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October 08, 2009

Peak Oil: The End Of the Oil Age is Near, Deutsche Bank Says

Source: The Wall Street Journal

By Keith Johnson

Here’s an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the “oil age.”

That’s the take from Deutsche Bank’s new report, “The Peak Oil Market.” In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.

That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil’s coffin and send prices plummeting back to $70 by 2030. That’s because there’s an even more important “peak” moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:

US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.

The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.

Deutsche Bank expects the electric car to become a truly “disruptive technology” which takes off around the world, sending demand for gasoline into an “inexorable and accelerating decline.”

In 2020, the bank expects electric and hybrid vehicles to account for 25% of new car sales—in both the U.S. and China. “We expect [electric propulsion] will reverse the dynamics of world oil demand, and spell the end of the oil age,” the bank writes.

But won’t cheaper oil in the future just lead to a revival in oil demand? That’s what’s happened in every other cycle. Au contraire, says the bank: Just as the explosion of digital cameras made the cost of film irrelevant, the growth of electric cars will make the price of oil (and gasoline) all but irrelevant for transportation.

In a report filled with interesting tidbits, one in particular stands out: The cost of the Iraq war at the pump. Deutsche Bank figures the cost of the war at $1.5 trillion. Amortized over 20 years, that works out to $75 billion a year. “If the US government taxed US gasoline consumers purely to reflect the financial cost of the war in Iraq, gasoline prices should be some 54 cents per gallon higher,” the report notes.

November 24, 2007

In the Realm of the Dying Dollar

Source: Newsweek

The plunging greenback threatens to cripple U.S. power. Why are the candidates ignoring this critical issue?
Nov 23, 2007 | Updated: 3:50 p.m. ET Nov 23, 2007

Great powers die slowly. It took years before the world realized that Great Britain was an imperial corpse, sapped of its strength by two world wars. The funeral finally occurred on Feb. 21, 1947, a freezing winter day in bomb-torn, bedraggled London, when the British wrote their own epitaph. That was the day that London cabled Washington: "His Majesty's Government, in view of their own situation, find it impossible to grant further financial assistance to Greece," amounting to a half billion dollars a year and a garrison of 40,000 troops. The British also announced the same day that they were withdrawing from Turkey. "The British are finished," remarked a stunned Dean Acheson, who was soon to be Harry Truman's secretary of State. And so they were. It was the early cold war. With the Soviet Union threatening to extend its influence over Greece and Turkey, there was no time for elegies. Instead, a quick passing of the baton took place: the United States would now fill Britain's role and become the central, stabilizing power in the West. This was the moment of "creation" of the U.S.-led world order, Acheson later realized.

One has to wonder now whether the American superpower is also experiencing a terminal illness, with its decline marked by the dollar's downward drift. The one difference being that there is no successor on the horizon (the Chinese have a long, long way to go), and the currency that is replacing the dollar, the euro, is backed not by an emerging superpower but by the feeble cacophony of voices that is the European Union. Yet the signs of imperial decadence are unmistakable. The world is losing confidence in the dollar, in no small part because it has lost confidence in America's strategic judgment and in its sustainability as a great power in the face of record budget and trade deficits, which are forcing the United States to borrow ever more money from future rivals like China and Russia.

Even as the Bush administration savors the calming news out of Iraq, and prepares for a major Mideast peace conference in Annapolis on Tuesday that will look and feel like grand American gestures of the past, finance ministries and central banks around the world--especially in places like Beijing and the wealthy Persian Gulf states--are making decisions that will further undermine U.S. power, perhaps permanently. The irony for George W. Bush, of course, is that more than anything else he began as a president who wanted to build up American power, which he presumed to have been frittered away by Bill Clinton. Bush believed that enemies such as Osama bin Laden and Saddam Hussein perceived America as soft. "It was clear," he said after 9/11, "that bin Laden felt emboldened and didn't feel threatened by the United States." Bush vowed to reverse that image.

Instead, the world monetary system now is making unfavorable comparisons to America at the height of the Clinton years. And bin Laden seems to be achieving his publicly avowed goal of provoking the United States into overextending itself and draining its economy. In a blistering essay in the current Vanity Fair, Nobel laureate Joseph Stiglitz, a former World Bank economist, notes that Bush took a nation with a budget surplus upon assuming office and turned it into a global debtor, and he has underinvested in education and alternative energy. "In breathtaking disregard for the most basic rules of fiscal propriety, the administration continued to cut taxes even as it undertook expensive new spending programs and embarked on a financially ruinous 'war of choice' in Iraq. A budget surplus of 2.4 percent of gross domestic product (GDP), which greeted Bush as he took office, turned into a deficit of 3.6 percent in the space of four years. The United States had not experienced a turnaround of this magnitude since the global crisis of World War II," Stiglitz writes. "Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle 'worst president' when it comes to stewardship of the American economy. The economic effects of Bush's presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America's being displaced from its position as the world's richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush."

If the passing of American hegemony happens, it will occur very slowly--death by a thousand cuts of credit. One reason why it's so hard for Americans to contemplate their loss of prestige, symbolized by the fall of the once-almighty dollar, is that politicians and pundits tend to cast the issue as all-or-nothing. What would happen, they say, if China suddenly decided to dump the trillion dollars of U.S. debt it holds in reserves? This, however, will almost certainly never occur. While China and other big dollar-holding countries such as Singapore, Russia and the Persian Gulf states are very worried about the erosion in value of their dollar-denominated holdings and inflationary pressure, they also know that an abrupt move to cut their pegs to the dollar or to sell off in large amounts would force a run on the currency. That would leave them even poorer. Instead these countries are pursuing careful reallocations of their investment holdings, shifting slowly to the euro or a "basket" of currencies that will allow them to hedge against the dollar's decline. Credit will become more expensive, the U.S. economy will find itself increasingly crimped, and America's ability and willingness to act as the defense umbrella to the world will gradually peter out. The effect will be more like a slow-acting poison: drip, drip, drip.

But the financial world order is such a precarious house of cards today that the markets are getting increasingly jittery. Markets operate on confidence. And today's markets seem to have little confidence that the Bush administration can emerge from its economic never-never land, one in which as Dick Cheney's first-term pronouncement that "deficits don't matter" was allowed to stand unchallenged, in which zero-saving Americans continue their profligate spending habits and descent into deeper indebtedness by simply assuming the rest of the world will continue to fund those habits. "The American consumer is dramatically overleveraged," says Bob Hormats a vice chairman of Goldman Sachs International. That "means we have to borrow roughly $3 billion a day from rest of world. That inflow is now slowing down. Foreigners will say 'we're concerned about lending in dollars, so we're going to be more cautious about lending money to you.' At some point, if we get a lot less money, the dollar will plunge and interest rates will go up." Even wealthy Americans, Hormats notes, are beginning to ship their money abroad, to Europe and Asia, to hedge the dollar.

We should be careful, of course, not too pronounce the death of Pax Americana too quickly. That has been done before. The illness need not be terminal: deficits can be cured, and foreigners still crowd cargo containers and the backs of trucks to sneak into the land of opportunity. (China, by contrast, is not undergoing an immigration debate.) But the country is in such a fiscal hole right now that, as David Walker, the comptroller general of the United States, told my colleague Jeff Bartholet last week, "You could decide not to renew the Bush tax cuts, you could eliminate all foreign aid, eliminate all earmarks, eliminate NASA, eliminate the National Endowment for Humanities and eliminate the entire Defense Department tomorrow, and you still wouldn't solve the problem." This most critical of issues has barely made it into the presidential debates. The drooping dollar is driving it to the public's attention, particularly as gas, oil and other essentials continue to go up in price. Perhaps the next president, whoever he or she is, ought to pay more attention, too.

© 2007 Newsweek, Inc.

November 07, 2007

Ignoring the Obvious

Source: Clusterfuck Nation

By Jim Kunstler
Novermber 5, 2007

One of the biggest laughs of the season came out of a New York Times business section story last Tuesday by reporter Michael Grynbaum, who wrote, "Oil is on a steady march toward toppling the inflation-adjusted high of $101.70 it set in April 1980, analysts said, though many are at a loss as to what keeps driving the price." (Italics mine.) Actually, lots of people know what is driving up the price -- just not anybody who works at that once-august and now-clueless newspaper. It can be stated simply -- the demand line has crossed the supply line -- though that simple fact has many curious ramifications.

Among the most subtle is a theory out of Doug Noland's latest Credit Bubble Bulletin (published every Friday).

"There are literally trillions of dollars of liquidity sloshing around the world keen to hold “things” of value. Liquidity sources include the massive central bank reserve holdings as well as funds at the disposal of the sovereign wealth funds. Importantly, the more apparent becomes U.S. financial fragility, the keener they are to stockpile real 'things'. . . . Indeed, it should be noted that this is the Federal Reserve’s first attempt at reflation where U.S. securities are not the speculators’ or foreign central banks’ asset class of choice . . . . Not only is the pool of potential global buying power unparalleled in scope. It is fervidly attracted to tangible assets -- as opposed to U.S. securities -- and is highly speculative in character. At the same time, an unwieldy global boom is stoking unprecedented demand in China, India, Asia generally, and the other “emerging” markets including Russia and Brazil. Throw in various weather related issues and energy production constraints and the prospect for some very serious bottlenecks and shortages has developed."

In short, foreigners stuck holding dollars that are hemorrhaging value would rather spend them on something other than dollar-denominated financial paper, and nothing is more crucial to the maintenance of industrial economies than oil. Noland's theory comes on the heels of reported oil and gasoline shortages in China, bad enough to have caused some civil unrest -- and bad enough for China's leadership to want to spend some of its vast US dollar reserves bidding up oil prices in the open markets to quell that unrest.

This is nothing more complicated than hoarding behavior on a global scale, a mounting crisis of frightened self-interest that has already been well-described by investment banker Matthew Simmons. Simmons was only one of many analysts who spoke at the mid-October Houston conference put on by ASPO-USA (the Association for Study of Peak Oil) -- to which The New York Times failed to send a reporter. Simmons has also said that the American public (and its leaders) will probably not "get" the fundamental problem with oil until rising prices are joined by spot shortages -- i.e. gas station lines, which will represent hoarding behavior on the basis of individual motorists.

Behind the hoarding dynamics are several clear circumstances.

One biggie is the growing export crisis, described by geologist Jeffrey Brown. Countries like Saudi Arabia and Mexico that sell oil to importing nations like The USA and Japan are using more of their own oil and producing less. Mexico's trajectory is so steep (due to the severe depletion of its giant Cantarell oil field) that it could easily go from being America's Number 3 source of imports to zero in less than five years. The anticipated yearly growth in worldwide oil demand next year will equal 80 percent of the USA's entire oil production.

The export crisis is only an additional layer on top of the general peak oil situation, but it illustrates the way that complex systems we depend on -- and oil markets are one -- are liable to wobble and fail just as the world comes off the all-time oil production peak for good. Finance is another complex system and it, too, is entering a stage of robust instability. Food production is yet another, with a grain scarcity that has driven wheat prices to all-time highs. The roster of complex systems entering phase change is long and gruesome.

Another big element behind rising oil prices is oil nationalism. The old "major" oil companies -- Exxon-Mobil, Shell, BP, Chevron, et cet -- now only account for about five percent of world oil production. The other 95 percent comes from nationalized oil industries like Saudi Aramco, Mexico's Pemex, Petroleos de Venezuela, and Brazil's Petrobras. Russia's Lukoil and Rosneft are effectively state-controlled. Not only is worldwide oil in depletion (past peak) generally, but most of the remaining oil is controlled by entities that are inclined to both withhold (hoard) some remaining oil for their own future use and to direct whatever oil they do sell into places other than open auctions on the futures markets. Selling oil to favored customers will be an extremely potent instrument of geopolitics in the decade ahead, and is only one aspect of a desperate global resource contest that could turn ugly and violent. For the moment, though, its meaning for the US is that the two-thirds of our daily oil supply composed of imports is in jeopardy.

Another big element of the oil price story is the condition of the equipment used all over the world for getting it out of the ground, moving it around the globe, and refining it into useful byproducts like gasoline and aviation fuel. The world is woefully short of drilling rigs, and the cost of steel is way up. The demand for new equipment is out-of-sight. The existing worldwide inventory of equipment can be fairly described as decrepit. As Simmons points out, there is a frightening gap between the need for investment in new rigs, tankers, and refineries and the money available to just keep production at current levels. The outlook is grim. In fact, the worldwide lack of will to invest in oil industry equipment is itself a symptom of the crack-up of global finance as a complex system under duress. On top of the equipment problem is a human resource problem: the world us not producing enough oil technicians and engineers to keep up with production, let alone increase it, and every year another wave of senior specialists retires out of the system.

Beyond these parts of the oil price story are even more sub-plots, like the political strife in Nigeria that effectively holds its oil industry hostage, not to mention the fragile state-of-affairs throughout the Middle East, and dare we leave out the insane habits of America's Happy Motoring utopia.

There is really no excuse for The New York Times and the rest of the mainstream news media to not understand what is going on out there. The pervasive cluelessness is a symptom of another complex system out of whack -- the system that informs us what's going on. Meanwhile, the danger mounts. The heating season is underway and the furnaces are clanking. Many Americans will have to start choosing whether to pay their mortgage, fill the tank of the Chevy Suburban, buy that brick of Velveeta, or pay the heating oil guy. It looks like China will be spending more of its accumulated dollars bidding up the price of oil (or making favorable contracts with foreign suppliers) instead of buying Freddie Mac bonds. The USA could not find itself in a less favorable position among all these forces roiling the scene. It certainly can't afford to continue its pathetic pose of cluelessness.

November 06, 2007

The Corn Ethanol Effect

Source: Mother Jones

Click image for full size:
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October 26, 2007

US imposes unilateral sanctions on Iran: One step closer to war

Source: World Socialist Website

By Bill Van Auken
26 October 2007

In an act unprecedented in the history of international relations, Washington on Thursday unilaterally imposed harsh and potentially crippling economic sanctions against Iran’s main uniformed security force, as well as against more than 20 Iranian companies and the country’s three major banks.

The sanctions, announced by US Secretary of State Condoleezza Rice and Treasury Secretary Henry Paulson, represent a deliberate provocation aimed at precluding any negotiated settlement to the dispute over Iran’s nuclear program and making a US war against the country all but inevitable.

In announcing the measures—which are considerably more punitive than those imposed by Washington during the seizure of the US embassy which followed the 1979 Iranian revolution—Rice said they were designed “to increase the costs to Iran of its irresponsible behavior.”

The sanctions are directed in the first instance against Iran’s Revolutionary Guard Corps, which the US government has now branded as “proliferators of weapons of mass destruction,” and its Quds Force, which has been labeled a “supporter of terrorism.”

The Revolutionary Guards, a force of some 125,000, is responsible for law enforcement, border patrol and resistance against foreign attack. It also organizes Iran’s people’s militia, providing military training to some 12 million volunteers.

The Quds Force is a special unit within the Revolutionary Guards that handles overseas operations. It has acted in a number of countries with the direct approval of Washington.

In Bosnia, it provided arms to the US-backed Muslim government; in Afghanistan, it aided the forces fighting the Soviet military and then supported those fighting the Taliban; in Iraq, it assisted Kurdish guerrillas against the Baathist regime of Saddam Hussein.

Elsewhere, it has aided organizations opposed by the US, principally those resisting Israeli aggression, such as Hezbollah, the mass Shia movement in Lebanon, and organizations in the occupied Palestinian territories.

By imposing these designations upon the official armed forces of a sovereign state, the Bush administration is carrying out a brazen intervention into the internal affairs of Iran. In so doing, it is setting out a pseudo-legal framework for war, spelling out two alternative pretexts—weapons of mass destruction and terrorism—which are identical to those contrived and propagated in preparation for the unprovoked US invasion of Iraq.

Washington has charged that Iran is pursuing its nuclear program in order to construct a nuclear weapon. Tehran has denied this charge, insisting that it is utilizing the program for peaceful purposes, in particular, the development of an alternative power source.

In regard to the second casus belli, the Bush administration and some senior US military commanders have repeatedly accused Iran and the Quds Force, in particular, of arming, funding and training forces in Iraq responsible for attacks on US occupation troops.

Washington has yet to provide concrete evidence to back these charges and has produced no one that it can credibly claim is an Iranian agent engaged in these alleged activities. Tehran has denied responsibility for the attacks, which it points out are carried out in their great majority by Sunni resistance fighters, not the Shia movements with which the Iranians have enjoyed a longstanding relationship.

The sanctions against the Revolutionary Guards are aimed at inflicting significant damage to the Iranian economy. The Guards’ role in Iran includes far-ranging economic activities.

Its engineering unit, for example is involved in a number of major projects, ranging from a $2 billion contract for the development of the country’s main gas field, to a $1.3 billion contract for a new pipeline directed to Pakistan, to the construction of a Tehran metro extension, a high-speed rail link between the capital and Isfahan, shipping ports and a major dam.

The immediate impact of sanctions allowing the freezing of assets in US banks or barring US businesses from economic ties to the Iranian Guards, as well as the named Iranian bank and other companies, is negligible, given that Washington’s imposition of sanctions in response to the 1979 revolution that overthrew the US-backed dictatorship of the Shah had already largely frozen American banks and corporations out of the Iranian market.

Blackmailing foreign banks and corporations

The aim of these measures—which are far more sweeping than anything the US could hope to get passed in the United Nations—is to blackmail foreign banks and corporations with the threat that their continued operations inside Iran could lead to American-imposed penalties and exclusion from the US market.

Treasury Secretary Paulson called upon “responsible banks and companies around the world” to cut off all ties with the named bank, companies and all affiliates of the Revolutionary Guards. US officials have stressed that the Guards’ ties are so widespread that any economic relations whatsoever with Iran carry with them the threat of US retaliation.

The US action won quick endorsement from the British government of Prime Minister Gordon Brown, which, according to some press reports, has also signaled its willingness to go along with eventual US air strikes against Iran. Brown appears prepared to play the same role that Blair played in paving the way for the invasion of Iraq, by pushing for the United Nations Security Council to impose another set of sanctions, a move that is opposed by Russia and China, both of which have substantial interests in Iran and hold veto power on the council. In 2003, Bush invoked the failure of the UN to pass a resolution authorizing military action as the pretext for unilaterally launching the US war.

Other European powers, however, were more cool towards Washington’s diktat. German Foreign Minister Frank-Walter Steinmeir said Thursday that any decision on further sanctions against Iran should await an evaluation of Iran’s willingness to answer more questions from the International Atomic Energy Agency (IAEA). German companies exported $5.7 billion worth of goods to Iran last year, while the German Economics Ministry granted the government in Tehran $1.2 billion in export credit guarantees.

Iran’s new nuclear negotiator, Saeed Jalili, joined by his predecessor, Ali Larijani, held two days of talks this week with the European Union’s foreign policy director, Javier Solana, in Rome to discuss Tehran’s nuclear program. At the end of the talks Wednesday, the Iranian negotiators joined Solana and Italian Prime Minister Romano Prodi in a joint press conference in Rome. Both sides described the talks as “constructive,” while Prodi insisted that “dialogue is the only way to find a solution for Iran’s nuclear program in the UN Security Council and Italy encourages this way.”

Russian President Vladimir Putin voiced a harsh reaction to the US sanctions. Meeting with European Union leaders at a summit in Portugal, he insisted that the controversy over Iran’s nuclear program should be resolved through negotiations, along the lines of those pursued with North Korea.

“Why worsen the situation and bring it to a dead end by threatening sanctions or military action?” Putin said. In an obvious characterization of Bush, he continued, “Running around like a madman with a razor blade, waving it around, is not the best way to resolve the situation.”

Iran dismissed the US sanctions. “The hostile policies of America against the respectful Iranian nation and our legal organizations are against international regulations and have no value,” said Foreign Ministry spokesman Mohammad Ali Hosseini. “Such ridiculous measures cannot rescue the Americans from the crisis they themselves have created in Iraq.”

Speaking at a conference on “Privatization in Iran” held in Dubai for foreign investors, the head of Iran’s Chamber of Commerce, Industries and Mines, Mohammad Nahvandian, said that while the sanctions could lead to “an increase in costs,” they could not “disturb or stop Iran’s massive trade relations with other countries.”

The principal aim of the sanctions, however, appears to be not so much economic as political. By increasing tensions, they are designed to slam the door on any negotiated settlement of the nuclear dispute and pave the way for US military action.

In that sense they are of a piece with the steady escalation of threats against Iran, including Bush’s warning last week about “World War III” and Cheney’s threat last Sunday that Iran would face “serious consequences” if it continued on its present course, and that the US would not “stand by as a terror-supporting state fulfills its most aggressive ambitions.”

Fresh evidence of US war preparations against Iran came in the details of the nearly $200 billion budget request sent to Congress last Monday for funding the continuation of the wars in Iraq and Afghanistan.

Included was nearly $88 million for fitting “bunker-busting” bombs onto B-2 stealth bombers. Some lawmakers and congressional aides pointed out that there is little use for such weapons in the current counterinsurgency campaigns in Iraq and Afghanistan, and that the bombs were in all likelihood intended for attacking Iran’s underground nuclear facilities.

As the Bush administration prepares for yet another war, the Democrats in Congress have once again emerged as willing accomplices. The administration’s imposition of sanctions was actually prefigured by legislation passed in the Democratic-led House—by an overwhelming 397-16 vote—that would impose sanctions on non-US energy companies doing business in Iran.

While Democratic leaders claimed the measure was intended to cut off funding for Iran’s nuclear program, its real intention is evident. American oil conglomerates frozen out of the Iranian market want to deny their competitors any advantage.

In the final analysis, the propaganda about nuclear threats and terrorism notwithstanding, a US war against Iran would be launched to impose American capitalism’s hegemonic control over the strategic oil reserves of the Persian Gulf.

October 15, 2007

Oil Futures Hit New Record Above $85

Source: Associated Press

Monday October 15, 1:03 pm ET
By John Wilen, AP Business Writer
Crude Prices Surge As OPEC Estimates Supplies Are Falling While Demand Is Growing

NEW YORK (AP) -- Oil prices surged above $85 a barrel Monday for the first time after OPEC said crude production by non-member countries is likely falling even as global demand for oil is rising.

Prices were also supported by concerns Turkish forces will pursue Kurdish rebels into Iraq, disrupting oil supplies, and by technical buying by investment funds.

Despite the Organization of Petroleum Exporting Countries' decision last month to boost its production by 500,000 barrels per day beginning next month, the rest of the world will likely produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, OPEC said in a report.

At the same time, fourth quarter demand for crude oil will grow by 100,000 barrels a day over last year, OPEC said.

The estimates add to sentiment that crude supplies are tight. Last week, the Energy Department reported that domestic crude inventories fell during the week ended Oct. 5 when they had been expected to rise. And the International Energy Agency concluded that oil inventories held by the world's largest industrialized countries have fallen below a five-year average.

"The fact that U.S. crude inventories fell yet again ... reinforced the market's underlying concern that demand has yet to slow down sufficiently to allow stocks to build, while supply is also perceived to be struggling to catch up," wrote Edward Meir, an analyst at MF Global UK Ltd., in a research note.

Light, sweet crude for November delivery rose $1.72 to $85.41 on the New York Mercantile Exchange after rising as high as $85.49, a record trading price.

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

In other Nymex trading, gasoline futures rose 4.97 cents to $2.1348 a gallon, while heating oil futures rose 3.95 cents to $2.2859 a gallon.

Nymex natural gas futures rose 34 cents to $7.314 per 1,000 cubic feet on forecasts for cooler weather next week in the Northeast and Midwest, and on worries a storm in the Caribbean Sea will move north and develop in strength, threatening key oil and gas infrastructure in the Gulf of Mexico.

In London, Brent crude futures rose $1.61 to $82.16 a barrel on the ICE Futures exchange.

At the pump, gas prices fell 0.4 cent overnight to a national average of $2.757 a gallon, according to AAA and the Oil Price Information Service.

The Turkish government's decision on Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked worries that hostilities will disrupt oil supplies, analysts said.

"Oil out of the northern (Iraq) fields has been erratic for some time," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. "But complete disruption would definitely be bullish for this market."

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday show that speculative buying of oil contracts increased last week.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into new record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

"Funds tend to trade more on the technicals," Rafield said.

Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

October 09, 2007

As global demand soars and prices rise, energy companies are going to the ends of the earth to find new supplies

Source: New York Times

A Quest for Energy in the Globe’s Remote Places

GeirJenssenPhoto.jpg
Photo by Geir Jenssen: A natural gas cargo ship passing Melkoya Island, across the bay from Hammerfest, Norway. Gas from this region is to start crossing the ocean, feeding into pipelines for America’s East Coast.

