Author: Jerome a Paris

Below is another piece written by DeAnander over at Moon of Alabama. It’s a small piece of fictitious (for the time being) news which encapsulates well where the “marketistas” will take us if we let them.

By DeAnander

As you  can see, I am on holiday and enjoying the Atlantic beaches in the spring, keeping myself busy building sand castles and trying to get them to resist the onslaught of the rising tide.

I love building sand castles; I did that as a kid, and now as a father I have a great excuse to have a go at it again. It’s utterly pointless, it’s tiring and it’s not even always successful. And yet it usually brings about a peaceful kind of satisfaction, of fulfillment that makes it all worthwhile.

As I’ve been cut off from the internets most of the time in the past few days, I’ve been thinking about politics, and about what I’ve been doing here and on dKos, and what we are all doing, and while I was fighting the tide it felt that it was not so different from what we are all doing on the internets.
When I think about it, a lot about life is pointless. You grow up, do stuff, work, possibly have a family and kids, and die, without changing the world around you in any noticeable way other than a more or less wide circle around you. We do it because we’re there. But this is a bit like the sand castles, isnt it? That’s the whole point. You do it because you’re there, and while you’re at it you do your best, even if you know that it will eventually be run over by the tide. Precisely because it is fleeting, the effort and the heart you put into it as just as important, if not more, than what you build. Same with your life: you try to live it as well as you can, behaving throughout in the way that you think if the most appropriate. If you have any perspective, you may decide that how you do things is more important than the result, which will be meaningless in the end.

Taking the image a notch down, you get to the level of our current political situation, where I think we all feel that we are fighting against a rising tide of seemingly unstoppable right wing assertiveness and arrogance, capturing power, defacing language, polluting many supposedly neutral institutions, and generally showing little respect for those that do not think like them. That’s where my sand castle came in initially in my thoughts – we are an island or resistance, fragile, always in danger of being overwhelmed, and yet also, precisely, a symbol of resistance, of not giving up, of making a stand. And it is also a sign of hope: after all, sand is available, all is takes is enough effort to build it high enough to withstand the force of the waves, and to start again and again as the walls are being sapped, to reinforce the weakest parts, to focus on the most urgent when required but take the time to build stronger foundations when the threat is more remote, to build new front lines that protect your main asset by moving the fight elsewhere.

Writing on blogs in general and here in particular is a bit like that. It’s a small effort against a relentless adversary, it’s probably not going to have any long term effect (although a place like dKos is probably already in the jetty business and no longer just in the sand castle business…) but it offers us many important things:

• the ability to make a stand, to identify oneself clearly with a set of values and policy choices (in the immortal words of Bridget Jones: “we stand for the principle of sharing, kindness, gays, single mothers and Nelson Mandela as opposed to braying bossy men having affairs with everyone shag-shag-shag left, right and center and going to the Ritz in Paris then telling off all the presenters in the Today programme”);
• the provision of ammunition (shovels and buckets) to fight our fights – information, a lot of information, to argument, to act or simply to feel more confident in theessential rightness of our opinions;
• the feeling of community, that we are not alone in that fight, that many energies are focused on the same goal and that their strength – our strength –  could very well be enough and that we will be able to outlast the tide.

Because that’s also the lesson here: the tide will go back out. The only thing that matters is – will we still be around when it goes out, and will the flag on out castle still be there to be raised? Will we have sold out? Will we have been utterly defeated? Or will the sand walls have withstood the onslaught?

—

I remember growing up, learning the history of my country (France) during this century, and wondering often: what would I have done during WWII? Would I have been brave enough to be in the Resistance? Or would I have been opportunistic and risen in the Collaboration Vichy administration? Or would I have been in the majority, all the people that remained silent, did not choose sides and waited for the fight to play itself out? I have been very grateful, for many years, that there have been no wars or no conflicts in my country that would have pushed me to make such a choice. I did my military service, but did not have to face real combat. I respect men (and women) who serve in the army to protect us, risking their lifes for us, but I hate their job which is to kill and destroy and I grieve the fact that we still have not managed to make peace without them.

I loathe violence and selfishness but see these as part and parcel of human nature; they are not to be fought as such, but to be channelled into innocuous, harmless or even productive uses, and that’s what institutions do. Institutions are essentially sets of rules that we all decide to believe in, and which are then formalised into laws and administrations and big buildings, but at the core they are that – rules that we all believe in ,and that thus become true because we all follow them. Such institutionalised rules are extremely strong and self-sustaning, as deviant behavior is not tolerated, but they are also very difficult to bring about, as you need everybody to accept them and to believe that everybody else accepts them.

