Westminster parties rerunning of the referendum makes them look fools!

I suppose given that I’ve written previously about so many similar instances I really shouldn’t have been surprised when I read that an organisation called “Social Investment Scotland” was doing a deal to help fund a developer of low carbon projects install an Australian developed micro combined heat and power unit (MCHP) on initially seventy but potentially up to three hundred and fifty properties across Scotland with a view to helping residents reduce their fuel bills. 

The company producing the MCHP is Ceramic Fuel Cells Ltd and according to their website they were spun out of the Australian Government's Commonwealth Scientific & Industrial Research Organisation (CSIRO), their corporate head office and research and development facilities are in Melbourne and they have a fuel cell assembly plant in Heinsberg, Germany and a ceramic powder plant in Bromborough in the UK. 

So perhaps not surprised but just downright gobsmacked that once again we have let an international competitor steal a march on us in an important area of technology.   It’s perhaps even more frustrating because I know that at least two of our universities have specific recognised expertise in fuel cell technology. In fact a few years ago one tried to commercialise a ceramic fuel cell but as is often the case in Scotland, couldn’t get together the funding.

So why raise this now?  Well it’s simple.  I’m truly fed up to the proverbial back teeth with Westminster unionist political parties ranting about how badly the economy of an independent Scotland would have been affected by the rapid and unpredicted fall in the oil price and wasn’t it a wonderful thing that the sensible Scots voted against independence.

Now if the unionist army of doom merchants had told us before the independence referendum that the oil price was going to collapse I’d be a bit more generous but on the steam radio recently even Ian Wood – in no sense someone I consider an independence supporter – said  "Frankly, no one foresaw the oil price coming down from $100". 

Now given Wood is Westminster’s favourite oil and gas guru then we should believe him and so should all those miserable, childish and generally incompetent unionist politicians who would prefer to re-run the independence referendum than beat George Osborne round the head to make him get on and sort out a new and sensible oil and gas fiscal setup now instead of waiting for budget day in March.    The industry knows what’s needed. So why the heck doesn’t Osborne do as he’s told instead of insisting on yet another consultation.  More delay, more of Danny Alexander pretending he knows what he’s talking about.   I really can’t take these people seriously anymore and I’m afraid the opposition isn’t any better. 

Demanding a “£10m resilience fund” to help struggling companies is a joke.  £10m in an industry the size and value of oil and gas is a drop in the ocean.  If they wanted to do something serious how about proposing the Bank of England set up a Quantitative Easing fund directed specifically at say, increasing exploration or stepping in to pick up industry funding when the lousy banks start pulling the plug on the loans they’ve made to both operators and supply side companies.   Not specifically my idea by the way but one that bears consideration.

Anyway, I was talking about fuel cells which are just of course one sort of technology Scotland should be active in but there are plenty of others. 

As an example, Scottish Renewables told me recently that there are 196 operational wind farm projects in Scotland with 2,590 turbines making a total installed capacity of 4,966MW.  At a cost of roughly £1.5m per MW installed then a quick back of the beermat calculation suggests implementing a policy to build windfarms has increased Scotland’s trade deficit by around £7.5bn!

I don’t know how large the overseas market is for companies such as the Danish wind turbine builder Vestas but a good guide is that with 13% of the market they turn over around 5bn Euros and employ some 17,000 people.   Would have been nice to have had a Vestas based in Aberdeen to add value to our economy and provide an alternative source of high value adding jobs.

Other parts of the renewables sector aren’t fairing much better whereas one might have thought that by now it would be humming. It’s not as if we don’t have the intellect or the engineering and scientific capability because we know we do and that should have been used to build up the Scottish economy to the point where oil and gas was just something else in our economic armoury.

But the sad fact is that even since I came into the oil and gas industry in 1974 Scotland has lost its aircraft building sector, most of its civil shipbuilding and a large chunk of its military shipbuilding capacity, its car manufacturing and other elements of what once formed a formidable industrial sector including of course steel production. 

This is hugely difficult to replace and whilst there were attempts to develop new sectors such as electronics this has largely only resulted in the establishment of small or medium size companies working in specific niche areas.  For example, Scotland has a company that builds micro satellites. 

It’s dynamic, innovative and technically highly advanced but it only employs around 30 or 40 people. I’m not belittling it because I think it’s a great company but its size illustrates the scale of the problem in building up a higher value more broadly based industrial economy.

Now I hate to mention this but this decline all actually took place under Westminster’s watch.  So if those unionists are right and Scotland couldn’t withstand the collapse in the oil price then it’s obviously their fault. 

They allowed and in some cases deliberately invoked policies that resulted in Scottish industrial and economic decline.  Even in the oil and gas sector they pretend they’re so passionate about then according to Strathclyde University we ended up with a situation where poor levels of investment and an utterly lunatic attitude to foreign ownership has resulted in 80% of all post-tax profits being remitted overseas.

Frankly, Westminster by rerunning the referendum arguments on oil price is shooting itself in the foot: no, both feet.  Maybe they should just keep quiet and get on with the business of restoring confidence in the future of the oil and gas industry if indeed that’s what they really want which I have to say I sometime doubt.

©Dick Winchester Jan 2015  

(First published in the Press & Journal Energy Supplement Jan 2015)

The Future Is In No Sense Rosy

This is difficult. I really don’t want to appear pessimistic about the future of the UKCS but I’m really struggling to say anything positive that I can put my hand on my heart and say I genuinely believe.