HAMMERFEST, Norway — For a quarter-century, energy executives were tantalized by vast quantities of natural gas in one of the world’s least hospitable places — 90 miles off Norway’s northern coast, beneath the Arctic Ocean.

Bitter winds and frequent snowstorms lash the region. The sun disappears for two months a year. No oil company knew how to operate in such a harsh environment.

But Norway has finally solved the problem. The other day, on an island just offshore, a giant yellow flame illuminated the sky here. It was just a temporary flare for excess gas, but it signaled a new era in energy production.

Across the bay from this small fishing town, where reindeer wander the streets, one of the world’s most advanced natural gas plants is coming to life.

Within weeks, gas will start crossing the ocean in specially designed ships, feeding into the pipeline network for the American East Coast. Before Christmas, furnaces in Brooklyn and stoves in Washington will be burning the gas. It will be the first commercial energy production from waters north of the Arctic Circle.

As global demand soars and prices rise, energy companies are going to the ends of the earth to find new supplies.

In Kazakhstan, petroleum engineers are braving wild temperature swings in the shallow waters of the Caspian Sea to tap the biggest oil discovery of the last 30 years. They are drilling wells six miles deep in the Gulf of Mexico. And on the island of Sakhalin, off far eastern Russia, they have drilled horizontal wells through miles of rock to produce oil from a stretch of ocean notable for giant icebergs.

But as the industry extends its reach, the quest is becoming more arduous. The cost of producing new oil and gas is rising fast, and companies are troubled by worsening delays. Drilling rigs are scarce. Engineers, geologists and petroleum specialists are in critically short supply.

And the politics of oil and gas are getting trickier, with producing countries demanding a bigger share of the revenue and growing angry about project delays that postpone their payments.

Industry executives say their ability to keep up with global demand is badly strained.

“We’re facing bigger risks and bigger difficulties when we go into new frontier regions,” said Odd A. Mosbergvik, a senior manager at the dominant Norwegian energy company, StatoilHydro. “But this is why the oil industry is for big boys. It’s a big gamble.”

The industry’s new reach is shifting the economics of energy extraction. According to a recent study, discovery and development costs, a key indicator for the industry, tripled from 1999 to 2006, to nearly $15 a barrel.

Last year alone, companies spent $200 billion developing new energy projects worldwide, according to the study by the consulting firms John S. Herold Inc. and Harrison Lovegrove — an amount larger than the economies of 147 countries.

These higher costs mean that the industry needs higher energy prices to finance new projects. They are also constraining its ability to expand quickly.

“There are no easy barrels left,” said J. Robinson West, chairman of PFC Energy, an industry consulting firm in Washington. “The only barrels are going to be the tough barrels.”

There is plenty of oil and gas still in the ground, energy executives say. But global consumption is rising so fast that they must keep looking for new sources. Despite worldwide concern over global warming and the role of fossil fuels in causing it, United States government specialists project that global oil and gas demand will increase by some 50 percent in the next 25 years.

At the same time, the big discoveries of the last three decades, like those in the North Sea and on the North Slope of Alaska, are drying up. This is leading oil companies to remote places like Hammerfest.

The United States will need to import about a fifth of the natural gas it uses by 2030, mostly in a liquefied form shipped across the seas in tankers. Such imports are expected to swell more than sixfold from 2005 to 2030, according to the Energy Information Administration. And consumption is rising fast in the economically booming Asian countries.

Producing oil and gas in polar regions is not entirely new, of course. Russian engineers have been doing it in Siberia for decades, with mixed results, and Alaska’s North Slope was long the most important United States oil field.

But those fields are on land. The Norwegian field is the first Arctic project to tap oil and gas reserves far offshore, in water more than 1,000 feet deep, where traditional exploration methods would be too costly.

The gas field, 340 miles north of the Arctic Circle beneath a stretch of ocean more commonly known as the Barents Sea, is called Snow White — Snohvit in Norwegian, where energy projects are named after mythical characters. Though the field was discovered in 1981, oil executives long considered Snohvit out of reach, because of the Barents Sea’s shifting ice packs, brutal waves and extreme cold.

“This is considered an unfriendly place, even by Norwegian standards,” Mr. Mosbergvik said.

Another big problem the engineers faced here was that Snohvit is situated hundreds of miles from Norway’s traditional pipeline network.

Over the years, Statoil considered many ways to get at the gas, including huge offshore platforms armored against the waves, but discarded them as too costly. Building a vast undersea pipeline that would take the gas south along the country’s stretched coastline was also out of the question.

Statoil engineers eventually came up with an ingenious solution. They installed production equipment directly on the seafloor, with no rigs breaking the surface. The wellheads are linked by 90 miles of pipe to a small island just off Hammerfest. Anti-freeze is injected into the pipes to prevent the natural gas from clogging on its way to shore.

On the island, Melkoya, Statoil built a processing facility to separate the brew of natural gas, oil, water and carbon dioxide that flows out of the field. The natural gas is cooled to a temperature of 260 degrees below zero, shrinking its volume to one-six hundredth and turning it into a liquid that can be shipped in tankers.

Construction of the liquefaction plant over the last several years involved 22,000 workers, one of the largest industrial projects in Europe, and cost nearly $10 billion, up from $6 billion when the project was begun in 2002.

“We did not have the experience to operate in an environment like this,” Mr. Mosbergvik acknowledged.

The field is so large that it could eventually supply nearly 10 percent of the demand for natural gas demand in eastern states of the United States. Dominion, an energy company, has expanded a gas import terminal at Cove Point, Md., to accommodate the Arctic gas, according to Donald R. Raikes, its vice president for marketing and customer services.

By the end of October, Statoil’s gas will begin flowing through a network of pipes to a stretch of the country from Maryland to Massachusetts, the largest consumer market in the United States, with some 16 million residential customers and 5 million industrial clients.

With the plant nearly ready, Statoil maintains that the Barents Sea could turn into a major oil and gas region in coming decades. Indeed, the world’s fast-rising use of fossil fuels, by contributing to global warming, could eventually make the Arctic more accessible for oil and gas production.

In Hammerfest,residents have welcomed Statoil’s project, hoping it will offset declines in fishing. Modern buildings are rising to house the influx of gas workers. New taxes from the gas plant are helping finance a cultural center.

Statoil hopes to double its capacity on Melkoya by 2015. That will require finding new gas fields in the Barents Sea.

Hans M. Gjennestad, strategy manager at Statoil for the Barents region, said, “We believe this resource potential may contribute significantly to the long-term security of supplies of Europe and the United States.”

October 08, 2007

India and Myanmar

Source: PINR Dispatch

Recent developments in the gas field projects of Myanmar have served to highlight the intense resource diplomacy that is ongoing in the region. The government of Myanmar withdrew India's (under the Gas Authority of India Limited or GAIL) status of "preferential buyer" on the A1 and A3 blocks of its offshore natural gas fields and instead declared their intent to sell the gas to PetroChina. The offshore gas fields of the Shwe project in the Bay of Bengal have estimates of 4.8 trillion cubic feet (TcF) for the current blocks with more exploration ongoing. The controlling interests in the two blocks are Daewoo International (60 percent), O.N.G.C. Videsh Ltd (20 percent), GAIL Ltd (10 percent) and Korea Gas Corporation (10 percent).

The most viable of the proposed pipeline routes for moving the gas to India would have proceeded through Myanmar's Arakan state before entering India's Mizoram and Assam provinces and finally terminating in West Bengal at the proposed Jagdishpur-Haldia distribution line.

Implications for India

First of all, India has clearly lost an important diplomatic initiative in the attempt to counter Chinese influence in Myanmar. Even after the deal was sweetened with US$20 million in "soft credit" and the proposed construction of a power plant in Myanmar, it would appear that Indian influence was quietly denied by the inevitability of China's international support for Myanmar. Beijing's use of its veto to keep Myanmar's human rights record off of the U.N. Security Council agenda turned out to be more important to the Myanmar junta than the economic incentives. Despite support from pro-India voices within the upper echelon, like that of Vice Senior General Maung Aye, the sharp turn in the sales decision serves to illustrate the depth of the relationship currently enjoyed by China and Myanmar. Maung Aye signaled as much as early as January 2007, when he refused to provide guarantees that India would gain access to the gas.

Secondly, the economic implications for India are significant. Recent reductions in the estimates of offshore gas in their own eastern blocks have increased demand to find sources outside of India's borders. The Myanmar fields offered a strong possibility to replace these sources. In particular, the pipeline was destined for the northeastern provinces of India, which are among the most power-starved provinces in the country. If the gas was destined for domestic use, the development-security nexus suggests that the power and resulting development, along with greater cooperation on cross-border counter-insurgency efforts, may have had a strong chance of success in defusing the secessionist movements in the northeastern Indian provinces.

Finally, the pipeline seemed set to heighten attempts for greater integration and further military and economic cooperation along the Myanmar-Indian border. Trade initiatives to date have failed to establish in the Indian northeastern border regions, while security initiatives have occurred in a stovepipe fashion with only communication between the two states rather than truly cooperative exercises. India will likely make more overt efforts in the future to establish a stronger presence in the face of Chinese diplomatic successes in Myanmar. It is likely that joint military initiatives in the border region will be initiated and more direct military aid like the proposed light attack helicopter sales from India to Myanmar will continue. Transfers of military equipment have increased significantly in the last two years between India and Myanmar, while joint counter-insurgency operations have been proposed, which would see an unprecedented level of cooperation, and therefore much higher counter-insurgency activity, between the two countries. These efforts would have had a far greater chance of success when combined with the development possibilities that the pipeline may have provided.

Implications for Myanmar

First of all, on the diplomatic front, the military junta has signaled where its strength lies. The military government has had a long history of a strong relationship with China which it would not risk in this scenario. It is likely that the junta recognizes the desire for India to play a stronger role in the region, thus giving it a stronger position in its dealings with New Delhi. The resources of Myanmar have allowed it to bypass international sanctions in the past and will now allow it to negotiate with its Asian neighbors in order to win necessary international support and recognition. The risk of angering India to the point of withdrawal of support was minimal; indeed, GAIL was criticized by India's External Affairs Ministry for not pursuing the agreement with a strong enough commitment to see it completed. However, the junta must continue to walk a fine line between alienating neighbors, already suspicious of China's growing influence in the region, undermining its own sovereignty and losing the support of its largest strategic partner, China, by playing it off against other regional interests.

Additionally, the recent efforts of the Association of Southeast Asian Nations (A.S.E.A.N.) to condemn the slow progress of national reconciliation may have refocused efforts within the junta to place diplomatic pressure via China onto members of A.S.E.A.N. China has recently been increasing its influence within A.S.E.A.N. and stands as the more active (between India and China) peripheral player in the A.S.E.A.N. orbit. Thus, by using its resources as a bargaining chip, Myanmar may have gained promises from China to use its influence to dampen A.S.E.A.N. members' concerns over the reconciliation process.

Secondly, the strength of the Myanmar position lies in the strong economic demand for resources by all of its neighbors. Bids for the sale of the gas were competitive and Myanmar will not lose much in economic terms for the decision to sell to PetroChina. While the decision may be deemed short-sighted for its apparent slight to India's recent diplomatic advances, it does little to reduce the reality that India, Thailand and China are all in need of dependable energy in order to pursue economic development.

Another facet of this agreement is a proposed oil pipeline that would be built in conjunction with the necessary gas pipeline. This oil pipeline would be constructed by PetroChina as an alternate route to the Malacca Strait. Its origin would be at a deep water port at Ramree Island in Myanmar, built to accommodate large crude tanker ships, and would cross the country to an undisclosed point on the Chinese/Myanmar border (likely the Muse/Ruli border crossing point). The economic advantage for Myanmar would be an additional sale point for their onshore and offshore oil blocks along with the economic spin off of a major trans-shipment point. China's vulnerability inherent in the reliance on the Malacca Strait may well have driven the junta's decision to rescind India's preferential buyer status.

The recent price hikes in domestic fuel that sparked protest in Yangon and resulted in the arrest of a number of former student leaders from the 1988 uprising demonstrates the thin line of economic vulnerability upon which the junta balances. The 1988 uprising that resulted in the current suspended constitution was also sparked by a troubled economy. The junta will need to balance its need for foreign currency, gained through resource rents, with the demands of a population that has not accrued much benefit from the current junta's economic policy. Much of the gas being exported to date and in the future would, arguably, be better used in domestic power generation -- something that the Indian offer would have included.

Third, on the security front, agreements that have been developing alongside the gas sale agreement with India will likely not be disturbed by the decision to sell to China. The pipeline route from Shwe would have brought fewer security implications for Myanmar than for India. However, pipeline construction to the western region of Myanmar would have brought with it a larger military presence in an area of poor infrastructure on both sides of the border. In this sense, the military opportunity cost may have been a considerable chance to improve infrastructure and access to an area that has been historically inaccessible.

In addition, Myanmar military ties to the considerable narcotics and arms trade that utilizes the porous border between the two countries may have produced a conflict of interest between parties within the junta that forced the withdrawal of the pipeline project.

Conclusion

The junta is insisting that the rules of the gas fields have little to do with political decisions; rather, that it is the business as usual approach of offering the sale to the highest bidder. The decision to sell to PetroChina, however, emphasizes the complexity of resource diplomacy for all players within the region. India's current loss in the field of energy security will likely not lead to a decrease in its attempts to win greater cooperation from Myanmar over counter-insurgency efforts, but it does reveal the deep connections between China and Myanmar. This relationship will prove hard for India to compete with in the long run, especially as long as the decision-making process within the junta follows the familiar route of political considerations at the expense of sound domestic economic policy.

An important consideration, unexamined here, is that India will not likely rock the diplomatic boat as long as its companies continue to enjoy privileged access to a country that is closed to U.S. and European competition. Exploration, after all, is still ongoing in the offshore blocks while Myanmar's onshore basins remain largely untapped.

Report Drafted By:
Gideon Lundholm

The Economic Factors Behind the Myanmar Protests

Source: PINR Dispatch

The first sign of the current protests currently underway in Myanmar occurred in a rare display of public outrage in February 2007 over the economic conditions within the country. A small group calling themselves the Myanmar Development Committee called on the military rulers to address consumer prices, lack of health care, education and the poor electricity infrastructure. Normally unseen in Myanmar, the protest was quickly broken up after only 30 minutes of activity. Likely in response to the protests, the ruling military junta appointed Brigadier-General Than Han of the Myanmar police to the responsibility of handling civil unrest in Rangoon.

On August 15, 2007, the government made significant cuts to national fuel subsidies, which had an immediate effect of increasing the price of diesel fuel by a reported 100 percent, causing a five-fold increase in the price of compressed natural gas, and placing additional inflationary pressure on an economy already facing estimated inflation levels of 17.7 percent in 2005 and 21.4 percent in 2006.

Once again, similar to the event in February, people took to the streets in a rare display of public anger. The current demonstrations have drawn a significant number of Buddhist monks into the streets and have led to national curfews. Violence finally broke out on September 26 as security forces and protesters clashed.

The end of fuel subsidies were likely part of a larger package of reforms that the junta has been planning in order to, among other things, reduce the pressure of global fuel prices in a country that is dependent on diesel imports for its entire economy. Myanmar has an insignificant domestic refinery capacity and a chronic need for foreign currency. The latest Indian proposal intended to regain access to the Shwe gas fields has reportedly included diesel fuel exports, while a deal with Petronas of Malaysia is seeking similar arrangements. [See: "Pipeline Politics: India and Myanmar"]

The International Monetary Fund (I.M.F.) and World Bank made recommendations as recently as last year along the lines of the subsidy cut as part of a larger package of reforms, critically citing the trend toward extraordinarily high budget deficits carried by the junta. The construction of a new capital, Naypyidaw, and the proposed construction of an information technology capital, Yadanabon, along with significant pay raises for civil servants and the military have placed serious pressure on government reserves. The government typically addresses such deficits by printing more money, producing the significant inflationary pressures seen today.

The involvement of private interests should not be overlooked. Leading businessman Tay Za and his holding company Htoo Trading Company may be set to profit from the privatization of the fuel distribution system within the country. In order for the move to be successful, the thriving black market in fuel needs to be eradicated, thus the necessary removal of fuel subsidies and the subsequent rise in prices throughout the country. While powerplays between junta leaders and private businessmen have been cited before as causal factors in economic policy changes, the international pattern of subsidy reduction in the face of rising global oil prices suggests that this was not the underlying motive in the move. However, it would be a fairly typical move for the junta to select reforms beneficial to its business partners rather than to the national interest.

The junta has successfully melded the Myanmar economy into one that is dependent and focused on the export of its resources. Arguably, it appears that the junta has little economic planning experience and its priorities lie in the promotion of military power. However, it has produced a situation in which little value is added to any resources, whether it is copper, timber, or energy, producing an economy dependent on imports and exposed to the volatility of resource prices. It has managed resource rents and foreign investment poorly; planned hydroelectric projects will likely be forced to export electricity due to the inability of domestic infrastructure to handle the increased load.

Similarly, the information technology project of Yadanabon, likely a response to a similar project in Malaysia, is typical of the economic oddity that the junta often embarks on with little thought to planning. Communication infrastructure within the country is archaic and will not support the proposed project. Likewise, the jatropha (physic nut tree) plantations currently being planted across the country, another junta project, will not result in any significant economic development. The fuel requires significant infrastructure to turn into bio-diesel, which likely means it will be exported in its raw form to neighboring countries while the land under plantation could arguably be better utilized to feed the population. Regardless, the aging diesel engines that are in use throughout Myanmar will not be able to burn the resulting fuel stock effectively even if the domestic infrastructure were available.

One of the factors that may exacerbate the situation is the state of Myanmar's banking sector. The junta has announced a restriction on withdrawals from banks, raising echoes of the banking crisis of 2003. These restrictions are typical for unstable times, but due to the shaky status of the private banks especially, it is likely to cause even further economic hardship for the people of Myanmar. Monks may represent the spiritual backbone of the protests, but it is the general populace who has been successfully cowed by the junta into an attitude of self-preservation, which will ultimately have to be driven to demand change.

The military has made a supreme effort to remove itself from contact with the population: barracks and bases are situated away from towns, and the new capital is a study in strategic withdrawal to the hinterland. It is the populace who has the most to lose from rampant inflation and evaporating savings, but faces an incredibly resilient and increasingly isolated military that has kept a stranglehold on power since 1962.

The last major uprising in Myanmar occurred in 1988. The underlying cause of the revolt was economic and resulted in violent repression by the military. The outcome of the current protest could be similar. Regardless, due to the decades of military involvement in the economy, dependency on resource exports and a high rate of corruption that pervades the country, the necessary economic improvements will not come easily. Even with peaceful political change, without significant international oversight, the overwhelming precedence of military intervention and control in the country will likely return Myanmar to state-sponsored economic mismanagement.

Russian Economic Interests Drive its Policy on Myanmar

Source: PINR Dispatch

The current civil and political situation in Myanmar presents an opportunity for several major powers, namely Russia, China, India and the United States. Of these, Moscow has been working in concert with China to maintain the status quo in the country in order to preserve Russian interests.

For Russia, Myanmar holds a special economic interest since, during the past few years, it has entered into various business dealings with the country. In May, for example, nuclear equipment export monopoly AtomStroyExport forged an agreement to construct a nuclear research center in Myanmar. Leading foreign energy trade company Zarubezhneft, natural gas producer Itera, and Silver Wave Sputnik Petroleum are currently producing Myanmar's off-shore oil deposits alongside the Chinese company PetroChina, after forming a link with the south Russian republic of Kalmykia.

Additionally, Myanmar purchased 15 Russian MiG-29 Fulcrum fighters for approximately US$150 million in 2001. Furthermore, it is negotiating with Russia's state-controlled arms exporter Rosoboronexport on the establishment of an air defense system using the Tor-M1 and Buk-M1-2 missile systems. These business dealings, with a special emphasis on the energy related deals, are especially important to Russia.

Russia, which is currently one of the leading exporters of natural gas, is on the path to achieving a monopoly on energy throughout Europe and is most likely utilizing Myanmar and its oil and natural gas deposits (which it has gained access to after having negotiating the placement of the aforementioned air defense systems) to further its goals of monopolizing Europe's energy industry and possibly expanding its economic and political interest into the East.

It is also important to note that the air defense systems will serve other purposes, such as establishing bases to counter growing Chinese power or U.S. influence.

Demonstrating Russia's position on Myanmar is a recent Foreign Ministry statement that warned that "urgent steps must be taken to prevent the escalation of tensions" in Myanmar. The statement demonstrates that Russia supports an urgent response to stop the escalation of hostilities; however, the purpose of an end to hostilities is simply to reestablish a measure of stability in Myanmar, for Russia does not support the implementation of sanctions against the country, which could work to cripple the ruling junta.

In essence, Russia's interests are the stabilization and continued unsanctioned existence of Myanmar's ruling government, so that Moscow can continue to acquire Burmese oil and retain a stable ally in the region.

Opposition to this policy has come from several sources, one being the United States, which has called for immediate action and sanctions against the military junta in Myanmar. One reason for the United States to push for a change of government in Myanmar is to undermine Russia. If the current regime in Myanmar is disposed, it will be possible that a democratic government will come to power and seek better relations with the United States and its allies. The possibility of a democratic government, and its possible disposition toward friendly relations with the United States, is also an important driving force behind Russia's and China's actions in Myanmar.

Another source of opposition has come from India. The reason for India's involvement is the veritable backstab by Myanmar concerning the removal of India from the status of "preferential buyer" in regard to the off-shore oilfields off the coast of Myanmar. After removing India from preferential buyer status, the junta entered into negotiations with Russian and Chinese oil companies. Possible Indian interests are limited at best since it has been pushed aside by China. It is most likely that the Indian government opposes Russia and China in an attempt to maintain some form of business relations with the small Asian country. [See: "Pipeline Politics: India and Myanmar"]

Currently, with the lack of harsh or committed rhetoric, it is difficult to tell what actions and strategies Russia will adopt when taking action around Myanmar. It is not clear whether or not its strategy will be an active intervention or a more passive campaign of rhetoric. It is also difficult to tell as to whether the involvement of India and the United States will play a significant role in the situation at hand. It is clear, however, that Russia has extended economic interests in Myanmar that it considers critical to its interests.

October 05, 2007

As the World Burns

Source: LifeAfterTheOilCrash.net

By Richard Heinberg for Museletter

September is an equinoctial mont, a time of momentary balance, instability, and change. Day and night are of equal length; however, the rate of change in the relative lengths of day and night is at its peak.

It’s been an unusually busy and stressful month for me personally. Leonardo Dicaprio’s enviro-doc “11th Hour” hit the theaters, featuring yours truly on screen for a few seconds (though the producer and director decided against including a mention of Peak Oil). Early in September I gave a presentation at the UN at the behest of two organic agriculture organizations (the Soil Association of Britain and the Shumei Foundation of Japan). On Thursday the 13th, a CNN Money reporter called wanting information about Peak Oil; his story appeared the next day. The very first copies of my new book, Peak Everything, shipped during the last week of the month. A few days ago a Korean TV crew stopped by and filmed me at home for a three-part documentary to air in November. And a family emergency (aging parent) sent me off to the Midwest for a week. As the saying goes, there’s no rest for the wicked.

The month was no less eventful for the rest of the world—though of course the scale of significance of the following items is approximately 6.7 billion times greater than for the preceding ones.

Maybe the best place to start is with a general comment. It’s getting pretty damn obvious that the world is sliding head-first into the abyss at an accelerating rate, with most Americans as oblivious as ever. The latest indication of impending doom is a festering credit crunch brought on by the inevitable puncturing of a bubble puffed up over the past few years through the issuance of thousands of patently idiotic subprime, adjustable-rate, and interest-only mortgage loans.

The deeper story is that this is just the last of a series of bubbles that the US Federal Reserve has inflated in order to sustain for as long as was humanly possible a fundamentally unsound national financial condition.

As I explained in Chapter 2 of The Party’s Over, the US got rich exploiting its own resources and labor. Its most valuable resource—oil—went into decline forty years ago; since then, we Americans have tried to stay rich by exploiting other nations’ labor and resources, using leveraged trade rules, dollar hegemony, and military threats. All this time, we congratulated ourselves: we were living in a post-industrial information economy; they were doing the dreary, obsolete work of actually making things. They sweated and saved; it was up to us to spend and borrow. We served an indispensable function in the global economy as the consumer of last resort, as the engine of new debt creation (more debt equals more money in circulation—i.e., more GDP growth), and as the global cop keeping order in an unruly world (while also sneaking donuts and taking bribes). The Chinese burned their coal and poisoned their workers and environment to make our stuff, enabling us to enjoy a cleaner environment by keeping our coal in the ground, while they loaned us the money to buy cheap Chinese stuff with. Such a deal!

