Month: October 2012

Research into alternative fuels has become one of the most crucial tasks for the progress and survival of humanity. The ever∞dwindling supply of natural resources in the wake of today’s environmental concerns coupled with the instability of the world’s oil supply and waning resources have ensured biofuels are here to stay.

The advantages of biofuels are palpable. Biofuel technology has the ability to reduce the amount of greenhouse gases emitted and lower the global usage of fossil fuel. It also promises  higher energy security to the nations producing it as they no longer depend on imports at a time of extreme market volatility. In addition, biofuels can help rural development and create a new job infrastructure which aids local economies significantly.

The first generation
Biofuels are produced from organic matter and can take the form of any solid, gas or liquid. There is a vast range of organic matter that is used to produce platforms for the conversion and production of biofuel. It can be split into two groups: First and second∞generation biofuels. It is commonly accepted that technologies using the starch or sugar segments of plants such as cassava, sugar beets, wheat, corn, and sugar cane to produce ethanol are considered first∞generation biofuels. So are those that exploit sunflower oil, vegetable oil, palm oil, rapeseed or soybeans to turn it into biodiesel. First∞generation biofuels have now been produced commercially for numerous years. The key first∞generation biofuels are:

Biodiesel
Biodiesel is Europe’s most commonly used biofuel. It is generated by mixing triglycerides, fats and oils with methanol or ethanol through a chemical process referred to as transesterification. Creating it in this particular manner gives almost as much energy as conventional diesel but provides better lubrication. It has similarities to mineral diesel and is normally used in diesel engines once it has been mixed with the said mineral. A known issue with it however is that even slight exposure to various metals, water, light and even heat can bring about total dilapidation.

Syngas
Syngas is the end product of a gasification process and an extremely diverse product and can be utilised as a standalone fuel. It is mainly suited for producing chemical products and transportation fuels.

Bioalcohols
Ethanol, butanol and propanol are all bio alcohols and can serve as direct substitutions for gasoline. Butanol in particular is perceived to be a highly energy efficient fuel which can be used in a range of gas engines.

Biogas
Rise to biogas is given through anaerobic digestion of organic materials and can be produced from waste materials that are biodegradable. It consists of methane and can be attained from biological and mechanical treatment methods.

Second–generation biofuel
Second∞generation biofuels on the other hand constitute technology and equipment that converts biomass such as forest and agricultural deposits, the plant jatropha, and micro algae. It is typically composed of cellulose, lignin and hemicelluloses, and is universally known as lignocellulosic biomass. The advantage of second∞generation biofuel production is that it has a much lower impact on food production overall and is certainly more sustainable.

It is no surprise that research into second and third∞generation biofuels and outflow are a thriving global industry which proffers vast potential for investment. Energy and metals industries business data provider, Visiongain, estimates that international expenditure on biofuels for 2011 is likely to total $46.63bn.

The market gained interest particularly over the past 12 months as the price of oil rose rapidly and extensively due to global economic market volatility. This forced the EU bloc and the US to reconsider their energy policies and greatly reduce oil imports. Numerous inducements and tax credits brought in by policy makers have further encouraged biofuel manufacturing and consumption. Biofuel production remains largely focused in the regions of South America, the US and Europe, but regions including the Middle East, Asia, and Africa have of late upped their manufacturing in this industry.

Many sectors have benefitted from the growing biofuel industry. One of the most noticeable areas is aviation. New Zealand-based bio-technology group LanzaTech recently created a fuel which airline Virgin Atlantic said is a breakthrough aviation fuel because it has half the lifecycle carbon footprint of standard fossil fuel kerosene. This technology comes thanks to companies like Swedish Biofuels, which has pioneered methods of capturing waste gases from industrial steel production. According to LanzaTech this procedure could be applied to the metal processing and chemical industries in addition to an estimated two-thirds of the globe’s steel mills.

Over the next year tests will take place to establish the advancement of this cutting∞edge fuel. If the checks prove successful, Virgin noted that within three years flights from China, India and Europe could be fuelled with the new, cleaner technology. Commercial deployment is due in 2014 but the technology will first be trialled in New Zealand, and if successful, a Shanghai-based demonstration plant is due to be erected before the end of 2011.

Hedging bets
Interest in biofuels swaps has also increased tremendously over the past 18 months. However, experts believe that more clear-cut regulatory transparency is required if the market is to mature further in this area. Both US and European biofuel swap markets grew noticeably after newly introduced legislation encouraged the use of biofuels. This has led to a rise in production and in turn a climb in demand for hedging products.

According to the latest data on the Chicago Mercantile Exchange (CME) the amount of ethanol future contracts has risen over 600 percent. Figures show that the industry has gained a vast interest, with the most recent statistics showing that open interest has increased by over 150 percent from 4,000 to 10,00 contracts from the beginning of 2009 to mid-2011. Over the same period it showed that from an estimated 3,000 monthly traded contracts, they had now gone up to about 22,000. An impressive 300 percent increase was recorded for European T2 ethanol, which climbed up from 200 contracts in December 2009 to approximately 800 monthly contracts by July 2011.

Breaking through 
There is currently a vast amount of development in the industry, so it proves near impossible to follow every novel trend and idea. However, worries over the sustainability of first∞generation biofuels have strengthened. Big corporations do not want to be left behind and are catching on fast to the fact that fuelling a lower carbon future with biofuels is the way forward. This has given pioneering start-ups an opportunity to go into strategic partnerships with large multinationals in this field.

Additionally, an increasing amount of university-led associations are spearheading ideas to help expand cost-reduced production of sophisticated biofuels derived from renewable biomass. According to experts, low∞carbon biofuels represent the most viable and commercially pragmatic approach to eliminating carbon dioxide from transport fuel over the coming decades. June this year saw one of the largest biofuel deals to date between Brazilian bio-ethanol conglomerate Cosan, and Royal Dutch Shell, the multinational oil company. The joint venture, named Raízen, is scheduled to begin operations in Brazil and will become the biggest maker of low∞carbon biofuel. It is said to benefit from combining Shell’s global resources in sophisticated biofuels with Cosan’s technical expertise of generating ethanol on a large magnitude. Shell, which has to date taken a lead role as one of the key distributors of sustainable biofuels, will now for the first time turn its hand to manufacturing. The aim is to generate and put on the market close to two billion litres of the lowest∞carbon biofuel commercially obtainable each year.

