The Bolshoi Petroleum Update. ExxonMobil/Rosneft Joint Venture: Immediate Benefits from the Initial Investment?

Over a month has passed since Rosneft, the Russian oil champion, signed an agreement with Exxon Mobil to jointly explore offshore fields in the South Kara and Black Seas. The deal effectively put an end to BP’s aspirations to explore the East Prinovozemelsky Blocks 1, 2 and 3 in the South Kara Sea, at least in the foreseeable future. Despite its under-the-radar announcement (in comparison to the announcement of the BP/Rosneft stock swap), the Exxon Mobil/Rosneft agreement received a great deal of attention. Many analysts and media outlets rushed to give their take on the deal. The commentary for the most part ran along the same routes as in mid-January (when BP and Rosneft signed their preliminary agreement): economics of Arctic oil, geo-political consequences of the “strategic alliance,” and environmental impact of the exploration and extraction.

Undoubtedly, the high costs of Arctic oil exploration and extraction, its potentially devastating effect on the environment, and Russia’s ambitions to remain the world’s energy superpower make this Arctic energy expedition a financially risky, politically charged, and environmentally controversial undertaking. Exxon Mobil pledged $3.2 billion for initial exploration, whereas Vladimir Putin noted that the Exxon Mobil/Rosneft alliance may lead to a total investment of $500 billion. Although the latter number may be highly speculative, the $3.2 billion pledged by Exxon Mobil is far more concrete, especially considering that the company had the world’s highest profit and third highest revenues in 2011. Thus, a legitimate question exists – why would a normally conservative oil company commit significant funds to plow into risky Arctic waters?

A partial answer may lie in the statement made by Exxon Mobil last week. The company said that it would be able to put the resources it finds in the Arctic and Black Seas on its books. The statement came as a surprise to many because Rosneft, and not Exxon/Mobil, holds the licenses to explore the license blocs. In addition, Exxon Mobil’s share in the joint venture with Rosneft amounts to 33 percent, with the Russian company holding the remaining 67 percent. Yet if the American oil giant is correct, Russian Arctic reserves could potentially boost the value of the company’s stock value (provided, the exploration is successful). Thus, Exxon Mobil shareholders may reap financial benefits from the company’s Arctic venture even before the company lifts its first barrel of oil from the South Kara Sea.

Sources:

http://money.cnn.com/magazines/fortune/global500/2011/full_list/

http://af.reuters.com/article/commoditiesNews/idAFL5E7KG2P720110916?sp=true

http://www.bloomberg.com/news/2011-09-27/exxon-confident-it-can-book-oil-reserves-in-russian-arctic.html

China Energy Monthly - June

GOVERNMENT

“China to halt wind turbine subsidies” (6-08-11)
Due to investigations launched in the U.S. last year regarding unfair competition of Chinese companies with U.S. clean technology companies, the Chinese government has decided to end subsidies to Chinese wind turbine manufactures. Subsidies that were once available to companies using domestic components instead of imports will be no longer available.
http://www.chinadaily.com.cn/cndy/2011-06/08/content_12654114.htm

ENERGY TECH BUSINESS

China Auction Shale Gas Exploration Rights (6-29-11)
Four blocks of shale gas exploration areas have been offered up for auction to a group of Chinese energy companies. The areas total 11,000 kilometers and are located in southwestern Chongqing municipality and Guizhou province. PetroChina Co. Ltd., Sinopec, CNOOC Ltd., Shaansi Yanchang Petroleum Group and two coal seam gas companies have been invited to bid. In fact CNOOC Ltd. has a stake in shale gas explorations with the U.S. Chesapeake Energy Corporation.
http://www.chinadaily.com.cn/bizchina/2011-06/29/content_12803431.htm

Efficient Power Pricing Mechanism Looked to Alleviate Electricity Shortage (6-27-11)
China’s hydropower resources and its traditional coal powered plants have been unable to meet the demand for electricity. Although the government raised electricity prices for industrial users in May to meet rising coal prices, residential prices are unchanged. Hydropower recently stalled due to draughts. The raise in industrial power prices was not enough to prevent certain coal power plants from sitting idle as operators tried to avoid operating losses due to high coal prices and low power prices. The China Energy Economy Research Center with Xiamen University asserted that the only way to solve the problem is to implement different power pricing mechanisms based on efficiency. In Hong Kong, leveling peak load via electricity prices have been used for 20 years. Households have one meter for day and one for night. Revising the pricing structure is critical as China faces 30 million KW power shortages for this summer, then 50 million KW in 2012 and 70 million KW in 2013.
http://www.chinadaily.com.cn/bizchina/2011-06/27/content_12783210.htm
http://www.chinadaily.com.cn/cndy/2011-06/09/content_12661810.htm

