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  • Libya: The Energy Wildcard

    Libyan Colonel Gaddafi’s 42 year brutal reign is over, but the future looks murky ahead for a country primarily known for exporting oil and terrorism.


    One thing is for certain – international oil companies will be packing out flights to Tripoli to cut deals for a piece of the action.


    Libya remains the wild card, with only 25 percent of the country’s oil potential territory explored. Whatever the demerits of the Gaddafi regime, it kept tight rein over its oil industry, and that, combined with international sanctions for its terrorist proclivities, largely stymied development of the country’s resources, much in the way that the development of Iran’s petrochemical sector has been largely devoid of foreign capital. After all, they did not call the 1996 U.S. legislation “the Iran-Libya Sanctions Act” (ILSA) for nothing. In  September 2006  ILSA was renamed the Iran Sanctions Act (ISA), as Gaddafi was behaving himself more, but the damage to the country’s energy infrastructure was by then deep and systemic.


    The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95 percent of export earnings, 25 percent of GDP, and 80 percent of government revenue. All of this is up for grabs now.


    Prior to the outbreak of conflict in February, Libya was exporting about 1.3-1.4 million barrels per day from production estimated at roughly 1.79 million barrels per day of high-quality, light crude, of which approximately a mere 280,000 barrels per day were indigenously consumed. But current production is the proverbial mere drop in the bucket. Libya has the largest proven oil reserves in Africa with 42 billion barrels of oil and over 1.3 trillion cubic meters of natural gas, according to conservative estimates.


    Now that the fighting is apparently over, the issue of Libya’s oil production will swiftly move front and center in international interests.


    On 19 October International Energy Agency official David Fyfe said in Paris that despite IEA official estimates that Libya could be pumping around 1 million barrels a day by the end of 2012, a fraction of its 1.79 million barrels per day output pre-military action, all estimates of Libya’s future output are a "shot in the dark" before adding that there are "many logistical, operational and security related challenges" to overcome before full production is restored. After military intervention began, by September Libyan oil output shrank to a measly 100,000 barrels per day.


    While Libya’s National Transitional Council has made vague indications that it will honor current oil and natural gas contracts at present, this does not preclude the National Transitional Council from future renegotiations of the oil and gas contracts' terms, much less signing new ones.


    Furthermore, until he learned how to speak diplomatese, National Transitional Council head Mustafa Abdel Jalil alluded to the fact that the National Transitional Council would assign a higher priority for reconstruction and the allocation of oil contracts to countries that supported their uprising, remarking that nations would be rewarded "according to the support" given to the insurgents – which means NATO European coalition members will have the inside track, particularly as before the fighting erupted Europe got over 85 percent of Libya's crude exports.


    Under such considerations, one of the clear winners will be Italy’s Ente Nazionale Idrocarburi S.p.A., better known by the acronym ENI, which saw pre-conflict Libya accounting for 15 per cent of ENI's output.


    The major losers in such a scenario will be those nations that held out against military intervention, most notably the Russian Federation and China. Since 2005 Russian state-run natural gas monopoly Gazprom invested $200 million in energy exploration in Libya even as state arms exporter Rosobornekhsport sold Gaddafi over billions in armaments before an arms embargo was imposed on Libya by the UN Security Council in March, many of which were subsequently deployed against NATO forces and Libyan rebels, a fact doubtless not lost on National Transitional Council members. Russia's state news agency ITAR-TASS estimates that Russia could lose as much as $10 billion in business if the National Transitional Council challenges the legality of the existing contracts.


    China, which has a massive oily African footprint elsewhere in Sudan and Angola, received a paltry 150,000 barrels per day of Libyan oil, a mere three percent of its crude imports. On 23 August, when asked about the possibility of the National Transitional Council renegotiating contracts deputy head of the Chinese Ministry of Commerce's trade department, Wen Zhongliang blustered, “I can say in four words: They would not dare; they would not dare change any contracts.”


    Aside from the oil issue, another murky situation is the future composition of Libya’s post-Gadaffi government. Last month Libya's interim leader, chairman of the National Transitional Council Mustafa Abdel Jalil, in his first public appearance in Tripoli told his audience, “We seek a state of law, prosperity and one where Sharia is the main source for legislation, and this requires many things and conditions.”


    As Sharia is Islamic law and Libya’s future government will doubtless contain many Islamic elements, it is hardly likely that the country’s future administration will be willing to sign “sweetheart” deals with foreign energy firms on terms more favorable or even as favorable as those Gadaffi signed with foreign energy firms, as populist Islamic government elements will undoubtedly demand greater financial transparency than that provided by the Gadaffi administration.


