The State Government is to develop a strategy to help Queenslanders lessen their reliance on liquid fossil fuels as the price of oil increases and supply diminishes.

Minister for Sustainability, Climate Change and Innovation, Andrew McNamara, said the future availability of fossil fuel and alternative energy supplies is one of the main sustainability issues facing society today.

"The significance of this issue means that Queenslanders and people all around the world will need to address the increasing price and diminishing availability of oil in coming years," Mr McNamara said.

"By developing a strategy sooner rather than later, the Queensland Government can work to protect the lifestyle of Queenslanders and their need to travel, without needlessly damaging the environment.

"During the past two weeks, the head of General Motors said world oil production had already peaked, and the head of Shell Oil said the supply of easily accessible oil will be exhausted within seven years.

"These are voices the world can't afford to ignore."

Mr McNamara, who is the Australian patron of the Association for the Study of Peak Oil, completed a report on peak oil before his appointment as a Minister in September.

'Peak oil' refers to the time when global oil production declines due to natural exhaustion of the resource, which will lead to shortages and significant price increases.

The Government's decision to develop a Queensland Oil Vulnerability Mitigation Strategy and Action Plan was a key recommendation of Mr McNamara's report.

Mr McNamara said that Queensland's Oil Vulnerability Mitigation Strategy will look at a range of actions.

"The strategy will have three broad elements: reducing the consumption of liquid fossil fuels; encouraging the development and use of alternative fuels; and preparing for demographic and regional changes as Queenslanders alter travel, work and living habits in response to rising fuel prices.

"The Queensland Government is already doing related work across a range of departments, and the strategy will help to better coordinate these activities across government.

"The strategy will also look at the gaps to see what else needs to be done to ensure Queenslanders can still easily travel around the State and around their towns when required."

Mr McNamara said the strategy could also canvass what options might need to be considered in a 'worst case scenario' of severe international oil shortages.

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French oil company Total posted a 14 per cent rise in fourth-quarter underlying profits, thanks to record oil prices and a small rise in production, and predicted sector-beating growth in coming years.

The fourth-biggest western major oil company said on Wednesday adjusted net profit — which strips out one-off items and unrealised gains or losses related to changes in the value of inventories — was €3.107 ($4.53bn) in the final quarter of 2007.

This was slightly ahead of an average forecast of €3.051bn in a Reuters poll of nine analysts.

Total's shares fell 1 per cent to trade at €48.98 at 0907 GMT, outperforming a 1.5 per cent drop in the DJ Stoxx European oil and gas sector index.

For the full year, Total said adjusted net profit fell 3 per cent to €12.203bn, after a weak first half.

In dollar terms, Total's fourth-quarter underlying result rose 28 per cent, compared to a rise of 4 per cent at western Europe's largest oil company, Royal Dutch Shell and a 1 per cent drop at the second-largest, BP.

Total also outshone its rivals by predicting a significant rise in oil and gas production in 2008 and reiterating its target of increasing oil and gas production by an average 4 per cent a year between 2006 and 2010.

Shell said last month it expected output to fall in 2008 and lowered its growth targets to the end of the decade. BP expects a small rise in 2008 and growth of around 2 per cent to 2012.

NEW FIELDS

In the fourth quarter, Total's output rose 2.4 per cent to 2.461m barrels of oil equivalent per day.

The ramp-up of the Dalia and Rosa fields in Angola and the start up of the Dolphin liquefied natural gas plant in Qatar helped compensate for disruptions due to civil violence in Nigeria.

Total's full-year output rose 1.5 per cent, compared with drops at Shell, BP and industry leader Exxon Mobil.

Nonetheless, the result was well shy of the 7 per cent growth Total initially targeted for 2007.

The miss partly reflects the way higher oil prices reduce the amount of oil that companies are entitled to under production-sharing agreements with producer nations but also follows an industry trend of missed or cut output forecasts.

As usual, Total's core upstream oil and gas production division was the main profits driver, with earnings up 36 per cent in the fourth quarter compared to the last quarter of 2006.

This was boosted by crude prices which averaged around $90/barrel in the fourth quarter - a 50 per cent rise compared with the same period a year earlier.

However, a weaker dollar, higher costs and bigger exploration expenses weighed on profits.

Europe's largest refiner said strong crude processing margins in the quarter were offset by higher costs, lower throughput at its facilities and weak fuel retail margins, pushing results for the downstream unit 1 per cent lower.

Profits were also boosted by Total's sale of part of its stake in drugmaker Sanofi-Aventis.

WEAK RESERVES

Total said its reserve replacement rate — the extent to which production is matched by new finds — was 78 per cent in 2007, excluding acquisitions and divestments, highlighting a trend of shrinking asset bases at western oil companies.

Citigroup said that including the impact of Venezuela's forced acquisition of a controlling stake in the Sincor heavy oil projects, which cost Total 400m barrels of reserves, the RRR was 23 per cent.

Chevron, the smallest of the five western "Supermajors", said it had an RRR of only 10-15 per cent and analysts expect Shell to also report a low figure.

Accessing new reserves is the biggest challenge facing western oil companies.

More and more, resource holders are reserving their richest fields for their state oil companies and only invite foreign firms in to help develop the more complex fields and even then under increasingly stringent terms.

Total also announced an 11 per cent rise in full-year dividend of €2.07. One dealer said this may disappoint investors after BP lifted its dividend 31 per cent.

Total shares trade at a premium to many rivals because of investor faith in its growth prospects. Its share price to earnings ratio, using 2008 consensus estimates, is 8.98 times, compared to 8.16 times for Shell and 8.6 for Chevron, according to Reuters data.

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Venezuela on Tuesday suspended oil exports to ExxonMobil, escalating the country's fight with the US oil giant over compensation for a heavy crude project nationalised by socialist President Hugo Chavez.

PDVSA, the Venezuelan state oil company, said it had suspended commercial relations and halted the supply of crude and petroleum products to ExxonMobil, the largest US company.

"Faced with the legal-economic harassment started by ExxonMobil against PDVSA and as an act of reciprocity, PDVSA has decided to suspend commercial relations," the Venezuelan company said in a statement.

The South American country's move against ExxonMobil came after the US company won temporary court rulings freezing up to $12bn in Venezuelan assets in a fight over payment for the nationalised heavy crude project.

But PDVSA said it would not break certain contracts with Exxon, an apparent reference to the jointly owned Chalmette refinery in Louisiana.

It was not immediately clear what PDVSA would do with the excess crude that would normally go to ExxonMobil.

Venezuela's announcement pushed oil prices higher in late trading on Tuesday, after prices declined during regular activity. Oil had surged on Monday after Mr Chavez threatened to curtail oil supplies to the United States.

In 2007, Mr Chavez increased state control over several projects in the Orinoco oil belt and forced ExxonMobil and ConocoPhillips out of the country.

The left-wing president, who accuses Exxon of being a proxy for Washington, told cheering supporters on a television programme on Sunday that he would cut off all oil supplies to the United States if it continued its "economic war" on Venezuela.

Exxon, which said it could not immediately comment on the news, produced an average of 4.253m bpd in the fourth quarter on 2007.

Venezuela earlier said it was considering suing Exxon for "damages to the nation," in part because Venezuelan bond prices plummeted after the asset freeze.

Jim Ritterbusch, president of Ritterbusch & Associates oil consultants, described Venezuela's latest move as "saber-rattling."

"It is to Venezuela's interest to keep oil prices high and its response to the ExxonMobil asset freeze orders has done just that."

The Chalmette refinery in Louisiana is a joint venture between Exxon and PDVSA that was built to take crude from the Cerro Negro project that Exxon was ejected from in 2007.

In an apparent reference to refinery, PDVSA said it would respect existing contracts governing shared investments with Exxon. PDVSA said it reserved the right to break contracts whose terms so allowed.

Earlier on Tuesday, Exxon said it was interested in holding substantive talks with Venezuela to negotiate fair compensation for seizure of the project based in one of the world's largest oil deposits.

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ConocoPhillips is poised to boost its output from oil-sands projects in Alberta "dramatically" in the coming years from a current net total of 60,000 barrels a day, ConocoPhillips Canada President Kevin Meyers said today.

About half of ConocoPhillips' crude from the oil sands comes from its 9 percent stake in the Syncrude Canada Ltd. joint venture, led by the Canadian Oil Sands Trust, he said. The rest comes from its Foster Creek and Christina Lake joint ventures with EnCana Corp.

"That's going to grow dramatically over the next few years," he said of the Foster Creek and Christina Lake joint venture. Meyers spoke to reporters today after a presentation at the Cambridge Energy Research Associates meeting in Houston.

The Foster Creek and Christina Lake projects may expand to about 400,000 barrels a day, he said. EnCana, based in Calgary, is the operator of the venture in the eastern portion of the Athabasca oil sands in northeastern Alberta.

ConocoPhillips is the operator of the Surmont project, a joint venture with Paris-based Total SA at another deposit within the Athabasca region that began production last year.

