Obama chooses Nobel laureate physicist as energy secretary

US President-elect Barack Obama announced on December 15 his choice, the Nobel Prize winning physicist Steven Chu as his energy secretary to head the Energy Department.

Chu, 60, who is currently the director of the Lawrence Berkeley National Laboratory in California, would be the first Asian-American to lead the department.

His 1985 work on laser trapping of atoms at ultra-low temperatures of a millionth degree above absolute zero, led to his being a co-winner of the Nobel Prize in physics in 1997. That seminal work, together with other techniques like magnetic cooling, laid the foundation for achieving one of the holy grails of statistical physics in 1995; the so-called Bose-Einstein condensation which demonstrates a new form of matter.

The phenomenon was predicted by none other than the great physicist Albert Einstein and then-young Indian physicist S. N. Bose in 1926. Those who achieved the goal in 1995 were awarded the Nobel Prize in 2001.

But will he make a good energy secretary?

Chu is no dyed-in-the-wool, ivory-tower type physicist. He is also one of America’s effective advocates for scientific solutions to global warming and the need for carbon-neutral renewable sources of energy. In this regard, he fits perfectly well into Obama’s green energy agenda which the latter has eloquently espoused during the heated electoral campaign. The new presidency aims for a low-carbon society by building more wind, solar, geothermal, biomass and hydro facilities.

Obama understands that crafting a viable energy policy could make or break his presidency. He also understands that the process is complex and requires the brightest minds to help him steer his energy ship to the right direction. His choice of Chu reflects the importance he gives to energy issues.

In his numerous forays around the globe, Chu has delivered a consistent message centered on “stronger storms, shrinking glaciers, prolonged droughts and rising sea levels” in apparent reference to the dire consequences of global warming.

Since assuming the directorship of Berkeley Lab in August, 2004, Chu has marshaled the Laboratory’s considerable scientific resources on energy security and global climate change, the production of new fuels and electricity from sunlight through non-food plant materials and artificial photosynthesis, energy-efficient technologies and climate science.

University of California Chancellor Robert Birgeneau who has known Chu for decades has this to say about the character of the man: “Steve Chu has been relentless about addressing the technical challenges of renewable energy in a deep way. We will now have an energy policy that can mean the U.S. will have a chance of obtaining energy self-sufficiency through new technology.”

Among other things, Chu was credited with helping establish the Joint BioEnergy Institute (JBEI), a $135 million DOE-funded bioenergy research center and the Energy Biosciences Institute (EBI), which was bankrolled by a $ 500 million grant from British Petroleum.

“Steve Chu has been an incredible visionary and true leader, particularly in the area of energy,” said Jay Keasling, who heads JBEI. “Now the country and the world will benefit from that vision and leadership."

He will be missing the ensconced academic life. But LBL’s loss will be America’s gain when the physicist-energy advocate brings his scientific talent, vision and passion for energy and the environment into the highest chambers of national energy policy.

How we wish that such inspired choice to head a very important government agency would be translated to our local situation!
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Note added, December 19, 2008: The papers reported today that the powerful senate Commission on Appointments bypassed the confirmation of Department of Energy Secretary Angelo Reyes and Department of the Environment and Natural Resources (DENR) Secretary Lito Atienza along with three other cabinet members. The most vocal critics of Reyes are energy committee chairperson Senator Miriam Defensor-Santiago and Senator Jinggoy Estrada, whose father was ousted in 2001 and under which Reyes served as Army Chief of Staff. Defensor-Santiago simply said that Reyes is unfit to be an energy secretary.

President Arroyo signs renewable energy bill into law. Will they come?

If you build it, they will come.

This is probably the hope of this government and our energy policy makers when President Gloria Macapagal-Arroyo signed on Tuesday the Renewable Energy Bill into law nearly two decades after the first semblance of a bill was filed.

As usual, the President herself and her energy minions are quick to take credits and wax eloquent that a flood of new renewable energy investments is just around the corner.

The President claimed the new law is the “first and most comprehensive renewable energy in Southeast Asia” that she hopes could corner a chunk of billions of dollars of energy investment money floating around the world. Her energy secretary, Angelo Reyes, thinks that “it will foster sustainable growth, energy independence and economic security for the country.”

Republic Act 9513, as the new law is officially known, provides for various fiscal and non-fiscal incentives for renewable energy—which includes solar, wind, geothermal, biomass, hydro and ocean energy—developers. Some of the fiscal incentives include the usual tax credits on domestic capital equipment and services, special realty tax rates, duty-free importation of essential equipment and income tax holidays, among others.

The non-fiscal incentives essentially consist of developing the necessary policy infrastructure that supports the growth of renewable energy. Parts of this infrastructure which has been credited with explosive growth in wind and solar energies in more developed countries include: (1) establishment of a renewable portfolio standards (RPS) which would require electricity distributors to include a certain percentage of their supply from renewable energy sources; (2) a feed-in tariff system—which was still absent in the bill’s version passed by the Lower House—which could help renewable energy projects become viable; (3) a green energy option, wherein users can in theory choose energy from green sources to avail of some incentives; (4) net metering, wherein (mainly) large users and independent producers will only be billed on the net usage of power from the grid and can sell their excess power to the grid; and (5) establishment of a renewable energy market wherein green energy credits are validated and certified and wherein these credits can be traded.

For a change, critics of government energy policies are one in heaping praises for the signing of the law. Catherine Maceda of the Renewable Energy Coalition which has been campaigning for the law’s passage, says “it will usher in an era of cleaner energy use in the country” while environmental campaigner Greenpeace Southeast Asia Executive Director Von Hernandez welcomed the development saying it helps addressing climate change.

“The passage of the bill is expected to attract more investors to the industry, and help cement plans of investors who had been waiting for the bill’s approval,” Reyes added.

Not quite.

While the law is grandiose in words and the intentions seem highly noble, nothing in the law aside from the promise of monetary incentives could precipitate energy investors to immediately jump into the renewable energy pool. For one, no firm numbers have been attached to, say to the renewable portfolio standard as to the percentages required, or the feed-in tariff amount that could be used for feasibility studies for green projects. The other major provisions—renewable energy market, green energy option and net metering—are nothing more than plans with no concrete guideposts as to how and when these would established.

Worse, the National Renewable Energy Board, which is specifically created under this law and will put in the numbers, is still to be constituted and convened.

The law can only be really operational when the adjunct implementing rules and regulations (IRR) are in place, and judging by the pace our policy makers create such important documents, it would take time before wee see its light. By this time—or even long before the signing of the bill—draft IRR, or at least well-researched white papers discussing the possible contents of the IRR, should have been floated in public for discussion and debate.

Without demeaning the lofty ideals of the law, we believe the hard work to make the law viable has only just begun.

Petron now in play—but where are the players?

Petron Corporation (PSE: PCOR) is now officially in play.

That is the investment jargon when a company is in the middle of ownership transition.

On Monday last week, San Miguel Corporation (PSE: SMC) said it is eyeing Ashmore Investments’ 50.1% interest in Petron. That sent PCOR shares flying which made it the top gainer among the listed stocks. It surged by more than a fifth to settle at P5.30 a share by Friday.

The sentiment is up on Petron since San Miguel is perceived to be a big and experienced company that could reverse the fortune of Petron which has been buffeted by intense competition in an industry where margins are razor-thin.

At the same time, Petron announced that it would likely be in the red this year to the tune of P 2 billion owing to falling oil prices. Petron, as well as other oil retailers, also groaned under rising oil prices early this year. That it suffers under which way oil prices are going is not entirely illogical; it is part of the nature of the business. Because oil is a politically- sensitive commodity, retailers cannot easily adjust pump prices in response to oil price movements.

When prices are falling and there is loud clamor for rollback, slow-footed refiners and retailers like Petron are saddled with inventory purchased at higher prices. Likewise, in a regime of rising prices, increases in pump prices cannot be easily implemented owing to political pressures. It is reported that among the major oil players Petron has the largest inventory and the slowest turnover. If so, its present inventories have been purchased at higher prices than current.

