Posts from ‘June, 2006’

FROM THE WALL STREET JOURNAL
June 30, 2006

BP has tripped up in the U.S. — again. Last year, an explosion at its Texas City, Texas, refinery killed 15 people, triggering several federal investigations. This year, authorities opened a criminal probe into the company following a large spill from its pipelines in Alaska. And now the European oil company has been charged with cornering the $30 billion-a-year U.S. propane market, forcing up prices for millions of rural Americans in 2004. Other oil majors haven’t suffered a similar string of mishaps in the U.S. What has BP got wrong?

There is no cut-and-dried answer. It is not just because BP is unmanageably big. Other oil majors like Exxon Mobil and Royal Dutch Shell haven’t had a similar run of bad luck in the U.S. Nor has BP had the same problems elsewhere. Something seems to be particularly wrong for the company in the U.S., which is why it has just appointed a new country head to improve matters.

One possible theory is BP didn’t properly integrate Arco and Amoco, the two U.S. firms it bought in the late 1990s, and somehow a “Wild West” mentality continued. But it can’t be that simple, given that BP’s acquisition machine has successfully integrated companies bought elsewhere.

A more likely theory points in the opposite direction. BP did integrate Arco and Amoco successfully, especially in one aspect of the corporate culture — the emphasis on improving financial returns. But that led to corners being cut, especially in assets that weren’t seen as having high profit potential.

For many years, pipelines, refining and distribution all fitted into that category. The status of these unloved orphans was low throughout the oil industry, but it may have been especially low at BP. The company has traditionally focused on exploration and production. As a result, its downstream operations may have attracted less capital and, perhaps, lesser BP managers, too. The only reason similar failings didn’t crop up in Europe or Asia is that BP has relatively little refining capacity there.

The string of mistakes hints at a more serious problem. BP may be increasingly dominated by a “Yes, Lord Browne” culture. This could have led to managers overpromising their chief executive on the results and budgets they can deliver. That is especially tough for underperforming and underinvested areas of the company’s operations. If that is the case, the company’s problems with its downstream U.S. assets were almost inevitable. But it does not bode that well for their solution.

–John Paul Rathbone, John Foley, Edward Chancellor

Terry Macalister
Friday June 30, 2006
From The Guardian

Members of the Scottish parliament are calling for an inquiry into North Sea safety regulators, alleging they have failed to properly monitor the operations of Shell.

The move comes ahead of a report being published by Aberdeen’s sheriff court into an accident on Shell’s Brent Bravo platform in 2003 when two men died.

It follows revelations in this newspaper that a senior Shell consultant, Bill Campbell, told the oil company as far back as 1999 that employees had been falsifying maintenance documents relating to North Sea platforms. Shell rejects the allegations of tampering with paperwork.

Mr Campbell also told the Guardian that operations were still potentially unsafe and he feared another disaster. Shell said his claims could not be substantiated.

Frances Curran and fellow Scots Socialist MSPs have called on the executive to “examine the role of the Health & Safety Executive [HSE] in this matter and consider why it apparently failed to act”. The MSPs claim “considerations of profit were allowed to supersede those of safety, not just on one-off occasions but continually and that the concerns of workers, expressed to the Oil Industry Liaison Committee, were ignored by both the industry and the UK government.”

The HSE dismissed the allegations. “We served eight improvement notices on Shell between 2000 and 2002,” said a spokesman. Shell says critics such as Mr Campbell had not paid credit to the huge strides made in improving safety and in particular, reducing the number of temporary and unauthorised repairs.

A report written after the Brent Bravo accident, at the behest of the HSE, uncovered a backlog of 472 temporary repairs of which 214 were “unapproved”. Shell said the “unapproved” repairs were in the middle of gaining authorisation and the HSE says they were indeed “not recorded by Shell” but were not necessarily unsafe nor outside HSE rules.

A new internal document from the HSE, obtained by this newspaper, does appear to contradict Shell’s claim that safety had been improving in the North Sea, since 1999 and certainly after 2003.

An email obtained under the Freedom of Information Act and dated May 31 2005 from Ray Paterson, an offshore divisional inspector for the HSE in Aberdeen, to a team leader, Tom McLaren, says: “I would like to raise the issue of significant high levels and apparent increase (certainly not reduction) of maintenance backlog (out of compliance) on most Mature Assets (North ) Installations.” The Mature Assets are a reference to the Brent, Eider, Tern and Dunlin platforms run by Shell.

Mr Campbell, who worked for Shell for 24 years, told the Guardian last week he had brought his concerns to the attention of directors as far back as 1999 and again in 2004. “I am sorry to have to go public on this but if the current safety regime demonstrated by the Brent Bravo [fatal accidents] case study has failed and if improvements are not undertaken another major accident is inevitable,” he said.

Shell defended the North Sea safety regime last night. “We have an effective regulator in the HSE in that it is professional and carries out a high level of inspections and safety case reviews.”

Terry Macalister
Friday June 30, 2006
From The Guardian

BP found itself under fire again yesterday when a raft of initiatives were announced to crack down on suppliers of liquefied petroleum gas.

The Competition Commission said its final report supported provisional findings that “competition is not working as well as it should be in this market, and that LPG consumers are losing out as a result”.

The judgment comes less than 24 hours after BP faced a civil lawsuit from a US regulator over allegations of price manipulation in the propane sector.

