• Combustion Industry News

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      Patrick Lavery

      Combustion Industry News Editor

Paris Climate Conference successfully reaches accord that is “without parallel”

The Paris Climate Conference has ended with the agreement of a new accord to come into place from 2020, the first ever climate deal involving all the world’s nations. In what the BBC describes as “without parallel in terms of climate change or of the environment,” the Paris accord sets a target of an average global temperature rise of well below 2oC (endeavouring towards 1.5oC), to reach a carbon neutral economy between 2050 and 2100, to review progress every five years, and for richer countries to help finance poorer countries in tackling greenhouse gas emissions and adapting to the effects of climate change. While it was estimated that the collective national pledges made in the lead-up to the conference would result in a 2.7oC change, the review process of the accord should drive that estimate downwards over time. Parts of the accord are legally binding – the reviews, for example – while others are not – most significantly the national pledges. This provided grounds for some criticism on the part of environmental groups, but in general such groups welcomed the pact as the start of a huge global effort.

OPEC meeting produces no agreement on production limits

Many eyes were on the OPEC meeting in early December, looking to see if there would be a decision to cut oil production in order to raise global oil prices, with oil producing countries facing economic difficulties because of reduced revenues. In November last year, OPEC had decided against cutting production, as its members sought to drive North American shale oil and gas producers out of the market, one of the factors that has led to low prices thereafter. The recent December meeting resulted in no decision on production caps other than to wait until June to reconsider them, the justification being that trade sanctions on Iran will have then been lifted. The politics of the meeting appear extremely complicated, resting on national considerations as well as the personalities of the various oil ministers. Venezuela stated it would like a production quota reduction, while Iran said it would not follow any quota; the chief unity within OPEC appeared to be concern about non-OPEC oil producers benefitting from any OPEC production cut. The lack of a decision will increase uncertainty over the next six months and is unlikely to lead to further short-term price falls. There has been speculation, however, that a low long-term oil price would eventually lead to a surge in prices as supply dwindles following a lack of exploration investment.

Gas producers tout cleaner air credentials in effort to spur worldwide gas firing

The Financial Times has reported on the efforts of gas producers around the world to argue the case for more gas firing, after a lower than expected take-up of the fuel in developing countries. In 2011, the International Energy Agency suggested that a golden age of gas firing was going to occur, but while in North America there has been increased gas firing, this has not been a worldwide pattern. In developing nations, LNG transport infrastructure is generally not in place, making gas expensive when not plentifully available domestically, paving the way for coal, which has remained cheap, being more easily transportable. In Europe, certain countries’ policies (such as Germany’s) has somewhat inadvertently favoured coal-firing over gas. Gas producers thave herefore attempted to improve their global position by arguing at the Paris Climate Conference that gas is a cleaner alternative to coal and hence an ally in the effort to reduce climate change. Another tack has been highlighting that gas-firing leads to better air quality in cities, an enormous issue in many developing countries (Beijing recently issuing its first ‘red alert’ for air pollution). Some increased uptake of gas firing may in fact result.

Nord Stream 2 project causing division amongst European countries

Eastern European countries have been voicing their concern at Russian plans – and Germany’s seeming encouragement – to build a new gas pipeline under the Baltic Sea to Germany, thus circumventing the possibility of traversing the lands of Poland, the Baltic states, Hungary, Ukraine, and Slovakia. Such a pipeline would double the current capacity of supply from Russia via the Baltic Sea, and leave the Eastern European nations without the gas transit fees they might otherwise have received, and further under the influence of both Russia and Germany for security of energy supply. Poland has argued that under current geopolitical circumstances, approval for Nord Stream 2 would jeopardise European cohesion and energy integration, and in this has the support of the Obama administration, but the president of the European Commission, Jean-Claude Juncker, sees the matter purely in business terms, as does German chancellor Angela Merkel.

RWE planning to spin off renewables business in late 2016

RWE is proposing to follow in E.ON’s footsteps by forming a new company in order to separate its renewables and fossil fuel power generation businesses. It plans to spin off the renewables part of the business together with distribution and retails sales in late 2016, selling 10% of the equity of the new company in order to raise funds for investment, while retaining a majority shareholding. The fossil fuels business will be paired with the energy trading part of the business. The strategy is designed to adapt to Germany’s plan to have 80% of electricity generation derived from renewable sources by 2050, as well as to attract more subsidies for renewable electricity in the short term – RWE currently only produces around 5% of its electricity from renewables. The plan, a decision upon which the board will make this month, appears to have been well received by the market, with RWE shares up 14% on the news.

UK government to subsidise electricity from conversion of RWE’s Lynemouth plant to biomass firing

Some good news for RWE came at the start of the month, with the European Commission approving the UK government’s plan to subsidise electricty from the conversion of the coal-fired Lynemouth plant, in Northumberland in the north of England, to fire 100% biomass. The approval came after nine months of investigation into the environmental credentials of the conversion, the finding being that it would fit with the EC’s goals. The subsidy for the plant, which will have a capacity of 420 MW when converted, will be in the form of the contracts-for-difference for the electricity produced. The conversion will take 18 months. RWE’s share price rose 8.5% following the approval, while Drax, which also fires biomass, saw a share price rise of 12.3% in anticipation of it being awarded similar contracts-for-difference for the electricity it produces. The message from the EC appears to be that biomass firing gets the green light.

Lundin Petroleum to explore Norwegian Arctic for oil

Bucking the trend of scaling back Artic oil exploration is Sweden’s Lundin Petroleum, the company that in 2010 discovered the ~3 billion barrel Johan Sverdrup oilfield in the North Sea. With refreshing frankness, CEO Alex Schneiter told the Financial Times “Right now, I’m thinking: where the hell can I find a new Johan Sverdrup?” Mr Schneiter believes that the Barents Sea is the answer, Lundin having already made some discoveries there. The company made an application at the start of the month to explore new acreage released by the Norwegian government, near the maritime border with Russia, the first such new area in 20 years. Some 40 applicants were expected, a reflection of fairly strong competition, despite low oil prices. As Mr Schneiter says, “There are opportunities in a depressed oil price,” referring to suppliers offering low prices for their services.

Saudi Aramco to enforce local supply quota to boost national manufacturing industry

State-owned Saudi Arabian construction firm Saudi Aramco, which controls almost all major projects within the kingdom, has adopted a policy to formally require supply companies to use more ‘local content’. The move is designed to boost domestic manufacturing so as to make more of the expected $US 300 billion (€273 billion) of spending on goods and services in the oil and gas sector over the next decade return to the government’s coffers. As Amin Nasser, the chief executive of Saudi Aramco reasoned, “Current local content levels are simply unsustainable for our country, our society and our citizens…Companies that build a deep and lasting relationship with the kingdom by setting up shop here and investing in workforce development will capture the major share of Saudi Aramco’s spend on materials and services.” The move appears to be a result of the drop in revenues from oil sales.