Why Trump is very wrong.

I really wanted to write about shale gas economics and practicalities this month because there’s a lot that needs saying.   However, I’m really going to have to sort this bloke Trump out because he seems to be under the strange delusion that a golf course is more important than Scotland’s industrial future.   

Firstly, let me say that there are some aspects of his complaints and those of others that have leapt conveniently onto the anti windfarm bandwagon that I agree with.  For example, I accept the fact that wind energy is intermittent and that in certain weather conditions it’s utterly useless. 

However, the fact is that wind – and waves, tidal and solar - is here for as long as the planet is whereas oil, coal, gas and even nuclear most certainly won’t be because they are all dependent on inconveniently increasingly expensive resources.  Despite TEA party type anti climate change squeals of patriotic hysteria over possible American self-sufficiency even shale gas which is currently as cheap as chips in the USA will go back up in price as gas drilling reduces and reserves are sold off to bigger players who will ensure they make money out of it one way or the other.

Wind is then a viable long term resource and it’s actually really pretty daft arguing about this.  People may get upset over subsidies being paid to windfarm owners many of whom aren’t even from these shores and they may wish to complain that wind turbines are not particularly elegant devices.  Both views are legitimate but not good enough reasons to stop wind turbine deployment particularly offshore. 

Similarly, there are concerns over noise and certainly bad planning control of some onshore windfarms has led to what might be termed as “acoustic rage” because turbines have been installed far too close to housing.   This would seem though to be far less of a problem with offshore wind turbines because they have considerably larger but much slower and therefore quieter blades.

I find it interesting though that few people complain about the lack of indigenous investment particularly in large scale wind turbine technology.   Not many protest that none of the big turbines are built here by UK let alone Scottish companies.  Watching all those valuable sales falling into overseas hands is my own major gripe about the industry and to a large extent one of the reasons I support strongly the development of the European Offshore Wind Deployment Centre (EOWDC) which is of course the windfarm that Trump is complaining is going to spoil the view from his golf course.

So far the development of wind energy technology has been fairly straightforward and predictable.  We have progressively larger capacity turbines moving offshore where there’s plenty of space using latest generation direct drive – no gearbox – systems with lots of built in condition monitoring stuff all aimed at generating electricity that can be transmitted ashore via a fat cable – which incidentally we don’t manufacture either. The cable usually forms part of a subsea grid laid by cable vessels which we also don’t build.  In fact I don’t think we operate one now either do we?

So why do we need the EOWDC?  Because where we are now with wind technology is only the beginning. 

The industry still needs more efficient generators, systems that will start generating at much lower windspeeds, more efficient and “stealthier” blade designs, cheaper and better foundation designs, improved condition monitoring and control devices, better access methodologies, more effective maintenance methods and hardware replacement techniques.

There is also work to be done on power transmission, cables, connectors, switchgear and so on and so forth.

Most important of all though, we need to develop technologies to tackle the intermittency issue. In short that means energy storage.  It’s the “holy grail” for wind.  How to make sure windfarms are productive 100% of the time or as close as possible to 100% as we can get.

Maybe that doesn’t mean moving electricity onshore but producing something else that can be stored and turned into electricity later. Work is already going on with big batteries and we could use pumped hydro. Perhaps though we should be using the electricity to run large scale electrolysers that produce hydrogen that can be piped ashore. Some of that hydrogen can then be used to fire gas turbines to generate electricity for the grid and some can be stored to be used as a means of backing up the supply in times of low wind or indeed too much wind.

Actually this is of course what the PURE project is doing on Shetland although on an albeit much smaller scale.

Add to this though the possibility of using that hydrogen to produce ammonia for use as a liquid transport fuel and wind technology will become even more attractive.

So wind technology isn’t just throwing up opportunities now for high technology high value adding Scottish companies but I personally have no doubt that it will form a major part of the core of our future energy structure. It’s just that we haven’t yet scratched the surface of what we can do with it. 

Now I don’t want to get into commenting on Donald Trump’s golf course plan because I’m not a golfer. I’ve never seen the attraction. What I do know about golf though is that as far as I can tell from Scottish Development International’s data base Scotland only has one golf related manufacturer which is a company making clubs down at St Andrews.

It’s not fair perhaps to make such a comparison but it would appear then that the industrial potential arising from the EOWDC project is going to be considerably larger than Mr Trump’s golf course.  However, I see no reason at all why the two shouldn’t co-exist. In fact, if I was Mr Trump I’d use the EOWDC as a selling point to attract wealthy overseas investors and industrialists!!  No? Oh well – he’ll just have to live with it then.  

(First published in Energy – Mar 2012)

No Shipbuilding please – We’re British!

