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Why 95% of Traders Fail

World Energy Outlook 2012: High Priced Energy

Commodities / Energy Resources Nov 21, 2012 - 06:51 AM GMT

By: Andrew_McKillop

Commodities

THE IEA MOVES ON
The IEA in late November published the 2012 edition of its flagship annual study, the World Energy Outlook, but with now-admitted "treading of a fine line", between its mandate, and its recent and present policy interests, fantasies, or foibles. The Agency (IEA) describes itself, in each issue of the WEO, as an "autonomous agency established in November 1974" with its its primary mandate, which it says it continues to pursue, being two-fold: to promote oil supply security amongst its now-28 member countries through "collective response to physical disruptions in oil supply", and also to provide "authoritative research and analysis on ways to ensure reliable, affordable and clean energy" for its exclusively OECD member countries.


A quick flashback to November 1974, in the wake of the Arab oil embargo, shows that the "founding fathers" of the IEA, Richard Nixon and Henry Kissinger, set the future IEA as a second-best to what they really wanted to do at the time: invade and occupy Saudi Arabia to restore the free flow of cheap oil. Their IEA was a conflict-based entity created to confront Arab oil exporters intent on what Nixon and Kissinger said was the oil exporters' real agenda - ruining the economy of the richer nations by driving up the price of oil, or witholding supplies of oil, which is basically the same thing.

Times have changed. Describing today's WEO as "designed and directed" by himself, in interview with European Energy Review (15 November 2012), Turkish-borm chief economist Fatih Birol went on to say that the IEA, these days, is pushing two new and global themes on the energy agenda: universal energy supplies for all, and massive response to the crisis of global warming. Birol added that these two new public policy roles of the IEA "are not very fashionable".

This year's WEO is however nothing but "fashionable". In its overview it says the global energy map is changing because of the resurgence in US oil and gas production and may be further reshaped by a retreat from nuclear power in several OECD countries, fast growth in the use of wind and solar technologies. and just as surely by the ongoing explosion of shale gas and stranded gas discoveries, development and production. Staying highly fashionable, at least to global elites, the IEA's 2012 WEO also gives long and detailed analyses of global energy trends, which it claims are proof that the world is still failing to put the global energy system "onto a more sustainable path".

In particular this concerns the fashionable-for-elites obsession with climate change and holding the growth of CO2 concentrations in the atmosphere to a limit of 450 ppm (parts per million). We can note that in this 2012 edition of the WEO, the IEA is heavily convinced it is either completely impossible or at best very unlikely to limit growth of CO2 in the atmosphere to 450 ppm by about 2045.

FASHIONABLE FOR SOME
Freshly re-elected, Barack Obama lost no time in saying at one of his first press conferences that he is personally convinced global warming from human CO2 emissions is real, and a problem. More prosaically, his search for a quick rise in Federal tax revenues has refocused US elite thinking towards the attractive ease of a levying a new energy tax "to save the climate", and garner a hoped-for $100 billion in its first year of operation. The IEA's WEO for 2012 is nothing but fashionable in this respect. Showing massive elite schizophrenia, it says that it wants cheap (or at least affordable) energy for everybody, but its obsession with the 450 ppm CO2 limit means that it also militates for high energy taxes, at least when they have the adjective "carbon" attached to them.

The IEA's approach to global warming and "the 450 ppm limit", which it equates with a 2 degrees C rise in temperatures above the 1800-1960 average (although it feels free to change the goalposts and reference dates for world average temperatures, when it wants) is to describe this quest as "vital and obligatory", allowing little room for discussion on whether global warming is real! This is the most unfashionable-possible question for all global elites, at least in OECD countries: is global warming real or only a few-decade trend, now reversing?

The IEA's fashionable pessimism on global warming is very clear. This year's WEO presents its "450 Scenario" which examines what the IEA says is necessary to achieve this goal (of preventing CO2 levels exceeding 450 ppm by about 2045). It finds that "almost four-fifths of the CO2 emissions allowable by 2035 are already locked-in by existing power plants, factories, buildings, etc". This motivates its claim that much more intense, possibly harsh, and "unfashionable" actions to reduce CO2 emissions must be taken before 2017, the date at which the IEA forecasts that "all allowable CO2 emissions" would be locked-in by existing energy infrastructures and systems. High energy taxes (called "carbon taxes") are an obvious part of the wishlist.

The IEA also claims that the accelerated deployment of energy-efficient technologies – decribed as the "Efficient World Scenario" – would postpone this complete lock-in, to 2022, buying 5 years more time for global political leaders to achieve a worldwide pact to cut greenhouse-gas emissions and establish emissions trading on a permanent basis. This goal is pursued with zeal by the IEA.

VERY FASHIONABLE FOR SOME
The IEA's voluntarily alarmist line on CO2 emissions is certainly fashionable to the IPCC and FCCC, the present "UN-related" but not UN-status climate change entities, whose current low-profile is very surely and certainly going to change, as the global warming fear campaign is relaunched in the world's media. Both are currently locked into dispute with the UN concerning their diplomatic and legal status - if they do not obtain full, ironclad UN status, both can be legally pursued for lying, which helps explain their recent low profile.

The IEA's WEO of 2012 can be seen as a clear signal that global warming fear is "coming back out of the shadows", again, also shown by rising World Bank and IMF "alarm" on the subject.