The rise and rise
The rapid ascent in biofuel production over the past few years has triggered calls for more coherent policies in the area from lawmakers. The DC-based independent environmental research institute Worldwatch Institute published a report recently indicating a 17 percent rise in international biofuel production in 2010.

Figures showed that biofuels now supplied 2.7 percent of all fuel for transport globally compared to two percent a year earlier. Global ethanol production increased by 15 percent in 2010 to reach 22.9 billion gallons. It was up 3.4 billion gallons from the 19.5 billion produced at the end of 2009, said the Renewable Fuels Association.

Europe, which is a region where biodiesel is heavily used, holds a market share of around 75 percent, the European Biodiesel Board (EBB) said. In 2010 the bloc opened the doors for imports from nations including Indonesia and Argentina when domestic demand reached 12.3 million tons and by far outstripped domestic production. The EBB noted this was particularly due to countries such as France, Spain and Germany, which represent the bloc’s largest biofuel consumers. In comparison US ethanol manufacturing has risen slighty slower, it saw a rise of 30 percent to 13.1 billion, 3.1 billion higher than the 2009 figure.

The key regulation behind this industry expansion is the modified 2009 Renewable Energy Directive which imposes stretching renewable targets for 2020 across Europe. The European Commissions’ original proposal came in January 2008 but the European Council and parliament had proposed amendments which were then implemented.

A Europe-wide average of 20 percent was set as a renewable energy target for 2020, and was divided into legally binding targets for all 27 member states. Indicative trajectories to follow included a 20 percent rise towards the target by 2011-12, 30 percent by 2013-14, 45 percent by 2015-16 and 65 percent by 2017-18.

Many entrepreneurs also have been calling for international policy makers to rethink the law to help drive a green economic recovery. Chairman of the Virgin Group, Sir Richard Branson continues to campaign vigorously and has set up the ‘Carbon War Room’ NGO to encourage low carbon policies and the development of cutting∞edge technologies. Branson cautioned that unless a measure to compel bigger outlays in renewable energy is implemented, the global economy will experience: “The mother of all recessions”. He believes that lawmakers need to embark on a vital reform of the existing tax structure to motivate investment in green and clean technologies. “The way to kick-start the revolution is to have no tax at all on the entire clean energy while gradually increasing tax on dirty energy,” the entrepreneur said. 

Relying on biofuels
The answer to how much humans will come to rely on biofuel in the future is slowly taking shape as companies develop a greater understanding of the technology and give a clearer indication of any potential progress.

Biofuels hold noteworthy prospects to transferring a portion of the requirement for fossil fuels. A recent forecast by market intelligence firm, Pike Research, shows that production and utilisation of biofuels will grow more than twofold, with the global market for biofuels increasing from $82.7bn in 2011 to $185.3bn by 2021.

According to the research, the extensive increase of biofuels could modify the industrial and geopolitical landscapes by meeting growing consumer demand in aviation, ground and maritime fuel markets. However, conventional biofuels are often limited and hampered by financing, environmental issues and price parity.

Although previous triumphs in the US, Brazil and the EU, have exhibited the commercial feasibility of conventional biofuels, the industry is now entering a novel period of flexibility, product objectivity, and the recent emergence of superior feedstock.

The market analysis by Pike Research shows that key players in the field are convinced that manufacturing and utilisation will, over the next ten years, further increase in both developed and developing economies. Furthermore, it found that uneven feedstock access and consumption will likely lead to a boosted global biofuel trade. Countries such as Brazil and parts of Europe are already emerging as primary suppliers internationally.

Brazil now leads the world in biofuel for transport use. Motorists at petrol stations are offered the option of pure ethanol or a mixture of gasoline and ethanol. An estimated 90 percent of the nations’ newly produced vehicles can now run on both fuel types. Advances in technology and efficiency gains such as increased biomass yields per acre and more gallons of biofuel per ton of biomass could potentially reduce the economic price tag and environmental force of the production of biofuels. Brazil’s sugar cane association Unica says that the country momentarily yields an estimated 7,000 litres of ethanol per hectare of cane in contrast to 2,500 litres for a hectare of wheat in Europe or 3,800 litres for the same measurement of corn in the US.

As conventional corn∞based ethanol increases, more sceptics express their concern with respect to the “food for fuel” debate that has been troubling the industry. Biofuel companies working on second∞generation biofuels hope to overcome that issue through the use of innovative feedstock. The race is now on to find the cutting∞edge technology required to bring the market a product that will benefit the environment without affecting basic human needs.

One leaked document from the EU’s executive, the European Commission, suggests biofuel from palm oil might get a boost from new environmental criteria under development.

But another contains a warning from a top official that taking full account of the carbon footprint of biofuels might “kill” an EU industry with annual revenues of around $5bn.

The EU aims to get a tenth of its road fuels from renewable sources by the end of this decade, but has met with criticism that biofuels can force up food prices and do more harm than good in the fight against climate change.

Most of the 10 percent goal will be met through biofuels, creating a market coveted by EU farming nations, which produce about 10 billion litres a year, as well as exporters such as Brazil, Malaysia and Indonesia.

Environmentalists say biofuels made from grains and oilseeds are forcing farmers to expand agricultural land by hacking into rainforests and draining wetlands – known as “indirect land-use change” (ILUC).

Clearing and burning forests puts vast quantities of carbon emissions into the atmosphere, so the EU risks promoting damage to the climate by creating such a valuable market.

To counter that risk, strict environmental criteria have been put in place.

The European Commission has also been looking at introducing new rules to curb the impact of ILUC, but its progress had been complicated by conflicting opinions among specialists on trade, agriculture, energy and environment.

The stakes are high for European biofuel producers.

Negative light
“An unguided use of ILUC would kill biofuels in the EU,” a senior agriculture official in the Commission wrote to a top energy official in a letter seen by reporters.