"We could easily get 300,000 barrels a day out of Surmont," Meyers said, citing gross production figures.

He said Houston-based ConocoPhillips will provide more detailed forecasts for its oil sands production at a presentation to analysts.

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Translated excerpt - original article in Spanish

A high-ranking official of Mexico's Finance Ministry (SHCP) stated at a seminar organised by Price Waterhouse Coopers that the fall in oil-based national income could be much sharper than officially foreseen, and that within the next 20 years Mexico will stop being an oil country. The government therefore needs to find new ways to procure financial resources. The oil crisis seems far away, but the truth is that the government is already living this crisis, he said, referring to the reduction of production by 170kb/day during 2007, due to the decline of the Cantarel, the main oil field.

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Vulnerable regions of the world face the risk of famine over the next three years as rising energy costs spill over into a food crunch, according to US investment bank Goldman Sachs.

"We've never been at a point in commodities where we are today," said Jeff Currie, the bank's commodity chief and closely watched oil guru.

Sugar cane on a bullock cart in India - the commodity is popular as the basis of biofuel, as it is a cost-effective and cleaner alternative to oil

Global oil output has been stagnant for four years, failing to keep up with rampant demand from Asia and the Mid-East. China's imports rose 14pc last year. Biofuels from grain, oil seed and sugar are plugging the gap, but drawing away food supplies at a time when the world is adding more than 70m mouths to feed a year.

"Markets are as tight as a drum and now the US has hit the stimulus button," said Mr Currie in his 2008 outlook. "We have never seen this before when commodity prices were already at record highs. Over the next 18 to 36 months we are probably going into crisis mode across the commodity complex.

"The key is going to be agriculture. China is terrified of the current situation. It has real physical shortages," he said, referencing China still having memories of starvation in the 1960s seared in its collective mind.

While the US housing crash poses some threat to the price of metals and energy, the effect has largely occurred already. The slide in crude prices over the past month may have been caused by funds liquidating derivatives contracts to cover other demands rather than by recession fears. Goldman Sachs forecasts that oil will be priced at $105 a barrel by the end of 2008.

The current "supercycle" is a break with history because energy and food have "converged" in price and can increasingly be switched from one use to another.

Corn can be used for ethanol in cars and power plants, for plastics, as well as in baking tortillas. Natural gas can be made into fertiliser for food output. "Peak Oil" is morphing into "Peak Food".

Land use for biofuels has shot up from 12m to more than 80m hectares worldwide over six years. Biofuel provides 3pc of global energy needs, which will rise to an estimated 10.6pc by 2030.

In a pure market, sugar cane would be the only viable biofuel with a cost of $35 a barrel (oil equivalent). The others are sugar beet ($103), corn ($81), wheat ($145), rapeseed ($209), soybean ($232), cellulose ($305).

Subsidies drive the business. The US offers tax relief of $1 a gallon for biodiesel. The EU has a 10pc biofuel target by 2010.

The crop switch comes just as China and India make the leap to an animal-based diet, replicating the pattern seen in Japan and Korea, where people raised their protein intake nine-fold as they became rich. It takes 8.3 grams of soya or corn feed to produce a 1g weight gain in cattle - compared with 3.1g for pigs, 2g for chicken and 1.5g for fish.

Mr Currie said investment cycles in energy typically last about 10 to 12 years as producers struggle to catch up with demand. However, this cycle has been short-circuited by politicians after barely six years.

"The political environment is extremely hostile. The world is looking like the 17th century under mercantilism when countries saw economics as a zero-sum game. They exported as much as they could to get gold, and erected enormous barriers. China looks like that, so does Russia, the Mid-East and most of Africa and Latin America," he said.

While the West has much of the skill for developing energy projects, it is blocked by nationalist petro-states from investing directly.

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The International Energy Agency (IEA) has cut its forecast for global oil demand, due to slowing economies.

The IEA, which advises wealthy countries on energy policy, reduced its estimate for demand this year by 200,000 barrels per day.

It said an economic slowdown in the US, the world's biggest oil user, would take pressure off the market.

In a separate report, the US Energy Information Agency said US crude stocks rose last week, but less than forecast.

Oil prices have fallen 7% since hitting a record in early January.

The IEA thinks there is a chance of a prolonged weakness in the oil market.

"Just as the demand shock of 2004 shaped the oil market for the next three years, so too could the pending slowdown," the agency said.

The IEA report said the market can expect support from China where demand is forecast to jump 5.8% this year.

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Russia and Ukraine have reached an 11th hour deal in a row over gas debts during summit level talks in the Kremlin today, minutes before Moscow was due to carry out its threat to cut supplies.

The row between the two former Soviet states had sent jitters through customers in Europe, who feared it could escalate into a repeat of early 2006, when a pricing dispute between Moscow and Kiev disrupted shipments to the EU.

"We have agreed that Ukraine will on Thursday start repaying the debt which was amassed in November-December of last year because supply contracts had not been signed by the structures involved," Ukrainian President Yushchenko told a news conference.

"Gazprom is satisfied with proposals made by the Ukrainian side," Vladimir Putin, the Russian President, told the same news conference.

Russian gas export monopoly Gazprom, which provides a quarter of Europe's gas, had threatened to cut 25 percent of its supplies to Ukraine at 1500 GMT if there was no deal on the debt, which Russia put at $1.5 billion. Kiev put the figure at just over $1 billion.

Most Russian gas exports pass across Ukrainian territory but both countries have assured Europe that westward gas flows will not be interrupted.

Many analysts had predicted Russia and Ukraine would clinch the deal, since Mr Putin wanted to show support for Mr Yushchenko at a time when he is locking horns with Ukraine's new prime minister, Yulia Tymoshenko, who is more openly critical of Moscow.

Both presidents looked exhausted and pale after talks which lasted for four hours.

Mr Putin, concerned about Ukraine's ambitions to join NATO, warned Kiev that Russia could be forced to redirect its missiles towards its former Soviet neighbour if it joined the Western military alliance and deployed a U.S. missile defence shield.

Gazprom insisted the dispute with Ukraine was a purely commercial one over unpaid bills, but it is likely to revive criticism that Russia is using its energy clout to exert political pressure on its neighbours.

The row blew up less than two months after Ms Tymoshenko returned to the prime minister's job after winning a parliamentary election, replacing Viktor Yanukovich, who had warmer relations with Moscow.

Ms Tymoshenko, who clashed with Russia over gas during her earlier stint in office, now blames Russian-imposed gas middlemen for racking up the debt.

She has demanded Moscow axe some of the intermediaries immediately, a move previously opposed by Yushchenko.

"We are all interested in making our cooperation as transparent as possible," said Mr Putin.

"We have also agreed that (Ukrainian state energy firm) Naftogaz and Gazprom form a working group, which should in the nearest future come up with a proposal on simpler and more transparent relationship...," said Mr Yushchenko.

Naftogaz's head Oleg Dubyna told reporters the two state firms would switch to a new scheme from 2009.

Mr Yushchenko said Russia had pledged to stick to the agreed price of $179.5 per 1,000 cubic metres despite earlier demands by Moscow for Kiev to pay over $300 for supplies in January.

The gas Russia supplies to Ukraine is a mixture of fuel from Russian fields and cheaper Central Asian gas, which flows through Gazprom's pipeline network.

The markets in Moscow closed before the deal was announced.

The shares of Gazprom, Russia's largest firm by market value, closed 3.6 percent up, in line with the broader market.

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BP and Rosneft have begun an indefinite "lull" in drilling off Sakhalin island, BP said on Tuesday as it admitted the exploration programme in the region "hasn't been the huge success that some thought it might be".

Elvary Neftegaz, the joint venture owned 51 per cent by Rosneft and 49 per cent by BP which is exploring the Sakhalin area off far east Russia, plans to drill no more wells this year.

Instead, its efforts will focus on gathering and evaluating seismic and other data. BP would not say whether or when the drilling programme might resume. Six wells have been drilled in the area so far, three of which led to discoveries.

Andy Inglis, BP's chief executive of exploration and production, said last week: "Sakhalin is frontier exploration. We had early success in the Kaigansky­-Vasuykansky licence. In 2007, we did not have continuing success as we moved into the Shmidt area. We are continuing with the exploration programme with more seismic [data]."

BP, Europe's second-biggest oil and gas group, is also cutting back its support office on the island. Support for BP's side of the Elvary joint venture will now be provided from Moscow, which will be staffed up, with functions transferring from Houston, Texas.

Sakhalin has been considered one of BP's more promising opportunities. In November 2006, it agreed a deal with Rosneft to expand the joint venture, and said the two companies would invest $700m in the area.

At that time, the cost of exploration was running at about $50m per well, and costs in the industry have since continued to rise sharply.

Steven Dashevsky, a managing director of Unicredit Aton in Moscow, said the Sakhalin 4 and 5 areas where BP has been active remained interesting for the long term.

However, he said they were "not assets for the next four or five years, but maybe in 10 years' time".

