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The energy crisis

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Oil prices have fallen from their stratospheric levels, but it is clear that the energy crisis is far from over. First the issue of scarcity remains on the front burner. The current global recession may have depressed demand for energy some, but demand will jump up possibly within a year. There have been no major discoveries of oil in recent years – only a few isolated finds. There is abundant oil, such as in the oil sands of Alberta, but they are costlier than existing sources and present bigger environmental challenges.

The energy crisis, thus, is not only an issue of supply vs. demand, but also the issue of supplying clean energy. However much our politicians promise a smooth transition to a clean energy future, the reality is that there is no viable clean energy source. Clean energy, by definition, is costly, and not suitable for mass production.

As we recently saw with biofuels, yes, we can reduce our dependence on Middle East Oil but the costs may be high.

Last year’s dramatic increase in food prices was mainly blamed on the shift of valuable agricultural land to biofuel production, although other factors such as droughts had something to do with the rise in global food prices. Many scientists have also suggested that a shift to biofuels will raise food prices, which in turn will lead to a conversion of marginal forest lands in developing countries to agriculture, thereby increasing carbon emissions globally.

The story can be repeated for electricity generation. Although renewable power generation has been growing at a fast rate, albeit from a low base, it is not clear what fraction of global electricity can be generated by clean sources. Wind energy is now a $37bn business and solar is about half of that. A significant portion of new power generation in the developed economies is from renewables, yet the long∞term prognosis is far from clear. The only realistic source that can supply large volumes of base load power to replace coal burning is nuclear power.

Nuclear capacity is growing at rapid rates, especially in the developed economies of Asia. The construction of new nuclear power plants is being actively debated in Europe, which aims to reduce its dependence on natural gas supplies from Russia. 

Many environmentalists have recognised the difficulty of finding a good substitute for coal and have embraced nuclear power. But the prospects for new nuclear plant construction in developed countries are still not very bright.

The global financial crisis may have alleviated the need for an immediate solution, by dampening energy demand. On the other hand, by lowering the price of energy, it has also helped postpone much-needed policy attention in looking for ways to increase the supply of clean energy. This is especially true as a new administration takes up the reins in the United States, the world’s major energy consumer.

Hope in a few

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Most AGMs, regional conferences, party seminars are greeted with scepticism, doubt and a degree of contempt from the world’s media. Human nature imposes us to tax our fellow man when the individual has been silenced. Funny that we could be so discerning of those who place themselves under the umbrella of thought leader, in order to attempt to create a more perfect world for her citizens.

Yet, under the critical gaze of the general public, there is little room for faux pas, as is evident from many political rallies or televised forums in which those announcing themselves and their ideas onto the global sphere should be ripe for the picking. Such is the global view of those placing themselves on the high pedestal of international thought leader. Indeed, Big Brother is the man sitting in front of the television, the woman on the train reading the paper – not these few who put themselves forward to cure what ails the world. Results from such public broadcasts, meetings and the like, must be affirmative, beneficial for all and sundry. Without seeming to pierce one’s ear for the sound of the hoofs of the four horsemen, it seems unlikely that a single round-table of the world’s finest minds can offer the immediate solutions that the world’s critical masses demand.

The state of world markets, the silence that permeates so ominously from Al Qaeda and the unfortunate but necessary requirement to shove the global warming issue to the back of our minds all make the politicians and so-called “thought leaders’” job just a little more difficult. Place them in the public eye and one can only imagine that during troubled times like this, snags can be attracted like a fiddler to a square dance. With such a great fall almost inevitable, one must of course consider the fame and fortune that can be reaped on those who actually offer any reasonable solutions whatsoever. Unless, of course, they can provide the conclusions the global pavilion needs to these many faceted and seemingly endless string of concerns.

But if any of these issues can be clarified anywhere, it’s at the World Economic Forum’s Annual Meeting in Davos, Switzerland. The frosty atmosphere of world markets is matched only by the climate in the now infamous small town, the destination made somewhat of a traditional locale for the grand affair.

We attended last year’s meeting, which focused on food prices across the world, with speakers such as Josette Sheeran, World Food Programme Executive Director; Robert Zoellick, President of the World Bank; Ban Ki-moon, UN Secretary General and Peter Bakker, CEO of TNT. These industry leaders offered their own views on the progressions and transgressions of hunger in the twenty-first century. The impact of the meeting was a more focused aim to address these problems, and for some time nation’s leaders delved into the subject, only for the debacles across markets to force politicians to reassess situations closer to home. The movement that permeated from that meeting was unfortunately wryly cut short due to the unexpected turbulence thrown up by markets over the last twelve months.

The spiralling loss of confidence was not quite at the stage it would reach at Davos last year, yet it seemed that there was an underlying sense that something dramatic was about to happen. Indeed, many seemed optimistic that a shift in trade would benefit the world, even as the tough times were in their infant stages. “When this is over we will wake up and realise that the issue is that the transformation of wealth and information and industrial activity is taking place at a pace none of us has ever experienced,” said Michael S Klein, Chairman and Co-Chief Executive Officer of Markets and Banking at Citi. Or as Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy, put it: “We are entering a completely new era of world history – the end of Western domination. In the Industrial Revolution there was a rapid increase in living standards of 50 percent in one lifetime. In Asia today in one lifetime you will see an increase of 10,000 percent”.

Rising to the challenge
Perhaps with that in mind, and with great emphasis on the words “uncertainty” and “complexity”, 2009’s forum will focus on solutions and how to attain them on a global front.

The challenge set by the organisers of this year’s meeting is to conform to the idea that globalisation is a notion we should grasp, leaping national boundaries and allowing for intergovernmental strategies to solve these many challenges. As markets fall apart on the global front, the WEF believes it should be in this global sphere that we rise to the challenge. Of course this noble cause has been advocated by some of the world’s real thought leaders, who will seek to enlighten corporations and nations alike on the way to progress in the face of adverse conditions. Analysts such as Nouriel Roubini, who predicted the current downturn in markets, is expected to offer his opinion on what should be done by those who have the power to steady the financial ship. Within that, many of his colleagues will debate and confront price fluctuations and supplies. Many leading scientists are expected in order to answer the question:

How can science literacy and policy-making be improved so that advances in engineering, medicine, nanotechnology, genetics and computer science are not perceived as threatening our ethics, humanity or civil liberties? Also offering their opinions to these issues will be Russian Prime Minister Vladimir Putin and WEF co-Chair and CEO of News Corporation Rupert Murdoch. 

Collaborative innovation
Many are optimistic about 2009’s meeting. Indeed, many see the meeting as particularly important for the future of nations. Suzan Sabancı Dinçer, Chairman and Managing Director of Akbank, said recently, “We believe the region of Europe and Central Asia should adopt a more liberal approach, reducing the role of the public sector in their economies, supporting the private sector, investment climate, corporate governance and enhancing financial deepening.” What she offers to 2009’s meeting, and who will agree with her, will stimulate much interest and possibly draw a line between those supporters of a global community and those against. The issue of globalisation, its pros and cons, will surely be at the forefront of participants’ minds. Speaking volumes may well be the distinct lack of an American presence, who rarely send someone from the White House. Instead, many anticipate someone from the old administration to offer their presence. And whilst George W. Bush might have started his retirement months ago, many have piped Condoleezza Rice to offer her opinion on global affairs.

2009’s summit could be the most important to date – if it goes well, that is. As Jean Lemierre, Senior Advisor to the Chairman, BNP Paribas Group, France, Co-Chair of the World Economic Forum on Europe and Central Asia 2008 said recently, “This is a time when business leaders have questions and they need to listen to each other and work together in order to understand what needs to be done. No one will win by working alone.” Let’s hope the good intentions become realities.

Growing out of poverty

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Severe threats have been issued recently and many of them have had to do either with the current financial or food crises, crises that have come to dominate the political debate globally this year. At the same time unfashionable ideas about how to solve these problems have gained new currency.

Until about a year ago neither issue was of particular import to the political class, unless you were a particular type of policy wonk who liked to plough lonely furrows in unloved fields of expertise. And the general public assumed that there was enough money to go around and there was plenty to eat. Then sub-prime loans became an issue, people started losing their homes and questions were being asked in the House on Capitol Hill and in Westminster too. The banks also started to get very nervous.

At about the same time international bodies such as the UN, NGOs and farmers’ groups started to warn that for various different reasons food was in shorter supply than it had been for decades. Urgent action was needed to be taken to avoid food shortages or famine in many parts of the world and investment was needed to improve production techniques and technology. Agriculture, which had been technology’s poorer cousin for a long time, now has become its poster-child.

There were some good reasons why agricultural investment had been in short supply for decades. Earlier phases had focused on agriculture’s economic role as a one-way path of resources production aimed at supplying industry and growing towns and cities. Green revolutions had led to more greenbacks.

However, as national incomes rise, the demand for food increases more slowly than for other goods and services. Therefore there is a decline after an initial burst of investment in the sector. The decline in agriculture’s GDP share was partly the result of post-farm gate activities, such as taking produce to market, that have become commercialised and are taken over by specialists in the service sector, and partly because producers substitute chemicals and machines for labour. Producers received a lower price and, in return, their households spend less time marketing. As a result, value added from the farm household’s own labour, land and capital, as a share of the gross value of agricultural output, fell over time.

