The EU is the world’s largest energy importer, relying on imports for 50% of its energy. With energy demand forecast to grow by 1-2% a year, that figure will over the coming 20-30 years rise to 70%. Yet Europe’s energy needs are growing slowly relative to other parts of the world, so increasingly it must compete for energy resources.
Because of post-9/11 instability in the Middle East, non-OPEC countries in Africa and the former Soviet Union have increased their oil production, and Russia is now the second-biggest producer, behind Saudi Arabia. But reserves in non-Middle East countries are being depleted faster than those of Middle East producers. At current production of oil, producers like Russia, Mexico, the US, Norway, China and Brazil will in less than two decades cease to be relevant in the oil market. The Middle East will then be the only major reservoir of abundant crude oil.
The situation is different for gas. There are vast reserves in the Middle East, but Europe is a close second, although most of that is in Russia, which has about a third of global reserves, while 15% of the world’s gas is in Iran. Russia is, however, not investing enough in infrastructure – a recent Friends of Europe energy conference in Brussels heard that Russian annual investment on energy infrastructure is €10bn rather than the €18bn needed.
For both oil and gas, the increase in nationalisation of resources, in countries such as Venezuela, Russia, Nigeria and the Middle East countries, is another area of concern. This hampers access to supplies and therefore investment.
Reserves of coal are much more widely spread around the world, and coal is returning to centre stage because it promises greater diversity of supply, and because technological advances like carbon capture and storage promise to make it a more viable option environmentally. Uranium reserves are also reasonably widespread and are located in more stable countries like Australia and Canada. Energy security and climate change worries point toward an expansion of nuclear energy, although safety concerns, public opposition and planning obstacles have still to be overcome.
Climate change has pushed renewable energy up the agenda too, and Europe is investing particularly in wind and solar energy and also biofuels. Europe is the main driver behind efforts to establish a global carbon market, with its pioneer EU Emissions Trading Scheme, although it suffered a severe credibility blow when the carbon price plummeted last year because member states had negotiated greater emissions allowances than their industries needed.
The bottom line of EU thinking is that it wants to create a global energy system that is as interdependent as possible, in contrast to the somewhat unrealistic US aim of achieving energy independence for itself. Much of the EU’s focus is to engage more effectively with Russia on energy by forging a new agreement to replace the Partnership and Co-operation Agreement that expires this November. The need for such engagement was amply demonstrated in January 2007, when Russia cut off oil supplies to Europe through Belarus because of a dispute with the former Soviet republic.
Brussels is also trying to develop energy agreements under its European Neighbourhood Policy with Ukraine, Azerbaijan, Kazakhstan and Algeria. These aim at integrating suppliers into the European internal market, enhancing the security of supplies or transit of supplies as well as improving environmental standards and engaging on climate change. The EU is working to develop a Trans-Caspian – Black Sea strategic energy transit corridor, and is also looking to strengthen co-operation with Egypt, Libya, Syria, sub-Saharan Africa, the six countries in the Gulf Co-operation Council, Iraq and Iran. It has also launched the South East Europe Energy Community to integrate EU energy infrastructure with that of Croatia, Bosnia and Herzegovina, Serbia, Montenegro, the Former Yugoslav Republic of Macedonia, Albania, and Kosovo, with observer status for Moldova, Norway, Turkey and Ukraine.
Internally, the EU wants to increase competition and create a true single market in energy. It is opening legal proceedings against member states that have not implemented EU energy law, and its January 2007 Energy Review pushes hard for unbundling the ownership of infrastructure, supply and generation in the face of strong opposition from France and Germany.
On climate change, the EU is committed by the Kyoto Protocol, to reducing greenhouse gas emissions by 8% below the 1990 level in 2008-2012. Its emissions trading scheme is the key measure, but others include an energy efficiency action plan which aims at a 20% energy consumption cut by 2020, with cost savings of €200-€1,000 for an average household and reducing CO2 emissions by 780m tonnes. And the Renewables Directive, introduced in 2001, aims to double the share of renewables in energy production from 6% to 12% by 2010. The Energy Review also calls for a 20% cut in emissions by 2020, which the EU would increase to 30% if other developed countries signed up to do the same.