He pointed out that both BP and Rosneft were busy with other developments. For BP, the immediate issue is the sale by its TNK-BP joint venture of a controlling stake in the vast Kovykta gas field to Gazprom. That deal is expected to be concluded by the end of March.

BP, TNK-BP and Gazprom are also working on plans for further three-way co-operation inside and outside Russia.

However, last week Tony Hayward, BP's chief executive, said that reaching agreement was "complicated", and suggested the negotiations could go beyond the end of July, the target date for a deal.

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It's a snip. For about four million quid — not much more than you'd pay for a broom cupboard in Hampstead or a couple of sessions with a private dentist — you can acquire 56 acres of land in some of Britain's most glorious countryside. Plus one of the most evocative names in our industrial history. Oh, and 2.5 million tonnes of top-quality coal, worth about £400 million at today's prices.

Of course, there is a minor complication. The coal is buried rather inconveniently a long way underground. Even so, the lucky people who snap up the disused but still potentially usable Whittle Colliery in Northumberland when it comes up for auction, probably next week, will have acquired the bargain of the century. Won't they?

If I say I hope so, you will dismiss me as a dreamer. Not true. My mother's family lived around the coalfields of South Yorkshire — in communities all but destroyed, economically and spiritually, by the 20 pit closures and 20,000 redundancies imposed in 1984 by Thatcher's Government. Some of my great-uncles died from coal-dust in their lungs. Some of their friends were among the 100,000 miners killed in pit accidents in the century before 1984. I have no illusions about the hellish nature of mining, at least in the bad old days.

Yet you won't find many veterans of the pits who don't have intensely mixed emotions about the demise of the deep mines. The comradeship was legendary. The work brought a sense of purpose and self-worth to regions that otherwise might have had little of either. And what's happened since to those communities has often been shameful. Fancy regeneration schemes — all mouth and no trousers, as my granny would have said — have delivered neither jobs nor prospects nor pride. Many former pit villages, especially in the North East of England, are riddled with long-term unemployment, endemic drug-dependency, and a pervading desolation. The pit disasters of the old days were terrible tragedies. But as many lives are now being crushed by hopelessness.

Seen in that context, the closure of the pits was arguably the most inhumane catastrophe that any British government has inflicted on British people. But was it necessary, as hard-nosed economists argued then, and still argue now? The extraordinary saga of pluck and resolve that came to an end last month in Hirwaun, South Wales, suggests that the answer may always have been no. Thirteen years ago the Tower Colliery was written off as uneconomic. The workforce and the local community begged to differ. They were ignored. The pit seemed doomed.

Then strange things started to happen. First the feisty local MP, Ann Clywd, went down the mine and refused to emerge until Government and pit-owners changed their minds. After 27 hours without food or drink, she won a reprieve. Then, inspired by a charismatic local socialist firebrand, Tyrone

O'Sullivan, 239 of the laid-off miners each put £8,000 of their redundancy money into a bid to buy the pit and keep it open. As O'Sullivan put it: "We were ordinary men, we wanted jobs, we bought a colliery."

This act of faith — led by a man who had lost his own father in a pit accident — struck a chord round the world. Donations flooded in. The pit did remain open. It kept 400 miners in work, and supplied a further £300 million worth of coal. Only when every last seam of the black stuff was exhausted, on January 24 this year, was Tower finally closed. "We have got to the end with pride and dignity intact," one miner told reporters. An eminent Welsh composer, Alun Hoddinott, has already turned the story into an opera, and there's talk of a movie — perhaps with Brad Pitt living up to his name in a leading role. I hope it happens. It's an inspirational tale of what a stricken community can do to help itself.

Might the same thing now happen at Whittle? God knows, northeast England could use an economic miracle in the wake of the "Northern Wreck" debacle. Unfortunately, the odds are stacked against anyone wanting to reopen Whittle for mining. It's deep, whereas the modern trend is for open-cast mining (even though the latter is more destructive of the landscape). It hasn't been used since 1997, so its tunnels and shafts may be compressed. And the local authority would much rather see it developed into something green and pleasant, such as a landscaped holiday-chalet complex.

Then there's the knotty question of employee insurance. We live in such a cotton-wool age now. If firefighters can't retrieve carnival bunting from lampposts without contravening health and safety laws, who will risk insuring men digging out coal hundreds of feet below ground?

Yet the world has changed in another way too. From China to the US, coal is in demand as never before — particularly since converting coal to petrol becomes more and more attractive as the oil price goes stratospheric. (South Africa already uses coal to supply 30 per cent of its petrol needs.) Far from being exhausted, Britain's coal seams are 85 per cent intact, and new techniques make mining far safer and more eco-friendly. It's perverse to ignore this huge asset just because, 25 years ago, Mrs Thatcher decreed that we should. Especially if we put ourselves even more at the mercy of dodgy oligarchs in Russia and the Middle East.

Reopening mines may strike some fastidious souls in the plush South East as a ludicrous 19th-century answer to 21st-century Britain's needs. They feel we should be above that sort of thing — whizzing along the high-tech superhighway, keeping our fingernails clean in service industries and leaving the dirty stuff to the Third World. The trouble is that in some abandoned regions of Britain the high-tech revolution hasn't happened. Yet people need jobs and a sense of pride as much there as anywhere else. Old King Coal, prematurely dethroned a generation ago, could yet provide both.

Fancy a dip? That'll be £214m, please

If you can buy a giant colliery for £4 million, how much would you be prepared to pay for a swimming pool? After all, it's just a big hole in the ground filled with water. £5 million? £10 million? OK, let's go for diamond-studded plug'oles and say £50 million.

Dream on. For the 2012 Olympics, London is about to build a swimming pool that will cost £214 million. Or £254 million. Or £280 million. It depends on whom you ask. All I know is that the original budget was £75 million. Just to put the astounding new figure in context, £214 million would pay the wages of 1,000 ambulance drivers for ten years.

Pardon me for raising an embarrassing matter, but isn't this the same swimming pool that Tessa Jowell, the Olympics Minister, sent back to the drawing board two years ago, because the cost had then spiralled to £150 million? Perhaps she forgot to tell the designers that the idea was to make it cheaper. Or perhaps the truth is that the Government is being held to ransom by an army of architects, consultants and builders who know that they can sting British taxpayers for billions in extra costs, because time is running out to get the wretched stadiums built for 2012.

What a nightmare! Can't the swimmers use the Serpentine? That would be more in the spirit of the original Olympic Games.

A law to themselves

The Archbishop of Canterbury's suggestion that certain elements of Islamic law be incorporated into the British legal system has surprised nobody more than faithful members of his own Church of England. Here in the Edmonton area of the Diocese of London — a vast enclave of more than 100 North London parishes, in which not a single woman priest has yet been appointed as a vicar — many worshippers had the impression that a Sharia regime was already in force.

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WASHINGTON — Stymied in their plans to build coal-burning power plants, American utilities are turning to natural gas to meet expected growth in demand, risking a new upward spiral in the price of that fuel.

Utility executives say they have little choice. With opposition to coal plants rising across the country — including a statement by three investment banks Monday saying they are wary of financing new ones — the executives see plants fired by natural gas as the only kind that can be constructed quickly and can supply reliable power day and night.

But North American supplies of natural gas will be flat or declining in coming years, according to the Energy Information Administration. The United States already has high natural gas prices, a problem for homeowners and many industries, like chemical and fertilizer producers. Some experts fear a boom in gas demand for electricity generation will send prices even higher.

It has happened before: The price of natural gas tripled in the late 1990s and early in this decade, partly because so many companies built generators to use the fuel. In some places, the power plants became white elephants as higher gas prices made them too expensive to operate, compared with coal plants.

Now, with many coal plants being canceled and demand for electricity rising by 2 percent or so a year, the prospect is that utilities will be forced to build and use a new generation of gas-fired plants regardless of the operating cost — and consumers will bear the burden of higher electricity rates.

"Coal has been removed in many places as an option," said Art Holland, a vice president of Pace Global Energy Services, a consulting firm in Washington that advises utilities. New nuclear plants are on the drawing board but will take at least a decade. Sun and wind power, though growing, remain a small part of the nation's electricity mix, and they provide only intermittent power.

"We're having by default to fall back on gas, as though we learned no lesson from the gas-fired boom," Mr. Holland said.

A wave of public opposition to coal-burning plants, motivated partly by broad fears about global warming and partly by local aesthetic concerns, is making their construction more difficult. On Monday, Wall Street weighed in: Three big investment banks announced that in deciding whether to make loans for new coal plants, they would calculate the projects' financial viability, taking into account potential future charges for carbon dioxide emissions.

Citigroup, JPMorgan Chase and Morgan Stanley said they had negotiated this policy with seven major utility companies, most of them major coal burners, and two advocacy groups, the Natural Resources Defense Council and Environmental Defense. The policy will not automatically block financing for coal-burning plants, but the banks are expected to query utilities closely about the potential costs before agreeing to finance such plants.