As part of its research, the Commission has received new scientific reports casting a new negative light on biofuels due to their indirect impact on land use, but has not made them public, says environmental group T&E.

The group has made a legal request to the Commission for the documents, but it has so far taken more than three-times the statutory 30 days to provide them.

“These reports need to be released so the public can see the full facts,” said T&E campaigner Nusa Urbancic. “What is especially worrying is that we are seeing a pattern of manipulation of the science.”

Commission officials said their research included hundreds of documents, making it difficult to meet T&E’s request.

“The Commission is taking indirect land use change emissions from biofuels very seriously, and is conducting a large amount of work, including modelling work, in order to understand this issue with the best science available,” said Marlene Holzner, spokeswoman for Energy Commissioner Guenther Oettinger.

“If the final results of this work show that indirect land use change emissions from biofuels are significant, then the Commission will need to consider what would be the appropriate policy response,” she added.

A recent Commission document on biofuels appeared to wave through the palm oil industry, which stands accused of cutting down tropical forests in Malaysia and Indonesia to make way for plantations.

“A change from forest to oil palm plantation would not per se constitute a breach of the criterion,” said the document seen by reporters.

Holzner cautioned against drawing any conclusions from an unfinished draft.

“EU policy promotes only those biofuels which positively contribute towards our ambitions to decarbonise our energy systems,” she added.

The deal comes as the Chinese government aims to boost renewable energy
generating capacity in the country, with plans to generate at least
10,000 MW of solar energy and 20,000 MW of wind power by 2020.

In
a statement, eSolar said equipment maker China Shandong Penglai
Electric Power Equipment Manufacturing Co was developing solar thermal
plants using eSolar’s technology.

It did not disclose
financial details of the deal, but analysts said the 2,000 MW project
was the largest of its kind in China and could easily be worth more
than $5bn.

Solar thermal power uses the sun to heat water,
producing steam to power a turbine and create electricity. The
technology is seen by some as a viable replacement for fossil-fuel
generators because such plants can rival the capacities of many
conventional power plants.

eSolar said China Shandong Penglai
was building the project along with a biomass electricity generation
facility within an industrial park in Yulin, Shaanxi province.

China Shandong Penglai would operate the first 92 MW this year, the statement said.

The
Pasadena, California-based company has deals with US utilities,
including NRG Energy Inc to create more than 400 megawatts at solar
thermal power plants in the US Southwest. It recently opened its first
commercial power plant in Lancaster, California.

eSolar’s investors include technology incubator Idealab and Oak Investment Partners.

The US, seeking to halt Tehran’s nuclear enrichment activities, passed unilateral sanctions earlier in July that for the first time allow it to punish the US operations of international firms who supply fuel to Iran.

Although the world’s fifth-largest oil exporter, Iran lacks the refining capacity to meet domestic fuel demand and relies on imports to meet up to 40 percent of its gasoline needs.

The EU’s new measures are its first attack on technical assistance and investment in an oil industry already sapped by years of international isolation.

“Companies with operations in the US are having to be very careful indeed,” said Mehdi Varzi, of independent oil and gas consultancy Varzi Energy.

“The sanctions can be interpreted in any way Congress likes, so anything, even a trade of just a few million dollars, could be seen as abetting the other party.”

While the US has yet to clarify how to interpret its rules, some firms have chosen to implement them strictly, denying Iranian aircraft the right to refuel in international airspace and forcing Iran to rely more on traditional allies for shipments of gasoline.

Washington has said only that the measures apply to firms supplying Iran with cargoes worth more than $1m or with fuel that has an aggregate fair market value of $5m over a 12-month period.

That is much less than the approximate market value of around $25m for just one 35,000 tonne cargo of gasoline. Tehran is importing nine cargoes of that size in July.

Rising costs, dwindling expertise
Many international oil firms and trading companies had already stopped supplying gasoline to Iran in anticipation of the sanctions. France’s Total did so soon after the US Congress passed them.

The smaller pool of sellers has driven up the cost of imports to Iran by as much as $10 a tonne, according to oil traders. With imports of around 315,000 tonnes in July, that would add around $3m to Iran’s monthly import bill.

Further strain on Iran’s finances would add to the progressive impact of sustained sanctions that have made international oil firms leave once projects have been completed.

“Nobody argues about the size of Iran’s reserves. But you have to put a dollar in to get a dollar out. The upstream direly needs investment and isn’t getting it. Iran’s upstream and downstream oil sector is a mess,” said Varzi.

State-run Asian energy firms have taken on more projects as western firms have left, but analysts say they often lack the experience and technology needed by Iran’s oil industry.

This has left Iran struggling to arrest a production decline rate of around eight or ten percent at its mature fields, analysts said, let alone increase output.

In its medium-term outlook published in June, the International Energy Agency forecast Iran’s crude capacity would decline by 675,000 bpd by the end of 2015 to roughly 3.3 million bpd.

In a monthly report, the IEA, which predicted the new sanctions would have a material impact, pegged Iran’s capacity at 3.96 million bpd, below the 4.1 million bpd Iran says it has.

It is difficult, however, to say precisely what Iran’s capacity is as output is limited by targets agreed with OPEC.

Sanctions not the only factor
Sanctions are not the sole factor in the decline of Iran’s energy sector. Analysts also blame political interference as President Mahmoud Ahmadinejad has increased his control over the strategic industry, on which government revenues depend.

Companies with connections to Iran’s Revolutionary Guards have taken more energy contracts under Ahmadinejad. This has contributed to delays with projects as some of the firms lack the expertise necessary for the work, analysts said.

“It’s not so much because of sanctions but because of weak management of the sector,” said Bill Farren-Price of consultancy Petroleum Policy Intelligence.

“Unqualified companies are being awarded contracts they are not capable of properly implementing. There is an increasing politicisation of the oil ministry, the National Iranian Oil Company and the contractors.”

Even with the upstream and downstream impact of the latest sanctions, there are those who say Iran would find a way to maintain the sector and who are unconvinced by the latest measures.