The Commission’s comprehensive energy package at the start of this year included a “road map” on renewables, with a target of reaching 20% by 2020. The EU’s energy strategy is being driven by three imperatives – to ensure security of supply, to ensure competitive energy prices for European business and to reduce the climate change impacts of its energy use. Its central aim is therefore to create a genuine single energy market, and to integrate many of its near neighbours into it. It will also engage with energy suppliers like Russia, Kazakhstan or Algeria, transit countries like Azerbaijan and Ukraine, and potential energy rivals like China, India and the US to try and make the global energy system as interdependent as possible.
A glimpse into the world’s energy future
The world runs on fossil fuels. Oil, coal and gas will still be by far the biggest fuel sources in 2030, and their relative shares of the energy mix are likely to grow. If no substantial policy changes are made, growth in nuclear energy will be negligible, while growth in renewables will be slower than fossil fuels.
The International Energy Agency’s (IEA) Reference Scenario offers a baseline vision of how energy markets will evolve without government measures to alter underlying trends. Global primary energy demand will increase by 53% between now and 2030, with over 70% of this increase coming from developing countries, led by China and India. Imports of oil and gas in the OECD and developing Asia will grow even faster than demand, with world oil demand reaching 116m barrels per day (bpd) in 2030, up from 84m bpd in 2005. Most of the increase in oil supply is to be met by a small number of major OPEC producers; non-OPEC conventional crude oil output will peak by the middle of the next decade. Meanwhile, global CO2 emissions reach 40 gigatonnes (Gt) in 2030, a 55% increase over today’s level. More immediately, China will overtake the United States as the world’s biggest emitter of CO2 before 2010. These trends are expected, of course, to accentuate consuming countries’ vulnerability to a severe supply disruption and resulting price shock. They also amplify the magnitude of global climate change.
Strong policy action is therefore needed to move the world onto a more sustainable energy path. An Alternative Policy Scenario suggests the energy future can be substantially improved if governments implement the policies they are so far only considering. In this scenario, global energy demand falls by 10% in 2030 – equivalent to China’s entire energy consumption today, and global carbon-dioxide emissions are 16% lower – equivalent to the combined current emissions of the United States and Canada. In the OECD countries, oil imports and CO2 emissions peak by 2015 and then begin to fall. Improved efficiency contributes most to these energy savings, and increased nuclear and renewable power also help reduce fossil-fuel demand and emissions. Just a dozen specific policies in key countries account for 40% of the reduction in global CO2 emissions.
Electricity demand is expected to more than double by 2030, with most of that growth coming from outside the OECD, but fossil fuels already make up 66% of electricity generation, with most of the rest coming from nuclear, whose future seems uncertain and hydro, where the opportunities for development are limited. The share of renewable electricity will grow, but from coal and gas grows more, unless there is a major change.
Emissions impossible
All of this fossil fuel use will lead to a huge increase in CO2 emissions, with China due to outstrip the US as the largest source of them before 2010; developing countries will account for over three-quarters of the increase in global CO2 emissions between now and 2030. But if the IEA’s recommendations were to be put in place, much of the increase could be avoided through improved end-use efficiency, fuel savings, lower electricity demand, a switch to less carbon-intensive fossil fuels, improved supply-side efficiency, increased use of renewables, biofuels and nuclear. One of the main obstacles to the use of renewables is that many of the sources are intermittent – for that reason, we focus, elsewhere, on energy storage, which will not only allow renewables to become more cost-efficient but also improve the efficiency of existing infrastructure and allow more distributed, off-grid generation.
The volatility of the oil price has been a major factor in recent years. Oil prices rose from $40 a barrel in 2004 to well over $70 a barrel at one point in 2006. The reasons are high demand from east Asian countries, especially China, the Iraq war, and disruptions in major oil-producing countries like Nigeria and Venezuela. In 2004, China’s economy grew by 15.4% compared to 3.8% for the rest of the world and there are no indications that Chinese demand for oil will drop or even stagnate in the near future. It is expected to grow by 5.6% in 2006 and this implies that demand as well as the oil prices will continue to rise.
Of the trillion barrels of current estimated reserves, two-thirds are in the Middle East. Following 9/11 and in light of the rise of radical Islam many have called for reduction of the dependency on Middle East oil and non-OPEC countries in Africa and the former Soviet Union have increased their production, to the extent that Russia is now the second-biggest producer, behind Saudi Arabia.
