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Why ‘waste not, want not’ is an unattainable energy goal

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You can cook a pretty good meal on the engine block of a truck. Savvy drivers know how to wrap a piece of beef, onions, potatoes and carrots in heavy foil and leave the package on the engine for a few hours to provide a hot dinner at the end of the day. The reason that is possible is central to the physics of energy, and offers some important insights for thinking about efficiency.

Like any engine, an internal combustion engine cannot turn all of the energy it uses into useful work, in this case moving the vehicle. Diesel engines have achieved thermal efficiency — the proportion of heat transformed into work — of a little over 50 per cent, with a Cummins engine achieving 54 per cent.

Petrol engines typically perform even worse. Delphi Technologies said last year it had achieved 43.5 per cent thermal efficiency in a petrol engine and was aiming for 48 per cent or higher. These figures are maximums achieved under test conditions, too. In normal use, the typical efficiency of a car engine might be about 20 per cent.

Exhaust fumes from a car in London, England © Peter Macdiarmid/Getty Images

The remainder of the energy released is dissipated mostly as waste heat, in the exhaust and from the engine, which is why you can cook your dinner on it.

This common feature of all engines is described by the Second Law of Thermodynamics, which was first identified by the French scientist Sadi Carnot in 1824. The law has been expressed in various ways, but the one that is most relevant here is attributed to the British mathematician William Thomson, the First Baron Kelvin: “It is impossible to convert the heat from a single source into work without any other effect.” In other words, the perfectly efficient engine cannot exist: some waste of energy is inevitable.

This is a problem not just for vehicle engines, but for the entire energy system. The Lawrence Livermore National Laboratory, a US government research centre, publishes a flow chart showing the sources and uses of energy in the US, which makes clear just how much is wasted. By the laboratory’s calculations, in 2019 the US used 100.2 quadrillion British thermal units (BTUs) of primary energy: about 37 per cent in petroleum, 32 per cent in natural gas, 11 per cent in coal, 8 per cent in nuclear power and 11 per cent in renewables including biofuels. Of that, 67 per cent ended up as wasted energy, with just 33 per cent doing its useful, intended work.

Vehicle engines are some of the biggest sources of waste in the system: land, sea and air transport combined have an average efficiency of 21 per cent, according to Lawrence Livermore. But they are far from the only culprits. The average thermal efficiency of the coal-fired power plants operating in the US last year was 32 per cent. The most modern combined-cycle gas turbines, which recover waste heat from the gas turbine and use it to drive a steam turbine, can reach efficiencies of about 62 per cent but the average efficiency of gas-fired power plants in the US last year was 44 per cent.

Emissions rise from a power station on the shore of Lake Michigan at dusk in Chesterton, Indiana, US. © Luke Sharrett/Bloomberg

Given that waste of energy is a result of one of the laws of nature, it might seem as though there is not much point worrying about it. The laws of thermodynamics are not going to be refuted. If the Second Law was false, for example, it would be possible to create a perpetual-motion machine. And that does not seem likely any time soon.

In a sense, waste is the inescapable price we pay for organising energy into useful forms. We do not need energy: we need mobility, heat and light. And if a lot of energy is wasted in turning oil or coal into those services, it is simply a price we have to pay.

That is true up to a point, but there are two reasons why it is still worth thinking about all the energy we waste in our system. The first is because it gets us used to the idea that some losses are unavoidable. If you use electricity to split water into hydrogen and oxygen, store the hydrogen and then use it in a fuel cell to generate more electricity, the “round trip” efficiency is about 30 per cent: you get back a bit less than a third of the electricity you use. That might sound bad but, compared with an internal combustion engine, it is quite reasonable. It all depends on whether the energy that comes out is more useful than the energy that goes in. If the hydrogen fuel cell system means you can shift electricity from times when it is not needed to times when it is needed, that could be very valuable.

Second, although we cannot end energy waste, we can reduce it. At the frontiers of engineering, people are seeing how close they can get to those impossible perfect engines. Saudi Aramco, for example, is backing research into a range of technologies to improve the efficiency of internal combustion engines, including radical new engine designs. Vehicle fuel economy is expected to rise steadily over the coming decades, in part because engine efficiency will keep improving.