“I think the sanctions have in fact been token sanctions. I think the global consumers realise that Iran is a very important player in the energy industry and they are not going to do anything that damages the industry without having repercussions on their own economies,” said Sadad al-Husseini, a former senior official at Saudi state oil firm Saudi Aramco.

“For the longer term, there will be enough countries that are concerned about Iran’s output,” he said, naming China and India as examples. “It’s never easy to make an embargo hold across the world.”

“We have a lot of crude oil on land and offshore,” OPEC Secretary General Abdullah al-Badri told reporters on the sidelines of an industry event in Doha. “OPEC is overproducing, there is no doubt about it.”

Badri urged greater compliance from OPEC producers with deep curbs in production agreed in 2008. The group agreed to cut output by 4.2 million barrels per day then, but higher prices have encouraged some members to informally boost output and the group is now delivering around half of the agreed cut.

Core Gulf Arab members Saudi, the UAE and Kuwait have been the most disciplined in holding to output restraints.

The oil minister of OPEC’s top producer and most influential member Saudi Arabia said oil market fundamentals were balanced.

“There is balance between supply and demand,” Ali al-Naimi told reporters.

The drop in oil prices was linked to speculative play as the market was weighed down by uncertainty sparked by Greece’s debt problems, Badri said.

OPEC had no price floor to trigger action, he added.

“We don’t have a target price. I think it [price drop] is because of the Greek problem,” Badri said.

A senior Gulf OPEC delegate told reporters the impact of the Greek debt crisis on oil demand would be limited and that prices were unlikely to slide to $65.

“I don’t expect the price to go to $65,” the delegate said. “The economic crisis in Europe will be limited and contained.”

Wait and see
OPEC would take a wait to see if markets calmed before considering any action, Badri said.

“I’m not going to move because the price goes up and down, volatility is the name of the game,” he said.

The group had no plans to meet in response to the recent tumble in prices, Qatar’s Oil Minister Abdullah al-Attiyah said.

OPEC was next scheduled to meet formally in October to discuss oil supply policy, which it has kept unchanged since late 2008.

Demand for oil was expected to grow by around 900,000 barrels per day in 2010, led by rising appetite from Asia, in particular China and India, Badri said in a presentation to an Arab energy conference.

“The economic recovery is proceeding at a satisfactory pace. Oil demand is growing again and is expected to grow by 900,000 barrels per day in 2010,” Badri said.

Turmoil in Europe and the possibility that China would tighten its fiscal policy to slow inflation were among the main downside risks to oil demand growth, the International Energy Agency’s Executive Director Nobuo Tanaka told reporters.

Oil was discovered in 1978 deep under the forest floor in the corner of the taigan region in Eastern Siberia, but the many challenges of drilling here were created hundreds of millions of years ago in a churn of silt and sea water.

“There was an ocean here, and it covered all this land,” Igor Rustamov, head of Verkhnechonskneftegaz, the TNK-BP led operator of the field, said. “There was a migration of liquids into the reservoirs.” The modern-day result is one of the more difficult drilling propositions in the Russian oil industry – layers of hard rock and pockets of salt deep under the Siberian taiga, 1,200km from the nearest major city. The oil which emerges is shipped eastward through a newly built $25bn pipeline and loaded onto tankers at the Pacific port of Kozmino, where it competes with Middle Eastern crude in the lucrative Asian market.

It also crosses the Pacific to refineries in the US, where it has acquired a following as a replacement for crude from Alaska’s declining North Slope. For all the field’s complexity, such challenges are normal in Russia, the world’s largest oil producer, which is struggling to keep output steady at 10.2 million bpd as Soviet-era fields decline.

Fields like Eastern Siberia’s Verkhnechonsk, set to pump nearly 100,000 bpd this year and reach its plateau of over 150,000 bpd in 2014, are ever more complex and remote, but essential to maintaining Russia’s oil exports as the Soviet oil heartland of Western Siberia declines.

While the bulk of  Russia’s output come s from those old fields – Western Siberia holds nearly 3/4 of Russia’s reserves – East Siberia is keeping the oil flowing to growing markets of Asia via the ESPO pipeline, which is due to expand to one million bpd in 2012, a tenth of Russia’s total output.

Western Siberia, too, requires heavy investment in technology to maximise output from crudely tapped wells, but the wells have already been drilled and the pipelines, power lines and roads built.

In the east, oil companies face up-front costs to get oil flowing from fields surrounded by nothing but forest for hundreds of kilometres. Even drilling contractors willing and able to work here are harder to come by.

Up to $6bn in investment have been committed to Verkhnechonsk with a view to healthy returns at oil prices from $75-$120 per barrel. “I am positive that Verkhnechonsk will eventually be more profitable than Western Siberia,” Nikolai Ivanov, TNK-BP’s director for upstream planning, said recently.

Mapping progress 
High up on a rig, an operator tracks progress as length after length of pipe bears down through layers of rock, then veers off to the side, using a state∞of∞the∞art tracking system to adjust the path as it goes, tapping the richest beds. Seen from above on a map, the wells wend their way outward from the pad – more horizontal than vertical, said one worker at Pad 19, where one of the contractors at the field, KCA Deutag, was drilling its newest well.

“If you take an ordinary pencil and bend it, it will break,” he said, drawing a parallel to the steel pipe used to drill the curving wells, some of them 2,800m long or more. “But what if the pencil is a metre long?”

Similar technology is in use at only one other Russian field: Rosneft’s Vankor, a 300,000 bpd Arctic field, which this year has kept the country’s oil output at post-Soviet peaks with a stepped-up drilling campaign.

That oil companies are willing to spend billions of dollars to drill here is in part due to the government’s willingness to hand out exemptions on mineral extraction tax and export duty on crude. The operators, encouraged by the duty break, had already decided to add a new drilling rig to speed up development at the field when the government, noting the rise in oil prices in the two years since it began to produce, cancelled the exemption half a year earlier than planned. The government defends the move, saying it is targeting internal rate of return of around 15 percent on behalf of the companies.