The commission said the LPG market was a lifeline for 150,000 mainly rural customers who use the fuel for household heating, cooking and hot water. Most used it because they did not have access to a mains gas network and were paying average bills of about £800 a year. But it was difficult to change suppliers because tanks were often provided by the suppliers, who took them away if the customer switched.

Peter Freeman, the commission chairman, said: “We will be introducing measures to enable tank transfer when customers switch, improve the terms of customer contracts and give customers better information.” Many homeowners were unaware they could switch suppliers and found it difficult to find out prices offered by different companies.

More than 90% of the LPG market is held by a small number of firms: BP, Shell, Calor – owned by the Dutch group SHV – and Flogas, controlled by DCC of Ireland.

BP said it had participated fully in the review, accepted the commission’s findings and welcomed measures to make the LPG market more transparent. But Calor questioned some of the conclusions. “The truth, as acknowledged by the commission, is that customer satisfaction with LPG suppliers is high,” it said.

Commenting on BP’s wider problems, a spokesman at its London head office said: “They are clearly in separate parts of the business and in different time-frames. All we can say is, we try to run our business to be as efficient and effective as we can.”

Nils Pratley
Friday June 30, 2006
From The Guardian

Once is happenstance, twice is coincidence, three times is enemy action, reckoned Ian Fleming. In BP’s case, three times could look like the actions of a company where corners are being cut. A fire in a Texas refinery killed 15 and hurt 500 last year; a BP pipeline spilled oil in Prudhoe Bay in Alaska in March; now come claims that BP traders tried to corner the market in propane – those canisters relied on by 7 million Americans who live beyond the reach of the US gas grid.

What is going on? Well, the hysterical explanation – a culture of profit above legal, ethical and safety considerations – looks a little too glib.
The three incidents happened in different divisions of BP and it is hard to draw direct links. Their proximity really could be coincidence. Nothing on the scale of the Texas City fire had happened at BP since a North Sea oil rig over-turned 40 years ago. The Alaskan pipeline had operated efficiently for 30 years. As for the propane price-fixing allegations (which BP denies), the charge is that the company failed to police its traders, not that it condoned their actions.

So, bad management or bad luck? Statistically speaking, even after three incidents, it’s too early to say. Unfortunately for BP, it may not matter. In the real world, sentiment, not statistics, reign, particularly when the oil industry collides with Washington politicians.

Under President George Bush, the oil giants have had a gentle time. But even Bush, a Texas oilman, has muttered that America must end its dependency on oil and gives subsidies to ethanol producers. A Democrat lobby wants more: namely a windfall tax paid from the proceeds of oil at $70 a barrel.

That is why every bad headline generated by BP and its peers could be expensive. Record profits plus leaking pipelines and exploding refineries is a hard combination to defend. Rightly or wrongly, it looks like enemy action.

Bravo and farewell

There will be tears and air-kisses galore at Burberry today as Rose Marie Bravo steps down as chief executive after nine years. Bravo did what many thought was impossible and created an international fashion success from a faded British label. The ultimate hard act to follow.

Angela Ahrendts arrives from Liz Claiborne with a mission to expand in accessories, which is shoes ‘n’ handbags to the rest of us. She’ll need to shift a lot of them to convince the outside world that Bravo hasn’t stretched the Burberry brand as far as it will naturally go.

What outsiders can see most clearly is that Ahrendts is being rewarded handsomely. She’ll get £2.2m for signing on: a basic salary of £720,000 a year, potential annual bonus of £1m, and pension contribution of £215,000. Then there’s an annual “overseas allowance” of £343,000 for five years, a potential “personal achievement bonus” of up to £2.2m over three years, not to mention the annual clothing allowance of £14,000. If she actually meets her performance targets, then there are 500,000 nil-cost share options coming her way, worth another £2m.

With a market value of £1.9bn, Burberry is hardly a colossus and Bravo has done the hard work of revitalisation. Investors would probably prefer to see more stick and less carrot in the boardroom. On planet fashion, though, different rules apply, and it looks as if the outside world is now suspicious.

The graph shows how the shares have under-performed the market for the past two years. Maybe Ahrendts has new tricks in her locker. The Bravo years were wonderful but something fresh is required.

Post Office parting

A trip to the Post Office is rarely a life-enhancing experience, which is why it is hard to share the union’s sense of outrage about plans to shift crown post office outlets into WH Smith.

These outlets are losing an average of £100,000 a year each. There is no sign they can improve on that. Selling low-margin products and services from expensive locations is commercial nonsense. Without state subsidies, going on as before is not an option.

As for the customers, well, WH Smith is not the cutting-edge of retailing, but where would you rather queue? It would be stunning if the punters kick up a fuss.

nils.pratley@guardian.co.uk

From The New York Times

By JAD MOUAWAD
Published: June 30, 2006

MAASLAND, the Netherlands — A few miles north of Rotterdam, in a region the Dutch call “glass city” for its thousands of greenhouses, gardeners like Frank van Os are part of an unconventional experiment by Royal Dutch Shell to curb carbon emissions.

Mr. van Os produces four million roses each year, flooding the atmosphere inside his vast glass canopy with pure carbon dioxide to bolster his crop. What is unusual is that he now gets the carbon dioxide piped in directly from Pernis, a Shell refinery that is Europe’s largest and typically discharges tons of the gas into the atmosphere every year.

“You can just hear it,” said Mr. van Os, as carbon dioxide hissed through small plastic pipes, feeding the long-stemmed red roses all around. “It goes pshh.”