However, demand is now greater than it has ever been. The world population is rapidly growing and Jacques Diouf, director-general of the UN’s Food and Agriculture Organisation late last year called for a greater investment in agriculture as a necessity to avoid famine. In September he reiterated this call as he backed a plan to use surplus European Union money to help those who face famine. The European initiative would see about one percent of the Union’s budget used to help the poor in the developing world. Fertiliser and seeds are two items that could be supplied to farmers under the plan.

With investment, new food technologies will improve agriculture production and help farmers to improve harvests and expand food supplies per hectare and per worker. Increasingly modern economies use more inputs to help grow more food.

Larger capital investments and increasing use of better-trained labour should also contribute to the success of agriculture. Biotechnology has also led to the development of seeds that are disease-salient and drought-resistant. Fertilisers and pesticides are commonly used to reduce potential losses before, during and after harvest.

Transition policy and sustainability

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GasTerra considers it highly important to have access to a stable and well-filled portfolio for as long as possible, and, following naturally from this, using it in practical applications. The value of natural gas demands that it be used efficiently.

As a direct consequence, people are entitled to expect GasTerra to promote the efficient and economical use of natural gas. And it does. Already back in the 1970s and 1980s, the company ran public information campaigns to draw attention to the value of the efficient use of gas. In the same period, the high-efficiency boiler was developed; this has contributed demonstrably to the long-term reduction in natural gas consumption at domestic level.

In the 1990s the Milieu Plan Industrie (‘MPI’ – Environmental Plan for Industry) was set up and introduced. This provided advice to industrial customers on the more efficient use of energy and, in particular, natural gas. At hundreds of companies and even in whole industries, such as the glass and paper industries, projects were implemented which resulted in savings of between 10 and 50 per cent.

This earlier policy has a direct continuation in GasTerra’s current transition policy. The reasons are even more firmly based than before, if that were possible. Concerns about climate change have joined with factors already present such as the overburdening of the environment, the costs of energy and the careful use of finite reserves. A very specific reason nowadays is that awareness of the finite nature of fossil fuel reserves grew at the start of this century. The fossil reserves are still considerable and additional quantities from far-reaching exploration activities (technologically and/or geographically) are foreseeable. Nevertheless, between 2050 and 2100, fossil fuels will be available in decreasing quantities, and it may be that severe, situation∞linked scarcity problems will arise before that. Since it seems, based on current knowledge and forecasts, that demand for energy will double in the period to 2050 and concerns about climate change are shared by many, demands for clean energy processes with fewer harmful emissions and sustainable sources are rapidly increasing.

Facilitating energy transition
With these circumstances and trends as the starting point, GasTerra is applying itself to a policy that facilitates energy transition.

The considerations are as follows. The transition to an age with mainly sustainable energy requires nothing more and nothing less than a fundamental and essential switch in behaviour and technology, and will have radical effects on existing political and economical relationships and structures.

It requires effort and willingness to cooperate from everyone and everything and therefore represents both a collective and an individual process. On the individual side, every business will need to set to work to the best of its ability. For GasTerra, that ability and the expertise associated with it lie in the area of natural gas.

If the transition sequence is seen as a bridge which is being built from one bank – the fossil fuel world – to the other bank – the sustainable world – then natural gas will not reach the other side, but it will help to bring that transition about.

Society is still at the start of that process and, in that phase, natural gas can still ensure, for several decades of this century, that that bridge is built in as clean, as efficient and as sustainable a way as possible from a stable, conventional energy shore. That is what we mean by ‘facilitating’: providing the building of the bridge and the transition with as stable a beginning as possible.

The sustainability policy is part of the corporate policy and as such, part of the annual business plan. The implementing activities come under the SE (Strategy and Planning/Energy transition) department. As GasTerra has no production processes to which sustainability applies, the company is cooperating intensively on an organisational basis with third parties, such as consultants, laboratories and energy companies.

Europe’s security supplier

GasTerra is an international company trading in natural gas. It operates on the European energy market and has a significant share of the Dutch gas market. It also provides gas-related services. The company has a strong purchasing position and has over 40 years’ experience in purchasing and selling natural gas, both in The Netherlands and elsewhere in Europe. Last year’s turnover was approximately €18bn.

GasTerra fulfils a public role regarding the implementation of the Dutch government’s ‘small fields policy’. The aim of this policy is to encourage the production of Dutch natural gas from the smaller gas fields. This policy prolongates the life of the main Groningen-gasfield.

The company is customer-focused, launches new pricing concepts and strives to maintain long-term relationships with market players. GasTerra puts in place sales contracts which express the market value of the natural gas and related services.

GasTerra is committed to sustainable development as a guiding principle for its strategy and actions. The economic and social value of natural gas as a source of energy gives the company an important role in utilising the domestic gas reserves and in energy supply in the Netherlands and the EU. GasTerra promotes the safe and efficient consumption of natural gas and takes active steps to develop further applications.

The company recognises the great importance of energy transition to sustainable energy supplies and initiates projects in that context, ranging from a new generation of boilers that also produce electricity to green gas and cooling with natural gas. GasTerra considers natural gas to be a favourable partner for the an alliance during transition with any renewable source.

Long-term ambition
GasTerra’s strategy is to maximise the value of the Dutch natural gas it supplies. It does this by consolidating and strengthening its position on the European market, chiefly in market segments where demand for natural gas is linked to demand for ancillary services. The company uses the Dutch capacity infrastructure and trading places that are developing in the market. Gas from non-Dutch sources is purchased selectively when it ties in with the overall supply portfolio.

GasTerra wants to help maintain and strengthen the market position of natural gas in relation to other fossil fuels and renewable sources. In that context, the company feels it is important to be a reliable gas supplier to its customers for decades to come.

A carbon-friendly approach

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Many utilities are underway with plans to reduce nitrogen oxide (NOx), sulfur dioxide (SO2) and now greenhouse gas (GHGs) emissions from their boilers, but have units in their fleet that do not justify the capital, added complexity and operating impact of the systems, such as selective catalytic reduction (SCR) for NOx control, alkali scrubbing for SO2 reduction and amine scrubbing for GHGs. Yet, control will be necessary. This field note outlines a multi-pollutant control technology that operates in-furnace, providing practical advances in emissions control without the extensive back-end equipment. It is applicable to virtually all types of solid fuel-fired boilers including wall-and tangential fired, stokers, circulating fluidised-beds, and allows boilers to convert to co- or completely firing of biomass. An important and fundamental feature of Nalco Mobotec’s ROFA® system is optimised combustion through improved in-furnace mixing, which lowers particulate emissions, improves boiler efficiency and can facilitate carbon-friendly biomass firing that provides credit for reduced greenhouse gas emissions.

The primary process
When combustion is staged to provide an initial zone at a slightly sub-stoichiometric ratio of oxygen to fuel, the reducing environment significantly inhibits NOx formation. Staging allows many of the fuel-bound nitrogen atoms to combine with each other to produce N2 rather than react with oxygen to produce NOx. This discovery led to the development of overfire air (OFA) techniques, where a portion of the combustion air is redirected from the burners, and is injected above the primary combustion zone. Conventional OFA can successfully reduce NOx concentrations by perhaps 30 percent, but results in lowered combustion efficiency in the furnace, higher unburned carbon in the fly ash and greater emissions of carbon monoxide (CO).  Rotating Opposed Fired Air (ROFA), as shown in Figure 1, is an advanced overfire air technique that, like conventional OFA, reduces NOx by providing a fuel-rich initial combustion zone via diversion of a portion of the inlet combustion air to points above the burner level. The diverted air is given a pressure boost by an auxiliary fan, and then is injected at locations determined through a design process that includes computational fluid dynamic (CFD) modelling. Individual CFD models are performed for every steam generator retrofitted with the ROFA system.

The technology has been applied to over 50 industrial and power boilers worldwide, including over 30 in the United States.  Many units have been in operation for five years or more. Results have shown that the ROFA system alone can reduce flue gas NOx emissions by 40 to 60 percent, much higher than conventional over-fire air. 

The enhanced mixing provided by the ROFA system also improves combustion efficiency. Typically, unburned carbon (UBC) in flyash is unchanged from baseline conditions.  Carbon monoxide concentrations at the stack are often below 20 ppm.  These reductions are possible while simultaneously reducing excess air, all of which favourably impact unit efficiency. An additional benefit of the enhanced combustion process is a reduction in furnace hotspots that otherwise can lead to premature waterwall tube failures or localised slag formation.

Supplemental NOx control
Additional NOx reduction is possible with the Rotamix® process, a patented process of ammonia or urea injection into the upper furnace. The Rotamix process is similar to conventional selective non-catalytic reduction (SNCR), where ammonia (NH3) or urea [CO(NH2)2] and NOx react to produce elemental nitrogen and water as outlined by the following equations:

4NO + 4NH3 + O2 > 4N2 + 6H2O         Eq. 1
2NO2 + 4NH3 + O2 > 3N2 + 6H2O       Eq. 2

However, the Rotamix system performs more efficiently than a standard SNCR system because of the enhanced mixing of the chemical into the flue gas through the use of high∞velocity air jets. The Rotamix process operates independently of the ROFA process, and has its own chemical feed tank and pumps.  As with the ROFA system, the injection point locations are determined through a design process that is strongly dependent upon CFD modelling to ensure that the chemicals are injected into the proper temperature region of the furnace. The Rotamix process has the potential to reduce NOx again in half as compared to the ROFA system alone1.In fact, in the example outlined in reference 1, the ROFA/Rotamix combination reduced full∞load NOx on an 82 MW (gross) power boiler from 700mg/Nm3 to 120mg/Nm3 at 6 percent O2, or 0.58lb/MMBtu to 0.10lb/MMBtu. The latter value is at the threshold of what more costly SCR systems can achieve.