In this business, the lean and nimble has a greater chance to survive going forward.

It used to be that the industry is perceived to be lucrative to the big three in oil (Shell, Petron and Chevron) when the scene was like a cartel. With the liberalization of the industry, new players have grabbed a chunk of the pie and the nimblest, most efficient and deep-pocketed among them are continuously making inroads into the turf of the big three.

Among the most aggressive of the new players is Total—which is not exactly a small fry. In the global market, it is considered among the majors. Amidst the gloom brought about by the lingering financial crisis, it has announced a massive expansion of its outlets especially in Luzon and the Visayas. And it can rely upon its mother firm to supply it with enough financial firepower in case of an all-out war which seems to be already unfolding.

In the hinterlands of Mindanao and parts of the Visayas where the tentacles of the big three have tenuous hold, independent player Phoenix Petroleum (PSE: PNX) has spread its wings, slowly increasing its reach.

When it recently signed up boxing hero Manny Pacquiao as its main endorser, it is sending signals to its competitors that it is ready to climb up the oil’s boxing arena for a long fight. It is also reported that Pacquiao will be operating one of Phoenix’ service centers in General Santos City.

If SMC ultimately gains majority ownership of Petron, it would be up against formidable opposition. True, SMC has considerable marketing clout—which is why investors seem to cheer at its entry—but it is becoming more like a lumbering brontosaurus than a springy springbok, even in the food business.

Which is probably why it has announced that it will ultimately get out of its core food business.

In the process, investors have punished SMC since it announced that it is entering businesses like energy, telecoms and infrastructure where it has limited experience. In energy, it has acquired 27% of electricity retailer Meralco (PSE: MER), but failed at getting Transco and geothermal developer Energy Development Corporation (PSE:EDC) which ended up in the hands of the Lopezes. It tried to grab Indonesian coal miner Bumi Resources but apparently bowed out to local interests.

SMC’s erratic moves have not escaped notice from credit ratings agencies. Moody’s Investor Service has downgraded SMC’s local currency rating to negative from stable after it bares its plan to acquire majority control of Petron.

In a statement, the global credit watcher warned of a rating downgrade if San Miguel pursues the investment plan, which it said could hamper the group’s ability to service its debts.

Now it is partnering with—of all companies—Qatar Telecoms for joint projects. Why not any other of the major telecom players?

Now, why is Ashmore selling to SMC when it has exercised it right to acquire the government shares?

Ashmore is about to end up with 90% ownership of Petron after it has indicated that it is exercising its right of first refusal when the government has put up its 40% interest up for grabs. By relinquishing management to a perceived knowledgeable entity in retail, it feels it has a better chance of recovering its investments (with some profits of course). In the first place it is an investment fund, not a management company.

More importantly, it is paving its exit from Petron. By selling a majority block to SMC it can extract concessions from the buyer. Like for example, it can require the buyer to purchase its remaining shares at a later date once it decides to divest completely from the refiner.

We have already considered this scenario in a previous blog entry; only the numbers are somewhat different.

The struggle for Petron ought to be exciting were it not for the circumstances under which it is played as outlined above.

No wonder other players are nowhere in sight.

Regulator reduces systems loss cap—but only in January 2010

The Energy Regulatory Commission (ERC), the government body which regulates the electricity business, has recently issued an order lowering the cap on electricity system loss to 8.5% down from the present mandated 9.5%--but only starting January 2010. In the same order, the limit for electric cooperatives is reduced to 13% from 14%.

The systems loss, which includes electricity lost to pilferage, antiquated equipment, design faults, administrative inefficiency and actual physical losses in the conductors, is currently passed on to the customers as added cost by distribution utilities at the allowed rate.

Charging of systems loss to the users has been under attack as being unfair from consumer groups, businesses and some government officials.

The recovery of a portion of systems loss by power utilities is allowed under Republic Act 7832 which also penalizes electricity theft.

In a statement, the ERC is also “reviewing other existing policies pertaining to rate-setting, including efficiency models [and] lifeline components of other distribution utilities and the different cost-recovery adjustment mechanisms”.

Republic Act 7832 or the law penalizing electricity theft allows power utilities to recover a portion of their system losses from consumers.

The current loss cap of 9.5% for private utilities and 14% limit for electric cooperatives have been implemented since 1999 and 2000, respectively, without adjustment.

This corner has maintained that a systems cap loss of 7% is fair, achievable and already generous under present inefficiencies, and distribution companies should strive for a systems loss of only 5%. The former figure is the average systems loss in EU countries, which is already high because it is inflated by the inefficient utilities in new member countries from Eastern Europe.

Some distribution companies in the Visayas and one or two cooperatives have actually claimed that they have achieved systems loss of below the mandated 9.5%.

The reduced cap for electric cooperatives is more of a token gesture than a real attempt at forcing more efficiency on these energy dodos. The cap for them should be ultimately aligned with those of the private distribution utilities. A viable option would be to require them to have a systems loss reduction by 1% every year until they achieve parity with the private sector. That could be done in four or five years. A carrot in terms of tax breaks and incentives for equipment upgrade should also be dangled to them.

In summary, the proposed reduction is systems loss cap that could be passed on to consumers is way too high and would unlikely to be felt by the average consumer.

GMA signing of Transco franchise bill into law heralds new era in grid operation

Philippine President Gloria Macapagal-Arroyo signed on Dec 1 the TransCo Franchise Bill into law that would transfer the operations of the national power grid under a private group, the National Grid Corporation of the Philippines (NGCP), which won the bidding for the rights earlier.

The franchise bill is officially known as Republic Act No. 9511 or "An Act Granting the National Grid Corp. of the Philippines (NGCP) a Franchise to Engage in the Business of Conveying or Transmitting Electricity through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes."

The signing of the bill culminated years of attempts by the government to privatize the national electricity transmission grid as mandated by the Electric Power Reform Act (EPIRA) of 2001 amidst opposition by nationalist groups and well-meaning individuals to the sale.

The NGCP is composed of Calaca High Power Corp., the Monte Oro Grid Resources Corp., and the State Grid Corp. of China.

The NGCP was granted the franchise "to operate, manage and maintain, and in connection therewith, to engage in the business of conveying or transmitting electricity through high-voltage back-bone system of interconnected transmission lines, substations and related facilities, system operations, and other activities that are necessary to support the safe and reliable operation of a transmission system, to construct, install, finance, manage, improve, expand, operate, maintain, rehabilitate, repair and refurbish the present nationwide transmission system of the Republic of the Philippines."

The franchise is good for 50 years but may be repealed or amended by Congress "when the common good so requires," the law said.

What is significant in the signing is that operating the transmission grid, which is traditionally viewed as a natural monopoly of the state, is now in the hands of the private sector. The grid operations will now be subject to more to economic forces than the previous setup. This is why traditional nationalists, who usually view big business with jaundiced eyes, see danger to security and higher prices for end users due to added profit motives of the new operators. Some of them have gone to the extent of trying to reverse the privatization process.

But this is a short-sighted view.

Grids around the world are increasingly operated by the private sector with better results than the previous state operation. This is to be expected since electricity transmission is not just about connecting power from generators to retail distribution facilities. It is also about efficient and cost effective operation. Increasingly, it is relying more on new technologies and materials.

A state monopoly does not have the nimbleness or savvy to operate in this competitive new world.

Take for example the traditional view that the flow of electrons is just one way: from the generators to the grid lines, to the distribution companies and finally to the user. No longer.

Advanced countries are now moving towards a two-way transmission and distribution systems wherein users who have excess capacity can actually sell it back to the grid. This is made possible by deploying so-called smart meters which could regulate which way electricity is flowing.

Fans of the successful transfer of operations to the private sector see more improved services. For example, they hope that the gridlock (pardon the pun) in transmission which occurred recently as a result of a breakdown in a critical transmission node would no longer recur.

But can the new operator hurdle inconveniences such as the recent court ruling dismantling a major transmission line as a result of a vanity complaint by residents of a plush village in Makati?