Shell’s modest effort in this corner of Europe — aiming to cut the refinery’s emissions by 8 percent by diverting it to about 500 greenhouses — is not going to solve the global warming challenge, of course. But the experiment to limit emissions of carbon dioxide, the main greenhouse gas blamed for climate change, illustrates a fundamental shift in the oil industry that offers glimmers of hope for the future.

With energy consumption expected to increase over the next few decades, a number of leading oil executives now say that how their industry manages carbon emissions will become as important to their business prospects as replenishing energy reserves.

“The debate about CO2 is changing,” Jeroen van der Veer, the chief executive of Shell, said in a recent interview. “You can either fight it — which is useless — or you can see it as a business opportunity.”

The rising alarm over global warming has prompted some oil executives — particularly those based in Europe like Shell and BP — to promote their efforts to develop alternative energy sources that release less carbon dioxide, like wind, solar power and hydrogen from renewable sources.

But the more important industry effort turns on the ability to manage emissions from petroleum itself, based on a self-interested recognition that, if nothing is done, the future costs of carbon emissions may threaten the core of their business, the production of fossil fuels.

The industry’s involvement in the debate is clouded by suspicions that oil companies, even as they seek to develop alternative and renewable sources of energy, are also heavily investing in resources that are dirtier and more polluting than crude oil.

While some environmentalists continue to question the industry’s motives, many oil executives say that they now recognize that to sustain the industry over the long run they need to help mitigate carbon emissions and other harmful pollutants from their operations.

For years, oil companies would not talk about the impact of their business on the environment. That many are even acknowledging the link between fossil fuels and climate change is a measure of how far they have come over the last decade.

“It is urgent to act,” Thierry Desmarest, the chief executive of Total, the French oil company, said during a recent breakfast at the Four Seasons Hotel in Manhattan. “Carbon is what poses the biggest problem.”

Climate experts estimate that overall carbon emissions from fossil fuels must be cut at least in half by 2050 to stabilize their effect on global warming. It is a monumental task.

Emissions of carbon dioxide from the burning of hydrocarbons — oil, natural gas and coal — may grow by 70 percent in the next 25 years if nothing is done to contain them. They reached 25 billion metric tons in 2003, up 4.5 percent from the previous year, according to the most recent estimates by the Energy Department. Since the Kyoto Protocol was signed in 1997, emissions have risen by 20 percent.

“People at the top of the oil business are beginning to realize that there is a problem with climate change and they are looking for ways to compete in a carbon-constrained world,” said David Keith, an energy and climate specialist at the University of Calgary. “Most of that elite now admits the problem is real.”

At the Pernis refinery near here, the stakes are clear and the search for how to compete is under way. Two 700-foot high stacks spew six million tons of carbon dioxide a year into the atmosphere, or 3 percent of the total emissions in the Netherlands.

Business Opportunity

Every day, the refinery processes about 412,000 barrels of crude oil that are shipped from distant places like Nigeria, Kuwait and Norway, and converts that oil into gasoline and dozens of other petroleum products.

The refinery, near the mouth of the Rotterdam ship canal by the North Sea, sprawls across 1,700 acres with a dizzying array of stacks and chimneys, amid noise and vapor. There are 100,000 miles of pipeline, enough to go four times around the globe.

Shell aims to sell 500,000 tons of carbon dioxide a year. While a lot of the gas still ends up in the atmosphere, the reduction is a net gain for the environment: gardeners like Mr. van Os have stopped producing an equivalent amount of carbon dioxide to grow their crops.

“Climate will shape our business,” said Chris Mottershead, an adviser on climate policy to the chief executive of BP, Lord Browne. Some of the largest oil companies, including BP, Shell and Chevron, are already planning multibillion-dollar investments in energy sources that emit little or no carbon, like wind and solar power, biofuels or hydrogen from renewable sources.

Part of the motivation is a mounting anxiety about their basic business.

As access to easily produced oil diminishes, executives realize that tomorrow’s fuels are likely to be manufactured from a variety of sources that are much dirtier than today’s conventional oil. Many researchers say this trend toward unconventional carbon-rich sources — heavy oil, tar sands, shale oil, or processes that turn natural gas or even coal into transportation fuel — will worsen global warming unless technologies are developed to curb emissions.

Global energy consumption is expected to rise by 50 percent by 2030, driven by population growth and rising economic prosperity in developing nations, according to the International Energy Agency. Most of that demand will be met with fossil fuels, like natural gas and oil, which all emit carbon when they burn.

“Either we manage these upstream carbon dioxide emissions,” said Alexander E. Farrell, an associate professor at the University of California, Berkeley, who specializes in energy and climate issues, “or we’re willing to accept very severe climate change.” Exxon Mobil has long stood out in its insistence that global warming was not a serious concern. Unlike its European rivals, its executives are still skeptical, even dismissive, about the industry’s ability to reduce carbon emissions. Its preferred solution is to focus on long-run research into new energy sources.

“The world is going to continue to consume a lot of fossil fuels,” Rex W. Tillerson, chairman of Exxon, said in an interview in March. “Let’s do it efficiently, let’s do it in the least harmful way we can, and look for the breakthrough option that will take us some place different in the decades ahead.

“But there are no shortcuts. People are looking for shortcuts that simply don’t exist.”

David Friedman, research director at the Union of Concerned Scientists, argues that some oil companies fear losing control over the most profitable part of the business, oil extraction and production. “Some see alternative fuels as a threat to their business because they don’t control the resources,” he said.