“Japanese Group in China to Promote Nuke Knowledge” (6-27-11)
It makes sense that one of Japan’s neighbors would learn from Japan’s recent experience with nuclear disaster. A team of Japanese engineers will spread its knowledge in a week-long visit in Beijing. In addition to sharing knowledge about the Fukushima accident, the engineers will introduce cutting edge Japanese nuclear technology and expertise.
http://blogs.wsj.com/chinarealtime/2011/06/27/japanese-group-in-china-to-promote-nuke-knowledge/

China Energy Monthly - May

GOVERNMENT

Nuclear Fusion Researchers in China Seek More Funding (5-26-11)

In April, the Ministry of Science and Technology, the Ministry of Education, the Chinese Academy of Sciences, and the China National Nuclear Corporation recommended government funding for at least 200 researchers who are pursuing PhDs in nuclear fusion. This will mean a large increase to the 1,254 researchers in China already doing nuclear fusion research. China is also involved in international projects, such as the International Thermonuclear Experimental Reactor project in France.

http://blogs.wsj.com/chinarealtime/2011/05/26/china-cranks-up-heat-on-nuclear-fusion/

ENERGY TECH BUSINESS

“Clean energy certification proposed” (5-27-11)

To improve investments in renewables, third party evaluation of the projects could give potential investors more information and assurances on the projects. For example, Climate Friendly, a company out of Australia, and WWF developed the GoldPower label. The program certifies businesses that want to reduce their emissions.

http://www.chinadaily.com.cn/usa/business/2011-05/27/content_12593806.htm

Increasing Electricity Prices and a Reduction in Energy Production (5-24-11)

Electricity shortages are not new. Last year, electricity was rationed to meet the country’s five-year plan in energy intensity reductions. Cities and towns often experience scheduled blackouts. Under the pressure of high coal prices, China’s state-owned utility companies have reduced electricity production. The increase in coal production has not alleviated this problem. The government controlled electricity prices are inadequate to meet the coal prices. Retail electricity prices are scheduled to increase in June, but they mainly affect industrial users and not residential users. Notably, the China Electricity Council denies there is a countrywide electricity shortage. Instead, it states that electricity shortages are simply a regional problem.

http://www.bloomberg.com/news/2011-05-30/china-raises-industrial-power-prices-in-15-provinces-to-help-ease-shortage.html

http://www.nytimes.com/2011/05/25/business/energy-environment/25coal.html?_r=1&ref=china

http://www.chinadaily.com.cn/usa/china/2011-05/27/content_12594470.htm

http://europe.chinadaily.com.cn/business/2011-05/27/content_12590075.htm

http://www.chinadaily.com.cn/usa/business/2011-05/17/content_12523149.htm

Rare-Earth “Inventory” (5-18-11)

Previously discussed in this newsletter was China’s rare earth mineral production. Rare earth minerals are crucial to electronics, both consumer and military, and renewable energy equipment. Because China is the main producer of rare earth minerals, and recently it has imposed export quotas on the material, the U.S. has made plans to increase domestic production. On top of domestic production, Representative Coffman of Colorado recently introduced an amendment to the 2012 National Defense Authorization Act that would require the Department of Defense to plan an inventory of rare earth minerals. Meanwhile, the China State Council released a document on stricter policies for rare earth minerals mining, working to curb illegal mining and smuggling, and decreasing consumption.

http://www.chinadaily.com.cn/bizchina/2011-05/28/content_12597886.htm

http://blogs.wsj.com/washwire/2011/05/18/eyeing-china-rep-coffman-seeks-rare-earth-inventory/

Energy Efficient Buildings (5-16-11)

The 12th Five Year Plan aims to reduce power consumption in public buildings by 10% per unit area and a 15% reduction for the largest buildings. The problem is that the recently completed new buildings still consume more power than standards set by the government in 2005. In order to meet the 12th Five Year Plan goals and to alleviate electricity shortages, energy efficiency renovations for old buildings and new construction of energy efficient buildings are more important than ever. The U.S. Green Building Council LEED certification could be used in China to encourage energy efficiency. Some buildings in China, such as a new Boeing factory in northern China, are already LEED certified.

http://www.chinadaily.com.cn/opinion/2011-05/16/content_12514597.htm

http://www.chinadaily.com.cn/china/2011-05/12/content_12500402.htm

Security of Our Criticial Infrastructure - Warfare and Smart Grid

The Infrastructure Security Partnership and West Point recently sponsored a conference on the security of our critical infrastructure. The Institute provided information on the security of the electricity grid. Global Energy Fellow, Zhen Zhang, presented on the cyberwarfare implications for critical infrastructures, using the electricity grid as an example. Another interesting presentation was by Michael Susong of PG&E, who discussed the privacy and security issues of the smart grid.