I’ve lived through every downturn since the early 1970s but this time, it’s different and if we don’t accept its different then the outcome could be really dire. In fact it may be dire anyway.

As a member of the Scottish Government’s Oil & Gas Commission I helped put together a report which I believe was far more comprehensive than Wood’s in that it looked in depth at things like R&D support, the supply chain impact and the whole fiscal setup. That said, both reports painted a similar and not very pretty picture of the UKCS’s prospects.

Inevitably then, both reports made somewhat similar recommendations although the Scottish Government report put considerably more emphasis on the importance of maintaining the supply chain and developing a different way of looking at the UKCS based more on the total value of all activities rather than just how much tax revenue the operators paid.

Without doubt, when we completed this report we could still see a way forward but now we might as well tear them both up and start again because the fall in the oil price has changed absolutely everything and much more dramatically than we seem prepared to accept.

To appreciate the difference then consider this: the Scottish Government’s recent oil revenue forecast is for between £2.4billion and £15.8billion over the four years to 2018/19, compared with forecasts of £15.8-38.7billion made in 2014. That’s a massive and unprecedented fall.

What the industry and government needs to get their heads round is that, whilst some have said recently they think we’re in for a $60-65 oil price for the next couple of years, but it will go up after that are almost certainly being far too optimistic.

Personally, I think that given current evidence it’s extremely unlikely the oil price will rise significantly anytime soon and there’s actually a very good case for arguing it could fall back.

Why?

Well firstly, I don’t believe the Saudis in particular are going to do anything that might encourage more investment in US shale oil and will regulate their production accordingly.

Secondly, global economic growth remains stuck in a rut and there are genuine concerns over China and the possibility that its growth bubble could burst.

Third, we’re using less oil anyway and there is increasing political pressure over climate change that will lead to even lower use sooner rather than later.

In addition, there are other factors creeping up to bite the UKCS on the rear end. For example: an impending deal with the Iranians over their nuclear programme and the subsequent lifting of sanctions. It is already known that Shell and BP have been discussing re-entering the Iranian oil business if the sanctions are lifted because it offers a more affordable and therefore more profitable opportunity than the UKCS.

Oh and there’s Greece which if by the time this piece is published still hasn’t sorted its problems could have a major effect on EU confidence.

Also - what happens if the USA decides to go ahead with exporting shale oil? If supply goes up then the price most certainly won’t and that’s more bad news for the UKCS. The long and short of it is that the North Sea is facing an increasingly unclear future which isn’t actually helped by the lack of a coherent UK energy policy or as yet, any real indication as to what chancellor Osborne intends to do about exploration or other incentives.

Actually, those incentives to explore even if on a par with Norway may not now be enough. I’m also now of the opinion that even reducing taxation to standard corporation levels may actually not work. 

Without wishing to appear overly dramatic it could well be that what we’re seeing is actually the beginning of the end game for the UKCS arriving far sooner than any of us anticipated. There are some field development programmes in progress where capital has been committed and these will provide jobs for some time to come.

Similarly, a few contractors are picking up some lucrative overseas jobs which will also provide jobs for a reasonable period of time and agencies such as Scottish Enterprise should help them seek out more of those.

 However, the likelihood of achieving that ultimate goal of 23billion barrels is looking somewhat “iffy”. I think we really need to be honest with ourselves as an industry. To achieve the real production potential of the UKCS we need – as Professor Alex Kemp said last year - investment, technological innovation, effective regulation and tax incentives.

Of those, at the current oil prices I can only see tax incentives as being the most likely to be implemented.

But how far they’ll go and whether they’ll have any real impact is anyone’s guess. Effective regulation can of course only be implemented if the tax incentives catalyse some degree of recovery in investment.

The real tragedy of all this is the huge loss of potential caused by the rising loss of mainly highly skilled jobs because I just wonder what on earth all those people will do now. Some will be lucky and find new positions but in an industry where the problems are global and the job losses are absolutely not just restricted to Aberdeen or the UK then this is not going to be easy.

Can people shift to other industries?

Well not in Aberdeen they can’t because, as Energy has warned many times before, there has been nothing like enough diversification to create the number of highly skilled jobs needed.

Oh and believe me, pedestrianising Union Street isn’t going to make a difference.

Irrespective of how the next year or so develops what we need to do now is set up a “what does Aberdeen do next?” initiative, but with some fresh thinkers; not the ‘usual suspects’.

I’d suggest ACSEF should run it but they’re about as useful as a chocolate fireguard so maybe Aberdeen and Aberdeenshire Councils should do something between them perhaps in league with the Chamber of Commerce.

We need a viable strategy to start making that transition away from oil & gas and onto whatever we can do next and the sooner the better. Because, if my instincts are right then we don’t have a lot of time left to think about it.

Sadly of course, due to Westminster’s latest piece of ideological tomfoolery that strategy probably needn’t include manufacturing wind turbines, or towers, or components of any kind!

 © Dick Winchester July2015

(First published in the Press & Journal "Energy" supplement July 2015)

The Answer to that Question has to be…..

For 35 of the past 40 years I’ve been in the energy industry I’ve lived in Scotland and have watched Aberdeen and the North East grow and prosper on the back of oil and gas.

In a few weeks though we’re going to be asked to vote on whether or not we want Scotland to remain part of the UK or become an independent country and just like everyone else I’ve had to weigh up in which box I’m going to place my cross. Inevitably, a major contributing factor to which way I vote is how I think the UK Government has managed the opportunity of both oil and gas and renewables so far and how I think a future Scottish Government might manage them if it inherits that responsibility.