Life in bubble world was grand while it lasted. First there was the Third World debt bubble of the ’80s; then came the tech bubbles of the ’90s; and finally the real estate bubble of the ’00s. Along the way, Wall Street hoped for a little extra hot air from the privatization of Social Security, but even Americans weren’t stupid enough to sign onto that particular leveraged buyout. All during this time, suburbanites got used to having more gadgets and bigger cars and houses, even if they couldn’t actually afford them.

But now we’re at the end of the line. At last the rest of the world is coming to realize that it doesn’t really need Americans: the Chinese can consume, too, after all. And the Asians can’t really justify loaning us more money; we’re not going to pay it back—or if we do, it will be in devalued dollars. But those loans can also be looked at as investments: other nations have in effect bought US assets, which means that the wealth created from those assets will flow to the new overseas owners, not to Americans. What’s left to buy—other than a lot of soon-to-be-foreclosed real estate? And how much wealth will those assets produce once the bubble deflates?

It’s also clear now that there are alternatives to the dollar, including the euro, the yen, and the yuan. Not that the dollar won’t be missed; when it tanks, there will be as many financial casualties in Mumbai as Manhattan. But currency traders are clearly heading for the exits, and the last one out gets the booby prize—a bag of wooden nickels.

Yes, the rest of the world still must fear America’s awesome weapons of mass destruction: this mighty nation can certainly create an unholy mess when it means to, as it is demonstrating in Mesopotamia. But that doesn’t mean that other nations actually have to obey it any more. The US can bomb to smithereens any country it chooses, but it can’t always count on forcing that country to hand over its resources at gunpoint.

The dollar is hitting record lows. Gold and silver are hot commodities—always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar’s problems. If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets. One way or another, Americans are going to soon see a rapid decline in their real standard of living.

Of course, another big event this month was oil’s nose-bleed ascent to record-high prices, over $82US per barrel. Part of the price hike resulted from the dollar’s weakness, but—as Goldman Sachs has pointed out—the main reason was simply that demand is up while supply is down. The May 2005 peak for the rate of production of regular crude and the July 2006 peak for all liquids are still holding. It may be that the technical maximum global rate of flow for liquid fuels is still a couple of years away, but in effect the peak is here now.

As for Iran, “all options” are still on the table, and the pretext for a broad-scale air attack is apparently being patiently laid. Bush has vowed that he will not leave office with the Iran question unresolved, and France’s new neocon leaders are running defense for Bush/Cheney, calling for “the most severe sanctions possible” and for war if those “don’t work.” Meanwhile, when Tehran actually complies with the International Atomic Energy Agency’s requests, this is viewed as a provocation. This month, Newsweek revealed that Vice President Dick Cheney at one point considered asking Israel to launch air strikes on an Iranian nuclear site, so as to provoke Iran to lash out, thus giving Washington a pretext for more extensive attacks (a scenario I discussed in MuseLetter for April 2007, “Iran: We Will Know Soon”). Iranian President Ahmedinejad’s appearances in New York (at the UN and Columbia University) seemed only to give the US media an opportunity to whip up further anti-Iranian public sentiment, while the Senate’s passage of the Lieberman-Kyl amendment (which Hilary Clinton supported) provided a stamp of approval for any future military actions by the current administration.

But surely the single most important event of the month was the revelation that arctic sea ice is melting faster than even the most dire forecasts had predicted. This is significant because it shows the power of reinforcing feedback loops: as sunlight-reflecting ice melts, it leaves dark water in its place—which absorbs more heat, causing more ice to melt, and so on. This year’s minimum extent of ice was about one million square miles (as of September 16); the previous record low was 1.5 million in 2005. The rate of melting this year was 10 times the recent annual average. This month the Northwest Passage was ice-free for the first time in untold millennia. At this rate, the north polar region could be ice-free in summer by 2015.

Altogether, it was an extraordinary 30 days. Yet so far there’s been no instantaneous economic implosion, and there’s not much blood in the streets (except perhaps in Myanmar), and so the mainstream media can safely focus on the truly vital issues like O.J. Simpson’s current legal scrapes and Britney Spears’s performance at the MTV awards.

Many writers who discuss the sort of stuff that interests me (“reality” I think it’s called) wrap the unutterable sadness of it all in a crisp cellophane of cynicism. I’m guilty of that, too, from time to time—certainly in this little monthly summary. How else to make it somehow bearable?

October 03, 2007

Hunt Denies His Political Ties Aided Kurdish Pact

Source: WSJ Online

By BOB DAVIS
October 3, 2007; Page A3

DALLAS -- Hunt Oil Co. Chief Executive Ray Hunt said his ties to the Bush family and the Republican Party didn't help his company cut a deal last month to explore for oil in Iraq's semiautonomous Kurdish region.

The agreement, which gives the closely held Dallas company access to a largely unexplored part of oil-rich Iraq, has been criticized by the Bush administration and Iraqi officials as undermining efforts to strengthen the war-torn country's central government. Some critics also suggested Mr. Hunt was cashing in on his ties to President Bush, while others claimed he was turning his back on the president.

• Outside Politics: Hunt Oil CEO Ray Hunt said his ties to the Bush family and Republican party didn't help it strike a deal with officials in Iraq's Kurdish region.
• Countering Criticism: The State Department says it had warned Hunt against a deal, but Mr. Hunt said his company didn't ask for advice and acts independently.
• Unknown Potential: Iraq is oil-rich, but much of the war-torn country is unexplored and the biggest known reserves are outside Kurdish territory.

In an interview, the 64-year-old Mr. Hunt says that, contrary to the State Department's assertion, the company received no U.S. government advice before striking a deal. "The State Department must have been misinformed," he said. "We did not consult with anyone in the [U.S. government] prior to signing our agreement."

Mr. Hunt, a longtime friend of the Bush family, gave $75,000 to Republican Party fund-raising committees in the past two years, according to the Center for Responsive Politics. But he said his political ties didn't play a role; the company saw an opening in Kurdistan and jumped on it. "It's another example where we're able to move quickly when opportunity presents itself," said Mr. Hunt, who says Kurdish oil executives turned to Hunt because of its oil-development record in Yemen.

Mr. Hunt added: "The fact is, as a matter of policy, we never have and never will go to the government of the U.S. and ask the government's advice on anything we do from a business point of view."

The State Department says it warned Hunt Oil against signing a contract that it viewed as "legally uncertain." In a news conference late last month, Mr. Bush said he was "concerned" the arrangement would "undermine" negotiations for a national oil law.

The Hunt Oil deal has been touted by Kurdish officials, who want to bolster their claim to autonomy in oil-related issues and worry that energy resources are more thoroughly mapped in Shiite-dominated southern Iraq. But the Hunt contract has angered the Baghdad central government, which worries about a breakup of the state.

Hunt Oil is much smaller than super majors such as Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC. But it has a reputation in the U.S. oil patch as a risk taker. As a closely held company, it feels it can move faster than larger rivals. Mr. Hunt often refers to his firm as a "commando" operation, wooing customers with its derring-do.

Under terms of the Kurdistan contract, Hunt Oil plans to start seismic testing in the next few weeks and to drill its first well sometime next year. But Mr. Hunt emphasized that the contract is for exploration only, not for production, which could take an additional few years to begin -- if the company manages to find oil.

The Kurdish regional government yesterday said it had signed a variety of additional oil deals, which could reduce the political heat on Hunt. They include exploration agreements with two midsize oil companies, Heritage Oil Corp., of Canada, and Perenco SA, of France, and separate agreements to build two oil refineries.

Qubad Talabani, the Kurdish government's representative in the U.S., credited Hunt with boosting the visibility of Kurdistan. "When a name as established as Hunt comes in, it raised eyebrows in the oil-and-gas community," he said.

Iraq is estimated to hold some 115 billion barrels of reserves, making it the third-largest holder after Saudi Arabia and Iran. But after decades of war, the country is relatively unexplored.

Friendly and reserved, Mr. Hunt lacks the family's flamboyance. His father, H.L. Hunt, was a wildcatter who fathered 15 children by three women and used poker winnings for early capital, while two of Ray Hunt's half-brothers tried to corner the world's silver market.

WSJ_HuntGraphic.gif

But Ray Hunt shares his family's thirst for business risk and penchant for secrecy. The company won't release its revenue or even the number of Hunt employees.

Mr. Hunt has expanded its business overseas, including the North Sea and Yemen. Hunt Oil is also a big investor in a natural-gas project in Peru's Amazon and is now building a liquefied-natural-gas export facility in Peru.

Hunt is used to politically precarious situations. It struck oil in northern Yemen in the early 1980s and built the operation during periodic civil wars. Yemen expropriated a big part of its holdings in 2005, which Hunt is contesting in international arbitration, though it still has interests elsewhere in the country.

Its record in Yemen helped get it a leg up in Kurdistan, said Mr. Talabani, the Kurdish official. Over the years, Hunt has also kept up contacts with Ashti Hawrami, the Kurdish oil minister.

"We consider ourselves to be loyal American citizens as individuals and as a company," Mr. Hunt said. His company won't deal with countries that are being sanctioned by the U.S., like Cuba or Iran, or look for legal loopholes that would give it a leg up there, he said.

--Chip Cummins and Neil King Jr. contributed to this article.

September 26, 2007

To Grandmother's House We Go: Peak Oil Is Here

Source: The Oil Drum

Posted by Prof. Goose on September 26, 2007 - 10:00am

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

Yes, folks, peak oil is here, that thing that politicians don't speak of; that event which cornucopians (those who believe that we will not run out of energy) believe is a fraud or misunderstanding is here. The cornucopians believe we are wrong because many have predicted that we would run out of energy before and have been wrong. What they lacked was the 20-20 that hindsight gives one. Today, we can see the peak behind us.

First, how do we recognize when peak oil is about to happen or has happened? The first thing is that it always comes with a gradual decline in production. Steep changes in production curves are due to political or economic decisions. Let's look at Saudi production from 2001 to the present. (NB: Click all graphics throughout this post to expand them to full size.)

The first thing we notice is that it is declining from January 2001 to January 2002. That is the recession resulting from the collapse of the tech stock bubble, causing a worldwide reduction in oil demand. The world then began to recover. In January, 2003 political events in Venezuela shut in that country's oil. We find this

"January 12, 2003: OPEC held its 123rd meeting to review oil markets in Vienna, Austria. OPEC decided to raise its production quotas from 23 million barrels per day to 24.5 million barrels per day, effective February 1, 2003, in order to ensure adequate supplies of crude in response to the oil supply shortfall in Venezuela" http://www.eia.doe.gov/cabs/opec.html

This was a short-lived, very steep increase in production, followed a couple of months later by a nearly equivalent sharp drop in production. This is not a sign of peak oil; it is a sign of political manipulation of production. The next thing we notice is the sharp rise in production in April, 2004. This was due to the rise of price above $40/bbl, a level which OPEC had previously thought would cause a recession. They opened the taps to try to damp down the price. What they didn't count on was that China's and India's consumption had taken off like a rocket because of their economic growth. The price continued to rise, showing that scarcity of oil had come.

After a year and a half of all out production, we see the first signs of decline, normal natural decline in the Saudi production. The plateau of production is followed by a gradual decline in output. One might be tempted to say that the decline in production was due to declining prices, but this isn't true for the period from Oct. 2005 until July 2006. The price rose but the production declined. The gradualistic tail on Saudi production is what an oil field decline looks like.

Just as I was finishing writing this page, I saw this report.

Nicosia, Sept 8: Saudi Aramco in its Annual Review 2006 said that last year the company's crude oil production declined by 1.7 percent, while exports declined by 3.1 percent, compared with the previous year.

Crude oil production in 2006 averaged 8.9 million barrels of oil a day (b/d) and exports 6.9 million b/d. (http://www.dailyindia.com/show/172345.php/Saudi-Aramco-reports-oil-outpu... ) To me, the interesting thing about this is that with a 3.1 decrease in exports, this means that there is a reduction of 266,000 barrels per day available to the rest of the world. Production doesn't really matter to the rest of the world. Only exports matter. If the Saudi's used all of their oil, there would be nothing left for us to use. This data confirms that their exports are decreasing faster than their production is decreasing.

Let's take another example, the United Kingdom.

From 1995 until 1999, the UK production was a plateau. But in mid-1999, the monthly production began to gradually decline. I moved to the UK in August 2001, looked at the curves and told a colleague and fine geologist, Steve Daines, that the UK had peaked production. He disagreed. We made a bet for a lunch that at the end of 2000, the UK would produce no more than 130,000 tonnes of oil. I took below that figure, he took above. Instead of a lunch, he and his wife had me and my wife over for a wonderful Malaysian dinner cooked by his beautiful Malay wife. We ate that meal with gusto along with a Turkish couple, that they knew. The sad thing was that the UK production decline has continued even into this year. When I left the UK, I told one young geologist that if she wanted to have a career in the oil business, she was going to have to leave the UK. While that day hasn't come for her yet, it will. No one will pay geologists to manage fields that aren't producing. The above curve is what peak oil looks like for a country--a plateau followed by a gradual decline that is inexorable.

Now that we know what peak oil looks like, lets look at the current global production of both black oil (crude) and Total Liquids (crude plus condensate--a liquid that comes out of natural gas wells which is usually clear).

What we see here is that following the post-911 recession, there is the ramp up of production to supply the increasing demand from China and India. By late 2004, the rate of increase in world crude production (blue curve) slowed, reaching a peak of 74.3 million barrels per day in May 2004, marked by an arrow. The trend from that time has been down, gradually I would admit, but down none the less.

So, why do I call this the peak of world crude production? Isn't it possible that new production will come on line and lift that number above the 74.3 million bbl/day? Possible, barely, probable, no. Why? All the world's biggest fields are in decline, and they produce a large percentage of the world's oil. We saw Saudi Arabia's production, and that represents 10% of world oil. So, we know that 10% of the world's oil in in decline. But the Saudi's are the second largest producer. Russia, the largest producer of oil, is, at best, flat in production now. The U.S. is the third largest producer of oil (something that surprises everyone) and we have been declining in oil production for 30 years. These three countries account for 28% of the world's production, all in decline.

Mexico has the 3rd largest oil field and that one field represents 2/3 of its crude production. It is in decline, plummeting 20% last year. The UK, Norway, Indonesia, Oman and China are all in production declines. The only places on earth that are undergoing significant increases in crude production are Angola, Kazakhstan and Brazil. Kazakhstan will always be limited to the size of the pipeline it has available. Pipelines have fixed capacity.

Given all this, it is hard to see how the future is going to bring forth vast new quantities of daily production.

Another objection: Above I said that peak oil was a plateau followed by a decline. Could we be in the plateau of world production? Yes, that is certainly possible but for the reasons I list above, the current levels of production simply can't be maintained. Annually, the world loses 5 million bbl/day of productive capacity. The curve above shows that we are not adding to world productivity rates even 5 million bbl/day per year of productive capacity since 2005, which would have keep us absolutely flat.

Now, one other thing makes me think that this is the peak of world crude production. The price response in relation to the supply. Usually if price is going to bring forth new supplies from OPEC (who supposedly has all these vast untapped oil fields just waiting to be turned on), it would happen in sharp steps. The Saudi's have not increased production since late 2004 or early 2005. Yet, because the price has gone up from that time, if they had the oil, they could have made lots and lots of money. But they don't seem to be able to take additional advantage of the oil price. In spite of high prices, indeed, increasing prices, no one on earth seems to have the excess capacity sell more oil into this rising price environment. Given the past history of cheating on the part of the OPEC members, the lack of new supplies coming to market must say something important about its availability

Another interesting feature is the total liquids curve (the red curve). This is both black oil plus the clear condensate from natural gas wells. This curve also seems to have peaked, but peaked a year later, in July 2006. Thus, we are 2 years out from peak crude oil, but only one year out from a probable peak liquids.

What are the implications?

The most important thing we need to know is the rate of decline, which of course, we don't know and won't know for a while. We can delimit it a bit. a 1 million bbl/day decline from May 2005 until May 2007 represents approximately a .75% decline per year. Hardly something to worry about right? The first year of UK decline was only about .5%. The second year of decline was 9%, but then, the UK is a much smaller place than the world, so it is unrealistic to expect the world to follow precisely the UK pattern of decline. We can expect the world crude production to decline much faster in the next few years than it is right now. How fast remains to be seen, but even a 5% decline will mean that in 10 years we will be producing only 60% of what we do today! Instead of having 85 million barrels per day of total liquids, we would only have access to 50 million barrels per day.

Driving

Clearly that kind of restriction in oil supply means that either mass transit must come to America as it is in China, or we must only go to work 3 days per week. In 10 years, having only 60% of the oil we have today means 40% less driving for everyone. Going to work only 3 days per week, would mean the destruction of the economy. Most jobs can't be handled across the internet. How does one do the job of grocery store stocker by telecommuting? Even today though, the relatively mild oil prices we have experienced have altered the driving habits of the American public. I sent this chart to a friend last summer. The chart shows the change in mileage driven on US highways from last year. If we drive more this year than last year, the number will be positive; if we drive less, then the number is negative. As you can see, the response to the rise in the price of oil (green curve) has been that for the first time in 27 years Americans are driving less than the previous year. The last time this happened was during the Iranian hostage crisis!

Expect more of this in the future.

Another implication is that automakers shouldn't make gas guzzlers. Those old enough to remember the Iranian hostage crisis, when everyone had to take turns getting gasoline on alternate days, knows a bit of what it will feel like. Back then, people stopped buying big cars. The V8 went out of style in the 1970s; it was too expensive. I expect the Hummer will meet a similar fate.

Suburban sprawl won't work

American cities will need to restructure to be more like European cities, where one can walk to the stores. In Aberdeen, Scotland, most Aberdonians shopped daily because they had tiny refrigerators. But that didn't matter, if they forgot something, they could walk to the store in about the same time it takes me to drive to the store here.

Flying

Flying will become like it was when I was a child--the province of the rich. I did not get on a commercial jet until I was 25 years old. My children grew up with flying and have seen far more of the world than I have at an equivalent age. But, as oil prices rise, fuel costs will bury many airlines. As far as I know, I own no airline stocks either directly or indirectly through mutual funds. They are not going to have a growing clientele as energy costs go up. We have already seen one of the impacts of the energy costs to this sector. Years ago, I was speaking with my wife's brother-in-law who used to work with Boeing. Boeing had made the choice to go energy efficient with their planes, while Airbus had decided to go BIG. I told my wife's brother-in-law that Boeing had made the correct choice. This is from a Business Week web site:

"Instead, the show could highlight a growing list of woes at the company, based in Toulouse, France. On June 1, Airbus acknowledged that the first deliveries of the A380 will be delayed up to six months, from mid-2006 until early 2007, due to unspecified production difficulties. Then Emirates airlines, which had been expected to announce a big order for the A350 at the air show, said it was not ready to make a decision. Airbus sales chief John J. Leahy, who said earlier that he might announce more than 100 orders for the A350 in Paris, now says big orders could come "a week or two after."

Has Airbus lost its mojo? The past few months have been rough. Boeing, after trailing Airbus on orders for the past three years, has racked up 255 orders as of the end of May, compared with only 196 for Airbus. Even more worrisome, Boeing's new 787, which boasts better fuel efficiency thanks to lightweight composite materials and next-generation engine design, is proving a hit with airlines. They have placed orders and commitments for 266 of the jets, while Airbus has yet to announce a major deal for the competing A350. Meanwhile, the A380's order book has been stuck at 154 since last year." Why Airbus is Losing Altitude," June 20, 2005, http://www.businessweek.com/magazine/content/05_25/b3938069_mz054.htm

And a more recent news source notes that Boeing has won 706 orders for its Dreamliner while Airbuss has only 154 for the A350. Energy is king in the airline industry, even if a government run airplane manufacturer thinks they can change the laws, both of the land and of physics.

Food

One percent of world energy use goes to fertilizers. High energy prices will affect fertilizer use. Indeed, we can see that now. This is a plot of inflation adjusted oil price divided by 100 (so it will fit on the same chart) with the barrels of oil equivalent energy of fertilizer applied per acre of wheat. One can see that when oil prices are high, fertilizer use is low; and vice versa.

Few city people know that an acre of wheat has 1.3 million wheat plants--a density hard to achieve if one is throwing seed by hand. Corn is sown at 30,000 plants per acre. Such densities require mechanical sowers. To sow corn at these densities by hand would require 42 hours (5 seconds per seed). This kind of puts into perspective the utility of energy for our tractors. If the price of oil goes up, there will be fewer bushels per acre because of the combined effects of less mechanization and less fertilizer. Now clearly for a while efficiencies will help. People will figure out how to apply fertilizer more effectively; but eventually not having fertilizer will come into play.

I am fond of citing a little known fact I got from a Walter Youngquist article. Mechanization allows a farmer to spend 4 hours per acre and produce 160 bushels of corn per acre. Back in the 19th century, it was 500 hours per acre an 30 bushels of corn per acre. This of course brings an interesting conundrum to those expecting corn-based ethanol to fuel the world. Without petroleum-based fertilizers, there won't be enough corn to feed us much less fuel the world. A five fold drop in corn yields would leave many in the world starving.

It is unlikely that we will be able to have air-shipped strawberries from Argentina in the winter, so food will once again become seasonal, like it was in my childhood before globalization.

Water

Water and food are entirely linked. Without water, many crops won't grow, but we also need water to drink. A few weeks back the Wall Street Journal gave a couple of interesting facts about farming in India.

"Since the 1990s, India has been a major net exporter of rice, shipping nearly 4.5 million tons last year.
"But annual yield increases began to slow over the past decade. Farmers cranked up fertilizer and water use, draining the water table. Many began planting two crops a year, taxing the soil. Punjabi area officials discouraged farmers from planting two crops and in some places outlawed it, but many farmers ignored them."
"I'm doing mischief against the government,' concedes Kanwar Singh, a second rice crop recently on a stretch of flooded land near the northern India city of Karnal. He says he now has to pump water from 300 feet below the surface, compared with 70 feet 10 years ago." 'In a year or two, maybe it will be finished,' he says." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p. A10

and

"Lakhbir Singh, 35, this year planted aerobic rice for the first time. He says his costs have tripled over the past decade. His well was about 60 feet deep 10 years ago; now, it's down to 450 feet, and he has to use a special submersible engine to help haul the water to surface. The health of his soil has deteriorated, so he's using more fertilizer." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p.A10

One simply MUST have energy to pull that water up from depths of 300 to 450 feet. Without it, there will be no water. Which raises the question, what will these poor guys do when the electricity isn't there to run their pumps?

But this isn't a problem for poor Indian farmers. When the electricity is off, the water pumps, which pump water out of deep wells will not be running. That means that agricultural irrigation will be interrupted. That means that city water supplies won't flow either. Both wells and surface water systems require electricity to move the water from source to your favorite drinking fountain.

Energy source

Another implication is that coal will have to play a larger role in the US energy budget over the near term. We can use coal to make diesel, electricity and thus mitigate, for a while, the coming problems. Coal can be used to manufacture fertilizer and avoid the problems (for a while) cited immediately above. We will use coal or our economy will not function. We will simply have to lose our aversion to coal and the CO2 it produces. I have asked many greens this question: If it comes to a choice between your child freezing in the dark or burning coal, which would you choose. I have yet find one so pure to their principles that they tell me they would let their kid freeze in the dark of a winter night. They all will burn coal to keep warm. Having lived in a society (China) where coal is the major source of energy, the smog is almost unbearable. There were days I could taste the sulfur in my mouth as I walked to work in Beijing. But we are no different than they. Their choice is also one of burn oil or have no heat in the winter or cooked food. The only alternative would be to chop down all the trees (which has almost been done in wide areas of China).

Yesterday there was an article in the Wall Street Journal talking about the coming electricity problems for Texas. Due to the success of the Greens at stopping TXU from building coal-fired power plants, in 3-4 years, Texas will probably start having similar problems to those California is having. California, and now Texas, stupidly decided that we would rather freeze in the dark rather than burn coal. We get 60% of our electricity from fossil fuels, coal, oil and natural gas! The decisions we make today will have immense impacts on your ability to go to work (how is your computer going to function without electricity? Do you really want to be able to drink water from the fountain on your 27th story office? Won't you just love walking those 27 stories each morning to get to work, which will put you in great shape if you don't have a heart attack during that first month of climbing). I suppose deodorant sales will increase in such a situation.