But reserves in non-Middle East countries are being depleted faster than those of Middle East producers. Their reserves-to-production ratio, an indicator of how long proven reserves would last at current production rates, is much lower (about 15 years for non-Middle East and 80 years for Middle East producers). If production continues at today's rate, many of the largest producers at the moment, such as Russia, Mexico, the US, Norway, China and Brazil will in less than two decades cease to be major players in the oil market. At that point, the Middle East will be the only substantial reservoir of crude oil.
The projected growth in world oil demand is led by non-OECD Asia and North America. Outside North America, oil consumption in the OECD regions will grow much more slowly (by 0.2% and 0.5% per year in Europe and Asia, respectively), reflecting expectations of slow growth or declines in population and slow economic growth over the next 25 years. In the non-OECD countries, strong expansion of oil use is fuelled by robust economic growth, burgeoning industrial activity, and rapidly expanding transportation use. The fastest growth in oil demand is projected for the economies of non-OECD Asia, averaging 3% per year from 2003 to 2030. Fast-paced increases are also expected for the other non-OECD regions, including annual growth of oil use that averages 1.4% in non-OECD Europe and Eurasia, 1.5% in the Middle East, 1.8% in Central and South America, and 2.3% in Africa.
Because of growing energy demand, potential political instability in many supplier countries, but also possible investment shortfalls, oil and gas prices are expected to increase over time. About 77% of proven oil reserves are controlled by governments that significantly restrict access to international companies, according to PFC Energy, an industry consulting firm in Washington. These countries do not provide market incentives to encourage production, so the investment necessary to meet projected demand is not being done. The trend for national control over oil resources is growing, from Bolivia to Russia, putting more pressure on the oil companies as they look to sustain their growth.
The situation is different for gas. While there are vast reserves in the Middle East, Europe comes a close second, although most of it is in Russia. And while European production is very high, the Middle East has only just started. Europe competes for its oil with the US and Asia, but its gas comes mostly from Russia.
The distribution of coal reserves explains the widespread enthusiasm for coal around the world. Most coal is where the economic growth is, in Asia, Europe and North America and, importantly, there is virtually none in the Middle East. Similarly, the distribution of uranium reserves is yet another reason for supporting an expansion of nuclear power – most reserves are in stable economies such as Australia, Canada and South Africa. At current uranium usage, world reserves are enough to last for some 70 years, a higher level of assured resources than is normal for most minerals.
Many people are putting their faith in alternative energy to allow us to break free of the shackles of the fossil fuel economy. But, pessimists say, alternative energy today meets about 13.8% of the world's power demands, and that's with 6.2bn people living on the planet. In 100 years, the population is expected to double – over 12bn people living on the planet, using the same power sources. The demand for energy will be five times greater than what it is now.
There is nevertheless great potential for investment in renewables. In the developing countries, small hydropower and biomass are the main renewable sources, while the installed capacity for solar is tiny everywhere. Germany has the highest installed wind capacity, nearly twice as much as Spain, which is in second place, followed by the US and India. There has also been exponential growth in wind capacity in the last 10 years. Wind is virtually cost-competitive with fossil fuels now, and its cost advantages will improve with the development of complementary technologies such as energy storage and improvements to grid infrastructure. Solar is less competitive, but will become more so as capacity increases, while biofuels are likely to become a serious proposition once cellulosic ethanol technologies are properly developed. Further out, wave and tidal power are likely to play an increasing role, but a significant role for hydrogen still looks a long way off.
All renewable energies will benefit from the continuing efforts led by the European Union to create a carbon market. It is wind and solar that have seen the highest rates of growth in the last 10 years, both increasing by more than 25% a year. Although there is far less installed solar capacity than wind, its growth follows a similar pattern, with China dominating, in particular, the market for solar hot water capacity. Meanwhile, production of biofuels has seen a sharp increase in growth, dominated by Brazil and the US, with nascent biofuels industries in China, the EU and Canada.