During the early 80s I ran the UK ROV and survey group of one of Norway’s then largest subsea contractors.  It’s still around but it’s long become part of one of the other large Norwegian subsea contractors and is perhaps ten times or more the size it was then.

Out to dinner during one of my frequent visits to Norway for meetings (no email & no Skype then) my Norwegian boss turned to me and said “What the heck is the matter with the British Government and your banks – why aren’t you Brits even trying to compete with us Norwegians?

It’s a question that I remember with particular clarity because it alerted me to a problem I hadn’t really considered before.

As Norman Smith – former head of the Offshore Supplies Office and author of “The Sea of Lost Opportunity” - puts it, “in terms of the global market place Britain probably occupies fourth place behind the USA, France and Norway, all of which exhibit a lower proportion of foreign-owned companies and a higher proportion of proprietary technology than the UK.”  This is backed up by Brian Ashcroft of Strathclyde University who determined recently that some 80% of all post-tax profits are remitted abroad.  I find that just utterly astonishing.

But it’s perhaps inevitable because since the early 80s UK Government policy has been based on so called neoliberal economics which includes a laissez faire attitude to company ownership.  Amongst all our major competitors including the USA, this attitude is quite unique.

The result has been that as overseas companies have flooded in then the UK Government – irrespective of the party in power - and the financial sector have been able to avoid having to invest in indigenous companies and technologies because others were already fulfilling the market demand.

This in turn has resulted in the level of public sector energy R&D funding being pathetically low. In fact the UK is now ranked 19^th out of a list of 24 other countries in terms of the percentage of GDP it spends on energy R&D.     

I consider this a major failure on the part of the UK Government compounded by the fact that the Treasury in its effort to suck in as much tax revenue as possible, raised then partially reduced tax levels so managing to achieve the double by introducing both fiscal instability and unpredictability which without a shadow of a doubt is still impacting on operator confidence.  The Scottish Government does however recognise that problem and is looking at mechanisms to guarantee fiscal stability in an independent Scotland.

Of course, there is also the question as to what the benefit of oil tax revenue has actually brought to the country.  It certainly didn’t go into an oil fund as it did in Norway nor was it invested in new industry. Instead, it just got added into the general tax pot.  What an appalling waste.

Considering the longer term future of the energy industry is also important. After all, in many ways this independence referendum and its outcome is more to do with how it will impact on our children, grandchildren and all future generations than it is about us.

Discussing the inevitable eventual run down in oil and gas production, in a recent interview about independence Ian Wood said “It means our young voters must be fully aware that by the time they are middle aged, Scotland will have little offshore oil and gas production and this will seriously hit our economy, jobs, and public services”.  

I disagree strongly with his timescales but if he was so concerned about the future why didn’t Wood ask why it is that Denmark – a country the same size as Scotland - Germany, the USA and elsewhere have already realised this problem and have – for example – developed wind turbine manufacturing companies. Why also are the big tidal technology manufacturers German, Australian and of course American and why did a small Scottish company developing a relatively low output tidal turbine have to turn to a Belgian company for support?  That one really surprised even me! 

And as for solar PV, biofuels and most other renewables technology Scotland and the UK are already well behind the competition. We also know that as far as new nuclear power capacity is concerned the UK is now reliant on French, Japanese or Chinese technology.  Given the UK was once a leader in this technology this is exceptionally disappointing but it’s not surprising given what I said earlier about UK Government’s R&D spend on energy technology. 

  

This really is a disgraceful state of affairs but Wood didn’t even mention it. Perhaps that’s because it reflects badly on the Union!

In contrast though, the Scottish Government’s strategy for an independent Scotland includes reindustrialisation which in part will be based on developing a renewables sector. They at least understand the industrial and commercial potential of renewables whereas Westminster seems ideologically blinded to the opportunity.

So for me the decision becomes easy.  I’ll vote in favour of independence because the evidence is that Westminster desperately wants the tax revenue but is even less prepared to plough any of it back into renewables technology than it was in oil and gas.

Such strategic short sightedness in a competitive global market plan is naive and Scotland can no longer afford it.

(First published in the Aberdeen Press & Journal Energy supplement & on the Energy Voice website Sept 1^st 2014)

The state of UK Energy Research funding

Every now and then we all come across someone whose opinions are difficult to counter and who is so blindingly obviously correct you feel obligated to ensure they’re heard loud and clear so that others can benefit from their thinking as well.

In this instance I’m referring to the exceptionally talented economist Professor Mariana Mazzucato of Sussex University. If you’ve never heard of her then I strongly recommend that if you have any interest at all in innovation then you familiarise yourself with the work she’s been doing on the connections between state support for 

research and the economic benefits that can bring in terms of growth, employment and so on and so forth.   

Mind you, if you’re in the energy sector and you’re not interested in innovation then you’re probably in the wrong job! In her book “The Entrepreneurial State” which I’m hoping I’ll be getting a copy of for Christmas, she explains very lucidly that one of most iconic pieces of modern gadgetry – the iPhone – would not have been developed if it hadn’t been for US Government funding for technologies including the touch screen, the internet itself of course, GPS, micro-processors, speech recognition and others.

