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Presentation 1.3: Energy technology, perspectives, scenarios and strategies to 2050 Mr Petri Vasara Principal, Dottore Poyry Forest Industry Consulting Oy P.O. Box 4, Jaakonkatu 3 Vantaa FI-0162 Finland Tel: +358 10 3322611 Fax: +358 10 3321482 Email: petri.vasara@poyry.com
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1
Energy Policies as a Global Investment Factor
International Seminar on Energy and the Forest Products Industry
Dr. Petri VasaraPia Nilsson
Pöyry Forest Industry Consulting Oy
Rome, October 30-31, 2006
2
In the Grips of the Climate and Energy Storm: Three Energy Pathways
Can the forest
industry
somehow
reach a
balance in the ”Eye of
the Storm”?
Can the forest
industry
somehow
reach a
balance in the ”Eye of
the Storm”?
Should one
be swept
along in
”Business
As Usual”?
Should one
be swept
along in
”Business
As Usual”?
Is there a
way to
”Ride the
Storm”?
Is there a
way to
”Ride the
Storm”?
59
3
The Geography of EnergyAnnual Fuel Consumption: Size Proportional to Absolute Consumption
Fuel consumption per year (Image: SASI Group,
Univ. Sheffield/M Newman, Univ. Michigan)
On the ”fuel globe”, the US, EU, China, India and Japan form five almost equal
blocks.
4
”To have and have not”: Nouveau riche, still poor
− The rich and the poor countries are perhaps not where oneassumes them to be. A resource-oriented world has otherpriorities.
An index based on water,
forest, energy and arable land
gives a new geography for the
rich and poor.
Resource-poor
Resource-rich
Resources = (water + forest + energy + arable land) / capita
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5
Cost Structure
6
Eye of the Storm
− In the eye of the storm there is calm.
− We could make an analogy: a position for a forest industry company, where the sensitivity to energy costs and product prices in various scenarios is such, that it in most cases stays on top of the competition, and makes a profit.
61
7
An Example of a Cost Structure
0
20
40
60
80
100
120
20,4
16,9
9,45
21,9
15,5
15,9Component
OtherLabourEnergyChemicalsRPWood
We have taken one
example cost structure (which is from an
almost real, really
anonymous mill), and
normalised it to 100.
We have taken one
example cost structure (which is from an
almost real, really
anonymous mill), and
normalised it to 100.
8
An Example of a Cost Structure
0
20
40
60
80
100
120
20,4
16,9
9,45
21,9
15,5
15,9Component
OtherLabourEnergyChemicalsRPWood
For a sensitivity analysis of the cost structure, we make the assumptions:
Behind wood cost in sensitivity analysis:
mean price as now,
standard dev. 10 % of
mean price
Recovered
paper: mean =
current + 10 %, standard dev.
10 %
Chemicals:
mean = current + 10 %, SD 10 %
Behind energy: oil up;
electricity up 40
%, SD 40 % of
current
For labour
and other, now + 5 %,
SD 5 %
It’s just an example for a presentation. One could
argue endlessly about the items, and the
politics behind it.
It’s just an example for a presentation. One could
argue endlessly about the items, and the
politics behind it.
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9
The Outcome
The average
scenario
(thousands run): cost up
13 %,
weighted
heavily above 10 % increase
The average
scenario
(thousands run): cost up
13 %,
weighted
heavily above 10 % increase
In 5 % of cases,
above 30 %
increase
In 5 % of cases,
above 30 %
increase
In 5 % of cases,
below
current
In 5 % of cases,
below
current
10F9TT01.XLS
REAL PRICE OF NBSK
(USD/TON/CIF WE)
0
200
400
600
800
1000
1200
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
- 1998/USD -
Very high
prod. stocks
USD weakForecast
USD strong
BC strike
Oil shock
RecessionBC strike
Exch. rate
based
increases
Supply
burst
High prod.
stocks
Supply down/
Cluster Rule/
USNew
supply
Low
prod.
stocksAsian demand
down - econ.
crisis
Supply
burst
Strike
threat
in BC
What about trend prices?
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11
So...
− ... we have, in a sensitivity scenario, a 95 % likelihood of increased costs, and
- apparently sinking trend prices
- with normal mathematics, this would not look good.
- Let’s hope that
- the sensitivity scenario was flawed
- if it wasn’t flawed, we’ll hit the lucky 5 % where the costs decreased
- trend prices are just projections – something will turn the trend
- However, reaching calm in the cost-and-price-change-storm does not look easy.
12
Investment Costs
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13
Specific Investment Requirements: Kraft Pulp Mills
0
500
1000
1500
2000
2500
3000
3500
4000
0 200 400 600 800 1000
Mill capacity, 1000 ADt/a
USD/t of capacity
New bleached hardwood kraft pulp mill projects
14
Specific Investment Requirements: Paper Mills
Some recent paper mill projects
Capital Costs of Paper Mills
2nd quarter of 2001
1230
11001020
1500
1300
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0 100,000 200,000 300,000 400,000 500,000 600,000
Production, at
EUR / at
News, Brownfield
LWC, Brownfield
Power (News, Brownfield)
Power (LWC, Brownfield)
65
15
The Paper Industry Is Among the Capital-Intensive Sectors...