Power generated with natural gas is already sold at a premium. In Florida, for example, where five coal projects have been derailed in the last year, Barry Moline, the executive director of the Florida Municipal Electric Association, looks at Tallahassee's municipal utility as an indicator of the future.

It is nearly 100 percent gas fired, he said, while Gulf Power, to the west, is 70 percent coal. Tallahassee's electricity rates are about 40 percent higher than Gulf Power's.

Companies that have canceled coal plants have two immediate options other than building gas plants. They can work to hold down customer demand, though most would have to do so on a far more ambitious scale than before. Or they can wait to see what happens.

Experts say electricity shortages are a distinct possibility in coming years.

"There's going to be a lot of white knuckles, frankly, as building does not go forward aggressively on any kind of plant, and demand keeps going up," said Ernest J. Moniz, a physics professor at the Massachusetts Institute of Technology and a former under secretary of the Department of Energy.

Government statistics lag too much to have captured the shift toward gas-fired power plants, but anecdotal evidence abounds. Tampa Electric in Florida, Pacificorp in Wyoming and Utah and Southwestern Power Group in Arizona are among the companies planning or studying gas-fired plants.

Coal companies, while acknowledging some high-profile plant cancellations, say they expect continued growth in coal-fired generating capacity, albeit at a more moderate rate. Pace, the consulting firm, recently cut by a third its projection for new coal-fired generating capacity from now to 2025, while doubling its estimate of the amount of gas-fired capacity likely to be built.

"Prior to 2007 there was a buildup, and a momentum for people planning to go in the direction of pulverized coal-fired plants, and during '07 there was definitely a downturn," said Ronald J. Ott, the director of coal plant construction at Black & Veatch, an engineering and construction company specializing in electricity projects. Amid concern about coal emissions linked to global warming, he said, his company's clients have tripled the number of natural gas projects under discussion.

Barry K. Worthington, executive director of the United States Energy Association, a trade group in Washington, said that some coal plants may have been canceled because of fear of carbon dioxide emissions or fear of future carbon taxes, but another factor was a rapid rise in construction costs for power plants.

"The cost of everything has just skyrocketed," he said. Natural gas plants have less steel and concrete than coal plants and require less labor to build.

Florida Power and Light is a good example of the shift. The company has 4.5 million customers; it is adding about 85,000 a year, and demand from existing customers is rising. Last June, the Florida Public Service Commission killed the company's plan for a big coal-fired plant near Everglades National Park that would have come into service in 2013 or 2014.

The utility began looking immediately at two sites for solar power and at other renewable options, but could come up with enough of those to replace only a fraction of the power it would have generated at the coal plant. So the company decided to accelerate construction on a long-planned addition to an existing gas plant.

Gas may appear to make sense for individual utilities, said Revis James, the director of the Energy Technology Assessment Center at the Electric Power Research Institute, a utility consortium. The problem will come if many utilities pile into gas-fired electricity generation at once, he said, driving up demand, and prices.

Environmental groups argue that utilities should focus on cutting demand for power, rather than build new capacity.

Meanwhile, some utilities have decided to wait for a clear global-warming policy to emerge from Washington.

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So there was much enthusiasm five years ago when the Bush administration said it would pursue "one of the boldest steps our nation has taken toward a pollution-free energy future" by building a commercial-scale coal-fire plant that would emit no carbon dioxide — the greenhouse gas that makes those plants major contributors to global warming.

That bold step forward stumbled last week. With the budget of the so-called FutureGen project having nearly doubled, to $1.8 billion, and the government responsible for more than 70 percent of the eventual bill, the administration completely revamped the project.

The Energy Department said it would pay for the gas-capturing technology, but industry would have to build and pay for the commercial plants that use the technology. Plans for the experimental plant were scratched.

Top Energy Department officials said the change would save taxpayers money, generate more electricity and capture more than twice as much carbon dioxide.

But independent energy experts largely criticized the move, saying it would require two to four more years for new designs, plans and approvals, let alone budget tussles and eventual construction.

The idea is to capture carbon dioxide emitted by coal-fire power plants and then pump it deep into the earth to avoid further buildup of the gas in the atmosphere. But several experts said the plan still lacked the scope to test various gas-separation technologies, coal varieties, and — most important — whether varied geological conditions can permanently hold carbon dioxide.

Coal companies are desperate for this option to work, given how much coal remains to be mined. Many climate scientists and environmental campaigners see it as vital. Steady growth in coal use by developing and industrialized countries is expected to extend well beyond 2030.

David G. Hawkins, an energy analyst at the Natural Resources Defense Council, said the new approach would have been a good move four years ago. "But to tout FutureGen for five years and then in the president's last year pull the plug is just bait and switch," he said.

Many experts say that neither the original plan nor the revamped effort, nor the few projects underway in other countries, are sufficient to set the stage for pumping tens of billions of tons of compressed carbon dioxide into the earth or sea bed starting 10 or 20 years from now.

Vaclav Smil, an energy expert at the University of Manitoba, has estimated that capturing and burying just 10 percent of the carbon dioxide emitted over a year from coal-fire plants at current rates would require moving volumes of compressed carbon dioxide greater than the total annual flow of oil worldwide — a massive undertaking requiring decades and trillions of dollars. "Beware of the scale," he stressed.

Ernest J. Moniz, under secretary of energy in the Clinton administration and an author of a report by M.I.T. on the future of coal, said that the new approach, while sensible in terms of financing, could still be far too little, too late.

"If we want sequestration of carbon dioxide at large scale to be a material player in climate in this half-century, it means starting now with these plants," he said.

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Jim Hansen has long been a thorn in the side of the White House. Now he has a stark warning for Britain

The trap was sprung in February 2006. The White House ordered that Dr Jim Hansen was to be denied the oxygen of publicity forthwith. He was to be banned from appearing in newspapers and on TV and radio. He was effectively to disappear.

It was the kind of treatment that might be reserved for terrorists, criminals or, in a totalitarian regime, for political dissidents.

Hansen, however, was none of these things. The director of Nasa's renowned Goddard space science laboratories was a dry, rather self-effacing climate change scientist with a worldwide reputation for accurate and high-quality research. What had happened?

"All I had done was to give a talk to the American Geophysical Union, setting out how 2005 had been the warmest year on record," recalled Hansen, in a visit to London last week.

"But someone at Nasa got a call right from the top, from the White House. They were very annoyed."

It was not quite all he had done. Hansen had also e-mailed a transcript of the talk to a raft of reporters before he spoke. "I did make sure it hit the headlines," he recalls modestly. In his talk he declared that humanity, especially Americans and Europeans, were burning fossil fuels so fast that they risked transforming Earth into "a different planet".

Government scientists were not supposed to say things like that. Shortly afterwards the head of Nasa's public affairs office, one of George Bush's political appointees, banned Hansen from speaking to the media.

"Then they also forced us to remove all our data about the latest temperature rises from the website," says Hansen. "I realised they really were going to stop me communicating."

It looked like a classic case of a naive scientist being ruthlessly crushed by a government machine.

In reality, however, it was Hansen who laid the trap — and the Bush administration that got caught. A few more calls to the media and soon the story of the lone scientist gagged by the mighty Bush administration hit the front pages all over the world, carrying Hansen's warning about climate change with it once again.

It is a warning that Gordon Brown appears not to be heeding. Hansen's visit to London last week was partly inspired by the decision to approve construction of a new coal-fired power station at Kingsnorth in Kent.

This, Hansen wants to warn us, is a recipe for global warming disaster. The recent warm winters that Britain has experienced are a clear sign that the climate is changing, he says.

"We are fast approaching a series of tipping points. Changes such as the melting of the Arctic ice cap, the acidification of the oceans and the global rises in temperature could be approaching the point of becoming irreversible.

"In the face of such threats it is madness to propose a new generation of power plants based on burning coal, which is the dirtiest and most polluting of all the fossil fuels. We need a moratorium on the construction of coal-fired power plants and we must phase out the existing ones within two decades."

Such warnings will not be popular. Coal provides 25% of global primary energy needs and generates 40% of the world's electricity. In 2006 about 5.4 billion tons were burnt — a 92% increase over the past 25 years. China alone is building two new coal-fired power stations a year with CO2 emissions rising by about 10% annually.

Coal also offers energy security. Some 70 countries can mine their own coal and there are enough reserves to last at least 150 years.

Hansen, however, has come to the conclusion that coal will destroy the planet. "If we release all that carbon into the air it will be catastrophic," he says.

At the heart of what Hansen is saying lies a welter of new research into what kind of increase in CO2 can be borne by the Earth's atmosphere.

In the preindustrial 18th century there were about 280 parts per million (ppm) of CO2 in the air. Since then the 1,000 billion tons of CO2 released by humanity has raised that to 385ppm — with another 49 billion tons being added to that each year.

The global scientific consensus is that humanity can just about afford to let CO2 levels creep up so long as they level off at around 450ppm. This would mean accepting rises in global temperature averaging 2-3C.