Why the lights went out in Europe
Last November, the homes and work places of 10m people were blacked out after a power failure in Germany led to disruptions across much of western Europe. France, Austria, Belgium, Italy, the Netherlands, Spain and even Morocco were affected by the outage, which originated in north west Germany after power generator E.ON shut down a high-voltage transmission line over a river to allow a ship to pass.
The blackouts highlighted the vulnerability of the interconnected European grid and re-launched the debate over the need for new electricity infrastructures. E.ON, which is Germany’s biggest power supplier, said human error was to blame and ruled out insufficient investment as the cause. But it added that growing demands on the grid can only be met – in the long run – by a corresponding expansion of the grids.
Investment in Europe's electricity network is widely thought not to have kept pace with demand. Marcel Bial, a spokesman for the Union for the Co-ordination of Transmission of Electricity (UCTE), says it has not been updated as new energy-generation techniques have come on stream. Wind power, for instance, surges if the wind gets up, but is unreliable. And demand can be affected by sudden drops in temperature.
The European network is highly interconnected. Every continental EU member both imports and exports electricity across its borders. France with its extensive nuclear power network, is Europe's biggest exporter, while Italy is the biggest importer.
Jayesh Parmar, energy partner at Ernst & Young, says the European Commission would like to see greater separation of grid activities and electricity supply as part of measures to enhance competition and transparency.
Competition commissioner Neelie Kroes says: “I believe that [full structural unbundling (i.e. separation of the supply and retail business from monopoly infrastructures)] will allow a more efficient market, with an improved incentive structure, to develop.” Ms Kroes’ proposal to split integrated energy groups has brought fierce opposition not only from the companies affected by the change, such as E.ON and RWE of Germany and France’s EDF and GDF, but also from governments such as Germany and France, which are strongly opposed to unbundling.
Currently there are three types of unbundling:
Accounting unbundling – the minimum requirement under current EU regulations. The grid operator sits within the same company as the generator but with separate accounts, the purpose being to ensure the revenues associated with grid activities do not unfairly subsidise the electricity business. This is the situation in Germany
Legal unbundling – ownership is retained, but the grid operator is a separate entity with its own brand and premises – countries such as France and Italy operate on this model.
Ownership unbundling – grid and supply are separate entities with separate control and separate shareholders, which should lead to greater transparency. The UK is one of the few countries in the EU with ownership unbundling.
One idea under consideration is the so-called “Scottish model” – in Scotland, the two dominant energy companies continue to own electricity infrastructure. But the transmission lines are leased and run by National Grid, an independent group that also runs Britain's gas pipelines. Such an option could offer a compromise between those calling for big energy groups to be carved up and those advocating less radical action.
The energy storage technologies now taking off
Because electricity cannot easily be stored, the electricity market operates on a “just-in-time” system. To avoid the storage problem, utilities at one time built excess generating and transmission capacity, thus creating an entire infrastructure capable of meeting the highest demand for power, even though this was needed comparatively rarely.
A number of factors have combined to make this less desirable – high fossil fuel and infrastructure prices, fears over climate change and energy security as well as planning obstacles to more power stations.
Although electricity itself cannot be stored, it is easy to store energy in other forms and then convert it to electricity. Energy storage therefore has an important role to play that has not yet been fully realised.
There are a number of drivers for energy storage – it cuts the need for new generating and transmission capacity by allowing power stations to be run more efficiently and cost-effectively. Baseload units can run outside peak times and store the energy to be sold at higher utilisation rates, making them more cost efficient. It can defer the need for expensive transmission expansion by selectively injecting power into the grid when demand is heavy.
A new factor is the ability to guarantee power quality; energy storage significantly improves the reliability of the grid. This is vital in a computer-run economy, where small variations in power output can trigger disruption costing millions of dollars to machinery and plant, as was the case with blackouts in Europe last November.
Energy storage also has a key role in making renewable energy viable, because renewables’ power output is not constant and is often not generated when most needed. If that power can be stored and sold at peak times, making it “dispatchable”, the economics of renewables become much more attractive. Storage can be used in four ways for renewables – off-grid, distributed generation support, dispatchable wind and baseload wind.
There are three main timeframes for energy storage – in the long-term (hours), it allows a decoupling of electricity generation and consumption, so it can be produced when cheapest and sold at the best price. In the medium-term (minutes or seconds), it assures continuity of service when switching from one generation source to another. In the short term (seconds to milliseconds) it prevents poor power quality from disrupting sensitive equipment.