Going after SO2
For decades, sulfur dioxide reduction technology in coal-fired boilers has been based upon reacting the SO2 with an alkaline material to produce a benign salt. For large units in particular, this involves installation and operation of a large, backend scrubber that typically employs limestone (CaCO3) or hydrated lime [Ca(OH)2] slurries to react with the SO2. Wet flue gas desulfurisation (WFGD) equipment is very large, expensive, and complicated to operate, although well∞designed and operated scrubbers can do a great job of removing sulfur dioxide.An extension of the ROFA system is the technique known as Furnace Sorbent Injection (FSI), which utilises the overfire air system for enhanced mixing of either limestone (principal component, calcium carbonate [CaCO3]) or hydrated lime [Ca(OH)2] in the furnace. These two products respectively calcine or dehydrate to quicklime (CaO), which then reacts with sulfur dioxide (SO2) to form a benign material of calcium sulfate (CaSO4).

CaO + SO2 + 1/2O2 > CaSO4    Eq. 3

Components of an FSI system include a materials storage silo, solid materials feeders, and a pneumatic conveying system to move the reagent to the furnace. FSI may require some back-end modifications. In many cases with simple coal combustion, an excellent device for removing flyash from the flue gas before it exits the stack is an electrostatic precipitator (ESP). However, sorbent injection to remove pollutants alters the quality of the flyash, sometimes adversely affecting ESP performance. The increasingly popular alternative to ESPs on units with sorbent injection, and particularly those utilising activated carbon for mercury removal, is the fabric filter device, commonly known as a baghouse. These utilise thousands of bags to mechanically filter ash particles.  An advantage of a baghouse with the FSI system is that partially reacted particles collect on the bags and continue to react with residual SO2 as it passes by. At plants equipped with FSI and a baghouse, over 80 percent SO2 removal has been achieved2.  Work continues on increasing removal efficiencies to 90 percent without excessive reagent consumption. 

Biomass conversion
Because of the lower calorific value and density, larger amounts of biomass must be burned to maintain unit capacity when replacing pulverised coal. A large fraction of the heat energy in biomass is released as volatiles (up to 95 percent of mass) therefore gas phase temperature distribution along the boiler height will be different than firing pulverised coal alone. In order to fully burn out, biomass∞fired boilers require better mixing and combustion optimisation. By using the ROFA system to control the oxygen distribution and the residence time in the boiler, NOx can be reduced while facilitating more complete combustion of the biomass. Units have been successfully converted with the ROFA system to co-fire 25-40 percent biomass while maintaining operating capacity and flexibility and earning credit for reducing greenhouse gas emissions.  One unit in Helsingborg Sweden has even been converted to 100 percent biomass firing, maintaining the required steam production and availability since 2006.

Profiting from efficiency

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Today, the awareness that carbon emissions need to be reduced at a global level is widespread, and attention naturally turns to the energy sector, which represents a significant part of these emissions. Yet energy demand is growing, putting more and more pressure on the sector. As GE technology generates one-third of the world’s electricity today, its role in solving the global energy challenge is to apply intellectual capital and find solutions for its customers that will work in the marketplace today and into the future.

Europe is the world’s second largest consumer of energy and one of the most energy-efficient continents, and so demand for top-level technology is very high. Today, the EU is developing a common European energy policy which essentially aims at tackling climate change, limiting dependence on imported hydrocarbons and ensuring the supply of secure and affordable energy for consumers, while contributing to the competitiveness of its economy. By 2020, Europe wants to reach the following sustainable development equation: +20 percent of renewable energy in energy consumption and -20 percent of carbon emissions; yet, it is still highly dependent on gas. As a consequence, the EU aims to improve security of supply and reduce risk of blackouts or gas supply interruptions. In parallel, the energy markets of the region are undergoing a significant transformation, as gas and electricity markets have been liberalised since July 1st, 2007.

In the future, Europe’s import dependency is forecasted to rise to 70 percent by 2030, as its hydrocarbon reserves dwindle and demand rises, and one trillion euros are needed over the next 20 years to meet expected energy demand and replace aging infrastructure.

GE Energy’s solutions
In this context, energy suppliers are looking to improve the efficiency of their power stations, transmission and distribution systems by implementing the latest technology, both to remain competitive and to meet European and national carbon emission targets. Although governments are pushing renewables and nuclear in order to control carbon emissions, today, fossil fuel still holds a significant place: in 2006, energy from oil, coal and gas represented 80 percent of the energy supply worldwide (Source: International Energy Agency). Renewable and nuclear energy take time to implement, which is why in the short term – meaning in the next seven to eight years – gas will be a key answer to the increase in the energy demand. GE Energy Services can help improve the efficiency and performance of existing gas power generation equipment, therefore improving profitability. This improved efficiency naturally leads to reduced emissions as with the same amount of gas, more electricity is produced. This activity represents an important part of GE Energy Services’ business and many their customers have required upgrades of retrofit existing gas and steam turbines.

Present in Europe for many years and leveraging years of experience in applying new technology, GE Energy Services is uniquely positioned to provide the latest, cost-effective practices and process improvements for plants to provide the most up-to-date innovations, ensure optimal economic performance and to achieve environmental targets with minimum cost and maximum business advantage. With a comprehensive portfolio of technology offerings and services, GE helps to improve plant performance in a variety of industrial and power generation applications while meeting environmental goals.

Service offerings are designed to help utilities, plant operators and manufacturers meet their operational goals, leveraging field expertise and unique technologies to deliver key results for their business. As demand for electricity continues to grow, GE Energy helps utilities increase their electrical output through improved operational efficiency and asset optimisation. Performance services units can help plants enhance both the performance and reliability of a plant.

With over 25 years in the Operational and Maintenance business, GE is one of the world’s largest third∞party providers of utility and power plant operation and maintenance services. Today GE manages more than 22,000 MW at 62 sites in 24 countries, helps ensure optimum performance at existing power plants and provides design consultation services for plants still in the planning stages. Utilising global resources, GE provides complete plant services across the turbine island and balance of plant – for both GE and non-GE equipment.

A wide portfolio
GE offers services in support of a wide range of power generating and transmission and distribution equipment, from simple maintenance services to sophisticated technology upgrades to end-to-end outage services.

Many significant advances in technology have been applied to new unit production: these advanced technology improvements can be applied to field units to achieve increased performance, longer useful life and higher reliability. Additionally, many development programmes have been specifically developed for application to existing operating units. These advanced technology update packages provide significant savings to customers due to reduced maintenance, improved efficiency and increased output.

In addition to these development programmes, GE Energy Services provides adjacent offerings. For instance, diagnostic softwares help predict failure for critical equipment and therefore minimise downtime; they hold a significant importance in the oil business, where an interruption of production represents a considerable shortfall. Another part of GE’s offering is Environmental Services, which helps reduce and control emissions of N2O, mercury or dust in power and industrial plants, as well as enhancing the thermo∞performance of some specific pieces of equipment by providing consultancy services to their customers. GE’s Transmission and Distribution solution helps reduce energy wastage in transmission and distribution systems, therefore contributing to energy savings.

Reducing N2O and CO emissions
As part of its continued expansion, GE Energy Services has just signed a contract with Endesa Italia, to help the Italian Power Producer meet Europe’s strictest emissions standards. On January 1st, 2009, the region of Lombardy in Italy will enact Europe’s strictest emissions standards for combined∞cycle power plants. The new requirements will limit nitrous oxide (N2O) and – in many areas – also carbon monoxide (CO) emissions to 30mg compared to present levels of 50 mg, for a reduction of 40 percent.

To comply with the new restrictions, Endesa Italia, now owned by E.ON Italia, turned to GE Energy’s latest gas turbine emissions control technology. As a result, two combined-cycle power plants in the region – Tavazzano and Ostiglia – are already meeting those standards, months before they were scheduled to take place.

GE retrofitted six GE Frame 9FA gas turbines – three operating at Tavazzano and three at Ostiglia – with advanced DLN 2.6+ combustion systems and new control systems. The project has produced a 40 percent reduction in N2O and CO emissions at both plants. Each gas turbine outage was completed safely and in less than 21 days to meet short∞cycle requirements. Exhibiting high levels of cooperation, the project teams were able to successfully coordinate more than 20,000 engineering hours, the sourcing and manufacturing of more than 4,000 parts, the delivery 450 tons of materials and the supervision of 50,000 craft labour hours.

