Looking at Recent Events Through Fuels Market Lenses
I once earned the nickname of “Fuels” while participating in a series of Naval War College seminar courses titled National Security Decision Making, Strategy and War, and Joint Maritime Operations. Each course in the series was taught in three-four hour blocks one night per week and lasted for two full academic semesters. Anyone who has ever been in a classroom, meeting or conference with me will agree with the statement that I tend to earn high grades in “class participation”, so you can imagine that my classmates in those seminars got to know my views on the course topics pretty well.
They gave me the nickname because I had a habit of pointing out the important role that fossil fuel resources played in all phases of security, strategy, war preparations, war fighting, and maritime engagements. Many of them told me that they started to see grand decisions in a different light and had learned to appreciate the influence of people with fossil fuel derived wealth and power on national choices.
Most of my fellow students were also career naval officers, either active duty or reserve, but few of them had the experience of running a competitive commodity based business that prospered or struggled partially as a result of actions taken by competitors to control supply and demand. Most of them saw “the law of supply and demand” as a passive one that just happened to people, but they learned that big players in the game often put their fingers or full weight on the scales to tip the balance in their favor so they can make more money.
My classmates learned that I maintained a rather cynical view of the interactions between fossil fuel focused money and world power politics. Some of them began to recognize that the kinds of actions that I was pointing to had been happening for at least 150 years. Not all of them agreed that such motives were the main drivers in decision making, but most came to agree that they played an often glossed-over role.
History writers seem to focus on religion, political systems (democracy versus communism, for example) and ideology as sources of conflicts; I guess they either do not understand business or feel that it cheapens some of the heroics to point out the greedy motives underlying most wars, even those not generally acknowledged to be mostly about resources.
All of that is background throat clearing for some observations on a couple of news articles I thought worthy of discussion.
The BBC published an article titled The ‘unravelling relationship’ between Russia and Iran that discusses the ups and downs in a relationship between Iran and Russia. The author talks about the way that Russia has been making billions by selling Iran partially completed systems that have little actual value because they are not finished. He mentions the long lasting Bushehr nuclear reactor project that is still not producing any electricity and an air defense system where a key component has been held up for more than two years and looks like it may never be delivered.
The author attributes the failure to complete these projects to successful lobbying by the US, Israel, and Saudi Arabia. With my “Fuels” hat on, I want to point out that Iran should never have trusted Russia to complete any energy related project that would enable more Iranian natural gas and oil to be sold into the same international market where Russia earns the vast majority of its hard currency. The author talks about many influencers but ignores the important fact that Iran and Russia are direct competitors in a lucrative commodity market where controlling supply is a major part of controlling profitability.
In a completely separate story, I noticed that Dan Yurman at Idaho Samizdat had published a thought provoking story about political intrigue surrounding the new UK coalition government’s decision to cancel a loan to Sheffield Forgemasters that had been promised by the previous Labor government. I am no expert on the intricacies of British politics, so I looked at the deal with my “Fuels” glasses on.
Here is the brief background. Observers of the nuclear industry’s gradual rise from a long slumber have often pointed out that there was a bottleneck in the supply chain that would hinder its potential growth rate. Because of a long-lasting slow market for new construction projects, an increase in plant sizes over time, and a design decision to avoid welds that may later prove problematic, the world capability to produce certain large steel forgings had degraded to a single supplier – Japan Steel Works (JSW). Only JSW has a press large enough to forge the reactor pressure vessel heads and other large components in a single piece. All reactor vendors currently count on that capacity and all future reactor plant customers have had to fund orders years in advance to establish their place in line.
There have always been other steel component manufacturers that had the basic knowledge required to develop a large component forging capacity, but each of them required a relatively substantial investment with an assured order book before they would make the plunge to develop the capacity. The tools required have a rather specialized output and take up a lot of factory floor space; it would not make any sense to invest in the equipment only to have it lay idle.