But ad hoc tax breaks for individual fields are controversial and may be consigned to the past if the government, after the implementation a reform of export duty in October, follows through with a more radical move to field by field profit-based taxation. “If things were done purely on the basis of economic considerations, perhaps some of these development projects would not be going ahead,” said Alexander Burgansky, head of oil and gas research at Otkritiye in Moscow.

“East Siberia is being incentivised not because it is the only way to sustain its oil production but that is what Russian government has decided to do,” Burgansky said, adding: “It also has political implications for the Asian markets and Southeast Asia.”

Lost gas
A more serious consequence of the field’s location is the fate of the associated gas extracted as a by-product of oil production from the gas-rich field. For lack of a nearby market, hundreds of millions of dollars worth of gas is burnt off, or flared. With an accelerated field development plan in place, the more oil produced, the more it must flare.

“The lost revenue is taken into consideration, but it’s never in favour of the gas,” Rustamov said. “The most economical way of using the gas is to flare it.” In Western Siberia, oilfields regularly burn power at their own plants and sell their excess electricity to the grid, if they cannot deliver it directly to Gazprom.

Far from the grid, Verkhnechonsk burns associated gas in two captive power plants which consume just 8.5 percent of the associated gas. A third, more powerful 63 mW plant will be built next year. From 2013, when a new $168m gas re-injection facility comes on line, it will be pumped back underground to wait for Gazprom to build a new pipeline that could also link Verkhnechonsk to new gas markets.

The gas export monopoly must build new pipelines to supply Siberia’s own customers as well as to ship gas from its Chayandinskoye field to the Pacific coast, more than 2,000km to the east of Verkhnechonsk. Rustamov jokingly states: “It’s just where Mother Nature put it.”

The Paris-based adviser to 28 industrialised economies revised upwards by 10,000 barrels per day (bpd) its expectations for the rise in global oil demand this year. It now sees demand increasing by 1.4 million barrels per day in 2010.

Outright demand will be 86.3 million bpd, still lower than the 86.5 million bpd used in 2007. Consumption has fallen for the last two years.

“Oil demand in China and Asia has been revised higher by 70,000 bpd from last month, which has more than offset a revision of 60,000 bpd in the OECD,” said David Fyfe head of the oil industry and markets division of the IEA.

“By 2011, we’re expecting something like another one million bpd of growth, which would be the highest ever, but it hinges on the economic recovery.”

Fyfe said the cold winter hitting many members of the Organisation for Economic Cooperation and Development was likely to have a limited impact on oil demand.

Over four million travellers a day use the Autostrade per l’Italia (ASPI) network. With its concessionaire subsidiaries and a network under concession of over 3,400km, ASPI is the leading European Concessionaire for toll motorway management and for related transport services. The Group also operates overseas in South America, Poland and the United States, totalling 800km of motorway network. Companies like ASPI, operating outside the Emission Trading System, quite often encounter many types of obstacles in their quest of a high carbon management profile: quick-win solutions with significant impact are usually not available. In many cases they end up building pilot-scale, isolated showcase plants and installations, as a means to testify their environmental consciousness, without, however, dealing with significant volumes, in terms of greenhouse gas reduction.

A couple of years ago, ASPI resolved to dedicate resources and capital to carbon management and launched a dedicated programme stemming from the following headlines:
• Following EU guidelines, CO2 reduction must pursue via energy and emissions savings, as well as through renewable energy generation.
• Whichever the initiative, whether based on proprietary know-how or on commonly available technologies, it must be fit for broad deployment: prototypical, pilot-scale solutions are of no interest if not suitable for a quick scale-up.
• Every solution has to be conceived, designed and realised internally and on the Company assets.  
• 360 degree approach: all areas of ASPI activities are to be explored for opportunities and significant numbers generated via multiple projects and initiatives.
ASPI has therefore launched a number of parallel and concurrent initiatives to control its direct emissions, spanning from aggressive energy saving plans (replacement of traditional lighting with LED-based new devices, upgrade of vehicle fleet, low∞consumption pavement maintenance techniques, low-carbon strategies for building management etc.) to an extensive renewable energy generation programme based on photovoltaic technology. Big figures have also been obtained as far as indirect emissions are concerned (those connected to the motorway users) through proprietary know-how and technologies, such as the Telepass and the Safety Tutor.

Along the lines of energy saving, one of the most  important project involves the gradual replacement of traditional high∞pressure sodium lighting  with more efficient permanent LED lighting in tunnels. This action results in considerable energy savings with a reduction of CO2  emissions of about 40 percent and the significant containment of maintenance costs, retaining the required safety standards. In 2009, 6,378 lighting fixtures were replaced. For 2010 the installation programme counts a further 10,766 LED units, reaching approximately 50 percent of the total, with annual energetic savings of around 4 GWh, bringing an estimated environmental benefit in terms of savings of CO2 emissions in the atmosphere of around 2,120 tonnes.

Still on the theme of reducing energy consumption and efficiency improvement Autostrade per l’Italia carried out actions on multiple fronts:
• Vehicle fleet, providing for a careful  management through the in-house implementation of a satellite system to track the position of vehicles (to help reduce intervention times and kilometers travelled) in addition to the replacement of old vehicles with cleaner and higher efficiency models.  The fleet’s average CO2 emissions went from 131g/km (2008) to 129g/km(2009) per vehicle. Kilometres travelled also dropped by 2.8 percent on 2008. Such measures produced a further reduction of 214 tonnes of CO2 emissions.
• Motorway pavement maintenance, using cold in-place recycling procedures and techniques, which  offer the greatest savings in economic and environmental terms, limiting the use of virgin raw materials and curbing costs, fuel consumption and emissions linked to transport and disposal. Total CO2 saved due to road pavement recycling in 2009 was roughly 8,000 tonnes.
• The “Green Building” project, initially targeted at making Rome headquarters energetically self∞sufficient and planned to be deployed on other premises. The project started with  passive systems in buildings such as variable flow sensors for lighting and presence in the common areas, the application of sunlight screening films and the centralised temperature control of all spaces. This is, however, a preparatory phase for the second stage of the project involving the implementation  of a system for the combined production of electricity, heat and cooling (tri- generation). Fuelled by vegetable oil, the module is equipped with a high-efficiency heat recovery system from hot exhausts, engine oil and coolant fluids, thus generating heating/cooling streams, while producing electricity for on-site consumption. Through the combination of all these actions, the building, also equipped with a 500kWp PV generator, requires significantly less energy compared to the original 4.5 GWh/year and becomes almost carbon-neutral.