Conclusion

I will finish with personal story from my life overseas. When I lived in the UK, I saw what happens when the oil is shut off. In Sept 2000, the lorry drivers blockaded the refineries. My wife and I were brand new in the UK and driving back from a play in Aberdeen one night, we saw huge lines at the petrol stations. We wondered what was going on, but we drove on home not wanting to be in such long lines anyway. Unfortunately, those people in line, knew that the refineries had been blockaded, I didn't. By the time we realized it, the petrol was gone. That led to many interesting experiences. In one week, the food on the store shelves was gone. By two weeks, police and fire and ambulance were having trouble responding. Farmers were about to have to slaughter chickens because they couldn't get feed after only 2.5 weeks. Construction sites shut down. I learned through that experience that a society has about 3 weeks after the oil is shut off. Food ceases to moveinto the cities.

How can economic growth continue if each day into the future we have less energy than we had the day before??? This is a historic moment in human history. For the first time in 10,000 years, we have less energy than we had yesterday. And that will continue into the foreseeable future.

Roger Duncan, Plug-in Partners

Source: Treehugger.com

by Eckhart Beatty
San Francisco on 11.23.06

Roger Duncan serves as the Campaign Coordinator for Plug-in Partners, a national campaign for plug-in electric vehicles (PHEVs) striving to demonstrate clearly the viability of this market by doing the following: garnering support in the form of online petitions and endorsements by city governments across the country; procuring "soft" fleet orders; and developing rebates and incentives. TreeHugger's Eckhart Beatty recently had the chance to chat with Mr. Duncan about plug-ins and the future of automotive transportation.

TreeHugger: Why was Plug-in Partners founded in Austin, Texas?

Roger Duncan: As one of the more progressive utilities in the nation, Austin Energy has long led the nation in energy conservation. I was asked to see what else we could be doing in the area of clean energy, and I told the City Council we should start a new initiative in the transportation sector since I saw an eventual convergence between the electric and transportation industries. In my capacity as a manager we might be able to take advantage of the abundance of wind and solar potential to power cars. Soon we began seeing a convergence between the electric and transportation industries.

So in August of 2005, we founded Plug-In Austin. We realized from the beginning what we really had to do was to link similar ongoing efforts taking place across the country. We started by targeting the 50 largest cities in the U.S. Now we have members from utilities, environmental groups, businesses, as well as many other federal, state, and local organizations.

I had originally heard of the efforts of Felix Kramer and CalCars, Electric Power Research Institute EPRI, and Andy Frank, a UC Davis professor at who invented the plug-in technology some 30 years ago.

TH: What's the most important thing you want the average individual to know about plug-ins?

RD: They are very energy efficient, cleaner, and cheaper to operate.

TH: What’s the most efficient way of getting the most people to understand their importance in the shortest possible time?

RD: Invite folks to visit the website Plug-In Partners and recommend they sign up for the newsletter. Consider working with the media, as well getting promotions for us.

TH: If Proposition 87 had passed in CA, what would it have meant for the future of PHEVs?

RD: I really don’t know much about it. I’m not a big fan of initiatives. This one could only stand to help, though. It could well stand to buttress the campaigns of lots of alternative energy technologies—as well as ours.

TH: What would you recommend that everyone who doesn't live in California do in this regard? For instance, would similar initiatives be feasible in other states like Texas, as well?

RD: It (an initiative like California’s 87 ballot measure) probably wouldn’t occur in TX. I’m less interested in (proposing) legislation than in demonstrating a market for PHEVs.

TH: Are all hybrid designs the same—or are some different?

RD: There are different varieties. There’s the serial, the parallel—and then the hydraulic (a protoype still). Although, principal variations in designs relate to battery design such as Nickel-Metal Hydride versus Lithium Ion, there are other differences in the size of the battery compared to the engine (with some new ones proposing smaller gas engines and larger electric motors).

Andy Frank: "Just as in the case of any emerging product or technology, there are many ways to implement PHEV technology, optimize for various factors and conditions. We’re looking forward to sorting this out when car-makers begin building PHEVs." [Mr. Frank is the inventor of the PHEV.]*

TH: What is the longevity of battery systems compared to 100% electric cars?

RD: They may be more powerful per unit mass than the batteries in non-hybrids, but less powerful than pure electric cars. Also, plug-ins require a deep discharge of their batteries, whereas fully electric cars don’t need to discharge the batteries as much.

AF: "While the price/performance ratio of pure electric cars may match or exceed that of PHEVs, it’s not likely. I'll bet on the PHEV staying as the ultimate end game for the remainder of the century," he said. "Lithium is coming up fast and will definitely take over the Metal Hydride in power, weight, life, size, and costs," he concluded.*

TH: By their nature, cars are somewhat "disposable," to be replaced by a new model on average every seven years—or less! Is “planned obsolescence” addressed better by plug-ins, in addition to their superior efficiency?

RD: Not really. Cars stay on the road an average of 16 years. It’s unlikely this figure will decline sharply any time soon.*

TH: Could factory-built plug-ins be made to be "upgradable" with respect to engine designs (for a few years going forward so they won’t become outdated like the first generation Prius did)?

AF: "Not really. As cars become more computer-oriented and more telemetric, possibilities for upgraded systems increase. Most products get better over time—no surprise there."

According to Dr. Frank, although "upgrading is always possible," with upgraded parts becoming interchangeable, "you may be flogging a dead horse for a long time." He concludes by predicting, "The technology of these systems will change very fast and may not stabilize for many years—if ever!"

TH: Bush has backed plug-ins. How helpful has all the political rhetoric been so far?

RD: He "gets it," and his support has been helpful. The Department of Energy is now conducting serious discussions, and a new initiative has been launched within its R&D arm.

TH: What are some ways the Partnership could be strengthened?

RD: It’s actually moving faster than we can keep up with.

TH: Does the association have growth plans?

RD: Yes. We’re starting to approach more corporations. Some notable examples of these and other large organizations are P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members)..

TH: What’s the minimum number of cars in a fleet needed for a "soft order"?

RD: We consider four to five as the minimum, but may consider fewer. It’s called a "soft" order to signify simply an intent to built, since they haven’t been mass-produced yet; it is not an actual purchase order--yet. Also, they can’t be built on speculation, due to the matter of expense.

TH: With all the good news that came regarding PHEVs this year, what are the biggest hurdles in our way to getting them mass-produced?

RD: Only certain kinds of cars manufactures would seriously consider it for particular models.

TH: What’s the latest word on the largest car manufacturers warming up to the idea of producing PHEVs?

RD: Ford and GM have both begun focusing on PHEV initiatives. Initially, they had expressed resistance and uncertainty. The bottom line is they are still researching them. Nissan will develop one—perhaps by 2010.

TH: What does Google really intend to do when it says it "wants to build a plug-in"? Would it support CalCars, Edrive Systems, Energy, CS etc. to do this—or exactly what?

RD: It’s true we’re engaged in discussions with Google, but I’m not at liberty to offer any details today.

TH: What are the largest companies and associations involved with the organization?

RD: P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members).

TH: Who are some of the most noteworthy spokespersons of this idea?

RD: Hillary Clinton, Lester Brown, Orin Hatch, Jr., Barack Obama, George Pataki (Gov. NY), George Schulz, R. James Woolsey (former Director of CIA). Plug-in Partners maintains a list of partners.

TH: What can we do as consumers to get them to do so?

RD: They should visit the Plug-In Partners website: sign up, spread the word, and put in a fleet order if applicable to their business.

TH: What about the notion of the PHEV plugging into a grid concept? Where is that idea today?

RD: True, it’s an interesting idea, and I believe it will happen, but it will be years before it will have significant import, since millions of cars are needed to make an impact.

TH: If you lived in remote area, could you set up your PHEV to power your home during blackouts?

RD: Yes. Toyota recently built a prototype that would allow people to generate electricity at 13kW and 120 volts. This would be especially useful for those living off the grid.

TH: What is your impression of companies’ individual commitments to grappling with the issues of PHEVs?

RD: Yes, I think they will remain committed for the long haul.

TH: If everyone who reads this interview could do just one thing a week to help promote the future of plug-ins as a proven viable alternative to fossil fuels, what should it be?

RD: They should visit the website, sign up, and consider getting involved in our work.::

*Note: I am grateful to Felix Kramer, founder of CalCars and Dr. Andy Frank for help with some of these answers.::

September 19, 2007

The High Costs of Ethanol

Source: The New York Times

Published: September 19, 2007

Backed by the White House, corn-state governors and solid blocks on both sides of Congress’s partisan divide, the politics of biofuels could hardly look sunnier. The economics of the American drive to increase ethanol in the energy supply are more discouraging.

American corn-based ethanol is expensive. And while it can help cut oil imports and provide modest reductions in greenhouse gases compared to conventional gasoline, corn ethanol also carries considerable risks. Even now as Europe and China join the United States in ramping up production, world food prices are rising, threatening misery for the poorest countries.

The European Union has announced that it wants to replace 10 percent of its transport fuel with biofuels by 2020. China is aiming for a 15 percent share. The United States is already on track to exceed Congress’s 2005 goal of doubling the amount of ethanol used in motor fuels to 7.5 billion gallons by 2012. In his State of the Union speech in January, President Bush set a new goal of 35 billion gallons of biofuels by 2017. In June, the Senate raised it to 36 billion gallons by 2022. Of that, Congress said that 15 billion gallons should come from corn and 21 billion from advanced biofuels that are nowhere near commercial production.

The distortions in agricultural production are startling. Corn prices are up about 50 percent from last year, while soybean prices are projected to rise up to 30 percent in the coming year, as farmers have replaced soy with corn in their fields. The increasing cost of animal feed is raising the prices of dairy and poultry products.

The news from the rest of the world is little better. Ethanol production in the United States and other countries, combined with bad weather and rising demand for animal feed in China, has helped push global grain prices to their highest levels in at least a decade. Earlier this year, rising prices of corn imports from the United States triggered mass protests in Mexico. The chief of the United Nations Food and Agriculture Organization has warned that rising food prices around the world have threatened social unrest in developing countries.

A recent report by the Organization for Economic Cooperation and Development, an economic forum of rich nations, called on the United States and other industrialized nations to eliminate subsidies for the production of ethanol which, the report said, is driving up food costs, threatening natural habitats and imposing other environmental costs. “The overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel,” it said.

The economics of corn ethanol have never made much sense. Rather than importing cheap Brazilian ethanol made from sugar cane, the United States slaps a tariff of 54 cents a gallon on ethanol from Brazil. Then the government provides a tax break of 51 cents a gallon to American ethanol producers — on top of the generous subsidies that corn growers already receive under the farm program.

Corn-based ethanol also requires a lot of land. An O.E.C.D. report two years ago suggested that replacing 10 percent of America’s motor fuel with biofuels would require about a third of the total cropland devoted to cereals, oilseeds and sugar crops.

Meanwhile, the environmental benefits are modest. A study published last year by scientists at the University of California, Berkeley, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, corn ethanol lowers emissions of greenhouse gases by only 13 percent.

The United States will not meet the dual challenges of reducing global warming and its dependence on foreign suppliers of energy until it manages to reduce energy consumption. That should be its main goal.

There is nothing wrong with developing alternative fuels, and there is high hope among environmentalists and even venture capitalists that more advanced biofuels — like cellulosic ethanol — can eventually play a constructive role in reducing oil dependency and greenhouse gases. What’s wrong is letting politics — the kind that leads to unnecessary subsidies, the invasion of natural landscapes best left alone and soaring food prices that hurt the poor — rather than sound science and sound economics drive America’s energy policy.

September 17, 2007

Canada's Tar Sands

Source: AlterNet

How Canada Went from 21st to 2nd in World's Oil Reserves

By Dan Woynillowicz
World Watch. Posted September 17, 2007.

The United States has its hopes pinned on Canada's "tar sands" for North American security in the oil market. But their "black gold" is an environmental nightmare.

It's well-known that the United States consumes more oil per capita than any other country in the world, absorbing two-thirds of global oil production. This heavy dependence has often, and aptly, been described as an addiction; even U.S. President George W. Bush trotted out the metaphor in his 2006 State of the Union address ("America is addicted to oil").

Most of us regard addictions (to anything) as inherently unhealthy and admission of the problem as the first step toward getting clean. In this case, however, U.S. policy has simply been to seek increased oil imports from more reliable sources closer to home, in effect, to replace distant and unstable dealers with one from the neighborhood -- specifically, Canada, already the kingpin dealer of oil to the United States. In 2005 Canada exported almost 1.5 million barrels per day to the United States, about 7 percent of U.S. daily consumption. Canada exports 66 percent of its domestic crude oil production, and since 1995 the United States has received 99 percent of these exports. At first glance, it would seem that Canada wouldn't be able to boost oil production to fill the gap; production of conventional light and heavy oil in Canada was predicted to peak in 2006 and then rapidly decline. But that's where Canada's "unconventional" tar sands come in.

Production

The vast bulk of Canada's tar sands is found in the province of Alberta, the country's most prolific producer of fossil fuels. The tar sands deposits underlie more than 140,000 square kilometers of relatively pristine boreal forest, an area larger than the state of Florida. It's estimated that the tar sands hold approximately 1.7 trillion barrels of crude bitumen (the technical term for the fossil fuel extracted from the tar sands). But most of this bitumen will never be recovered and only a fraction, 174 billion barrels, is estimated to be recoverable with today's technology and under current and anticipated economic conditions.

When the U.S. Department of Energy formally acknowledged these reserves in 2003, it vaulted Canada's oil reserves from 21st to 2nd in the world, behind only Saudi Arabia. It's little wonder then that the U.S. Energy Policy Development Group has described the tar sands as "a pillar of sustained North American energy and economic security." Canada's so-called "black gold" has come to be regarded as an abundant, secure, and affordable source of crude oil. But development of this unconventional fossil fuel comes with unconventional risks and consequences. Everything about the tar sands is big, most significantly its global warming and environmental implications -- leading some to now describe the tar sands as "Canada's dirty secret."

Producing oil from the tar sands is scraping the bottom of the oil barrel. Tar sands consist of a mixture of 85 percent sand, clay, and silt; 5 percent water; and 10 percent crude bitumen, the tarlike substance that can be converted to oil. Bitumen doesn't flow like crude oil, and getting it out of the tar sands is a messy job. The current technology, which has evolved relatively little since it was first developed in the early 20th century, is a hot water-based separation process that requires huge quantities of water and energy (see diagram). Imagine mixing a bucket of roofing tar into a child's sandbox. Then boil some water, pour it into the sandbox, and try to wash the tar out of the sand.

Most tar sands production takes place in vast open-pit mines, some as large as 150 square kilometers and as deep as 90 meters. Before strip-mining can begin, the boreal forest must be clear-cut, rivers and streams diverted, and wetlands drained. The overburden (the soil, rocks, and clay overlying the tar sands deposit) must be stripped away and stockpiled to reach the bitumen. Four tons of material are moved to produce every barrel of bitumen.

At current production rates, with just three mines operating, enough material is moved every two days to fill a 60,000-seat stadium. But only a small fraction of the bitumen deposits is close enough to the surface to be strip-mined. Over 80 percent of the established tar sands reserves are deeper and must be extracted in situ (in place) by injecting high-pressure steam into the ground to soften the bitumen so it can be pumped to the surface.

Once separated from the sand, the bitumen is still a low-grade, heavy fossil fuel that must undergo an energy-intensive process to upgrade it into a synthetic crude oil more like conventional crude, either by adding hydrogen or removing carbon. Upgrading the bitumen usually occurs before it is shipped to refineries, but sometimes raw bitumen is diluted (e.g., with naphtha) and pipelined to a refinery where it is both upgraded and refined. In the United States about three-quarters of the oil is refined into transportation fuels.

But even then not just any refinery will do. A certain amount of reconfiguring must occur at refineries more accustomed to handling conventional crude oil. Some American refineries, primarily in the Midwest and the Rocky Mountain region, already accept some synthetic crude oil from the tar sands. But with growing reliance on this source of oil, numerous American refineries are converting or expanding in order to handle tar sands-derived synthetic crude oil or raw bitumen.

Impacts

The environmental consequences of oil production from tar sands are major, beginning with its effect on climate change. North America's transition to oil from the tar sands not only perpetuates, but actually worsens, emissions of greenhouse gas pollution from oil consumption.

While the end products from conventional oil and tar sands are the same (mostly transportation fuels), producing a barrel of synthetic crude oil from the tar sands releases up to three times more greenhouse gas pollution than conventional oil. This is a result of the huge amount of energy (primarily from burning natural gas) required to generate the heat needed to extract bitumen from the tar sands and upgrade it into synthetic crude. The energy equivalent of one barrel of oil is required to produce just three barrels of oil from the tar sands.

In 2002 the Canadian government ratified the Kyoto Protocol on global warming, legally committing to a target of reducing the country's greenhouse gas pollution by 6 percent below 1990 levels by 2012. But the rapid growth of tar sands development and oil industry lobbying have undermined efforts to reduce greenhouse gas pollution for over a decade.

Since 1990, Canada's total emissions have risen 25.3 percent, a pace far exceeding the 16.3 percent increase in the United States, the second-fastest-rising nation, according to United Nations data. Regulations introduced in early 2007 are so fraught with loopholes and gaps that greenhouse gas pollution from tar sands is predicted to triple by 2020. Canada's greenhouse gas emissions in 2020 are projected to be 2 percent above 1990 levels. The environmental consequences of tar sands development hardly stop with climate change. Nowhere in the world is there a form of oil extraction and processing with more intense impacts on forests and wildlife, freshwater resources and air quality.

Forests. The tar sands are found beneath boreal forest, a complex ecosystem that comprises a unique mosaic of forest, wetlands and lakes. Canada's boreal forest is globally significant, representing one-quarter of the world's remaining intact forests. Beyond the ecosystem services it provides (cleansing water, producing oxygen and storing carbon), it is home to a wide variety of wildlife, including bears, wolves, lynx and some of the largest populations of woodland caribou left in the world. Its wetlands and lakes provide critical habitat for 30 percent of North America's songbirds and 40 percent of its waterfowl.

If currently planned tar sands development projects unfold as expected, approximately 3,000 square kilometers of boreal forest could be cleared, drained and strip-mined to access tar sands deposits close to the surface, while the remaining 137,000 square kilometers could be fragmented into a spider's web of seismic lines, roads, pipelines and well pads from in situ drilling projects. Studies suggest that this scale of industrial development could push the boreal ecosystem over its ecological tipping point, leading to irreversible ecological damage and loss of biodiversity.

Satellite images readily illustrate the magnitude of boreal forest impacts from tar sands mining operations. The United Nations Environment Program has identified Alberta's tar sands mines as one of 100 key global "hotspots" of environmental degradation. According to Environment Canada (the Canadian equivalent to the U.S. Environmental Protection Agency), development of the tar sands presents "staggering challenges for forest conservation and reclamation."

Very little of the area directly affected by mining operations has been reclaimed, and after 40 years of mining, not a single operation has received a reclamation certificate from the government of Alberta. Suncor Energy's operation, the longest-operating tar sands mine, says it has reclaimed 858 hectares of land since starting operations in 1967, less than 9 percent of the land its operations have disturbed to date. Syncrude Canada, the largest daily producer of tar sands, says its operations have disturbed 18,653 hectares since 1978, with just 4,055 hectares of land reclaimed. None of this reclaimed land has been certified as such. At best, reclamation of the tar sands region will be a large-scale experiment that is unlikely to restore a self-sustaining boreal forest ecosystem within the next century.

Waters. The Athabasca River winds nearly 1,500 kilometers from its source at the Athabasca Glacier in Jasper National Park to Lake Athabasca in Wood Buffalo National Park. It is Alberta's longest river and one of North America's longest undammed rivers. It enters Lake Athabasca at the Peace-Athabasca Delta, the largest boreal delta in the world, a World Heritage Site, and one of the most important waterfowl nesting and staging areas in North America.

It also passes directly through the boreal forest being cleared and strip-mined, and serves as the primary source of water used to separate the bitumen from the mined tar sands. Water withdrawals for tar sands surface mining operations pose threats to both the sustainability of fish populations in the Athabasca River and to the sustainability of the Peace-Athabasca Delta, jeopardizing the subsistence and commercial fisheries of local aboriginals.

Tar sands mining operations withdraw 2-4.5 barrels of fresh water from the river for every barrel of oil they produce. Current operations are permitted to withdraw more than 349 million cubic meters of water per year, a volume equivalent to the amount required by a city of 2 million people. But unlike city effluent waters, which are treated and released back into the river, tar sands mining effluent becomes so contaminated that it must be impounded.

Historically it was believed that the Athabasca River had sufficient water flows to meet the needs of tar sands operations. But it is becoming clearer that this might not be the case, particularly during the winter months, when river flows are naturally lower and growing demand for water withdrawals could lead to long-term ecological impacts. The sustainability of fish populations in the Athabasca River is threatened by continuous tar sands water withdrawals during the winter months in years when low precipitation rates in the Athabasca River basin lead to low flow conditions. Nonetheless, the government has failed to implement regulations that would require tar sands withdrawals to stop when the health of the river is at risk. In fact, the government explicitly allows the tar sands industry to continue withdrawing water no matter how low the river flows become.

For certain in situ drilling operations, significant amounts of water are required to create steam to be injected underground. Because the steam condenses into water and is pumped up with the bitumen, the water can be recycled. However, because some water remains underground, a continuous source of additional water (about half a barrel of water per barrel of bitumen) is required.

These operations are located much farther from the river and, as a result, rely mainly upon groundwater. Where shallower freshwater aquifers are used, the continuous pumping of water can lower the water table in the region. Because these groundwater aquifers are connected to lakes, rivers and wetlands, reducing their levels can cause lakes to shrink and wetlands to dry out. As a result, some operators have switched to deeper sources of salty groundwater. But because they require fresh water, the salty water must be treated, which produces large amounts of waste sludge that must be disposed of.

Both tar sands mining and in situ operations produce large volumes of waste as a result of their water use. For in situ operations, the primary waste stream, a result of treating salt water and the water that is pumped up with the bitumen, is disposed of in landfills or injected underground. Tar sands mining operations present a much more significant risk, because they produce large volumes of waste in the form of mine tailings (six barrels of tailings per barrel of bitumen extracted). These tailings, a slurry of water, sand, fine clay and residual bitumen, are stored in vast wastewater reservoirs.

The industry misleadingly refers to them as "tailings ponds," but collectively these pools of waste cover more than 50 square kilometers and are so extensive that they can be seen from space. One tailings pond at Syncrude's mining operation is held in check by the third-largest dam in the world. These tailings dumps pose an environmental threat resulting from the migration of pollutants through the groundwater system and the risk of leaks to the surrounding soil and surface water.

The high concentrations of pollutants such as naphthenic acids, which are found at concentrations 100 times greater than in the natural environment, are acutely toxic to aquatic life, yet the government has no water-quality regulations for these substances. Migratory birds fare slightly better: To prevent them from landing, propane cannon go off at random intervals and scarecrows stand guard on floating barrels. How this tailings waste, and its grave risks, might be dealt with in the long term remains unknown.

Air. Tar sands air pollution, both provincial and transboundary, is rapidly increasing. Since 2003 Alberta has been the industrial air pollution capital of Canada. Criteria Air Contaminants (CACs) are the most common air pollutants released by heavy industry burning fossil fuels. CACs are defined as "air pollutants that affect our health and contribute to air pollution problems" and include such things as nitrogen oxides (NOX), sulfur dioxide (SO2), volatile organic compounds and particulate matter, all of which are emitted in large volumes by tar sands operations.

Modeling of the impacts of approved tar sands development, which includes three operating mines and three operations at various stages of planning and construction, shows that maximum predicted ambient air concentrations of NOX and SO2 would exceed provincial, national and international guidelines. Emissions of volatile organic compounds such as benzene are also on the rise because of both emissions from burning fossil fuels (e.g., natural gas, diesel, coke) and the growing number of tailings ponds. The costs of such air pollution have not been considered.

The coming tar sands rush

Major global powers are positioning themselves to ensure access to oil from tar sands. To date, four of the five largest publicly traded oil companies in the world (Royal Dutch/Shell, ExxonMobil, ChevronTexaco, and TotalFina) have invested or committed themselves to invest billions of dollars in tar sands development. National oil companies have also staked their claim, ranging from Norway's Statoil to China's Sinopec.

Tar sands speculation, investment and development has grown dramatically. The oil industry's production target of 1 million barrels per day was achieved in 2004, 16 years ahead of the ambitious schedule for growth it laid out in 1995. That year the industry invested almost US$9 billion in Alberta's tar sands. More than US$100 billion of investment has been announced for development between 2006 and 2015.