Executives at several other oil companies, however, are more active in addressing the issue, if only because they see it as the best way to extend the use of hydrocarbons in coming decades.

“If we can solve the CO2 problem,” Mr. van der Veer, of Shell, told an industry conference in Paris last year, “we can, in fact, produce green fossil fuels.”

Green or not, the industry’s future is still firmly tied to fossil fuels.

Lord Browne of BP stunned his peers in 1997 by openly acknowledging the link between rising carbon emissions and global warming. Once a lone voice, he now relishes his role as a pioneer.

But Lord Browne certainly does not see a world free of hydrocarbons anytime soon. Despite BP’s marketing campaign and credentials with many environmental groups, the bulk of its $15 billion in investments this year will still go into its oil and gas business.

Compared with that, its efforts at renewable energy seem relatively modest. The company plans to invest about $800 million each year over the next decade to develop alternative and low-carbon sources of energy.

During that same period, it expects to generate $6 billion a year in revenue from alternative energies. That would be substantial in any other industry, but BP made that much in profits in the last quarter alone.

BP’s new alternative energy business will focus mainly on the power sector, which accounts for 40 percent of the world’s carbon emissions. By 2015, the company expects it will be able to reduce carbon dioxide emissions by 24 million tons a year in absolute terms.

“It’s a progressive change,” Lord Browne said during a recent interview in his London office overlooking St. James’s Square. “Do we have enough time to do it? Are there other things that will need to be done? We will never know. But all I would say is that it’s better to do this than not at all.”

While oil companies are talking about green energy, hundreds of miles north of the border between the United States and Canada, they are also making a costly, dirty bet on future supplies that has created a boom in the frontier town of Fort McMurray, in Canada’s western Alberta province.

Companies like Shell, Chevron, Exxon, and Total are investing billions of dollars to unlock oil from Canada’s underground rock formations. These oil sand reserves are huge, potentially rivaling oil reserves found in Saudi Arabia, according to some optimistic estimates.

Oil sands production in Canada is expected to triple to three million barrels a day by 2015, according to Canada’s National Energy Board.

A Costly Process

The problem is that Canada’s reserves do not flow freely out of the ground. They are packed so tightly that they must first be melted out of the rocks before they can seep out. This process is much more costly than extracting conventional oil out of the ground. Because it takes a lot of energy to produce, it also releases many more carbon emissions.

A gallon of gasoline produced from conventional oil emits 11 kilograms carbon, from the day it is pumped out of the ground to the day it is burned by a car. That amounts to a little less than one pound of carbon a mile. The bulk of that, 80 percent, is emitted when gasoline is burned by the engine; the rest comes from oil companies when they pump, transport and refine the fuel.

In contrast, a gallon of gas from oil sands, because of the energy-intensive production methods, releases three times as much carbon over all as conventionally produced gasoline, even though it produces the same amount of carbon during combustion. Over all, Canada’s oil sands are as much as 39 percent more carbon-intensive than gasoline from crude oil, said Mr. Farrell of the University of California, Berkeley.

The issue is even worse for other types of unconventional fuels. Transportation liquids derived from either oil shale in Colorado or manufactured from coal can emit 90 percent to 150 percent more carbon than gasoline from oil, Mr. Farrell figures.

While they are encouraging interest in alternative energy sources from clean sources, high oil prices are also spurring lots of dirtier ones, too.

“Some people have this notion that high oil prices are going to solve the climate problem,” said Joseph J. Romm, an analyst at the Center for Energy and Climate Solutions, “when in fact they encourage forms of unconventional oils that are really bad for global warming.”

Alternative Projects

In hopes of countering such developments, BP’s most ambitious alternative project is to build a new type of power plant that runs on hydrogen, captures the carbon dioxide, and injects it back into a nearby field to help flush out either oil or natural gas. The company is planning such projects, each costing about $1 billion, in California and in Scotland.Few companies have invested much into that technology, but with many countries mandating lower carbon emissions, that attitude may change.

“The oil industry has the know-how to do geological storage,” said Stephen Bachu, a senior adviser for the Alberta Energy and Utilities Board. “If you ask why it is not done, that is because there is no reason to do it. Either the oil industry will make a profit, and that is why you see carbon dioxide in enhanced oil recovery projects, or the oil companies will do it to avoid paying a penalty.” In the end, experts say, the oil industry may respond only when governments force change. For now, governments are relying mostly on subsidies, but the ultimate answer, they say, probably lies in some form of taxation of carbon emissions that puts a system of carrots and sticks to work to limit global warming.

In the Netherlands, a government goal to derive 9 percent of electricity from renewable sources has led Shell to build an offshore wind farm that will produce 108 megawatts of power. Public subsidies over the next decade will defray more than half the project’s cost of 200 million euros ($253 million).

Graeme Sweeney, who is in charge of renewable energy at Shell, and is the company’s “Mr. CO2,” in charge of the carbon management strategy, said it mattered little to him what kind of energy source Shell was selling.

“We see ourselves,” he said, “as being in the energy business.”

http://www.nytimes.com/2006/06/30/business/30carbon.html?pagewanted=1

FROM MARKETWATCH
Former BP energy trader pleads guilty to price gouging scheme
By Stephanie I. Cohen & Jim Jelter

WASHINGTON (MarketWatch) — Federal regulators on Wednesday accused BP Plc.’s North American energy trading unit of briefly cornering the U.S. propane market in 2004 in a scheme that jacked up homeowners and businesses’ heating bills across the rural Northeast.