The bottom line is, the new grid operator has been given a great responsibility to improve the electricity transmission system of the country. It should not view the franchise awarded as a license to mint money quickly at the expense of the population.

Everybody will be watching you, the new grid operator.

Science loses in court ruling over power line dispute

Onli in da Pilipins.

 A Makati regional court ordered the National Transmission Corp. to effectively dismantle the 230-kilovolt Sucat-Araneta-Balintawak line, on the strength of a Supreme Court ruling favoring Dasmarinas Village in Makati in its petition against the power transmission lines passing near the village.

 The well-heeled residents of the Village probably saw an eyesore on the overhead lines, but they could not just petition for their removal without an emotional and hopefully convincing reason. They have found it in anecdotal stories of the supposedly harmful effects of electromagnetic fields (others use the dreaded word radiation which is not applicable here) on health which our esteemed judges apparently agree.

The Trade department warned on hurting the country’s attractiveness as a result of the dismantling of the lines which supply power to large portion of the Makati Business District itself, most of Manila and Quezon City, Bulacan, parts of Caloocan City, and the whole of Novaliches, Malabon and Valenzuela. The Energy department meanwhile worries about the effect on the industry and businesses.

 But nobody shows concern regarding a very fundamental worrying trend in local jurisprudence: disregard of science over technicalities, legalities or influence of powerful groups?

 Electromagnetic fields comprise of electric (E) and magnetic (H) waves, traveling together at the speed of light and are characterized by a frequency and a wavelength. The frequency, which is the number of oscillations per second is measured in hertz (1 hertz = I cycle per second) while the wavelength is the distance traveled by the wave in one cycle. What is dealt here is extremely low frequency (ELF) fields which are defined as those having frequencies up to 300 Hz. The electrical cycle we use is 50/60 Hz.

 At these low frequencies, the wavelengths are very long; 6000 km at 50 Hz and 5000 km at 60 Hz. For all intents and purposes, the electric and magnetic fields are independent from each other and can be discussed separately in the present context.

 The electric and field strength is measured in volts per meter (V/m) or kV/m. Magnetic field strength on the other hand is measured in millitesla (mT) or microtesla (uT). The magnetic field itself is created by current flow.

 Naturally occurring 50/60 Hz electromagnetic fields have extremely low values of the order of 0.0001 V/m and 0.00001 uT. Underneath transmission lines, the field can be as high as 12 kV/m and 30 uT and around a generating station the values could reach 16 kV/m and 270 uT.

 After reviewing all available studies, the World Health Organization found no conclusive evidence linking extremely low frequency (ELF) electromagnetic fields which are found in transmission lines, to any of the purported health effects. The Australian Radiation Protection and Nuclear Safety Agency (ARPANSA) is blunter,saying the scientific evidence does not indicate that exposure to 50 Hz EMFs found around the home, the office or near power lines is a hazard to human health.

 Available evidence suggests that the effects electric field strength of up to 20 kV/m are innocuous, while in animals exposed to 100 kV/m over a prolonged time have no deleterious effects on their reproductive cycles. A health effects study on a community which has been in place for at least 10 years under a 400 kV DC Pacific Intertie power line in California shows no significant or consistent relationships between exposure to the high voltage line and the perceived ill health effects (Haupt and Nolte, 1984).

 The line is almost double in voltage than in Dasma, and in addition, the DC line is in corona; which means it is generating ions in the vicinity of the conductors that affect the magnitude of surrounding electric fields and ion concentrations.

On magnetic effects, a WHO study which exposed volunteers for several hours to ELF strength of up to 5000 uT (more than 20 times the value in generating stations) show negligible effect on blood changes, ECG, heart rate, blood pressure and body temperature.

 For a more detailed discussion on health effects of EMFs, see the ARPANSA website.

 The bottom line is the magnitude of the ELF fields in the environment produce current that is less than the currents naturally produced by the body.

 So, our judges and lawyers should at least learn enough science or at least consult those with appropriate knowledge before promulgating far-reaching judicial pronouncements.

Since they are terrified of modern conveniences, the Dasma residents should have their electrical supply disconnected for their peace of mind. Then they could celebrate their court victory around a bonfire, much like the victory celebration of Sitting Bull over General Custer at Little Big Horn.  They could also have their dinner under candle lights, which is far more romantic than under fluorescent lamps.

They should also refrain from using their high-end 3G phones which are supposed to emit emf waves at much higher frequencies.

The real loser here is science.

 Reference:

R. C. Haupt & J. R. Nolte. (1984) The effects of high voltage transmission lines on the health of adjacent resident populations. Am. J. Public Health, 74, 76-78.

Aboitiz Power on the prowl; raises P3 billion

 Looks like Aboitiz Power Corporation (PSE:AP) is on the prowl again for more acquisitions after its Board approved the issuance of P3 billion worth of peso-denominated bonds through a private placement. Proceeds of the fund-raising exercise will become part of its war chest for acquisitions of power assets.

 In a disclosure to the Philippine Stock exchange, it said it may increase the issue size depending on the market appetite. The offering is handled by BDO Capital & Investment Corp., BPI Capital Corp., First Metro Investment Corp. and ING Bank N.V. and will run up to the end of the year.

 That such a fund-raising campaign is conducted in the middle of a raging financial crisis speaks well of the company. Lesser companies in times like this would rather seal the hatches and ride the storm rather than venture out into the open capital markets.

 But it is precisely these times when energy demand is expected to slow down that one should start top build up the necessary infrastructure. The best time to invest is when there is so much blood in the streets; just ask Warren Buffett, the legendary investor.

 In the past few years, the Aboitiz group has been actively adding power assets to its portfolio by buying assets from the government or other investors. In July, it bested Energy Development Corporation (PSE:EDC) in acquiring the Tiwi-Makban complex, the first geothermal asset sold by PSALM, the government arm tasked to privatize power assets. It is also the first geothermal asset held by the Aboitiz group.

 In a joint venture with SN Power of Norway, Aboitiz Power has taken over the operations of the Ambuklao and Binga hydro plants in Benguet in the middle of the year. Earlier in 2006, it has acquired a significant chunk of ownership in the 232-MW STEAG coal plant in Mindanao.

 Aboitiz Power has a large pool of government assets it can cast its net into. Among the assets scheduled for disposal by the government in 2009 include: 

• the 116-MW Subic and 620-MW Limay diesel plants, both to be sold in January;
• the 246-MW Angat hydroelectric plant, in February;
• the 310-MW Navotas I and II diesel plants, and the 197.8-MW Naga gas and diesel plants, in April
• the 192.5-MW Palinpinon geothermal plant, in July
• the 850-MW decommissioned Sucat and the 112.5-MW Tongonan geothermal plant, in August
• the 150-MW Bacon-Manito geothermal complex, in September and
• the 54-MW decommissioned Cebu diesel plant, in October

  In the first nine months of the year, the company reported a P3.17 billion net income, a 35% net income growth year-on-year on the back of the continued expansion of its power generation business. However, it is likely that the overall income for the whole year will be tempered owing to the costs in acquiring the new assets Tiwi-Makban and Ambuklao-Binga.

 While the Aboitiz group belongs to an old, well established business clan, its power business is run by a new generation descendant in Luis Miguel Aboitiz, who is young, dynamic and has the required academic and business credentials to run a difficult business in trying times.

 Aboitiz Power is one energy company worth watching by investors, consumers and by the energy community at large.

(Disclaimer: The author does not hold any shares in any of the Aboitiz companies and does not intend to invest in them in the near future. He is not connected with the Aboitiz group, and is not tasked to write about them)

Calculating your carbon emission: aviation travel as an example

Calculating carbon emission is the first step in applying a project as a Clean Development Mechanism (CDM) activity to gain carbon credits. Now that CDM activity has taken root in the country (see previous post), a better understanding of the process of calculating carbon emissions is necessary.

 It is not only CDM projects that make such calculations. In the never-ending search for energy efficiency and in efforts to combat global warming, companies ranging from multinationals to rural piggeries, have launched programs to limit their greenhouse gas (GHG) emissions to the extent of making their operations carbon neutral.