− ... and unless a redesign of pulping and papermaking succeeds, will
continue to be so
− Thus: mill cost structures are highly sensitive to energy, and
investment costs are high
16
Energy Investment Compass
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17
Compass of Investments
18
Energy Policy End Game: Green and Black Chess
67
19
End Game: The Green Queen and the Black Queen
− In assessing the impact of energy policies on global paper industry
investments, the fact that we are dealing with a complex issue is not just a
disadvantage. We also have an arsenal of complex strategies at our disposal
− An investment strategy is a high-stakes game of strategic moves. The
game board is complicated and the rules many. Chess is a suitable analogy - chess played on a green-and-black board, between the green
energy and the black energy sides, influenced by energy policies.
− The final diagram is a snapshot from international energy markets and
politics - a tough game with many participants. It is important to bear in mind
that the naming used in the green-and-black-chess game only takes into
account the greenhouse gas emissions during energy generation. It does not
consider e.g. the following facts:
− When uranium is mined carbon dioxide is released during processing.
− When biomass decays in the dam where hydropower is processed,
methane is released.
− Bioenergy combustion generates large amounts of green carbon dioxide.
Bioenergy
Coal
A dark horse:
New coal technology
Hydropower
Lost renewable energy
resources
Oil
Oil
NuclearNuclear Fusion
technology ?
Lost fossil
fuel resources
The Great Chess Game: The contest between energy recourses
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21
The Pieces: The Green Side
The king symbolises the green side - the non-fossil greenhouse gas emissions.
The green queen, bioenergy, could not be more on the policy agenda – but this presentation is too short to even touch upon all the intricacies of the issue. Biorefineries are a particular variation of this theme.
The green rook, nuclear power, is an energy form with a large “momentum” - it is difficult to shift it from its path. It is difficult to restructure the nuclear industry, investments are very significant, which is a disadvantage in competing against other resources. The GHG competitive advantage is, however, strong. No emissions coupled with large amounts of energy.
The dark green horse symbolises fusion technology and other new unheard-of technologies, which may appear at any moment, or never. Political and governmental support, market forces, public opinion and flashes of genius are all needed. The dark green house symbolises the player who can take unexpected steps in several directions. This ability makes it a dangerous player but also a weak player who can never make a straight decision.
Green pawns symbolise hydropower – a true treasure for those who happen to have it. It can produce important amounts of energy with small emissions.
22
Pieces: The Black GHG Side
The king, naturally symbolises the black side - the fossil greenhouse gas emissions.
The black queen, coal, has the highest greenhouse gas generation potential. The coal industry is politically supported by many different players.
The black rook, oil, is in the same category with coal. It has, however, a lower emissions potential, but extremely strong political clout in many sectors, including transport.
The black pawns, natural gas, are pieces with the potential to grow stronger. Natural gas pipelines are major construction projects with few “politically safe” routes. The emission amounts are further increased by important methane leakage from the pipelines.
The dark horse symbolising new fossil fuel technologies is not a phantom piece: these already exist in laboratories and more will surely be found.
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23
The Rules of Political Energy Chess
Our green-and-black chess follows the rules of the standard chess game, but
energy policies may change the rules. Among possible new rules, we have:
Rule 1: The battle between shutting down or revitalising energy. Shutting
down means removing the green rooks
Rule 2: “No new hydropower” is an often-heard demand. In other words,
green pawns cannot become green queens.
Rule 3: Indigenous energy security sometimes means utilising present coal
resources, which means introducing more black queens into the game at the
start.
Bioenergy
Coal
A dark horse:
New coal technology
Hydropower
Lost renewable energy
resources
Oil
Oil
NuclearNuclear Fusion
technology ?
Lost fossil
fuel resources
The Great Chess Game: The contest between energy recourses
70
25
A Green-and-Black Chess Policy Problem: How to Ensure a Victory for the Green Side
− Among all the possible positions and moves in this game, we have chosen
the one shown. A possible energy policy problem is bringing the green side to victory. The game has only begun. However, many critical questions
for the final outcome are about to be answered. Who loses the queen first ?
That is: which will remain longer on the board, coal or bioenergy? This is left
open for the listener. Other questions evoked by the board are:
− Nuclear power (green rook) could be stuck in the corners. This also applies
to oil (black rook). The political pressure against these two pieces makes this
fairly probable in some regions. However, it is possible for the rook to make
forceful attacks, if some space is cleared for it.
− The dark horse in the middle symbolises the unknown future. The horse
could take any direction and attack several players: the chosen R&D strategy
decides.
26
Conclusions
− We have left the play open on purpose, e.g. by not mentioning whose
turn it is.
− It is unnecessary for the chess fanatic to analyse the board too
deeply: if something is impossible, well, many seemingly impossible
things happen on the energy front.
− What the player of the game (e.g. a paper mill, a paper company, the
whole sector) needs is political savvy, engineering knowledge,
innovations in e.g. energy efficiency and advanced strategic thinking.
− The paper industry has to make a series of moves - that is
unavoidable. Otherwise, somebody else makes them for him. In the
latter case, the results will not be to the player’s liking.
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