At the same time, the Justice Department announced that one of BP’s former traders, 34-year-old Dennis Abbott of Houston, had pleaded guilty to participating in the scheme and was working with federal investigators checking to determine if other BP executives were involved, paving the way for a possible criminal case. Abbott faces a $250,000 fine and up to five years in prison for conspiring to drive up propane prices.

According to the Justice Department, Abbott said he “understood that the scheme was approved by senior executives at BP, and that steps were taken to avoid detection by market participants and others.”

Meanwhile, the Commodity Futures Trading Commission, after a months-long investigation, filed a civil complaint in a Chicago federal court against BP Products North America, Inc., a wholly owned subsidiary of the London-based energy giant, accusing BP traders of unleashing a speculative trading strategy that cornered up to 88% of the U.S. propane market by late February 2004.

During the winter months, propane is used primarily to heat rural homes and businesses in the Northeast that lack access to natural gas distribution lines. It is also commonly used throughout the country to fire up barbecues, stoves and lanterns.

The CFTC, which overseas commodity futures trading, said BP’s trading scheme involved building up long positions in the propane futures market and then withholding supplies during the peak winter heating season.
 
The commission claims the clandestine plan briefly pushed up propane prices by as much as 90 cents a gallon, a level unjustified given normal supply and demand in that market, in a bid that aimed to add $20 million to BP’s bottom line.

BP denies that it ever engaged in any price gouging or illegal trading schemes.

“Market manipulation did not occur,” BP spokesman Ronnie Chappell said. “We are prepared to make and prove that case in the courts … In this situation we investigated the trades in question and cooperated fully with the CFTC investigation. We will assist the Department of Justice in its ongoing investigation,” he added.

BP’s own investigation resulted in the dismissal of three employees for failure to follow its trading policies, but the company declined to provide details, saying only that they have since taken steps to strengthen supervision of their trading activities.

The commission said its investigation showed that BP first attempted to corner the TET propane market as early as April 2003. TET refers to propane delivered to the Texas Eastern Products Pipeline Co. LLC (TEPPCO), which operates the vast pipeline system that carries propane to the Northeast.
 
“Cornering a commodity market is more than a threat to market integrity. It is an illegal activity that could have repercussions for commercial market participants as well as retail consumers around this country,” Gregory Mocek, CFTC director of enforcement said in a statement.

The CFTC said it is seeking “permanent injunctive relief, disgorgement, restitution, and payment of civil monetary penalties” from BP.

The propane trading scandal is the latest in a series of accusations and accidents dogging BP’s North American operations.

In addition to widespread public anger heaped upon BP and other big oil companies for soaring energy prices, the company’s reputation was badly tarnished by a deadly accident at its giant Texas City, Texas, refinery in March 2005.

Fifteen workers died in the mishap and dozens more were injured, prompting the Occupational Safety and Health Administration to slap BP with a $21.4 million fine for a variety of safety violations. It was the highest fine ever imposed by U.S. safety regulators. 

Jim Jelter is Industrials Editor for MarketWatch in San Francisco.

Shell and partners announce plans to create world’s largest hydrogen public transport project

29 June 2006

Provider: Fuel Cell Today 

Shell Hydrogen B.V., in partnership with Connexxion Holding N.V. and MAN Truck & Bus Company N.V., today announced plans to work towards creating the world’s largest hydrogen-fuelled public transport operation in Rotterdam, The Netherlands. The project aims to have the largest hydrogen bus fleet operational in a single region before the end of the decade.
In a Memorandum of Understanding signed today, Shell Hydrogen and its partners agreed to conduct an in-depth economic and technical study of the project and to seek additional stakeholders, before making a possible investment decision in 2007. >

Under the proposed scheme more than 20 hydrogen internal combustions engine buses manufactured by the bus builder MAN Nutzfahrzeuge and its subsidiary NEOMAN Bus, will be operated by Connexxion, one of the main Dutch public transport companies. Buses will be fuelled from a Shell combined gasoline-hydrogen service station – the first in the Netherlands. The station is expected to be built and the buses operational by 2009. The same service station will also sell traditional fuels to ordinary motorists. >

The five-year project will evaluate public reaction as well as the reliability and economics of using hydrogen to fuel public transport in major urban areas. It will also help to establish technical standards for operating hydrogen fuel outlets. >

“This is an important milestone for Shell Hydrogen as we take the next steps towards Royal Dutch Shell’s fuels strategy of providing sustainable mobility to people around the world,” said Duncan Macleod, Vice President Shell Hydrogen. “Our aim is to establish strong alliances in order to realise this ground-breaking project and we are confident that commitment of all parties can bring an exciting and rewarding result.” >

The Rotterdam project follows a successful three-year trial in Amsterdam, where Shell Hydrogen together with partners worked on the infrastructure and operation of three fuel cell hydrogen buses. In addition to being the country’s second largest city and one of the main ports in Europe, Rotterdam offers an opportunity to capitalise on a well-developed existing hydrogen infrastructure for industrial applications. >

Rein Willems, Country Chairman, Shell in the Netherlands, said the plan was an ideal platform for the transition to hydrogen transport fuel as outlined in the 2006 Dutch Sustainable Mobility Strategy. He said the planned gasoline-hydrogen retail station showed Shell’s commitment to providing sustainable energy for the Netherlands and beyond. “We will be showcasing hydrogen as a reliable, safe and sustainable fuel which contributes to the reduction of local air pollution and strengthens economic growth,” he added.