Also, big sporting events like the World Cup and the recently concluded Beijing Olympics, and large international conferences like the gathering of G8 leaders in Japan, have been under severe pressures to limit their GHG emissions and minimize their environmental impacts.

 Organizers and environmental critics would dearly love to see these events becoming carbon neutral.

 SAS, an IT vendor for business intelligence, sensing an upcoming opportunity, has already introduced into the country a carbon calculator, a software that determines a company’s or an event’s carbon footprint.

 The first step in hosting a carbon neutral event—say, a conference--is quantifying how much GHG emissions the event would likely generate. The emissions assessment should cover not only during the event itself, but throughout-- from planning, to calculating the two-way travel emissions by the participants, to recycling of materials at the end of the show.

 To do this, one should calculate the total carbon emission or footprint of the event using a carbon calculator.

 Existing carbon calculators range from order-of-magnitude estimates to fairly sophisticated devices that detail every possible source of emission and the methods backed up by reputable data. There are free carbon calculators usually offered by non-governmental organizations concerned with global warming and government institutions such as the US Environmental Protection Agency (EPA) and there are sophisticated commercial calculators used by carbon market traders, renewable energy project developers applying for carbon credits through the Clean Development Mechanism (CDM) developers, and big business carrying out a corporate program towards carbon neutrality.

 Outputs also vary greatly in accuracy depending on the type of event or project being considered, on the assumptions and data used by the calculator developer and on the geographical area where the calculator is to be used.

 There are activities or projects such as aviation travel or driving a car to a given distance, wherein the carbon footprint can be calculated with reasonable accuracy. At the other extreme, there are projects wherein the calculations border on faith and questionable assumptions. These include biomass burning, reforestation and carbon sequestration by soils.

 In order for offsetting to be credible, the GHG emission has to be calculated accurately. Therefore, the most important consideration is to choose carefully the carbon calculator to be used.

 Let us take a fairly simple example relevant to carbon neutral conferences: aviation travel. Jardine (2005, p.2) presented a detailed presentation on how aviation emission per individual is calculated.

 The major assumptions in the calculation include the knowledge of the amount of fuel during the flight, the distance traveled, cruising altitude, weather conditions, the passenger and cargo load, the likely aircraft type used, etc. Even if these are accurately known, one cannot simply arrive at a general impact value per passenger.

 For example, flight distance does not scale linearly because one has to consider the extra burn required during take-off and landing. Needless to say, direct flight is far more efficient than one with a stop-over.

 Different types of aircraft burn fuel at different amount; therefore in Jardine’s (2005, p.3) study, three most likely aircraft types were considered: Boeing 737 for short-haul and Boeing 747 and Airbus 320A for medium and long-haul.

 After the emission is determined, the global warming impact has to be determined using a chosen metric. In aviation, the usual metric is radiative forcing which is defined as “the change in the energy balance of the lower atmosphere by a climate change mechanism” and is measured in units of Watts per square meter (W/m²). The ‘climate change mechanism’ is typically the emission of a greenhouse gas (e.g. CO₂ from human activity), or a collection of different gases (e.g. all greenhouse gases from the agricultural sector).

 Despite a well defined boundaries or conditions for the calculations, different calculators give different answers. For example, six different calculators gave values ranging from 2 to 6 tons CO₂ tons for a 17,900 km flight.

 The differences in the estimates arise from: (a) whether only CO₂ or all GHG gases are considered, (b) including or not non-gas components that could affect the metric used; and (c) setting the boundaries for the calculation—that is, whether the portion of airport services is considered or not.

It is preferable to choose a calculator which is most comprehensive in its calculation.

 It is also crucial to choose a provider accredited with a top accepted standard to ensure getting a comprehensive calculator. Some of the stringent standards include the Gold Standard, the Greenhouse Gases Protocol, the International Organization for Standardization (ISO) ISO14064, The Voluntary Carbon Standard (VCS) and The Climate, Community and Biodiversity Standards (CCBS).

 After going through the rigors of understanding and choosing the most appropriate carbon calculator, one is now poised to offset his event’s carbon emissions.

 Reference:

Jardine, C.N. (2005). Calculating the environmental input of aviation emission, 14. Retrieved August 18, 2008 from http://www.climatecare.org/media/documents/pdf/        Aviation_Emissions_&_Offsets.pdf

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Note added, November 18, 2008: On Thursday this week President Gloria Macapagal-Arroyo will preside over an important conference billed Carbon-Cutting Congress vs. Climate Change which will showcase this adminstration's "Green Philippines" program. This program should start calculating the emissions of the 54 congressmen and the whole entourage who will be going to Peru with GMA using the procedure above if Congress is serious about its green program. The gentlemen and ladies will be in for a shock at the number that will be arrived at.

Has CDM come of age in the Philippines?

During the recently concluded Carbon Forum Asia 2008 held in Suntec City, Singapore, Michael Dreyer, vice president of Koelnmesse-Asia, co-organizer of the conference together with the International Emissions Trading Association (IETA), noted that “from 2006 to 2007, Asia's CDM market grew by nearly 200 percent, signaling the region's emerging dominance in the global Carbon Market".

The market he is referring to is where carbon credits are traded for projects under the Clean Development Mechanism (CDM) which is under the auspices of the Kyoto Protocol. This market has been growing at a torrid pace in the past three years; from $40.1 billion in 2006 to $66.4 billion in 2007 and should easily top the $100 billion mark by the end of this year. Despite this huge elephant of a market, it is largely invisible in the country.

The Conference noted however, that while China and India lead the pack in the number of CDM projects registered at close to 640, the Philippines, Thailand and Vietnam are not too far behind.

This is welcome news. Has CDM come of age here?

The Philippines is not considered a major contributor to the total greenhouse gas (GHG) emissions worldwide simply because we are not huge consumers of energy on a per capita basis. But we do have a large potential for projects that could generate carbon credits as Carbon Emissions Reduction (CER) certificates that could be traded on the Carbon Market.

 This potential is being watched by mostly foreign vulture investment funds and financing institutions which smell the fragrance of money. That such is the case can be seen by the keen interests of these foreign financiers to ante these projects.

 At the latest count, there are 20 CDM registered projects in the country while much more projects are in the pipeline. Being registered means the project is formally accepted by the Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC), the body in charge of this activity, of a validated project as a CDM project activity. Registration is the prerequisite for the verification, certification and issuance of CERs related to that project activity.

These are, in the order of latest to earliest registered, and the date of registration:

 * First Farmers Holding Corporation (FFHC) Bagasse Cogeneration Plan-10 Sep 08

* Makati South Sewage Treatment Plant Upgrade With on-site powerR-24 Jun 08

* Hedcor Sibulan 42.5 MW Hydroelectric-06 Jun 08

* Laguna de Bay Community Waste Management Project: Avoidance of methane production from biomass decay through composting-16 Mar 08

* Quezon City Controlled Disposal Facility Biogas Emission Reduction Project-01 Feb 08

* The Anaerobic Digestion Swine Wastewater Treatment with On-Site Power Bundled Project-17 Dec 07

* Goldi-Lion Agricultural Development Corporation Methane Recovery and Electricity Generation Project-08 Sep 07

* Bondoc Realty Methane Recovery and Electricity Generation Project-07 Sep 07

* Superior Hog Farms Methane Recovery-07 Sep 07

* D&C Concepcion Farms, Inc. Methane Recovery and Electricity Generation Project-26 Aug 07

* Philippine Sinter Corporation Sinter Cooler Waste Heat Recovery Power Generation Project-05 May 07

* San Carlos Renewable Energy-13 Apr 07

* Paramount Integrated Corporation Methane Recovery and Electricity Generation-31 Jan 07

* 20 MW Nasulo Geothermal Project-10 Dec 06

* Gaya Lim Farm Inc. Methane Recovery-30 Oct 06

* Uni-Rich Agro-Industrial Corporation Methane Recovery and Electricity Generation-28 Oct 06

* Joliza Farms Inc. Methane Recovery-23 Oct 06

* Gold Farm Livestocks Corporation Methane Recovery and Electricity Generation-21 Oct 06

* Wastewater treatment using a Thermophilic Anaerobic Digestor at an ethanol plant in the Philippines-01 Oct 06

* NorthWind Bangui Bay Project-10 Sep 06

 The biggest in terms of carbon dioxide equivalent reduction is the bagasse co-generation plant at close to 120,000 tons/per annum. Other major ones include Hedcor’s Sibulan hydro (95,174 tons), ethanol plant (95,876 tons) and the Bangui Bay wind farm (56,788 tons). Most of the rest are fairly small with reductions in few thousands tons and the credits are better traded in an alternative voluntary carbon market in which smaller players can participate.