Hansen used to accept such ideas — but he is now preparing a new research paper showing that even this limit is far too high.

"If humanity wants to preserve a climate resembling that in which civilisation developed, then the palaeoclimate evidence and ongoing climate change suggest CO2 must be reduced from its current level to between 300-350ppm. A 350ppm target is only achievable by phasing out coal use," he says.

This new agenda for tackling carbon emissions sounds radical but is rapidly gaining ground among Britain's own climate change researchers and parliamentarians. What marks Hansen out is his success in getting such ideas heard.

"My original media sin goes back to 1981," says Hansen.

"I had written a paper for Science [the renowned academic journal] making predictions about climate change, but I thought it might get ignored. So I sent it to a reporter at The New York Times — and he put it on the front page."

The resulting row saw the Department for Energy, which oversaw research into CO2 emissions, slashing his funding while its head of science launched a furious attack on his work at a scientific conference.

Bloodied but not bowed, Hansen went back to his laboratory, spending the next few years refining his global climate model, a computer simulation of the planet's climate that allows him, for example, to add extra CO2 to the atmosphere and see what happens.

He also refined his tactics. The next time he wanted to speak out he did not choose a scientific journal. It was June 1988 and America was hit by a roasting summer and droughts.

When a congressional committee asked him to testify on climate change, he told them that 1988 would set a new global temperature record, adding that he was "99% confident" that it was due to the greenhouse effect.

He used similar cunning the following year. Called before a congressional committee hearing looking at climate change, he sent an advance fax to Al Gore, its chairman, suggesting some of the questions that he would like to answer.

"What I told them was that the written evidence submitted in my name did not contain my words. It had been rewritten by the president's own budget office to support their own agenda."

This time the resulting storm was so great it saw climate change catapulted into the political arena as never before. George Bush Sr (the father of George W Bush), who was then running for president, promised to "fight the greenhouse effect with the White House effect".

Billions of pounds were allocated for research worldwide and by 1995 the intergovern-mental panel on climate change had concluded that Hansen was correct — humanity was indeed heating up the planet.

When Bill Clinton and Gore arrived in office, Gore had shown such interest in climate change that Hansen had high hopes — but was again disappointed. "America under Gore and Clinton let down the rest of the world once again. They gave in to the special interests," says Hansen. "That is the same process we are seeing in the White House now."

Hansen believes that the governments of Britain and Germany are also proving vulnerable to such lobbying — and that the decision over Kingsnorth is a direct consequence.

"I used to think that the politicians over here had simply not understood how serious climate change really is," he says.

"Nowadays, however, it is clear they do — but they have just given in."

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A collective effort by South Africans to reduce electricity consumption is starting to bear fruit, according to Public Enterprises Minister Alec Erwin.

Emergency measures introduced recently were having a "significant" impact, and the country was currently saving more than the immediate target of 10 percent electricity, he said on Monday.

He attributed this to industries and business "coming to the table".

Minerals and Energy Minister Buyelwa Sonjica said that as part of the government's energy efficiency campaign, compact fluorescent light bulbs will be given to the poor either, for free or at a subsidised price.

This will be followed by a smart-metering programme to manage electricity by remote control. Consumers who exceed quotas set by Eskom would be disconnected, she warned.

Sonjica encouraged citizens to comment on the recently published electricity regulations, pointing out that the deadline was February 25.

She also expressed the hope that more than a million households would install solar water-heating facilities over the next three years, reminding citizens that the government would fund subsidies of between 20 percent and 30 percent for those who comply.

Erwin said detailed discussions were being held with the National Treasury "to see how we mix the incentive package".

"We envisage, for poorer households, probably a greater element of cash, and for wealthier households, commercial users and government, some other incentives."

He warned that the country would face a tight electricity supply for at least the next four years, putting the country "in the same position as other developing nations".

On the future of investment projects, Erwin said the government would honour those deals for which contracts had been signed, but appealed to companies planning future (energy intensive) projects to discuss their plans with his department so that their connection to the electricity grid could be planned "more carefully".

So far, they did not "pick up any issue" with investors.

He noted that Zimbabwe was no longer being supplied with electricity from SA - and had not been "for some time".

Communications Minister Ivy Matsepe-Casaburri said plans were in place to provide digital terrestrial TV coverage to half the population by the end of 2008, preparing the way for analogue signals to be switched off by November 2011.

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Eskom's countdown to catastrophe began in 2000 when it had enough coal stockpiled to last 61 days. Last month, when it shut down the country's mines, the stockpiles were down to less than three days' supply.

A deliberate policy began in 2000 to reduce the coal stockpile to better manage operating costs. This, coupled with a new pro-BEE policy, which favoured small and new suppliers and incentivised management to use this hierachical system of procurement, meant that for a number of years Eskom has burned more coal than it bought.

The bias towards small business also meant that road transport was favoured over rail and conveyor belt, meaning that many of the roads near the power stations are in poor repair.

Eskom seems not to have realised that small business is singularly ill-equipped to deal with moving about 120-million tons of coal a year. Supplying coal to power stations is a capital-intensive business requiring long lead times. Contracts are typically for periods of up to 30 or 40 years.

Eskom also appears not to have realised that some of its main suppliers, notably Exxaro, have excellent empowerment credentials. Exxaro, which supplies about 30% of the utility's coal requirements, says on its website that it is the largest black-controlled, diversified mining company in South Africa.

Eskom's problems in procuring coal and the state of the roads were highlighted in several of its annual reports, starting in 2003. The warnings were ignored by both the Eskom board and its political masters.

The problems began in 2000 when newly appointed chief executive Thulani Gcabashe implemented a new policy to reduce the stockpile to 44 days to reduce operating costs. The stockpile was reduced again the following year and a new procurement strategy came into effect in 2002 to favour small BEE companies. This was known as the "hierarchy of procurement".

Under this directive, authorised by Gcabashe, Eskom first purchased coal from black, female-owned suppliers, then small black suppliers, then large black suppliers, then black-empowering suppliers and only then from "other South African manufacturers". State-owned enterprises were classified as "other" under this programme.

Eskom's buyers were required to move up this hierarchy, only sourcing from the next rung of the ladder if the first could not supply.

Because some coal suppliers were no longer selected by proximity, transport became an issue. Some coal was transported by rail, but other supplies were delivered by truck. Eskom specified that BEE transporters had to be used. It spent R20-million in 2003 fixing roads, but at least one trucker told the Mail & Guardian that he stopped supplying coal to Eskom because the roads were doing too much damage to his vehicles.

This hierarchy of procurement also meant that when Eskom needed to source additional coal it could not use its three biggest suppliers, Exxaro, Anglo Coal and BHP Billiton, despite their BEE credentials.
Gcabashe apparently favoured creating a spot market for coal purchases. Until then Eskom had relied on long-term contracts to source its supplies. It typically paid well below export prices as it used low-grade coal to fuel its power stations. Export prices of coal are about $100 a ton, while Eskom's contract prices are a fraction of this at just R100 a ton.

Coal procurement at Eskom was so sufficiently troubled by 2003 that its annual report for the year spoke of an emergency purchases programme for the Tutuka and Majuba power stations. A source within Eskom told the M&G the programme had less-stringent requirements, but Eskom wasnot forthcoming with the details.

These emergency purchases were sourced from Eskom's list of pre-qualified suppliers, in line with its BEE procurement strategy and to "introduce flexibility when purchasing additional coal [over and above the existing long-term contracts]". Tenders were requested to secure coal supplies for the Tutuka and Majuba power stations.

The additional coal was transported by Spoornet and by road, with a coal transport system proposed for Majuba and Tutuka.

"Due to the poor condition of the roads in the Mpumalanga province and the lack of funds within the provincial government, Eskom spent approximately R20-million on road repairs during the year," the 2003 annual report says.

It also warned of a looming capacity shortfall: "With regard to building new capacity, policy clarity regarding Eskom's obligation to supply electricity is required in terms of security of supply."

Problems with the coal supply were evident again in the 2005 annual report. "Stockpiles at a few power stations were reduced to unacceptably low levels and additional coal was sourced to meet the increased demand. Towards the latter part of 2004 the situation had stabilised and stockpiles were back in line with expectations," the report states.

But planned electricity supplies from Cahora Bassa did not materialise during the last few months of 2004. "This, combined with plant problems experienced at certain stations, as well as coal supply problems from Eskom's major rail-based supplier, resulted in a dramatic reduction in the stockpile at Majuba Power Station, which necessitated additional coal purchases early in 2005.

Most of this coal, as before, was supplied by road: 16-million tons by road, compared with 3,1-million tons by rail. "Road conditions are poor and Eskom has been in constant communication with the Road Transport Authority and the Mpumalanga Province to expedite the road repairs in the area."

The warnings sounded again in 2006. "Coal procurement was extremely difficult during the review period," the report says. Extraordinary rainfall for the first three months of 2006 resulted in production problems at open-cast mines, it says, and additional coal supplies had to be purchased on an emergency basis as problems with Koeberg put pressure on other power stations.