We are again lucky to have been born at a time, and in countries, where we have pretty good institutions, based on the rule of law, a strong State with mostly honest civil servants able to makes rules and to enforce them and to control the monopoly of force in legitimate ways. We also sense that the situation is fragile today, that these institutions are under unprecedented attack, and that we have to choose sides to protect our institutions. This is not a fight of left against right, although most of the left is on our side; it is a fight against fundamentalism, obscurantism and the simplistic “might is right” which has been the default option for mankind since its inception. It is résistance vs collaboration; it is action vs the easy slope of silence and low expectations. At least today I know what side I will be on with all my strength.

This is also why this is not just a domestic US fight, as the perverted values of the current US administration and its fundamentalist friends threaten not only US democracy but also peace and stability in many parts of the world, either directly as in Iraq or indirectly by fuelling resentment and the rise of fundamentalism inside Arab countries led by Western-supported corrupt dictators. I fear that I will not continue the blessed life of an European of today, with peace and prosperity, for very long, as a long fight, possibly another war, threatens to engulf us all. Hopefully this fight will remain at the political level, but it seems unlikely in view of the extreme objectives of the fundamentalists and the lack of consciousness of that threat in the population.

Sometimes it seems to me that our peoples are yearning for such strong leadership. We are dominated by individualism and selfishness, forces for collective organisation of society, like Churches, ideologies or States, are corroded and discredited by such individualism, and the only thing that thrives in that atomised environment are mediocre politicians and numbless media/entertainement and it seems that everybody yearns for higher meaning and sense, most people not having enough discipline and personal standards to find these on their own or on this site… And opportunists rush into this flaw to try to take advantage of this situation for their benefit.We must not let them. (See lorraine’s daddy diary on this topic as well).

Thus our institutions are in danger, our freedoms are in danger, our political sand castles are in danger.

But, as I spend these few days by the sea reflecting on all this,  I can say that I am ready to fight for these with you guys. It’s pointless in the large scheme of things, but it is essential, and it is worth it. For now, I train myself on real sand castles, and I enjoy it. Both fights keep me alive and in good spirits!

CIBC, a Canadian investment bank, has published last week a research note (pdf, 6 pages) which provides extremely strong arguments to support the opinion that oil prices will keep on rising.

The jist of it: oil supply is simply not able to follow expected demand, and thus higher prices will be required to tame that demand:

with the following price expectations:

Let’s see how strong this argument is:
The obvious questions are about how realistic the hypotheses for both demand and supply are.

On the supply side, it is actually fairly easy to predict future production, as oil projects have a lag time of (at least) a few years, so most of the oil assets that will come into production between now and 2010 are already known today. The CIBC analysts have examined all the known development projects and came up with the following newq production to come on stream:

You will note that the stright line in that graph is the expected depletion for existing production, i.e. the decrease in their production. The CIBC analysts suggest that depletion will amount to only 1.5% of current production, which appears to be conservative (for instance, it has been suggested that the Cantarell field in Mexico, the second largest producing asset in the world, could see its production drop by half in the newt few years. North Sea production is declining at an accelerating pace). Further improvements in technology and better reservoir management can be expected to slow the decline of many fields, but the CIBC numbers still seem to be very conservative.

Which means that oil production will barely grow in the next few years.

Meanwhile, demand growth has surpassed all expectations, despite the rising prices (remember, oil prices have increased by 60% in one year, and by 400% since their lows in 1999), and has been repeatedly reevaluated, as this graph shows:

Now, it is quite likely that a slowdown in world growth caused by rising oil prices or by other economic imbalances would also bring about a slowdown in such growth, but it is highly unlikely that it would stop the growth altogether, as it is part of a very long term trend, with less developped economies catching up on the West. Note that for Asia, a slowdown means 4-6% growth instead of 7-10%, so it is still growth, and significant chunks of the population in these countries are close to GDP levels where it has been shown repeatedly that car ownership (and thus fuel demand) skyrockets, and this would happen even with an economic slowdown.

Do note that the scales are very different on the two graphs. The room for catching up is stil huge. Note also how demand in the US has been creeping up in the past 20 years – and that’s demand per capita, not absolute demand, which has increased even more as population itself grows

So where does that lead us? Here’s the CIBC estimate:

Thus:

As a final note, here’s an additional graph that shows that the oil markets do NOT believe that it is only speculation that brings the oil prices up: long term future have gone up as well in an wholly unprecedented manner:

The market expects prices to remain above 50$/bbl all the way to 2010 – and the increase in price expectations for 2010 has been bigger than the price expectation for short term oil.

So get ready for durably more expensive oil. It will get expensive enough to force us to reduce our consumption, so we might as well start right away, before we are forced to.