 Unfortunately, our businessmen, financial institutions, investment banks and entrepreneurs have not taken advantage of such opportunities mainly through lack of understanding or awareness that such opportunities exist.

DOE proposes to raise the biodiesel blend to 3%

Over the weekend, Department of Energy (DOE) director Mario Marasigan announced that his agency may propose to increase the minimum required biodiesel blend to 3% by February 2009 to spur investors to pour in more money to the sector.

 He revealed that there are now 13 accredited biodiesel manufacturers capable of producing up to 326 million liters which is more than what the 2% blend requires.

 “The DOE is studying that with this capacity in place, is it appropriate, rather than two percent mandated blend on February 2009, why don’t we increase it to three percent?,” he said.

 Why not? If the blend is indeed that friendly to the environment and it can compete with the usual diesel, why not make it to 5%. Studies suggest that a blend of 6 to 10% works very well with light cars and vehicles, and other countries are mulling to use up to 20% blend (B20) for large buses. In fact many countries start with a mandated 5% blend (B5) and gradually increasing it to B20. A 2% blend is just too dilute to effectively feel a difference in performance, and its avowed benefit may be hardly felt.

But what we, users, must guard against is substandard fuel introduced into the market by unscrupulous individuals or firms out to make a quick buck. True, the DOE has released its adopted biodiesel standards which is, on paper, quite stringent and appears to have been patterned after the European standards. What is uncertain though is whether the DOE has the know-how or the capability to scientifically monitor the blend already on the market.

We mean the technical capability to verify whether these biodiesel blends passed the technical requirements such as fatty acid content, cetane rating, sulfur limits, heavy metals content and the like. Corollary to this is the question whether there are laboratories which can independently check the quality.

These are not routine inquiries, for what is at stake is the integrity of one’s vehicles, not mentioning the projected impact to the environment.

 There is also a need for more public discussions on the DOE standards. The consumers need to be clarified whether the standards apply to the diluted blend or to the pure biodiesel (B100) which is the starting material for blending.

 As far as I could tell, we are the first and possibly only country to have specified a coco-methyl ester (CME) standard rather than the usual fatty acid methyl ester (FAME) or fatty acid alkyl ester (FAAE) standards. Its formulation smacks of political undertones or lobbying from CME manufacturers in attempts to exclude other biodiesel sources.

 There is nothing wrong with protecting our own native coconut industry. The Malaysians have done it with their palm oil and the Americans with their soya oil. What is objectionable though is a protectionist policy that stretches beyond the boundaries of technology to favor certain interests to the ultimate detriment to the consumers whose choice becomes limited.

 This outlook apparently crept into the formulation of the cetane rating in which the DOE standard pegs it at 55. The cetane rating measures the relative amounts of easily burnt component in a fuel; in this case the molecular weights of fatty esters. The higher the cetane rating, the better the fuel.

 Scientifically, though, the standard vehicle engines work very well with cetane ratings for 46 to 55. This is the reason why the U.S. ASTM standards pegs the cetane rating to only 47—which the soya oil, a major U.S. crop product for biodiesel,  passes easily—while some European countries put the minimum at 51. Incidentally, DOE claims that CME has a higher cetane rating than soya or palm oil.

 The danger is, such exclusive provisions can be twisted to suit one’s selfish interests and mislead the public. For example, a leading CME manufacturer listed at the Philippine Stock Exchange made it appear that only biodiesel conforming to the CME standards are allowed in the market citing the DOE's revised circular that “only CME conforming to PNS/DOE QS 002:2007 shall be manufactured, sold, offered for sale, dispensed or introduced into commerce as biodiesel in the Philippines.” Apparently the manufacturer’s announcement was in reaction to reports that some firms are importing biodiesel which is not CME-based from Korea and other places, and is trying to protect its turf.

 The mandate to use the biodiesel blend in accordance with Republic Act 9367, otherwise known as the Biofuels Act, starts in February 2009. There is still time to conduct public discussions in media to educate the consumers on the pros and cons of biodiesel, and on how they could be protected from unscrupulous dealers.

Will SMC make a run for Bumi Resources?

Speculation is rife within the energy and investment circles whether San Miguel Corporation (PSE:SMC) is keen on taking a stake at Indonesian coal miner Bumi Resources, by buying the 35% stake owned by PT Bakrie & Brothers, which hopes to raise some $1.3 billion to pay off debts.

 In a disclosure yesterday, SMC said it would bid for 35 percent of Indonesia's largest coal miner rivalling an offer led by private equity firm Indonesian-based Northstar Pacific which is run by by former Goldman Sachs banker Patrick Walujo and has a joint venture with U.S. private equity firm TPG Capital LP. The tone is somewhat different than its earlier disclosure that it will initiate talks with Indonesia’s PT Bakrie & Brothers, for an alliance for its PT Bumi Resources operations.

 Apparently, SMC is dragged into a bidding war when a Bloomberg report said PT Bakrie & Brothers, the investment arm of Indonesia’s richest family has agreed to sell its stake to Northstar Pacific.

 The sources said Indonesian investment bank PT Renaissance Capital might also join the Northstar consortium or bid separately.

 PT Bumi Resources Tbk is an Indonesian-based natural resource company engaged in mining, oil, gas and energy-related activities. It owns the world’s largest export coal mine with operations in East and South Kalimantan with 11 billion tons of coal mineable reserves; about 55 million tons in average sales volumes in the last three years; and, a steady cash flow generation, according to the SMC disclosure. 

SMC will be like a salmon swimming upstream. It is pitted against a deep-pocketed bidder in Northstar consortium. Worse, its main rival is politically highly connected to the powers that be, and in Indonesia, business and politics are inextricably intertwined.

 One of the Bakries, Aburizal Bakrie, is Indonesia's chief social welfare minister and an influential figure in the Golkar Party, which is a key part of President Susilo Bambang Yudhoyono's coalition. Bakrie is considered the country's richest man, with an estimated $9.2 billion fortune.

But will SMC, like the salmon, go against the flow to seed its investment eggs in a fertile new territory?

SMC has declared as far as two years back of its intention to enter into high growth areas which include energy to prop up its bland returns from its food businesses. It has fired an opening salvo by acquiring a 27 percent of the country's largest power distributor Manila Electric Co (PSE:MER) in a cash deal worth 30 billion pesos ($612 million), with payments spread out over three years from the Government Service Insurance System (GSIS).

Indonesia as a target area fits very well into SMC’s sphere of influence. It has a sizable food and beer business there; it can leverage that experience to its new intentions.

Indonesia is also a fertile ground for energy investments as we noted earlier, notwithstanding the difficult environment one has to face.

 In a sense, SMC knows very well where the mother lode is likely to be hidden. SMC may face enormous obstacles in its run for Bumi. It may fail altogether. But one has to give credit for SMC for its tack to grow its business despite the lingering global financial crisis.

 It is boldness, which can be mistaken for brashness, worth emulating by other local big business groups who are merely content to keep their ongoing concerns here. In a highly globalized environment, rules have changed, and only those who are adept at playing by the new rules are bound to survive and prosper.

___

UPDATE: November 30, 2008: On November 28, Indonesian private equity firm Northstar Pacific said it will assume  a "significant" chunk of the $1.2 billion owed by the diversified Bakrie group and will convert it into shares in Bakrie's coal firm, Bumi Resources. This could give Northstar a substantial stake in Bumi, Indonesia's biggest coal miner, while providing a much-needed lifeline for the indebted Bakrie & Brothers, the parent firm. No mention of any other interested party on Bumi was made in the report.