"Transport of coal by rail and road remained problematic throughout the period ... A number of road transporters have not performed in line with expectations. The limited capacity of rolling stock necessitated greater use of road transport to Majuba power station. These issues are now receiving urgent management attention as it is anticipated that it should be resolved early in the [then] new financial period," the report says.

The utility is now targeting a stockpile of 20 days' coal, says former DA researcher James Myburgh, a political analyst for Moneyweb.
The 2007 annual report is the most forthright.Coal procurement has "continued to be problematic". This was because of "under-production at the tied collieries [coalmines linked to power stations], availability of coal of the correct quality from short-term suppliers and transportation of increased quantities of coal by road", the report says. But "Eskom continues to support BEE coal-mining initiatives when buying coal and uses BEE haulers for the transport of coal".

In addition, problems arose with longstanding suppliers. "Coal purchases from most of the long-term supply agreements were below target due to technical constraints and underperformance by some collieries. Purchases under short- and medium-term coal contracts were below target because of the shortage of coal suppliers caused by the delay in the issuing of mining licences," the report says. Due to high electricity demand and low deliveries, coal stocks fell to well below target levels.

"Transport by road remained problematic," it says. "The condition of provincial and national roads used by trucks transporting coal to Eskom power stations continued to deteriorate during the period. Where necessary Eskom has repaired damaged roads to maintain coal supplies."

In June last year Eskom told Business Report it had about 18 days' worth of coal in the stockpile and that it was buying 24-million tons of coal out of its annual target of 120-million tons, on the spot market rather than through fixed contracts. But this stockpile was so run down seven months later that less than three days' supply was available.

This week Ehud Matya, head of generation for Eskom, was reshuffled. His replacement is Brian Dames, previously the head of enterprises. Matya will now look after the buying back of power from large industrial users.

Money is power
Eskom's directors and top brass, about 30 people, paid themselves R21,8-million for the year ending March 2007, up from R18-million the previous year and a whopping R56-million for the 15-month period ending March 2005. In 2003 they raked in a collective R15,9-million.

CRISIS TWO: Lynley Donnelly reports on government's rush to attract investors and hand over vast amounts of electricity at giveaway prices

Just one energy user, BHP Billiton, uses enough electricity to power a city the size of Johannesburg. The kicker, though, is that the resources giant gets this whacking amount of power at cost, using it to produce a profit of R6-billion.

Government's deal with BHP Billiton and its three aluminium smelters is the subject of a confidential agreement between the company and government.

But it is thought to get its electricity at about 12c a kilowatt hour, while most of South African industry pays 16c and consumers up to 44c. One energy expert estimates Eskom's cost of generating electricity at about 10c a kilowatt hour -- about half of which is the cost of the coal.

BHP Billiton's aluminium operations earned it $1,8-billion before tax, according to its 2007 annual report. Global operating profits for the whole group were $18,4-billion before tax. BHP Billiton could not confirm how much its local aluminium profits contributed to global profits, but last year Mining Weekly reported that BHP Billiton's South African business represents more than half of global earnings before interest and tax.

The company's 2007 report puts South Africa's contribution to profit by location of assets at $1,15-billion or R8-billion. If Billiton's South African aluminium interests contribute to about half of the aluminium sector's global profits, it amounts to about $900-million or R6,3-billon.
Government policy has been to attract energy-intensive industry but, as Eskom's excess capacity has run out and become a deficit, it finds itself contractually bound to industries that keep running while the rest of the country experiences blackouts and the associated traffic chaos and loss of business.

But government also finds itself facing a huge bill to build new capacity to keep the lights on. It will cost tens of billions of rands to build the equivalent capacity being used by BHP Billiton's smelters.

One critic, Richard Young, an arms deal whistleblower, estimates that BHP Billiton's Hillside operation puts R5-billion into the economy annually, of which R1-billion is in tax. Young also estimates that Bayside earns BHP R8,9-billion gross profit and Mozal R5,3-billion. This fattens the company's profit margins, while consuming South Africa's energy.

Young estimates brown phase two load-shedding costs the economy R2-billion a day -- R600-billion a year. He called for the shutdown of BHP Billiton's aluminium smelters until there is a sufficient supply and safety margin or they can supply their own power.

"Even if Billiton had to be compensated for its losses by the government using taxpayers' money, this would be far better than allowing the damage caused by load-shedding to continue," he says.

Minerals and Energy Minister Buyelwa Sonjica announced on Wednesday that government's development electricity pricing programme (Depp) will continue, despite the need for a review of how to allocate local energy resources. The Depp aims to attract energy-intensive foreign investment through Eskom's "competitively priced" electricity offering.

T-Sec's Mike Schussler told Inet Bridge that South Africa's neighbouring countries receive rates of 11c a kilowatt.

According to its half-year results published this week, BHP Billiton's global aluminium production over six months amounted to 675 000 tons, making annual production about 1,3-million tons. Oddly, its website puts the combined output of its three South African smelters at1,4-million tons a year.

Last week the Mail & Guardian reported that BHP Billiton pays an estimated 12c/kWh for electricity at its smelters -- well below what domestic users pay (about 40c/kWh). The combined power usage of BHP Billiton's three smelters is 2 400MW. The Rio Tinto/Alcan smelter brings the total to 3 750 MW. To produce new capacity of about 4 000MW will cost South Africa nearly R80-billion -- or the total cost of the Medupi power station.

But the South African aluminium industry does not appear to benefit from local aluminium production. The price of primary aluminium on the London Metals Exchange is about $2 500 a ton (about R17 000). In the past local buyers paid a 5% "regional premium" on that price.
According to the department of trade and industry, although aluminium was being sold at something "approximate to import parity prices", discussions with BHP Billiton took place regarding the company's pricing regime. Nimrod Zalk, chief director of industrial policy at the department, said "a subsequent review of pricing regimes has seen the removal of [South African] regional premiums".

"With respect to aluminium we are much less concerned than we have been in terms of other markets, such as carbon steel, for instance," he said.

Zalk admitted that, given South Africa's "energy crunch", government needs to be "more strategic about energy allocation".

"One of the mistakes in terms of government policy in the past is granting lots of concessions without conditions beneficiating products in the South African market," said Zalk.

He said that one of the new conditions was to ensure that in the case of smelters, such as Alcan, at least 40 000 tons of aluminium is made available to the local market at export parity prices.

Analysts balked at the idea of shutting down energy-hungry smelters, but for South Africa to remain a desirable foreign investment destination the country must be seen to honour its contractual obligations. To shut down the smelters is not a simple process, said one analyst. Government would be paying the cost of effects all through BHP Billition's aluminium value chain -- its aluminium refineries and bauxite ore mines in Australia for one.

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Now they might start sitting up. They wouldn't listen to the environmentalists or even the geologists. Can governments ignore the capitalists? A report published last week by Citibank, and so far unremarked on by the media, proposes "genuine difficulties" in increasing the production of crude oil, "particularly after 2012". Though 175 big drilling projects will start in the next four years, "the fear remains that most of this supply will be offset by high levels of decline". The oil industry has scoffed at the notion that oil supplies might peak, but "recent evidence of failed production growth would tend to shift the burden of proof on to the producers", as they have been unable to respond to the massive rise in prices. "Total global liquid hydrocarbon production has essentially flatlined since mid 2005 at just north of 85m barrels per day."

The issue is complicated, as ever, by the refusal of the Opec cartel to raise production. What has changed, Citibank says, is that the non-Opec countries can no longer answer the price signal. Does this mean that oil production in these nations has already peaked? If so, what do our governments intend to do?

Nine months ago, I asked the British government to send me its assessments of global oil supply. The results astonished me: there weren't any. Instead it relied exclusively on one external source: a book published by the International Energy Agency. The omission became stranger still when I read this book and discovered that it was a crude polemic, dismissing those who questioned future oil supplies as "doomsayers" without providing robust evidence to support its conclusions. Though the members of Opec have a powerful interest in exaggerating their reserves in order to boost their quotas, the IEA relied on their own assessments of future supply.

Last week I tried again, and I received the same response: "The government agrees with IEA analysis that global oil (and gas) reserves are sufficient to sustain economic growth for the foreseeable future." Perhaps it hasn't noticed that the IEA is now backtracking. The Financial Times says the agency "has admitted that it has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected ... natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate." What if the data turns out to be wrong? What if Opec's stated reserves are a pack of lies? What contingency plans has the government made? Answer comes there none.

The European commission, by contrast, does have a plan, and it's a disaster. It recognises that "the oil dependence of the transport sector ... is one of the most serious problems of insecurity in energy supply that the EU faces". Partly in order to diversify fuel supplies, partly to cut greenhouse gas emissions, it has ordered the member states to ensure that by 2020 10% of the petroleum our cars burn must be replaced with biofuels. This won't solve peak oil, but it might at least put it into perspective by causing an even bigger problem.