The main types of energy storage are:
Pumped Hydro Storage – the largest and oldest large-scale technology. This is the most developed and best value proposition in energy storage, but it also has the worst prospects in terms of growth. Most available sites have been developed or have high environmental and financial costs. They also have long lead times and have to be situated in remote areas, because of their size.
Compressed Air Energy Storage (CAES)
About two-thirds of the energy produced in a gas turbine is used to pressurise the air for combustion. CAES systems use off-peak electricity to pre-compress the air, which is then stored in an underground reservoir and released at peak times to feed the turbine. The act of decoupling air compression from turbines increases the amount of power produced per unit of fuel by two to three times.
General Compression, a US company, uses wind turbines to compress the air, allowing it to offer, it claims, the lowest-priced wind energy in the world in a wide range of applications, including energy on demand, CO2 sequestration and liquid air products. There are two CAES plants in the US and one in Germany.
Flow Batteries
Flow batteries, also called regenerative fuel cells, store and release energy through a reversible electrochemical reaction between two electrolytes. Current designs centre on zinc bromide, vanadium bromide and sodium bromide.
Sodium/Sulphur Batteries
Sodium/sulphur batteries are also electro-chemical cells and their main applications are in the retail market for energy management and power quality. Key companies here include NGK Insulators and SEI.
Lithium ion (Li-ion) batteries
Li-ion offers significant benefits over conventional Lead-Acid and Nickel Metal Hydride (NiMH) batteries, notably reduced weight, lower cost and improved performance. This has led to Li-ion rapidly becoming the technology of choice for portable battery applications, such as mobiles and laptops, as well as for hybrid electric vehicles. The lithium rechargeable battery market is projected at $7bn by 2015.
But, Li-ion batteries are coming up against the limits of their capacity to power portable devices as computing power increases – it’s the root cause of laptop batteries catching fire. US silver-zinc battery technology developer, Zinc Matrix Power, uses water-based battery technology, which it claims is safer, has better performance and is more environmentally friendly than traditional lithium ion batteries.
Supercapacitors
Supercapacitors store electrical energy in the electric field between two electrodes and are used in hybrid vehicles, devices such as mobile camera phones and in large scale commercial/industrial applications.
Lead/Acid Batteries
Lead/Acid batteries are the oldest and most reliable batteries, but they suffer from operational limitations. They have a limited lifespan, due to corrosion and sulphation, take a long time to recharge and are large and heavy. Companies such as Firefly Energy claim to have removed many of these limitations by using carbon-graphite foam-based technology.
Superconducting Magnetic Energy Storage (SMES)
SMES systems store energy in a magnetic field and have very high efficiency ratings (95% and above), with power available almost instantaneously. But, they are expensive to run and are therefore best for providing constant, deep discharges.
Flywheels
Flywheels store energy by accelerating a rotor to very high speed and maintaining it as inertial kinetic energy. They are used in uninterruptible power supply, power quality improvement, hybrid vehicles and industrial power management. Much of the energy in flywheels is lost before it can be put to use. Cambridge University researchers are investigating how superconducting bearings and motors running at cryogenic temperatures could reduce these energy losses
Hydrogen
Hydrogen energy storage is the technology furthest from commercialisation, but work on it is feverish because it is a key step toward a hydrogen economy. Once the problem is solved, we will be well on the way to using hydrogen to power everything from mobile phones to cars.
At room temperature and pressure, hydrogen's density is so low that it contains less than one-three-hundredth the energy in an equivalent volume of gasoline. To fit into a reasonably sized storage tank, hydrogen has somehow to be squeezed into a denser form. The three ways of doing this are:
Liquefaction: Chilled to near absolute zero, hydrogen gas turns into a liquid containing one-quarter the energy in an equivalent volume of gasoline. For decades, NASA has used liquid hydrogen to power vehicles like the space shuttle. The cooling process requires a lot of energy – roughly a third of the amount held in hydrogen, and storage tanks are bulky, heavy and expensive.