Here’s the quote from the home page of the Lancet, one of the best known science journals (yeah, the kind of people who “believe” in evolution, what else can you expect from these libruls):

(Registration is free but currently unavailable, so I am unable to provide more detailed quotes. If anyone has access and can send me the linked documents, I’ll update the story accordingly)

Death penalty has been extensively debated. It’s often used as an argument to show how “civilised” Europe is and how the USA are not, but the fact is that a lot of people are ambivalent and can find circumstances when it would seem to be an appropriate punishment (I am not of that position, but I understand the arguments).

What is clearly unacceptable is the way it is done with a worryingly high frequency in the USA, with the following ghastly stories heard over and over again:

• the accused who do not benefit from the most basic legal defense;
• cases where elements casting strong doubts on the guilt of the accused are dismissed or ignored for no aparent reason;
• the striking racial profile of those sentenced to death, with a much higher rate of sentencing, all things being equal, for blacks;
• of course, all the high profile cases when people were found innocent after DNA tests or other similar tests were made, often long after the sentence had been passed on them.

And now this new information that the actual executions are unncessarility cruel.

Read that again:

There seems to be a form of revelling in cruel behavior amongst some portions of the American public, and this streak has also been visible in the conduct of Bushco’s foreign policy and its surprising (to most of the population of the world and to most decent people on sites like this one) popularity: “let’s nuke the bastards”, “they (the Ay-rabs) deserve what they get”, etc…

So it’s not surprising, but it is hard to reconcile with the values that are supposed to be defended by this behavior, i.e. the rule of law, the highest moral norms.

Doesn’t morality apply in the behavior towards prisoners (even if sentenced for despicable crimes) or towards the other people of the world? Are they not human and deserving of the same rights as “normal” Americans?

This topic comes up every now and then (and of course in the Michael Moore movie) and I try to shoot it down each times in a few lines, usually met with skepticism or mockery.

So here is the long version, once in for all, for future reference whenever this topic comes up.
Why it will not be built can be explained by having a detailed look at how pipelines are financed and paid for, and looking at how this applies to this project.

Just to be clear, the TAP (Trans-Afghan-Pipeline or Turmenistan-Afghanistan-Pakistan) is a proposed natural gas pipeline which would go from the gas fields of Turkmenistan to Pakistan through Afghanistan. All that follows below applies to both oil and gas pipelines, but I’ll focus on the gas case as it is what concerns us here.

A pipeline is very literally like a chain – all links must be in place for the whole chain to have any value at all. In the case of a pipeline, the links include a gas field to provide the throughput, the construction of the pipeline, the continued operation of the pipe, and a purchase of the gas on the other side.

What is essential to note is that to get any revenue from a pipeline, you need the whole chain to be in place – you cannot have two thirds of a pipeline, and you need the gas production and the gas consumption. That means that all the investments must come upfront and all the revenues will come only after all the spending has been made. As the tag price for a pipeline usually runs in billions of dollars (the typical price can be around 1-3 millions dollars per kilometer, depending on its size and the ground it covers), this means that financing such an investment is a fundamental question:

if you cannot say who is able AND willing to put 2 billion dollars on the table UPFRONT, and explain how they will get paid back, then your project will not fly.

Let me explain how this is usually done.

A pipeline is usually built by a gas producer who wants to gain access to the market or to a specific customer, by a customer needing access to gas reserves (think big customers like a power plant, a chemical factory or an aluminium producer), by a third party (usually, a specialised pipleine operator acting on behalf of the producer or the customer), or by any combination of the 3.

A gas producer wants to bring its gas to a market at the lowest cost possible. It has a good idea of how much gas he can produce and thus ship, and can determine a cost per unit of gas, which it can compare to the price it expects to sell the gas and its own cost of production. If the producer is reasonably confident to be able to sell its gas over the requisite duration (typically 15-20 years or more), it will invest in the pipeline, on a cost basis (i.e. the pipeline will effectively part of the cost of production of the gas from its perspective).

A gas purchaser is in a symetrical situation. It needs to connect to the site where gas is available (whether an individual gas field or a place where the gas grid already exists); it know how much gas it needs over the life of its industrial asset (again, 20-30 year periods are fairly standard) and the cost that this adds to the purchase price of gas over the long term.

A third party will build a pipeline if it can profit from it, as it is not involved in either gas production or consumption and cannot make a profit from the rest of the chain. It is possible to build “merchant” projects, i.e. “build it and they will come” – you build the infrasturcture and charge for its use. This is possible only in places where there is a lot of suply and a lot of demand and not enough transport capacity, which does not happen very often. In most cases, the third party is a pipeline operator acting on behalf of the gas producer or consumer, and the ownership is shared between them in various combinations (everything is possible); the only important thing in that configuration is that the pipeline is an independent entity which must make a profit.