The tar sands industry is now focused on quintupling production as quickly as possible. It is projected that tar sands production will reach 3-4 million barrels per day by 2015 and could grow to 5 million barrels per day by 2030, if not sooner. It is the prospect of this growth that has led Canadian Prime Minister Stephen Harper to label Canada an "emerging energy superpower."

The magnitude of the environmental risks and liabilities arising from Canada's tar sands rush is unprecedented in the history of North American energy production. Growing awareness about the global warming and environmental consequences of relying upon growth in tar sands production throws into sharp relief the perils of our addiction to oil in the 21st century. All North Americans, including future generations, have a stake in the outcome.

To address the impacts of tar sands production, a novel suite of government policies and innovative technologies must be deployed that drastically reduce the environmental impacts by achieving "carbon neutral" (no net greenhouse gas pollution) production, ensuring that development doesn't proceed any faster than reclamation of the boreal forest and reducing dependence on scarce freshwater resources.

The most immediate opportunity to begin our rehabilitation lies in the more efficient use of transportation fuels. To do so requires tackling another sacred cow: the flagging North American auto industry, which is in trouble partly because it is producing the wrong vehicles for the times. The abysmal fuel-efficiency of North America's SUVs, trucks and cars has actually declined since 1986.

The governments of the United States and Canada must collectively commit to implementing regulations that will make North America a global leader in fuel efficiency. By deploying more efficient technologies today, we can begin to ease the demand for transportation fuels and slow the headlong rush into extracting oil from the tar sands. This will afford policymakers and the private sector the time needed to drive investment toward low-carbon and no-carbon fuels, and to evolve our transportation systems and urban design into a state that is compatible with a carbon-free future. North America stands at a critical juncture in its transportation fuel future.

As conventional oil sources disappear, we face a stark choice: We can develop new, even dirtier sources of transportation fuels derived from fossil fuels like the tar sands, or we can set a course for a more sustainable energy future by improving the efficiency of our oil consumption while aggressively transitioning to clean and renewable transportation fuels and sustainable transportation systems.

The environmental and global warming consequences of even 1 million barrels per day of tar sands production must serve as a wake-up call, and we must acknowledge that increased reliance upon this unconventional, high-impact fossil fuel is not a viable path forward.

Dan Woynillowicz is a senior policy analyst with the Pembina Institute, based in Calgary, Alberta.

September 13, 2007

Iran foreign exchange reserves jump on high oil prices

Source: Middle East Times

September 13, 2007

TEHRAN -- Iran's foreign currency reserves held in banks abroad have risen to $65 billion as of the end of June 2007, on the back of high crude oil prices, media reported Thursday.

The figure represents a jump of 37 percent on the same period, a year earlier, Iran's central bank said in a statement quoted by the Hamshahri newspaper.

Iran, the world's fourth-largest oil exporter, and the second in the Organization of Petroleum Exporting Countries (OPEC), has been helped by soaring crude prices that are helping the country weather domestic economic problems.

Amid US threats of further sanctions action over its nuclear program, Iran has announced it is switching its foreign reserves out of US dollars into euros and other currencies, to prevent damage to its economy from the US pressure.

However, the central bank is still accounting the total foreign currency reserves in US dollars.

September 12, 2007

Oil Hits $80 a Barrel for First Time

Source: AP Writer via Yahoo

Wednesday September 12, 3:09 pm ET
By John Wilen, AP Business Writer

Oil Prices Reach $80 a Barrel for First Time After Government Reports Decline in Inventories

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.

Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.

"This is a market that wants to run up on the slightest bit of information," Ritterbusch said.

Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Light, sweet crude for October delivery rose $1.68 to settle at a record $79.91 on the New York Mercantile Exchange after rising as high as $80.18 earlier. October gasoline rose 3.49 cents to settle at $2.016 a gallon.

Nymex heating oil futures rose 3.64 cents to settle at $2.2191 a gallon, while natural gas futures jumped 50.4 cents to settle at $6.438 per 1,000 cubic feet. Natural gas prices typically react strongly to news of tropical weather due to the concentration of gas infrastructure in the Gulf.

At the pump, meanwhile, the average national price of a gallon of gas inched higher by 0.1 cent overnight to $2.815, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.

In its weekly report on petroleum inventories, the EIA said crude oil supplies fell by 7.1 million barrels in the week ended Sept. 7, more than twice the 2.7 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Gasoline inventories fell by 700,000 barrels, slightly more than the expected 500,000 barrel decline.

Refinery utilization fell by 1.6 percentage points to 90.5 percent of capacity. Analysts had expected a 0.1 percentage point decline. And inventories of distillates, which include heating oil and diesel fuel, grew by 1.8 million barrels, more than the 1.4 million-barrel increase analysts had expected.

Crude imports fell by 674,000 barrels a day on average last week to 9.56 million barrels, while gasoline imports fell an average of 298,000 barrels a day to 1.02 million barrels a day.

Demand for gasoline averaged about 9.6 million barrels a day over the last four weeks, about 0.9 percent above last year, EIA said.

Oil's run-up has perplexed some analysts, who expect demand for oil and petroleum products to cool this fall.

"We're at records, but it doesn't appear to be sustainable," said Chip Hodge, energy portfolio manager at John Hancock Financial Securities in Boston.

Indeed, the Paris-based International Energy Agency on Wednesday slightly lowered oil demand forecasts for this year and next.

September 10, 2007

Battery-like device could power electric cars

Source: CNN.com

AUSTIN, Texas (AP) -- Millions of inventions pass quietly through the U.S. patent office each year. Patent No. 7,033,406 did, too, until energy insiders spotted six words in the filing that sounded like a death knell for the internal combustion engine.

An Austin-based startup called EEStor promised "technologies for replacement of electrochemical batteries," meaning a motorist could plug in a car for five minutes and drive 500 miles roundtrip between Dallas and Houston without gasoline.

By contrast, some plug-in hybrids on the horizon would require motorists to charge their cars in a wall outlet overnight and promise only 50 miles of gasoline-free commute. And the popular hybrids on the road today still depend heavily on fossil fuels.

"It's a paradigm shift," said Ian Clifford, chief executive of Toronto-based ZENN Motor Co., which has licensed EEStor's invention. "The Achilles' heel to the electric car industry has been energy storage. By all rights, this would make internal combustion engines unnecessary."

Clifford's company bought rights to EEStor's technology in August 2005 and expects EEStor to start shipping the battery replacement later this year for use in ZENN Motor's short-range, low-speed vehicles.

The technology also could help invigorate the renewable-energy sector by providing efficient, lightning-fast storage for solar power, or, on a small scale, a flash-charge for cell phones and laptops.

Skeptics, though, fear the claims stretch the bounds of existing technology to the point of alchemy.

"We've been trying to make this type of thing for 20 years and no one has been able to do it," said Robert Hebner, director of the University of Texas Center for Electromechanics. "Depending on who you believe, they're at or beyond the limit of what is possible."

EEStor's secret ingredient is a material sandwiched between thousands of wafer-thin metal sheets, like a series of foil-and-paper gum wrappers stacked on top of each other. Charged particles stick to the metal sheets and move quickly across EEStor's proprietary material.

The result is an ultracapacitor, a battery-like device that stores and releases energy quickly.

Batteries rely on chemical reactions to store energy but can take hours to charge and release energy. The simplest capacitors found in computers and radios hold less energy but can charge or discharge instantly. Ultracapacitors take the best of both, stacking capacitors to increase capacity while maintaining the speed of simple capacitors.

Hebner said vehicles require bursts of energy to accelerate, a task better suited for capacitors than batteries.

"The idea of getting rid of the batteries and putting in capacitors is to get more power back and get it back faster," Hebner said.

But he said nothing close to EEStor's claim exists today.

For years, EEStor has tried to fly beneath the radar in the competitive industry for alternative energy, content with a phone-book listing and a handful of cryptic press releases.

Yet the speculation and skepticism have continued, fueled by the company's original assertion of making batteries obsolete -- a claim that still resonates loudly for a company that rarely speaks, including declining an interview with The Associated Press.

The deal with ZENN Motor and a $3 million investment by the venture capital group Kleiner Perkins Caufield & Byers, which made big-payoff early bets on companies like Google Inc. and Amazon.com Inc., hint that EEStor may be on the edge of a breakthrough technology, a "game changer" as Clifford put it.

ZENN Motor's public reports show that it so far has invested $3.8 million in and has promised another $1.2 million if the ultracapacitor company meets a third-party testing standard and then delivers a product.

Clifford said his company consulted experts and did a "tremendous amount of due diligence" on EEStor's innovation.

EEStor's founders have a track record. Richard D. Weir and Carl Nelson worked on disk-storage technology at IBM Corp. in the 1990s before forming EEStor in 2001. The two have acquired dozens of patents over two decades.

Neil Dikeman of Jane Capital Partners, an investor in clean technologies, said the nearly $7 million investment in EEStor pales compared with other energy storage endeavors, where investment has averaged $50 million to $100 million.

Yet curiosity is unusually high, Dikeman said, thanks to the investment by a prominent venture capital group and EEStor's secretive nature.

"The EEStor claims are around a process that would be quite revolutionary if they can make it work," Dikeman said.

Previous attempts to improve ultracapacitors have focused on improving the metal sheets by increasing the surface area where charges can attach.

EEStor is instead creating better nonconductive material for use between the metal sheets, using a chemical compound called barium titanate. The question is whether the company can mass-produce it.

ZENN Motor pays EEStor for passing milestones in the production process, and chemical researchers say the strength and functionality of this material is the only thing standing between EEStor and the holy grail of energy-storage technology.

Joseph Perry and the other researchers he oversees at Georgia Tech have used the same material to double the amount of energy a capacitor can hold. Perry says EEstor seems to be claiming an improvement of more than 400-fold, yet increasing a capacitor's retention ability often results in decreased strength of the materials.

"They're not saying a lot about how they're making these things," Perry said. "With these materials (described in the patent), that is a challenging process to carry out in a defect-free fashion."

Perry is not alone in his doubts. An ultracapacitor industry leader, Maxwell Technologies Inc., has kept a wary eye on EEStor's claims and offers a laundry list of things that could go wrong.

Among other things, the ultracapacitors described in EEStor's patent operate at extremely high voltage, 10 times greater than those Maxwell manufactures, and won't work with regular wall outlets, said Maxwell spokesman Mike Sund. He said capacitors could crack while bouncing down the road, or slowly discharge after a dayslong stint in the airport parking lot, leaving the driver stranded.

Until EEStor produces a final product, Perry said he joins energy professionals and enthusiasts alike in waiting to see if the company can own up to its six-word promise and banish the battery to recycling bins around the world.

"I am skeptical but I'd be very happy to be proved wrong," Perry said.

September 07, 2007

Ruble Rumble

Source: The Wall Street Journal Online

By JUDY SHELTON
August 30, 2007; Page A10

American fighter jets scrambled to intercept Russian bombers earlier this month near the island of Guam. It was the first time since the end of the Cold War that the Kremlin sought to provoke a U.S. response. It likely will not be the last. Fueled by revenues from energy exports, Russia appears bent on ratcheting up tensions.

But don't expect the next foray to take place over international waters. Vladimir Putin laid bare his ambitions at the St. Petersburg International Economic Forum in June by calling for a "new international financial architecture" to provide a base for economic development. Russia's next move is to challenge U.S. supremacy in world financial markets.

The notion of nudging America off its central perch in global economic affairs hardly seems plausible. But Russia's leader strikes a chord with other emerging-market economies -- Brazil, China, India -- when he describes current monetary and financial arrangements as "archaic, undemocratic and unwieldy."

Given the recent turmoil in world financial markets, Mr. Putin can expect heightened interest in his pitch for new regional alliances "based on trust and mutually beneficial integration" versus continued dependence on global institutions like the International Monetary Fund. Both Europe and Asia blame U.S. credit woes for their own unsettled markets. And newly independent nations on the periphery of established trade and security blocs have their own reasons to align with powerful patrons.

Mr. Putin even suggests that central banks should begin to hold reserves in a wider selection of currencies than dollars and euros in recognition of the "existing balance of power." It's hard to miss the implication: the ruble as a global reserve currency.

Is the man serious? The only reason the European Central Bank, say, or China's central bank, might hold reserves in rubles would be to pay for purchases from Russia. Today it is possible to buy Russian oil and gas using dollars or euros. The leading market exchanges for conducting international energy transactions are located in New York and London. But that is why officials at the White House, the Federal Reserve and the U.S. Treasury should be scrambling right now.

Mr. Putin is more than serious. He is determined to establish a world-class oil exchange on Russian territory and shift energy business away from existing global financial centers. A new facility is being readied in St. Petersburg's historic Bourse -- an imposing, white-colonnaded Greek Revival building that dominates the majestic sweep of the Strelka, or Spit, of Vasilievsky Island in the Neva delta and which is visible from the Winter Palace -- that will open to market traders within months and where transactions will be denominated in rubles.

It's a daring gambit and it constitutes no less than a demand for new international monetary arrangements on the scale of the post-World War II Bretton Woods agreement. "The global economy has experienced a transition," Mr. Putin notes pointedly. "Fifty years ago, 60% of world gross domestic product came from the Group of Seven industrial nations. Today 60% of world GDP comes from outside the G7."

Mr. Putin's plan to confront the privileged global role of U.S. currency resonates with Russians eager to recapture nationalist pride. Lampooning the sickly American dollar is popular with members of the Kremlin-financed youth group Nashi (meaning "ours"). And it potentially accommodates the burgeoning economic aspirations and swelling egos of Russia's partners in the Shanghai Cooperation Organization: Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and China.

China, like Russia, bristles at its second-tier status within the global financial architecture. Harangued by the U.S. over exchange-rate policies, China has recently been flexing its monetary muscle by hinting that it might dump a portion of its considerable dollar reserves. The prospect of such a shock to the U.S. economy in the midst of a housing slump threatens to bring the whole edifice crashing down. Throw in statements of support from oil-producers Venezuela and Iran, and you have the makings of a devastating dollar rout.

If Russia insists that its energy clients pay in rubles, we cannot expect our allies to strenuously resist. Europe purchases nearly 30% of its energy from Russia. Rising energy demand in Asia will likewise boost demand for rubles as Russia targets China, India and Japan. Last month, Japan quietly acquiesced to Iran's request that it switch from dollars to yen in payment for Iranian oil.

Can U.S. leaders and financial authorities meet the challenge from the Kremlin? Is America prepared to offer its own proposals for establishing more stable currency and financial conditions for global trade? Or are we just interested in protecting our turf?

The next Bretton Woods should be launched as an earnest initiative from the nation that gave birth to democratic capitalism. Not as an act of aggression from a pumped-up Russian pretender.

Ms. Shelton is an economist and author of "Money Meltdown" (Free Press, 1994).

August 29, 2007

Is China preparing for war with U.S.?

Source: The Tribune Democrat

Published: August 24, 2007 01:31 pm
By ZACHARY HUBBARD

All eyes in Washington are focused on the Middle East as the war there continues, the troop surge in Iraq nears its climax and the ever-elusive Osama bin Laden, assuming he’s still alive, continues to evade capture. Iran is rattling its sword and the hawks in Washington are demanding satisfaction. The 2008 election countdown has started and politicians on both sides of the aisle have begun the traditional blame game of finger pointing, name calling and jockeying for political advantage. The American political process is once again paralyzed by the politicians’ lust to retain power. Forget the business of running the nation; there’s an election to be won! And so it will go until November of next year.

Meanwhile, in a country far, far away, the political, military and economic downfall of the United States is being planned by an intelligent, patient, industrious enemy who hopes never to fire a shot in anger, yet fully expects to win. Its goal: To replace the United States as the world’s reining superpower. The war, by all indications, may have already begun.

China’s grasp of history

China counts its history in millennia. It has seen enemies come and go, yet one thing remains constant – China continues. Why should the Chinese expect America to be different from their enemies of yore? Chinese politicians and military officers study history. They know the writings of Sun Tzu, a legendary warrior-philosopher whose 6th century BC military treatise “The Art of War” is mandatory reading for military officers worldwide.

Sun Tzu has dozens of notable quotes, but the greatest may be, “For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.”

The Chinese may have already begun a campaign to subdue the United States following Sun Tzu’s model. As Sun Tzu said, you can subdue an enemy without fighting. In fact, it is best to win without having to go to war. Some would argue that this is what diplomacy is about. Certainly, diplomacy is part of the strategy, but there is far more to the Chinese game plan.

Reflecting Sun Tzu’s philosophy, many recent Chinese writings have focused on asymmetric warfare as a means of defeating a militarily superior enemy. Asymmetric warfare uses political, economic, informational and military power. Military power is the least emphasized.

A different kind of war

Qiao Liang and Wang Xiangsui, two colonels in China’s Peoples’ Liberation Army, published a treatise in 1999 titled “Unrestricted Warfare.” The treatise was not an official publication of the Chinese government, but it was published by the official PLA publishing house, indicating at least some degree of acceptance. “Unrestricted Warfare” contains chilling instructions on how to defeat an enemy using asymmetric attacks in such a manner that the enemy may not even realize they are under attack until it is too late to respond effectively. The techniques they describe include cyber warfare, attacks against financial institutions and critical infrastructure, terrorism, manipulating the media, biological warfare, chemical warfare and a variety of other ruthless methods.

Developments since “Unrestricted Warfare” was published seem to suggest that China may be waging such warfare today. China now faces many of the same problems that Germany faced in the buildup to World War II. Like Nazi Germany, China has a booming economy, a growing population and a hunger for energy and other resources to fuel its economic growth.

The Germans needed to expand their “lebensraum” (living space) to attain the natural resources needed to fuel their economy. China appears to be implementing a sort of “lebensraum” program of its own. As the United States was engaged in returning the Panama Canal Zone to Panama, China was busy establishing a beachhead there. Through land deals with Panama, the Chinese have gained control of both ends of this critical waterway, today controlling port facilities in Balboa, the canal's only Pacific port, and a major Atlantic port in Cristobol. The agreements allow China to run them for the next half-century.

China’s hunger for natural resources

China also is stretching out to grasp resources needed to fuel its economy. In January 2005, Venezuelan President Hugo Chavez (no friend of the U.S.) and Chinese Vice President Zeng Qinghong signed 19 agreements covering oil, agriculture and technology. These included five agreements between Venezuela and the Chinese National Petroleum Corporation. In 2006 China signed an oil exploration agreement with Nigeria, one of the largest oil exporters to America. Today China is conducting a diplomatic “love-in” across Africa.

The BBC reported in January 2006 that there were an estimated 700 Chinese-funded ventures in Africa. Many are in the fields of energy and natural resources, including oil and gas development, copper, cobalt, coal and gold mining. Unlike many Western powers whose diplomatic policies prevent or restrict dealing with ruthless regimes, China has no qualms about making deals with repressive governments having human rights issues. The Chinese are busy cutting deals to gobble up resources in such countries in Africa. For example, the U.S. Public Broadcasting System reported in April 2006 that China imports 10 percent of its oil from Sudan. Not surprisingly, China has worked diligently in the U.N. Security Council to water down potential punitive measures against Sudan, thereby helping to prolong the Darfur crisis.

Cuban oil is in China’s crosshairs as well. While environmentalists continue to block offshore drilling along Florida’s coastline, China is moving to capitalize on Cuba’s oil potential. In February 2005 the Havana Journal reported that Cuba’s Ministry of Basic Industry announced that the Cuba Oil Company (Cubapetroleo) signed a production contract with the China Petroleum & Chemical Corp (SINOPEC) to explore areas around Cuba believed to contain petroleum deposits. The agreement means that while Americans continue to squabble about the wisdom of offshore drilling in Florida, the Cubans and Chinese are beginning exploration some 50 miles from the Florida coastline.

China recently has begun to extend its oil search into the Caspian Sea region of Asia. The German army pushed towards the Caspian oil fields in the summer of 1942, nearly reaching the Soviet oil center of Grozny before the attack faltered. You may recall Grozny is the embattled capital of the Russian region of Chechnya, where Russia has fought against a violent Islamic separatist movement for nearly 10 years. Grozny today is an important transit route and confluence for petroleum pipelines coming out of the Caspian oil fields headed towards Europe. Although in this instance the immediate impact is on Europe, China’s thirst for oil is affecting global oil markets and forcing prices higher.

‘Loot a burning house’

Can China succeed in bringing America to its knees without firing a shot? It is not inconceivable given today’s global situation.

Sun Tzu said, “Loot a burning house.” By this he meant kick your enemies when they are down. How is China doing this? By arming America’s global adversaries and attacking the U.S. economy.

North Korea, a thorn in the sides of President Bush and former President Clinton, is overflowing with Chinese arms. North Korea’s nuclear program and missile tests in the Sea of Japan have caused President Bush great consternation. Fortunately, recent diplomatic efforts by the Bush Administration appear to have put an end to Korea’s quest for nuclear weapons, but at great cost in aid paid to the North Korean regime.

Meanwhile, China is arming the Middle East and other potential hot spots. In February 2004 the Washington Post reported that Chinese nuclear weapons design plans provided to Pakistan made it into the hands of Libya. CNN later reported that China was concerned about these allegations and was conducting an investigation. The Pentagon reported in May 2007 that Chinese-made armor-piercing missiles fell into the hands of anti-American militants in Iraq. It is assumed the missiles came through Iran.

The Iranians, who have nuclear ambitions of their own, depend upon Chinese and North Korean technology to keep their nuclear missile delivery program moving forward. The Iranians also have purchased sophisticated Chinese cruise anti-ship missiles that can be employed to interdict the free flow of oil from the Persian Gulf. The conservative think tank Heritage Foundation suggested in September 2006 that China is providing Iran diplomatic cover for its nuclear ambitions in exchange for lucrative oil and gas deals.

In January 2002, the Congressional Research Service published a report titled “China: Possible Missile Technology Transfer from U.S. Satellite Export Policy.” The report chronicles how in 1996, after a series of NASA satellite launch failures, the Clinton administration moved export control of commercial satellite technology from the State Department to the Department of Commerce. China subsequently launched numerous American satellites into orbit. A New York Times exposé in 1998 prompted a criminal investigation into whether Loral Space and Communications Ltd. and Hughes Electronics Corporation, both parties to the Chinese satellite launches, had provided technology information to the Chinese which enhanced their ballistic missile technology and ergo their nuclear weapons delivery capability. A subsequent congressional investigation produced the classified Cox Report in December 1998, indicating that indeed China’s military capabilities had benefited from U.S. exports for the past 20 years, including the launching of American communications satellites.

China recently has extended its realm of influence closer to the U.S. border. In July 2006, the conservative Web site Human Events reported that China has been working actively to developing North American Free Trade Agreement ports in Mexico. Using the economic shield of the NAFTA agreement between the United States, Mexico and Canada, China can avoid U.S. tariffs by shipping Chinese manufactured goods through Mexico into the United States. The plan reportedly could reduce Chinese transportation costs to the United States by as much as 50 percent and could flood the U.S. market with more cheap Chinese goods, further weakening the struggling U.S. dollar.

China’s high-tech military developments in the field of cyber warfare also are alarming. The technology Web site ZDNet News reported in November 2005 that U.S. officials had revealed details of Chinese computer hacking attacks against the U.S. government. The Chinese reportedly obtained information about Falconview, the flight-planning software used by the U.S. Army and Air Force. Such information could be used to help interdict U.S. flight operations against Chinese forces in a future conflict. The PLA has also developed a sizable force of professional computer hackers trained to disrupt the computer networks of China’s enemies. Potential targets include banking and electronic commerce networks and electric power grids, transportation networks and oil and gas pipelines, all of which are at least partially controlled by computers through SCADA systems (short for Systems Control and Data Acquisition).

The situation today

Today, the United States finds itself in an untenable position with China. American industry’s compulsion for outsourcing manufacturing to cheap overseas labor markets has resulted in American stores being glutted with shoddy Chinese products while the American manufacturing base that was once the envy of the world is vanishing. The situation has become so serious that a number of congressmen are formulating a political plank based upon revamping the U.S. manufacturing base.

The Chinese, in turn, have enacted tariffs against many American goods. The U.S. government has accused China of manipulating the value of the Chinese currency, the yuan, in international currency markets to give Chinese exports an unfair advantage in U.S. markets. The Chinese have tied the yuan’s value to the U.S. dollar at a fixed rate. China regulates its import market and the exchange of foreign currency with an iron fist in order to keep the yuan strong against the dollar. In the process of supporting the yuan, China has purchased more than $1 trillion in U.S. debt through international markets.