The Labor government recognized that Sheffield Forgemasters was one of the limited number of companies in the world that could produce the quality components required if it installed the correct equipment. It also recognized that assisting a British company in putting the financing in place would enable the growth of an entire chain of suppliers. It approved an £80 million loan to the company in March 2010, just before the general elections. Along with the proceeds from advance orders, that loan would have enabled the company to proceed with its plans to install a 15,000 ton press that would allow it to compete with Japan Steel Works for all large reactor vessel head orders.
The newly elected coalition government has now cancelled the promised loan, saying in public that the Labor government had not budgeted sufficient funds and stating that the company directors had indicated a reluctance to dilute their holdings through issuance of additional stock to raise part of the money required for the capacity expansion. Apparently, neither of those statements is actually true. (See, for example, Clegg and Cameron may have misled Parliament on Sheffield Forgemasters and Pat McFadden responds to the government’s cancellation of Sheffield Forgemasters loan)
At least part of the reason that the David Cameron led coalition government has cancelled the loan is that Andrew Cook, a major Conservative Party donor, applied direct pressure to encourage the loan cancellation. (Note: The current coalition includes the Liberal Democrats and the Conservative Party.) Andrew Cook happens to be the owner of William Cook Holdings, another products manufacturer. Cook wrote a letter to Mark Prisk, the business minister, announcing the fact that he is the largest donor to the Conservative Party and claiming that the loan to Sheffield Forgemasters was unnecessary and perhaps illegal.
Not surprisingly, the coalition government denies that the lobbying letter had anything to do with the decision.
The “Fuels” aspect of this controversy is that William Cook Holdings, though it does not directly compete with Sheffield Forgemasters in the market for nuclear component forgings, has a line of products with specialized applications in the oil and gas industry. As far as I can tell, no other commentators that have described Andrew Cook’s involvement have mentioned that it might be related to industrial competition for “fuels” market customers instead of Cook’s expressed ideological opposition to government handouts to selected industries.
I know that it sounds a bit “conspiratorial” to point out that Cook has a direct financial interest in continued oil and gas exploration and production. The size of the markets for the steel components his company manufactures is established by oil and gas company capital expenditures. He most likely has regular interaction with decision makers in that industry.
I am just guessing here, but I would bet Cook’s contacts in the oil and gas industry discussed ways to respond to the fact that the British government was helping the only industry that can hope to take markets away from natural gas. There is nothing unusual or conspiratorial about businessmen talking about government actions that could affect their company’s sales or about businessmen taking actions to influence those actions.
In other news, Chris Huhne, the UK Energy Secretary, was quoted in a Telegraph article titled Chris Huhne to announce increase in wind turbines as follows:
Offshore wind, I think partly as a result of fewer planning issues, is likely to be an important part of our energy independence going forward.
“We have a tremendous natural resource in the Dogger Bank, which is an enormous shallow area of the North Sea, the same size as Wales.
“It’s relatively cheap to put wind turbines in that shallow area. It’s beautifully windy so it does actually produce a lot of electricity – that is a really important natural resource for us.”
I wonder how the British can install off-shore wind turbines “relatively cheaply” when Cape Wind, the US company that is planning to build an installation in an area off of Cape Cod with the same physical features of shallow water and good winds, will be charging 20.7 cents per kilowatt hour escalating at a rate of 3.5% per year for fifteen years – as long as the US government continues to provide its current subsidies of more than 2.1 cents per kilowatt-hour. Any takers on a bet that the UK government is granting wind developers subsidies that far exceed the £80m that the Labor government had promised to LOAN Sheffield Forgemasters?
Christopher Murray Paul-Huhne, aka Chris Huhne, is a full member of the British establishment, having grown up in a wealthy family, attending all of the right schools and making a fortune as a trader in The City. It is hard to imagine being a Brit with those characteristics without having deep interest in maintaining the profitability of oil and gas companies by providing direct government subsidies to alternative energy sources that are weak competitors while discouraging nuclear energy development.
I guess that I should add the smoking gun tag to this post, even though the evidence is all circumstantial.
This is excellent investigative journalism. You build a very strong circumstantial case. It really all seems to fall into place. Another smoking gun.
