BREXIT – 120 days on

univestBREXIT – 120 days on

It has been some 120 days post-Brexit, so where do we find ourselves when measured against the doom and gloom of the Remain campaign. We have a new PM, Teresa May who appears clear on what Brexit means, discovery that global organisations such as the IMF knowingly misled the British people, even the principal architect of the Eurozone claiming that it is now a ‘House of Cards’, and churlish self-interests trying to scupper Brexit with no regard for the democracy that they claim to cherish.

It is really sad for me to see that, amongst a significant number of people spanning all classes, there are elements of the British character that do no justice to our heritage of the UK great explorers and inventors that shaped this World of ours. I watched in disdain the current and excellent TV costume drama ‘Victoria’ recounting the trials and tribulations of Queen Victoria who reigned during the Industrial Revolution as scaremongers, vested interests, self-righteous, and ‘not-invented-here’ jealousy tried to stop the introduction of the steam locomotive. Thankfully, Prince Albert saved the day. Even today I hear eco-warriors stating that the Industrial Revolution was the beginning of the end of mankind, but where would these people, or even the World be without trains. India thrives on the railways, whereas Brazil, without much needed rail infrastructure, has serious transport and thus economic problems – look at the speed of rail infrastructure development in China.

Then I am reminded of the Neville Chamberlain pacifist era before the second world war when Winston Churchill, with his worldly experience, could see the ambitions of Hitler but, in spite of his fine rhetoric, could not persuade enough people that we needed to prepare ourselves for the inevitable. Indeed, according to Boris Johnson in his captivating book ‘The Churchill Factor: How One Man Made History’, had the war been delayed by some two weeks Churchill would already have been hounded out of office!

We are told that we must learn from the past, but do we? During the referendum debate we had the David Cameron, George Osborne and Nick Clegg elite, all from privileged schooling, all career politicians with ideologies not supported by any worldly experience, and easily persuaded by more scurrilous and self-serving influences, preaching doom and gloom if we did not stay part of the EU project. They rallied any vested interest they could find including the IMF, the OECD, and President Obama – an embarrassing chapter for all of them. But history will not record any of them as good, let alone great politicians. David Cameron was clear in his Bloomberg address that if the UK did not get significant Treaty changes for the UK then he would vote out, yet like Chamberlain he returned from Berlin with a worthless piece of paper. He will be remembered as someone who readily changed his mind on substantial matters – not good leadership. But he has realised the errors of his ways and will fade quietly away. Osborne still finds occasion to try to placate his ego, and Clegg is now trying to rally support for a blatant counter-offensive to Brexit on the basis that people do not know what Brexit means. Let me assure him that the core ‘middle-England blue-blooded Brits’ that always save the day in times of need know precisely what it means – a clean exit from the EU in all respects, returning to a Sovereign State, just like most other countries in the World. As has been shown since Brexit, the UK is a major player in this World, and when we sneeze the World coughs. The EU needs the UK far more than the UK needs the EU.

So what has happened since Brexit. I would suggest that the most significant outcome is the clear demonstration of how the elite politics of today is so out of touch with reality, as is being played out in the USA today. What did go on behind closed doors that caused Cameron to accept that the UK should be sacrificed for ‘the greater good of Europe’? How many more times does the UK have to make significant sacrifices for Europe before Europe (mainly Germany) learns from it?

Let me take some words from a Telegraph article summarising a post-Brexit report from the IMF’s Independent Evaluation Office (IEO). This report goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way EU insiders used the Fund to rescue their own rich currency union and banking system. It states:

‘The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.

This is the lacerating verdict of the IMF’s top watchdog on the Fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions.

It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking break-down in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.’

The IEO Report states that since 2011 some 80% of all IMF lending was secretly used to support the Euro – not within the mandate of the IMF, and why Asia and Latin America are so incensed. Add to this the recent publication by Prof Otmar Issing, the first chief economist of the ECB and principal architect of the Euro, in which he states that the rules laid down for the Euro have been so debased by politicians that the currency, and thus the Eurozone, is but a ‘House of Cards’ waiting to collapse. Thus the desperate need to keep the fastest growing economy in the Western World, the UK, inside the EU, not least because of the unique capital raising power of the City of London – thus the lies to the British public by both the IMF and the OECD during the referendum campaign.

By far the biggest everyday loss to the EU is the City of London. With the City inside the EU it could claim to be the most significant financial power on the international stage. Without it the Eurozone does not even have the capacity to clear its own currency. The EU desperately needs the capital raising powers of the City. All of this posturing regarding passporting can be put into perspective by ING announcing last week that it is moving some 40 of its prominent traders from two locations within the EU to London. The worst case scenario is we will return to the days before passporting whereby, under the rules that international banks can only engage in business in countries in which they have a physical presence, banks will re-establish little more than a rep office through which transactions will be directed to London. As for moving banking to Frankfurt and/or Paris it should be noted that during my more than 35 years in the City this has been muted on a number of occasions. Paris is a non-starter for a number of technical reasons, and Frankfurt for even more including that no self-respecting high flier banker would consider living there.

As for corporate business I think that the recent announcement by Apple, the largest company in the World, that it is moving and consolidation its European headquarters in London, with all of the tax implications included, states the blindingly obvious – London is the gateway to Europe.

In a recent French Presidential Campaign speech by Nicolas Sarkozy he clearly stated that his first day in office (if elected) would be spent in Berlin (note: not Brussels) putting a new EU Treaty together that would address the concerns of the UK to encourage them to stay within the EU. He knows that there will be revolution in France if the farmers got even a whisper that tariff barriers were to be imposed on the UK.

In Germany we also have elections on the horizon. I am certain that the elite of Germany will resign themselves to the inevitable Brexit and thus quietly encourage election results that will ensure that no harm comes to the valuable existing trading relations with the UK.

The principle voices of Angela Merkel in Brussels, Donald Tusk, Martin Schulz, and Jean-Claude Junker, are synonymous with the problems faced by the EU. On the one hand they are stating that the EU will survive Brexit. On the other that are issuing instructions to member states to clamp down on rising nationalism.

The good news is that GBP has depreciated from its over-valued level by some 17% causing the UK Stock Market to regain some of its lost value over recent years, and provide the stimulus for the return for a much increased manufacturing base – jobs, prosperity, less dependency on imports. It should be remembered that Germany pushed through the Eurozone project to devalue the over-inflated Deutshemark by some 30% – great for Germany, but a disaster for most other members.

This devaluation will mean price increases to the UK consumer of imported goods and thus stimulate much needed, but controlled inflation reducing the need for QE and restoring interest rates to more normal economic levels. Some of this increase could be artificial as EU Governments put pressure on their major suppliers to increase prices to the UK as per the much publicised Unilever to Tesco increases which resulted in an embarrassing climb-down by Unilever. The real price increases will put upward pressure on wage demands – good for the workers who generate the wealth but contained to 2% pa or less wage growth over recent years, but not so good for fat executives who have enriched themselves with wage growth of around 10% pa during the same period. Also we can be competitive manufacturers and return to the days of ‘Buy British’. We can even return to eating our own delicious apples, currently outlawed by the EU to force import from the likes of France. The UK Government could easily buffer the increased price of fuel and energy (increases not EU related) by reducing, or indeed eliminating all of the absurd anti-competitive eco taxes on UK energy prices.

Trading with the World, including Europe will certainly not get worse, but is likely to improve. The intransigence of the EU Commission regarding trade with the EU is legion – ask the Americans. Our global relationships will prosper far more after the dust of Brexit has settled.

The issues we face today are the posturing, petulance, grandstanding, etc by both a dying EU and those die-hard remainers in the UK who have jettisoned democracy in favour of their own self-interests. This causes turbulence in the markets, no doubt exacerbated by the more influential remainers. The professional financial markets love such turbulence as they use it to generate good profits. The losers are the general public in whose lives the media relish creating uncertainty, and which impacts their cost of living resulting in understandable protest. How many media outlets have directly associated recent fuel price increases with Brexit? Oil prices are recovering from two years of global turmoil, and should settle around US$60 per barrel. The UK has a much needed currency devaluation regardless of Brexit. De facto prices will increase from their extraordinary lows over recent months regardless of Brexit. I can remember when oil prices were US$16 per barrel, and more recently US$120 per barrel – but neither to do with the EU or Brexit.