In that situation, there are several ways to remunerate the pipeline company:

• a simple tariff, proportional to the volume of gas shipped
• a “capacity” charge: i.e. the user pays for the right to use a given fraction of the pipeline capacity, whether it actually uses this capacity or not
• or any combination of the two.

A typical situation is a capacity charge which is high enough to guarantee a minimum level of revenues (ideally, enough to pay off the initial investment on its own), and a low tariff which reflects operational costs for the use of the pipeline and provide potential profit for the pipeline operator (a minimum level of use will provide a small profit, a full utilisation will yield a nicer, but never extravagant, profit).

Another way to materialise such arrangements are “ship-or-pay” contracts, whereby there is only a tariff proportional to the volume, but with an obligation to pay it anyway, up to a certain value, even if the corresponding volume is not shipped (the shipper then getting “make up” rights – i.e. it can ship more without paying for it again if it exceeds the requisite volumes in future periods.

The essence of all these arrangements is that someone has to commit to provide a minimum level of revenues to the pipeline operations in order to pay off the initial capital investment. Such commitment is what makes a project economic and usually makes it financeable as well.

For someone to commit to paying such tariff – and remember, a pipeline usually requires 15 years of operations for the tariff to make economic sense – it has to have a pretty good certainty that (i) it will need the capacity for such a period, ((ii) it will have use for it and (iii) it will be able to afford it. Such a commitment to pay can be a major financial drain if the corresponding revenues (from selling the gas or from using it) are not there.

So we’re back to our initial questions, but with more details:

• are there enough gas reserves to fill up the pipeline capacity for the requisite 15-20 years?
• is the gas producer able to produce the requisite volume for 15 years? (has he invested enough to produce the gas?; is the production profile compatible with the transport infrastructure? are all the permits, authorisations, etc… necessary to exploit the gas fields available, and can they be expected to remain in place? do the production costs – including all taxes – make sense in view of the whole chain?)
• is the gas producer committed to delivering these volumes through ths pipeline?
• are the proposed construction costs for the pipeline realistic, and will the construction schedule be met?
• is the pipeline operator experienced and able to keep it functioning for the required duration at the required capacity?
• has the pipeline obtained all the necessary permits, licences, authorisations from all relevant authorities?
• will there be a market or a buyer to take all the gas for the requisite 15-20 years?
• are the purchasers able to pay for the gas for the period?

which can also be identified as follows:

• reserve and production risk
• producer commitment risk
• construction and operation risk
• market and price risk
• political risk
• buyers’ counterparty risk

ALL these risks must be acceptable for the project to make sense. Any major issue in any of these categories is sufficient to kill the project. Banks and investors look at it the same way, with the simple difference that, as banks’ revenues are imited at most to the interrst income, theyt alos want to limit their risk. As a result, they usually get a first dip in the revenue, after operating costs but before investor revenues.

So, what about our Afghani project? Let’s look at all the above points in turn:

– gas reserves and production

That’s clearly the strong point of such a project: Turkmenistan has massive gas reserves (the fourth in the world) and it already has significant production capacity (including inutilised capacity since the break up of the Soviet Union). So the requisite gas is there and could be produced and shipped in the required volumes.

– gas delivery commitment

Unfortunately, this is the biggest hurdle for the project: you need to trust the Turkmens to deliver their gas to the pipeline for the next 15 years. The risk is especially important as Turkmenistan is the only possible source of gas for the pipeline and their continued participation in the scheme is therefore essential. The risk is two-fold:

• the political risk is extremely high, with Turkmenistan ruled by a crazy dictator with absolute powers. He has shown that he was not necessarily rational and could change his mind very easily; if he does that about the project, there is no recourse. Being a dictator, should he fall, it is not clear that his successors would honor a commitment that he made. Over 15 years, these risks are significant.
• the second item, and more important one, is that Turkmenistan already has an available route to export its gas via the pipelines going North to Russia. These pipelines have been built a while ago (during Soviet times) and do not have to be paid for anymore. They are thus available immediately, and at a very low cost (operating costs, which are usually low for pipelines). That means that it is quite easy for the buyer of gas at the end of these pipelines (currently, the Russian monopoly Gazprom) to offer at any time a higher net price for Turkmen gas than they can get on the other side.

The fact that the Afghan pipeline would not be competitive is thus a major obstacle to its economic rationality, as it threatens the availability of the Turkmen gas volumes.