I found a smoking gun of my own. One of the articles being cited on Wikipedia as to “dangerous nuclear accidents” is by an assistant professor from Singapore at the Lee Kwan Yoo University, or something like that. This report on “accidents” is published in a trade publication called “Exploration and Production: Oil and Gas”:
http://www.touchoilandgas.com/ebooks/A1ioj0/eandpvol7iss2/resources/134.htm
Now this is a clear smoking gun, simply because it’s published in a trade journal of this nature.
But, if we dig a bit deeper, we find a bigger smoking gun. Singapore, even if it is a nominal democracy, is a very tightly controlled state where the government is extraordinarily coordinated with the corporations. Why would Singapore oppose nuclear power? Where do the interests of Singapore lie? It’s a trade hub. Why is it a trade hub? Because it’s a fueling station. Because it’s part of the oil supply chain for ship fuel. It’s also part of the supply chain for oil and gas ships going to Japan, to China, and to the US from the Gulf. Probably there are petroleum processing interests there.
Now, Singapore might want some reactors for their internal use, but they don’t want them getting onto ships, or getting into the states where the tankers bring the oil and gas. If ships don’t have to stop for fuel, or there are fewer ships carrying oil and gas, then Singapore gets bypassed. So the oil and gas interests on Singapore might want to stop nuclear power from spreading, so they fund a professor (a US expatriate) to write a hatchet job on dangerous nuclear accidents.
Of course, this is all speculation. But perhaps there is something here.
Dave,
Your post reminds me of the marriage between the US coal industry and the railroad companies and unions. I hear that almost ~50% of all our rail capacity is used to ship a single commodity, coal. Imagine the effect if nuclear took over in a big way. As a result of this (someone told told me at an ANS conference) the railroad industry/unions are one of nuclear’s most potent enemies. A quiet enemey, but a potent one.
The guy at the conference told me that because coal plants need a steady, uninterrupted stream of coal trains to operate (due to the enormous volume of their fuel), the railroad unions have them (and all electricity consumers) by the balls. If the union strikes, they’re looking at a shut down of all power generation in the region, in a very short time. This increases the union’s leverage enormously.
An interesting thought, at least.
Jim: I like the railroads, of course, they would get the short end of the stick for a little while if we moved away from coal. But ultimately, if the US went for nuclear power in a big way, energy costs would come down enough that there would probably be a decent rebirth of industry in the US, and we would probably make enough basic industrial goods (steel, chemicals, etc.) that the railroads would eventually carry the same amount of freight, if not more. Perhaps over longer distances, too, like to ports, for export, not just finished goods from ports.
I do see where their interests lie, though.
@ katana0182 (Dave) ,
I am very interested in you comments about Singapore. I have visited that country several times, it is a marvel of business and the leaders are very very good at international politics and business. I had a friend of mine (chemical engineer) who retired from Dupont send me a link to a “face off” set of articles http://www.aiche.org/downloads/Exchange/june10.html
The Anti Nuclear side was represented by Lee Kuan Yew School of Public Policy and writed by Benjamin K. Sovacool and Anthony D’Agostino. They point out crippling costs, waste disposal, environmental impacts, safety, fuel availability, and a better path – Energy efficiency and demand side management.
I was wondering – especially – how they could complain about uranium mining in a trade paper for chemical engineers when you can run lightly acid or base water into the ground and extract uranium through safe chemical processing.
Your point about the link to fossil fuel interests for Singapore is very likely. Singapore specializes in being the “middleman” and there is little to “trade” in Nuclear.
I can imagine that Singapore sees nuclear as quite the threat to their interests, oil staying in the ground, or being used just as a source of carbon. No oil or LNG tankers, oil being $5 a barrel, used only as a chemical feedstock, for antique cars, locomotives in rural areas, tractor-trailers, and for lubrication.
Combine that with ships that can possibly travel the globe without refueling (or docking at Singapore). Ouch.
No wonder they’re hopping onto the anti bandwagon. Unfortunately, the bandwagon is suffering from deflating tires.
I noticed the post said that only JSW can make large pressure vessels. Doosan in South Korea is providing the vessel for the Sanmen 1 AP-1000. Whether or not Forgemasters enters the market, the Koreans and Chinese will be making pressure vessels in addition to the Japanese.