Brexit has not yielded doom and gloom, not even a technical recession. The UK is now projected as the fastest growing Western economy. Just as with the resistance to the steam locomotive in Victorian times it is time to ignore the doomsayers and grasp the opportunities that now present themselves so that, as with the proliferation of railways, the UK will again rise be a major and great player in this World in its own name.

 

BREXIT – What a difference a week makes

univestBREXIT – What a difference a week makes

The past week has yielded so many interesting events that I have shelved my scheduled blog to consider the potential impacts to the whole EU debate.

In no particular order let us start with the UK Budget speech given by George Osbourne last Wednesday. All sounded good with much bravado albeit two of his three fiscal rules were already in shatters. But the economy is growing so such rules are only political rhetoric. However, he used this platform to make a clear statement that the Office for Budget Responsibility (OBR) had provided evidence that UK exit from the EU would damage the UK economy in the short-term. This statement clearly aggrieved the OBR as, by tea time, they had completely refuted his representations as they only provided (conveniently selected?) views provided by third parties.

Then he expounded the view that we were all in this together as he slashed corporate taxes at the same time as slashing benefit payments (some £4 billion) to the most disadvantaged. Whereas there is no doubt that the welfare budget in the UK does need to be reined in, it cannot be achieved merely by setting arbitrary limits and crossing out figures on a spreadsheet with a complete disregard for social justice. Again, by the end of the week, these welfare cuts had diluted from hard cuts, to a discussion, to kicking into the long grass, to being scrapped with the very public resignation of the Work & Pensions Secretary, Iain Duncan Smith who gave an impassioned account of his position on the Sunday morning Andrew Marr show. Let us not forget that this happened to Osbourne in his last budget as well.

Also, during his budget speech, he confirmed that the continued refusal by the EU to relax VAT rules to allow tampons to be zero rated, the so-called tampon tax (some £500 million pa), would result in the taxes collected continuing to be distributed to various women-based charities. The following day David Cameron went to an EU Summit meeting in Brussels regarding the important refugee crisis. Apparently, during a coffee break, all 28 EU leaders agreed to relax the EU VAT rules. Clearly not planned. Has Europe realised that BREXIT is gaining support? How many more rabbits will be drawn from EU hats between now and 23rd June?

It was interesting to tour the Highlands of Scotland a few weeks before the Scottish Independence referendum to test my view that Scotland would be stronger in the Union, and thus the vote would be to stay part of the UK. Having purposely stayed in B&B and small privately owned hotels it was interesting to speak privately with the Scottish people about their thoughts. In those 8 days only one person clearly stated that they wanted independence. Much was offered by the UK Government in fear of the noise by those shouting ‘independence’. Had they copied my trip they would determine that no deals were necessary. Everyone else was keeping their thoughts to themselves because of what they were seeing in places like Glasgow where Alex Salmond’s equivalent of Hitler’s brown shirt nationalistic youth movement were intimidating those who openly wanted to remain with the UK. Come the day the silent majority, proud of their heritage within the UK, prevailed. I would therefore suggest that rabbits from the EU, at this late stage, will not work. Indeed, I think the canny Scots are likely to deal Nicola Sturgeon a blow in the EU referendum. Ouch, Nicola.

Then we have the third fiscal rule imposed upon himself regarding converting the current budget deficit into a surplus by the end of this parliament. The general view on this pronouncement is that he needs a major event, such as an exit from the EU, to provide a credible excuse for missing this target, as most surely will be the case. But not because of misguided ambition as a budget surplus should be the goal for fiscal prudence, but the target has to be reasonably achievable with a balanced approach. Ouch for political ambition.

And Peter Mandelson amused me by suggesting that if Maggie Thatcher was still in charge that she would vote to stay in. Having known her views, I’m sure that she found the surrender of so much UK sovereignty to the EU by Tony Blair in her final years as depressing, and would certainly have returned from negotiations with a credible reform deal before even thinking of such a stand to remain a member. It was also interesting that Mandelson had conveniently forgotten that he proposed we join the Euro. Beware of the so-called Prince of Darkness.

Then I read a City Comment in the London Evening Standard by a journalist with the name of Anthony Hilton. Firstly, he was abusing a quote by a long deceased industrialist, Sir Arnold Hall, “What problem do we have which is so serious that (BREXIT) could possibly provide the answer”? Then he used comparators that demonstrated his armchair approach to journalism. For example, he states that the German economy can operate very well within the EU, so why can’t the UK? If he remotely understood the difference between the German and the UK economies he would understand the answer. Whereas the UK sits with the USA economy as an outsider, or open structure, the German economy is quite the opposite as an insider, or closed structure. Ownership of German companies is protected with incestuous patrimonial linkages between German banks and companies, with preferential proxy votes and cross-shareholdings. Foreign ownership of a German company is so rare that it is major news. An example of the vast difference this closed structure reveals can be illustrated by reference to the steel dumping by China. The incestuous linkages in Germany mean that steel users (car production construction, and other major engineering companies) can be compelled to buy from German steel manufacturers rather than buying cheaper steel being dumped by China. This is protectionism. Our open system cannot compel our companies to use British steel. So when our steel companies suffer the impact of dumping we can do nothing about it because it would require Government intervention – not allowed by the EU. And will Germany fully support an anti-dumping campaign against China – not likely as China is an important market for Germany exports. We should also remember that Germany makes the trade rules within the EU to favour Germany, as with the Euro fiscal policy.

He further cites Wolfgang Schäuble, the German Finance Minister, and one of the nationalistic dinosaurs standing in the way of the much needed radical EU reform, who stated at the recent BCC conference that, after BREXIT, any trade deal with the EU would be conditional on maintaining free movement, and continuation of some form of payment into Brussels. This is typical scaremonger nonsense. Do the USA, or even Canada suffer such impositions in their trade agreements? The German Foreign Minister was far more realistic. He endorsed the view that a free trade deal would be agreed within days of BREXIT irrespective of EU political views not least because the German Government would be bombarded by their major companies and banks because of the high level of exports to the UK, not to mention that imports from Germany to the UK are significantly larger than UK exports to Germany.

I could further dismantle his arguments, but would suggest that he listens to someone like Sir Peter Hargreaves, the co-founder of the very successful Hargreaves Lansdown investment manager, who has a real-world experience and suggest that not only would the UK be better off outside of the EU, but such a stimulus would re-energise the British people to take more pride in the UK, buy British, and put the ‘Great’ back into Britain. For certain the UK has problems in productivity, poor venture investment, and lack of manufacturing. Perhaps a refusal by the EU to provide goods will stimulate the UK to make their own – a boost to employment, and needed reduction in the balance of payments – all positive. We could also relabel our much heralded sparkling wine as Champagne (as do the Americans), retain our traditions of sausages, Cornish pasties, pork pies et al without meddling interference in the British way of life from Brussels.

My final observation for today is the visit by Obama to Cuba. The opportunity to re-engage with Cuba has been staring at Europe for some years, with the doors open to engage. Whilst visiting a few years ago on an exploratory trip ‘America’ still invoked hatred with the Cuban people because of the Bay of Pigs incident. The opportunities for European businesses was considerable, as was the opportunity to substantially re-establish original European businesses in sugar, and other agri-products, as well as new off-shore oil & gas finds. The inward looking nature of the EU has surrendered this opportunity to the USA who will now move in and, no doubt, ignore repatriation of former European assets. The British understand the importance of such opportunities because of their historic trans-global, outward view of the world, in stark contrast to the introspective view of the EU.

Let us hope that the coming weeks are somewhat quieter, and less damaging.