GE Energy’s newest dry low N2O combustion system, DLN 2.6+, was developed to help power plant operators meet or exceed the increasingly stringent regulatory requirements in Europe and elsewhere around the world. Capable of reducing N2O emissions by 40 percent or more on GE Frame 9FA gas turbines, this technology has been certified under ecomagination, GE’s commitment to address the need for cleaner, more efficient sources of energy and reduced emissions. The DLN 2.6+ technology is capable of reducing combined∞cycle emissions without using chemical systems, thus eliminating the possible releases of harmful chemicals into the environment. In addition to reducing emissions, the new technology also enables the gas turbine to be operated at lower power during off∞peak periods, consuming less fuel and helping to reduce plant operating costs. This enhanced product builds upon decades of GE experience in combustion technology.

With the six units at the Tavazzano and Ostiglia plants, E.ON Italia now is operating the largest GE DLN 2.6+ retrofitted gas turbine fleet outside of the US. GE’s first two DLN 2.6+ systems were installed by AEM in Cassano d’Adda, and another system was installed by ASM in Brescia, for a total of nine systems presently operating in Italy.

Experience and expertise
In Europe, GE Energy represents 9,000 employees, with manufacturing and assembly facilities as well as sales and services presence in each European country. With such a large pool of field engineering resources and the largest fleet of power generation equipment under contract in Europe (70 percent), GE Energy has the expertise and the ability to deliver top-quality services to energy providers and is dedicated to optimising the efficiency and emissions performance of the installed base in all sectors of the energy industry.

Lightbulb moments

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Shell Chief Technology Officer, Jan van der Eijk, says new technologies start with a kernel of an idea that is brought to fruition. Sometimes they will work, sometimes they won’t. What is most important, says Van der Eijk, is that innovation is driven by a deep understanding of society’s needs and of the challenges the world faces today – for example, meeting the world’s growing demand for energy while reducing CO2 emissions.

And Shell is ‘walking the talk.’ It is the largest investor in R&D of any of the international oil companies (spending $1.2bn in 2007), and the scope of its technical portfolio is squarely focused on meeting rising energy demand and curbing emissions.

According to Van der Eijk, the world∞scale projects the company is able to undertake are often down to the thousands of smaller technology solutions pursued, developed and combined every day:

“It is the small ideas, the series of ‘lightbulb’ moments at an individual level, that are providing the technologies in our industry that are changing the way we provide energy.”

In this article Shell shares some of those ‘smaller’ stories.

A swellable toy dinosaur
Work wasn’t on the mind of scientist Eric Cornelissen when he entered a San Francisco toy shop to find gifts for his nephew. But bright ideas can occur in the most unlikely of places, and Cornelissen’s came when he stumbled upon a boxful of swellable toy dinosaurs that grew to five times their original size when immersed in water.

The swelling rubber concept kicked off a train of thought in Cornelissen’s head that made him think of a use for this material that could help solve a growing problem for the oil industry: water seeping in to the well and mixing with the oil. This slows down production and causes extra work and cost as the two have to be separated at the surface. He thought that if this swellable rubber or ‘elastomer’ could be wrapped around well pipes, it would swell up on contact with water and prevent it from getting into the well oil.

He was right, and the resulting technology – Expandable Zonal Inflow Profiler (EZIP) – is now being used in wells around the world, helping to boost production of valuable oil while leaving the water in the ground.
 
C-Fix and sulphur concrete
While efficiencies and technologies such as carbon capture and storage are likely to lead to the greatest reductions in CO2-levels in the atmosphere, Shell scientists like Rini Reynhout haven’t stopped looking at other possibilities.

Reynhout was instrumental in developing C-Fix  – a clever technology which uses oil refinery residues as an alternative to cement, and is consequently helping to bring CO2 emissions down.

C-Fix is produced from carbon-rich mineral oil residues that are a component in heavy fuel oils (for instance, the type used for large ocean-going vessels). The burning of this heavy fuel oil emits CO2. But now, instead of burning this byproduct, it can be used  to create the C-Fix-binding agent. The C-Fix binder is mixed with aggregates, sand and filler materials acting as an alternative to cement to produce concrete. In this way, just one tonne of C-Fix prevents the emission of around 2.5 tonnes of CO2. It also helps lower other emissions such as sulphur dioxide, nitrous oxides and carbon monoxide.

Shell has done something similar with sulphur too. Oil and gas fields are rich in sulphur. And with regulations requiring greater levels of sulphur to be removed from oil and gas to make cleaner transport fuels, there’s more and more of this left-over product to be dealt with. Adding it to fertilizers to promote plant growth has long been the traditional use, but Shell has developed a new use: sulphur concrete.

Producing it emits less carbon dioxide than traditional concrete and no water is needed in mixing. Unlike normal concrete, it has a smooth, plastic-like surface that is easy to paint. It also sets quickly and can withstand acidic and salty conditions. Those properties, and the need for it to remain cool, make it ideal for waterworks such as sea barriers and locks which are now being tested in the Netherlands.

Energy companies know they face a challenge convincing the building sectors to adopt these new products. “These are intrinsically conservative industries,” says Egbert Veldman, head of Shell Sulphur Solutions, which sells and transports sulphur, as well as developing new uses. “They need very significant proof and trials before agreeing to use new products.”

If the new product takes hold, what was once seen as a by-product could become a valuable commodity.

Why fish don’t freeze
By questioning why deep-sea fish did not freeze, Shell scientists Ulfert Klomp and Marc Anselme came up with a solution to keep oil and gas moving along pipelines in very low temperatures at the bottom of the ocean – critical when the world is looking for more energy.

Along with other scientists in the oil and gas industry, Klomp and Anselme had been working for some time on a way to better solve the problem of hydrate crystals blocking pipelines and damaging production facilities, particularly in deep∞sea projects. But they’d had little success.

“Then one day,” Klomp recalls, “Marc and I read an article in Nature magazine about certain fish species surviving in polar waters. Seawater freezes at -1.9°C, well below the temperature that fish should freeze. But they did not.” The article went on to report that researchers had found that the fish synthesise a protein, which attaches to any microscopic ice crystal as soon as one forms inside the fish. The protein covers the ice crystals to stop them acting as sites for further ice to grow.

The fish protein theory led Klomp and Anselme to a chemical breakthrough in dealing with hydrate crystals. Injected into the oil and gas as it is extracted from the earth beneath the sea, the fish protein-inspired additive is helping to get more oil and gas from difficult deepsea areas.

The Energy Challenge Van der Eijk says that in facing the energy challenge – delivering more energy, with less CO2 – promoting an innovation culture is imperative: “Have an idea then make it happen, that’s the way forward.”

Starting a chain reaction

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Can a city be more energy efficient but also help combat climate change? Can a company construct an energy infrastructure platform that not only benefits its client but the spider’s web of partner relationships beyond it? And can public and private companies come together for their mutual benefit in search of energy solutions and new business opportunities?

The answers to all these questions are a firm “Yes” at Global Energy Basel (GEB) where private companies, public sector partners and NGOs come together to discuss and forge new energy integration partnerships and alliances. GEB advisory board chairman Klaus Töpfer says Global Energy Basel aims to bring a level of pragmatism and “real-life” debate rarely seen at traditional conferences. “It’s not about focusing on one type of energy solution, which many conferences tend to do. It’s about asking what are the possibilities to make a city or a company more energy efficient. The key word for Global Energy Basel is integration. So it’s about a problem-orientated conference with the aim of discussing concrete solutions with private business, a chance to exchange ideas and develop tailored solutions for different consumers.”

No ordinary trade show
Private business is increasingly aware there must be packaged solutions and not isolated technologies. It’s also vital that good ideas are tailored to the real needs of consumers. “Our conference,” says Mr Töpfer, “is about building the link between consumers and producers of packaged solutions. We see this in other industries such as those producing products for the car industry who often build a whole package of solutions for energy saving plus the driving technology. This conference is really a hybrid, a chance to market your products and a marketplace for discussion and an exchange of views. Very often conferences are about a lot of speeches. We want to avoid this so the programme is about lots of small workshops, meeting consumers, as well as a wide range of professionals, be they architects or engineers.”

Of course, it’s also planning for the future. Mr Töpfer emphasises the need for such debate, particularly as developing countries increasingly devour expensive resources at breakneck speed. “This sort of discussion is very critical, especially now as we prepare for the follow-up processes of the Kyoto Protocol, due in 2009. We sincerely believe that events like GEB will allow us to debate what kind of technologies are most useful.”

Targeting demand-side and sell-side
GEB business board chairman Klaus Willnow from Siemens says GEB will be emphatically targeting both demand and supply side in order to build better communication links. “We want to target business along the whole energy supply chain. The businesses behind this are classically the oil, gas and utilities industries, but also business on the demand side: infrastructure operations, transport, mobility – the complete chain.” Willnow is keen to emphasise that the conference will not attract just large and medium players. “We welcome entrepreneurs. Start-ups can have great ideas. It’s really about many different types of businesses coming together and exchanging ideas.”

What marks out GEB will be the sheer range of players representing a wealth of energy solutions. It will also showcase a huge amount of original thinking and talent that can be difficult to find and engage within ordinary circumstances. “There will be a lot of thinking outside the box,” says Willnow. “It’s also a chance where, for example, a maker of electric cars in the transport sector can talk directly to the energy supply side. By inviting different platforms to speak together, you get to understand the infrastructure that other businesses inhabit. It gives stakeholders and key experts the chance to not only form alliances but share their problems and solutions too. It’s a terrific opportunity.”

