maximum, that was about 10 years ago. Gone are the days when using 1 barrel of crude oil would translate to 20 barrels of new crude extracted from the ground.
The reduced supply, and the extra costs in drilling at sea, or of the many small drill sites involved in shale-gas extraction. Today, the extraction industry delivers as little as 2-4 barrels equivalent barrels. Shale gas extraction is especially expensive, since transporting equipment, fracking fluids, "produced" fluids, requires many large "gas guzzling" trucks.
Oil sands suffers from essentially the same problem. But on top of that, Canadian oil sands alone, are set to add another 140ppm for atmospheric CO2 which is in-congruent with organized life on this planet. So far climate change has seen the planets temperature rise <1°C. Already we have seen consequences. Some days in the last Australian summer were so hot that petrol(gasoline) evaporated before it reached the tanks of motor vehicles. Ohio was too hot for corn to fertilize in 2012. Wildfires in Colorado, and Sandy in New York. These freak weather incidents are becoming the new normal.  New Zealand now has a tornado season, and the media have stopped using "80 year" flood/drought terminology any more because such events are now seen so regularly they are really "5-10 year" events.
Over the last 40 years, litmus paper dipped in ocean water has been coming out a different colour. Ocean water is now 30% more acidic than it was in the 1970s.
Warmer air absorbs more water, Water evaporates from the soil faster, the air carries more water before reaching saturation. as the air moves and its pressure falls it now dumps more rain often in places and in such quantities declarations of emergency from local and national authorities are inevitable. The air is now 5% wetter. Europe is seeing floods in summers, 20million Pakistani people were displaced by floods in a region that never sees floods(so much for Mosaic rainbows).
It seems to me, and I could be well wrong, that the last time the climate changed this fast was 65m years ago, and saw the extinction of dinosaurs.

Well known liberal radical bastions (that's sarcasm for the benefit of Louie Gomert and Michelle Bachman) Price-Waterhouse Coopers, the International Energy Agency, and the World Bank, point to the world heading for trouble. Price-Waterhouse Coopers the people who count the Oscar votes looked at the proprietary databases of the extraction industry and found 2795 giga tonnes (Gt) of carbon in their business plans. The world bank noted that there is no chance of development in a world with rapidly rising temperatures. The International Energy Agency's annual report says 80% of the carbon in the business plans of extraction companies must stay in the ground. The maximum amount of carbon the atmosphere can absorb is 565Gt - any more than that and temperatures rise above the 2°C safe limit agreed upon in 1995.

While Copenhagen was haled at the time as a great starting point, you might be forgiven for thinking there should by now be some bold new action plan that would have been decided upon and agree to with exciting projects receiving public funding, new jobs, international cooperation. But so far bold international agreement is limited to the 1995 aggreement that anything more that 2°C would be bad. Indeed subsequent climate summits have been mired in in-fighting and nations arguing to get some advantage for petty self interests. Worse still corporations have effectively bribed law makers to do nothing that would hurt their industry including public investment in competitive industries like Wind or Solar industries with politicians using sound bites like "we don't pick winners".

But despite the dearth of support, renewable clean energy is coming online and growing fast. The Carbon fuel industry will face real competition from primarily wind and solar. The world largest coal company, Coal India, uses solar power in its facilities because it's literally cheaper than burning coal straight out of the ground. Solar generation, is already approaching grid parity in India, and will soon be cheaper than other generation that they are using.

What does this mean? It means carbon energy is losing market share, while its expense base is rising. Much profit is made through commodities speculation an derivatives. What will happen when the bottom drops out of the market? First up investment is under downward pressure from concerned ethical investors who are divesting funds from Big Carbon investments. Eventually this will cause the Big Carbon share price to crash. These divested funds wont disappear, they go into other funds and the stock market can remain stable. What ever you do don't get caught with Big Carbon stocks in your portfolio unless you want to take a bath, especially you big banks.

Bill McKibben spoke ineloquently but effective at The Embassy Theatre in Wellington last night. I was surprised to read in The Listener article that the New Zealand Superfund has over NZ$22b invested in big carbon. If you are a KiwiSaver it will be in your best interest to lobby for divestment from big carbon. Because when Big Carbon goes down investors will lose big.
As an ethical consumer you might want to avoid Z fill-up stations too. Shell the Parent Company for Z is exploring off the Otago/Southland coast putting the fishing industry at risk.
Another way to avoid adding more carbon to the atmosphere is to use filtered used vegetable oil with a dash of ethanol.

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