She also explains that the smart thing that Apple really did was to recognise the potential of all these technologies and cleverly assembled them in a package which under the iPhone brand has become a global success.   Others have of course done pretty much the same thing since just as successfully as Apple but that doesn’t change the fact that most of the core technologies were developed in US laboratories with US taxpayer’s money.

 

Of course the US Governments role in the development of new technologies goes back a long way.  Their space programme including the historic moon missions resulted in a whole range of new technologies including the ubiquitous Teflon coating used on non-stick cooking pots.

In the energy world the US Government has also been funding new technologies both via their own research laboratories and through collaboration with private sector companies. For example, the US Government through its armed forces is having a positive impact on the development of technologies such as biofuels by funding both its development and its trials.  Biofuels isn’t of course the only area in which the US Government is involved.

Now, what I find interesting about the US approach is that their government believes it should have a major role in technology development and that it considers it as a form of long term investment.  There is then a semi symbiotic relationship between the US Government and its industry which seems to work well and to their mutual benefit. 

It’s not however a perfect relationship in that as Professor Mazzucato points outs “We have socialised the risk of innovation but privatised the rewards”   In other words, companies such as Apple which have benefitted so much from publically funded research haven’t provided a financial return to government.  In fact I would add that in Apple’s case and indeed other companies as well they actually provided a kick in the particulars for their Government by manufacturing so much of their product range overseas in communist China and consequently paying far less tax than perhaps they should have.  

So why am I so interested in all this?  Well apart from the fact that the policies at play here are extremely interesting and I’m (sadly) fascinated by that stuff, it just so happens that Research Councils UK have just published their “Energy Research and Training Prospectus” which is somewhat optimistically entitled “Investing in a brighter energy future”.  So, I read that with a view to trying to understand to what extent it might satisfy Professor Mazzucato’s criteria for the state being the source of a range of new technologies with real commercial potential around which might lead to a UK energy technology revival or – as our glorious Chancellor promised – the rebalancing of the economy.

Bearing in mind that the Prospectus includes the contributions from not just the Research Councils themselves but all other public sector sources including the Technology Strategy Board, the Energy Technologies Institute, and the Carbon Trust and DECC then I was really quite astonished at how small the overall UK budget actually is. 

In fact the estimated budget for 2012 was just £288m which represents 0.025% of GDP which according to the Prospectus authors means the UK has fallen back to 19th position in the IEA rankings and 14^th within Europe in terms of energy RD&D spend per unit of GDP. This puts the UK just behind Italy and ahead of Belgium.  Norway – a small, independent oil rich nation on the other side of the N Sea is 6^th.

The Prospectus also reports that in its 2012 review of the UK, the IEA noted that “the levels of spending do not seem to match the UK’s ambitious climate policy objectives and its world-renowned academic institutions and capability” and recommended that “the UK acknowledge and publicly fund at world-class levels a focused energy RD&D programme to catalyse a broader United Kingdom innovation agenda that reflects the country’s industrial and intellectual comparative   advantage”.   

Some hopes I think because the Prospectus also calculates that the UK would need to increase its current public sector energy Research, Development and Demonstration spend by 70% to bring itself back to the median level of IEA countries, and by 200% to get itself onto the top rank.   They also suggest that “further increases would be necessary if global energy Research, Development and Demonstration budgets were to be aligned with the 2˚C climate change objective and, implicitly, UK climate policy.”

So what do we learn from this?  Well it’s now blindingly obvious that most of what comes out of Westminster in terms of rhetoric on how important carbon reduction, renewables technology and so on and so forth really are is just that – rhetoric not backed up with the wherewithal to make anything worthwhile happen.

It’s also now obvious that promises to rebalance the economy and in particular to build on the new industries of which energy is probably the most important were just hogwash.

Professor Mazzucato understands the clear link between state funded research and economic growth whereas Westminster very obviously either doesn’t or is still ideologically and idiotically opposed to the state doing anything much. 

This attitude is hugely damaging to our industrial potential and harms our academic standing.  It must change. 

(First published in the Press & Journal "Energy" supplement Dec 3013)

Is carbon capture and storage in the last chance saloon?

In a move that really did take the industry by surprise the new Norwegian government has announced that it is shutting down its full-scale carbon capture project at Mongstad.

From a Norwegian industry standpoint this is a major setback but the government has said it will continue to fund the research centre at Mongstad to enable it to test various carbon capture concepts and will commit 400million Kroner over four years – roughly £10m per year.

Needless to say, despite the cancellation of the main project this is still considerably more than the UK is currently spending.

According to the Carbon Capture Journal a number of big names have expressed interest in using the Mongstad amine plant to test their own technologies and the list of companies lining up includes Aker Solutions, Hitachi, Mitsubishi and Siemens.

Recently ousted Norwegian PM, Jens Stoltenberg, whose Labour Party lost the recent election, said in 2007 that Norway wanted to lead the world in carbon capture but a report by Norway’s Auditor General this week criticised the Norwegian state’s total spending of 7.4billion crowns on carbon capture and storage projects from 2007-12 and suggested that the costs had risen substantially.

That’s actually not that far off the £1billion or so that the partners in the Peterhead CCS project are hoping to win from the UK Government.

Stoltenberg had also claimed that implementing the Mongstad project would be Norway’s equivalent of performing a “Moon landing”.

Perhaps inevitably then, Frederic Hauge, of the Norwegian environmental group Bellona, said of the decision to drop the carbon capture plan: “This is one of the ugliest political crash landings we have ever seen.”

Well it made me smile!