I like to think I’m fairly well educated, worldly and reasonably au fait (that’s French) with how and why certain things happen particularly when it comes to industrial and business issues even when those issues are of a political nature.

However, the question that completely stumps me time and time again is why on earth we don’t really have a civil shipbuilding industry of any note?

A few weeks ago I was sent a link to a report that Stavanger-based Møkster shipping has ordered a new subsea support vessel from Simek’s Flekkefjord yard in western Norway to the value about $55.5million with a delivery date of May 2014.

This was followed a few days later by an announcement by the Norwegian ship operator Eidesvik Offshore that it had entered into a contract with Kleven Maritime’s for a large multi-role subsea support vessel to be built by its Kleven Verft yard in Ulsteinvik, Norway.

Delivery is set to Q2 2014 and the contract value is said to be over $160million and this would make it the largest single investment in the company’s history.

Then I found another report that the Stavanger-based subsea construction company Ocean Installer and Norwegian ship owner/operator Solstad Offshore have ordered a large, advanced construction support vessel. This will be delivered in Q2 2014 and is to be operated by Ocean Installer.

The type OSCV 06L vessel has been designed by the Norwegian shipbuilder STX OSV and Solstad, in close co-operation with Ocean Installer.

These three reports are examples of how busy the shipbuilding industry in Norway is, plus there are plenty of other ships, drilling rigs and large construction vessels being built to Norwegian account around the world.

Of course Norwegian contractors and ship owners order new builds from Norwegian shipyards and you can pretty much guarantee that a lot of the hardware being fitted to those vessels will also be built in Norway or supplied by Norwegian companies.

For example, I’d be fairly sure that all these new builds will have Kongsberg dynamic positioning systems and probably acoustic navigation systems as well.

Nothing wrong with this but it just goes to show that, once again, Norway benefits hugely from having a highly-effective, integrated industrial strategy. This is of course something those of us on this side of the North Sea can only dream of.

Here’s an example of why we should be concerned. Much is being made of the importance of the upcoming decommissioning phase in the North Sea. We’re told how huge the value of all the work will be and how important it is to the future of the UK offshore industry.

Let me make a prediction. Because we don’t have an indigenous company that operates, let alone owns, a heavy or medium lift vessel then I seriously believe very little of that decommissioning work will end up coming here. I’m pretty sure most of it will go to Norway. We simply don’t have the marine assets to deal with it. Harsh but true.

However, to be fair, the UK does get some benefit from shipbuilding elsewhere. Rolls-Royce recently delivered 13 large azimuth thrusters to the world’s largest construction vessel – the Pieter Schelte – currently being built at Daewoo Shipbuilding & Marine Engineering for Allseas. The contract is worth around £18million and is the largest Rolls-Royce thruster order for a single vessel.

That said, £18million is a drop in the ocean (no pun intended – honest) compared to the overall value of that project which is over £800million.

On the other hand, R-R does own a sizeable share of the Norwegian offshore support vessel design, build and systems manufacturing capability. But it’s in guess where? Norway.

But the core question remains. While we may be good at building warships what happened to our ability to build ships for the civil market?

How on earth did we allow such a massive market slip through our fingers especially given the obvious importance of the North Sea oil and gas industry?

And, will we do anything to capture the market for installation, cable lay and other vessels to support the marine renewables sector?

Well, reading a few academic papers and other bits of literature on the topic it would seem to me that the demise of shipbuilding was down to the usual suspects, namely rank bad management, a lack of investment and either too much or too little support from government. They got the trade unions they deserved.

The biggest mistake by Government was of course to nationalise shipbuilding.

A thesis written by a researcher at Glasgow University explains that the Harold Wilson Labour government’s “Shipbuilding Inquiry Committee” and the “Shipbuilding Industry Board”, imposed technical and organisational solutions on the industry that were totally at odds with the shipbuilding methodology in competitor nations such as Japan.

This of course fatally damaged the industry during a time of demand for newly-constructed vessels. Now though that shipbuilding has been re-privatised the Government operates a hands off, market-based policy.

That simply means it does nothing.

Add to this though the good old British disease of under-investment in technology, production methods and of course the risk adversity of the banks then shipbuilding here probably didn’t stand a chance.

In Norway, of course, the opposite was true. Spotting the opportunity they went for it in a big way with the support of their government and their financial sector.

Could we compete now? Well yes we certainly could from an engineering and design standpoint but I would doubt the UK Government would want to support civil shipbuilding and I really can’t see the financial sector getting excited about it.

Frankly, neither has sufficient vision or the ability to think strategically enough to recognise the benefits of a shipbuilding industry.

In fact, I’m now beginning to wish I hadn’t asked myself the question.