China Energy Monthly - April

GOVERNMENT

“China to set up special funds for green counties” (4-29-11)

A group of ministries will collaboratively support green counties. The Ministry of Finance, the National Energy Administration, and the Ministry of Agriculture jointly issued regulations that will give subsidies to counties that develop alternative energy sources such as biomass and methane gas. There are requirements. For example, a project must benefit at least 20,000 families. This is consistent with China’s goal of building more green cities.

http://www.chinadaily.com.cn/usa/business/2011-04/29/content_12423544.htm

http://www.chinadaily.com.cn/bizchina/2011-04/27/content_12407351.htm

China Looks Forward to Second Generation Biofuels (4-28-11)

China is looking to produce more second generation biofuels, such as those from agricultural waste. Novozymes, a Denmark-based company, has approximately 50% market share of China’s first generation biofuels production, such as corn ethanol. The 12th Five Year Plan emphasizes second generation fuels, which does not compete with demand for food products. Novozymes predicts that up to 2.8% of China’s total energy consumption can come from biomass by 2015. This could be ten times of today’s levels.

http://www.chinadaily.com.cn/usa/business/2011-04/28/content_12412792.htm

Electric Shortages Cause Scheduled Blackouts (4-28-11)

Insufficient coal supplies and rising oil prices cause electricity shortages. The Central China grid network only had coal stockpiles sufficient for nine days, less than the recommended 15 days by the Chinese government. Coal companies in the U.S. however usually only have enough coal for a couple of days. Since last year power was shut off every other day for enterprises that use less than 200 kW a day. Other companies with revenues of less than $770,000 a year were prohibited from using electricity between 7 am to 5:30 pm. Business with revenues over $770,000 can only use power every two days.

http://www.chinadaily.com.cn/usa/business/2011-04/28/content_12414549.htm

“China drafting special law on climate change” (4-27-11)

China’s climate change negotiator announced in Brussels that China is currently drafting a climate change law.

http://www.chinadaily.com.cn/usa/china/2011-04/27/content_12402439.htm

“Japan nuclear crisis promotes ‘urgent’ drafting of new law” (4-26-11)

State Council plans on drafting new legislation on nuclear reactor safety after the nuclear crisis in Japan. In 1984, Li Peng proposed a similar law. Another similar law was proposed in 2004. Both times, approval did not occur because of differences between the administrative bodies and the lawmakers.

http://www.chinadaily.com.cn/cndy/2011-04/26/content_12393701.htm

New Geothermal Plan (4-23-11)

Ministry of Land and Resources announced that geothermal will make up 1.7% of China’s energy by 2015. Geothermal will replace 6.8 million tons of coal and 180 million tons of carbon dioxide emissions. The government has allocated $25.2 million to investigate geothermal as the technology is not fully developed and currently it requires large up-front investment.

http://www.chinadaily.com.cn/usa/china/2011-04/23/content_12380533.htm

New Report with Food and Water Watch Details Ethanol's Costly Subsidies

Long heralded as a green alternative to fossil fuel, corn-based ethanol has become a costly distraction that chiefly benefits corporate, political and lobbying interests rather than the American public, the environment, small farmers and rural communities, according to a new report by Vermont Law School’s Institute for Energy and the Environment and Food & Water Watch, a Washington, D.C.-based nonprofit.

Titled “Crystal Eth: America’s Crippling Addiction to Taxpayer-financed Ethanol,” the report concludes that corn-based ethanol is unlikely to significantly reduce America’s dependence on imported oil, has a negligible ability to reduce greenhouse gas emissions, contributes to environmental degradation in coastal waters and been an economic boon for agribusiness giants managed in absentia rather than small and medium-size, locally owned farms, farm cooperatives and ethanol refineries.

The report examines the political contributions and lobbying efforts of some of the largest corporate ethanol refiners to garner ever-larger subsidies, and how the growth of corporate consolidation in the corn-based ethanol sector has been an unintended result of America’s renewable transportation fuel politics, policies and subsidies. The report estimates that ethanol refiners have received at least $22.8 billion in total government financial support between 1999 and 2008.