 

 

Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

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Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

Two events have occurred over the past few weeks which appear to encapsulate an observation that I have been considering for some time, i.e. whether or not capitalism has moved to the extremes of greed, and socialism has no answer to counterbalance this behaviour. Politicians and the media would have you believe that banks are the ultimate in capitalist greed. Whereas I have serious reservations about the activities in certain banks, I feel that the major energy companies from oil & gas production through to energy generation consider their power above that of politicians at the highest level, and that of the major trade unions. If my observation bears credible scrutiny then who are the winners, and who are the losers.

The two events that I would like to use in this debate, because they encapsulate the major drivers in this debate, albeit not the only events of concern, are the Grangemouth Refinery & Petrochemical plant debacle in Scotland, and the UK Parliamentary Committee meeting with the major UK energy companies this past week.

Perhaps a little background on the energy footprint in the UK will assist readers not familiar with the situation here.

According to Ofgen, the energy regulator, the UK has installed capacity for electricity of some 73GW of conventional generation and 9GW of renewable with ACS peak demand expectations around 60GW. Uncertainty around government policy (UK and EU) and future prices continues to limit investment in conventional generation and no new plant is expected before 2016. In the UK it is  estimate that around 1GW of new gas plant will come online before the end of the decade and the installed capacity of wind power will possibly more than double over the same period albeit that this must surely now be in question. In any event, given the variability of wind speeds, they estimate that only 17% of this capacity can be counted as firm (i.e. always available) for security of supply purposes by 2018/19.

More than 2GW of LCPD opted-in plant have also closed or converted to biomass since October 2012, resulting in less pollutant plant but with significantly reduced capacity. Around 0.5GW of nuclear capacity is reaching the end of its technical life and is expected to close by 2014/15, though extensions now have to be considered. Around 2GW of CCGT plant should be retired by 2018/19 for the same reasons, but will this happen?

As installed capacity falls in the next few years, all else being equal, prices can be expected to rise and it is possible that this will lead plant, especially coal fired, that is currently mothballed to come back online to keep prices affordable.

According to National Grid, the expected drop in peak demand is mostly due to increased energy efficiency in the domestic sector and increased Demand-Side Response (DSR) insulation of buildings, etc. I consider this to be a convenient explanation politically where the truth may be more damning.

For completeness the interconnection capacity between the UK and mainland Europe and Ireland is currently 3.8GW. Assumptions about the likely direction and size of interconnector flows therefore have a significant impact on the calculation of the risks to the UK security of supply.

Ofgen expect that, in a situation of tight margins (please), ahead of mitigation actions being implemented, prices would rise resulting in higher interconnector flows into GB. However, GB is not the only European country expecting de-rated margins to fall in the next six winters. France, Ireland, Germany and Belgium are also facing security of supply challenges, and have very similar patterns of demand and supply availability.

As for gas, DECC reports suggest that gas consumption reached a record high in 2004 of 1,125 TWh. Since then, consumption has seen an overall decline, and in 2012 total gas consumption was 845.6 TWh, around 25% below its 2004 peak. These longer term trends are driven by commodity prices, energy efficiency and, for domestic use in particular, temperature. However domestic demand in 2012 was high, up almost 16 per cent on 2011, reflecting the colder, protracted winter, but gas demand for electricity generation fell by almost a third to 214 TWh largely as a result of coal replacing gas use due to high gas prices.

UK gas production peaked in 2000 and has since been declining. With declining production the UK has become increasingly reliant on gas imports to meet demand. Since 2000 net imports have steadily increased year on year, with the exception of 2011 which saw a 3 per cent decrease on the previous year’s level. The recent fall in imports can be attributed to the reduced gas demand from electricity generators, being replaced by coal.

Imports of Liquefied Natural Gas (LNG) through the two terminals at Milford Haven remain substantial, but their shares of total imports have dropped from 46% in 2011 to 27% in 2012. Demand for LNG on the global market remains strong but the UK has a diverse pipeline infrastructure (from Norway, the Netherland and Belgium) and the proportion delivered through each route will depend on global market conditions.

It is probably also worth noting that Europe, as a whole, has over capacity in crude oil refineries. The UK has 7 refineries. According to HIS Purvin & Getz Research Group the UK imports 47% of its diesel fuel, and 50% of its aviation fuel. However the UK has a 20% surplus of petrol which it exports.

Now let us look at the politics. In March 2007, the European Council agreed to a common strategy for energy security and tackling climate change. An element of this was establishing a target of 20% of the EU’s energy to come from renewable sources. In 2009 a new Renewable Energy Directive was implemented on this basis and resulted in agreement of country “shares” of this target. For the UK, by 2020, 15% of final energy consumption – calculated on a net calorific basis, and with a cap on fuel used for air transport – should be accounted for by energy from renewable sources. There was much grandstanding by the politicians at the time, especially directed towards the USA, indicating that Europe was a good citizen of the world, and would be a leader in the climate change revolution, setting targets that many reasonably minded people thought optimistic. However there followed much uncertainty surrounding the implementation of this and and other market reforms thus having as much impact on plant investment and retirement decisions as the expectations of the impact of evolving energy prices. This uncertainty means energy companies suffer much frustration of their long-term strategy through muddled energy policy, or indeed the lack of any definitive energy policy by various governments.

On the other hand the USA refused to sign up to Kyoto and, other than a little dancing at the edges, ignored the grandstanding of Europe and other countries and allowed the market to determine the future. The USA gets many things wrong, especially much of its foreign policy, but when it comes to protecting its own market it invariably gets it right. Developing new technologies and techniques such as fracking, the USA is now energy independent, energy prices are around 20% less than Europe, and they can export enough cheap fuel to disturb the markets in Europe.

In the UK the previous Labour government blindly signed up to all of the EU energy initiatives, could not fund these initiatives through already excessive taxation, so the current leader of the Labour Party, then Energy Secretary, came up with stealth taxes in the form of environmental and social levies to be collected by the energy companies from the domestic consumer, currently £117 per household, to fund these initiatives making a number of people in the renewable energy market very rich without delivering any tangible value today, or tomorrow. We now have a coalition government where the predominant Conservative Party want to repeal these stealth taxes and no longer subsidise renewable initiatives from public money but find themselves frustrated by the minority Liberal Democratic Party who see some value (to them) of continuing to wave the environmental flag. In addition the Labour Party, who created these woes for the consumer now wants to go to the dark ages of socialism and freeze energy prices. Maybe a good soundbite for the uninformed, but ridiculous in the world of global energy markets.

So let us review the Grangemouth debacle. As I said refining capacity in Europe exceed demand. Furthermore cheaper energy supplies are being imported from the USA. The management of Grangemouth, owned by INEOS, (the refinery can process some 210,000 barrels of oil per day) claimed that they are losing some USD 8 million per month fuelled partly by US imports where USA refineries pay some USD 15 per barrel less than UK refineries. The management, knowing that they need to invest some £300 million in the plant, decided that they could no longer afford to run the plant with the then operating costs. They put a package of pay and pension reforms to the 800 or so workers. In essence the UNITE union, one of the largest remaining trade unions in the UK (Margaret Thatcher saw off most of the trade union power in the 1980’s) applied its usual socialist dinosaur approach threatening strike action. The refinery management refused to accept revised terms from, or to spend 3 months negotiating with UNITE (giving the Government 3 months to find an alternative buyer) so INEOS, who had already safely closed the plant facing the threat of a strike then announced that they were going to close it. Both the UK Prime Minister, David Cameron, and First Minister of Scotland, Alex Salmon, quickly came into play to rescue this situation. We can only speculate on what happened behind closed doors but the UNITE union completely caved in and announced that they would recommend acceptance of the INEOS terms for its members, and it was clear that INEOS had been offered some government deal towards the required investment in the plant.

What we saw during the Grangemouth debacle is an example of how commercial reality surpasses political and trade union power. It was suggested that the loss of this facility would have been devastating for the Scottish economy, and they complain about banks being too big to fail.

Then we look at the Parliamentary Select Committee interrogation of the ‘big 6’ energy companies bosses, having raised energy tariffs by some 10% average to domestic consumers against wholesale price increases of just some 1.8%. The only reasonable summary of this session is too much grandstanding by the political panel, and total indifference by the energy bosses suggesting that the high price of energy was down to the stealth taxes mentioned above. I understand that the UK domestic consumers pay the highest energy costs in the European Union. One interesting analysis on a news broadcast was that British Gas had increased their profit from £45 per customer just 5 years ago to £95 per customer today. Apparently they need these profits to satisfy investment returns for their shareholders.