UK-based Inspirit Energy this month announced it had agreed a letter of support from Volvo Penta to develop a waste heat recovery system to improve the efficiency of its marine and industrial engines.

The existence of waste is a great spur to human ingenuity. As Chris Maynard and Bill Scheller put it in their book Manifold Destiny, a guide to cooking with your car: “What better way to get every penny of value out of the pump than to make gasoline do two things at once.”

The author is vice-chair, Americas, of Wood Mackenzie, the energy sector consultancy

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Copper hits record high with demand expected to rise sharply

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Copper prices hit a record high on Friday in the latest leg of a broad rally across commodity markets sparked by the reopening of major economies and booming demand for minerals needed for the green energy transition.

Copper, used in everything from electric vehicles to washing machines, rose as much as 1.2 per cent to $10,232 a tonne, surpassing its previous peak set in 2011 at the height of a previous commodities boom.

The price has more than doubled from its pandemic lows in March last year due to voracious demand from China, the biggest consumer of the metal, and also investors looking to bet on a big uptick in the global economy and protect their portfolios against potential for rising inflation.

Government stimulus packages and the shift towards electrification to meet the goals of the Paris agreement on climate change are expected to fuel further demand for the metal, which analysts and industry executives believe could hit $15,000 a tonne by 2025.

“Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow,” said Kostas Bintas, head of copper trading at Trafigura, one of the world’s biggest independent commodity traders. “That will be significant.”

The US and Europe were becoming significant factors in the consumption of copper for the first time in decades, he added. “Before, it’s effectively been a China-only story. That is changing fast.”

Concerns about the long-term supply of copper due to lack of investment by large miners has also pushed up prices. There are only a few large projects in a development, while most of the world’s easily produced copper has already been mined.

“The current pipeline of projects likely to start producing in the next few years represents only 2.3 per cent of forecast mine supply,” said Daniel Haynes, analyst at banking group ANZ. “This is well down on previous cycles, including 2010-13 when it reached 12 per cent.”

The upward march of other raw materials is showing no signs of abating. Steelmaking ingredient iron ore traded above $200 a tonne for the first time as China returned to work after the Labour Day holidays in early May. 

In spite of production cuts in Tangshan and Handan, two key steelmaking cities in China, analysts expect output to remain solid over the next couple of quarters. 

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,” said Erik Hedborg, a principal analyst at CRU Group.

“Iron ore producers are enjoying exceptionally high margins as around two-thirds of seaborne supply only require prices of $50 a tonne to break even.”

Elsewhere, tin on Thursday rose above $30,000 a tonne for the first time in a decade before easing. Tin is used to make solder — the substance that binds circuit boards and wiring — and is benefiting from strong demand from the electronics industry, which has been lifted by growing numbers of stay-at-home workers.

US wood prices continued to race higher ahead of the peak in the US homebuilding season in the summer with lumber futures rising to a record high above $1,600 per 1,000 board feet length, up from $330 this time last year.

Agricultural commodities also continued to rally as a result of a particularly dry season in Brazil, concerns about drought in the US and Chinese demand. Strong increases in food prices have started to affect global consumers. Corn rose to a more than eight-year high of $7.68 this week, while coffee has risen almost 10 per cent since the start of month, hitting a four-year high of $1.54 a pound this week.



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Wall Street stocks waver as investors await US jobs data

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Wall Street stock markets wavered, with tech losses dragging down some indices, but remained close to record highs ahead of US jobs data on Friday that could pile pressure on the Federal Reserve to rethink its ultra-supportive monetary policies.

The S&P 500 was up 0.2 per cent in the afternoon in New York, hovering slightly below its all-time high achieved late last month. The peak was reached following a long rally supported by the Fed and other central banks unleashing trillions of dollars into financial markets in pandemic emergency spending programmes.

