Friday, January 1, 2010

And welcome to 2010

Well I trust that New Year’s Night went well for you, and tht you are all set for a Prosperous New Year. But what of the future for energy in this coming year? It used to be the tradition in the part of the world where I come from that the first foot through the door after midnight brought a lump of coal, a piece of cake (or shortbread), salt and a small piece of money. This is a part of the Hogmanay celebration. They symbolized the coming of wealth, and a wish for enough heat for the year. The tradition was:
When presenting the lump of coal, the first-foot should say, 'Lang may yer lum reek', a traditional Scots good luck blessing for the long dark nights, literally translated as 'Long may your chimney smoke.'
Somehow I don’t see that going down too well in the halls of the current American Administration. But for the rest of the world, I would expect that the use of coal would continue to grow as it proves, as it has over the past centuries, to be the cheapest indigenous fuel for many countries, at a time when they need something to provide electricity.

Pakistan, for example, is seeing continued load shedding, although the current culprit is being identified as the need to de-silt the reservoirs that supply hydro-electric power to the nation. (There is some 6 hours of load shedding a day in the cities and 8 hours in rural regions). Additional gas pipelines into the country are significantly more than a year a way (if then). The US is promising to help.
Pakistan has developed virtually no new power-production capacity in nearly a decade, despite possessing significant hydroelectric and coal assets, U.S. officials said. Islamabad has also faced difficulties attracting foreign investors.

Pakistan suffers an estimated shortfall of about 2,500 megawatts of power. Mrs. Clinton said the U.S. experts will begin rehabilitating power stations along the Indus River. Washington will also help repair 11,000 agricultural irrigation pumps.
It will be interesting if this translates into coal-fired power. The lack of power is one of the problems that is considered to be contributing to the increased terrorism within the country. (No jobs, and thus encouragement to revolt against the government).

India has a somewhat similar problem, and is also looking at getting support from abroad to help out – the World Bank has, in the past, helped with funding new coal-fired power stations, and there are other plans for expansion. Putting these sorts of activities together leads me to concur that this will be a year that sees the international coal trade continue to grow. As the EIA projects in their reference case:

Source EIA

In regard to the second of the three traditional fossil fuels, namely crude oil, its price has regained significant territory over the past year and is now back to hovering around $80 a barrel. I anticipate that as China becomes more aggressive in the market that OPEC will be able to keep up with the increased demand over the next year but that, by the end of the year (failing any major economic disruption) the economies of the world will have continued to recover, and driving demand will rise with that recovery, to considerably shrink the OPEC surplus. Prices will therefore rise, and I would anticipate that sometime in the next year, whether transiently or more permanently, we will return to around $100 a barrel. That increase will get folks’ attention and may slow the recovery somewhat, but oil supply, while more constrained, will not be a major subject of concern this year. Those looking into the future, however, and that is what these pages will try to do, may see, by the end of the year some additional signs that 2011 will be a year where the balance between supply and demand becomes a lot tighter, and, as a result, small changes in conditions may have a more than usual impact on the market, and thus price.

Which brings us to the third and final of the three, namely natural gas. The situation there is going to get, I suspect, a little more complicated. The movement of increasing amounts of natural gas to China is going to tighten available markets a little, but with the additional liquefied natural gas (LNG) coming from Qatar and the Middle East, and the increasing amounts that will be available from the gas shales of the United States I don’t expect that there will be questions on supply, but instead more concerns that those producing the gas can make sufficient profit to stay in the game. That concern will be a little strengthened by the move in the United States to add increasing regulation to the practice of hydro-fracing the shale, without which the resource is not economic to produce. Depending on the relative astuteness of the different PR firms hired to conduct this battle, (and in the current doubts about climate change this may also provide a different field for the environmental warriors to brandish their credentials) this may or may not be a growing problem by the end of the year. With the general gay abandon with which politicians can shoot themselves in the foot, I would not be surprised to see this be a major debating ground in the political fields above the Marcellus shale. (The rest of the country will likely just be grateful to have a relatively inexpensive fuel source).

Renewable fuels will be a little more controversial this year, as new sites become a little more difficult to acquire and permit, and money for their development remains tight. I suspect that the problems will slowly develop more over the year, but that it won’t be made much of an issue until, again 2011, when, after the next set of U.S. elections are over, we will start to revisit some of these concerns with a little more panic in our voice. Until then the earlier uses of alcohol come to mind, and with that I lift my glass and the traditional dram of whiskey to wish you again, all the best!

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