So, putting all the politics aside, the question is, of course, what does it actually mean for other CCS projects if Norway has concluded the technology is too expensive?

After all, Norway has a powerful reputation when it comes to developing and commercialising energy technologies.

So perhaps we should sit up and listen to what they’ve said particularly given that, as I’ve said before, the impact on electricity prices of implementing CCS on coal or gas-fired power stations could be prohibitive.

In addition, I’ve also said before that I am totally unclear as to what the economic benefit of the Peterhead project to Scotland would be given that the critical bits of CCS technology are effectively imported.

Shell and Scottish and Southern Energy – who are fronting the Peterhead project – claim that the joint Government and Industry CCS Cost Reduction Task Force said that “gas and coal power stations equipped with CCS have clear potential to be cost competitive with other forms of low-carbon power generation”.

That is of course not really very encouraging because, reading between the lines it means that all generating costs will be going up – renewables and conventional. There has to be a better way and I believe the Australians have found it.

Algae Tec Ltd will build an A$150million (£90million) algal oils plant to process emissions at Macquarie’s coal-fired power station in the Hunter Valley, which is north of Sydney.

The algae converts the carbon dioxide into oils which can then be “refined” into a range of liquid fuels including bio-kerosene and diesel.

Russell Skelton, chief executive and managing director of Macquarie Generation the owner of the power station, said: “Carbon is now our single largest cost – this technology should reduce our carbon output, reduce our carbon bill, and at the same time improve our bottom line.”

We should be taking this seriously especially given the level of investment is relatively low. In fact, it’s a pittance compared with the cost of the Mongstad plant and the UK Government’s £1bn CCS demonstration budget.

That said, we must recognise that carbon capture technologies are already available. Cansolv Technologies Inc. (a Canadian company and subsidiary of Royal Dutch Shell), working in partnership with the German company RWE npower, is already capturing CO2 at the Aberthaw coal fired Power Station in South Wales.

It’s the world’s first integrated sulphur dioxide and carbon dioxide capture plant.

Interestingly – or depressingly for the UK – RWE in Germany is, as one might expect of German companies, already running a major R&D programme on carbon capture including the use of algae.

Self-evidently RWE also recognises the potential of algae to reduce the cost of carbon capture by providing an income stream from the products that can be produced from algae.

So, given all this activity in Wales, Germany and Norway and bearing in mind that all the technology involved will come from overseas companies then one has to wonder whether the UK Government will really cough up that £1billion to fund the Peterhead power station project.

Now I could be wrong but I actually disagree with those who believe that now the Mongstad project has been killed off then it’s inevitable that Peterhead will go ahead.

I think the UK Government is far more likely to take the view that if the normally adventurous and risk taking Norwegians think such a project is too expensive then that’s a good enough reason for them to take the same view.

Personally, I see no benefit in funding the demonstration of technologies that are already being demonstrated elsewhere especially given they can’t be sourced in this country. We’re too late for that – as usual.

However, I would not like to see the UK Government let off the hook completely and would much prefer to see that government funding going into new ideas such as the development of algae-based carbon capture.

Why? Because I believe it provides the potential for developing indigenous companies that could both benefit and gain an advantage from our exceptional scientific talent.

Scotland’s life sciences research is world beating. Let’s use it to develop a global business.

(First published in the Press & Journal Energy supplement - 7th Oct 2013)

Aberdeen – Nice try, but no coconut.

Apologies in advance but I’ve come over all parochial and am going to discuss Aberdeen itself. I’ve spent the best part of forty years either working out of or in Aberdeen and have watched it evolve into what it is now. Indeed, when I started working here the A90 was a single lane road, the airport terminal was on the East side of the field and flights to London still used some propeller aircraft! I also seem to remember Aberdeen harbour still had a dock gate which we had to wait to open before venturing out into the N Sea. This meant more time in the pub so it didn’t cause too much hardship!

Things have of course changed a great deal since then. From wondering what on earth had hit it in the early seventies Aberdeen has certainly gained confidence and stature and nowadays even calls itself the “Oil and Gas Capital of Europe”. Whether or not that’s deserved is a moot point.

During the run up to the decision on whether or not to redevelop Aberdeen’s Union Terrace gardens I clearly remember Ian Wood claiming that the redevelopment would help turn Aberdeen into “the Houston of the East”. I didn’t laugh – well not for long - at such a suggestion because whilst Wood must have realised that such a goal was impossible; when I thought about it I realised he was actually quite correct in that it is what Aberdeen should be aiming for. But does Aberdeen’s recent history suggest that’s ‘doable’ or not?

In the last month or so there has been a flurry of media praising Aberdeen’s success in doing so well out of the oil and gas industry with one broadcaster talking about “Aberdeen's central role in the North Sea oil industry”.

It’s an interesting turn of phrase. Aberdeen certainly has played a central role in that it has acted as host to the vast majority of oil and gas operators, service companies and manufacturers. Nearly all the important players are here in one shape or another. They’ve created jobs, spent money in our shops and had a huge – some would say negative - impact on our housing market. They’ve also kept our car sales people happy and filled our restaurants almost every night of the week. Our hotels, bed and breakfast providers are booming and our shops and supermarkets are also thriving. Aberdeen airport is constantly busy with both domestic and international flights as well as all those helicopter trips out to N Sea platforms, rigs and so on and so forth.