Today the Chinese appear ready to foreclose on the United States. In recent days the Chinese have hinted they may flood the international market with dollars to force the dollar value down. The mere suggestion sent U.S. stocks tumbling. President Bush responded that China would be foolhardy to act in such a manner. But what is to stop the Chinese? The Federal Reserve was forced to release billions in U.S. dollar reserves to calm the jittery markets.

Conflict looms in the Taiwan straits

The Pentagon has been warning about a Chinese military buildup for years. In November 2005 the Christian Science Monitor reported on this buildup. The Monitor stated that about 15 percent of the PLA’s 2 million-man force has been converted into a modern, highly mobile force designed to conduct rapid operations against smaller foes. The military buildup includes amphibious ships capable of transporting and landing military ground forces by sea.

What is the ultimate purpose of this buildup? Taiwan of course! Such an operation against Taiwan would involve highly mobile airborne and amphibious forces, naval and air operations to secure the Taiwan straits, and a massive missile and cyber warfare attack aimed at paralyzing Taiwan’s ability to react.

With the U.S. bogged down in the Middle East and Afghanistan, the time is quickly approaching when the Chinese will be able to deal a strategic death blow against Taiwan with impunity. This could be the death knell for U.S. superpower status. Already alienated from many of its traditional allies as a result of the war in Iraq, a Chinese attack on Taiwan would reveal the extent of the United States’ military’s weakened state and the inability of the U.S. government to stand by its alliances and obligations.

Food for thought

Not worried about China? Then here’s some food for thought: A series of recent China-related events, all potentially tied to asymmetric warfare against the United States, warrant close observation. These include toxic gluten in pet food, antifreeze in toothpaste, lead paint on toys, toxic levels of formaldehyde on pajamas, the recall of hundreds of thousands Chinese-manufactured tires in the United States for safety concerns … and the list goes on.

Potential problems with imported Chinese-produced foodstuff are particularly worrisome, as are the joint Russian-Chinese military exercises that recently took place for the first time in history. Coincidence? Maybe. Unrelated? Maybe. Worth watching? Certainly.

As Sun Tzu said, “All war is deception.”

Is China already at war with America?

Zachary Hubbard is a retired Army officer residing in Upper Yoder Township, Cambria County. He holds a master’s degree in military art and science from the U.S. Army Command and General Staff College. Since 1998 he has been involved in the study and teaching of asymmetric warfare. Hubbard is a member of The Tribune-Democrat Readership Advisory Committee.

August 18, 2007

Iran's President to Capitalize on Oil Wealth

Source: Oh My News

When will the country's oil bourse finally start trading?

Angelique van Engelen (clixy123)
Published 2007-08-15 15:08 (KST)

Iranian President Mahmoud Ahmadinejad is reshuffling the oil ministry. He says, this way, he hopes to deliver on his promise to redistribute wealth. He's also sacked the industry minister. And next on the agenda is the Foreign Affairs Ministry.

It's not the first time Ahmadinejad's gone about rearranging the furniture back home. But so far, he's tended to project his zest for change to officials dealing with the outside world. Shortly after coming into power two years ago, his replacing 40 ambassadors sent out a strong message -- the Iranian president was unlikely to budge over the nuclear program his country was running.

The replacement of the oil and industry ministers is explained as a tactical move by the Iranian president to increase his control over areas that he believes key to economic prosperity. So now, there's no outside world that he can pitch the rationale for his action against. What's more, the move draws attention to one of Ahmadinejad's failures as president. Having been elected on a highly populist agenda, he's not delivered many of the goodies he promised in his election campaign in 2005. His luring promises to a young population faced with high levels of unemployment, were to the average Iranian just what the country needed.

Ahmadinejad offered to drag the fledgling economy out of the mess it was in and oil revenues were going to be a key factor in this plan. However, Ahmadinejad's plan to reshape the oil sector has been met with strong resistance from within the industry. The oil minister that was sacked, Kazem Vaziri Mahaneh, is known to be highly opposed to restructuring the industry.

Plans to open an Iranian oil bourse to compete with NYMEX in New York and the IPE in London have been continuously deferred for the past two years. At least three deadlines have expired without any progress being made. The bourse, which will be located in the Iranian Free Trade Zone on the island of Kish, is meant to attract international oil trading to the Middle East.

Outside observers say the potential for an oil-trading platform in the Middle East is promising but its main risk will be stability. Oil markets, like currency markets, react much more intensely to political instability than other capital markets. The Iranian nuclear issue won't do the country any favors in creating the best circumstances for a successful oil bourse.

How the plans for an oil bourse finally pan out is going to be crucial for developments at home in Iran, and the country's leaders' realization that stressing out the world at large over nuclear capability might turn out to have consequences for Iran's own prosperity. Iran's plans are leading the international drive to overhaul dollar denomination in global oil trading, currently accounting for around 65 percent of all oil trade, and this is a strong card. Iranian oil traders have been suggesting for a while now that clients start paying in euros, and according to the Iranians they are finding willing ears. They say that over half their business is now conducted in euros.

Some international trading houses quoted by the International Herald Tribune a few months ago, confirmed that they were being encouraged by officials in Iran's oil industry to pay in currencies other than the dollar, but that they had yet to receive an official request from the authorities. "We are looking at it so that we can switch the currencies any time, but we have not gotten any official requests from them," the Nippon Oil chairman, Fumiaki Watari, was quoted as saying. The only company to confirm the news officially was a Chinese state-owned corporation. That was big news because it imports 12 percent of China's foreign imported oil. China is also supporting Iran's nuclear plans and has threatened to use its veto in the United Nations. The United States has a reason to be somewhat worried.

According to many observers, Saddam Hussein's plan to swap dollars into euros was the main reason behind the U.S. invasion of Iraq.

Russia sends long bombers back on patrol

Source: Yahoo - Associated Press

By IVAN SEKRETAREV, Associated Press Writer 1 minute ago

CHEBARKUL TESTING RANGE, Russia - President Vladimir Putin placed strategic bombers back on long-range patrol for the first time since the Soviet breakup, sending a tough message to the United States on Friday hours after a major Russian military exercise with China.

Putin reviewed the first Russian-Chinese joint exercise on Russian soil before announcing that 20 strategic bombers had been sent far over the Atlantic, Pacific and Arctic oceans — showing off Moscow's muscular new posture and its growing military ties with Beijing.

"Starting today, such tours of duty will be conducted regularly and on the strategic scale," Putin said. "Our pilots have been grounded for too long. They are happy to start a new life."

Putin said halting long-range bombers after the Soviet collapse had hurt Russia's security because other nations — an oblique reference to the United States — had continued such missions.

"I have made a decision to resume regular flights of Russian strategic aviation," Putin said in nationally televised remarks. "We proceed from the assumption that our partners will view the resumption of flights of Russia's strategic aviation with understanding."

U.S.-Russian relations have been strained over Washington's criticism of Russia's democracy record, Moscow's objections to U.S. missile defense plans and differences over crises such as the Iraq war. But the Bush administration downplayed the significance of the renewed patrols.

"We certainly are not in the kind of posture we were with what used to be the Soviet Union. It's a different era," State Department spokesman Sean McCormack said. "If Russia feels as though they want to take some of these old aircraft out of mothballs and get them flying again, that's their decision."

Soviet bombers routinely flew missions to areas where nuclear-tipped cruise missiles could be launched at the United States. They stopped in the post-Soviet economic meltdown. Booming oil prices have allowed Russia to sharply increase its military spending.

Russian Air Force spokesman Col. Alexander Drobyshevsky said that Friday's exercise involved Tu-160, Tu-95 and Tu-22M bombers, tanker aircraft and air radars. NATO jets were scrambled to escort the Russian aircraft over the oceans, he said, according to the ITAR-Tass news agency.

Eleven Russian military planes — including strategic bombers and fighter jets — carried out maneuvers west of NATO member Norway on Friday, a military official said.

Norway sent F-16 fighter jets to observe and photograph the Russian planes, which rounded the northern tip of Norway and flew south over the Norwegian Sea toward the Faeroe Islands before turning back, said Brig. Gen. Ole Asak, chief of the Norwegian Joint Air Operations Center.

A pair of Russian Tu-95 strategic bombers approached the Pacific Island of Guam — home to a major U.S. military base — this month for the first time since the Cold War.

Last month, two similar bombers briefly entered British air space but turned back after British fighter jets intercepted them. Norwegian F-16s were also scrambled when the Tu-95s headed south along the Norwegian coast in international air space.

"This is a significant change of posture of Russian strategic forces," Alexander Pikayev, a senior military analyst with the Moscow-based Institute for World Economy and International Relations, told The Associated Press. "It's a response to the relocation of NATO forces closer to Russia's western border."

NATO has expanded in recent years to include the former Soviet republics of Latvia, Lithuania and Estonia as well as the Czech Republic, Hungary and Poland.

As of the beginning of the year, Russia had 79 strategic bombers, according to data exchanged with the United States under the START I arms control treaty. At the peak of the Cold War, the Soviet long-range bomber fleet numbered several hundred.

Friday's war games with China near the Urals Mountain city of Chelyabinsk involved some 6,000 troops from both countries, along with soldiers from four ex-Soviet Central Asian nations that are part of the Shanghai Cooperation Organization, a regional group dominated by Moscow and Beijing.

The former Cold War rivals share a heightening distrust of what they see as the United States' outsized role in global politics, and they have forged a "strategic partnership" aimed at counterbalancing Washington's policies.

The United States, Russia and China are locked in a tense rivalry for influence in Central Asia, the site of vast hydrocarbon resources. Washington supports plans for pipelines that would carry oil and gas to the West and bypass Russia, while Moscow has maneuvered to control exports. China also has shown a growing appetite for energy to power its booming economy.

Putin, Chinese leader Hu Jintao and other leaders of the SCO nations attended the joint exercise, which followed their summit Thursday in Kyrgyzstan's capital Bishkek.

The summit concluded with a communique that sounded like a thinly veiled warning to the United States to stay away from the region: "Stability and security in Central Asia are best ensured primarily through efforts taken by the nations of the region on the basis of the existing regional associations."

Putin hailed the exercise — which involved dozens of aircraft and hundreds of armored vehicles countering a mock attack by terrorists and insurgents striving to take control of energy resources — "as another step to strengthen relations between our countries." Hu said the maneuvers "underlined the SCO's readiness to confront terror."

The exercises underlined that "the SCO wants to show that Central Asia is its exclusive sphere of responsibility," said Ivan Safranchuk, an analyst at World Security Institute

Russian Deputy Foreign Minister Alexander Losyukov said the exercise was not aimed at the United States.

"I don't see anything anti-American in the SCO exercise," he was quoted as saying by the ITAR-Tass news agency.

The SCO was created 11 years ago to address religious extremism and border security issues in Central Asia. In recent years, the group has grown into a bloc aimed at defying U.S. interests in the region.

In 2005, the SCO called for a timetable to be set for the withdrawal of U.S. troops from two member countries, Uzbekistan and Kyrgyzstan. Uzbekistan evicted U.S. forces later that year, but Kyrgyzstan still has a U.S. base, which supports operations in nearby Afghanistan. Russia also maintains a military base in Kyrgyzstan.

Iranian President Mahmoud Ahmadinejad, whose country has SCO observer status, attended the summit for the second consecutive year. On Thursday, he echoed Russia's criticism of U.S. plans to deploy missile interceptors in Poland and a radar in the Czech Republic, saying they were a threat to the entire region.

___

Associated Press Writer Vladimir Isachenkov contributed to this report from Moscow.

August 15, 2007

Iranian Unit to Be Labeled 'Terrorist'

Source: WashingtonPost.com

U.S. Moving Against Revolutionary Guard

By Robin Wright
Washington Post Staff Writer
Wednesday, August 15, 2007; A01

The United States has decided to designate Iran's Revolutionary Guard Corps, the country's 125,000-strong elite military branch, as a "specially designated global terrorist," according to U.S. officials, a move that allows Washington to target the group's business operations and finances.

The Bush administration has chosen to move against the Revolutionary Guard Corps because of what U.S. officials have described as its growing involvement in Iraq and Afghanistan as well as its support for extremists throughout the Middle East, the sources said. The decision follows congressional pressure on the administration to toughen its stance against Tehran, as well as U.S. frustration with the ineffectiveness of U.N. resolutions against Iran's nuclear program, officials said.

The designation of the Revolutionary Guard will be made under Executive Order 13224, which President Bush signed two weeks after the Sept. 11, 2001, attacks to obstruct terrorist funding. It authorizes the United States to identify individuals, businesses, charities and extremist groups engaged in terrorist activities. The Revolutionary Guard would be the first national military branch included on the list, U.S. officials said -- a highly unusual move because it is part of a government, rather than a typical non-state terrorist organization.

The order allows the United States to block the assets of terrorists and to disrupt operations by foreign businesses that "provide support, services or assistance to, or otherwise associate with, terrorists."

The move reflects escalating tensions between Washington and Tehran over issues including Iraq and Iran's nuclear ambitions. Iran has been on the State Department's list of state sponsors of terrorism since 1984, but in May the two countries began their first formal one-on-one dialogue in 28 years with a meeting of diplomats in Baghdad.

The main goal of the new designation is to clamp down on the Revolutionary Guard's vast business network, as well as on foreign companies conducting business linked to the military unit and its personnel. The administration plans to list many of the Revolutionary Guard's financial operations.

"Anyone doing business with these people will have to reevaluate their actions immediately," said a U.S. official familiar with the plan who spoke on the condition of anonymity because the decision has not been announced. "It increases the risks of people who have until now ignored the growing list of sanctions against the Iranians. It makes clear to everyone who the IRGC and their related businesses really are. It removes the excuses for doing business with these people."

For weeks, the Bush administration has been debating whether to target the Revolutionary Guard Corps in full, or only its Quds Force wing, which U.S. officials have linked to the growing flow of explosives, roadside bombs, rockets and other arms to Shiite militias in Iraq and the Taliban in Afghanistan. The Quds Force also lends support to Shiite allies such as Lebanon's Hezbollah and to Sunni movements such as Hamas and the Palestinian Islamic Jihad.

Although administration discussions continue, the initial decision is to target the entire Guard Corps, U.S. officials said. The administration has not yet decided when to announce the new measure, but officials said they would prefer to do so before the meeting of the U.N. General Assembly next month, when the United States intends to increase international pressure against Iran.

Formed in 1979 and originally tasked with protecting the world's only modern theocracy, the Revolutionary Guard took the lead in battling Iraq during the bloody Iran-Iraq war waged from 1980 to 1988. The Guard, also known as the Pasdaran, has since become a powerful political and economic force in Iran. Iranian President Mahmoud Ahmadinejad rose through the ranks of the Revolutionary Guard and came to power with support from its network of veterans. Its leaders are linked to many mainstream businesses in Iran.

"They are heavily involved in everything from pharmaceuticals to telecommunications and pipelines -- even the new Imam Khomeini Airport and a great deal of smuggling," said Ray Takeyh of the Council on Foreign Relations. "Many of the front companies engaged in procuring nuclear technology are owned and run by the Revolutionary Guards. They're developing along the lines of the Chinese military, which is involved in many business enterprises. It's a huge business conglomeration."

The Revolutionary Guard Corps -- with its own navy, air force, ground forces and special forces units -- is a rival to Iran's conventional troops. Its naval forces abducted 15 British sailors and marines this spring, sparking an international crisis, and its special forces armed Lebanon's Hezbollah with missiles used against Israel in the 2006 war. The corps also plays a key role in Iran's military industries, including the attempted acquisition of nuclear weapons and surface-to-surface missiles, according to Anthony H. Cordesman of the Center for Strategic and International Studies.

The United States took punitive action against Iran after the November 1979 takeover of the U.S. Embassy in Tehran, including the breaking of diplomatic ties and the freezing of Iranian assets in the United States. More recently, dozens of international banks and financial institutions reduced or eliminated their business with Iran after a quiet campaign by the Treasury Department and State Department aimed at limiting Tehran's access to the international financial system. Over the past year, two U.N. resolutions have targeted the assets and movements of 28 people -- including some Revolutionary Guard members -- linked to Iran's nuclear program.

The key obstacle to stronger international pressure against Tehran has been China, Iran's largest trading partner. After the Iranian government refused to comply with two U.N. Security Council resolutions dealing with its nuclear program, Beijing balked at a U.S. proposal for a resolution that would have sanctioned the Revolutionary Guard, U.S. officials said.

China's actions reverse a cycle during which Russia was the most reluctant among the veto-wielding members of the Security Council. "China used to hide behind Russia, but Russia is now hiding behind China," said a U.S. official familiar with negotiations.

The administration's move comes amid growing support in Congress for the Iran Counter-Proliferation Act, which was introduced in the Senate by Gordon Smith (R-Ore.) and in the House by Tom Lantos (D-Calif.). The bill already has the support of 323 House members.

The administration's move could hurt diplomatic efforts, some analysts said. "It would greatly complicate our efforts to solve the nuclear issue," said Joseph Cirincione, a nuclear proliferation expert at the Center for American Progress. "It would tie an end to Iran's nuclear program to an end to its support of allies in Hezbollah and Hamas. The only way you could get a nuclear deal is as part of a grand bargain, which at this point is completely out of reach."

Such sanctions can work only alongside diplomatic efforts, Cirincione added.

"Sanctions can serve as a prod, but they have very rarely forced a country to capitulate or collapse," he said. "All of us want to back Iran into a corner, but we want to give them a way out, too. [The designation] will convince many in Iran's elite that there's no point in talking with us and that the only thing that will satisfy us is regime change."

Staff researcher Madonna Lebling contributed to this report.

August 12, 2007

Petrodollars to flow into US Treasuries despite Iran

Source: Reuters

Fri Jul 20, 2007 3:20PM EDT
By Lucia Mutikani

NEW YORK, July 20 (Reuters) - Iran's decision to switch some dollar-based oil revenues to the Japanese yen was negative for U.S. government bond market sentiment, but would not make a dent on the flow of petrodollars into Treasuries.

Analysts said although Iran held a small fraction of government bonds, its initiative to ditch the falling dollar was further confirmation of diversification away from the currency and related assets.

"It's negative for Treasuries overall because it does fit with the idea that there is a diversification away from the use of the dollar by various means," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. in New York.

Iran, the world's fourth biggest oil producer, confirmed this week it had asked Japanese customers to pay for crude oil in yen instead of dollars, a move it said was aimed at maximizing oil export revenue. It is locked in a row with the United States over its nuclear program.

Foreign purchases of Treasuries by institutions such as central banks and oil producing countries have helped keep government bonds yields lower in recent years even as the Federal Reserve raised its benchmark overnight lending rate to 5.25 percent.

But the dollar's poor performance has resulted in a gradual diversification in the composition of foreign central bank currency reserves.

"The proportion of money held by central banks in dollars is shrinking. It was once 70 percent and now it's in the mid-60s. Diversification is a key theme that is negative for the dollar and Treasuries, and that has been the case this year," said Crescenzi.

IDEAglobal currency strategist David Powell estimates Iran supplies about 15 percent of Japan's oil imports, roughly translating into $10 billion annually and suggesting little or no impact on petrodollar flows.

"It does not have a huge implication. They probably weren't keeping this $10 billion in Treasuries, more likely in short-term instruments. Iran is not a country that is flush with cash as other oil producing countries are," said Powell.

U.S. government data on Tuesday showed oil exporting nations raised their Treasury holdings by $9.1 billion to $121.3 billion in May.

When British holdings, viewed as including Middle Eastern accounts using London-based accounts, are factored in, about $42.2 billion worth of petrodollars were pumped into Treasuries in May.

"That is more than four times the annual sales in oil from Iran to Japan. Iran is not leading the trend for oil producing or Middle Eastern countries as far as the data shows us," said Powell.

August 03, 2007

42.8% Efficiency: A New Record for Solar Cells

Source: Treehugger.com

by Jeremy Elton Jacquot
Los Angeles on 08. 1.07

Narrowly edging out the previous record set by Spectrolab late last year, two scientists at the University of Delaware have just created a new device that can convert 42.8% of the light striking it into electricity. The solar cell, built by Christina Honsberg and Allan Barnett, splits light into three components — high, medium and low energy light — and directs it to several different materials which can then extract electrons out of its photons.

One of the device's key elements is an optical concentrator — a lens-type component that increases the cell's efficiency by directing more sunlight to it than would happen naturally (a boost that contributed in great measure to its record-setting performance). It measures in at just below 1 cm thick, a major improvement over the Spectrolab model which featured a concentrating lens about 1 foot thick. Unlike most concentrators that use a two-axis tracking system to follow the sun, this optical concentrator is also stationary — a major feat.

The Defense Advanced Research Projects Agency (DARPA) — which has been funding this and similar efforts through its Very High Efficiency Solar Cell (VHESC) program — hopes to eventually incorporate this technology into portable solar cell battery chargers for American troops. It will now fund a newly formed DuPont-University of Delaware VHESC Consortium to shift production from a lab-scale model to a full-on manufacturing prototype model.

UPDATE: A reader wanted us to clarify an important point — namely the fact that the concentrator itself doesn't increase the efficiency (it actually increases the power output by intensifying the beam of sunlight), the spectrum splitting optics and solar cells accomplish that.

Huge Solar Plants Bloom in Desert

Source: Wired.com

by Will Wade
11.15.05 | 2:00 AM

The barren deserts of Southern California are known for relentless sunshine and miles of empty space -- the perfect combination for the world's most ambitious solar-energy projects.

Two Southern California utility companies are planning to develop a pair of sun-powered power plants that they claim will dwarf existing solar facilities and could rival fossil-fuel-driven power plants.

Southern California Edison and San Diego Gas & Electric are working with Stirling Energy Systems, a Phoenix startup that has paired a large and efficient solar dish with a 200-year-old Stirling engine design.

Stirling Energy Systems is planning to build two separate solar farms, one with the capacity to generate 500 megawatts of electricity in the Mojave Desert near Victorville, California, for SoCal Edison, and a 300-megawatt plant in the Imperial Valley, near Calexico, California, for SDG&E. The utilities have signed 20-year deals to buy all the juice the farms can turn out, and have options to expand the plants if they are successful.

"Without question, this will be the largest solar project in the world," said Gil Alexander, a spokesman for SoCal Edison. "It will be bigger than all U.S. solar-energy projects combined."

Alexander said traditional coal or gas plants typically generate 500 to 1,000 megawatts, and that current solar farms are much smaller -- generally in the 35- to 80-megawatt range. At the end of 2004, the United States had only 397 megawatts of solar-energy capacity, according to the U.S. Department of Energy's Energy Information Administration.

"There is a possibility with this project that solar energy could go commercial in a big way for the first time," said Alexander. "It's playing in the big leagues."

Instead of using panels of photovoltaic cells -- solar power's mainstay technology for decades -- Stirling Energy Systems uses 40-foot-tall curved dishes that focus the sun's energy onto Stirling engines.

Also called an external heat engine, the Stirling engine is a completely sealed system filled with hydrogen. Its design dates to 1816, and it's named for its inventor, a Scottish minister named Robert Stirling. The focused solar energy, which can reach 1,350 degrees Fahrenheit, heats the hydrogen, making it expand and drive the engine's four pistons.

Though Stirling engines have been around for almost two centuries, there have been few efforts in the past to harness the sun to run them, said Stirling Energy Systems CEO Bruce Osborn.

Osborn said the Stirling dishes are 30 percent efficient -- 30 percent of the sun's energy is converted into electricity -- which is two to three times as efficient as conventional photovoltaic cells.

"Solar panels are more common, and they have gotten more efficient, but they still have a long way to go," he said.

Osborn said his company's dishes are easy to maintain because the engine is a closed system that never needs to be refilled -- an important factor for a large-scale facility in the middle of the desert. In fact, the only resource it consumes is "a little bit of water to wash the mirrors off every few weeks," he said.

The company is currently operating a six-dish test site at Sandia National Laboratories to showcase the concept, but the SoCal Edison and SDG&E plants are Stirling Energy Systems' first commercial contracts.

The first phase of the SoCal Edison project will be to build a 1-megawatt test site using 40 dishes, which should be complete by spring 2007. Construction on the full, 500-megawatt facility is expected to begin in mid-2008, and should take three to four years. Each dish can produce up to 25 kilowatts, and the site will eventually have 20,000 dishes stretching across 4,500 acres of desert.

Stirling plans to begin construction on SDG&E's 300-megawatt project in late 2008, and it should take about two years to install the 12,000 dishes covering about 2,000 acres.

None of the companies would give a price for building the solar sites or disclose the rates the utilities will pay for power, but both said the cost would be similar to traditional coal or gas.

But as oil prices go up, so could the cost of electricity from fossil fuels.

"Soon, solar may be less expensive," Osborn said.