So who are the winners, and who are the losers.

Winners

  • The capitalist (foreign) owners of Grangemouth
  • The capitalist owners of the major energy companies
  • The capitalist owners of the renewable energy companies who will be long gone with their accumulated wealth before the reality of this folly is known
  • It will be interesting to know who claims the victory of Grangemouth, especially with the up-coming Scottish Independence vote: David Cameron claiming a victory for a United Kingdom, or Alex Salmon who wants Scottish Independence.
  • The environmental lobby thanks to the short-sighted view of the Liberal Democrat coalition leader

Losers

  • The domestic consumer who has to bear the cost of the bailout of Grangemouth because of a dinosaur socialist union leader.
  • The domestic consumer who has to pay the cost of the increased energy tariffs, which could be indirectly attributed to the lack of energy policy by governments
  • The domestic consumer who has to bear the socialist imposed stealth taxes for renewable energy policies that are far too optimistic, expensive, and will prove to be a waste of resources. It should be noted that the socialist principal of payment according to what you earn was ignored thus betraying their core socialist vote.
  • The domestic consumer who has to pay for price increases to corporate energy users as they will pass their increases on to the consumer in the price of their goods/services.
  • The domestic consumer who will have to bear the cost of frantic, last minute efforts to maintain supply because of the lack of any firm energy policy.
  • It is claimed that reduction in demand is mostly due to the energy efficiency in the domestic consumer market. To some extent new technology and insulation will have an impact, but I fear that cost means that many domestic consumers cannot afford to heat their homes, and thus go cold. Thus the losers, again, are low income and pensioner domestic consumers – a direct reflection of capitalist greed.

I think that it was Socrates who observed that intelligent people discussed ideas, moderately intelligent people discussed events, and the vast majority, the uninformed, share gossip. Our largest selling newspapers, and to a degree some news channels, and political hype thrive on sensationalised gossip including important issues of energy policy – apocalyptic climate change gossip spread by brainwashed environmental campaigners sell more copies and buy more uninformed votes than mundane realities. There is a flaw in democracy if the noisy uninformed minority can unreasonably influence the uninformed, the impact of which is a substantial negative impact to the silent majority. It is an unquestionable fact that people united can make change happen. Therefore the people need to be properly and honestly informed.

Ironically all of this dithering means that the future is a return to non-other than the fuel which started the industrial revolution –Coal – because it is plentiful, and it is cheap, – look at Germany’s preferred fuel.

I would be very interested to hear how the above events in the UK would have played out in other countries, not least Germany and France.

References:

Ofgen Electricity Capacity Assessment Report 2013

Various DECC reports

HIS Purvin & Getz Research Group

FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

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FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

Having watched with interest over the past weeks discussions relating to the strategic development of future energy generation I noted one discussion that questioned if the major oil & gas companies today would be the energy companies of tomorrow. This question did not arouse much discussion, but then I thought that if we beg the question of why these companies have not already diversified into the energy generators of today we might have a more interesting debate. After all they have both the Balance Sheets and the income generation to engage in energy generation, and they have the environmental lobby trying to drive them out of the business of fossil fuel production. So why have they not, at least, diversified their activities, but continue to pursue ever more costly development of fossil fuel production?

Looking at the business model of the major oil & gas companies such as BP, Exxon, Shell, etc. they all engage in exploration, development, production, refining, wholesale and retail distribution of fossil-based products. Thus their business model fully accommodates the substitution of power generation (even nuclear as a means to offset the fossil fuel debate) for refining which then provides for both wholesale and retail distribution of electricity. The companies have both the Balance Sheets and income profile (cash flow) to support the development of new primary generation capacity using the new generation of nuclear reactors, namely thorium reactors, as a logical diversification away from fossil fuels.

Before anyone raises the fact that these companies, in various degrees, have invested into renewable energy projects I would suggest that an intelligent review of their capital commitment to such projects is less than their annual promotional costs, and would further suggest that these projects are undertaken as part of their promotional costs, taking full advantage of all available government grants and subsidies, in order to create the illusion that they care about the impacts they may, or may not, be contributing to climate change. Of course we must remember that such impacts are not as yet reasonably proven, and are essentially propaganda by bodies fronted by the UN IPCC committee.

So why do these companies not take the environmental lobby seriously? Why do they continue with the ever increasing cost of developing ever more expensive fossil fuel recovery, yet do not spread their risk into other sources of energy?

Could it be that the latest IPCC climate change report provides a significant clue as to why these companies do not see the need to contemplate energy generation as part of their business strategy. Indeed could the advent of successful fracking for both oil and gas provide an even stronger foundation to the forward strategies of these companies in that the net production costs of recovering fossil fuels is getting cheaper? And the quantum of fossil fuel recoverable reserves has never been in doubt other than by the doomsayer environmentalist activists.

Why do these major oil & gas companies not see the need to diversify into energy generation even though such activity fits within their existing business model? I would suggest that they understand the business of energy, and their fundamental involvement in secure supply of fuel for the foreseeable future – much to the chagrin of the environmental lobby. These companies know that they will maintain their position as the primary source of fuels for generations to come, regardless. They are the only consistent source of fuels for primary energy generation, especially now that the nuclear program has been stalled by the unrealistic (but understandable) reaction to events such as the Fukushima incident. They are likely to have to find ways of reducing the hostile emissions of fossil fuels but, as with the creation of solutions such as the syntroleum process to remove the sulphur content from natural gas thus providing clean feedstock diesel fuel, they will find cost-effective solutions to other emission issues.

I share their confidence – that is until either/or thorium reactors and fusion reactors provide a significant commercial alternative. Other initiatives such as hydrogen fuel cells are unlikely to be cost effective enough to replace internal combustion engines. Indeed there are cheaper and much cleaner fuel alternatives that can be used in the existing internal combustion engine – if the powerful oil & gas interests will let such fuel alternatives see the light of day, even though they are the logical producer and distributor of these alternate fuels.

The major oil & gas companies are formidable political lobbyists. They will ensure that the revelations of uncertainty in the latest IPCC climate change report will set back the climate change/fossil fuel debate by decades, and I expect to see political support of the environmental lobby begin to cool. Indeed politicians in need of votes are likely to slowly but surely defuse the debate by asserting the current lack of reasonable evidence. Germany has irrationally indicated its lack of support for nuclear, not by reference to renewable alternatives, but to a return to coal of which they have significant reserves. Thus I propose that fossil fuels are the preferred reliable source of primary energy generation for the foreseeable future, and as such the major oil & gas majors are in no hurry to diversify.

IPCC Fifth Assessment Report on Climate Change 2013: Does the lack of media interest indicate that this group have cried ‘wolf’ once too often?

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  IPCC Fifth Assessment Report on Climate Change 2013: Does the lack of media interest indicate that this group have cried ‘wolf’ once too often?

The 5th Assessment Report on Climate Change was published last week, but did anyone notice? Where were the media? Scant reference in the visual and radio media, and very little in the printed press – the London Evening Standard, having the lead over the daily newspapers, had all of 2 column inches on page 4. Have these climate change disciples cried ‘wolf’ once too often, and no-one believes them anymore?

Intrigued by this lack of obvious interest, even by the serious news stations, I waded through the 36 page report summary, and the press release, over the weekend to see what it had to say – the full report is a real tome. The striking feature throughout this report is the obvious desperation to convince the reader that this time they have it right. They have better observation techniques, better data, blah, blah, blah. However, without boring the pants of one and all, the essence is that mankind is a major contributor to global warming (around 50% – compared with the 99%+ stated in 1999) with a 90% degree of confidence. It also indicates that some 9,000 scientists around the World agree with the findings of this report. So what does this really tell us?