Compression: Some hydrogen-powered vehicles use tanks of room-temperature hydrogen compressed to 10,000 psi. The Sequel, which General Motors unveiled in the US in January 2005, carries 8 kilograms of compressed hydrogen this way – enough to power the vehicle for 300 miles. Refueling is relatively fast and simple, but even compressed hydrogen requires tanks four to five times the volume of petrol to get the same range. Then again, fuel cell cars can accommodate bigger tanks because they contain fewer mechanical parts.
Solid-State: Certain compounds can trap hydrogen molecules at room temperature and pressure, then release them upon demand. So far, the most promising research has been conducted with a class of materials called metal hydrides. These materials are stable but heavy; A 700-pound tank holds only few hours' fuel. More exotic compounds are now being studied in hopes of a breakthrough to make hydrogen storage truly practical.
Another suggestion for “storing” energy comes from Airtricity, the Ireland-based wind generator, which has proposed a European “super-grid” linking off-shore wind farms from the west coast of Ireland down to Portugal and up to the North Sea. It would involve 2,000 turbines covering 3,000km2 and would create a constant source of wind power. But that presupposes a single electricity market in Europe as well as the investment of billions of euros.
Cleaning up the dirtiest energy sources
The world is beginning to understand the problems of CO2 emissions and how to deal with them, but the immediate future belongs to fossil fuels. Oil and gas-fired power stations emit less CO2 than coal burning ones, but high prices are turning attention to coal once more. Coal is plentiful, and is situated where it is needed; in China, where a new coal-fired power plant opens every two weeks, in the US and India, which are both pushing ahead with new coal power stations. But coal is also the dirtiest of fossil fuels, so carbon capture & storage (CCS) is vital, a fact reflected in the recent EU Energy Review, which calls for new coal-fired power stations to include CCS technology by 2020.
Clean Coal
There is about 1000GW of coal-fired electricity-generating capacity worldwide, or about 39% of global electricity generation. By 2030, says Tony White, of investment bank Climate Change Capital, there will be 5,500GW. The US is the biggest user of coal for power generation, while China and India are the fastest growing users. The IEA believes global electricity demand could grow by 2.4% a year and that coal-based generation could account for 90% of this.
The first step to clean coal is improved efficiency. Pulverised coal combustion (PCC) is the most common technology, accounting for well over 90% of coal-fired capacity. Gasification technologies such as integrated gasification combined cycle (IGCC), though further from commercialisation, offer potential efficiencies of more than 50%, compared with the 45%-47% of the best PCC plants. IGCC is also a core component of carbon capture and storage technologies. “Efficiency needs to be as high as possible because carbon capture technology leads to a drop in efficiency,” says Geoff Morrison, of the IEA’s Clean Coal Programme.
After improving efficiencies, the next step is to deploy advanced technologies – IGCC, fluidised bed combustion, supercritical and ultrasupercritical power plant technology all allow further progress in cutting emissions and improving power plant efficiencies. From there, eliminating CO2 emissions is the big challenge. The development of zero emissions technologies (ZET) is accelerating rapidly, and a corollary of ZET is the potential for coal to provide a source of hydrogen for completely clean future energy systems, for both stationary and transport applications.
One simple way to clean up coal is co-firing. According to the US National Energy Technology Laboratory, many coal-fired power stations can use up to 20% biomass without modification. Research is under way to raise the level of co-firing to 50%.
Carbon capture
Carbon capture involves separating CO2 from other gaseous products. There are three main methods:
1. Pre-combustion: The technologies for pre-combustion capture are already used to produce hydrogen on a large scale (mainly for ammonia and fertiliser manufacture, and for petroleum refinery operations). Pre-combustion would be used in IGCC power plants, which offer efficiencies up to 50%, with the prospect of 56% in the future. This would significantly improve the environmental performance of coal and has the added benefit of producing hydrogen for use as a fuel.
2. Post-combustion: The separation of CO2 from raw natural gas (which typically contains significant amounts of CO2) is also already practised on a large scale, using technologies similar to those used for post-combustion capture. Post-combustion systems separate CO2 from the flue gases produced by burning the primary fuel in air.