Joel Makower, co-founder of market-research firm Clean Edge, said Stirling Energy Systems' solar-thermal power systems are impressive but unproven. One promising sign is the utility companies' level of commitment to the new technology.

"This is all on paper so far," he said. "They haven't delivered anything yet. And until they do, we can't say what it will cost."

Still, Makower said he was optimistic.

"Photovoltaic was the first-generation, utility-scale solar technology," he said. "The Stirling engine looks like it will be the second generation."

July 31, 2007

Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles

Source: Rolling Stone

From Issue 1032

JEFF GOODELL
Posted Jul 24, 2007 1:36 PM

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This is not just hype -- it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol. To avoid the prospect of drunks sucking on gas pumps, fuel ethanol is "denatured" with chemical additives (if you drink it, you'll end up dead or, at best, in the hospital). It can be distilled from a variety of plants, including sugar cane and switch- grass. Most vehicles can't run on pure ethanol, but E85, a mix of eighty-five percent ethanol and fifteen percent gasoline, requires only slight engine modifications.

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland. In the 1970s, looking for new ways to profit from corn, ADM began pushing ethanol as a fuel additive. By the early 1980s, ADM was producing 175 million gallons of ethanol a year. The company's then-chairman, Dwayne Andreas, struck up a close relationship with Sen. Bob Dole of Kansas, a.k.a. "Senator Ethanol." During the 1992 election, ADM gave $1 million to Dole and his friends in the GOP (compared with $455,000 to the Democrats). In return, Dole helped the company secure billions of dollars in subsidies and tax breaks. In 1995, the conservative Cato Institute, estimating that nearly half of ADM's profits came from products either subsidized or protected by the federal government, called the company "the most prominent recipient of corporate welfare in recent U.S. history."

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

Despite the serious drawbacks of ethanol, some technological visionaries believe that the fuel can be done right. "Corn ethanol is just a platform, the first step in a much larger transition we are undergoing from a hydrocarbon-based economy to a carbohydrate-based economy," says Vinod Khosla, a pioneering venture capitalist in Silicon Valley. Next-generation corn- ethanol plants, he argues, will be much more efficient and environmentally friendly. He points to a company called E3 BioFuels that just opened an ethanol plant in Mead, Nebraska. The facility runs largely on biogas made from cow manure, and feeds leftover grain back to the cows, making it a "closed-loop system" -- one that requires very few fossil fuels to create ethanol.

Khosla is even higher on the prospects for cellulosic ethanol, a biofuel that can be made from almost any plant matter, including wood waste and perennial grasses like miscanthus and switchgrass. Like other high-tech ethanol evangelists, Khosla imagines a future in which such so-called "energy crops" are fed into giant refineries that use genetically engineered enzymes to break down the cellulose in plants and create fuel for a fraction of the cost of today's gasoline. Among other virtues, cellulosic ethanol would not cut into the global food supply (nobody eats miscanthus or switchgrass), and it could significantly cut global-warming pollution. Even more important, it could provide a gateway to a much larger biotech revolution, including synthetic microbes that could one day be engineered to gobble up carbon dioxide or other pollutants.

Unfortunately, no commercial-scale cellulosic ethanol plants exist today. In one venture backed by Khosla, a $225 million plant in central Georgia is currently being built to make ethanol out of wood chips. Mitch Mandich, a former Apple Computer executive who is now the CEO of the operation, calls it "the beginning of a real transformation in the way we think about energy in America."

Maybe. But oil-industry engineer Robert Rapier, who has spent years studying cellulosic ethanol, says that the difference between ethanol from corn and ethanol from cellulose is "like the difference between traveling to the moon and traveling to Mars." And even if the engineering hurdles can be overcome, there's still the problem of land use: According to Rapier, replacing fifty percent of our current gasoline consumption with cellulosic ethanol would consume thirteen percent of the land in the United States - about seven times the land currently utilized for corn production.

Increasing the production of cellulosic ethanol will also require solving huge logistical problems, including delivering vast quantities of feedstock to production plants. According to one plant manager in the Midwest, fueling an ethanol plant with switchgrass would require delivering a semi-truckload of the grass every six minutes, twenty-four hours a day. Finally, there is the challenge of wrestling the future away from Big Corn. "It's pretty clear to me that the corn guys will use all their lobbying muscle and political power to stall, thwart and sidetrack this revolution," says economist C. Ford Runge.

In the end, the ethanol boom is another manifestation of America's blind faith that technology will solve all our problems. Thirty years ago, nuclear power was the answer. Then it was hydrogen. Biofuels may work out better, especially if mandates are coupled with tough caps on greenhouse-gas emissions. Still, biofuels are, at best, a huge gamble. They may help cushion the fall when cheap oil vanishes, but if we rely on ethanol to save the day, we could soon find ourselves forced to make a choice between feeding our SUVs and feeding children in the Third World. And we all know how that decision will go.

July 18, 2007

Report: Corn Ethanol Not A Viable Energy Option

Source: The Daily Green

If Every Field Were Planted With Corn, U.S. Would Only Offset 15% Of Fuel

In a new report released at noon today, three environmental and research organizations raise serious questions about the future of corn ethanol, a fuel that Congress has invested subsidies in already, and which is often viewed as a silver bullet solution to the nation’s energy and environmental problems.

Corn-based ethanol would, contrary to that belief, add pollution and contribute to other environmental problems — including the Gulf of Mexico dead zone that a separate report released yesterday showed could reach its largest size ever, due in part to the record acreage of corn planted in the Midwest this year, and the attendant runoff of fertilizer.

The “The Rush to Ethanol” was released by Food & Water Watch, the Network for New Energy Choices and the Vermont Law School Environmental Law Center.

The key findings from the report, as defined by the groups releasing it:

  • Not all bio-fuels are equal. Corn, which is the source 95% of ethanol in the U.S., is among the least efficient, least sustainable biofuels. Cellulosic ethanol, while not yet ready for market, has more favorable energy ratios than corn and presents more room for productivity gains, making it appealing to investors, farmers, and refiners. Yet, most biofuels policies being debated in Congress would primarily benefit corn ethanol refiners in the near future.
  • Corn ethanol has little promise of reducing U.S. fossil fuel emissions. Even if the entire U.S. corn crop was dedicated to ethanol, it would displace less than 15 percent of national gasoline use. But a modest increase in auto fuel efficiency standards, such as those passed by the Senate last month, would cut petroleum consumption by more than all alternative fuels and replacement fuels combined.
  • The current path of corn-ethanol based biofuels is unsustainable. Using coal to power ethanol refineries can increase emissions in comparison to the gasoline fuel replaced. And since corn production uses more than twice the amount of pesticides than any other major U.S. crop, uncontrolled ethanol industry growth could exponentially increase environmental toxins.
  • Even large-scale development of cellulosic ethanol is plagued by potential environmental problems. Turning cellulose into fuel, for instance, would require a huge expenditure of increasingly scarce water resources and the mass production of cellulosic ethanol would likely impact soil quality and convert land currently in conservation programs.
  • Ethanol is not the solution to revitalizing rural America. While higher commodity prices and cooperatively owned ethanol refineries could be a boon to independent farmers, unregulated ethanol industry growth will further concentrate agribusiness, threatening the livelihood of rural communities.

July 13, 2007

Iran Asks Japan to Pay Yen for Oil, Start Immediately (Update1)

Source: Bloomberg

By Megumi Yamanaka

July 13 (Bloomberg) -- Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it's cutting holdings of the U.S. dollar.

Iran wants yen-based transactions ``for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments ``effective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on expectations for an increase in demand for the currency to buy shipments from Iran, Japan's third-largest oil supplier. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency, while the United Nations Security Council is preparing for another round of sanctions against Iran because of the nation's nuclear research.

``What else can Japan do but to accept the request, once the oil producer sent its wish?'' said Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co. in Tokyo. ``The tensions between the U.S. and Iran are escalating, and it's Iran's measure to hedge risk.''

A spokesman for Iran's oil ministry in Tehran said he could neither confirm nor deny that the letter had been sent. Most Japanese oil refiners have until now used U.S. dollars to pay Iran for oil, said the spokesman, who declined to be identified by name because of government policy.

Yen Advances

The yen advanced to 122.15 per dollar at 10:34 a.m. in New York, from 122.42 late yesterday.

The Islamic republic, holder of the world's second-largest oil and gas reserves, has refused to halt uranium enrichment that it says is for use in nuclear power plants to produce electricity. The U.S. says Iran seeks instead to develop an atomic bomb. Enriched uranium can be used to make nuclear fuel or build nuclear weapons.

The government in Tehran has failed to suspend its nuclear activities after the imposition of two sets of United Nations- sponsored sanctions since December.

Iran isn't alone in wanting to drop the dollar for pricing oil. Russia has been examining plans to price the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, UBS AG reported June 14.

`New Payment Mechanism'

Iran asked the refiners to use the yen exchange rate quoted at the Bank of Tokyo Mitsubishi UFJ on the date oil cargoes are loaded. The use of yen-based letters of credit for oil ``has finally been approved'' by the Iranian central bank and the NIOC, according to the letter, titled ``New payment mechanism for Iranian Crude Oil Cargoes.''

Payments from Japanese refiners to Iran rose 12 percent last year to 1.24 trillion yen ($10.1 billion), according to the finance ministry in Tokyo. Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data.

Iran is cutting its U.S. dollar reserves to less than 20 percent of total foreign currency holdings, and will buy more euros and yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27.

Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran.

To contact the reporter on this story: Megumi Yamanaka in Tokyo at myamanaka [a] bloomberg.net .
Last Updated: July 13, 2007 10:59 EDT

May 21, 2007

Polymers Are Forever

Source: Orion Magazine

Alarming tales of a most prevalent and problematic substance
by Alan Weisman
(Published in the May/June 2007 issue of Orion magazine)

THE PORT OF PLYMOUTH in southwestern England is no longer listed among the scenic towns of the British Isles, although prior to World War II it would have qualified. During six nights of March and April 1941, Nazi bombs destroyed seventy-five thousand buildings in what is remembered as the Plymouth Blitz. When the annihilated city center was rebuilt, a modern concrete grid was superimposed on Plymouth’s crooked cobbled lanes, burying its medieval past in memory.

But the main history of Plymouth lies at its edge, in the natural harbor formed at the confluence of two rivers, the Plym and the Tamar, where they join the English Channel and the Atlantic Ocean. This is the Plymouth from which the Pilgrims departed; they named their American landfall across the sea in its honor. All three of Captain Cook’s Pacific expeditions began here, as did Sir Francis Drake’s circumnavigation of the globe. And, on December 27, 1831, H.M.S. Beagle set sail from Plymouth Harbor, with twenty-two-year-old Charles Darwin aboard.

University of Plymouth marine biologist Richard Thompson spends a lot of time pacing Plymouth’s historic edge. He especially goes in winter, when the beaches along the harbor’s estuaries are empty—a tall man in jeans, boots, blue windbreaker, and zippered fleece sweater, his bald pate hatless, his long fingers gloveless as he bends to probe the sand. Thompson’s doctoral study was on slimy stuff that mollusks such as limpets and winkles like to eat: diatoms, cyanobacteria, algae, and tiny plants that cling to seaweed. What he’s now known for, however, has less to do with marine life than with the growing presence of things in the ocean that have never been alive at all.

Although he didn’t realize it at the time, what has dominated his life’s work began when he was still an undergraduate in the 1980s, spending autumn weekends organizing the Liverpool contingent of Great Britain’s national beach cleanup. In his final year, he had 170 teammates amassing metric tons of rubbish along eighty-five miles of shoreline. Apart from items that apparently had dropped from boats, such as Greek salt boxes and Italian oil cruets, from the labels he could see that most debris was blowing east from Ireland. In turn, Sweden’s shores were the receptacles for trash from England. Any packaging that trapped enough air to protrude from the water seemed to obey the wind currents, which in these latitudes are easterly.

Smaller, lower-profile fragments, however, were apparently controlled by currents in the water. Each year, as he compiled the team’s annual reports, Thompson noticed more and more garbage that was smaller and smaller amid the usual bottles and automobile tires. He and another student began collecting sand samples along beach strand lines. They sieved the tiniest particles of whatever appeared unnatural, and tried to identify them under a microscope. This proved tricky. Their subjects were usually too small to allow them to pinpoint the bottles, toys, or appliances from which they sprang.

He continued working the annual cleanup during graduate studies at Newcastle. Once he completed his PhD and began teaching at Plymouth, his department acquired a Fourier Transform Infrared Spectrometer, a device that passes a microbeam through a substance, then compares its infrared spectrum to a database of known material. Now he could know what he was looking at, which only deepened his concern.

“Any idea what these are?” Thompson is guiding a visitor along the shore of the Plym River estuary, near where it joins the sea. With a full moonrise just a few hours off, the tide is out nearly two hundred meters, exposing a sandy flat scattered with bladderwrack and cockle shells. A breeze skims the tidal pools, shivering rows of reflected hillside housing projects. Thompson bends over the strand line of detritus left by the forward edge of waves lapping the shore, looking for anything recognizable: hunks of nylon rope, syringes, topless plastic food containers, half a ship’s float, pebbled remains of polystyrene packaging, and a rainbow of assorted bottle caps. Most plentiful of all are multicolored plastic shafts of cotton ear-swabs. But there are also the odd little uniform shapes he challenges people to identify. Among twigs and seaweed fibers in his fistful of sand are a couple dozen blue and green plastic cylinders about two millimeters high.
“They’re called nurdles. They’re the raw materials of plastic production. They melt these down to make all kinds of things.” He walks a little farther, then scoops up another handful. It contains more of the same plastic bits: pale blue ones, greens, reds, and tans. Each handful, he calculates, is about 20 percent plastic, and each holds at least thirty pellets.

“You find these things on virtually every beach these days. Obviously they are from some factory.”

However, there is no plastic manufacturing anywhere nearby. The pellets have ridden some current over a great distance until they were deposited here—collected and sized by the wind and tide.

IN THOMPSON’S LABORATORY AT THE UNIVERSITY of Plymouth, graduate student Mark Browne unpacks foil-wrapped beach samples that arrive in clear zip-lock bags sent by an international network of colleagues. He transfers these to a glass separating funnel, filled with a concentrated solution of sea salt to float off the plastic particles. He filters out some he thinks he recognizes, such as pieces of the ubiquitous colored ear-swab shafts—to check under the microscope. Anything really unusual goes to the FTIR Spectrometer.

Each takes more than an hour to identify. About one-third turn out to be natural fibers such as seaweed, another third are plastic, and another third are unknown—meaning that they haven’t found a match in their polymer database, or that the particle has been in the water so long its color has degraded, or that it’s too small for their machine, which analyzes fragments only to twenty microns—slightly thinner than a human hair.

“That means we’re underestimating the amount of plastic that we’re finding. The true answer is we just don’t know how much is out there.”

What they do know is that there’s much more than ever before. During the early twentieth century, Plymouth marine biologist Alistair Hardy developed an apparatus that could be towed behind an Antarctic expedition boat, ten meters below the surface, to sample krill—the ant-sized, shrimplike invertebrate on which much of the planet’s food chain rests. In the 1930s, he modified it to measure even smaller plankton. It employed an impeller to turn a moving band of silk, similar to how a dispenser in a public lavatory moves cloth towels. As the silk passed over an opening, it filtered plankton from water passing through it. Each band of silk had a sampling capacity of five hundred nautical miles. Hardy was able to convince English merchant vessels using commercial shipping lanes throughout the North Atlantic to drag his Continuous Plankton Recorder for several decades, amassing a database so valuable he was eventually knighted for his contributions to marine science.

He took so many samples from around the British Isles that only every second one was analyzed. Decades later, Richard Thompson realized that the ones that remained stored in a climate-controlled Plymouth warehouse were a time capsule containing a record of growing contamination. He picked two routes out of northern Scotland that had been sampled regularly: one to Iceland, one to the Shetland Islands. His team pored over rolls of silk reeking of chemical preservative, looking for old plastic. There was no reason to examine years prior to World War II because until then plastic barely existed, except for the Bakelite used in telephones and radios, appliances so durable they had yet to enter the waste chain. Disposable plastic packaging hadn’t yet been invented.

By the 1960s, however, they were seeing increasing numbers of increasing kinds of plastic particles. By the 1990s, the samples were flecked with triple the amount of acrylic, polyester, and crumbs of other synthetic polymers than had been present three decades earlier. Especially troubling was that Hardy’s plankton recorder had trapped all this plastic ten meters below the surface, suspended in the water. Since plastic mostly floats, that meant they were seeing just a fraction of what was actually there. Not only was the amount of plastic in the ocean increasing, but ever smaller bits of it were appearing—small enough to ride global sea currents.

Thompson’s team realized that slow mechanical action—waves and tides that grind against shorelines, turning rocks into beaches—were now doing the same to plastics. The largest, most conspicuous items bobbing in the surf were slowly getting smaller. At the same time, there was no sign that any of the plastic was biodegrading, even when reduced to tiny fragments.

“We imagined it was being ground down smaller and smaller, into a kind of powder. And we realized that smaller and smaller could lead to bigger and bigger problems.”

He knew the terrible tales of sea otters choking on poly-ethylene rings from beer six-packs; of swans and gulls strangled by nylon nets and fishing lines; of a green sea turtle in Hawai’i dead with a pocket comb, a foot of nylon rope, and a toy truck wheel lodged in its gut. His personal worst was a study on fulmar carcasses washed ashore on North Sea coastlines. Ninety-five percent had plastic in their stomachs—an average of forty-four pieces per bird. A proportional amount in a human being would weigh nearly five pounds.

There was no way of knowing if the plastic had killed them, although it was a safe bet that, in many, chunks of indigestible plastic had blocked their intestines. Thompson reasoned that if larger plastic pieces were breaking down into smaller particles, smaller organisms would likely be consuming them. He devised an aquarium experiment, using bottom-feeding lugworms that live on organic sediments, barnacles that filter organic matter suspended in water, and sand fleas that eat beach detritus. In the experiment, plastic particles and fibers were provided in proportionately bite-sized quantities. Each creature promptly ingested them.

When the particles lodged in their intestines, the resulting constipation was terminal. But if the pieces were small enough, they passed through the invertebrates’ digestive tracts and emerged, seemingly harmlessly, out the other end. Did that mean that plastics were so stable that they weren’t toxic? At what point would they start to naturally break down—and when they did, would they release some fearful chemicals that would endanger organisms some time far in the future?

Richard Thompson didn’t know. Nobody did, because plastics haven’t been around long enough for us to know how long they’ll last or what will happen to them. His team had identified nine different kinds in the sea so far, varieties of acrylic, nylon, polyester, polyethylene, polypropylene, and polyvinyl chloride. All he knew was that soon everything alive would be eating them.

“When they get as small as powder, even zooplankton will swallow them.”

TWO SOURCES OF TINY PLASTIC PARTICLES hadn’t before occurred to Thompson. Plastic bags clog everything from sewer drains to the gullets of sea turtles that mistake them for jellyfish. Increasingly, purportedly biodegradable versions were available. Thompson’s team tried them. Most turned out to be just a mixture of cellulose and polymers. After the cellulose starch broke down, thousands of clear, nearly invisible plastic particles remained.

Some bags were advertised to degrade in compost piles as heat generated by decaying organic garbage rises past one hundred degrees Fahrenheit. “Maybe they do. But that doesn’t happen on a beach, or in salt water.” He’d learned that after they tied plastic produce bags to moorings in Plymouth Harbor. “A year later you could still carry groceries in them.”

Even more exasperating was what his PhD student Mark Browne had discovered while shopping in a pharmacy. Browne pulls open the top drawer of a laboratory cabinet. Inside is a cornucopia of feminine beauty aids: shower massage creams, body scrubs, and hand cleaners. Several are by boutique labels: Neova Body Smoother, SkinCeuticals Body Polish, and DDF Strawberry Almond Body Polish. Others are international name brands: Neutrogena, Clearasil, Pond’s Fresh Start, even a tube of Colgate Icy Blast toothpaste. Some are available in the United States, others only in the United Kingdom. But all have one thing in common.

“Exfoliants: little granules that massage you as you bathe.” He selects a peach-colored tube of St. Ives Apricot Scrub; its label reads: 100% natural exfoliants. “This stuff is okay. The granules are actually chunks of ground-up jojoba seeds and walnut shells.” Other natural brands use grape seeds, apricot hulls, coarse sugar, or sea salt. “The rest of them,” he says, with a sweep of his hand, “have all gone to plastic.”

On each, listed among the ingredients are “micro-fine polyethylene granules,” or “polyethylene micro-spheres,” or “polyethylene beads.” Or just polyethylene.

“Can you believe it?” Richard Thompson demands of no one in particular, loud enough that faces bent over microscopes rise to look at him. “They’re selling plastic meant to go right down the drain, into the sewers, into the rivers, right into the ocean. Bite-sized pieces of plastic to be swallowed by little sea creatures.”

Plastic bits are also increasingly used to scour paint from boats and aircraft. Thompson shudders. “One wonders where plastic beads laden with paint are disposed. It would be di;cult to contain them on a windy day. But even if they’re contained, there’s no filter in any sewage works for material that small. It’s inevitable. They end up in the environment.”

He peers into Browne’s microscope at a sample from Finland. A lone green fiber, probably from a plant, lies across three bright blue threads that probably aren’t. He perches on the countertop, hooking his hiking boots around a lab stool. “Think of it this way. Suppose all human activity ceased tomorrow, and suddenly there’s no one to produce plastic anymore. Just from what’s already present, given how we see it fragmenting, organisms will be dealing with this stuff indefinitely. Thousands of years, possibly. Or more.”

IN ONE SENSE, PLASTICS HAVE BEEN AROUND for millions of years. Plastics are polymers: simple molecular configurations of carbon and hydrogen atoms that link together repeatedly to form chains. Spiders have been spinning polymer fibers called silk since before the Carboniferous Age, whereupon trees appeared and started making cellulose and lignin, also natural polymers. Cotton and rubber are polymers, and we make the stuff ourselves, too, in the form of collagen that comprises, among other things, our fingernails.

Another natural, moldable polymer that closely fits our idea of plastics is the secretion from an Asian scale beetle that we know as shellac. It was the search for an artificial shellac substitute that one day led chemist Leo Baekeland to mix tarry carbolic acid –- phenol—with formaldehyde in his garage in Yonkers, New York. Until then, shellac was the only coating available for electric wires and connections. The moldable result became Bakelite. Baekeland became very wealthy, and the world became a very different place.

Chemists were soon busy cracking long hydrocarbon chain molecules of crude petroleum into smaller ones, and mixing these fractionates to see what variations on Baekeland’s first man-made plastic they could produce. Adding chlorine yielded a strong, hardy polymer unlike anything in nature, known today as PVC. Blowing gas into another polymer as it formed created tough, linked bubbles called polystyrene, often known by the brand name Styrofoam. And the continual quest for an artificial silk led to nylon. Sheer nylon stockings revolutionized the apparel industry and helped to drive acceptance of plastic as a defining achievement of modern life. The intercession of World War II, which diverted most nylon and plastic to the war effort, only made people desire them more.

After 1945, a torrent of products the world had never seen roared into general consumption: acrylic textiles, Plexiglass, polyethylene bottles, polypropylene containers, and “foam rubber” polyurethane toys. Most world-changing of all was transparent packaging, including self-clinging wraps of polyvinyl chloride and polyethylene, which let us see the foods wrapped inside them and kept them preserved longer than ever before.

Within ten years, the downside to this wonder substance was apparent. In 1955, Life magazine coined the term “throwaway society.” However, Stanford archaeologist William Rathje, who has made a career of studying garbage in America, finds himself continually disabusing waste management officials and the general public of what he deems a myth: that plastic is responsible for overflowing landfills across the country. Rathje’s decades-long Garbage Project, wherein students weighed and measured weeks’ worth of residential waste, reported during the 1980s that, contrary to popular belief, plastic accounts for less than 20 percent by volume of buried wastes, in part because it can be compressed more tightly than other refuse. Although increasingly higher percentages of plastic items have been produced since then, Rathje doesn’t expect the proportions to change, because improved manufacturing uses less plastic per soda bottle or disposable wrapper.

The bulk of what’s in landfills, he says, is construction debris and paper products. Newspapers, he claims, again belying a common assumption, don’t biodegrade when buried away from air and water. “That’s why we have three-thousand-year-old papyrus scrolls from Egypt. We pull perfectly readable newspapers out of landfills from the 1930s. They’ll be down there for ten thousand years.”