 

(Frst published in "Energy" in July 2012)

Forecasters need to be independent and free of political bias!

If there is one thing that particularly annoys me its journalists and economists that have little real knowledge of the energy sector not just passing themselves off as oil industry experts but being accepted as such by some politicians because the story they’re being told by them just happens to fit their particular political aims. 

So it’s been recently.  The utter nonsense emanating from the idiotically named Office of Budget Responsibility regarding oil price and production volatility suits the UK Government’s argument against Scottish independence.  It claims – rightly - that tax revenue from North Sea oil and gas for 2012 is £7.3 billion, down from an estimate of £9.6 billion in March and the gas leak on the Elgin field contributed to a 12 per cent drop in production, while the industry has also suffered higher maintenance costs.

However, the OBR then claims though that oil and gas revenues will decline further to £4.6 billion by 2016/17 thanks mainly to a projected 18 per cent fall in prices!   Let me say that again – “a projected 18% fall in prices”

In a similar vein, Professor John McLaren of the Glasgow-based Centre for Public Policy for the Regions (CPPR) came out and declared that he agreed with the OBR. In fact he said - "It seems inevitable that future North Sea tax revenues will remain difficult to predict. Not only do oil prices remain highly erratic and unpredictable, but production from the North Sea also appears to be getting more erratic and difficult to predict.”

There are very few people I know whose opinion on oil prices I actually trust or have ever been proven roughly correct.  But for the OBR, which has got just about every forecast it’s made completely wrong, to dare to venture into the world of oil price forecasting and expect to be taken seriously is just ridiculous especially when it provides no sensible evidence for its claims. 

It is though particularly naïve of Prof McLaren to choose to jump on this particular bandwagon and I’m afraid he’s just made himself look silly by perpetuating the OBR’s ridiculous claims.

So why do this? Well it’s obvious really.   There’s a Scottish independence referendum coming up and the OBR is of course a member of the UK Government’s establishment.  So on this and other topics I simply don’t expect the OBR to be acting independently.  In fact I don’t even expect them to make any effort at all to be even seen to be independent. 

As to Prof McLaren, although he is a former Labour party adviser I don’t necessarily think that would have influenced his opinion.  His problem is that he didn’t really do his research and in particular he didn’t consult with his fellow academic and genuine expert Professor Alex Kemp.

Prof Kemp, Tony Mackay and my old friend Richard Shepherd of Petrologica who sadly died last year, are the only three I know who have or had a clear enough understanding of the industry and what influences it well enough to be able to come up with believable forecasts on both production and price. They also collect huge amounts of data from both the operators and the contractors. So they have well established “knowledge banks” from which to draw.

Fortunately, in Richard’s case the knowledge banks, forecasting methodology and modelling tools he developed have survived him and are now being managed and refined by his old team at Petrologica.

On one website Professor Kemp is actually quoted as saying "The OBR's combination of low production estimates with low price estimates is pessimistic compared with other predictions including our own."

He added that the OBR took their production estimates from the Department of Energy and Climate Change (DECC), who had used a very high contingency for production shutdown, leading to an unusually low estimate of future production and that in its October 2012 projections for oil and gas production. The DECC report admitted to applying “very significant negative contingencies to the aggregate figures.”

Just as importantly, Professor Kemp says the OBR estimates of future prices, were not based on the DECC report but on the future contracts market, resulting in a low price of $89 per barrel.   The DECC estimates of future oil prices are actually much more optimistic, with 2017 prices predicted to reach $120.

Putting the political shenanigans aside what concerns me most is the potential damage this sort of irresponsible assertions might do to the industry in Scotland and the impression they can have on those that have less understanding of the real situation.  Countering such nonsense isn’t easy because the mainstream media much prefers a negative story to a positive one.

Let’s face it, the use of emotive words such as “volatility” is designed to create the impression of an industry that’s unstable and has no real future.  The truth though is quite the opposite as the recent spate of announcements of new field developments and drilling programmes will testify.

In fact the Deloitte petroleum services group report on the UKCS that came out during January was pretty optimistic suggesting a “broader range of tax allowances and a sustained high oil price” had resulted in much better levels of activity during 2012, that field development approvals had reached a ten year high and eight “Brownfield development” project has also been sanctioned by the Department of Energy and Climate Change (DECC).  Importantly, they also say the final quarter of 2012 turned in the strongest performance of the year. We can now of course add to this that the EIA forecast of higher Brent Crude prices on OPEC supply cuts and demand increase out of China.

Optimism is important but accuracy in forecasting is critical.  Those that play politics with data don’t deserve our respect and should be given little credence.

(first published in the Press & Journal "Energy" supplement in Feb 2013)