Willnow is well aware this type of conference is the first of its type – and he believes its format could well spawn similar conferences in the future. “I sincerely believe that the future will increasingly place a premium on these types of conferences. We’re all in the same position, faced with more energy demand, higher costs and prices. What is needed is a practical approach, a partnering concept that can help take the first steps to tackle all these issues.”

Everyone’s coming
A huge spread of speakers are attending, including Amory B. Lovins, President of the Rocky Mountain Institute, media expert Vijay Vaitheeswaran from The Economist, and star architect Jacques Herzog, to name just a few. Pioneering scientists such as Nobel Peace Prize winner Rajendra Pachauri, plus decision-makers like Indonesian energy minister Purnomo Yusgiantoro are also attending – as well as a wealth of energy solutions players spanning large corporations right down to the nimblest start-up.

The conference platform aims to shed light on a range of industry including
• Building Technology
• Facility Management
• Energy Supply
• Demand Side Management and Energy Mix
• Finance, Policy and Political Framework
• Mobility and Transport
• Waste and Water

Topics to be discussed include eco towns, sustainability∞oriented urbanisation schemes, green campuses, energy saving urban, rural infrastructure, low emission industrial plants and buildings. Companies will have full facilities to make their own presentations; the conference will also offer private lounges so individuals have the chance to meet in private.

GEB’s Basel location is designed to encourage the maximum amount of industry players from a wide range of disciplines. Basel’s central location, at the border triangle of Germany, France and Switzerland regularly distinguishes itself for international events. Moreover, Basel recently won a Gold European Energy Award for its sensible and efficient use of energy.

FURTHER INFORMATION: Peter Räber, Show Director; tel +41 58 206 25 71; peter.raeber@globalenergybasel.com;
www.globalenergybasel.com

Growing pains

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Following the collapse of the US sub-prime mortgage market last year and the heavy hit that the world’s banks have taken as a result of their former lax approach to lending, it is unsurprising that the flow of money is slowing to a trickle, prompting governments to tighten their belts, cut growth forecasts and raise interest rates to stem rising interest rates.

Even the US Federal Reserve – the bell weather of the world economy – has hinted that interest rates may have to rise. It has also hinted that, if needs be, it would favour prolonging a period of stagnation, rather than risk stagflation.

So far, no country has admitted that they are actually undergoing “stagflation” – high inflation rates combined with low growth – but it seems likely that it is only a matter of time before either a central bank governor or finance minister does so. And it is unlikely that the count will stop at one. Furthermore, the first country that utters the “s” word could as easily come from Europe as it could from the developing world, though economists agree that the impact of stagflation on the latter will be more acute, politically as well as economically.

According to June figures released by four countries in the region, inflation is accelerating in Asia, raising the likelihood that central banks will be obliged to increase interest rates in spite of rising fears of slowing growth. Furthermore, Asia remains home to two-thirds of the world’s poor, and protests over soaring prices are threatening to further weaken governments that are struggling to contain unrelated unrest, such as ethnic tensions in Malaysia and protests over beef imports in South Korea.

With signs that an economic slowdown might already be taking place, South Korea’s central bank cut its 2008 growth forecast to 4.6 percent – well below the six percent promised by Lee Myung-bak when he took office as president in February. South Korea’s finance minister also said that the country could be heading towards stagflation. “It’s premature to say we are experiencing stagflation but the economy is moving that way,” said Mr Kang Man-soo.
In Japan, the closely watched Tankan survey showed confidence among manufacturers at its lowest level in four years, while in Vietnam, one of Asia’s fastest-growing countries, the government said first-half growth was the slowest in at least seven years at 6.5 percent.

“I think we are definitely crossing a threshold and the kind of inflation numbers that we are seeing will have to provoke central banks into tightening policy,” said Duncan Wooldridge, Asian chief economist at UBS. “Ultimately there is a risk of stagflation if central banks don’t have the stomach to tighten more aggressively.”

Adding to the growing concern about economic downturn, the IMF warned that surging food and oil prices could “severely weaken” the outlook in about 75 developing countries, including populous Asian nations such as Pakistan and Indonesia.

Thailand has also said inflation had risen to a 10-year high of 8.9 percent in June from 7.6 percent in May, while South Korea said consumer prices were 5.5 percent higher than a year earlier – the biggest annual jump since November 1998. In Kazakhstan, inflation accelerated to 20 percent year-on-year in June, the highest in more than eight years. A similar scenario is developing in Sri Lanka, where inflation rose to 28.2 percent in June – its highest in more than five years.
At the beginning of July, Bank Indonesia raised its key interest rate 25 basis points to 8.75 percent in a move designed to control soaring inflation, which hit a 21-month high in June. Boediono, the central bank’s governor, hinted strongly that further rate rises would be necessary, saying that year-on-year inflation could rise from 11.03 percent to 12.5 percent by year end because of “economic uncertainties”.

Analysts expect the bank to sell dollars to support the country’s currency, the rupiah, which has fallen 2.2 percent this year, in addition to raising rates to control inflation. Boediono forecast that economic growth would slow to 6.1 percent-6.2 percent, from 6.3 percent last year. Most economists believe rates will have to rise to about 9.5 percent by the end of the year but that the central bank will be reluctant to go much higher than this because it expects inflation to fall to below eight percent next year. Inflation began climbing after the government raised the price of subsidised fuel, which accounts for 95 percent of consumer use, by 28.7 percent in May.

The month-on-month inflation rate in June was 2.46 percent. Increasing oil prices are going to pressure the government even more.

But such pressures are not limited to Asia and its developing economies. Europe is also showing signs of struggling with the spectre of stagflation. The ECB raised interest rates in the Eurozone for the first time in more than a year in July as it stepped up efforts to control mounting inflation pressures. The ECB lifted its main interest rate by a quarter percentage point to 4.25 percent – the first rise in Eurozone borrowing costs since June last year.

The increase came just days after official figures showed Eurozone inflation had hit four percent, the highest since the launch of the euro in 1999 and more than double the ECB’s target of an annual rate “below but close” to two percent. Based on reconstructed-historic data, Eurozone inflation was last higher in May 1992.

Ahead of the ECB announcement, the Riksbank in Sweden – which is not part of the Eurozone – said that it was increasing its main interest rate by a quarter percentage point to 4.5 percent, adding that it expected to tighten monetary policy twice more during the year.

Still, Eurozone growth is showing clear signs of slowing, especially in member states such as Spain and Ireland, hit by property market corrections.
The Spanish economy grew at its slowest quarterly pace in nearly 13 years between January and March, as a tumbling housing market and the global credit crunch brought a sharp deceleration in economic activity. The economy expanded by 0.3 percent in the first quarter of this year – the lowest rate since the third quarter of 1995, the national statistics institute said.

The slowdown appears to have caught the recently re-elected socialist government by surprise, even though the Círculo de Empresarios, Spain’s biggest business lobby, warned only in June about the risks of stagflation. Pedro Solbes, finance minister, recently lowered the official growth estimate for 2008 from 3.1 percent to 2.3 percent. But on the basis of the economy’s recent performance, even that revised forecast looks optimistic, say analysts.

Economists are worried about the impact of the slowdown on employment and government revenues. Between 2004 and 2006, Spain created one-third of all new jobs in the EU, many of which were filled by Spain’s 4.5m immigrants, who make up 10 percent of the population. Unemployment is now rising as construction and services industries shed jobs – last month it topped 2.3m, 15 percent higher than a year ago.

Although slower growth could reduce inflationary tensions, the Eurozone economy appears to be slipping towards stagflation, say manufacturers based in the region. In the latest example of such trends, the German chemicals association said it expected chemicals prices to rise by 3.5 percent this year, rather than the two percent it had previous expected. At the same time it revised down its forecast for growth in production – to just 2.5 percent, compared with the three percent it had previously expected.

Such announcements are hardly inspiring investors to part with their cash, and manufacturers and fuel-reliant industries, such as the automotive and aviation sectors, are finding that the flow of money from investors and customers is drying up. According to a recent poll of global fund managers carried out by stockbroker Merrill Lynch, investors are more pessimistic now about equity markets than at any time in the past decade. The survey also found that sentiment towards equities is even more negative than between 2000 and 2003 when the sell-off in global stocks was much sharper.

Merrill Lynch’s survey of 204 asset allocators and fund managers found that investors have cut their exposure to both equities and bonds and are moving into cash as fears of stagflation grow. A net 27 percent of investors surveyed (the net figure is the balance between those respondents who favour an asset class and those who do not) were underweight in equities relative to other asset classes, while a net 42 percent were overweight in cash, up from a net 31 percent in May.
The outlook for global growth and profit expectations is deteriorating as investors brace themselves for higher inflation and interest rates, the survey noted.

A net 81 percent of respondents believe that consensus earnings estimates for the next 12 months are too high. Europe has borne the brunt of investors’ shift from equities, with the Eurozone moving from investors’ most favoured region to least favoured over the past 12 months. A net 22 percent of investors are underweight in Eurozone equities. But the bearish stance towards the eurozone is dwarfed by the negative view of the UK. A net 38 percent of respondents are underweight UK equities, the most negative stance in a decade. A net 62 percent of respondents are overweight oil and gas, while a net 62 percent are underweight in banks.