    But Gadaffi is dead, and so Libya and the National Transitional Council enter a brave new world with few signposts. As regards Western intervention in the turbulent oil politics of the Middle East, one is reminded of what according to Washington Post journalist Bob Woodward, U.S. Secretary of State Colin Powell told President George W. Bush in the summer of 2002 about the possible consequences of military action in Iraq in what has subsequently become known as the “Pottery Barn” Rule – “You break it, you own it.”


    Brussels and Washington have an increasing amount of Middle Eastern ceramic shards to sweep up.




    By. John C.K. Daly of Oil Price

    Oct 24 10:27 AM | Link | 1 Comment
  • Biodiesel Production Falling in Europe

    Greening the European Union has suffered a setback.


    The European Biodiesel Board is reporting that the European Union biodiesel industry production forecasts are noting a 2011 decrease in output, the first since data has been gathered, down from 2010 figures of 9.57 million tons.


    The European Biodiesel Board reported that biodiesel generation in Europe in 2010 grew by 5.5 percent over 2009 production figures, while in 2009 the European Union’s biodiesel industry grew by 17 percent. Recently the European Union’s best year for biodiesel output was 2008, when the growth rate surged 35 percent over 2007 levels.


    Germany and France are the European Union’s leading biodiesel producing nations, followed by Spain and Italy.


    According to the European Biodiesel Board, reasons for the decline include increased imports from Argentina and Indonesia as well as North America. The European Union currently has 254 biodiesel facilities, which analysts predict will only be able to fulfill 66 percent of the European Union’s 2020 biofuel mandates.


    Few European Union nations experienced growth in their biodiesel manufacturing capacity in 2011. Belgium, Greece, the Netherlands, Poland, Slovenia, and Spain reported slight increases while Bulgaria, Germany, Italy, Romania and Britain all reported slight reductions in their biodiesel output. The European Biodiesel Board reported that between 2009 and 2010 actual production levels in Belgium, Bulgaria, the Czech Republic, Denmark, Sweden, Finland, Germany, Hungary, Ireland, the Netherlands, Poland, Portugal, Romania, Slovenia, Spain and Britain even as output declined in Austria, Cyprus, Estonia, France, Greece, Italy, Latvia, Lithuania, Malta and Slovakia.


    The European Biodiesel Board has no doubt about the reasons for the decline, citing European Union commitments to reducing carbon emissions from “Indirect Land Use Change,”(ILUC)  the shifting to croplands over to biofuel manufacture, stating in a press release, “In the view of the European Biodiesel Board, it is essential that efforts to implement the Renewable Energy Directive and its 2020 objectives are not diverted by the current debate over biofuels (ILUC). “Given the lack of robustness of existing econometrical models, assessing the existence and magnitude of ILUC remains a daunting task.”


    Stripped of the technical verbiage, the European Union legislation mandates are pursuing contradictory goals. On 17 December 2008 the European Parliament approved the Renewable Energy Sources Directive (COM(2008)19) and amendments to the Fuel Quality Directive (Directive 2009/30), which included sustainability criteria for biofuels which were to consider ILUC issues. The Renewable Energy Directive established a 10 percent biofuel target for the European Union even as the Fuel Quality established the European Union's Low Carbon Fuel Standard, requiring a 6 percent reduction in greenhouse gas intensity of European Union transport fuels by 2020. The legislation did not immediately include a specific approach or size of the ILUC factor, which the European Biodiesel Board rightly points out is an impediment to the industry’s growth until the legislative niceties exactly define ILUC considerations.


    In the interim, European Union imports of biodiesel have increased, as in 2010 the European Union imported more than 1.9 million tons of biodiesel, of which  roughly 61 percent came from Argentina, 26 percent from Indonesia with smaller quantities  from Canada, Malaysia, India, Singapore and the rest of the world. Given European Union legislative vagueness and rising imports, the European Biodiesel Board supports a recent European Commission proposal to remove Argentina and Malaysia from the list of countries benefiting from the Generalized System of Preferences which, if implemented, would see biodiesel imports entering the European Union from the two nations subjected to a 6.5 percent import duty levy.


    Far from being resolved, the European Union’s ILUC legislative fuzziness and biodiesel issues are intensifying, with over 100 top scientists and economists with the prestigious American Union of Concerned Scientists weighing in on the issues, writing that because of "flawed" accounting conventions, "the European Union's target for renewable energy in transport may fail to deliver genuine carbon savings in the real world. It could end up as merely an exercise on paper that promotes widespread deforestation and higher food prices. All the studies of land use change indicate that the emissions related to biofuels expansion are significant and can be quite large."