– construction and operations

This is not an dealkiller, as pipelines have been built in many difficult or harsh places, but it is clearly a challenge. Building a pipeline requires bringing massive quantities of steel (count a few hundred tons per kilometer) – and the workers to put them in place to locations out of reach of roads and other transportation modes. Afghanistan has few roads, a harsh climate, and it would thus be a complex logistical exercise. The risks are thus both high as regards the cost of construction and its time schedule. and any delay has major economic implications as interest costs run on the full amount of the initial investment and are compounded as delays mount.

– market and price risk

The proposed market for the gas to be shipped is the Pakistani market, and possibly (but after additional investments are made), the Indian market (requiring a pipeline between the two countries) or the international market (requiring the construction of a liquefaction plant on the Pakistani coast). The Pakistani market is likely to grow over the coming years, but it is a hard market to assess. In any case, the pipeline company would not want to distribute the gas itself and would thus rely on a local counterparty, in all lielihood the national gas company (Pakistan Petroleum Ltd, PPL). The project thus requires this company to commit to take the requisite volumes for the requisite period, and to pay for it over the duration – in hard currency. This is a risk that the banking market will NOT bear and that international oil & gas companies are unlikely to take themselves except if they have a natural hedge through local production, which is incompatible with a pipeline import project. Multilateral institutions like the Asian Development Bank or the World Bank might be able to do it, as well as export credit agencies (government agencies from the rich countries which subsidise exports from their countries by guaranteeing payment risk), but they usually require commercial banks to share a part of the risk in such big projects.

The recent experiences of Dabhol  (a big power plant in India) and Argentina further show that ven if the demand is there and the price (in dollar terms) is guaranteed by a public body, the commitment to pay these amounts in situations when there is a currency devaluation but no significant increase of domestic prices for gas or electricity is very weak, and investors end up being paid in worthless local currency – starkly insufficient to repay dollar debt.

– political risk

This is also a major obstacle. This is a 3-country project, and these are extremely rare. As far as I know, the BTC pipeline from Azerbaijan to Turkey via Georgia is the only recent example, and it’s taken the combined might of BP and a dozen other oil majors with 5 billion barrels of oil on their hands and no other way to bring them to the market, the full support of the US government (fighting against Russia and Iran), the presence of the World Bank, the EBRD and 6 Western government export credit agencies to pull it through – and it’s taken 10 years.

In this case, you can argue that you probably have the worst combination imaginable – a crazy dictator, a country with warring local warlords and almost no centralised government, and a highly unstable country – and you need each of them to be happy at all times for a full 15 years, not renege on ANY of their commitments, and not try at any time to get a better deal (with each being absolutely indispensable to the project). Hard to imagine, even with 15,000 US soldiers on the ground…

– counterparty risk

as all counterparties in the 3 countries are public entities, this is fairly similar here to political risk with the price risk added in Pakistan. There are no majors involved in gas production in Turkmenistan, and none in gas consumption in pakistan, so you rely in each case on the local actors. The pipeline would likely be built by a consortium including an oil major, and you could expect that part to be at least manageable, but that’s not enough.

So, you’re going to tell me, if this project is as impossible as I claim, why do we keep hearing about it? And why do we find these suspicious connections between senior political figures in Afghanistan and oil companies?

Fair questions, but with relatively simple to answer in fact.

The 3 countries would like this project to exist. Turkmenistan would like to have an alternative to Russia to sell its gas to, Afghanistan would like the transit revenues it would bring, and Pakistan does need gas and this is one of the options. A lot of people are going to tell the authorities of these countries the things they want to hear, i;e. that this project can be built in a painless way. Some institutions may have other interests (the ADB would like to show that it can do a major oil&gas project, some of the oil producers have operations in Pakistan that they may want to protect or expand, and various countries in and out of the region have various interests involved and want to support their allies and their pet projects). The question, as stated above is – who will put 2 billion dollars upfront in this project? Putting a few million to conduct feasibility studies, naming a roving ambassador that makes speeches, etc… costs nothing to an oil major or a big country, and brings various diplomatic or relationship advantages, but it does not finance or build a project.

So, please, please, do not use the Afghan pipeline as an axample of nasty oilmen conspiracies. There are enough of these going on not to focus on those that have no serious basis in reality. It just makes you lose credibility with those that know anything about the sector.

Remember, oil is a mutli-hundred-billion dollar business. Spending a few million here or there to make or keep friends and make them believe you are their friend is a small investment in the larger scheme of things. Making big announcements is a way of life for politicians and it costs oil companies to flatter them by letting them having their ways and the positive PR even if there is nothing behind the announcements.

It’s not because Halliburton does evil stuff (mostly scamming the US government by the way) that everything that any oil company does is evil or suspicious…

Please bring up your questions or suspicious quotes and I will try to answer them as best as I can.