On some levels then Aberdeen has been a huge success but something niggles me about how deep that success actually is and how well rooted it is. Fact is that if it hadn’t been for firstly the Americans then the Norwegians and to some extent the French and others including the Danes, Italians, Dutch, Swedes and others Aberdeen would have been nothing like as buoyant as it has been.

Aberdeen then is like the oil and gas industry itself in that it’s certainly international. However it also means that because of oil and gas its economy is nothing like broad enough.

This brings with it some considerable risks. Firstly any downturn in the oil and gas sector regardless of what it’s caused by can have a large adverse impact on the Aberdeen and Aberdeenshire economy because there’s little to fill the gap. Secondly, companies can up sticks and move out at any time. Anchoring companies here is critical and because Aberdeen is a source of great engineering and other skills this is a major factor in our favour when it comes to deciding on where to invest. That said, it doesn’t always work like that. Witness Technip’s decision to establish an R&D centre in Paris and not Aberdeen where it has a major operations base. R&D operations are of course another essential element when it comes to anchoring companies anywhere. Where they’re based tells us a lot about where a company’s loyalties really lie.

So what to do?

Well I’m not first one to have talked about the need to broaden Aberdeen’s economy as much as we need to broaden the entire country’s economy and I’m sure I won’t be the last.

However, the time is now ripe to start developing a sensible strategy to actually do this drawing on the skills we have where possible but recognising we may need to develop or “import” others.

I had always hoped that ACSEF (Aberdeen City and Shire Economic Forum) would drive this forward but frankly, that organisation is turning out to be about as much use as the proverbial chocolate teapot.

For example, I’m still staggered that whilst it has a plan to develop a “Hydrogen Highway” as part of the “Energetica” global energy technology corridor, stretching from Aberdeen to Peterhead there is no plan to develop or even bring in a company to manufacture and trial hydrogen refuelling systems, fuel cells, electrolysers and so on and anchor that technology in Aberdeen for the future.

The same applies to their ideas on geothermal energy. Geothermal has huge potential, but where’s the plan to manufacture at least some of the hardware?

ACSEF desperately needs someone to press its restart button and revitalise it.

Ian Wood’s aspiration to turn Aberdeen into another Houston is possible only perhaps on a smaller scale. Houston has major aerospace and electronics sectors – Aberdeen is very good at electronics. Houston has a major medical science sector – as it happens both universities in Aberdeen are very adept at medical science and medical devices. Houston also has a powerful petro-chemical sector. I never have understood why Aberdeen doesn’t.

Of course, being a forward looking City Houston is attracting renewable energy companies to base themselves there as well and companies offering wind technology and low power LED lighting are typical of the ones that have moved in or set up already.
Ian Wood will be surprised to read this but I agree with him. Aberdeen has to emulate Houston and it has to start now.

(First published in the P&J Energy supplement & on EnergyVoice.com, Sept 2013)

Where’s the progress?

I’m worried. I think there’s something going badly wrong with our energy industry and particularly with the development of renewables.  Let me explain why.

Firstly, I was really quite shocked to read in a blog by Prof Brian Ashcroft of Strathclyde University that he believes that around 70% of all oil and gas industry post-tax profits are remitted abroad. According to Ashcroft this amounts to around £19bn which if correct is an astonishing figure which he says “reflects high degree of foreign ownership”

This is scary.  Such an extraordinary level of reliance on foreign ownership of such an important industry can’t possibly be healthy for our economy and perhaps goes a long way towards explaining why – as I mentioned last month – our R&D expenditure is so pathetically low compared with Norway.

Actually, I would bet that in Norway these figures are reversed.  I wouldn’t be at all surprised if over there less than 30% of post-tax profits are remitted abroad because there are a lot less foreign companies.  Different attitude you see. They think strategically and we don’t.

The danger now though is that history is going to repeat itself with the renewables sector.  Looking back over the year since the last All Energy conference and exhibition I’m finding it very difficult to come up with any examples of a UK or Scottish company introducing something new or entering other parts of the market.   I’m now really concerned we’re not just letting our competitors snap up the best bits of what we have developed but we’re not actually competing in sectors that we should be competing in.  The proof of that pudding is course that so many overseas companies are moving in.  If we were competing properly then they would think twice about setting up here.

But then the “system” the government has set up isn’t aimed at creating a renewables industry but developing mechanisms to achieve the various government policy aims on carbon emission reductions, percentage of electricity from renewable sources and so on and so forth.  

So, we tend to set up companies that meet these policy needs and they do things like consultancy, windfarm development planning and of course carbon trading and offering advice on how to reduce a company’s carbon emissions and energy consumption.  That said, some companies are offering important and valuable services such as surveying and subsea remotely operated vehicle support although no heavy lift vessels or cable laying now.

In terms of timing the introduction of policies also never allows for the development of new technologies.  By this I mean that when we develop new policies we rarely consider the industrial potential.  

A classic example of this is the so called Smart Meter. The government’s plan is that every household and business should have one of these.  That means millions of the things will be bought and installed but as it looks now none of them will be manufactured by a UK company. How stupid is that.

In fact the more I read and hear about the attitude of the Treasury in particular I seriously wonder if they care about renewables at all.  I get the feeling that actually the Treasury is keeping its fat fingers crossed that in its forthcoming report the British Geological Survey team will say that there is so much shale gas available that we can completely forget renewables for the foreseeable future.

Another threat to renewables is coming from nuclear.  If the government ever gets its act together and comes to a deal with a potential reactor builder then the cost may well reduce funding for other technologies.   There’s also little doubt that this government would much prefer to have a plentiful supply of nuclear power than anything else even if it means relying on French or even Chinese semi state owned companies to build and operate them.