Many moons ago in another life, when I started my training as a scientist at the Atomic Energy Research Establishment, we were given a number of books that we should treat as lifelong companions in our pursuit of truth. One of these was called ‘The Use and Abuse of Statistics’ and was intended as a constant reminder that the data must paint the picture, and not used or abused to create the picture that one would like the data to paint (e.g. in order to receive continued funding). I still have this somewhat battered book as I found it very useful when studying the data presented by the ultimate protagonists of such abuse – Politicians. Obviously this book defines how data can be presented to fit the required message, and the difference between relative levels of ‘confidence’ and ‘certainty’ as there is a big difference between confidence and certainty. You need to have a very clear idea of these classifications in order to make any sense of this IPCC report. I also know how frustrating it is when there is an unexplained hole in the data when you are under pressure to present your findings. Do you mention the hole, or assume it of little relevance and ignore it.

Let us consider a typical statement in this report: “The atmospheric concentrations of the greenhouse gases carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) have all increased since 1750 due to human activity.” The first part of this statement is probably a true and accurate – even an objective statement. But then the integrity is shattered by the second part of the statement i.e. “due to human activity” which indicates a level of certainty which can only be interpreted as desperate arrogance – it needed a qualification such as ‘probably, primarily, likely’ to be acceptable without absolute proof to the contrary. The remainder of this paragraph does not support the indicated certainty.

Just as a comparison on a Universe basis (as in climate change) I asked an astrophysics friend who had worked on the Mars Voyager mission if they would have launched Voyager with only a 90% degree of confidence in their calculations that Voyager would reach Mars – absolutely not. They needed to be better than 99% degree of certainty subject only to cosmic collisions that could destroy Voyager.

Let me be clear in that I fully accept climate change. Indeed the climate is constantly changing, and we are familiar with the climate change over the past 10,000 years since the last ice-age since when we are told that sea levels have risen some 110m and thus cities that were once on dry land are now beneath the sea. We are also told that there is evidence that sea levels have been some 10m higher than they are today in past history so our climate is a continually evolving system. My reservations are to what extent mankind influences changes in climate versus natural change as the earth continues to evolve. Leaving mankind to one side for a moment we are told that changes in the activity of the sun will render earth uninhabitable by humans in some 140,000 years’ time in any event. If science revealed with substantial levels of certainty that the behaviour of mankind was impacting climate change by, say 30%, then I think that mankind needs to be creative and resolve this influence. What I do not accept is that the arrogance of mankind can suggest that the full force of mother nature is a known and fully understood process, and that man has the capacity to change it, even unwittingly – something akin to King Canute standing before a tsunami.

Why did this report need to state that some 9,000 scientists agree with the content of this report? Do we know how many scientists disagree with this report, or even if some 9,000 scientists is a representative group in the global scientific community. Do we remember that when Copernicus (1473 – 1543) developed his treatise on a heliocentric model of the universe with the sun at its centre he was so afraid to publish that the first copy was placed into his hands on his death bed. When Galileo (1564 – 1642) assumed the mantle on behalf of Copernicus, and added description of the orbits of other planets such as Venus and Neptune he was branded a heretic and committed to house arrest for the remaining 9 years of his life. In the 15th century Christopher Columbus found it difficult to find a crew for his historic voyage of discovery because the general belief was that the earth was flat and thus he would sail over the edge into iniquity. History shows that the view of mankind, based on lack of real knowledge over arrogance, can lead to serious misunderstandings. This is where I see the claims of mankind’s influence over climate change today.

What this IPCC report really indicates is that, since their first report in 1999, there has been a number of step changes in thinking and understanding of the complexity of the problem – but without enough understanding to define a universally accepted solution. This is progress, but the contra argument is that we are still in an embryonic stage at the front-end of the curve of discovery. But the frenzy caused from the imposition of such imperfect science has reaped havoc in energy policy throughout the World, and thus my reference to crying wolf.

Using the UN to put their weight behind emotive propaganda regarding climate change has provoked responses from the environmental lobby that has delayed political decisions regarding replacement of current energy generation stock. Surely the UN has enough problems dealing with the issues relating to the essence of its being. Furthermore the people are being taxed to fund clean energy policies for which, to date, there is no proven argument as to the urgency. Blue skies science has traditionally been funded by benefactors, philanthropists, etc and so should climate change science until such time as the evidence is irrefutable. Public funds should not be invested in such embryonic science or technology. I have absolutely no problem with development of new energy technologies as this would be against my fundamental scientist instinct. However, as shown by our wind power investment, there is no payback in any respect to the people whose taxes, in whatever form, are used to develop such technologies so they get a double whammy with also trying to manage their lives in this period of austerity.

As for the IPCC report predicting what will be in 100 years from now I can only comment that had we asked the most eminent progressive thinkers of their time 100 years ago (before World War I) what the World would look like today, how wrong would they have been? My concern, and should be the concern of every one of these 9,000 scientists, is what do we need to do today in whatever reliable form to ensure that we can provide the required energy capacity needed in 10 years’ time to safeguard the momentum of mankind. What we do not need is energy starvation with the ensuing likely chaos and anarchy – even from those banging the drum about clean energy today. And please let us stop kidding ourselves that wind and solar can play any primary part in such delivery.

The irony of energy policy delay in much needed high capacity base load energy generation (as I will argue in a blog already in progress) is that the beneficiaries of these delays will be none other than the fossil fuel production companies – home goal for the environmental lobby.

Perhaps a glowing example from history from which we should learn is the story of the Mayan civilisation from around 2000BC – AD250. The mathematical and astronomy skills of this ancient civilisation are well known, and form part of our calendar today. There are many theories as to how this highly advanced civilisation suddenly collapsed. Their scholars spent most of their time observing the universe, and even lived high in the trees or on platforms never really taking much notice of life on the ground. The popular view to their demise is that their population exceeded the carry capacity of their environment, exhausting agricultural capacity, over-hunting, and converting their forests into cropland thus reducing evapotranspiration and thus rainfall leading to a lack of water. Are we focussing on the wrong end of the universe? Should we take our heads out of the clouds and look to how we manage the fundamentals of life such as food, water, energy, etc. Certainly the research needs a watching brief on the impact of human activity but do we really need to continue with the massive costs of this climate change circus when there are more pressing matters right under our noses?

 

NUCLEAR REACTORS – Are the new generation worthy of our trust?

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NUCLEAR REACTORS – Are the new generation worthy of our trust?

Why should people put their trust in nuclear energy production in light of recent accidents and the problems of dangerous, long half-life hazardous radio-isotopes that have to be stored in underground bunkers for many years? Having referred to ‘new generation reactors’ in my blog ‘ENERGY – What does the future hold?’ I have been challenged to explain my view that nuclear is the cleanest safe form of base load energy generation.

Firstly there are two basic forms of nuclear reactor – ‘fission’ and ‘fusion’.

Nuclear fission, generally known as a chain reaction, is a process in which neutrons released in fission from an unstable heavy isotope such as uranium causes additional fissions in at least one further nucleus. This nucleus in turn produces neutrons which then go on to cause further fissions. This process can be controlled (nuclear power) by absorbing some of the neutrons thus preventing them causing further fission, or uncontrolled (nuclear weapons). The nuclear chain reaction releases several million times more energy per reaction than any known chemical reaction. This is the process used in current nuclear reactors.

Nuclear fusion is a nuclear reaction in which two or more atomic nuclei are rammed together at a very high speed to form a new atomic nucleus. During this process, matter is not preserved because some of the mass of the fusing nuclei is converted to photons (enormous amounts of energy at incredibly high temperatures). The energy that the sun emits into space is produced by nuclear fusion reactions that happen in its core due to the collision of hydrogen nuclei forming helium nuclei. The problem to be overcome by the Ifer project is the containment of this vast energy to allow it to be harvested. I cannot comment further on this subject other that suggest a look at the Ted lecture by Taylor Wilson (link at end of blog).

The current types of nuclear fission reactors use specific fissile isotopes to make energy. The 3 most practical ones are:

  • Uranium-235, purified from mined uranium. Most nuclear power to date has been generated this way.
  • Plutonium-239, transmutated from Uranium-238, refined from mined uranium. Plutonium is also used for nuclear weapons.
  • Uranium-233, transmutated from Thorium-232, refined from mined thorium.