I understand that the Chinese, for their version of the AP-1000, are bypassing the JSW queue by using the older style of pressure vessel with rolled and welded rings in the pressure vessel rather than forged rings.
I have been hearing about American interest in world oil resources since my school days, more than 50 years now. It sounds strange when an American describes it as vested interest of only some of the people I have always associated with it. As far as heavy forgings are concerned, the maximum nuclear construction is now in Asia, where most of the mankind lives. South Korea and China will be giving competition to Japan in the coming decade or two. I hope the reactor vessels will be lighter salt or lead filled by then and high pressures will be confined to generation equipment.
Within in the US, we’re a complex society, and there are many interests, or groups of people who try to influence policy. The oil interests – a powerful force within the US – have made the US dependent, like drug addicts, upon the oil from the Middle East – we have to get our fix, or our society won’t run. Many people in the US don’t want to be addicted to foreign oil anymore, because it lets people outside of the US control the US through controlling the oil flow. Nuclear power is one of the ways that we can break from that control. The oil interests, like Rod discusses, also try to create fear among the common people about nuclear power, as if nuclear power becomes big, it might deprive the oil companies of their ability to keep the US addicted to their product and Europe as well.
I also hope to see some lead-cooled and thorium salt thermal reactors in the future that don’t require these sorts of really heavy pressure vessels, too – but those are decades down the road. Right now – in the US – we’re building LWRs, and that the supply chain is being interfered with by the oil interests means costs will go up for nuclear reactors here, unfortunately.
One concern I have about mass nuclearization is its possible effects on countries dependent on oil exports. (The Middle East is especially problematic, as most of it is desert and is therefore currently dependent on imported food.) The Iranians are total idiots if desalination isn’t one of the possibilities they are looking at with their nuclear programme!
Another question, what is the best way to fight anti-nuclear politicians like Chris Huhne? I was gutted when it was announced he’d been made Energy Secretary, especially as I voted Conservative despite preferring the Lib Dems on most policies, because the Lib Dems are hostile to nuclear energy.
@George – Many, if not all, oil exporting nations in the Middle East are quickly turning to nuclear energy. The UAE has signed the famous four reactor deal with South Korea. Jordan is moving forward and just signed a $70 million 5 MW research reactor deal as a first step. Saudi Arabia recently signed some nuclear related deals.
Right now, there is plenty of cash available in oil exporting nations as long as their oligarchies have not spent it all.
The best way I know to fight the anti-nuclear politicians is to keep showing people the relationship between high energy prices and suppressed energy supplies. There are far more energy consumers in the world than energy producers. When more of us recognize that actions fighting massive quantities of new nuclear energy are either witting or unwittingly actions that favor the interests of the coal, oil and gas industries at the expense of everyone else, we will swing more politicians our way.
I’ve heard that comment often that ‘only JSW can produce ….’. It seems a bit more complicated than that. If you look at the WNA website there is a link with a page titled: ‘Heavy Manufacturing of Power Plants’ — http://www.world-nuclear.org/info/default.aspx?id=23340&terms=forges . There are forges in Russia, China, and Korea. Also some parts are made by Areva (still welded?). I’m not sure exactly who does what. There are also plans by several nations to expand (not just UK). And of course, JSW recently doubled their capacity with a new 14 000 ton press.
I think another reason Cook wanted the loan killed was simply that Sheffield is a competitor, also in the fossil fuels area.
SteveK9 – I tried to be pretty careful in my post. I am pretty sure that as of now, JSW is the only source of forged reactor pressure vessel heads and rings. As Bill Young noted above, there are ways around that bottleneck. The pressure vessels that were built with rolled and welded rings have performed adequately; they just require additional inspections and perhaps some annealing actions during the life of the reactor.
JSW is expanding its capacity from about 4 vessels per year to about ten, and, as you noted, there are other steel makers around the world who are planning to expand into the market. That might sound like a budding “overcapacity” but I believe it is good for customers to have some options and choices and to have a system that reduces lead time requirements and potential bottlenecks.