Pharma chameleon

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Generic pharmaceutical companies have the power to match exactly the needs of any existing healthcare environment, bringing to a ready market drugs with the same pharmacological potency to which they are accustomed for a fraction of the price. With fat-cat pharma increasingly the target of accusations of profiteering, Paul Evans assesses the nascent potential of the bio-equivalent pharmaceuticals industry.

A recent PWC report estimates that the global pharmaceutical market will be worth $1.3trn by 2020; double its value today. This figure depends heavily on the huge profits achieved by the big brand–name pharmaceutical companies. Big Pharma claims that the high prices it charges are necessary to fund the research and development required to generate the drugs humanity needs, but this explanation is increasingly being called into question, by those who suspect the big–name players of rampant profiteering.

The biggest of the big names, by most estimates, Pfizer, took $48.3bn in healthcare revenues in 2006. In the same year it spent just $7.59bn on research and development, and finished the year with a staggering net income of $19.33bn. When the profits of the top ten drug companies in the US fell to 14.3 percent of sales in 2003 the median average of the Fortune 500 was a trifling 4.6 percent. If this is simply the price of progress, critics ask, then why is the marketing expenditure of large pharmaceutical companies typically two and a half times the amount spent on R&D? According to the Commons public accounts committee in the UK Big Pharma spends £850m a year marketing products to GPs.

But why is this level of marketing needed? As Marcia Angell, a lecturer in social medicine at Harvard and an industry critic, puts it: “A uniquely important drug would require very little promotion.” Angell records that between 1998 and 2003, 487 drugs were approved by the FDA. Of these, 78 percent were classified as ‘similar’ to drugs already on the market; 68 percent were not new compounds; and only 14 percent were “likely to be improvements over older drugs”. In short, the marketing is needed to push the large proportion of so–called ‘me–too’ drugs Big Pharma is producing. The number of genuinely new drugs coming to market has dropped significantly; in 2002 the FDA approved 78 drugs, 17 of which contained new active ingredients and only seven of which were classified as improvements on older medicines. Of those seven, Angell records, not one came from “a major US drug company”.

To many it seems clear that brand pharmaceuticals are protecting an untenable position in the healthcare sector. Detractors have even accused them of disease–mongering – creating demand by promoting aspects of normal function as symptomatic of illness – and more still complain of increasinglyanti–competitive behaviour. In January thisyear the European Commission staged raids atthe offices of GlaxoSmithKline and a batch ofother drugs firms over allegations of “Possibleanti–competitive behaviour” to prevent cheapgenerics from reaching the market.

The Pepsi challenge

So what is it that Big Pharma doesn’t want us to know? Already, nearly fifty percent of prescriptions in the US are filled with generic drugs. It is commonplace for customers in US pharmacies to be asked if they would prefer the brand name drug they have been prescribed or its generic equivalent. But that’s just the problem; many are suspicious that what they are getting is simply not going to be equivalent.

Consumers prefer brand names for all kinds of reasons, but brand name recognition is primarily important because it informs just this type of decision. Two products are available to you. Both claim to do the same job. But one is more expensive than the other. Do you choose the product produced by the household name, that you’ve seen advertised on television a hundred times, that you’ve seen friends and family using a hundred times more, but at a higher price, or opt for the product of unknown provenance at the budget rate? The brands win out because they are familiar, you know what you are getting and, paradoxically, because of the higher pricetag; traditional consumer wisdom states that ‘you get what you pay for’.

So if Big Pharma is big because it’s better, then why is it afraid of a little competition? Why not let consumers take the ‘Pepsi challenge’ with the generic pharmaceuticals? The simple reason is that when it comes to regulated drugs, brand name loyalty is frankly misplaced. Generic drugs are copies of brand–name drugs that have exactly the same dosage, intended use, effects, side effects, safety and strength as the original drug. In other words, their pharmacological effects are exactly the same as those of their brand–name counterparts.

All generic drugs must be reviewed and approved by the FDA in the US or the relevant regulatory boards in the UK, Canada, Israel, Chile, Australia and so on; all of which require that generic drugs have the same active ingredients, quality, strength, purity, and stability as the brand–name drugs they are copying. Because of trademark laws, the generics need to be packaged differently to the brand–name preparations, and they may sometimes have different colours, flavours, preservatives or combinations of inactive ingredients – or ‘fillers’ – to the original medications (though they must have the same dosage form – whether you swallow it, drink it, or inject it) but the active ingredients must be the same in both preparations, ensuring that both have identical medicinal effects. When a pharmaceutical company wishes to take their generic drug to market, they must offer proof of bioequivalency. In order to be bioequivalent, the active ingredients in a generic drug must be absorbed at a similar rate and in a similar amount as the brand name drug. The generic does not have to act exactly the same as the brand name drug, but it does have to fall within certain guidelines set by the FDA.

Patent profiteering

Of course, generic drugs are cheaper because the manufacturers have not had the expense of developing and marketing a new drug, so theirproduction does little to push the development of new drugs. This is why the FDA and other regulatory boards reward the research and development effort of original pharmaceuticals by granting a patent that gives the company the exclusive right to sell the drug as long as the patent is in effect. Each specific patent is different, but they may last as long as 20 years. That gives Big Pharma a long time to establish its brand–name products. Clearly, there needs to be a reward system that promotes the development of substantially new drugs, but the rewards for the big players are enormous, and are not passed on to the patients the drugs were developed to help.

Long after the R&D costs have been recouped, Big Pharma continues selling its wares at a massive profit, keeping its drugs’ retail price at the high rate required to launch them. When the patent and any other exclusivity rights have expired, other pharmaceutical companies can apply for permission to recreate the drug and market it themselves under a different name. Once the market opens up the price drops like a stone.

Consumer fears that the generic drugs must be manufactured in poorer–quality facilities, using inferior ingredients or with less attention paid to product safety to hit the low prices they achieve are unfounded. The price is driven down by simple market forces and the generics are held to the same standards as the brand–name manufacturers. In fact, the FDA estimates that generic drug production by brand–name companies has reached around 50 percent.

It is easy to see why. With a dearth of genuinely original products being produced, Big Pharma might otherwise see its gravy train run dry. Patent expiries in the period 2007–2012 are expected to bring drug production worth well over $100bn to an open market. The rapidly ageing populations in Europe and Asia mean that demand for already existing drugs is set to rocket over the next couple of decades and it looks likely that generic pharmaceutical companies will be at the forefront of feeding that demand. Crucially they will be able to help improve healthcare provision in countries that simply can’t afford the more expensive original versions.

But it’s not just consumers who are deciding whether to buy brand–name or generic products. Healthcare systems all around the world are struggling to find ways to curb their spiraling pharmaceutical bills. Lower–priced generics should be an obvious solution. In the US, for example, authorities are reeling from escalating bills for prescription drugs for state employees and those eligible for medical aid, but there is an obstacle to them simply trading big–name for generic; those controlling the budget are not the ones prescribing the drugs to individual patients.

A large part of the problem the healthcare authorities face is the powerful influence Big Pharma has over the doctors whose job it is to decide what drugs to prescribe. In fact they spare no expense in ensuring their brand names are familiar to the real decision makers, employing more than 90,000 salespeople to address doctors directly, in their offices or over an expensive lunch, wow them with slick sales pitches, and leave behind as many complimentary items bearing their logos as they can offload, to make sure the physicians think of them when pulling out the prescription pad. The same companies are able to track doctors’ habits by buying in data detailing the prescriptions pharmacies are filling, rewarding those friendliest to their products and targeting those who seem reluctant to prescribe it. It is estimated Big Pharma spends around $12bn a year targeting doctors in this way. Generic companies, with market forces to consider, simply can’t match this Herculean effort.

The ‘unsales’ team

It is of course the authorities who are left to pick up the tab after doctors have been wined and dined, as their prescriptions bear the names of the drugs of their favourite or most persistent flesh–pressers, and not those of the most cost–effective companies. But the authorities are fighting back, launching their own charm offensive on behalf of generic pharmaceuticals.

Medco Health Solutions, a leading pharmacy benefit manager company based in New Jersey, which manages drug benefits for large employers, has been sending its own pharmacists out to encourage doctors to use generics for years now, and the practice is becoming more and more widespread. More recently governments in the UK, Australia and Canada are taking up the practice, seeking to educate doctors in their own offices.

In Pennsylvania, where around $3bn a year is spent on pharmaceuticals, state–funded squads of educators, known as ‘unsales’ teams, tour doctors’ offices with their own brand of slick marketing, echoing the well–rehearsed pitches, impressive brochures and free lunches hawked by the brand–name companies, urging doctors to consider alternatives to their expensive drug habits. Their message is leant weight by the support of Harvard University professors who are backing the programme to encourage doctors to make decisions based on the best available scientific research instead of company marketing.

Proponents such as Harvard’s Jerry Avorn, a professor of medicine, are promoting what is called ‘academic detailing’ – using industry sales techniques, such as reducing complex and voluminous material down to basic bullet points – to get across a message based on evidence. The Pennsylvania Department of Aging’s drug– assistance programme charged Dr Avorn with putting together an ‘unsales’ force to countermand the work of the brand–name marketing teams, investing $3m in the foundation he led.