3. Oxyfuel combustion: Although commercial systems are available for large-scale oxygen separation, oxyfuel combustion for CO2 capture is currently in the demonstration phase. Oxyfuel combustion systems use oxygen instead of air to burn the primary fuel, producing a flue gas that is mainly water vapour and CO2. This results in a flue gas with high CO2 concentrations (greater than 80% by volume). The water vapour is then removed by cooling and compressing the gas stream.
Using capture technology in power plants can cut CO2 emissions by more than 80%. But at present, CCS raises by 84% the cost of electricity from an advanced Pulverised Coal power plant, and the goal is to bring that figure down to no more than 20%. In a new IGCC power plant, capture technology currently adds 25% to costs, and here the aim is for 10%. The costs are reduced, however, if the CO2 is used for enhanced oil recovery (EOR).
Carbon storage
Capturing carbon without being able to sequester it is meaningless. Technologically, storage of CO2 is far less problematic than capture and is already in use around the world.
Depleted oil and gas fields are seen as ideal storage vessels for CO2 not just because the gas allows operators to extract more oil than they would otherwise be able to, but also because it simply reoccupies the spaces that successfully trapped oil and gas for millions of years. This type of geological storage – injection into the earth's subsurface – offers potential for the permanent storage of very large quantities of CO2 and is the most comprehensively studied option, the World Coal Council says.
Storing large amounts of CO2 in deep saline water-saturated reservoir rocks also offers great potential. Saline aquifers are available throughout the world, making it easy and relatively cheap to pipe CO2 from most power stations. In the North Sea, Norway’s Statoil is storing about 1m tonnes per year of CO2 in a deep saline aquifer that is part of the Sleipner gas field, while Australia has enough space to store its total CO2 emissions for many hundreds of years at current rates of emission.
The main disadvantage of saline aquifers, say US government researchers, is that injecting them with CO2 does not produce another commodity in the same way that injecting into a depleted oilfield extends its life. Carbon taxes or sequestration trading credits such as the EU Emissions Trading Scheme partly address this problem, and US efforts to establish carbon trading, such as the Chicago Climate Exchange and the Regional Greenhouse Gas Initiative, may help to make storage-only solutions financially viable.
Another option for permanent storage is mineral carbonation – CO2 is reacted with naturally occurring substances to create carbonate minerals. Mineral carbonation is still at the laboratory stage and research is focusing on how to accelerate reaction rates. Researchers say mineral carbonation produces environmentally safe and stable material over geological time frames, ensuring a permanent fixation of the CO2, guaranteeing no legacy issues for future generations. Raw materials for binding the CO2 are readily accessible in vast quantities across the globe and the process has the potential to be economically viable because it could produce value-added by-products. For example, CO2 can also be injected into unmineable coal seams, where it leads to the release of methane trapped in the coal, which can then be collected and sold.
The biggest potential CO2 sink is the deep ocean. Two strategies for enhancing carbon sequestration are: (1) to enhance the ocean’s net uptake of CO2 from the atmosphere by fertilisation of phytoplankton with micro- or macronutrients, and (2) the direct injection of a relatively pure CO2 stream to ocean depths greater than 1,000 metres.
The long term effectiveness and potential environmental consequences of ocean sequestration by either strategy are unknown. Among those leading the way in plankton fertilisation, US company Planktos aims to sell carbon credits generated by restoring plankton productivity. It says it will do this by “seeding” the sea with iron particles, which causes plankton “blooms” that fix more CO2 from the atmosphere.
Terrestrial Sequestration
Terrestrial sequestration focuses on enhancing the CO2 uptake by plants and carbon storage in soils. It provides an opportunity for low-cost CO2 emissions offsets. It can be implemented rapidly, but it is relatively short-term, because trees have a finite life. The main problem with forestry as a carbon offset is that under the Kyoto Protocol, credits can only be generated by re-forestation projects, so there is no incentive to stop old-growth forests from being destroyed.
The changing fortunes of the Seven Sisters
The “Seven Sisters” were the multinational companies that dominated the oil industry for most of the 20th century. Exxon (Standard Oil of New Jersey), Mobil (Standard Oil of New York) and Socal (Standard Oil of California which later became Chevron and which developed Saudi fields), were the result of the forced break-up of Standard Oil in 1911, while Gulf and Texaco were created after the discovery of the Spindletop field in Texas in 1901.
