Scotland has a company called Scottish Bioenergy that has developed a bioreactor which uses a mixture of algae and water to strip carbon dioxide from flue gas and convert it to oil and proteins.
Based in St Cyrus, in Aberdeenshire, this small, but exceptionally innovative, company is to apply its technology at Glenturret Distillery in Perthshire – the home of The Famous Grouse.
It will take the flue gas from the distillery and convert the CO into a bio-diesel and a protein which can be added to the distillery’s spent grain, making it a more valuable animal feed.
Discussing the technology with the company, one of its characteristics got me even more interested. Regular Energy readers will remember that, not long ago, I suggested the idea of producing methanol from CO produced by coal-fired power stations and using this as a transport fuel.
Algae bioreactors can do this, which means the potential for the technology is huge. What’s more, even though burning methanol or other fuels produced using this technology still produces CO, it essentially halves the overall amount produced.
Eat your heart out you carbon-capture and sequestration enthusiasts because the bugs have got there first.
Now the not so good news. Reading the recent Oil & Gas UK press release, “Banking crisis and recession put UK oil and gas investment at risk”, sent shivers down my spine.
Why? Well, it’s because it demonstrates what seems to be a misunderstanding of what’s going on in the world.
One phrase stood out – “Our research shows that if investment could be sustained at around £5billion per annum, the industry could hold production decline at 4-5% a year on average. However, if investment falls, that decline will again accelerate”.
This seems to suggest that investment levels are somehow disconnected from the much more important issues of supply and demand, which of course they’re not. Investment is unlikely to increase until demand goes up and takes the oil price with it.
Unfortunately, though, oil demand is still falling. The IEA (International Energy Agency) has now forecast that demand could well fall by close to 1million barrels per day in 2009, and that, plus the news that demand from China is also continuing to fall, means there is no respite yet.
This isn’t, then, just a story about the North Sea in isolation, but one about pretty much every oil&gas province on the planet.
Looking a little more broadly, and particularly at the UK Government’s financial circumstances, I have to say that, regardless of how good an argument UK Oil & Gas put forward, I am not convinced that the Government is really interested in giving any concessions to the oil&gas industry, particularly when it comes to taxation.
The reason is, of course, that the tax revenue the North Sea generates now is needed to help prop up the banking system. In fact, the UK Government has kindly committed on our behalf the next perhaps 10 years’ worth of UK Continental Shelf tax revenues in support of this effort. So I’m afraid Westminster needs every penny it can lay its grasping hands on and the concept of forgoing some of its tax revenues to prop up our offshore industry probably won’t even enter its thinking.
The other problem I have is that, despite Lord Mandelbrot’s pleadings for a more balanced economy, the UK Government remains firmly wedded to a system that is based mainly on services, and particularly financial services. Indeed, its entire effort – and our money – is going towards the banks and not real industry. This does not bode well.
However, there is, without doubt, a real danger that a prolonged recession could do irreparable damage to the North Sea and it is certainly worth putting in the effort to come up with a plan as to how that damage – including the consequential acceleration in the production decline rate – can be arrested and reversed.
Eventually, of course, the oil price will go back up to a level where operators are encouraged to start investing in the old cash cow again. The trouble is, of course, that predicting when that upturn will take place is not going to be anything like as easy as it was in the late-1990s, when the oil price recovered from $10 to more than $20 in about six months.
This timing issue is, of course, potentially very problematic because if Government can be persuaded to do anything to ease the flow of credit, it will want to know over what timescale it will need to make such a commitment. So what to do? Well, the last thing we should do is set up another Oil & Gas Industry Task Force (OGITF), as happened in the late-1990s crisis, although I have this feeling that some of the industry’s great and good are circling – all eager to serve again. After all, there’s nothing like a task force for producing a healthy ego boost.
What about self-help? Some companies claim to be still cash positive. Why not persuade some of these to pool some of their resources and use it to lend to others. Or what about setting up a “co-operative oil bank”? We have mentioned the bank idea before. Not that anyone e-mailed Energy to either rubbish or praise the idea.
So North Sea Co-operative Oil Bank? Well, maybe not, but I think we need to be a lot more imaginative than hoping the UK Government will rise to the occasion and help the industry out.
However, if the Broon administration can’t be persuaded to help in ensuring the availability of capital and easing the tax burden then it will have to accept the consequences. One of those could well be a further large increase in foreign ownership of our oil&gas assets. But, of course, the Government won’t care about that as long as the tax keeps flowing.
On the other hand, if demand doesn’t start drifting back up soon then nothing will help.
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