From the viewpoint of renewable energy, ASPI is currently engaged in an extended programme for the construction of 100+ photovoltaic generation sites. A first phase of the initiative encompasses the installation at 87 service areas of a PV system based on a European Patent obtained by ASPI integrated into sun-shading shelters provided for the users’ convenience: this phase will be completed in 2010 and account for approximately 4MWp of installed solar power.

Phase 2 has also been launched with the design and construction of several other PV sites, each of them ranging from 200kWp  to 1MWp and consisting of a mix of stand-alone and integrated modules, also including two ground-based power centers. Phase 2 has a target of adding 3MWp to phase 1, thus leading to a total of 7MWp planned for 1stQ 2011 and an overall CO2 reduction in excess of 5,000 tonnes per year. As mentioned already, great environmental benefits have been achieved as regards indirect emissions. Traffic congestion produces wasted fuel, increasing trip times by slower speeds, vehicular queuing and “stop and go” events during which emissions increase. Investments in improvements of service levels and safety standards  (such as  motorway expansion projects through the construction of additional lanes, better work site programming and faster removal of accident vehicles, improved winter operations, adoption of accident prevention measures – the Safety Tutor System ≥ adapting infrastructure capacity to meet changing traffic volumes ≥ “dynamic third” lanes ≥ and better information on traffic conditions), have helped over the years to significantly reduce the annual value for traffic  fluidity or Total Delay Index (defined as the total number of hours of vehicles using the motorway at lower speeds than the reference one) decreasing by 36 percent in the three-year period 2007-2009, and thereby significantly reduction of CO2 emissions and other atmospheric pollutants generated by motorway traffic.

Using  two calculation models,  the real advantage in terms of CO2 savings deriving from the introduction and subsequent development of the Telepass (electronic toll collection system ) and Tutor (average speed measuring system installed on 32 percent of ASPI motorway network) systems has been also estimated. In 2009 26,732 tonnes and 56,300 tonnes of  CO2 were saved thanks to Telepass and Safety Tutor respectively. Finally, it is worth mentioning the importance in terms of environmental impact of initiatives directly  involving motorway network users. Autostrade per l’Italia has launched its first project of carpooling applied to highways. Carpooling is a sustainable and more environmentally friendly way to travel. It not only reduces the costs involved in car travel by sharing journey expenses (such as fuel and tolls) between the people travelling, but  reduces carbon emissions, traffic  on the roads, and the need for parking spaces. The initiative, involving in this first phase customers who travel the A8 and A9 highways daily from Como and Varese to Milan and back, both helps to reduce levels of pollution and to improve traffic flow on a particularly busy road affected by extension works. The carpooling project includes a discount for cars carrying at least four people, a dedicated track toll and a web platform to facilitate the matching of supply and demand that has become in just three months the first carpooling platform in Italy.

Electric wires and metal pipes lay in a jumble. Tiles dangled from the ceiling. Dust hung heavily in the air.

But Lu, a construction supervisor, was supremely confident that a train would be gliding past the very same spot by October, the first of 11 metro lines planned in this rustbelt city in northeastern China.

“We’ve been working nearly every day for the past year and we will have it done on schedule. Then we’ll get a month off and come back to work on the second line,” he said with a weary grin.

Shenyang’s ambitions are vast in scale and yet commonplace in China. More than 30 cities have started building or have submitted proposals for entirely new metros. The five cities with existing systems are expanding them. And all of this is just part of a larger investment frenzy in railways, airports and roads.

The stakes could not be higher.

Managed well, the infrastructure boom will bestow on China the hardware to power its growth for decades to come. Managed poorly, money will be squandered, leaving the country with bridges to nowhere and a hefty bill.

But China has not become the world’s fastest-growing economy by dragging its feet. Things tend to move quickly once the government throws its weight behind big projects.

“You solicit views, you apply for approval and then you just do it,” Zhang Zhenbang, vice general director of Shenyang Metro. “London needed more than a hundred years to build up its metro, but we’ll need less than half that in China.”

Over-investment?
When exports collapsed last year due to the global financial crisis, China turned to infrastructure to make up the shortfall.

It built and expanded 35 airports, opened 5,557 km of railways, including the world’s fastest high-speed line, paved 98,000km of highways and, of course, ramped up work on metros from Shenyang in the north to Guangzhou in the south.

Overall, gross capital formation – the best indicator of infrastructure spending – accounted for eight percentage points of the economy’s 8.7 percent growth last year.

The headlong rush to build, build, build has inspired a heated debate among China-focused economists about whether the government is simply overdoing it.

Michael Pettis, a senior associate at the Carnegie Endowment for International Peace in Beijing, is adamant that China already has the world’s best infrastructure for its level of development. Investing too much now suppresses the household spending that is badly needed to prop up a hobbled global economy.

“The growth in Chinese consumption will necessarily be limited by the growth in Chinese household income, and Chinese household income cannot grow quickly enough if they are forced to pay for infrastructure that’s not economically justified,” he recently wrote.

Yet others think that the better benchmark is not countries at China’s current stage of development, but those it is quickly catching up to. Chinese rail density is, for example, only 40 percent of the US level and 11 percent of Japan’s.

Qing Wang, an economist at Morgan Stanley, noted that China’s rate of return on capital – a basic measure of investment efficiency – far outstrips that of most advanced countries.

“We would argue that claiming ‘over-investment’ in China simply based on the pace of investment growth is equivalent to making the observation that ‘a person must be overweight because he seems to be eating a lot’,” Wang wrote in a research note.

“A hearty appetite reflecting a fast metabolism is a sign of health and vitality.”

Money well spent
In Shenyang, at least, the rationale for building a metro is clear enough. Japanese occupiers in World War Two had planned a four-line metro system when the city was home to just over one million people.