San Miguel buys into Meralco

Food giant San Miguel Corporation (PSE:SMC) finally gets a foot on energy’s door.

In a disclosure to the Philippine Stock Exchange (PSE) San Miguel said it had entered into an agreement with the Government Service Insurance System (GSIS) to acquire 300,963,189 shares in electricity distributor Meralco (PSE:MER) held by the latter.

It has agreed to pay P90 per share for Meralco, more than double the firm’s closing price of P44.50 yesterday, at the very day that the stock market suffered its worst-ever percentage drop.

Under pressure from its shareholders to deliver decent returns, SMC has said that it is spreading its wings out of its comfort zone that is food, to venture into high-growth areas such as mining, infrastructure and power.

The same report also said it was eyeing a stake in Petron Corp. (PSE: PCOR) and had initiated talks with the Ashmore Group, which earlier this year took control of the refiner.

What do beer and electricity have in common? Nothing, really, except that alcohol can at least be used to power vehicles. But energy needs a lot of cash to move forward—and SMC has lots of it.

But will SMC deliver its promised superior returns with its new foray?

Meralco is in a highly regulated industry where margins, through the return on-rate-base (RORB) scheme, are capped. In addition, issues concerning Meralco’s business are highly politicized; there’s not much leeway to increase profits. If ever, Meralco’s profit drivers would be outside its core business such as those in services. Or if Meralco chooses to expand its franchise by acquiring ailing distribution cooperatives like the Albay Electric Cooperative (ALECO) or others contiguous to its franchise area.

Its interest in Petron would be good for the latter since the government would then be completely out of the refiner and fuel retailer. Petron would be less subject to political interference.

Meralco is also pleased to get a monkey off its back; its nemesis in the person of GSIS head Winston Garcia. Now, it can concentrate more on delivering power.

I have mentioned in a previous blog that Ashmore is unlikely to end up with 90% of PCOR even with its right of first refusal when the government decides to unload its stake by November. Now that SMC is in the picture, Ashmore can very well exercise that option now, and offer some of the shares to SMC. It doesn’t have to be the whole of government’s 40% stake. A possibility would be for Ashmore to offer some 25% stake to SMC and keep the 65% which is still an absolute majority control.

To recall, SMC has been trying to get into the energy business. It has participated in the Transco bidding but lost out to eventual winner Monte Oro Resources. It had its eyes on Tiwi-Makban geothermal complex according to newspaper reports, but did not submit a bid.

Now, would you rate SMC a buy?

So far, SMC is sniffing at the more mature portion of the energy industry. Unless it is willing to get its feet dirty by going into “greenfield” energy projects, alternative energy development, mining or oil field development, SMC wouldn’t merit a ratings upgrade. I would rate it a HOLD. MER would still be a SELL.

What about PCOR? Now that its shares are also battered together with the rest of the market, I would also put it at HOLD, while watching how the SMC interest would pan out.

And maybe, an upgrade to a BUY?

(Disclaimer: These recommendations are not based on financials and not by an analyst. These are given as tongue-in-cheek recommendations. Consult your stockbroker for a more learned opinion. The author is not liable for losses as a result of these recommendations.)

EDC acquires Pantabangan-Masiway hydro complex from First Gen

Ho-hum. Yawwn.

Excuse me. I know it is impolite to yawn in front of people but I was trying to make some sense of an M & A activity in the energy sector which was supposed to inject life to two of the hottest players in the industry before I nearly dozed off. Let see…

 Here it is. A week prior to the big announcement, Francis Giles Puno, First Philippine Holdings Corp. (PSE: FPH) chief finance officer told reporters “we have received some strong expressions of interests from both foreign and local companies” to acquire the 112-MW Pantabangan-Masiway complex its subsidiary, First Gen Corp. (PSE:FGEN) owns through the First Gen Hydro Power Corp. (FGHPC).

 Local punters and self-styled analysts expect First Gen to realize between $129 million and $208 million for the asset for a handsome profit. After all, it acquired the hydro plants for a measly $105 million in November 2006 from the Power Sector Assets and Liabilities Management Corp. (PSALM), the privatization arm of the government for the power assets of National Power Corp. (NPC). 

 A week later, the “foreign and local interests” turned out to be Energy Development Corp. (PSE:EDC)—First Gen’s own subsidiary! The tag price for the complex was a whooping $240 million, more than double the acquisition price.

Actually, First Gen is selling 60% of First Hydro to EDC which is valued at approximately $105 million. First Gen claims that the transaction emanated from an unsolicited offer made by EDC to it. Which is strange, since First Gen effectively owns EDC.

 As if to assure us, bystanders, that the deal is good for EDC, Punongbayan and Araullo, the advisory firm tasked to value the transaction said “this ($240 M) is below the range of values we have derived amounting to $262.9 million to $312.4 million.” The decimal point is real; that’s how accurate they are. And to make sure we understand everything, it interpreted its own finding by saying the lower enterprise value “is favorable to EDC from a financial point of view.”

 Really?

 The higher appraised value of the hydro assets was justified ostensibly because the Lopez group already made some refurbishments that enhanced the operating efficiencies of the two plants.

 What did the Lopez group do aside from holding for almost two years the right to operate the assets since winning the bid? 

 FGHPC has selected Austrian firm Andritz VA Tech Hydro (GmbH) only in February this year to refurbish and upgrade the Pantabangan hydroelectric plant. According to Andritz, the contract calls for the “replacement of the two 52 MW Francis turbines, new generator stator windings and the modernization of the complete electrical equipment including governor system, unit automation with Scada system, new static excitation, generator and transformer protection, new medium-voltage switchgear and low-voltage distribution.”

But the first unit will only be rehabilitated between July and December 2009, while that of the second unit will only be completed by December 2010. There are no misprints of the years mentioned.

 If the assets were that good, why is FGEN shuffling it around? For one, it will get $105 million  in cash which it could use to pare down its heavy debt load. As of end June, FGEN has $1.6 billion of long-term debt against an equity of $1.2 billion for a long-term debt-to-equity ratio of 1.33. For an infrastructure company in a mature market, this is already a disaster in the making. We don’t appear to be very bearish; we exclude the current liabilities of $820 million which if considered would jack up the total debt-to-equity to 2 or a gearing of 200%!

When the dust clears, the scenario would be something like this: FGEN gets $105-M cash from EDC to pay off a small portion of its debt. That would improve its balance sheet somewhat. EDC becomes a trailblazer into hydro--but it has to wait for two years before some profits from hydro starts to trickle in. It will now pay for the rehabilitation of the hydro complex. All without ceding an iota of control to outsiders.

See how accounting could do wonders?

 Because the $105-M cash originates from EDC—surely, the geothermal power producer gets something in return.

 Stephen CuUnjieng, vice-chairman for Southeast Asia at Macquarie, which advised EDC, justified the purchase this way: “This is not just about adding 112-MW of power. The reservoir means the hydro plant can expand without having to build a new dam and there will be internal organic growth over the next five years. So EDC becomes a company offering stability with growth rather than just stability, while keeping its green profile.”

 A report assures the minority shareholders, among them some friends, that the deal is good for them. They cannot say or do anything during the ceremonial special stockholders meeting to approve the deal. Their combined shares are insignificant compared to those of the majority bloc.

 What a brilliant move by EDC. I have always regarded my former employer to be a pro-active and dynamic organization which could seize opportunities the moment they cut across its path, and this should be one of them. So the market (investors) should be jumping for joy.

 After the deal was announced, FGEN’s share price promptly fell 4.8% to P15 per share while EDC’s dropped 5.7% to P3.30. Of course, this has to be nothing to do with the deal considering that the market has slumped so much due to the lingering worry of a global economic slowdown. As it were, the share prices for both listed companies are still expensive.

 Paul Aquino, EDC’s president and CEO chimed in with his view saying “our entry into hydro power clearly complements our portfolio and provides EDC with vast opportunities for growth.”