To be fair to the commission, it has now acknowledged that biofuels are not a green panacea. Its draft directive rules that they shouldn't be produced by destroying primary forest, ancient grasslands or wetlands, as this could cause a net increase in greenhouse gas emissions. Nor should any biodiverse ecosystem be damaged to grow biofuels.

It sounds good, but there are three problems. If biofuels can't be produced in virgin habitats, they must be confined to existing agricultural land, which means that every time we fill up the car we snatch food from people's mouths. This, in turn, raises the price of food, which encourages farmers to destroy pristine habitats - primary forests, ancient grasslands, wetlands and the rest - in order to grow it. We can congratulate ourselves on remaining morally pure, but the impacts are the same. There is no way out of this: on a finite planet with tight food supplies, you either compete with the hungry or clear new land.

The third problem is that the commission's methodology has just been blown apart by two new papers. Published in Science magazine, they calculate the total carbon costs of biofuel production. When land clearance (caused either directly or by the displacement of food crops) is taken into account, all the major biofuels cause a massive increase in emissions.

Even the most productive source - sugar cane grown in the scrubby savannahs of central Brazil - creates a carbon debt which takes 17 years to repay. As the major carbon reductions must be made now, the net effect of this crop is to exacerbate climate change. The worst source - palm oil displacing tropical rainforest growing in peat - invokes a carbon debt of some 840 years. Even when you produce ethanol from maize grown on "rested" arable land (which in the EU is called set-aside and in the United States is called conservation reserve), it takes 48 years to repay the carbon debt. The facts have changed. Will the policy follow?

Many people believe there's a way of avoiding these problems: by making biofuels not from the crops themselves but from crop wastes - if transport fuel can be manufactured from straw or grass or wood chips, there are no implications for land use, and no danger of spreading hunger. Until recently I believed this myself.

Unfortunately most agricultural "waste" is nothing of the kind. It is the organic material that maintains the soil's structure, nutrients and store of carbon. A paper commissioned by the US government proposes that, to help meet its biofuel targets, 75% of annual crop residues should be harvested. According to a letter published in Science last year, removing crop residues can increase the rate of soil erosion a hundredfold. Our addiction to the car, in other words, could lead to peak soil as well as peak oil.

Removing crop wastes means replacing the nutrients they contain with fertiliser, which causes further greenhouse gas emissions. A recent paper by the Nobel laureate Paul Crutzen suggests that emissions of nitrous oxide (a greenhouse gas 296 times more powerful than CO2) from nitrogen fertilisers wipe out all the carbon savings biofuels produce, even before you take the changes in land use into account.

Growing special second-generation crops, such as trees or switchgrass, doesn't solve the problem either: like other energy crops, they displace both food production and carbon emissions. Growing switchgrass, one of the new papers in Science shows, creates a carbon debt of 52 years. Some people propose making second-generation fuels from grass harvested in natural meadows or from municipal waste, but it's hard enough to produce them from single feedstocks; far harder to manufacture them from a mixture. Apart from used chip fat, there is no such thing as a sustainable biofuel.

All these convoluted solutions are designed to avoid a simpler one: reducing the consumption of transport fuel. But that requires the use of a different commodity. Global supplies of political courage appear, unfortunately, to have peaked some time ago.

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An Italian private equity group has taken control of about a third of the company that is building the world's biggest woodchip power plant in south Wales.

Clessidra Capital Partners has taken the stake in Global Wood Holding as part of a capital increase needed to build the plant. GWH, which is registered in Switzerland, is also owned by two Italian families and TMT, the Taiwanese shipping group.

GWH wholly owns Prenergy Power, which at the end of last year received authorisation for the plant in Port Talbot on the site of a decomissioned steel factory. The woodchip plant is expected to start operating in 2011 and have 300MW of capacity, almost the size of a typical gas-fired power station and about 10 times that of an average woodchip plant.

The Port Talbot plant is expected to meet about 70 per cent of Wales's targets for renewable electricity. Woodchip plants, provided they use wood from trees planted for the purpose, are deemed carbon dioxide neutral. They generate as much of the gas as is taken out of the atmosphere by the trees while growing.

Clessidra's head is Claudio Sposito, a well-known financier in Italy who worked for Morgan Stanley before becoming chief executive of Fininvest, the holding group for the interests of the Berlusconi family. Silvio Berlusconi, Italy's richest man, is aiming for a third term as prime minister in elections in April. Clessidra has taken part in some of the bigger utility and infrastructure projects of recent years. Its first fund closed in 2005 having raised €800m (£596m), almost all of which has now been invested. Details of the stake purchase in GWH have not been disclosed.

The plant will cost about £350m to build and have an expected value of about €1bn based on average plant values per megawatt.

GWH controls the whole process of making electricity from woodchips, owning forests in Canada, the US and eastern Europe, and ships to transport the raw material.

Some renewable energy experts point out that the transport of woodchips to large plants far away from the raw material source negates some of the benefits of the renewable energy.

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Transforming ecosystems into farms for biofuel crops will increase global warming and result in net increases in carbon emissions, according to a study.

Scientists have found that converting rainforests, peatlands and grasslands can outweigh the carbon savings made from biofuels and produce "carbon debts" which could take centuries to pay off.

The study will add to concerns about the ability of biofuels to replace fossil fuels. The EU is reviewing its pledge that biofuels such as bioethanol and biodiesel should make up 10% of transport fuel by 2020. Britain has a separate target of 5% biofuels in petrol and diesel by 2010.

In the study, US researchers calculated that converting natural ecosystems to grow corn or sugarcane to produce ethanol, or palms or soybeans for biodiesel, could release between 17 and 420 times more carbon than the annual savings from replacing fossil fuels.

This is due to the carbon contained in the original plants and soils which is released as CO2 when the vegetation rots after it is cleared. The researchers said this carbon debt must be paid before biofuels produced on the land could count towards reducing greenhouse gas emissions.

"This research examines the conversion of land for biofuels and asks the question 'Is it worth it?'" said Joe Fargione, a scientist for the environmental group The Nature Conservancy. "Does the carbon you lose by converting forests, grasslands and peatlands outweigh the carbon you 'save' by using biofuels instead of fossil fuels? And surprisingly, the answer is no."

In Indonesia the researchers found that converting land for palm oil production ran up the worst carbon debts, requiring 423 years to pay off. Producing soybeans in the Amazon would take 319 years of soy biodiesel to offset the carbon debt.

Stephen Polasky of the University of Minnesota, one of the authors of the study, published today in the journal Science, said: "We don't have proper incentives in place because landowners are rewarded for producing palm oil and other products but not rewarded for carbon management. This creates incentives for excessive land clearing and can result in large increases in carbon emissions."

Fargione said all biofuels now in use destroyed habitats. "Producing food-based biofuel will require that still more land be converted to agriculture," he said. The team also identified biofuels which did not contribute to global warming, including agricultural waste and grasses grown on land not suitable for crops.

"Biofuels made on perennial crops grown on degraded land that is no longer useful for growing food crops may actually help us fight global warming," said Jason Hill of the University of Minnesota, who also took part in the study. "One example is ethanol made from diverse mixtures of native prairie plants."

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Has a sewage farm just outside the New Zealand city of Blenheim provided a solution to the world's energy shortages? Aquaflow Bionomic Corporation, a local start-up, has patented a process to extract biofuel from sewage, and last year the country's minister for energy, David Parker, roadtested a car run on the oil of microscopic algae.

"Wild algae is one of the ubiquitous units of nature," says Nick Gerritsen, a partner in the firm. "If you leave a bucket of water outside, the water will turn green as it is settled by wild algae. We realised very early that we needed to create a model that took advantage of wild algae feedstocks."

The challenge was to catch what he calls "the little blighters", the algae that contain oils or lipids, in the work's outflow pipe, a cleansing process known as bio-remediation. In May 2006, the company produced what it claimed was "the first biodiesel crude from wild algae". The process is secret, although oil was extracted from algae that had been separated from water, which Aquaflow wants to leave clean enough to drink.

Self-sufficient

Aquaflow first had to pass the energy balance test, creating a fuel that produced at least as much energy as went into creating it. The company went from pond scum to biodiesel in just over a year and says its fuel is suitable for domestic use and transport. Furthermore, it claims its technology fits "on the back of a truck", and is cheap enough to be adopted anywhere. "Our aim is to enable communities to use their wild algae feedstock and become as self-sufficient as they can," says Gerritsen.

Faith in algae to provide energy has spread. Last month, Shell announced it had formed a joint venture with HR Biopetroleum that will construct a demonstration plant to harvest algae they claim can double their mass several times a day, providing 15 times more oil per hectare than alternatives such as rape.

"Algae have great potential as a sustainable feedstock for production of diesel-type fuels, with a very small C02 footprint," says Graeme Sweeney, Shell's executive vice-president of future fuels and carbon, but admits the commercial potential of the scheme is yet to be proved.