From Reuters
Thu Jun 29, 2006 3:21am ET

AMSTERDAM, June 29 (Reuters) – Anglo-Dutch oil giant Royal Dutch Shell Plc. (RDSa.L: Quote, Profile, Research)(RDSb.L: Quote, Profile, Research) said on Thursday that it is working with Dutch public transport and MAN Truck & Bus Company (MANG.DE: Quote, Profile, Research) to create a fleet of hydrogen-fueled buses in Rotterdam.

“The project aims to have the largest hydrogen bus fleet operational in a single region before the end of the decade,” Shell said in a statement.

Under the plan, more than 20 buses with hydrogen combustion engines will be manufactured by the bus builder MAN and be operated by Connexxion, one of the main public transport companies in the Netherlands.

Buses will be fueled from a Shell combined gasoline-hydrogen service station, the first in the Netherlands, Shell said.

© Reuters 2006. All Rights Reserved.

 

From San Jose Mercury News
By Ken McLaughlin

Mehdi Shahbazi is losing his home and livelihood because he has been protesting what he calls “gouging” by oil company executives.

More photosMehdi Shahbazi, the feisty Marina gas station owner who is going broke battling Big Oil, has won a round in federal court in San Jose.

U.S. District Court Judge Jeremy Fogel earlier this month denied Shell Oil Co.’s request for a preliminary injunction to force Shahbazi to leave his beloved gas station on Del Monte Boulevard.

The ruling means that the unusual, nationally publicized siege at Marina Shell is bound to continue for the indefinite future.

At issue is whether Shahbazi defamed Shell and thus broke his franchise agreement last fall when he passed out fliers and erected two large signs outside his station attacking Big Oil.

Although he can no longer sell gas because Shell has cut off his fuel supplies, Shahbazi is still operating his mini-mart and car wash — and sympathetic customers are patronizing the station to lend support to his cause.

“I’m going to continue keeping the station open as many hours as I can and go from here,” Shahbazi said. “I wasn’t surprised at the decision. Judge Fogel is a very fair judge.”

Colin West, a San Francisco attorney who is representing Shell in the case, said he wasn’t surprised either because “preliminary injunctions are very hard to get.” But he expressed confidence Shell would win the case on the merits when it comes to trial.

Since November, the pumps at Shahbazi’s station have been surrounded by chain-link fences, which were installed as part of an environmental upgrade project. Shell refused to take down the fences down after the dispute began.

Nine months ago, Shahbazi erected his first sign. It said: “Consumers’ pain is Big Oil’s unearned profit! To oppose it see cashier.”

Once inside the mini-mart, customers were handed a flier accusing oil companies of trying to drive franchisee retailers like himself out of business by selling gas for less at company-owned stations. Shahbazi, an Iranian immigrant who has sold gas for 37 years, claimed that the companies’ long-term goal is to control the market and jack up prices even more.

Shell, which dismisses Shahbazi’s arguments as nonsense, was not amused by the signs and began taking action against Shahbazi in early November, after he erected a second sign attacking Big Oil. Shell’s distributor told him to either take down the signs or have his gasoline supplies cut off. Believing his free speech rights were being infringed, Shahbazi ignored the distributor.

The distributor terminated his agreement with Shahbazi in late November, and Shell terminated the lease. The company says he is now illegally occupying the Shell-owned property.

In his ruling, Fogel noted that a party seeking a preliminary injunction must demonstrate a likelihood of success on the merits and the possibility of “irreparable injury.”

But Fogel said it was unclear whether Shell would succeed on the merits. One reason, he said, is that Shell did not give Shahbazi the required 90-day notice to end the franchise agreement.

Moreover, Fogel said, Shell “has not demonstrated the possibility of irreparable injury” if the injunction wasn’t issued.

“In comparison,” he wrote, “Shahbazi has demonstrated that he could suffer irreparable injury if the court granted the instant motion for a preliminary injunction.”

The request for the injunction was argued in Fogel’s courtroom in February.

Contact Ken McLaughlin at kmclaughlin@mercury news.com or (831) 423-3115.

FROM THE WALL STREET JOURNAL

Energy Stalks
Big Players Join Race to Put
Farm Waste Into Your Gas Tank

With Federal Push, Companies
Propose Plants That Turn
Husks, Grass Into Ethanol
Delving Into Elephant Dung
By JOHN J. FIALKA and SCOTT KILMAN
June 29, 2006; Page A1

WILMINGTON, Del. — One way to wean America from its addiction to foreign oil might well lie in the muddy solution swirling about a glass container on top of a DuPont Co. laboratory bench.

Inside the liter-size vessel, a desert-loving bacterium is making motor fuel. The organism, which normally lives on the agave plant of tequila fame, is munching on the chopped-up leaves and stalk of a plant, and excreting a dilute form of ethanol, the gasoline substitute normally made from corn kernels in the U.S.

The tiny organism — and others being engineered in competing labs around the country — could hold the keys to a new U.S. fuel source: cellulosic ethanol, which can be made from crop residues, wood chips, switchgrass and even municipal garbage.
 
The effort to make cellulosic ethanol into a full-blown power source to run America’s cars is embryonic, and its outcome uncertain. But the fuel has two big things going for it: High oil prices and backing from the Bush administration, which sees it as a potentially important part of future energy supplies and is putting up money to help launch the first “biorefineries” to make it. Adherents think it could reduce U.S. dependence on imported oil, cut emissions that cause global warming and shore up the nation’s rural economy. Already, the race is attracting big names, with the likes of Archer-Daniels-Midland Co., Royal Dutch Shell Group and Goldman Sachs Group Inc., investing time and seed money.