 But Pantabangan started operating in 1977 and by this time the reservoir should already be highly silted. So First Gen—now EDC—should be hard-pressed to recover the original output of 104 MW.

 How could the renewable energy portfolio of EDC grow with Pantabangan? It cannot even apply for carbon credits under the Clean Development Mechanism (CDM) of the Kyoto Protocol because it is already there. It fails the basic requirement of additionality. The term means that a carbon offset credits should be “in addition to” to what is avoided greenhouse gas (GHG) emissions if the project were not implemented in the first place.

 EDC is supposed to be developing a wind farm for up to 86 MW in Burgos, Ilocos Norte for years now. Northwind Development Corp. which came in later into the industry, promptly erected the 24-MW Bangui Bay, Ilocos Norte wind project way back in 2006. Now its majestic photos appear frequently on Philippine postcards and on Flickr.

 Now would you blame me for falling asleep? Wait, that’s a fine idea. Please wake me up at 10 minutes before 5 or when the boss comes to our cubicles, whichever comes first.

Obama-McCain debates elevate energy issues to highest levels

One crucial item that bodes well for America from the debates between the U.S. presidential contenders Republican John McCain and Democrat Barack Obama is that issues concerning energy—energy security and climate change among others—have been elevated to the highest levels of discussion.

On energy, Obama said that the country could attain energy self-sufficiency within ten years if it aggressively focuses on developing its renewable energy resources and new drilling could remove the shackles from Middle Eastern and Venezuelan oil. With declining production from Mexico and Canada, their wishes are unlikely to be granted in the foreseeable future.

McCain is seen to be friendly to big oil, and his rallies are punctuated by cries of “drill, baby, drill!”

"We can't simply drill our way out of the problem," Obama countered, noting the US consumes nearly 25% of the world production, but contributes only 3% of the supply.

Obama even puts energy on top of his presidential agenda, ahead of health care and Social Security reform, two of the most emotional issues confronting Americans. And he is willing to commit $150 billion for a rational alternative and renewable energy program.

On the final debate, fully 72% of the viewers agreed with host Bob Schieffer to put energy as a priority topic. This is just below the rating of education (78%) and abortion (74%).

McCain on the other hand, is pushing for massive nuclear development. On the attendant issue of nuclear waste disposal, he simply waived the problem by saying if the Japanese, French and Canadians could do it so does the U. S. He is however silent on the specter of a wider nuclear proliferation.

Perhaps the most pleased American watching the debates could be T. Boone Pickens, who recently unveiled his Plan to wean America from foreign oil by displacing all of electricity from natural gas by wind energy and using the former to fuel the millions of road vehicles. And he made no bones (no pun intended) of aiming earlier to put the energy situation on top of the issues during the current presidential campaign.

Apparently, he is succeeding.

During the heat of the campaign, scientists, military veterans, corporate executives, clergy, Native Americans, movie stars and others have signed a letter to both McCain and Obama to call for and urgent comprehensive action to address global climate change upon taking office as president. The call is inextricably tied to the issues concerning energy usage and policies.

"We must act quickly to invest in a new energy economy that not only generates all the power we need while dramatically reducing greenhouse gas emissions, but also produces millions of new jobs, new industries, new revenues and new opportunities," the letter said.

With the looming presidential elections in 2010 in this country, it doesn’t hurt if we start a campaign now to place our precarious energy situation as the top issue like what is happening in the U. S.

We are more than dependent on foreign oil; with insignificant amount of local production. The much-touted Galoc oil is but a drop of our needs.

The renewable energy bill has just been approved by both the House and the Senate and all it needs is a signature for it to become a law. While the bill leaves much to be desired, at least we have a legal platform now to vigorously push for our own alternative and renewable energy development.

If anything, the Obama-McCain debates should spur us, especially our legislators and politicians aspiring for the highest offices, to examine the energy situation before it gets much worse.

Galoc gushes oil at 22,000 barrels a day--hold off the parties

The Galoc field off Palawan started producing oil at an initial rate of 22,000 barrels of oil per day (bopd) last October 9, Malacanang, as reported by Energy Secretary Angelo Reyes, gleefully announced during a news conference.

 The news comes at a time when the country is shrouded by a pall of gloom as a result of the financial meltdown currently experienced around the globe. It also comes on the heels of the spiraling fuel prices this past year before the price rally was abruptly stopped on its tracks by a looming global economic slowdown.

 The main operator said that the production could be in the vicinity of 20,000 bopd which is “equivalent to roughly six percent of the daily oil demand of the country,” Secretary Reyes said.

 The palace subalterns are quick to strut like peacocks as if the country has been resurrected from its economic grave.

 “The President is optimistic that this new development will positively impact on the administration’s efforts to reduce the country’s annual oil importation of $6 billion,” Presidential Executive Secretary Eduardo Ermita said. This would also translate to about $1.4 billion in foreign exchange savings for the country, for the oil well’s lifetime estimated at about three to five years, he added.

The oil field is developed by Galoc Production which is a joint venture owned by a subsidiary of the Vitol Group and Otto Energy Ltd. It formed a consortium composed of Nido Petroleum Pty Ltd., Oriental Petroleum and Minerals Corp., The Philodrill Corp., Forum Energy Philippines Corp., Alcorn Gold Resources Corp. and PetroEnergy Resources Corp.

GPC, which holds Service Contract 14C, owns 58.29 percent of SC 14, while Australia-based Nido Petroleum Ltd. owns 22.28 percent.

 So, is it now time to party as a thanksgiving to our new-found fortune?

 “We embrace this significant development as this will help immensely in our pursuit to be energy self-sufficient... We are on the right track in utilizing our indigenous sources,” Reyes said.

 Hold on. Before one gets drunk at the news, one should take a second look at the situation while still sober.

 The amount quoted was only obtained during initial flow tests which normally do not represent the long-term production potential of the well. At 2,200 meters, the reservoir will not be easily tapped, and at 320 m deep sea water, the location is not exactly shallow.

 Galoc’s crude, dubbed Palawan Light, contains undesirable high sulfur at 1.64% which makes it difficult to sell in the open market

 The Galoc field was discovered in 1981 by Philippine Cities Service Inc., a wildcatter, and initial oil production between 7,500-10,000 bopd per well was not deemed too attractive for full development due to the low oil prices at the time (about $20 per barrel) and perceived operational risks.

 The initial production value can easily sink to unprofitable levels if one studies the history of oil production in the area.

 Let us review the history of nearby West Linapacan field. Both fields are within the same service contract area.

 At a water depth of 350 m, West Linapacan is situated slightly deeper than Galoc. The field was discovered in October 1990 and was put into commercial production in May 1992.

 For the first well, the flow test recovered 2,900 bopd but actual initial production was at 1,700 bopd. Two more well were drilled and these initially produced oil at a total rate of 9,170 bopd. For the whole field the initial production was pegged at 18,700 bopd, which is slightly lower than the projected production of Galoc.

 But by December of the same year, the West Linapacan production dropped significantly. For the next few years, the field was just coasting along until 1996 when the field was shut down as production was no longer economical.

 The main culprit was inflow of sea water to the production well which makes extraction more difficult and costly. The Palawan oil reservoirs are in a fractured area and sea water contamination is to be expected. 

For Galoc, the oil-water interface is tagged at 2,100 m.

 The operator of the Malampaya gas field has had misgivings in extracting the oil portion beneath the gas reservoir precisely because of the risks involved which are similar to those at West Linapacan and Galoc.

 The delays in Galoc production, which was originally scheduled to start April, already bloated the cost from $86 million to over $210 million.

 If the government has readied the food and drinks for the Galoc coming out party, better hold off the corks and just donate the food to the needy.

 An unpleasant surprise from Galoc may be in the offing in the next few months.

Selling the tarnished crown jewel

The government is planning to sell the rest of its holdings in Petron which is held by Philippine National Oil Company (PNOC) by November. It will first be offered to London-based Ashmore Investments who earlier bought the shareholdings of erstwhile partner Saudi Aramco. As a majority shareholder, Ashmore has the right of first refusal for any of the shares which would be divested by PNOC.