The keyword "allowable" CO2 emissions is freely used by the IEA. This concept of "allowable" emissions on a global basis is directly obtained from IPCC reports, studies and advocacy over the years since its founding in 1988. These greenhouse gas emissions limits we can note, do not include global emissions of CO2 and CH4 (methane) from gas flaring, venting and leakage from oil and gas production, gas pipeline and LNG transport; they do not include global coalmine CH4 emissions (roughly estimated at several billion tons CO2 equivalent, per year); they also ignore human-related methane hydrate evaporation and leakage, the amounts of which are unknown but may be large. The IPCC in particular makes a point of massively underestimating natural emissions of CO2, and to a lesser extent natural emissions of CH4, and a long list of the other GHG, especially sulphur oxides.

The IPCC brushes aside any and all talk of anthropogeni climate change - not global warming - due to deforestation, agriculture, urbanization and other land use mega changes, let alone climate change due to Earth orbital variations, solar intensity variation, cosmic radiation and other "unfashionable" causes of climate change. The common denominator of the "no-no candidates" is they do not have easily identified, easily measured - and easily taxed - upstream energy sector linkage. The IEA's interest in 450 ppm CO2 is therefore totally logical: it is the OECD's energy agency, and energy taxation, investment and spending are central issues for the IEA.

The favoured and precise-seeming estimate of "human CO2 emissions from the energy sector", used by the IPCC, is that these totalled 29.88 billion tons CO2 equivalent on a 2010 basis. Real figures for all human related "CO2 equivalent" greenhouse gas emissions in fact may surpass 75 bn tons/year and could or might top 100 bn tons/year.

More impotant, a huge proportion - probably more than 85% - is impossible to reduce, firstly because these emissions are from unknown or only partly identified sources, or widely spread sources (such as road, rail, air and marine transport). Natural emissions of all GHG are certainly at least 10 times larger than all human emissions, and by definition are incompressible - if we forget pathetic attempts at changing the gut and stomach flora and digestion processes of cows or kangaroos by genetic manipulation "to cut their GHG emissions".

KEEP ON SAILING
No trace of unfashinable reality impinges on the IEA. The hushed and well-guarded corridors of its Chateau de la Muette HQ in the western suburbs of Paris hum with its new, supposedly "unfashionable" quest to Save the Planet. To do this the IEA is now an unavowed, but real shill for high oil prices.

This year's WEO is "affected by reality" to the extent it has to admit, in its own way, that the founding mandate of the IEA - keeping oil prices down for OECD importer countries - has been totally abandoned. Only in late 2012 has the IEA given up (probably on a temporary basis) issuing supposedly alarming news briefs on the threat of permanently high oil prices "just around the corner". In present day IEA logic these warnings are completely coherent with its Save the Planet quest: when oil prices reach "an average of about $175 per barrel", which is a recurring prediction of the IEA, it is evident that alternate, renewable, low carbon or at least non-oil energy will be fashionable although levying higher and further taxes, on oil, may be "unfashionable".

Oil prices far above $150, and other fossil energy priced up (by carbon taxes) to similar final user price levels are, for the IEA, welcome because they make "all things possible". One of these is Carbon Capture and Sequestration (CCS), to be applied on every major coal power plant, iron and steel works or cement production plant, firstly in the OECD countries. The IEA vaguely estimates the cost of Global CCS at around $5 trillion, therefore also assuming it is technologically feasible - which is a long way from certain. It claims that Global CCS "must not be delayed".

The IEA's wishlist of New Energy spending is available on its Web sites, and makes a stunning list of schizophrenically-different would-be's and want-its, in world energy. Forecasting a year average oil price of $215 per barrel in 2035 with OPEC "back in control" of world oil export supplies, and, according to the IEA, only Iraq being able "to save the day" due to its oil export supply capacity growing every year from 2012, and particularly through 2012-2022. This IEA long-range oil forecast, we can note, is despite the nearly incredible spending the IEA says is necessary and assumes will happen, in a huge range of non-oil fossil and renewable energy technologies, and in energy efficiency and conservation. Almost incredibly, this year's WEO waxes fearful about the threat to nuclear power, saying "The anticipated role of nuclear power has been scaled back as countries have reviewed policies in the wake of the 2011 accident at the Fukushima Daiichi nuclear power station", while making a point of not saying that nuclear power supplies about 2.5% of world primary energy and 6% of world secondary and final energy on a commercial energy basis, and less again when we include world non-commercial energy.

Just as incredibly, the IEA's new "green agenda", and its schizophrenia is shown by this year's WEO giving space to the "water crisis" of world energy and the energy sector's impact on food production due to the water needs of energy production and power generation. Among the key causes of rising energy-sector water needs, and a rising impact on food prices, the IEA is forced to underline that "current generation" biofuels are water-intense, but the IEA officially supports and promotes the further increase of biofuels production!

For the short-term, it is certain the IEA will go on pushing its "450 ppm scenario", in an almost certainly coordinated effort with the World Bank and IMF, and ruling political parties in several leading OECD countries. The target is worldwide carbon taxation and emissions trading, possibly linked with the supposed goal of the IEA "to enable universal access to clean energy". Affordable, in this real world outlook, drops off the agenda.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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