The unsales representatives carry a letter of introduction from Dr Avorn, and are able to offer free copies of his book or others from the Harvard medical back–catalogue. The university has also certified the contents of their talks and literature as educational – even allowing doctors who have digested them to tot up some continuing– medical–education credits – but they still face a battle convincing doctors that they carry a more enlightened message than their corporate counterparts. Kristen Nocco, a pharmacist, and one of the Unsales team says: “Until you prove yourself, they’re going to treat you like a drug rep because you are. You are asking for the same thing: their time.” The battle is a tough one, the unsales reps are not only outfunded but outnumbered, but the message is slowly getting through.

As more and more ‘blockbuster’ drugs approach patent expiry and the landscape of healthcare evolves it seems it will be only a matter of time before the Big Pharma dinosaurs face extinction, and generic companies, the pharma chameleon, will inherit the earth.

Identity theft

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The highly lucrative theft of personal and corporate identities is becoming an international criminal activity

Identity theft is a growing, global menace. The use of stolen personal information to fraudulently order goods or obtain credit is the fastest growing crime in the US, according to the Federal Bureau of Investigation. In the UK, four out of 10 people say they have fallen victim to identity theft. Banks and credit card companies often reimburse defrauded customers, but the personal inconvenience of getting cards cancelled and reissued is enormous. And it can be harder to apply for legitimate loans or credit in future.

But identity theft is not only a pain for private individuals. Companies are, increasingly, finding that their identities are being stolen or, in more sophisticated cases, that they are being cleverly impersonated. Corporate identity theft happens when fraudsters steal the identity of a legitimate company and then trade under its credit and name. It can affect companies through assets being stolen and bank accounts emptied by fraudsters trading on the company’s creditworthiness, for example.

Highlighted
In an increasingly globalised business environment, the crime often has an international dimension, regardless of where the target company is based. In one typical case highlighted by police in the UK, for example, companies in France, Spain, Germany, Portugal and Austria received orders for computer parts and spares from a UK business called PC Specialist. Those that checked the company’s background would have found that it had a good credit rating and trading history. The orders asked the goods to be delivered to an address in London, with invoices sent to the company’s head office, which was in a different part of the country. The orders carried the official PC Specialist logo and logos from National Westminster and Halifax banks. But they were fraudulent. PC Specialist was a legitimate company, but criminals had stolen its identity.

Such corporate identity theft is one of the fastest growing risks businesses face and will cost UK companies £700m a year by 2020, an increase of 1,300 percent on current levels, according to leading commercial insurer Royal & SunAlliance (R&SA). The insurer says that large businesses with over 250 employees will pick up the biggest share of costs. The sectors most likely to be affected are communications, banking, finance and insurance. “Companies are increasingly being affected by corporate identity theft and many are worried about the risks of fraudsters stealing their company identity, as this could lead to a loss of competitive advantage or public confidence,” says Jon Woodman, Director of Risk Solutions at R&SA.

A case like PC Specialist relies on a few faked logos, but in more advanced identity frauds, the criminals will actually change the target company’s registered details. In the UK, these are held at Companies House, a government agency. Of the 500,000 documents filed here each month, only about 50 are identified as false, but the Metropolitan Police estimate that each false filing can result in a £1m fraud. “The trick appears to be gaining control of a company and its assets as far as third parties are concerned,” says Ian Manson of Digita, an accountancy software firm. A Digita report on identity theft – called “Keeping the Record Straight” ­– highlights some examples. In one case, fraudsters stole a company’s identity and used it to sell off an office block that it owned in Moscow. “The true owners only found out it was no longer in their possession when they were barred from entering it,” says Manson.

In another case, the proprietor of a family owned business found that its registered office had been changed from the address where it had been for over a hundred years. To add an extra veneer of fraudulent credibility, the criminals had even stolen the company’s nameplate from the front of its building.


Credible
Other frauds include setting up bogus companies, falsely manufacturing accounts and even stealing the identity of auditors to ensure that the accounts appear to be credible. Manson says that nine audit firms have had their details appropriated to legitimise a false set of accounts over the last nine months. “Another 100 sets of accounts have been set up using completely fictitious auditor details over the same period,” he adds. Prosecutors have scored some limited wins against identity fraudsters. In one recent case, a disgraced Russian bank chief was jailed for six years after being found guilty of running an international identity theft gang. The sophisticated operation saw tens of thousands of British, American and Spanish account holders defrauded out of millions of pounds. Police believe the internet-based scam lasted a decade.

The criminals used compromised credit cards to buy large numbers of electrical goods that they then sold on eBay, the online auction site. They also used the money to gamble on sports and set up fake merchant accounts. They created large numbers of false documents and even a bogus legal firm to help generate numerous fictitious identities. Hundreds of bank accounts were then opened in those names for the huge amounts of illicit cash flooding in. At the heart of the scam was Anton Dolgov, the former head of the ill-fated Moscow City Bank, which collapsed in 1994 with debts of up to $120m. As the ‘general manager’ of the operation, he is thought to have a huge fortune stashed in secret Russian bank accounts waiting for him when he finally emerges from prison, according to press reports. Mr Dolgov admitted conspiracies to defraud, to obtain services by deception, to acquire and use and possess criminal property.
The FBI is also trying to crack down on international identity theft. It recently targeted one operation that involved the trading of social security numbers, the sale of stolen credit card account information, and phishing, the practice of using email to trick consumers into handing over personal information. The Washington Post reported that an investigation called Operation Cardkeeper had led to the arrests of more than a dozen people in the US and other countries, all of whom are alleged members of online communities that specialise in ‘carding,’ the trafficking of stolen identities and credit card and bank account information. “We are sharing evidence and using sophisticated techniques like never before,” said James Finch, Assistant Director of the FBI’s Cyber Division. “Cyber criminals will no longer be able to hide behind borders to conduct their illicit business.”

Mutually approved
Combating corporate identity fraud is more difficult. In the UK, Companies House ­– the official repository for corporate documents – has created an online filing scheme, called PROOF, where only mutually approved documents are registered. It has also launched a monitoring service that lets a company know each time a change of record has been made. There has also been a legislative crackdown. Under a new Companies Act, it is an offence for a person to knowingly or recklessly deliver or cause to be delivered (to Companies House) a document that is misleading, false or deceptive in a material particular. Those convicted face up to two years imprisonment, or a fine, or both.

“If every company were to opt in to the PROOF scheme tomorrow, and of course guard their company authentication codes as carefully as they guard their bank account PIN numbers, then the phenomenon of company hijacking would almost certainly disappear overnight,” says Manson. But fraudsters are innovative people, and other identity frauds might prove harder to guard against. City of London police warned recently of a new identity con that exploits the international nature of business. Here, criminals are hi-jacking corporate identities with a view to compromising their bank accounts and transferring money overseas. These attacks have been aimed at foreign-based companies, which usually have a representative office in the UK, and have existing accounts with a UK bank. The intended victim will also usually have a ‘faxed indemnity’ arrangement in place with the bank. Popular targets have been foreign airlines, banking institutions and even embassies.

The fraud works like this. The criminals contact the relationship manager at the UK bank, purporting to be the genuine client and informing them that they are changing their contact details, usually giving the excuse that a temporary move of office is necessary due to refurbishment. They will then give the relationship manager their new telephone and fax number, and occasionally an email address. These telephone numbers are generally arranged in advance, via the internet, and are able to be diverted to mobiles and ‘fax to e-mail’ facilities. The criminals will then ask for confirmation from the bank, acknowledging the new details, and this will provide them with a headed, signed fax from the bank, which they can copy and manipulate for future use against the intended victim.

New contact details
At the same time, the criminals will also make contact with the finance director, or equivalent, of the targeted company purporting to be the relationship manager of the UK bank. They will provide the same, new telephone and fax contact numbers to the company using the excuse that the bank is experiencing computer problems or their records need updating. Again, they will request confirmation from the company acknowledging the new contact details, and a headed, signed fax will be forwarded to the criminals, which they can then use in their correspondence with the bank.

Once these steps have been taken, the criminals are then effectively in control of the direct line of communication between the bank and its client. The criminals then do one of two things. They either request that a new account be opened with the UK bank and the company’s existing overdraft facility be extended to this account, or they continue to forward any faxed indemnity transfer requests they receive from the victim to the bank as normal. After a short period of time, the criminals will then fax the bank a number of high-value transfer requests, from the existing or newly opened account, to recipient accounts, usually based in Japan or Pakistan, resulting in substantial losses to the victims.

This kind of identity fraud requires a great deal of planning and research. “It is apparent that the criminals carry out ‘homework’ before making the approach to the bank and the intended victim,” says a police briefing note. “They usually know the management structure of the target company and will use the name of the relevant finance director, or similar, in their correspondence. They will also usually know the name of the relevant relationship manger at the bank, to whom they need to speak.”

More companies will have to adapt their fraud controls to deal with this and other kinds of identity theft, says Simon Wallace of the Centre for Economic and Business Research. “We are on the cusp of a potential boom in corporate identity theft,” he believes. “With almost universal computer usage and internet coverage in the business environment, the potential for corporate identity theft is more significant than ever. Those willing to hack, scam and defraud will find new and technically advanced methods to open up the necessary loop holes and steal a firm’s identity.”