    Until the “fuzzy” math and science of the European Union’s ILUC and biodiesel policies are resolved, it might be wisest in the interim for Brussels to accede to the European Biodiesel Board’s recommendation simply to tax imports until the issues are resolved.


    Solar power, anyone?




    By. John C.K. Daly of

    Oct 21 1:19 PM | Link | Comment!
  • Germany to Invest $137 Billion in Renewable energy Over the Next Five Years

    German Chancellor Angela Merkel announced on 30 May that Germany, the world's fourth-largest economy and Europe's biggest, would shutter all of its 17 nuclear power plants between 2015 and 2022, an extraordinary commitment, given that they currently produce about 28 percent of the country's electricity.


    Underlining the government’s seriousness in changing the country’s energy matrix, Germany's Kreditanstalt fur Wiederaufbau (German Development Bank) is to underwrite renewable energy and energy efficiency investments in Germany with $137.3 billion over the next five years, Germany Trade and Invest reported. Overall, the German government's 6th Energy Research Program has made an extraordinary $274.6 billion available for joint funding initiatives in energy storage research over the next three years.


    It is by any yardstick an extraordinary (and expensive) commitment that may well have the collateral benefit of unlocking similar funding worldwide for renewable energy projects.


    The new Kreditanstalt fur Wiederaufbau loans and projects are designed to underwrite a broad array of energy areas, including energy efficiency and smart grids, as well as wind and solar energy generation. Last year Kreditanstalt fur Wiederaufbau financed 40 percent of all photovoltaic installations in Germany.


    Germany is already the world's strongest photovoltaic market and also accounts for Europe's largest share of installed wind capacity. Moving resolutely into the field of renewable energy, by 2020, renewable energy sources are expected to account for 35 percent of Germany's energy output, soaring to 80 percent by 2050. Germany now produces 20 percent of its electricity from renewable energy sources, now, up from just 6 percent in 2000. The effort is in turn creating thousands of jobs and new industries.


    Industry expert Tobias Homann observed, "With the decision to abandon nuclear power earlier this year, it was clear that the road ahead would be challenging. But Germany is in a very promising position to be the first industrialized country to rely entirely on renewable energy."


    One of the current major shortfalls of the renewable energy market is its inability to store generated energy but Germany is working on this dilemma, focusing on the development of battery and smart grid technology.


    According to Germany Trade & Invest CEO Jurgen Friedrich, “Germany has established the ideal prerequisites for the rapid development of the energy storage industry. The unique combination of renewable energy generation, innovation and implementation through such projects makes Germany an optimal location for companies looking to enter this budding industry.”


    Germany is also assiduously pursuing improving solar technology. Germany’s photovoltaic installations and solar facilities recently surpassed hydropower in Germany’s total energy generation matrix.


    In the area of offshore wind power generation, Germany projects 4,000 turbines off its Baltic coast producing electricity by 2030. Germany’s northeastern Mecklenburg-Vorpommern state on the Baltic will produce 100 percent of its electricity from renewables by 2015-2017, and then export the excess to other German states. Mecklenburg-Vorpommern premier Erwin Selling told reporters, "Renewable energy has become extremely valuable for our state. It's just a great opportunity - producing renewable energy and creating manufacturing jobs. From an industrial point of view we’d been one of Germany’s weaker areas. But the country is abandoning nuclear power. That will work only if there’s a corresponding and substantial increase in renewables. It’ll be one of Germany’s most important sectors in the future. We want to be up there leading the way."


    The picture is not completely rosy, however - there have been delays in expanding and upgrading the national grid of high-voltage transmission lines from sparsely populated coastal regions such as Mecklenburg-Vorpommern to areas where the power is needed in Germany industrial and densely populated western and southern regions. While Berlin is working to remove infrastructure bottlenecks, if the nation’s electrical grid is not expanded soon it could cause future problems when more off-shore wind power goes on line.


    Such problems aside however, Germany, as Europe’s leading creditor nation and technological powerhouse is surging forward on weaning itself off of nuclear energy and strongly moving towards alternative renewable energy sources, an experiment that will doubtless be watched by other industrialized societies from Tokyo to Washington.




    By. John C.K. Daly of Oil Price

    Oct 19 7:03 PM | Link | Comment!
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