EROEI = Energy return on energy invested

During the research for my nuclear energy post, I came across this graph:

It shows a highly favorable EROEI for nuclear plants. Of course, as it comes from the World NuclearAssociation, hardly a neutral party, I took it with a grain of salt and chose not to include it in my post.

The funny thing is that I received the following press release today:
The press release is from Vestas, the (Danish) largest manufacturer of wind turbines today (with more than a third of the world market):

Vestas provides a more detailed summary of the life cycle assessments as well as more detailed reports (see the links in that page); I’ll just steal one graph:

But the nucleocrats also provide some detailed studies, summarised in this document which regroups a number of findings which I have no way to assess but which look well-researched. The graph above summarises the main finding, i.e. that nuclear energy supposedly has a great EROEI.

So, who will help me to make sense of these numbers?

The EU has just released its new demographic projections (pdf, 4 pages)

The conclusion is simple: France and the UK are the next power couple of Europe.

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faute de combattants, as they say in France (for lack of fighters – elsewhere)…

So will they fight or will they talk?
Over the next two decades the total population of the EU25 is expected to increase by more than 13 million inhabitants, from 456.8 million on 1 January 2004 to 470.1 million on 1 January 2025. Population growth in the EU25 until 2025 will be mainly due to net migration, since total deaths in the EU25 will outnumber total births from 2010. The effect of net migration will no longer outweigh the natural decrease after 2025, when the population will start to decline gradually. The population will reach 449.8 million on 1 January 2050, that is a decrease of more than 20 million inhabitants compared to 2025. Over the whole projection period the EU25 population will decrease by 1.5%, resulting from a 0.4% increase for the EU15 and a 11.7% decrease for the ten new Member States.

This will be the first time ever that you have a peace time decline in the population of a significant polity, so it is an event with fairly unpredictable consequences.

It is usually addressed either by people who worry about the financial balance of the pensions plans, as the number of older people grows in absolute and relative terms, and by demagogues who fuel the fears about immigration.

Isn’t it time that we had a real debate about what kind of society we want? How will we care for our elders? Who will care for them? Will they even need to be cared for (as all studies show that people live older AND healthier until the last few months of their lifes)? And what kind of politics will that bring?

And as far as France and the UK are concerned, the fact that they will be the only two large countries in Europe (possibly with Turkey) with populations still growing will give them a lot more clout then the declining powers like Germany, and it is going to lead to interesting realignments of interests within the union. We’ll see, especially as I am doubtful of the population growth of the UK in virw of their recent natality rates, which have declined significantly in the past 5-10 years. We’ll see.

This is about nuclear energy, not about the US Senate…

I have been requested a few times to write about France’s nuclear energy programme. It’s a huge subject, and I have already spent too many hourse researching it, so what I will do now is provide a brief summary and a number of links that I have found for those of you that are interested in finding out more.

For the surrender-monkey-lovers amongst you, you can also go read my third installment on the French campaign for the referendum for or against the EU Consititution: EU Constitution – France Votes (III) What if it’s no?

So here we go.
Nuclear energy in France is big:

France is the second largest producer of nuclear energy after the US, with 58 reactors (104 in the USA) on 19 sites

Map of French nuclear plants (click on the “Nuclear” icon on the right)

More detailed map with the technical parameters of each nuclear plant (1 page pdf))

As this document (Nuclear Power in France – why does it work?) describes, nuclear energy was developed at a leisurely pace in the 60s and given a massive boost when the oil crisis struck. A massive programme was launched by the public authorities in 1975, which led to the wholesale replacement of fuel and coal-fired power plants by nuclear ones.

(Source for the above graph)

This was a fully centralised programme. EDF, the national electricity operator (then a monopoly) borrowed money with the sovereign guarantee of France to pay for it. It was built for the most part by French companies, but interestingly, it used a US technology (pressurised water) under license (developed by Westinghouse) because it was cheaper than the technology (using graphite) which had been developed so far in France. All 58 plants use the same technology, although the more recent reactors are more powerful than the earlier ones. All the companies involved in that effort were eventually consolidated into Areva, which is now the main industrial player in the sector and involved in the whole nuclear chain, from uranium mining to plant construction, and fuel processing and treatment:

EDF is the operator of all plants, but safety is regulated by an independent watchdog, the Autorité de Sûreté Nucléaire (website in French only, as far as I can tell). Environmentalists say (in French, again) that the watchdog cannot be considered to be independent as it is a government department and the State is the owner of EDF and strongly pro-nuclear… I am going into this debate here but provide various links below if you want to investigate further…

Thanks to the fact the all plants are identical, have been bought under a very long term plan (over 25 years) and are operated by a single entity, operating costs are quite low. The final cost of electricity per kWh also benefits from the fact that funds for the programme were borrowed using the very low rates that highly rated sovereign countries can obtain, and amortised over very long periods (initially 30 years, but the life of the older plants has been officially extended to 40 and it is likely that they will be further expansions). 5% interest rate over 40 years vs 8% over 20 years makes a huge difference, and the overall cost of electricity in France is very low. France exports electricity to all its neighbors, including the UK and Germany, and is competitive in all markets.