Nearly 70 years on, the population has grown to about eight million. Cars clog potholed streets from dawn to dusk, taxis double up on passengers during rush hour and buses are standing-room only.

“People here have no experience of metros, so they don’t really know what it will do for the city. But I’m very excited. I think it will be a big help,” said Sun Nan, a fast-talking real estate agent in his 20s.

Super-charged Chinese growth has boosted government coffers, providing it with plenty of firepower for investment. The budget deficit was just 2.2 percent of GDP last year, even with the burst of infrastructure spending.

Still, some investors fret that China’s local governments are taking on too much debt. Zhang, the metro official in Shenyang, did not beat around the bush.

“The key challenge for us is financing. It’s no problem getting bank loans, but you can’t rely on that alone because of interest charges. So there is fiscal pressure, and we are not a rich city,” he said.

The first phase of Shenyang’s metro will span 50km at a cost of 20 billion yuan ($2.9bn). Based on that average, the city’s planned 400 km system – longer than New York’s – will cost 160 billion yuan.

The expense will be spread out over decades so that the government need put only five percent of its annual municipal budget towards its construction, Zhang said.

Return on investment
Calculating the direct return on all of this investment is something of a mug’s game.

Zhang noted a study by Chinese researchers that argued that every 100 million yuan spent on metro building fuelled a 236 million yuan rise in total economic output, though he waved his hand at the precision of such a claim. As the city’s complexion changes, so will its economy, bringing unanticipated costs and benefits.

Niu Ge, an old man selling tobacco in a run-down shop next to land zoned for a gleaming glass metro station, knows this uncertainty well.

“I plan to expand when it opens. I’ll set up a cigarette stand outside of the station,” he said. “My biggest concern is that the government may want to relocate us.”

On the surface, the pace of Chinese infrastructure investment will slow dramatically this year. The central government has actually budgeted for a 2.7 percent fall in spending on transport, compared with a 38.6 percent rise last year.

But this is likely to be transitory, a reflection of where China stands in the current economic cycle: after flooding the economy with cash to drive it through the global downturn, Beijing is now tightening its belt.

From a structural perspective, China’s investment in infrastructure will remain strong for decades. The government has set its sights on a world-leading network of roads, railways and airports and has already set in motion a multitude of big-ticket projects.

“It will take us another 30 years at least to complete the metro in Shenyang,” Zhang, 58, said with a chuckle. “Not only will I have retired, I will be dead by the time it is done.”

Today, almost all power distribution companies have a smart grid manager; however, this does not imply that they previously had unintelligent power grids, but a recent paradigm shift in how to structure power distribution has caused power distribution companies to rethink their power delivery strategies on a global scale.This paradigm shift is caused by the growing political requirement to lower the carbon footprint throughout the energy sector. This requirement to reduce CO² will have direct and potentially immediate implications for power distribution companies and will lead to significant investment in power distribution grids.

The investments are needed due to a variety of historical factors, one of which is: ‘Electrical power delivery  Today’ (see boxout) which was designed as a black box concept, where power is put into the box on one side and is delivered to the customers on the other side.

Therefore, with the political intentions and demands to lower the carbon footprint, power distribution companies need to rethink power generation, power distribution and the refinement of how that power is used.

Fundamental change
This fundamental change in how to think of power requires a significant change in how power distribution grids are designed and how they are operated. The new distribution grids must be able to handle bi∞directional power flows, absorb power generation from small local power producers and handle new power consumption patterns.

New grid operation technology and more advanced tools are needed to integrate more decentralised power generation. This pushes power distribution companies to handle and operate the new load patterns like differentiated price structures which are based on consumption and the usage of electrical vehicles.

A fundamental redefinition of their service and operation structure is also needed and investments in advanced IT systems are now inevitable. This redefinition creates a demand for a far more flexible and dynamic power flow; a power flow that must be monitored and controlled and that unlike today’s technology, must be able to supply energy bi∞directionally. This new style of power grid is more commonly known as the ‘Smart Grid’.

Plan A vs. Plan B
Plan A – The most straightforward way to solve the new market situation, would be to simply change and upgrade the whole power distribution network by adding new components adapted to meet the new requirements. A number of existing market players – like ABB, Siemens, Schneider and GE Energy have designed full solutions as answers to the new market situation.

However, there are some heavy challenges to Plan A – one is the cost. The existing installed infrastructure is still fully functional and does it make sense to retire a complete infrastructure using CO2 as an argument? We think not.

The second challenge is that changing the existing infrastructure will require heavy construction work and a substantial number of blackouts together with implementation times running between 25–35 years for a typical power distribution company.

However, building a Smart Grid from scratch is extremely expensive and time∞consuming. Therefore Plan B – led by some of the most advanced power distribution companies in the world, is now being defined.

They believe the answer is ‘Reusable Power Distribution’; these frontrunners digitalise their existing infrastructure by using cutting∞edge technology, transforming their ageing power grids into state∞of∞the∞art smart grids. The digitalisation of the existing power equipment allows the power companies to prepare for a new power distribution future with more alternative energy sources as well as different load patterns from electrical vehicles.
The great advantages of using new technology to digitalise the power grids are many, but the price of the hardware itself, which is much cheaper than conventional equipment, and the fact that often new sensors and devices can be applied to the power grid without disturbing the power distribution, are the most significant. Once the sensors and devices have been applied to the power grid, the rest will be based on intelligent software which can be upgraded like traditional software without disturbing the customers.

On the horizon
From the technological side, a number of new start∞up companies like PowerSense, Locamation, FMC Tech, BPL Global and many others are introducing breakthrough technologies that will revolutionise the power industry and enable the suggested Plan B for Smart Grids.

PowerSense and IBM have designed and installed the biggest Smart Grid in the world at Ausgrid in Australia. As one of the main outcomes, Ausgrid has increased its distribution grid capacity by more than 20 percent, due to better control and monitoring of the power grid and has today a fully digitalised power grid to take on the power grid challenges of the future. tne

For more information
www.sensethepower.com

It will redefine the energy landscape; how the world generates, distributes and consumers energy, as well as our lifestyle and the environment.  The result will be a connected energy superstructure for the 21st century and beyond.