Finding FDI hotspots

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After a depressingly dismal spell, a spectacular return to corporate deal-making last year gave a knock-on boost to global foreign direct investment levels. The outlook is good for this year too, with another big increase expected, although some countries are set to benefit far more than others.

Foreign direct investment (FDI) inflows surged ahead in 2006, clocking up the third consecutive annual increase, according to figures produced by the United Nations. The total for 2006 was $1.2trn, a 34 percent increase on 2005, and just a few deals shy of the record $1.4trn set in 2000.

The rapid rise in FDI flows
largely reflects high economic growth and strong economic performance in
many parts of the world, according to The United Nations Conference on
Trade and Development (UNCTAD), which calculates the figures. Such
growth has occurred in both developed and developing countries.

Increased
corporate profits and resulting higher stock prices have boosted the
value of the cross-border mergers and acquisitions (M&As) that
constitute a large share of FDI flows. UNCTAD said continued
liberalisation of investment policies and trade regimes gave FDI levels a
further kick. But there are warning signs too. In some African and
Latin America countries, there were notable changes in economic policy
towards a greater role for the state, says UNCTAD, as well as changes in
policies that directly concern foreign investors or industries, in
particular the natural resources industry. These are likely to depress
FDI growth.

Recovered position
FDI performance has varied greatly among regions and countries.

Investment in developed countries rose by 48 percent last year, well over the levels of the previous two years, and reached $800bn. The US recovered its position as the largest single host country for FDI in the world, overtaking the UK, the top FDI recipient in 2005. The European Union (EU) as a whole continued to be the largest host region, accounting for 45 percent of total FDI inflows in 2006. But UNCTAD warned that several risks for the world economy – most of them not new – may have implications for FDI to and from developed countries. Global current-account imbalances have widened dramatically and could cause abrupt exchange-rate shifts. High and volatile oil prices have caused inflationary pressures, and a possible tightening of financial market conditions can’t be ruled out. High fiscal deficits in Europe, in combination with rising interest rates, could lead to tax and wage pressures. “All these considerations underline the need for caution in assessing future FDI prospects for developed countries,” it said.

For now, these countries are doing well. FDI inflows to developing countries and economies in transition – which comprises south-east Europe region and the Commonwealth of Independent States – rose by 10 percent and 56 percent, respectively, in 2006. Those are both record levels. In Africa, FDI inflows in 2006 exceeded their previous record level of 2005. “High prices and buoyant global demand for commodities were once again a key factor,” says UNCTAD, “particularly in the oil industry, which attracted investment not only from developed countries but also from some developing countries.”

Cross-border M&As in the extraction and related service industries of Africa tripled in the first half of 2006, as compared to the same period in 2005.

However, UNCTAD warned that “the regional FDI picture is not uniformly bright across sectors, countries and sub-regions.” Most of the inflows are concentrated in the West, North and Central African sub-regions. “Inflows will continue to be small in low-income economies lacking natural resources,” it said. FDI inflows to Latin America and the Caribbean slowed in 2006. Mexico and Brazil, in that order, remained the largest recipient countries with inflows remaining virtually at the same level in Mexico and increasing by six percent in Brazil, in spite of a fall in cross-border M&As. FDI inflows to Chile increased by 48 percent due to a continued rise in reinvested earnings resulting from windfall benefits from mining. FDI inflows to Colombia and Argentina decreased by 52 percent and 30 percent, respectively, because of a decrease in cross-boarder M&As.

Additional changes
In the Andean countries, growing demand for commodities and resulting higher prices propelled changes in policy in the direction of more control by the state. That resulted in less favourable fiscal regimes for investors in such countries as Bolivia, Ecuador, and Venezuela. The possibility of additional regulatory changes and of their extension to more countries may have raised uncertainty among investors in the primary sector, resulting in the decrease in FDI flows to the region. In addition, high commodity prices and resulting improvements in current-account balances have led to an appreciation of the value of many countries´ currencies. That could effect prospects for FDI in export-oriented manufacturing, said UNCTAD. FDI inflows to South, East and South-East Asia, and Oceania maintained their upward trend in 2006, reaching a new high of $187bn, an increase of 13 percent over 2005. Investments in high-tech industries by transnational corporations (TNCs) are growing rapidly, particularly in China. Meanwhile, other countries, including India, are attracting increasing FDI for traditional manufacturing.

At the sub-regional level, a shift continues in favour of South and South-East Asia. China, Hong Kong and Singapore retained their positions as the three largest recipients of FDI in the region.

India surpassed the Republic of Korea and became the fourth largest recipient. Outward FDI from the region surged, with China consolidating its position as an important source of FDI. India is rapidly catching up, with 2006 FDI outflows almost doubling. China and India are challenging the dominance of Asia’s newly industrialising economies as the main sources of FDI in the developing world.

In West Asia, FDI flows, both inward and outward, maintained their upward trend in 2006. Turkey and oil-rich Gulf States continued to attract most FDI inflows, accounting for a record level in 2006 in spite of geopolitical uncertainty in parts of the region. Energy-related manufacturing and services were the most targeted industries. FDI outflows from the region increased, mainly from the Gulf countries led by the United Arab Emirates. Cross-border M&As, particularly by state-owned enterprises, continued to be the main mode of outward FDI. Such outflows are increasingly taking place in energy-related activities, supported by the region’s tightening ties with China and India and other economies in Asia and Africa.

Buoyant
After a minuscule increase in 2005, FDI inflows to the 19 countries of South-East Europe and the CIS expanded significantly in 2006, the sixth year of uninterrupted growth of FDI in the region. The Russian Federation, the region’s largest host country, experienced a mini-boom, with inflows almost doubling. UNCTAD says that FDI is likely to be particularly buoyant in the countries that joined the EU on January 1, 2007 ­– Bulgaria and Romania – and in the large economies, such as the Russian Federation and Ukraine. FDI prospects for the Russian Federation are, however, affected by the impact of tightening Russian natural resource regulations and by disputes that emerged in 2006 over environmental protection and extraction cost, such as those involving two major oil development projects in Sakhalin. “It is uncertain whether large increases in such sectors as chemicals and petrochemicals, services, and real estate – categories where investor confidence is currently high – could fully compensate for a possible slowdown of oil-related FDI,” said UNCTAD.

One of the most significant developments in FDI over the past two or three years has involved natural resources and related industries. Despite some bad news for foreign investors in such industries, high demand for natural resources ­– and, as a result, the opening up of new potentially profitable opportunities in the primary sector, such as gas and oil development in Algeria – are likely to attract further FDI to the extractive industries.

Economic growth in 2007 is projected to slow moderately. Continuing global external imbalances, sharp exchange rate fluctuations, rising interest rates and increasing inflationary pressures, as well as high and volatile commodity prices, pose risks that may also hinder global FDI flows. Combined, those factors “could lead to a slowdown in the fast growth in global FDI registered over the past few years,” UNCTAD believes.

Home grown talent
One of the recent features of booming foreign direct investment flows is the rapid emergence of trans-national corporations based in developing countries. Traditionally, these multi-national business powerhouses have emerged from the three most economically developed regions: the European Union, Japan, and the US, but the United Nations says global and regional players are emerging in increasing numbers from developing and transition economies. It published a report last year that listed the world’s top 100 TNCs from developing economies, ranked by foreign assets. The top three were Hutchinson Whampoa, the telecommunications group from Hong Kong, Petronas, the Malaysian petrochemical giant, and Singtel, the Singaporean telco. These were closely followed in the top five by Samsung of Korea and CITIC of China, a state-owned investment company.

Although developed-country TNCs account for the bulk of global FDI, there is a growing and significant presence of FDI by firms – both private and State-owned – from developing and transition economies. Data on cross-border mergers and acquisitions (M&As), ‘Greenfield’ investments and expansion projects, as well as statistics related to the number of parent companies based outside the developed world, all collated by the United Nations, confirm this. The outward expansion of these firms provides development opportunities for their home economies. The motor vehicle industry dominates the list of the world’s largest TNCs (ranked by foreign assets), followed by pharmaceuticals and telecommunications. By comparison, the largest TNCs from developing economies operate largely in the electrical or electronic equipment and computer industries.

Following a slowdown in their expansion in the early years of the new century, coupled with reduced corporate profits, the trans-national activities of the largest TNCs from both developed and developing economies increased significantly in 2003 and 2004. Five companies from developing economies (three of them state-owned) are among the 100 largest in the world. However, there still remains a large gap between the two groups in terms of trans-nationality (TNI), an index developed by UNCTAD to evaluate the range and degree of foreign activity by TNCs. For example, the total foreign assets of the top 100 TNCs from developing economies in 2004 amounted to less than the foreign assets of US-based General Electric.

Another aspect of trans-nationality, the geographic spread of TNC operations, shows that companies from developing countries have, on average, affiliates in six countries, mostly in their own region. By way of contrast, on average, the largest TNCs have affiliates in 40 foreign countries, spread across a number of regions. So, developing countries are beginning to spawn their own business behemoths, but they have not grown to anything like the size of their developed-country counterparts – yet.