In the U.S., ethanol for fuel is typically made from corn. But growing corn gobbles up a lot of power in the form of everything from fertilizer to pesticides. The economics of cellulosic ethanol, made essentially from waste, could be different. With the booming economies of China and India helping increase the world’s appetite for petroleum faster than new sources of fossil fuel can be found, economists figure there will be a need for tens of billions of gallons of alternative fuels within just a few decades.

“Suddenly, there is a race out there to develop a new source of energy,” says Thomas Connelly, DuPont’s chief innovation officer.

THE NUMBERS GUY
 
1 • Digging Into the Ethanol Debate2
06/09/06
 
Until recently, the idea of squeezing ethanol from farm waste and other sources was barely clinging to life in the recesses of university campuses and federal labs. Few in the private sector seriously pursued the idea for the simple reason that it’s far easier to make ethanol from corn. The microorganisms good at making ethanol prefer eating the sugar in corn kernels.

Getting the bugs to dine as heartily on corn stalks and wheat straw is tough. It requires huge investments in research to find enzymes that can break down the cellulose into sugars and microorganisms that eat the sugars. The search is leading scientists to explore the dung of elephants and the guts of cows. Genetic engineers are also modifying the bugs they find to do the job more efficiently.

To help prove that these problems can be overcome on a commercial scale, the Energy Department is staging a competition for its backing to build the nation’s first three plants. The department, which has $160 million to spend on the contest, is requiring each candidate to have a pilot plant showing a process that can be successful once it is scaled up.

At least 30 companies are in the running for the aid, industry officials say. One player with big backers is Iogen Corp., a privately held Ottawa-based biotech company that has patented enzymes that can extract the sugars from wheat and barley straw. It has proposed building a commercial plant in southeastern Idaho, where it already has contracts with farmers to deliver the raw materials.

Iogen is teaming up with Royal Dutch Shell and Goldman Sachs, the Wall Street investment banking firm. Jeff Passmore, executive vice president of Iogen, says that operations at its Ottawa-based pilot plant indicate that a larger, commercial plant will be capable of producing cellulosic ethanol at a starting price of $1.35 a gallon. That would be far cheaper than current gasoline prices, although it is still more expensive than the ethanol from a modern corn-ethanol plant, which the Energy Department figures at about $1 a gallon.

ADM, already the nation’s biggest maker of ethanol, is using some federal funds to figure out how to convert more of the corn kernel into ethanol. While much of the kernel is readily convertible to sugar, the hull contains fiber that the Decatur, Ill., grain-processing giant’s ethanol-making microorganisms can’t use. Figuring out how to convert the fiber into more sugar could increase the output of an existing corn-ethanol plant by 15%.

ADM executives want government help to build a plant that could cost between $50 million and $100 million. Thomas P. Binder, president of the ADM research division, says the company has one leg up on others trying to crack the cellulosic ethanol code: ADM wouldn’t have to figure out how to collect a new source of biomass but merely use the existing infrastructure for gathering corn.

A third contender to watch is Abengoa Bioenergy, a U.S. subsidiary of Abengoa S.A., a Spanish conglomerate that is the leading ethanol producer in Europe. Late this year Abengoa will open a large demonstration facility that makes ethanol out of wheat straw in Spain. It will also seek U.S. federal financing to build its first commercial-size plant somewhere in the Midwest.

According to Gerson Santos-Leon, director of research for the subsidiary, it will be a “hybrid” plant capable of producing 15 million gallons a year of ethanol out of wheat straw and corn stalks, and another 85 million gallons from corn. Cargill Inc., one of the largest corn-derived ethanol producers in the U.S., has licensed to Abengoa a microorganism it discovered.

Meanwhile DuPont, the chemical giant, is figuring out how to construct a biorefinery fueled by corn stover — the stalk and leaves that are left in the field after farmers harvest their crop. The company’s goal is to make ethanol from cellulose as cheaply as from corn kernels by 2009. If it works, the technology could double the amount of ethanol produced by a field of corn.

Four-Year Research Effort

The technology grew out of a four-year-long research project in which the Energy Department and DuPont have each invested $19 million. The group working with DuPont includes Moline, Ill., farm-equipment maker Deere & Co. and Diversa Corp., a San Diego enzyme provider. The pilot plant envisioned by DuPont executives would cost roughly $50 million to construct and go into operation by 2010.
 
The energy bill passed last year mandates the first use of cellulosic ethanol, 250 million gallons by 2013, and allows federal loan guarantees for new cellulosic biorefineries. Congressional committees are considering additional incentives, and President Bush has made the effort the centerpiece of his energy strategy.

Until now, corn growers have jealously guarded subsidies for the corn-to-ethanol industry, which last year consumed 14.4% of their crop. Advocates for going beyond corn were overshadowed by the political punch of the corn lobby.

But the arrival of $3-a-gallon gasoline has helped persuade Washington, and many of the farmers who own shares in ethanol plants, that the industry is outgrowing the corn crop. Already demand for ethanol — now used both to stretch gasoline supplies and as an oxygen-rich additive to make fuel burn more cleanly — is so strong that many of the nation’s 101 corn-ethanol plants are generating 35% returns. That is helping fuel a building boom that could double the size of the industry by 2008.