The new generation reactors are the generation III uranium-235 and plutonium-239 fuelled reactors which incorporate evolutionary improvements in design developed during the lifetime of the generation II reactor designs. These include improved fuel technology, superior thermal efficiency, longer life (60+ years), passive safety systems (they close down themselves, if necessary), and standardized design for reduced maintenance and capital costs. The first Generation III reactor built was at Kashiwazaki in 1996.

By way of example the contrast between the 1188 MWe Westinghouse reactor at Sizewell B in the UK (generation II) and the generation III AP1000 of similar-power illustrates the evolution from 1970-80 types. First, the AP1000 footprint is very much smaller – about one quarter the size, secondly the concrete and steel requirements are less by a factor of five, and thirdly it has modular construction. These modules comprise one third of all construction and can be built off site in parallel with the on-site construction.

However these reactors still produce long lasting, albeit less, hazardous radioactive waste.

The International Atomic Energy Agency claims that the world currently has 442 nuclear reactors. They generate 372 gigawatts of power, providing 14pc of global electricity. They say that nuclear output must double over the next twenty years just to keep pace with the rise of the China and India. If a string of countries cancel or cut back future reactors, let alone follow Germany’s Angela Merkel in shutting some down, they will most certainly shift the strain onto gas, oil, and coal. Since the West is also cutting solar and wind subsidies, we can hardly expect these industries to plug the gap – even in the unlikely event that they could.

What is more, nuclear power generation is under intense scrutiny due to the recent Japanese disaster (see my thoughts on this in my ‘ENERGY – What does the future hold?’ blog). Nuclear programs across the world are re-evaluating regarding their future power source with politicians hiding behind citing safety concerns. Solving the real and perceived dangers of nuclear power is critical to future investment. However perspective would argue that, setting aside what may emerge from the Fukushima disaster, (as yet none of some 15,000 deaths are linked to nuclear failure) there has never been a verified death from nuclear power in the West in half a century.

The exciting new development, however, is the Liquid Fluoride Thorium Reactors (LFTRs) – albeit work started in the 1960’s – 1970’s primary at the Oak Ridge National Lab’s (ORNL) in the USA, but abandoned because it does not produce weapons-grade plutonium. LFTRs have distinct safety, environmental, and economic advantages over uranium-based and solid-fuel nuclear power. It has a higher neutron yield than uranium, a better fission rating, longer fuel cycles, far safer, substantially lower construction costs, and does not require the extra cost of isotope separation. As a happy bonus, it can burn up plutonium and toxic waste from old reactors, reducing radio-toxicity, and acting as an eco-cleaner.

Over the past decade Oak Ridge National Lab’s (ORNL) LFTR research from the 1960s–1970s has been revived in various global programs. A private Japanese company is seeking funding for a LFTR called FUJI. Canada is researching a fast-breeder LFTR design in their current CANDU research. Thermal LFTRs are part of the generation IV reactor research in France. China announced a LFTR development program in February 2011. At the U.S. federal level, Senators Harry Reid and Orrin Hatch support providing $250 million in federal research funds to revive the ORNL research and draft specific resolutions. This has all passed unnoticed – except by a small of band of thorium enthusiasts – but it may mark the passage of strategic leadership in energy policy from a potentially inert and status-quo West to a rising technological power (China) willing to break the mould.

The greatest advantage of LFTRs is that there is very low chance of a catastrophic, explosive meltdown like Chernobyl, or a partial meltdown like Japan’s Fukushima-Daiichi or Three-mile Island in Pennsylvania. In the event of an earthquake or other disruptive event, a simple freeze drain plug would melt, allowing the fissile material to flow into a containment chamber where the system could be air-cooled. Electricity and active controls are not required for this process. LFTRs operate near atmospheric pressure with little possibility of a containment breech or explosion. By using air cooling, instead of pressurized water, hydrogen gas, which caused the explosions at the Fukushima-Daiichi site, cannot be produced. The liquid fuel allows for online removal of gaseous fission products, such as Xenon, for processing, thereby these decay products would not be spread in a disaster. Furthermore, fissile products are chemically bonded to the fluoride-salt, including iodine, caesium, and strontium, capturing the radiation and preventing the spread of radioactive material to the environment. Former NASA scientist and thorium expert Kirk Sorensen (see link to his Ted lecture below) notes that because LFTRs operate at atmospheric pressure, hydrogen explosions as happened in Fukushima, Japan in 2011, are not possible. “One of these reactors would have come through the tsunami just fine. There would have been no radiation release.”  Meltdown is impossible, since nuclear chain reactions cannot be sustained, and fission stops by default in case of accident.

Just as an illustration that there is no perfect safety the Didcot Power Station (coal fired) was being built whilst I was at AERE, Harwell. The ground upon which the 500MW turbines were being installed was not the firmest. Thus we computed the likely impact should one end of the turbine casing drop 2cm causing the turbine to leave its mounts whilst at full load. We computed that it would cut a channel all the way to Cornwall (around 100 miles or 160km) before coming to rest.

Professor Robert Cywinksi from Huddersfield University said thorium must be bombarded with neutrons to drive the fission process. “There is no chain reaction. Fission dies the moment you switch off the photon beam. There are not enough neutrons for it continue of its own accord,” he said. Professor Cywinski, who anchors a UK-wide thorium team, said the residual heat left behind in a crisis would be “orders of magnitude less” than in a uranium reactor.

The earth’s crust is estimated to hold some 80 years of uranium at expected usage rates. But thorium is as common as lead. America has buried tons as a by-product of rare earth metals mining. Norway has so much that Oslo is planning a post-oil era where thorium might drive the country’s next great phase of wealth. Even Britain has seams in Wales and in the granite cliffs of Cornwall. Almost all the mineral is usable as fuel, compared to 0.7% of uranium. There is enough to power civilization for thousands of years.

It is nearly impossible to make a practical nuclear bomb from a thorium reactor’s by-products and thus of no interest to rogue Governments or terrorists. According to Alvin Radkowsky, designer of the world’s first full-scale atomic electric power plant, “a thorium reactor’s plutonium production rate would be less than 2% of that of a standard reactor, and the plutonium’s isotopic content would make it unsuitable for a nuclear detonation.

The quantity of construction materials is reduced because large cooling towers and containment structures that handle high pressures are not needed. LFTRs operate at high temperatures allowing use of higher-efficiency Brayton nitrogen generators rather than steam generators, raising thermal efficiency from 35% to ~50%.

At the end-of-use phase, significantly fewer radioactive materials remain. LFTRs produce one ton of spent radioactive fuel per GW year. The volume of waste products from a LFTR is approximately 300 times less than that of a uranium reactor. The fissile waste is 83% spent within 10 years and below background levels in approximately 300 years. Conventional nuclear reactors take thousands of years to decay. LFTRs therefore eliminate the need for a multibillion dollar containment facility.

China’s Academy of Sciences said it had chosen to develop a thorium-based molten salt reactor system not least because the system is inherently less prone to disaster, and the hazardous waste will be a thousand times less than with uranium. So the Chinese will soon lead on thorium technology, as well as molten-salts. They are doing mankind a favour.

It has come as a surprise to most to learn that such an alternative has been available to us since World War II, but not pursued because it lacked weapons applications. Others, including Kirk Sorensen, agree that “thorium was the alternative path that was not taken”. According to Sorensen, during a documentary interview, he states that if the U.S. had not discontinued its research in 1974 it could have “probably achieved energy independence by around 2000”.

Summarizing, thorium can provide a clean and effectively limitless source of power whilst allaying all public concern—weapons proliferation, radioactive pollution, toxic waste, and fuel (uranium and plutonium) that is both costly and complicated to process. Nobel laureate Carlo Rubbia of CERN, (European Organization for Nuclear Research), estimates that one ton of thorium can produce as much energy as 200 tons of uranium, or 3,500,000 tons of coal. Coal, as the world’s largest source of carbon dioxide emissions, makes up 42% of U.S. electrical power generation and 65% in China.