At the same time though I’m completely mystified over the refusal of the National Grid to balance out the costs of grid connections rather than price them geographically.   Actually, that’s wrong.  I can understand some mindless civil service type – perhaps an ex investment banker -  coming up with that sort of idiotic proposal but what I don’t understand is why the Government didn’t tell them to drop it.  

All that said I do have some good news. Things are now stirring in at least one part of the renewables sector.  The Scottish Government’s Energy Advisory Board of which I’m honoured to be a member has agreed a proposal I developed to set up a forum on Future Fuels. 

The forum consists of a mix of members from academia, industry and government bodies and its aim is to design a strategy for the development of a Scottish renewables fuel industry. That means determining where the best opportunities lie, looking at whether we have the skills to build such an industry and of course working out which fuels provide the best potential.   The forum is “time limited” which means that once its job is done it will disband.

It’s exciting stuff because it does look as if there is much more knowledge and expertise around this topic than perhaps was originally thought. 

Whilst looking at the better known fuels such as ethanol and bio-diesel the forum is also considering butanol, bio-kerosene, hydrogen, ammonia and others and of course a range of production techniques that given the high level of life sciences expertise in Scotland could include synthetic biology. 

We have a head start given the work being done by Argent on bio-diesel, Celtic Renewables on bio-butanol and Scottish BioEnergy on algae applications. This is a good base on which to build.

So whilst I find it intensely annoying we never seem to have any projects that can match – for example – flying a solar powered aircraft across the USA perhaps we’ll soon be able to demonstrate a range of new fuels transport, energy storage and heating.   Not quite as spectacular perhaps but considerably more important.

  (First published in "Energy" in May 2013)

 

 

EMEC’s Customer Base has little UK content.

EMEC – the European Marine Energy Centre – on Orkney is a facility Scotland should be proud of. In the nearly 10 years since it opened its doors it has achieved a solid reputation and is now involved in a number of overseas collaborative projects.

This is good for Scotland and good for the marine energy sector.

However, EMEC’s success illustrates the extent to which the industry here in the UK is now increasingly dominated by overseas corporate or other investors.

Going through the list of the companies that have used or are using the Orkney centre, it is really quite surprising as to how remarkably small the Scottish and wider UK content actually is.

Looking first at the wave energy companies who have or are currently testing hardware at EMEC, the first and perhaps best known is Aquamarine of Edinburgh.

The largest investor in Aquamarine appears to be ABB Technology Ventures based in Switzerland which gives Aquamarine access – potentially – to ABB’s huge technology knowledge base. That said the company has also received investment from Scottish Enterprise and Scottish Equity Partners.

Pelamis Wave Power, also based in Edinburgh, initially found a lot of its investment from overseas and, given its chair is also managing partner of Emerald Technology Ventures, the Swiss-based venture capitalist, this would suggest that pattern continues.

It’s also interesting to note that the two companies testing Pelamis devices at EMEC are E.ON (German) and Scottish Power Renewables owned by Iberdrola (Spanish).

A third company, VattenfallB (wholly-owned by the Swedish state), is planning to test the latest generation Pelamis Wave Power device in 2014.

The Finnish company Wello Oy is also testing its wave energy system at EMEC. Having worked on a number of wave energy concepts since 1976 the Penguin model was selected in 2008 to be developed further. Wello Oy is entirely Finnish owned.

AW Energy is also a Finnish company. It is developing the Waverider device, which was successfully tested at EMEC in 2005. The firm now has a project underway – albeit slowly – in Portugal. Needless to say, all main investors are Finnish.

Finally though some good news. Seatricity is a small Orkney-based company developing and testing a new wave device at EMEC and it appears that it may well be that it is actually UK owned.

Turning now to tidal energy devices being trialled, one of the most advanced has been built by Andritz Hydro Hammerfest, which was originally a Norwegian-owned company but it is now owned by the Austrian Andritz Hydro GmbH group.

The Atlantic Resources Corporation (ARC) is also testing a tidal turbine at EMEC. ARC has a project office in London but is essentially a company based in Singapore although it now includes among its investors the Norwegian electricity utility company Statkraft.

Third in our list of tidal energy technology companies is the Dutch company Bluewater Energy Services, which is testing a novel floating tidal generator support device.

Kawasaki Heavy Industries is planning to test a 1Mw tidal generator in 2014 and is currently component testing in Holland, performing tank tests of a scale model, stress tests of blades and power train tests, as well as some component testing for its full-scale prototype. Kawasaki is of course a Japanese company,

OpenHydro has been testing devices at EMEC since 2006, has deployed a device in the Bay of Fundy, Nova Scotia, and is currently working on a project in Brittany, France, where it aims to deploy four 16m tidal turbines. OpenHydro was recently acquired by the major French shipbuilder and marine technology company DCNS SA.

Scotrenewables Tidal Power is a Scottish company that has developed a floating tidal technology device. But its main investors are the Swiss ABB group, the Norwegian Fred Olsen group and the French oil and gas major Total.

Tidal Generation is developing and testing a seabed tidal turbine similar in concept to those of Andritz Hydro Hammerfest and ARC. A Bristol-based company, it was bought by the jet engine builder Rolls Royce in 2009 but it was recently bought from them by the French engineering group Alsthom.