 The PNOC stake in Petron comprise of 3.75 billion shares which represents a 40% interest is reportedly offered for some P26 billion. At the current exchange rate, this would amount to some $650 million which is higher than the purchase price of $550 million by Ashmore.

 In peso terms the government’s offer price translates to 6.93 per share which is far above the recent price quote of 5.20 at the Philippine stock exchange now that stock prices all but collapsed due to the global financial meltdown.

 Ashmore has an effective holding of some 50.7% of Petron as a result of the mandatory tender offer to minority investors when it acquired the 40% chunk from Saudi Aramco which puts the former as the majority shareholder.

 So, would Ashmore bite the offer?

 Unlikely. It already has effective control and besides it could increase its holdings to have an absolute control of the board by simply scooping the shares thrown out at the open market at much cheaper prices. It would be somewhat tricky however, not to push the prices up too much since the amount of float shares is only just below 10% of the total outstanding shares.

 ON another note, there are still people who cling to the illusion that Petron is (or used to be) a crown jewel of the government and should not have been sold off in the first place. But there is nothing sparkling about Petron—either getting money for the government coffers or controlling the oil price hikes through the years.

 It is more like a liability.

 For Petron has not had any dominant position in the industry ever since. Unlike other national oil companies like Pertamina of Indonesia,  the Iranian National Oil Company or Hugo Chavez’ Petroleos de Venezuela, Petron does not own any oil producing field either here or outside the country which it can use as a bargaining chip.

It is a refining company where margins are razor thin and are subject to the vagaries of oil price movements. It doesn't even have a significant oil transport business.

Its other main line of business is in retailing which is cutthroat also and highly regulated, with more players entering the market. In this area, customers flock to where service is better among competitors--and my own experience is, Petron service stations do a disservice to the term.

 At least Chavez can stand up against the U.S. using his oil, and the Iranians can rattle the market by simple nuclear posturing.

 So, what’s so strategic about Petron?

 It is better for it to be sold off; at least the government gets some loose change to shore up its perennial budget deficit.

 But then, it is doubtful whether the government can command the same price as the price paid for by Ashmore.

 It is a basic tenet of investing to sell when you are ahead. Selling the government Petron stake now is more like selling at the bottom of the market.

The U.S. also bails out its renewable energy industry

Buried within the 400 or so pages of sweeteners that were added to the recent $700 billion bailout package for the U.S.  financial sector that has been signed into law by President George W. Bush is a provision which breathes life to an anxious nascent renewable energy industry.

This is the extension of the Production (PTC) and Investment Tax Credits (ITC) which was unexpectedly passed as part of the Emergency Economic Stabilization Act of 2008 (H.R. 1424), as the bailout plan is officially known.

For months renewable energy practitioners--developers, investors, manufacturers and would-be users--could only wring their arms in anguish as they watch the spectacle of legislators bickering among themselves whether to extend or not the tax credits.

They view these tax credits as a lifeline to the whole renewable energy industry--solar, wind geothermal, and now the marine energy technologies--before it gets to its own maturity. The provision will extend the PTC for one year and the ITC for eight years.

The other highlights of the package include:

• Eliminating the $2,000 capon the residential ITC
• Allowing utilities to obtain ITC
• Authorizing $800 million for clean energy bonds for generating facilities using renewable sources
• Creating an ITC for so-called marine energy technologies which include tidal, wave current and ocean thermal

The solar energy industry is particularly ecstatic. The legislation "will enable (solar) companies to continue to invest in American production, American jobs and America's energy independence," said Mark Finocchario, president of SCHOTT Solar.

The wind industry considers the tax credits essential to the growth of the industry. In the geothermal sector, these credits encourage aggressive growth and support rapid deployment strategy for building geothermal plants within the decade, said Brent Cook, CEO of geothermal developer Raser Technologies.

That such incentives are vital to the industry can be seen in recent history. In 1999, 2001 and 2003 when Congress didn't renew the tax credits, wind power installations dropped by 93% in 2000 and by 74% in 2004.

Prior to the signing into law of the bailout package, wind developers have been putting projects on hold because financial institutions have been reluctant to fund these projects with only a glimmer of hope that the tax credit will be renewed, said Leon Steinberg, CEO of National Wind, a leading wind energy developer.

The solar industry relies on a 30% credit on new investments. If the credits were not renewed, the solar market could collapse, and solar-technology firms could end belly up,  according to an industry insider.

Our honorable senators and House representatives should take heed of the lessons from the U.S. situation. Their dilly-dallying of passing the renewable energy bill has cost the country enormous amount of opportunity losses.

Now that the bill will become law upon its signing, our legislators should realize that their job has only begun. We need to put some substance into the skeleton bill that they have just passed.

Making energy experts out of our legislators

The Senate has finally passed the renewable energy bill on the third and final reading after languishing for eons at the committee level. Now, it is up for Congress to reconcile both the Senate and House versions before the bill could be signed into law.

The news is a welcome whiff of fresh air; a respite from endless bickering among senators and parade of scandal accusations.

Why should our lawmakers take years to "read" important pieces of legislation? Due to delays in reading,  some bills are overtaken by events that they are no longer relevant. An example is the law dismantling the telecommunication monopoly years back. That law requires the new entrants to put up x kilometers of landlines if they wanted a piece of the action. Due to delays, the wireless revolution made many of these landlines virtually useless and nearly drowned those who did the mandatory roll out.

Nowadays in the U.S., energy issues occupy as much prominence and generate as much debate as Iraq and Afghanistan. In July for example, a bill to curb excessive speculation on oil was sponsored at the height of the oil price madness. This comes on the heels of a landmark passing of the energy bill of 2007. On the pipeline are a highly complex legislation on carbon emission through a cap-and-trade program and a carbon tax.

These pieces of legislation are highly involved and demand extensive research and voluminous background material.

What makes the U.S. energy lawmakers seemingly expert in this area whom I would imagine to be of similar breed as our local donkeys?

The September-October issue of EnergyBiz, a leading and award-winning publication in the energy sector, offers an explanation. On complex issues like futures trading, emission offsets and incentives to alternative energy developers, members of Congress usually turn to little-known Congressional Research Service (CRS) office.

Located across the Capitol, the CRS is one of the three major agencies that help Congress perform its job well; the other two being the Government Accountability Office (similar to our Commission on Audit) and the Congressional Budget Office which assists in determining the cost of legislation and other budgetary matters.

What makes it different from the energy committee staff for example, is that it is non-partisan and is not associated with any of the political parties or with the executive branch. The CRS listens to lobbyists but considers their position with healthy skepticism. It shifts through contradictory reports, verifies the veracity of data sources, and is ready to shoot down assumptions forwarded if need be.

For example, during the debate of the Clean Air Act of 1990, the CRS both examined the wide gap between the Environmental Protection Agency's cost estimate of $25 billion for the industry as against a claim of $80 billion by the National Association of Manufacturers.

We need a similar body to advise our honorable ladies and gentlemen in Congress on such matters as energy policies, alternative energy incentives, science development, consumer protection in the face of melamine and endosulfan scares, drugs policy and the like.

On energy, the Department of Energy can only do little, as it is beholden to its boss at Malacanang, and is subject to political machination come appointment time and budgetary allocation.

Like its U.S. counterpart, this proposed body should be composed of experts in energy, and doing full-time work in support of energy legislation. Its professionals should constantly monitor the radar screen of energy development, energy innovation and worldwide trends in energy policy.

If one observes a senate session during those few times when its members are actually talking about sensible legislation, much of the time is spent on points of clarification simply because our lawmakers are not well-grounded on the subject at hand. All the finer points of legislation should have been resolved even before a proposed legislation is brought before the members of a committee--not during a plenary session.

One cannot just pull out an academic teaching heat transfer and declares him a resource person and an expert on energy efficiency. Or hire a fresh graduate in science and ask her to research on energy policy.

Creating meaningful energy legislation cannot be relegated to the same level as the congressmen's favorite bills of renaming streets and towns in honor of their deceased forebears.