European Electricity prices in 2002 (click on picture for a bigger version, or on the link for the original)

Please note that, despite pretty much everything that you read in the financial press, EDF has NOT RECEIVED a centime from the French government in the past 25 years. Quite the opposite: it has regularly been “raided” by the government when there were budgetary crises (through special taxes or “dividends”), and it has also been used to fight inflation (by being forced to lower its prices regularly). It is a highly competitive electricity producer, and that’s the main reason why there are few competitors in France – it makes no sense to build new plants when you already have a massive supply of very cheap electricity.

I put out the following table in my previous diary on wind power:

Cost of production for various technologies, not taking into account externalities.

(my calculations from various sources which I’ll be happy to provide upon demand. I have modified some numbers somewhat to avoid giving out any confidential information when necessary)

The nuclear numbers come from this study made by the French Ministry of Industry (see a summary in English (pdf, 4 pages))

That table shows the importance of the interest rate hypothesis and thus the value in this industry of having a national player able to capture value on the financial markets by borrowing a lot cheaper than private operators.

On the emissions side, with nuclear making 80% of production and hydro another 10%, France’s carbon emissions are logically amongst the lowest in the industrialised world:

The other big advantage of nuclear is to avoid dependency on foreign supplies for electricity production. A good fraction of the uranium is imported, but it comes from friendly countries like Canada or Australia, as well as from some African countries with a “friendly” French presence like Niger. France thus produces 50% of its energy needs overall from domestic sources, versus 26% in 1973.

The last big topics are that of plant decommissioning and nuclear waste.

Two big reports on these topics have been published by independent bodies in recent weeks, so there is a lot of information available, unfortunately most of it is in French. The debate is quite lively here, but I have not found many references in the English speaking press. Here are the reports:

Parliament evaluation of nuclear waste management options (March 2005, in French)

Cour des Comptes report on decommissioning and nuclear waste (in French; the Cour des Comptes is the financial watchdog for all public entities, it is fiercely independent).

The summary (15 page pdf, in French) of the document of the Cour des Comptes is as follows:

• risks linked to operations are well identified
• risks linked to waste management are well identified and managed. Decisions on long term storage are pending (they are due in 2006, see next report)
• decommissioning and waste storage are well estimated and amount to about 10% of production costs. However, the absolute numbers are quite high.
• current provisions by the 3 main actors of the sector (EDF, Areva and CEA, the Commissariat à l’Energie Atomique, which runs R&D and manages some of the older reactors) amount to 71 billion euros
• full transparency is required in the accounting of these provisions and their plans of use (these should be set in stone and not be subject to short term contingencies). Only Areva fulfills this requirement at this point.

As regards the long term management of nuclear waste, a specific agency, ANDRA was created by a 1991 law, with a 15 year mission to find a long term solution  for nuclear waste. 3 axis or research were examined: (i) separation and transmutation (transforming nuclear elements into other, less noxious, elements by chemical processes and isolating the more radioactive ones from the rest) (ii) long term permanent storage of waste  in deep geological layers and (iii) temporary storage of certain elements in the expectation that they can be processed at a later stage.
All 3 are expected to be pursued, and the choice of the site for long term geological storage, that of La Bure, in Eastern France, is close to being made.

The report proposes to pursue all 3 and sets a detailed plan over the next 35 years to organise it. It provides detailed estimates of the expected cost of the whole process and proposes to create a specific fund, to be funded by the nuclear industry, to pay for it over the corresponding period.

Other reports (such as this one, Lifetime of Nuclear Power Plants and New Designs  of Reactors (in English, for once) address the question of how and when to replace the existing power plants in the long term. France has now taken the decision to build a demonstration version of the  “EPR” (European Pressurised Water Reactor), a new generation of reactor built on the same technology as the existing ones, with incremental improvements. It would be built by Areva and Siemens, and has also been ordered by Finland.

France is happy with nuclear energy and intends to continue using it on a large scale. It has workes so far because it has been run in a highly centralised way, with one operator with the full backing of the State under a very long term plan. Both the operator and the public supervisory body have a strong engineering culture with an emphasis on technical excellence and safety, and they are generally trusted, despite occasional lapses in transparency which are increasingly corrected nowadays.

The full costs of the programme appear to be mostly accounted for, and nuclear plants have provided cheap electricity to France over the past 20 years at no cost to the public purse.