The report recommends that:

• Corn-based ethanol subsidies should be phased out completely over the next few years in favor of subsidies to biofuel alternatives that are more efficient, economically feasible and environmentally friendly, such as cellulosic and algae biofuel refiners.
• The renewable fuel standard should be amended to lower the amount of corn-based ethanol qualifying for government quotas.
• Renewable fuel standards should be increased for second- and third-generation biofuels such as cellulosic ethanol and algae-based biodiesel, which should only receive support if they meet sustainability criteria to qualify for subsidies. These could include a net energy gain for cellulosic or other biodiesel fuels, reduced water utilization, limiting the indirect land use impact on food production and eschewing emerging higher-risk technologies such as nanotechnology and synthetic biology.
• Farmers who produce and consume their own biofuels on the farm should be rewarded by an energy tax credit for each gallon of ethanol, biodiesel or vegetable oil that they use instead of fossil fuels.

Congress has mandated that biofuel use must reach 36 billion gallons annually by 2022.

Download the Full Report at the IEE Publication Site.

Popular Papers from the Institute

The Institute's Global Energy Fellow Marianne Tyrrell's "Federal Energy Efficiency and Conservation Laws" is listed as number 2 of the all time Top 10 Papers for Journal of ERN: Other European Economics: Agriculture, Natural Resources & Environmental Studies on SSRN. Global Energy Fellow Zhen Zhang's "Smart Grid in America and Europe" is also one of the top 10 for papers since February, 2011 in the same journal. The top 10 list is updated daily by SSRN.

China Energy Monthly - March

GOVERNMENT

“What China’s 12^th Five Year Plan Means for CCS” (March, 2011)

The 12^th five year plan covers 2011 to 2015. The goals include targets for low carbon, efficiency, and renewables. Due to more planned hydro, gas, and wind power generation, the share of coal is anticipated to drop from 72 percent to 63 percent, but new coal plants are not required to be fitted with CCS. The New Energy Industry plan does not discuss CCS specifically, but it does discuss IGCC and other clean coal technologies. Overall, the Five Year Plan includes technologies that are low carbon, but they also have other benefits. Nevertheless, R&D funding for CCS will increase as China seeks to increase technology innovations.

http://www.theclimategroup.org/our-news/news/2011/3/24/what-chinas-12th-five-year-plan-means-for-ccs/

http://www.chinadaily.com.cn/china/2011npc/2011-03/06/content_12122644.htm

http://www.chinadaily.com.cn/usa/china/2011-03/05/content_12120887.htm

Coal Industry Restructuring (3-29-11)

Inner Mongolian coal production companies will consolidate to form approximately 20 large companies. This is part of a national plan to improve production efficiency and eliminate outdated technology. The result of the restructuring will be 10 large companies with 100 million tons of production capacity each. The 10 companies will produce approximately 90 percent of China’s coal.

http://europe.chinadaily.com.cn/business/2011-03/29/content_12242739.htm

Government Air Emissions Targets Increase Renewables (3-10-2011)

CLP Group Holdings Limited, a utility, met its 2010 carbon intensity target required by the government’s standards for air emissions reduction targets. In 2010, 16 percent of CLP’s power generation was from renewables, exceeding the 5 percent goal set in 2004. CLP will continue to invest in renewables as it plans to reduce carbon intensity from power generation by 75 percent by 2050.

http://www.chinadaily.com.cn/hkedition/2011-03/10/content_12146108.htm

ENERGY TECH BUSINESS

“China, Germany lead clean energy recovery” (3-30-11)

China and Germany hold the number one and two spots respectively in renewable energy investments. In 2010, China invested $54.4 billion and Germany invested 41.2 billion. The U.S. was in the third place with $34 billion. Italy was in the fourth place with $13.9 billion.

http://www.dw-world.de/dw/article/0,,14953692,00.html

“China renewable sector eyes govt support amid nuke safety fears” (3-30-2011)

China currently has 26 reactors under construction and 28 planned. Although the Chinese government announced that it will revise its nuclear plans in light of the Japanese earthquake, this does not mean its reducing the number it is planning on constructing. As an alternative to nuclear, the renewable sector is calling for the Chinese government to invest in more renewables. Most Chinese reactors are second-generation technology, but there are six third-generation reactors under construction.

http://www.reuters.com/article/2011/03/30/china-renewables-nuclear-idUSL3E7EU15C20110330

http://www.chinadaily.com.cn/usa/business/2011-03/30/content_12250393.htm