The German company Voith Hydro is working with RWE Innogy through the joint venture Voith Hydro Ocean Current Technologies and currently building a 1MW demonstrator of a seabed turbine due to be tested at EMEC starting this year.

Voith Hydro is also the company responsible for the recent close of the Scottish wave energy company Wavegen and “relocating” its intellectual property and assets to Germany.

When I was asked to analyse EMEC’s customer base even I was not prepared for what it would tell me.

I am actually staggered by the appallingly low level of investment in the sector by UK and Scottish companies even when the technology behind the company involved has been developed by Scottish or UK engineers.

Of course, we can praise EMEC itself for having built a very successful business and for having promoted the huge tidal and wave energy resources that Scotland possesses.

The fact that the centre’s success has exposed another major hole in how we do real economic development isn’t the organisation’s fault. But it is something we should be thinking hard about.

Indeed we should be horrified by our record so far. I certainly am.

(First published in "Energy" 20th May 2013)

UK Oil & Gas Industrial Strategy – It’s good to talk.

The Government’s latest attempt at a strategy for oil and gas was published in March but its impact was somewhat diluted by the announcement on the same day of yet another change of Energy Minister. 

The poor bloke that drew that particular short straw for the least stable post in the government is now responsible for implementing the new strategy, such as it is.

Apart from a few changes and some minor additions it’s actually pretty much a repeat of the report published by the Oil and Gas Industry Taskforce back in 1999 although actually the 1999 version was a bit more detailed particularly when it came to things like technology needs.

This new strategy includes all the usual guff about maximising the “economic production of the UK’s offshore oil and gas resources” and all the other motherhood and apple pie phraseology designed to make us think Westminster actually cares about more than how much tax they can squeeze out of the industry to pay for all the other messes they’ve created.  

For example, one of the aims is “to sustain and promote the growth of the UK industry’s supply chain, in both domestic and international markets”. That’s an interesting turn of phrase. It’s the UK industry’s supply chain not the UK supply chain.  So that includes both indigenous and foreign owned companies which is probably recognition of the extent to which the industry is now dominated by overseas companies.   It goes back to the eighties doctrine of the “level playing field” which was really all about getting as much oil and gas out of the ground as fast as possible in order to fill the Treasury’s coffers and not caring who did it.   

As with all good initiatives it’s important to establish new bodies which can provide an opportunity for the great and the good to be seen to be doing stuff. That’s until they get bored or move on or have collected their OBE.  True to form we now have an “Oil and Gas Industry Council” to carry forward all the recommendations arising from the strategy document. Where does that leave PILOT which was created in 1999 to do the same thing?  To wither quietly on the vine I would guess.

OK – I admit I’m being more than just a tad cynical here primarily because I don’t think the 1999 O&G Taskforce led to any great improvements and I certainly don’t think it led to the much vaunted advances in technology that were talked about being desirable then and indeed are still being talked about as desirable now.

Let’s look at one particular and actually very scary statistic. According to the strategy report the overall sector R&D spend in the UK is reported to be 0.3% of sales which is a shameful figure when compared to Norway’s figure of 4%.  So this aspect of the 1999 Taskforce’s master plan failed miserably much as many of us involved expected it to.  

One action arising from the new strategy’s technology plan is the establishment of “a national centre of excellence that will enable industry to better understand complex reservoirs, reduce drilling costs, improve offshore efficiency, enhance production and maintain the integrity of infrastructure.”

The Government has now done that.  It will be established at Newcastle University. Why Newcastle?  I’ve no idea. Anyway it doesn’t really matter as it seems the Government is only coughing up £7m for this “centre of excellence”.  So – it looks like just another example of Westminster “tokenism”. 

The strategy also says “The UK has very strong financial services and oil and gas sectors. The two should be working closely together to create growth.”   This would be novel because for the past 30 years or so the only growth the financial sector has been interested in is their own.  Expecting the financial services sector to invest more in the supply side is very wishful thinking especially now they are under so much pressure to increase their capital reserves.    

So what’s the answer?  Well, there isn’t one.  We can’t force either the operators or the largest contractors/manufacturers to fund or invest in UK R&D if they don’t want to nor can we force investors to cough up more to grow companies through product or service development.

That said the fact is that Norway’s R&D level is much higher because they have a larger number of technology companies and they have a national champion to work with namely, Statoil.

Neatly linking this to the recent demise of Margaret Thatcher we should recall that she privatised the UK’s national champion the “British National Oil Company” which was then renamed Britoil Plc and later sold off to BP allegedly for peanuts.   

It was claimed Thatcher did this to ensure foreign operator investment in the N Sea. It was a lame excuse because investment in exploration and production in the Norwegian sector of the N Sea has been at least on a par or better than investment in the UK sector but investment in the Norwegian supply side has been of an order of magnitude considerably higher.  There can be little doubt that the BNOC decision wasn’t thought through and like a lot of others was purely ideological.

So do I expect this new strategy to achieve real results?  No I don’t and my reason for saying that is that the one thing that would really make a huge difference isn’t even mentioned. No – it’s not set up a new state oil company although that would be a great idea and neither is it to introduce “informal” targets for genuine UK content.  The one thing that would make a genuinely huge difference is to introduce tax offsets on drilling costs as the Norwegians have.  But that’s probably a step too far for a Government that’s essentially bust and needs the oil and gas tax revenue more than it ever has before.

(First published in the Aberdeen Press & Journal's "Energy" supplement in May 2014)