From an economics viewpoint, U.K. business editor Ambrose Evans-Pritchard writes that “Obama could kill fossil fuels overnight with a nuclear dash for thorium,” suggesting a “new Manhattan Project“, and adding, “If it works, Manhattan II could restore American optimism and strategic leadership at a stroke”.

So where should our trust lie, in technology that can answer most of the problems, or politicians who have ignored this technology firstly because it could not produce weapons-grade plutonium, and then to win favour (votes) with the environmental lobby. I am reminded of the ending dialogue in the film ‘Three Days of the Condor’; a film about securing energy resources for the USA, and starring Robert Redford. The essence of the conversation is what would happen if the lights went out and the fuel pumps ran dry. The CIA chief stated, quite correctly in my opinion, that the people would look to the government to restore power and fill the gas stations quickly, and they would not care how it was done. I asked an ecology activist what she would expect to happen if we did not have enough reliable base load capacity. Her reply was that people would have to learn to use less energy. I think the CIA chief was much closer to reality, and thus we must trust the technology – it is probably safer than self-serving politicians.

Links:

Taylor Wilson: Yup, I built a nuclear fusion reactor

http://www.ted.com/talks/taylor_wilson_yup_i_built_a_nuclear_fusion_reactor.html

Kirk Sorensen: Thorium, an alternative nuclear fuel

http://www.ted.com/talks/kirk_sorensen_thorium_an_alternative_nuclear_fuel.html

ENERGY – What does the future hold?

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ENERGY – What does the future hold?

There is much debate today about energy, whether it be renewables versus fossil fuels, nuclear, or the Armageddon view that by 2020 the lights will go out. I find these debates emotionally charged, and far from any form of reality.

Having been invited to express my views on the future for energy as someone engaged in energy in one form or another all of my working life I would like to expand these arguments and attempt to present a more sober and objective view of the energy requirements of the future, and how mankind, in its perpetual thirst for discovery, will most certainly overcome, and indeed it will be our contempt of the forces of ‘mother earth’ that are likely to prove the more formidable than anything that the consumptive excesses of mankind can create. So let me move away from the typical discussion about energy and take a more controversial, or as someone remarked, a ‘Clarkson approach’ to the future of energy.

Let us start with a short trip back into the 18th century to the start of the industrial revolution. Prior to this time wood had been the main source of energy in Britain, used for fuel in homes and small industries. But as the population grew, so did the demand for timber. As forests were cut down, wood had to be carried further to reach the towns. It was bulky and difficult to transport and therefore expensive.

Coal was the fuel which kick-started the Industrial Revolution – and Britain was very fortunate to have plenty that could be easily mined. Coal is a much more potent form of power, providing up to three times more energy than wood. Political, economic and intellectual conditions would all contribute, but at the heart of the industrial revolution was our use of this new and abundant energy source. Throw in the thoughts of Isaac Newton for good measure and we have the transformation to make the world in which we live today. Indeed coal is still in use today, some 250 years later, and there are still vast reserves throughout the world.

Since then we have developed oil and gas as energy sources, and yet again, and contrary to the view of the doomsayers, there are still substantial reserves of both. Experts in the USA are now stating that fracking for oil and gas in the USA will make the USA self-sufficient for at least another 100 years, and energy prices in the USA are already reduced by some 20%. It would appear that fracking will realise substantial supplies of oil & gas in the United Kingdom and many other countries.

So what are the issues that will determine the energy requirements of the future?

  • The impact of the continued use of fossil fuels
  • The development of renewable/clean energy generation
  • The (increasing) demand for energy
  • The Malthusian controversy (population increase)
  • New technologies

We are told that carbon emissions resulting from the use of fossil fuels are causing global warming and/or adverse climate change. As a nuclear physicist by training at the Atomic Energy Authority at Harwell, and working on such projects as fission control in fuel element tubes in nuclear reactors, flow dynamics of oil and gas throw pipelines in different climatic conditions, and nuclear geophysics techniques for the in-field analysis of boreholes in the search for minerals, oil and gas I am used to public outcry at new technologies – my first University degree course had to be renamed Physical Electronics to avoid the onslaught from Michael Foot and his ‘Ban the Bomb’ movement.

One project that I was aware of in those days, and still persists in the shadows, is the attempts by scientists to alter our weather. We are all aware of the use of cloud seeding by the Russians in the Communist era to prevent rain on their May Day parades, and even by the Chinese during the 2008 Olympics. The story is far bigger. The first such experiments were an attempt to change the fierce weather patterns in the Bay of Biscay because of the continued loss of shipping – indeed I vaguely remember that Lloyds of London may have been a sponsor. Later the computer simulations moved to a reliable irrigation of sub-Sahara – the common view of recent heavy snowfall in Riyadh, Saudi Arabia is that it is not the result of climate change from greenhouse gasses. Then we have the urgent desire in Australia to irrigate the mineral rich outback of Australia so that these massive reserves can be exploited – could this explain the recent severe flooding in regions of Australia.

The earth’s climate has been significantly affected by the planet’s magnetic field that could challenge the notion that human emissions are responsible for global warming. “Our results show a strong correlation between the strength of the earth’s magnetic field and the amount of precipitation in the tropics,” claim the two Danish geophysicists behind the study, Mads Faurschou Knudsen and his colleague Peter Riisager of the geology department at Aarhus University in western Denmark.

Actually changing weather conditions is well within the power of man as this involves disturbing the earth’s magnetic field in the depths of the oceans where weather patterns are determined. However the vast array of variables in the equations have to be reduced to a manageable level of primary, secondary and tertiary impact, discounting the lesser impact variables, as decided by man, to facilitate ‘solutions’ that should work – or maybe not. All of this experimentation is undertaken with good intention, but……………..

Then we have the problem of the ‘eminent’ climate change scientific community, and one particular group who I refuse to give them editorial credit because of their celebrity over fact status, who wrote a critically acclaimed book in 1999 stating that the earth’s contribution (volcanic activity, etc.) was only around 1% of current greenhouse gas emissions, and have since had to revise this significant upwards over 3 subsequent revisions, and I now hear that there has been a gross miscalculation of deep sea geothermal activity contribution plus the release of once frozen methane gases from the ocean bed (as was witnessed during the recent BP disaster in the Gulf of Mexico). I often wonder if the climate change scientific community are aware of the experiments described above, or even alive to the reality of the impacts due to the natural progression of ‘mother earth’.

Whilst I am prepared to accept that man is playing a part in so-called global warming I consider it disingenuous to ‘mother earth’ to think that mankind has control of their destiny on this planet. For example lurking beneath Yellowstone National Park in the USA is a massive underground reservoir of magma, capped by the park’s famous caldera, a huge reservoir of superhot liquid rock and poison which could blow at any time. USGS geologist Jake Lowenstern, scientist-in-charge of the Yellowstone Volcano Observatory, suggests that most damage would come from “cold ash” and pumice borne on the wind, and considers it “disasterous” when enough ash rains down that it creates a layer of 10cm or more on the ground poisoning land and waterways – and this would happen in a radius of 500 miles or so. The gasses released would have a global effect on temperatures. “Any big eruption causes a cooling of the atmosphere, especially with that much ash” claims Lowenstern. In 1812 the Mount Tambora super volcano eruption in Indonesia lowered global temperatures, and a caldera-forming eruption in Yellowstone Park would be bigger, so climate change would almost certainly follow, albeit would possibly only last for a few years.

The so-called Thera eruption of Santorini in the Aegean Sea, circa 1630 BC, left a large caldera surrounded by volcanic ash deposits tens of metres deep (compare depth of ash with the above view of Lowerstern) and may have led indirectly to the collapse of the Minoan civilization on the island of Crete, 110 km (68 mi) to the south, as a result of a gigantic tsunami. A popular theory holds that the Thera eruption was such a devastating event felt thousands of miles away that is the source of the legend of the demise of Atlantis. Plato quotes Critias’ account of the legend, as told to Solon by one of the Egyptian priests:

 “Now in this island of Atlantis there was a great and wonderful empire which had rule over the whole island and several others, and over parts of the continent . . . But, there occurred violent earthquakes and floods, and in a single day and night of misfortune. . . the island of Atlantis . . .disappeared in the depths of the sea.”