Within the superstructure of 21st-century energy lies a key foundation, the Smart Grid (SG). A superstructure to be deployed throughout the electrical infrastructure that integrates all the key facets required to deliver on the promise.  Essential to creating this foundation will be three intersecting components: policy, technology and economics. Cisco refers to this confluence as “Gridonomics” and the realisation of a new energy infrastructure will depend on all three “Gridonomic” pillars. So, what are the elements of each? And how will their convergence impact our energy, economic and environmental futures?

Policy makers globally recognise that the transformation of the electric grid is an opportunity to address broad objectives related to climate change, energy independence and clean technology-based economic growth. The creation of a “smart grid” will bring improved grid efficiency by reducing system losses, help integration of large amounts of renewable resources, improved system utilisation as well as grid resiliency and reliability (including cyber security), among other things. Not only will these benefits help ensure sustainable economic growth, they will also help reduce carbon emissions and positively impact global climate change. While the objectives are desirable, it is essential that coordinated national and local regulatory policies consider the impacts to customers involving new pricing and programmes, technology adoption and the potential for resulting rate increases. 

Additionally, the societal and customer value from these policies must be articulated clearly and consistently. In the US, policymakers and key stakeholders need to do a better job of educating customers on the benefits and costs associated with implementing a thorough climate change policy – which includes shifting energy use from fossil fuels to electricity supplied by an increasingly cleaner portfolio of generation and demand side resources.
 
While the smart grid is often associated with just ICT investment, it will be the integration of both energy technology and ICT that actually results in a smarter grid. It is essential that utilities develop an overall smart grid architecture that reflects the physical changes to the electric system as well as the integration of ICT.  Key technology trends include:

Distributed Generation (DG): In Europe, energy from renewable resources in some countries is reaching 50 percent or more of energy delivered on a given day. In the United States, 38 states have Renewable Portfolio Standards or Renewable Portfolio Goals. 

Sensors: There is now widespread deployment of various sensor technologies across the electric grid. In North America, synchrophasor and smart metering deployments have been accelerated by US Smart Grid stimulus funding.  Australia has also recently awarded smart grid funding that will result in a significant deployment of grid-sensing technology. 

Plug-in Electric Vehicles (PEV): PEVs will be coming to the mass market over the next 12 months. In Europe, analysts anticipate perhaps nearly 500,000 PEVs will be on the roads by 2015 and in the US research suggests PEVs will make up 20 percent of new car sales by 2020. The current analog electrical grid was built over fifty years ago and not set up to handle “appliances” of this nature being plugged into the grid all at once, or even one at a time.

Energy Storage: Energy storage has the potential to enable the electric system to be more reliable and stable, and provide better power quality and customer-side energy management. Climate and energy policies are advocating energy storage as an asset that can be used to mitigate renewable energy intermittency, and storage technologies that can provide adequate dynamic response are becoming commercially viable at grid scale. 

Networks: Utilities worldwide are rethinking their telecommunications needs and infrastructure architectures to address requirements for highly-available, low-latency wired networks to link substation and control centre operations as well as robust, secure wireless field area networks to support distribution automation, mobile field force automation and smart metering. 

Data Analytics: Analytics will leverage data from many sources to enable smarter, faster decisions by automated information systems, utility personnel and customers. This tsunami of data will be managed more effectively through the use of communication network-based tools. 

Cyber Security: The transformation of traditional energy networks to smart grids requires an intrinsic security strategy to safeguard this critical infrastructure. In the US, concurrent and complementary efforts are underway to address the development and implementation of a lifecycle approach for the electric industry. The results – expected over the next 12-18 months – can be leveraged worldwide by policy makers and utilities.

Distributed Intelligence: Distributed intelligence embeds digital processing and software in and along the power grid infrastructure to implement flexible grid automation. Networking connects these processing elements together so that they can work individually but act collectively to carry out power grid operational and business functions in a non-centralised manner. The use of distributed intelligence provides opportunities for utilities to implement scalable systems to integrate greater amounts of renewable distributed generation, enhance grid efficiency and operations. Globally, trillions of dollars will be invested over the next twenty years to make the electrical grid more modern, secure, reliable and efficient. The current economic recession, however, has heightened the sensitivity of utility rate increases and capital investment. As such, it is essential that current and future benefits to society, consumers, and businesses be clearly communicated. 

Societal Value: Societal value attempts to capture the importance of climate and energy independence as well as the economic value from increased reliability and customer benefits. For example, the societal value of the smart grid policy trends identified above was recently estimated by McKinsey as $130bn annually in the US by 2019. This forecast attempts to capture the entire value of US smart grid investment, what McKinsey calls the “value at stake.”  

Customer Value: Central to smart grid investments and new business models is the creation and articulation of increased customer value. Exciting new customer products and services that leverage technology platforms are being deployed. These include information services, financial services and energy management, among others. Adoption of responsive technologies can also develop compelling customer value. Adjacent consumer technologies, like “apps” for smart devices are quickly emerging. 

Business Value: The electric system in most developed countries was largely built 40-50 years ago and much of the core infrastructure needs replacement. In the US, the Edison Electric Institute (EEI) forecasts that over $1trn will be spent over the next twenty years on electric infrastructure. The investment associated with Smart Grid technologies could be upwards of $175m in the US alone, according to EEI. In any event, the regulated return on this investment will mean that many utilities will have an opportunity to grow earnings for an extended period while providing better customer service and improved reliability. 

Additionally, new business opportunities are emerging for both utilities, existing competitive energy services providers and new entrants to create customer value as described earlier. Multiple means of monetising these opportunities exist, ranging from traditional product sales, to wholesale markets for responsive demand and energy conservation, to financial services, and to potentially the several “free” market models that have emerged over the past decade in other commercial sectors. While the electricity sector is unique on many dimensions, it is clear that the traditional regulated business model will evolve and new business models will be used to create customer value and meet broader policy objectives.

Further information: www.cisco.com