Energy rationing. Energy famine. Are they even possible? It's almost unthinkable in our bright, shiny, well-lit modern world that we'd have to get along without electricity. But it seems to be happening more and more often in densely populated urban areas that rely on centrally generated and distributed power. This time, it's Scotland.
The latest power crisis in Europe started, apparently, with a busted conveyor belt at a coal-burning power plant in the city of Longannet. The Scottish Parliament is considering a new law that would allow that same plant to burn natural gas in order to meet base-load demands. Since when did it take an act of Parliament to keep the lights on?
What's strange about the situation in Scotland is that the country appears to have plenty of energy generating capacity. It's just that it doesn't have much margin for error. And that's the key risk in most of the world's current power systems. When electricity is centrally generated and distributed, you naturally have energy "choke points" at which supply can be disrupted. And then when it gets dark, it stays that way until the sun comes up.
"The problems began last September when safety at the Hunterston B power station in Aryshire revealed higher-than-expected levels of cracking in the station's boiler tubes. It has been shut ever since, leaving Scotland's power supply dangerously exposed," reports the Scotsman.
If it's just a one-off freakish conveyor belt accident, we don't see any reason to lose sleep at night or turn the air con off. But the closer you look, the bigger the problem appears.
"But behind this [latest problem], experts warn, lies a wider, more systemic, problem which will only exacerbate our energy worries in the future. Currently, Scotland's energy needs still largely rely on fossil fuels. Even by 2010, 45% of our energy will come from oil, coal, and gas. Nuclear will provide a quarter, as will wind. The remaining 5% will come from hydro power," the article continues.
The problem-which a new primary school student would figure out quickly-is that energy needs everywhere are going up while fossil fuel supplies everywhere are not. Australia is not Scotland, of course. Scotland has haggis and St. Andrews and kilts and lots of fresh water. Australia has pies and high fashion t-shirts and Bondi beach and lots of coastline... and lots of coal. Provided Australian conveyor-belts don't break, a major breakdown in Australian power-generation is avoidable, right?
Well, mostly. Australia has plenty of fuel to turn into electricity. But beyond that, there are still problems. That fuel (coal) burns dirty. And then there is the unavoidable problem of a fragile transmission grid. Victoria's recent blackouts are evidence of that. And there is the fundamental question of storing or efficiently transmitting electric power. On that score, we posted a chart showing, in almost embarrassing fashion, how inefficient and wasteful energy generation and consumption is in America. Over half of the electricity generated at the source is wasted before it ever lights up your television at night.
Granting that in other places might be more efficient than Team America, there is still this unavoidable reality: the current power system that relies on fossil fuels to generate electricity for distribution over a grid is barbarically inefficient and increasingly unreliable, given the lack of investment in the grid itself and the rising economic and environmental cost of fossil fuels.
Not that we have a master plan for something different, better, more efficient, and cleaner. But we do know a company who's helping Europe move to a different, better, cleaner and more efficient way of getting electric power. This way does not rely on centralized electric generation. You basically put a power plant in your basement. Watch this space for details (and no, it's not a nuclear power plant, in case you were wondering.)
Oil prices are back up and the tone of the headlines has changed. How fickle oil journalists are, or stupid. But it's a good example of "buy the rumour, sell the news." The wave of bearish-crude headlines was a buy signal, just as the wave of bullish crude headlines typically means a correction is in order.
Our friend in the commodities business in Chicago, Steve Belmont, explains: "Within days of the Ali Naimi's rejection of an emergency meeting two weeks ago, crude began to rally. It finished last week at nearly $56 per barrel - up over ten percent from its $49.90 low. Meanwhile, a series of bearish articles have appeared in both the Wall Street Journal and The New York Times, basically restating the point... that it is in both America's and Saudi Arabia's interests (for now at least) to keep crude prices right around $50 per barrel. Analysts are beginning to lower their guidance, predicting a range of $45 to $60 per barrel for the foreseeable future. This is the signal we've been looking for."
"Both the public - as represented by the mainstream press - and commodity funds (the very same ones responsible for last spring's run to $77 per barrel) are heavily short. Crude has rallied 10% (from its low) on perhaps the most bearish news it could possibly receive and another US carrier group is steaming to the Persian Gulf. Not only is winter far from over, but the summer driving and hurricane seasons are right around the corner. Mexico's huge Canterell oil field is collapsing faster than even the pessimists thought and Chavez's socialism is crippling Venezuelan production, leaving two critical suppliers of US crude with less oil to sell."
"On the demand side, China's portion of global crude oil demand has doubled in the past decade to 8% and shows no sign of slowing. Indian demand is strong as well. Meanwhile, in his State of the Union Speech, President Bush outlined his plan to double the size of the Strategic Oil Reserve and to begin filling it relatively quickly. We believe the odds of crude oil making new highs sometime in the next two years are good, despite what the Saudis' may have in mind over the near-term."
The Law of Thermodynamics one, energy traders nill.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Euan on 6 February 2007:
Where is the city of Longannet?
Comment by Jim Henderson on 21 February 2008:
Longannet power station is a large coal-fired power station on the upper Firth of Forth near Kincardine on Forth, Fife, Scotland. It is the most powerful generating station in Scotland.
When constructed it was the largest and most powerful coal-fired station in Europe, and it is still the second largest, after Drax in Yorkshire, England. It is a regional landmark, dominating the Forth skyline with its 183 m (600 feet) chimney stack. Like all other power stations in Scotland it lacks cooling towers, relying instead on river water as a coolant.
Longannet has an installed capacity of 2,400 MW (equivalent to 2 AGR nuclear stations) made up from four 600 MWe generation units, each featuring a single boiler feeding two 300 MWe GEC turbo-alternators, with the steam spaces cross coupled. The declared net capacity is rated at 2,304 MW due to operational losses. On average Longannet produces 10.4 TWh per year and in 2000-2001 achieved the highest generation output in its history by supplying more than 12.25 TWh to the National Grid.