The effect on the climate of the Northern hemisphere of the Thera eruption is being detected in tree rings as far north as the UK. Although the eruption of Santorini is recognized as one of the most explosive volcanic eruptions in historic times, the event is only a single eruption in a continuum of eruptive activity associated with subduction. The island group exhibits on-going seismic activity, and both fumaroles and hydrothermal springs are common features around these islands. It seems clear that we can expect another eruption, and we cannot rule out the possibility of another catastrophic eruption reminiscent of ~1630 BC.

Do the Earth’s volcanoes emit more CO2 than human activities? Probably not, but when a large eruption occurs the results are instant and devastating. The ecologists are speaking of a 2oC rise in temperature by 2100 from man-made global warming, but a major eruption can reduce the earth’s temperature by this much in a few weeks.

Another aspect of greenhouse gas emissions I feel worthy of note is the current debate about all automotive vehicles being compelled to use headlights during the day. If we take an average light wattage of 180 watts per car, with an average population of 4 million cars on the road throughout the day the consumption is equivalent to 720MW – a fairly large power station. Where does this energy come from – the car’s engine (burning fossil fuels). I have occasion to make trips to Switzerland and Italy by car. My preferred travel time is through the night, but returns are typically through the day. My fuel consumption increase through the night versus the day has been measured on a number of occasions and ranges between 5% – 8% of additional fuel to travel through the night. This is the additional energy requirement to power my lights. So this proposed policy not only will increase consumed fuel costs by between 5% – 8%, it also creates additional CO2 emissions equivalent to a large power station burning fossil fuels. Truly a contradictory policy.

Thus I have a cynical view of the man-made greenhouse gas/climate change argument. Indeed had I written this essay some 10,500 years ago I would have been sitting on some 30m of ice which has been melting ever since, mainly as a result of natural climate change.

Of course we must not forget the Malthusian controversy, especially if we reach the estimated planet population of some 10 billion people by 2050. Ironically I do not see this as an energy problem as far greater impacts will be the need for potable water, and the devastation to the animal kingdom.

What of future demands for energy? Propaganda suggests that energy demand will triple by 2050. I have attempted to rationalise where this multiple comes from. 20 years ago we had 100w incandescent lamps to provide lighting. This was replaced by 50w halogen lamps. Today the equivalent is an 8w LED. Think of the old cathode ray tube TV sets consuming around 400w now replaced with 60w LED TVs. When computers were first used in commercial applications in the 1970’s they required many kiloWatts to run them. Today you can have the same computer power using milliwatts of power. Thus the trend is far more function for significantly less power.

Of course there are people whose consumption of energy can only be described as blatant excess, but behaviour change is not possible with these people so ‘save energy’ propaganda or taxation will not achieve anything with such people. I know people from the most ignorant to very intelligent, but all having the common denominator of financially comfortable, and to whom there is no price/elasticity for energy. If you tripled the cost they may moan for 10 minutes, and then continue as before. But their consumption is a microcosm against total energy requirement.

What annoys me is that, in pursuit of political favour from noisy eco-voters, our politicians have allowed energy companies to extract essentially a duty from all people for so-called ‘new energy’ development. The payment of this duty includes the people struggling to pay for the energy they actually need to support their families. Instead of the Government using a more reasonable proportional taxation process they cause unnecessary hardship to many to win votes by satisfying the eco-lobby and claiming that they are not raising taxes.

So what of the future? We see a major political push in the development of so-called renewables such as wind power and solar with people seriously believing that these can be anything more than secondary or more likely tertiary energy sources. In 2012 I was asked to analyse 4 such projects for financing purposes; in the USA a 100MW solar thermal, a 60MW vertical axis wind, and a biomass still in development, and in Italy a 18MW biomass plant that had already been built, but was now for sale.

In the case of the 100MW solar thermal proposal operating cost was $56 per MWh including State ‘green’ grants, with then base load off-takes around $72 per MWh (they expected to achieve a PPA at $98 per MWh). Fracking results bought base load off-takes below $50 so no possibility of finance.

The vertical axis turbine project was interesting because it offered substantial advantages over conventional propeller-style wind turbines.  Functionality, ease of maintenance and operation, lack of electronic interference, no ground resonance, a more acceptable profile, capable of tolerating a wider range of wind speeds, quieter in operation than propeller-style turbines, and no bird or bat kills in over 12 years of turbine operations. But again this project relied on State ‘green’ grants to make it commercially viable (I am reliably informed that there are no Federal grants for ‘green’ energy in the USA). Again fracking results caused cessation of the State grants.

The biomass plant relied on an energy conversion process that had only been proven on a small scale in a university laboratory thus needed technology transfer finance. However it was clear that this technique relied on so many cost variables that no-one was interested to engage. It is also worth mentioning that I came across a number of bankrupt ethanol plants during this process.

I was invited to analyse the biomass plant in Italy as due diligence just as the investor was about to purchase it. It was already working having received grants from both the EU and the local Municipality. However the operator had taken all of the capital value out of the project, including the carbon credits, and was trying to unload the project on some unsuspecting pension fund at around an 8% yield – but only achievable if the energy subsidies on the feed-in tariffs from the Government were maintained – very unlikely. The owner realised that there was no commercial future for this plant, especially if energy prices stagnated, or reduced. The investor walked away as a result of my analysis.

I have yet to examine any such projects that are commercially viable without subsidies. The exception is waste to energy plants which, if the dioxins and heavy metal issues are properly addressed, can be a very effective use of waste.

Obviously there are a number of other fuels and technologies in the process of research and development, and I am aware of at least one energy source that has been suppressed because it provided direct competition to the majors in that it would be a cheaper fuel than petrol or diesel. This is a fuel developed by the Germans during the war, but they could not stabilise it. A group of scientists found the notes relating to this fuel in a bunker and developed a way to stabilise it such that they could use it in a conventional car engine. The waste product is water, so completely clean, and can be produced in most countries. Unfortunately all 3 of the scientist mysteriously died within 3 months of each other.

If the ecologists can win the argument then nuclear, (and hydro where possible), are the only existing sources of reliable base load clean energy. But why have we not built the reactors that we so desperately need? The anti-nuclear lobby have jumped on the Fukushima Daiichi nuclear power plant disaster as an argument to delay the development of new generation reactors. This argument is invalid because the Japanese Government was informed by the IAEA over 10 years ago that these reactors should be de-commissioned. The Japanese economy was in dire straits so the various politicians, since the warning, criminally gambled with the lives of many through wanton negligence. Even when the tsunami triggered the incident they failed to raise the alarm in the international community to seek help that could have avoided many of the problems that subsequently occurred. Don’t blame the reactors, look to the politicians who abused the technology constraints. Those reactors worked well for years fuelling the Japanese economy. Until we have new reactors fossil fuels will reign, regardless of the environmental lobby.

The real future is in fusion. The international nuclear fusion project – known as ‘Iter’, meaning “the way” in Latin – is designed to demonstrate a new kind of nuclear reactor capable of producing unlimited supplies of cheap, clean, safe and sustainable electricity from atomic fusion. The claims are that if Iter demonstrates that it is possible to build commercially-viable fusion reactors then it could become the experiment that saves the world in a century threatened by climate change and an estimated three-fold increase in global energy demand. Of course this statement assumes much in terms of global warming and demand, but there is no doubt that this technology, once perfected, will open completely new horizons in wholesale clean energy generation.

On a final note I consider it an insult to the intelligence of our successors that people of today think that future generations will not find solutions to the problems that we face, or think we face. I appreciate that the loud retort will be ‘sustainability’ but the progress of mankind over the past 100 years has seen incredible exponential advances, and this will continue. Who is to say that some brilliant chemist will not find a digester to extract the CO2 out of the atmosphere if this proves to be a real problem. But let us first check that it is mankind who are causing the real problems, or is ‘mother nature’ relentlessly progressing through her life, and we just have to adapt.