The British companies were Royal Dutch Shell (a UK-Netherlands joint venture) and British Petroleum (BP), whose interest in world oil expanded with the discovery of oil fields in the Dutch East Indies (Indonesia) and Persia (Iran). Indeed, BP was once known as the Anglo-Iranian Oil Company. Back in the 1960s, these “oil majors” had access to 85% of the world’s oil and gas reserves. Changes to the seven sisters are symptomatic of the changing global energy landscape.
Today, mergers and acquisitions have created six “supermajors” – ExxonMobil, Chevron (which bought Gulf and Texaco), BP (which acquired Amoco and Arco) and Royal Dutch Shell, ConocoPhillips and Total (which bought European rivals PetroFina and Elf). The five top oil companies rank among the Fortune 500’s 10 biggest companies in the world, while three of them – ExxonMobil, Royal Dutch Shell and BP – are among the top four, with Chevron, ConocoPhillips and Total not far behind. “These companies have never had it so good,” says Oppenheimer's Fadel Gheit, an oil industry analyst.
Yet all is not rosy for the oil giants. They now have access to only 16% of global reserves, thanks to the growth of nationalised companies in countries ranging from the Middle East to Mexico and from Russia to Venezuela. Last May, Bolivia nationalised its gas fields with little warning. The contrast between the list of the world’s biggest oil companies by revenue and by access to reserves (barrels of oil equivalent) is striking. Exxon may be the biggest and most profitable company in the world, but it ranks only 16th in terms of reserves, well below the likes of Gazprom, Lukoil and Petrochina.
The supermajors are huge and extremely profitable, but looking to the future they are not in a position of strength. Exxon, for instance, made profits of $36bn in 2005, and the combined 2006 earnings forecasts of the six biggest oil companies exceeds the GDPs of Israel or the Czech Republic, but they are slowly being drained of their lifeblood – access to oil. The only way they can continue to grow is to merge or buy other companies. And while the top oil companies are at the moment still American or European, the list of oil companies in the Global 500 now includes three Chinese companies, two Russian groups and four from India. Their growth tracks are fast, too. Rosneft Oil, the Russian state-owned company that holds some of the world's largest reserves, increased its revenues fourfold in 2005 and its profits fivefold.
Washington-based consultants PFC Energy say the world is consuming oil at more than twice the rate that new supplies are being discovered. A healthy reserve replacement ratio, the measurement of how well companies are replenishing supplies, is over 100%. But for most of the six oil majors, ratios will fall under that level over the next five years, say analysts at Sanford C. Bernstein & Co.
The continuing health of the US and European oil majors is of wider importance because of their expertise in exploiting oil and gas reserves. Compared to private companies, nationalised oil groups pump a lower proportion of their reserves, have less modern technology at their disposal, are run by more erratic managements, and spend about a third of the amount private companies invest in exploration. More national ownership of reserves limits supplies, increases uncertainty and pushes up prices.
State oil groups are also far less transparent than private groups – many OPEC members will not publish data about supplies and reserves, which raises fears about the sustainability of oil supplies and has given rise to theories that oil production has already peaked. Their profits are also likely to be siphoned off for political purposes rather than be reinvested into the industry – Venezuela, Iran and Russia are prime examples of this, but it happens everywhere and even the UK has not been above windfall taxes on the oil industry.
Because they are denied access to so much of the world’s conventional oil and gas reserves, the oil majors and supermajors are looking at other avenues. Unconventional oil includes heavy oils, tar sands and oil shale that requires more extensive processing than conventional oil, making it more expensive and energy-consuming. With oil prices at around the $60 a barrel mark, it becomes more cost-effective but is also symptomatic of the lack of alternatives.
BP and Shell, for example, have started to diversify into renewable energy. In November 2005, BP announced plans to invest $8bn over 10 years in a single new business called BP Alternative Energy. This aims to lead the market in solar, wind, natural gas and hydrogen, as well as to boost wholesale marketing worldwide of cleaner electricity. Shell’s main focus has so far been on wind and solar. But these need to be put into perspective – last year the six majors spent $71bn on capital investment, and rather than spend more on alternatives, they returned $74bn to investors in the form of share repurchases and dividends.
This Europe’s World policy dossier was researched and written by Mike Scott of Environmental Communications