Meanwhile, the Commercial Aviation Alternative Fuels Initiative, an alliance of aircraft manufacturers, industry organisations and entrepreneurs, is seeking a biojet fuel that could come from algae.

Last month, a San Francisco "algae summit" drew more than 300 delegates. One participant was Kelly Ogilvie, co-founder of Seattle firm Blue Marble Energy, which plans to harvest wild algae from sewage farms, lakes and rivers, mining ponds and algae blooms caused by pollution. It says its method is "low cost" and "low tech".

Unlike corn, soya beans, rapeseed and sugar cane - unsustainable monocultures that threaten food production already jeopardised by climate change - algae thrive in shallow, brackish water. Like all plants, they convert sunlight into energy and voraciously consume CO2.

Algae also emit CO2, but this can be offset by injecting nutrient rich CO2 emissions into algae-rich water. No one knows how much CO2 could be absorbed but Gerritsen believes it could be "quite significant". Best of all, he says, algae can double their mass in hours.

And they need less space than other biofuels. While corn produces 60 or so gallons of ethanol an acre annually, algae can provide up to 10,000 gallons of biofuel, says Dave Daggett, research chief at Boeing.

However, getting there is a challenge. "There are hurdles throughout the process stream," says Eric Jarvis, a senior scientist at the National Renewable Energy Laboratory (NREL). The US company, funded by energy company Chevron, has resumed work on identifying strains of algae likely to produce abundant lipid oils.

"You have to find an algae strain that thrives in your particular conditions. It must divide at a reasonable rate and produce oil. These things are tough. Then you need to separate the algae from water and extract oil from the paste. Once you have lipid oil, you have to create a fuel that passes specification tests," Jarvis adds.

Those who advocate algae monoculture believe ponds or bioreactors, closed systems that manipulate growing conditions, will do the trick eventually. But wild algae believers reject both methods as costly and unproductive.

"If the future of biofuels is algae, and I believe it is, you're never going to get enough volume in bioreactors or ponds," says Ogilvie. "It has to be something with greater volume." He says the best approach is to mimic nature by creating algae farms, or by harvesting algae blooms. "Why try to out-engineer nature?" he asks.

"It could be done really cheaply if people would shift their paradigm," says Ogilvie. "There has to be a rethinking of how we interact with the environment. Can you clean up the environment? Can you make money and energy doing so? And can you provide meaningful jobs to the people in the areas where you're doing it?" The answer must be yes.

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British Energy remains in talks with 10 potential partners for the construction of nuclear reactors and hopes to sign at least one deal in the next few months.

The nuclear energy group reported third-quarter results on Wednesday, which were hit by the unplanned closure of its Hartelpool and Heysham reactors.

Revenues for the three months to December rose to £768m ($1.5bn), from £754m in the same period of 2006, as a result of the Hinkley Point B and Hunterston B reactors returning to service after lengthy shutdowns.

However, the discovery of corroded wiring at the Hartlepool and Heysham 1 reactors in October led to their closure and extra inspection and repair costs, as well as the cost of buying electricity in the wholesale market to fulfil supply contracts.

This pushed pre-tax profits for the three months down 34 per cent to £192m.

In spite of this, the shares rose 44p to 533p as the results were better than expected and a special dividend of 14.5p was confirmed.

Bill Coley, chief executive, said the Hartelpool and Heysham 1 reactors were due to return to service in the middle of the year.

He said the government's decision last month to back a new generation of nuclear power stations had given momentum to British Energy's talks with its possible partners, which are understood to include RWE and Eon of Germany, EDF of France and Centrica, owner of British Gas.

"The interest has certainly picked up," said Mr Coley, adding that "one or two partnerships" should be signed around the end of the financial year.

British Energy could play a range of roles in the new projects, he said, from a passive shareholder to the lead investor and operator of the plants, depending on who the partners were.

Energy companies that are keen to build nuclear reactors in the UK need to talk to British Energy as the group owns many of the sites that are deemed most suitable for new nuclear projects, such as Dungeness in Kent and Sizewell in Suffolk.

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The true scale of climate change emissions from shipping is almost three times higher than previously believed, according to a leaked UN study seen by the Guardian.

It calculates that annual emissions from the world's merchant fleet have already reached 1.12bn tonnes of CO², or nearly 4.5% of all global emissions of the main greenhouse gas.

The report suggests that shipping emissions - which are not taken into account by European targets for cutting global warming - will become one of the largest single sources of manmade CO² after cars, housing, agriculture and industry. By comparison, the aviation industry, which has been under heavy pressure to clean up, is responsible for about 650m tonnes of CO² emissions a year, just over half that from shipping.

Until now, the UN's Intergovernmental Panel on Climate Change has estimated shipping emissions to be a maximum 400m tonnes, but the new draft report by a group of international scientists is a more sophisticated measure, using data collected from the oil and shipping industries for the International Maritime Organisation, the UN agency tasked with monitoring pollution from ships. It not only shows emissions are much worse than feared, but warns CO² emissions are set to rise by a further 30% by 2020.

Contacted about the contents of the report, Dr Rajendra Pachauri, chair of the IPCC, said: "This is a clear failure of the system. The shipping industry has so far escaped publicity. It has been left out of the climate change discussion. I hope [shipping emissions] will be included in the next UN agreement. It would be a cop-out if it was not. It tells me that we have been ineffective at tackling climate change so far."

The figure is highly embarrassing for the four governments, including Britain, that paid for the report. Governments and the EU have consistently played down the climate impact of shipping, saying it is less than 2% of global emissions and failing to include shipping emissions in their national estimates for CO² emissions.

Pressure is now expected to increase on shipowners to switch to better fuels and on the EU to include shipping in its emission trading scheme. Last month aviation was provisionally included following intense pressure - but shipping escaped.

Previous attempts by the industry to calculate levels of carbon emissions were largely based on the quantity of low grade fuel bought by shipowners. The latest UN figures are considered more accurate because they are based on the known engine size of the world's ships, as well as the time they spend at sea and the amount of low grade fuel sold to shipowners.

The UN report also reveals that other pollutants from shipping are rising even faster than CO² emissions. Sulphur and soot emissions, which give rise to lung cancers, acid rain and respiratory problems are expected to rise more than 30% over the next 12 years.

The health implications of shipping emissions are most acute for Britain and other countries bordering the English Channel, one of the world's busiest shipping lanes. A recent peer-reviewed study of shipping emissions found world shipping led directly to 60,000 deaths a year.

Peter Smith, managing director of Intertanko, the grouping of the world's largest tanker operators which provided data for the report, said the industry was taking steps to cut emissions. "World trade and ship numbers have seen a steady increase, but in parallel there have been economies of scale with larger, more efficient ships. Individual ships have steadily been reducing their fuel consumption for the last 20 years. One litre of fuel on a modern very large crude carrier moves one tonne of cargo more than 2,800km; this is more than twice as far as 20 years ago."

Caroline Lucas, Green MEP for South-east England, said: "These new figures highlight the shocking complacency of governments which have completely ignored shipping emissions. It is essential that our own government's new climate change bill includes both shipping and aviation emissions and measures are urgently brought forward at EU level."

A spokesman for the Department for Environment, Food and Rural Affairs said the government would support the development of a global emissions trading scheme through the IMO, and was also "investigating the feasibility of including maritime emissions" in the EU's trading scheme. He said the shipping industry must take its "share of responsibility" for tackling climate change.

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The US risks a loss of geopolitical influence if it continues to oppose the growing worldwide desire to take action on climate change, Jim Mulva, chief executive of ConocoPhillips, the third-largest US oil company, told energy executives yesterday.

Mr Mulva, a keynote speaker at this year's Cambridge Energy Research Associates conference, said such stonewalling would cause "incalculable damage" to efforts to fight terrorism and encourage trade.

"The US has missed opportunities to show leadership because it lacks a coherent approach," he said, noting that any national policy may be 1-2 years off, although individual US states are taking action on their own.

If the "prevailing confusion" continued, said Abdallah Jum'ah, president and chief executive of the Saudi Arabian Oil Company, there was a risk that necessary expansion of energy supplies would be compromised. "The world community needs to reach a consensus on this issue.''

Mr Mulva said climate change concerns were likely to constrain the ability to provide sustainable energy.

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Climate change could lead to a heatwave in the south-east of England killing 3,000 people within the next decade, a Department of Health report said today.

It put the chances of a heatwave of that severity happening by 2017 at 25%.

Without preventative action, the report said that a nine-day heatwave, with temperatures at 27 degrees, would cause 3,000 immediate deaths, with another 3,350 people dying from heat-related conditions during the summer.

It predicted that there would be an increase in skin cancers due to increased exposure to sunlight and that, over the next half century, air pollution could lead to an extra 1,500 deaths and hospital admissions a year.

While malaria outbreaks were likely to remain rare, the report — Health Effects of Climate Change in the UK 2008 — said health authorities would need to be alert to the dangers posed by possible larger outbreaks of malaria in continental Europe.

The report, a follow-up to a study first published in 2002, said the latest modelling now suggested that temper