The technology-heavy Nasdaq Composite, however, which is stacked with growth companies sensitive to changing interest rate expectations, was down 0.5 per cent by the afternoon in New York, the fifth straight losing session for the index.

The divergence of the two indices followed patterns from earlier this year, when investors sold out of growth companies over fears of rising rates and poured into more cyclical plays. That trade has been more muted recently but could be coming back, said Nick Frelinghuysen, a portfolio manager at Chilton Trust.

“It’s been a bit more ambiguous . . . in terms of what regime is leading this market higher, is it quality and growth or is it value and cyclicals?” Frelinghuysen said. “We’re in a little bit of a wait-and-see mode right now.”

The 10-year Treasury yield, which rose rapidly earlier this year amid inflation fears, declined 0.05 percentage points to 1.56 per cent on Thursday.

In Europe, the Stoxx 600 closed down 0.2 per cent, hovering just below its record high reached in mid-April.

With the US economy close to recovering losses incurred during coronavirus shutdowns, economists expect the US government to report on Friday that the nation’s employers created 1m new jobs in April. Investors will scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.

Up to 1.5m jobs would “not be enough for the Fed to shift”, analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”

Central bankers worldwide had a strong “communications challenge” around the eventual withdrawal of emergency monetary support measures, said Roger Lee, head of UK equity strategy at Investec.

“If it is orderly, then you can expect a gentle continuation of this year’s stock market rotation” from lockdown beneficiaries such as technology shares into economically sensitive businesses such as oil producers and banks, Lee said. “If it is disorderly, it will be a case of ‘sell what you can’.”

On Thursday the Bank of England upgraded its growth forecasts for the UK economy but stopped short of following Canada in scaling back its asset purchases.

The BoE maintained the size of its quantitative easing programme at £895bn, while also keeping its main interest rate on hold at a record low of 0.1 per cent. The British central bank added that while its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year, “this operational decision should not be interpreted as a change in the stance of monetary policy”.

Sterling slipped 0.1 per cent against the dollar to $1.389.

The dollar, as measured against a basket of trading partners’ currencies, weakened 0.4 per cent. The euro gained 0.4 per cent to $1.206.

Brent crude fell 1.1 per cent to $68.17 a barrel.



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Gensler raises concern about market influence of Citadel Securities

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Gary Gensler, new chair of the Securities and Exchange Commission, has expressed concern about the prominent role Citadel Securities and other big trading firms are playing in US equity markets, warning that “healthy competition” could be at risk.

In testimony released ahead of his appearance before the House financial services committee on Thursday, Gensler said he had directed his staff to look into whether policies were needed to deal with the small number of market makers that are taking a growing share of retail trading volume.

“One firm, Citadel Securities, has publicly stated that it executes about 47 per cent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Gensler is scheduled to appear at the third hearing into the explosive trading in GameStop and other so-called meme stocks in January.

Trading volumes in the US surged that month as retail investors flocked into markets, prompting brokers such as Robinhood to introduce trading restrictions that angered investors and drew the attention of lawmakers.

The market activity galvanised policymakers in Washington and investors. Lawmakers have focused much of their attention on “payment for order flow”, in which brokers such as Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.

That practice has been a boon for brokers. It generated nearly $1bn for Robinhood, Charles Schwab and ETrade in the first quarter, according to Piper Sandler.

Gensler noted that other countries, including the UK and Canada, do not allow payment for order flow.

“Higher volumes of trades generate more payments for order flow,” he said. “This brings to mind a number of questions: do broker-dealers have inherent conflicts of interest? If so, are customers getting best execution in the context of that conflict?”

Gensler also said he had directed his staff to consider recommendations for greater disclosure on total return swaps, the derivatives used by the family office Archegos. The vehicle, run by the trader Bill Hwang, collapsed in March after several concentrated bets moved against the group, and banks have sustained more than $10bn of losses as a result.

Market watchdogs have expressed concerns that regulators had little or no view of the huge trades being made by Archegos.

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system, even when the system holds,” Gensler said.

“Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential system-wide risks, should any single incumbent with significant size or market share fail.”



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