If this appears too good to be true, well, maybe it is! I don’t claim full neutrality on this topic, being French, and an alumni of the same engineering school as many of the top people at EDF and Areva, but, as you may be remember, I am a big supporter of wind power and I still see a need for nuclear energy as the “base load”. Let’s be clear: it’s going to be nuclear or coal, and I will let Plan9 (from dKos) argue how much worse coal is!

That’s it for now.

To keep you busy, here are a few more links on the topic that I have found interesting, coming from both nuclear proponents and opponents (you know, fair and balanced and all that):

Nuclear energy today (OECD, 2005)
World Nuclear Association’s “Nuclear Energy made simple

LockerGnome encyclopedia on Nuclear Power

Office for Nuclear Affairs of the French Embassy in the US

EDF’s page in English on nuclear energy

Areva’s description of its industrial activities in the “nuclear cycle”

2004 Report on Nuclear Safety (114p, pdf, in French)

Breakdown of electricity production and CO2 emissions (click on the respective links for separate pop up windows.
Sortir du nucléaire (getting away from nuclear energy) the French umbrella group of most anti-nuclear associations (in French only)

Greenpeace’s “End the nuclear threat”

Eole vs Pluton, a Greenpeace campaign comparing the costs of investing in nuclear energy or wind energy in the future.

This edition of the French EU referendum diary is brought to you by the Financial Times. Like everywhere else, the news in France have been overwhelmed by popelar stories in the past week, and the debate on the EU Constitution has been muted, or at least not prominently mentioned in the media. Well, business does not close for such silly things, and thankfully the FT has provided a slew of, as always, interesting and reasonable articles, which I will quote extensively (especially as they are behind a subscription wall).

The theme of the day is – What if the French vote “No”?

Previous editions are here:

European Constitution – France votes soon. Diary II

France Votes on EU Constitution (I)

So the elite in France is increasingly worried that the populace thinks they are “selling out” to a Vast Anglo-Saxon Conspiracy, whereby Europe is, like the dreaded Americans, only interested in money and trade, is vassalised, its political power diluted in a vast magma of too many countries and not enough France, forcing France to change without any real benefit.

They are not the only ones:

I personally also doubt that there would be much of an effect on the euro. A “No” would also be seen as leading to a big loss of credibility and thus influence, of France in European affairs, which could make it easier to bring about more market-friendly reforms which France often opposes, and which would supposedly make Europe more “competitive”.

But nobody really knows, as this last article makes clear:

Nobody really knows what will happen. The worst kind of people will crow:

– in France, a coalition of trotskysts, communists, faschists and reactionaries;

– in Europe, the Euroskeptics of all kinds, especially the British ones

Blair will be happy to avoid his onw referendum on the topic, but as the rotating president of the EU for the second half of this year, he’s going to have to deal with the fallout.

Europe without France makes simply no sense, if only because France is pretty much in the middle (geographically) and will always be able to be a major nuisance to everybody else, in more ways than I can count; But with France saying no to Europe (which is how this will be interpreted, and everybody knows it), there will be a major legitimacy crisis. Will there be a concerted effort to try to provide sops to France (but which ones, as the “no” comes from so many contradictory reasons?), or will there be a general drift as the existing institutions paddle on, but with no political momentum for a while?

France already said no to Europe once, in 1954 (about the CED, the European Defense Community). This did not prevent the creation of the European Community 3 years later, but it prevented any talk of a concerted European diplomacy and military for 50 years. A new “no” to the Constitution would have the same effect to freeze all talk of a political identity for the European Union for a long while. it would continue its existence on the economics front, but would lose a lot of its soul and acrimony and national selfishness would be on the increase, thus leading to more bickering, perceptions of ineffectiveness and irrelevance, and a smaller presence on the world stage.

But like the others, I cannot imagine that France will vote “No”.

I have tried to avoid the religious threads in the past week as this was not a time to be provocative, but am I the only one to find the wall-to-wall coverage of the pope’s death and funeral to be a little bit over the top??

It’s a big story because everybody thinks it is a big story and wants to be part of a big story, thus making it a big story…

Below the fold, some extracts of two articles published in yestarday’s Guardian which provide some much needed perspective.

(With a specific nod to lorraine and her series on the body)

My position on religion is simple. Faith is an individual act which I fully respect. Churches as political institutions are extraordinarily dangerous because they bring the deathly ingredient of absolutes into human affairs, and absolute are an all-too-easy way to get to “the ends justify the means”, as the ends, being of a “magic”, or “transcendental” nature, are always superior to whatever consequences they can have in the real, imperfect world of humans.

So, I don’t care for the pope.