One downside: The boom is pushing up the price of corn. Agriculture Department economists expect the value of this year’s corn crop to climb roughly 20% over last year, lifting the soft-drink industry’s tab for corn sweetener, as well as the cost of fattening cattle, hogs and chickens. Largely due to ethanol, futures traders at the Chicago Board of Trade are bidding the price of the 2007 corn crop above the $3 a bushel level. Farmers in central Illinois are being paid a little more than $2 a bushel now. “We’re seeing a demand shock in corn markets,” says Michael J. Swanson, an economist at Wells Fargo & Co.

As a result, the Renewable Fuels Association, the group that lobbies for the ethanol industry, is now helping to build a political coalition for cellulosic ethanol. Beyond farm groups and agribusiness — the traditional allies for corn-based ethanol — some strange bedfellows are coming together: environmental groups, biotechnology firms, some major oil companies, chemical giants, auto makers, defense hawks and venture capitalists.

They’re pushing the White House and both parties on Capitol Hill to create new subsidies and mandates to promote cellulosic ethanol. “This is on everybody’s radar screen,” says Agriculture Secretary Mike Johanns.

The cellulosic lobby scored its biggest victory when President Bush, decrying America’s oil addiction in the January State of the Union address, set a goal of making the fuel competitive within six years. President Bush’s 2007 budget earmarked $150 million for the research effort — more than double the 2006 budget. “The tenor in this town has shifted from whether or not this makes sense to how fast you can produce it,” says Bob Dinneen, president of the Renewable Fuels Association.

Shouldering the Cost

Taxpayers and consumers are already shouldering part of the cost. Each gallon of ethanol sold is subsidized by a 51-cent federal tax credit that, along with state incentive programs, costs the nation over $2 billion a year.

Moreover, according to the Energy Department, ethanol contains 30% less energy than gasoline. That means filling up the family car with an ethanol blend hurts gasoline mileage. Among the 30-odd bills with further subsidies for ethanol pending in Congress, several require auto makers to build more cars that can burn the 85% blend, rather than the 10% blend that is mainly sold today.

Ultimately, though, science is more important than politics in this quest. In general, ethanol is the same thing as grain alcohol, a beverage that has been fermented and distilled from the sugars in kernels of corn, wheat, rye and barley for centuries. To make cellulosic ethanol, scientists are going after the sugar that is locked away in the stalk and leaves of the plants in the form of cellulose, the basic building block of plants.

Government laboratories and companies have long been involved in the struggle to do this, beginning in the 1950s when Elwyn T. Reese, an Army microbiologist, was investigating “jungle rot,” a strange fungus that ate the uniforms, boots and tents of U.S. troops fighting in Guadalcanal in World War II.

Fascinated by a Fungus

The Army wanted Dr. Reese to find ways to kill the fungus, but he became fascinated with a family of enzymes that allowed the fungus to break down substances with tough cellular structures and feed on the sugar from them.

Michael A. Pacheco, director of ethanol research at the Energy Department’s National Renewable Energy Laboratory, estimates the U.S. has spent more than $1 billion on cellulosic research since the 1980s, some of it focused on ways to make the enzymes that Dr. Reese discovered more effective.

“The costs of enzymes were outrageous,” he explains. But over the past five years researchers have dropped the cost of enzymes for making a gallon of cellulosic ethanol to less than 50 cents from $6, making it possible now to think of building large commercial plants. There is a lot of room for companies to experiment here, says Dr. Pacheco. “You can wind up using two dozen different enzymes in the cocktail that works for you,” he explains.

He said DOE and company researchers are also exploring ways to make ethanol easier to use for the oil companies. Currently ethanol-blended fuels can’t be shipped by pipelines because they mix with water and become diluted as they move through the pipes. So for now, all ethanol must be moved by trucks or trains and blended close to where it’s sold.

But there is also more basic work that needs to be done, he warns. The sugars released by the new enzymes are different from those squeezed from corn and much tougher to ferment.

Advocates for cellulosic ethanol say the task is so daunting that massive government help is needed. Michigan State Prof. Bruce Dale, a leading authority on cellulosic ethanol, argues that the government needs to spend $2 billion in the next few years. Corporate executives want a federal effort akin to the space program. “We need something galvanizing,” says Mr. Connelly, the DuPont chief scientist.

Even though DuPont has deep pockets for experimental work, spending $1.3 billion annually on research and development, company executives say the difficulty of turning biomass into fuel makes it such a risky venture that they probably wouldn’t attempt it without government backing. “It’s so challenging that cellulosic ethanol wouldn’t have made the cut,” says John Ranieri, a DuPont vice president.

DuPont’s big breakthrough so far is genetically modifying an ethanol-producing bacterium — Zymomonas mobilis — so that it is good at eating both the glucose sugar found in the corn kernel and the xylose sugar locked away in cellulose, a crystalline structure that is hard to break apart. Scientists say the trick is akin to getting someone to eat their salad when given the choice of cheesecake.

Ultimately, high oil prices may be the best thing cellulosic ethanol has going for it. “If the price of oil stays at $50 a barrel and above, all of these things will happen,” predicts Mr. Santos-Leon, director of research for Abengoa’s subsidiary. Below that, he warns, it’s still possible to have the “legs pulled off” the nascent industry.

Write to John J. Fialka at john.fialka@wsj.com3 and Scott Kilman at scott.kilman@wsj.com4

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