He agrees, though, that plastic embodies our collective guilt over trashing the environment. Something about plastic feels uneasily permanent. The difference may have to do with what happens outside landfills, where a newspaper gets shredded by wind, cracks in sunlight, and dissolves in rain—if it doesn’t burn first.

What happens to plastic, however, can be seen most vividly in places where trash is never collected. Humans have continuously inhabited the Hopi Indian Reservation in northern Arizona since AD1000—longer than any other site in today’s United States. The principal Hopi villages sit atop three mesas with 360-degree views of the surrounding desert. For centuries, the Hopis simply threw their garbage, consisting of food scraps and broken ceramic, over the sides of the mesas. Coyotes and vultures took care of the food wastes, and the pottery sherds blended back into the ground they came from.

That worked fine until the mid-twentieth century. Then, the garbage tossed over the side stopped going away. The Hopis were visibly surrounded by a rising pile of a new, nature-proof kind of trash. The only way it disappeared was by being blown across the desert. But it was still there, stuck to sage and mesquite branches, impaled on cactus spines.

SOUTH OF THE HOPI MESAS rise the 12,500-foot San Francisco Peaks; east of the peaks are the even taller Rockies; and to their west are the Sierra Madres, whose volcanic summits are higher still. Impossible as it is for us to fathom, all these colossal mountains will one day erode to the sea—every boulder, outcrop, saddle, spire, and canyon wall. Every massive uplift will pulverize, their minerals dissolving to keep the oceans salted, the plume of nutrients in their soils nourishing a new marine biological age even as the previous one disappears beneath their sediments.

Long before that, however, these deposits will have been preceded by a substance far lighter and more easily carried seaward than rocks or even grains of silt.

Captain Charles Moore of Long Beach, California, learned this one day in 1997 when, sailing out of Honolulu, he steered his aluminum-hulled catamaran into a part of the western Pacific he’d always avoided. Sometimes known as the Horse Latitudes, it is a Texas-sized span of ocean between Hawai’i and California rarely plied by sailors because of a perennial, slowly rotating high-pressure vortex of hot equatorial air that inhales wind and never gives it back. Beneath it, the water describes lazy, clockwise whorls toward a depression at the center.

Its correct name is the North Pacific Subtropical Gyre, though Moore soon learned that oceanographers had another label for it: the Great Pacific Garbage Patch. Captain Moore had wandered into a sump where nearly everything that blows into the water from half the Pacific Rim eventually ends up, spiraling slowly toward a widening horror of industrial excretion. For a week, Moore and his crew found themselves crossing a sea the size of a small continent, covered with floating refuse. It was not unlike an Arctic vessel pushing through chunks of brash ice, except what was bobbing around them was a fright of cups, bottle caps, tangles of fish netting and monofilament line, bits of polystyrene packaging, six-pack rings, spent balloons, filmy scraps of sandwich wrap, and limp plastic bags that defied counting.

Just two years earlier, Moore had retired from his wood-furniture-finishing business. A lifelong surfer, his hair still ungrayed, he’d built himself a boat and settled into what he planned to be a stimulating young retirement. Raised by a sailing father and certified as a captain by the U.S. Coast Guard, he started a volunteer marine environmental-monitoring group. After his hellish mid-Pacific encounter with the Great Pacific Garbage Patch, his group ballooned into what is now the Algita Marine Research Foundation, devoted to confronting the flotsam of a half century, since 90 percent of the junk he was seeing was plastic.

What stunned Charles Moore most was learning where it came from. In 1975, the U.S. National Academy of Sciences had estimated that all oceangoing vessels together dumped 8 million pounds of plastic annually. More recent research showed the world’s merchant fleet alone shamelessly tossing around 639,000 plastic containers every day. But littering by all the commercial ships and navies, Moore discovered, amounted to mere polymer crumbs in the ocean compared to what was pouring from the shore.

The real reason that the world’s landfills weren’t overflowing with plastic, he found, was because most of it ends up in an ocean-fill. After a few years of sampling the North Pacific gyre, Moore concluded that 80 percent of mid-ocean flotsam had originally been discarded on land. It had blown off garbage trucks or out of landfills, spilled from railroad shipping containers and washed down storm drains, sailed down rivers or wafted on the wind, and found its way to this widening gyre.

“This,” Captain Moore tells his passengers, “is where all the things end up that flow down rivers to the sea.” It is the same phrase the geologists have uttered to students since the beginning of science. However, what Moore refers to is a type of runoff and sedimentation that the Earth had hitherto never known in 5 billion years of geologic time-but likely will henceforth.

DURING HIS FIRST THOUSAND-MILE CROSSING of the gyre, Moore calculated half a pound for every one hundred square meters of debris on the surface, and arrived at 3 million tons of plastic. His estimate, it turned out, was corroborated by U.S. Navy calculations. It was the first of many staggering figures he would encounter. And it only represented visible plastic: an indeterminate amount of larger fragments get fouled by enough algae and barnacles to sink. In 1998, Moore returned with a trawling device, such as Sir Alistair Hardy had employed to sample krill, and found, incredibly, more plastic by weight than plankton on the ocean’s surface.

In fact, it wasn’t even close: six times as much.

When he sampled near the mouths of Los Angeles creeks that emptied into the Pacific, the numbers rose by a factor of one hundred, and kept rising every year. By now he was comparing data with University of Plymouth marine biologist Richard Thompson. Like Thompson, what especially shocked him were plastic bags and the ubiquitous little raw plastic pellets. In India alone, five thousand processing plants were producing plastic bags. Kenya was churning out four thousand tons of bags a month, with no potential for recycling.

As for the little pellets known as nurdles, 5.5 quadrillion—about 250 billion pounds—were manufactured annually. Not only was Moore finding them everywhere, but he was unmistakably seeing the plastic resin bits trapped inside the transparent bodies of jellyfish and salps, the ocean’s most prolific and widely distributed filter feeders. Like seabirds, they’d mistaken brightly colored pellets for fish eggs, and tan ones for krill. And now God-knows-how-many quadrillion little pieces more, coated in body-scrub chemicals and perfectly bite-sized for the little creatures that bigger creatures eat, were being flushed seaward.

What did this mean for the ocean, the ecosystem, the future? All this plastic had appeared in barely more than fifty years. Would its chemical constituents or additives—for instance, colorants such as metallic copper—concentrate as they ascended the food chain, and alter evolution? Would it last long enough to enter the fossil record? Would geologists millions of years hence find Barbie doll parts imbedded in conglomerates formed in seabed depositions? Would they be intact enough to be pieced together like dinosaur bones? Or would they decompose first, expelling hydrocarbons that would seep out of a vast plastic Neptune’s graveyard for eons to come, leaving fossilized imprints of Barbie and Ken hardened in stone for eons beyond?

MOORE AND THOMPSON BEGAN consulting materials experts. Tokyo University geochemist Hideshige Takada, who specialized in EDCs—endocrine-disrupting chemicals, or “gender benders”—had been on a gruesome mission to personally research exactly what evils were leaching from garbage dumps all around Southeast Asia. Now he was examining plastic pulled from the Sea of Japan and Tokyo Bay. He reported that in the sea, nurdles and other plastic fragments acted both as magnets and as sponges for resilient poisons like DDT and PCBs.

The use of aggressively toxic polychlorinated biphenyls—PCBs—to make plastics more pliable had been banned since 1970; among other hazards, PCBs were known to promote hormonal havoc such as hermaphroditic fish and polar bears. Like time-release capsules, pre-1970 plastic flotsam will gradually leak PCBs into the ocean for centuries. But, as Takada also discovered, free-floating toxins from all kinds of sources—copy paper, automobile grease, coolant fluids, old fluorescent tubes, and infamous discharges by General Electric and Monsanto plants directly into streams and rivers—readily stick to the surfaces of free-floating plastic.

One study directly correlated ingested plastics with PCBs in the fat tissue of puffins. The astonishing part was the amount. Takada and his colleagues found that the plastic pellets eaten by the birds concentrated poisons to levels as high as 1 million times their normal occurrence in seawater.

By 2005, Moore was referring to the gyrating Pacific dump as 10 million square miles—nearly the size of Africa. It wasn’t the only one: the planet has six other major tropical oceanic gyres, all of them swirling with ugly debris. It was as if plastic exploded upon the world from a tiny seed after World War II and, like the Big Bang, was still expanding. Even if all production suddenly ceased, an astounding amount of the astoundingly durable stuff was already out there. Plastic debris, Moore believed, was now the most common surface feature of the world’s oceans. How long would it last? Were there any benign, less-immortal substitutes that civilization could convert to, lest the world be plastic-wrapped evermore?

THAT FALL, MOORE, THOMPSON, AND TAKADA convened at a marine plastic summit in Los Angeles with Dr. Anthony Andrady. A senior research scientist at North Carolina’s Research Triangle, Andrady is from Sri Lanka, one of South Asia’s rubber-producing powers. While studying polymer science in graduate school, he was distracted from a career in rubber by the surging plastics industry. An eight-hundred-page tome he eventually compiled, Plastics in the Environment, won him acclaim from the industry and environmentalists alike as the oracle on its subject.

The long-term prognosis for plastic, Andrady told assembled marine scientists, is exactly that: long term. It’s no surprise that plastics have made an enduring mess in the oceans, he explained. Their elasticity, versatility (they can either sink or float), near invisibility in water, durability, and superior strength were exactly why net and fishing line manufacturers had abandoned natural fibers for synthetics such as nylon and polyethylene. In time, the former disintegrate; the latter, even when torn and lost, continue “ghost fishing.” As a result, virtually every marine species, including whales, is in danger of being snared by great tangles of nylon loose in the oceans.

Like any hydrocarbon, Andrady said, even plastics “inevitably must biodegrade, but at such a slow rate that it is of little practical consequence. They can, however, photodegrade in a meaningful time frame.”

He explained: When hydrocarbons biodegrade, their polymer molecules are disassembled into the parts that originally combined to create them-carbon dioxide and water. When they photodegrade, ultraviolet solar radiation weakens plastic’s tensile strength by breaking its long, chainlike polymer molecules into shorter segments. Since the strength of plastics depends on the length of their intertwined polymer chains, as the UV rays snap them, the plastic starts to decompose.

Everyone has seen polyethylene and other plastics turn yellow and brittle and start to flake in sunlight. Often, plastics are treated with additives to make them more UV-resistant; other additives can make them more UV-sensitive. Using the latter for six-pack rings, Andrady suggested, might save the lives of many sea creatures.

However, there are two problems. For one, plastic takes much longer to photodegrade in water. On land, plastic left in the sun absorbs infrared heat, and is soon much hotter than the surrounding air. In the ocean, not only does it stay cooled by water, but fouling algae shield it from sunlight.

The other hitch is that even though a ghost fishnet made from photodegradable plastic might disintegrate before it drowns any dolphins, its chemical nature will not change for hundreds, perhaps thousands of years.

“Plastic is still plastic. The material still remains a polymer. Polyethylene is not biodegraded in any practical time scale. There is no mechanism in the marine environment to biodegrade that long a molecule.” Even if photodegradable nets help marine mammals live, he concluded, their powdery residue remains in the sea, where the filter feeders will find it.

“EXCEPT FOR A SMALL AMOUNT that’s been incinerated,” says Tony Andrady the oracle, “every bit of plastic manufactured in the world for the last fifty years or so still remains. It’s somewhere in the environment.”

That half century’s total production now surpasses 1 billion tons. It includes hundreds of different plastics, with untold permutations involving added plasticizers, opacifiers, colors, fillers, strengtheners, and light stabilizers. The longevity of each can vary enormously. Thus far, none has disappeared. Researchers have attempted to find out how long it will take polyethylene to biodegrade by incubating a sample in a live bacteria culture. A year later, less than 1 percent was gone.

“And that’s under the best controlled laboratory conditions. That’s not what you will find in real life,” says Tony Andrady. “Plastics haven’t been around long enough for microbes to develop the enzymes to handle it, so they can only biodegrade the very-low-molecular-weight part of the plastic”—meaning, the smallest, already broken polymer chains. Although truly biodegradable plastics derived from natural plant sugars have appeared, as well as biodegradable polyester made from bacteria, the chances of them replacing the petroleum-based originals aren’t great.

“Since the idea of packaging is to protect food from bacteria,” Andrady observes, “wrapping leftovers in plastic that encourages microbes to eat it may not be the smartest thing to do.”

But even if it worked, or even if humans were gone and never produced another nurdle, all the plastic already produced would remain—how long?

“Egyptian pyramids have preserved corn, seeds, and even human parts such as hair because they were sealed away from sunlight with little oxygen or moisture,” says Andrady, a mild, precise man with a broad face and a clipped, persuasively reasonable voice. “Our waste dumps are somewhat like that. Plastic buried where there’s little water, sun, or oxygen will stay intact a long time. That is also true if it is sunk in the ocean, covered with sediment. At the bottom of the sea, there’s no oxygen, and it’s very cold.”

He gives a clipped little laugh. “Of course,” he adds, “we don’t know much about microbiology at those depths. Possibly anaerobic organisms there can biodegrade it. It’s not inconceivable. But no one’s taken a submersible down to check. Based on our observations, it’s unlikely. So we expect much-slower degradation at the sea bottom. Many times longer. Even an order of magnitude longer.”

An order of magnitude—that’s ten times—longer than what? One thousand years? Ten thousand?

No one knows, because no plastic has died a natural death yet. It took today’s microbes that break hydrocarbons down to their building blocks a long time after plants appeared to learn to eat lignin and cellulose. More recently, they’ve even learned to eat oil. None can digest plastic yet, because fifty years is too short a time for evolution to develop the necessary biochemistry.

“But give it a hundred thousand years,” says Andrady the optimist—he was in his native Sri Lanka when the Christmas 2004 tsunami hit, and even there, after those apocalyptic waters struck, people found reason to hope. “I’m sure you’ll find many species of microbes whose genes will let them do this tremendously advantageous thing, so that their numbers will grow and prosper. Today’s amount of plastic will take hundreds of thousands of years to consume, but, eventually, it will all biodegrade. Lignin is far more complex, and it biodegrades. It’s just a matter of waiting for evolution to catch up with the materials we are making.”

And should biologic time run out and some plastics remain?

“The upheavals and pressure will change it into something else. Just like trees buried in bogs a long time ago—the geologic process, not biodegradation, changed them into oil and coal. Maybe high concentrations of plastics will turn into something like that. Eventually, they will change. Change is the hallmark of nature. Nothing remains the same.”

[Alan Weisman's article in this issue is an abridged excerpt from his book The World Without Us, published by St. Martin's Press in July, 2007 and used by permission. He lives in Tucson and teaches at the University of Arizona.]

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April 04, 2007

We Must Imagine a Future Without Cars

Source: AlterNet

By James Howard Kunstler
Posted April 4, 2007

The following is James Howard Kunstler' recent speech to the Commonwealth Club of California. An audio stream of the speech is available.

Two years ago in my book The Long Emergency I wrote that our nation was sleepwalking into an era of unprecedented hardship and disorder -- largely due to the end of reliably cheap and abundant oil. We're still blindly following that path into a dangerous future, lost in dark raptures of infotainment, diverted by inane preoccupations with sex and celebrity, made frantic by incessant motoring.

The coming age of energy scarcity will change everything about how we live in this country. It will ignite more desperate contests between nations for the remaining oil and natural gas around the world. It will alter the fundamental terms of industrial economies. It will ramify and amplify many of the problems presented by climate change. It will require us to behave differently. But we are not paying attention.

As the American public continues sleepwalking into a future of energy scarcity, climate change, and geopolitical turmoil, we have also continued dreaming. Our collective dream is one of those super-vivid ones people have just before awakening, as the fantastic transports of the unconscious begin to merge with the demands of waking reality. The dream is a particularly American dream on an American theme: how to keep all the cars running by some other means than gasoline. We'll run them on ethanol! We'll run them on biodiesel, on synthesized coal liquids, on hydrogen, on methane gas, on electricity, on used French-fry oil... !

The dream goes around in fevered circles as each gasoline-replacement is examined and found to be inadequate. But the wish to keep the cars going is so powerful that round and round the dream goes. Ethanol! Biodiesel! Coal Liquids. ...

And a harsh reality indeed awaits us as the full scope of the permanent energy crisis unfolds. The global oil production peak is not a cult theory, it's a fact. The earth does not have a creamy nougat center of petroleum. The supply in finite, and we have ample evidence that all-time global production has peaked.

Of course, the issue is not about running out of oil, and never has been. There will always be some oil left underground -- it just might take more than a barrel-of-oil's worth of energy to pump each barrel out, so it won't be worth doing.

The issue is not about running out -- it's about what happens when you head over the all-time production peak down the slippery slope of depletion. And what happens is that the complex systems we depend on for everyday life in advanced societies begin to falter, wobble, and fail -- and the failures in each system will in turn weaken the others. By complex systems I mean the way we produce our food, the way we conduct manufacture and trade, the way we operate banking and finance, the way we move people and things from one place to another, and the way we inhabit the landscape.

I'll try not to dwell excessively on the statistics since I am more concerned here with the implications for everyday life in our nation. But it is probably helpful to understand a few of the numbers.

Oil production in the US peaked in 1970. We're now producing about half of what we did then, and our own production continues to run down steadily at the rate of a few percentage points of recoverable reserves each year. It adds up. In 1970, we were producing about 10 million barrels a day. Now we're down to less than five -- and we consume over 20 million barrels a day. We have compensated for that since 1970 by importing oil from other nations. Today we import about two-thirds of all the oil we use. Today, the world is consuming all the oil it can produce. As global production passes its own peak, the world will not be able to compensate for its shortfall by importing oil from other planets.

Nor is there any real likelihood that new discoveries will be adequate to compensate. Discovery precedes production, of course, because you can't pump oil that you haven't discovered. Discovery of oil in the US peaked in the 1930s -- and production started declining roughly 30 years later. Discovery of oil peaked worldwide in the 1960s, and now the signs suggest the world has peaked. Discovery of new oil worldwide in recent years has amounted to a tiny fraction of replacement levels. In fact, we may be burning more oil just in our exploration efforts than we will get from the oil we're discovering.

The oil industry has been dominated by what are called supergiant fields. The four reigning supergiant fields of oil our time were discovered decades ago and are now in decline. The Burgan field of Kuwait, the Daqing of China, Cantarell of Mexico, and Ghawar of Saudi Arabia. Together in recent decades they were responsible for 14 percent of the world's oil production, and they are now in decline. All except Ghawar of Saudi Arabia have been declared officially past peak by their own governments and Ghawar is showing clear signs of trouble -- though Aramco itself won't say so. Ghawar has provided 60 percent of Saudi Arabia's production. Saudi Arabia's total production is down 8 percent in the year past, despite a massive increase in drilling rigs, and the incentive of high prices.

Last year, the Mexican national oil company, Pemex, declared its supergiant field, Cantarell, to be officially past peak and in decline. As in the case with Ghawar and Saudi Arabia, Cantarell has been responsible for 60 percent of Mexico's oil production. Cantarell is now crashing at an official decline rate of at least 15 percent a year -- perhaps steeper. Mexico has been our No. 3 source of oil imports (after Canada and Saudi Arabia). The crash of Cantarell means in just a few years Mexico, our No. 3 source of imports, will have no surplus oil to sell to the US. It also means that the Mexican government will be strapped for operating revenue -- and you can draw your own conclusions about the political implications.

The North Sea and Alaska's North Slope were some of the last great discoveries of the oil era. Plentiful North Sea and Alaskan production took away OPEC's leverage over the oil markets. This led to the oil glut of the 1990s, driving oil prices down finally to $10 a barrel. It is also what induced the American public to fall asleep on energy issues. It seemed as if cheap oil was here to stay. Forever.

Both The North Sea and Alaska are now past peak and in depletion. Prudhoe Bay proved to be Alaska's only super giant oil field. Several other key fields were discovered. None were even 1/6th the size of Prudhoe Bay.

North Sea oil was produced using the latest-and-greatest new technology for drilling and guess what: it only allowed the region to be drained more rapidly and efficiently. Now 57 of Norway's 69 oil fields are past peak and the average post-peak decline rates average 17 percent a year. The UK's share of the North Sea has declined to the extent that England is now a net energy importer.

Russia, despite current high levels of post-Soviet-era production, peaked in the 1980s, and may now be past 70 percent of its ultimate recoverable reserves. Iran is past peak. Indonesia, an OPEC member, is so far past peak it became a net oil importer last year. Venezuela is past peak. Iraq and Nigeria are consumed by political insurrection. The companies developing Canada's tar sands have announced this past year that their costs will double original estimates -- in other words, whatever comes out of the ground there will be very expensive.

Meanwhile, in the background, completely ignored by the US media, an additional problem is developing on the oil scene. Net world production is going down by just under 3 percent a year, but total exports from the top ten exporters are going down at an even steeper rate. Geologist Jeffrey Brown, among the excellent technicians at TheOilDrum.com website, writes that the top ten exporters are showing a net export decline rate of 7 percent the past year, trending toward a 50 percent export decline over the coming ten years. Why? Because on top of production decline rates, nations like Saudi Arabia, Iran, and Venezuela are using more of their own oil at home with rising populations and more automobiles.

A few additional background items. Most of the easy-to-get, light and sweet crude oil is gone. We got that out of the ground in the run-up to peak [oil]. We found that high quality oil in temperate places onshore, like Texas, where it was easy and pleasant to work, and the stuff was relatively close to the surface. The remaining oil is, each year, proportionally made up more of heavy and sour crudes that are hard to refine and yield less gasoline. Most of the refinery capacity in the world cannot process these heavy and sour crudes and there is no world-class industrial effort to build new ones -- and on top of that, existing world refinery infrastructure is old and rusty. Finally, most of the remaining oil in the world exists either in geographically forbidding places where it is extremely difficult and expensive to work, like deep water out in the ocean or in frozen regions, or else it belongs to people who are indisposed to be friendly to us.

The natural gas situation is at least equally ominous, with some differences in the technical details -- and by the way, I'm referring here not to gasoline but to methane gas (CH4), the stuff we run in kitchen stoves and home furnaces. Natural gas doesn't deplete slowly like oil, following a predictable bell curve pattern; it simply stops coming out of the ground very suddenly, and then that particular gas well is played out. You get your gas from the continent you're on. Natural gas is moved to customers in the US, Canada, and Mexico in an extensive pipeline network. To import natural gas from overseas, it has to be liquefied, loaded in a special kind of expensive-to-build-and-operate tanker ship, and then offloaded at specialized marine terminal, all adding layers of cost. The process also obviously affords us poor control over not-always-friendly foreign suppliers.

Half the homes in America are heated with gas furnaces and about 16 percent of our electricity is made with it. Industry uses natural gas as the main ingredient in fertilizer, plastics, ink, glue, paint, laundry detergent, insect repellents and many other common household necessities. Synthetic rubber and man-made fibers like nylon could not be made without the chemicals derived from natural gas. In North America, natural gas production peaked in 1973. We are drilling as fast as we can to keep the air conditioners and furnaces running.

That's the background on our energy predicament. Against this background is the whole question of how we live in the United States. I wrote three books previously about the fiasco of suburbia. There are many ways of describing it, but lately I refer to it as the greatest misallocation of resources in the history of the world. Why? Because it is a living arrangement with no future. Why doesn't it have a future? Because it was designed to run on cheap oil and gas, and in just a few years we won't have those things anymore.

Having made these choices, we are now hobbled by a tragic psychology of previous investment -- that is, having poured so much of our late-20th century wealth into this living arrangement -- this Happy Motoring utopia -- we can't imagine letting go of it, or substantially reforming it.

We have compounded the problem lately by making the building of suburban sprawl the basis of our economy. Insidiously, we have replaced America's manufacturing capacity with an economy based on building evermore suburban houses and the accessories and furnishings that go with them -- the highway strips, the big box shopping pods, et cetera -- meaning that our economy is now largely based on building more and more stuff with no future -- on a continued misallocation of resources. Roughly 40 percent of the new jobs created between 2001 last year were in housing bubble related fields -- the builders, the real estate agents, the mortgage brokers, the installers of granite countertops. If you subtracted the housing bubble from the rest of the economy in recent years, there wouldn't be much left besides hair-styling, fried chicken, and open heart surgery. Much of this housing bubble itself was promulgated by an equally unprecedented lapse in standards and norms of finance -- a tragedy-in-the-making that has now begun to unwind. What are we going to do about our extreme oil dependence and the living arrangement that goes with it?

There's a widespread wish across America these days that some combination of alternative fuels will rescue us; will allow us to continue enjoying by some other means what has been called "the non-negotiable American way of life." The wish is perhaps understandable given the psychology of previous investment.

But the truth is that no combination of alternative fuels or systems for using them will allow us to continue running America the way we have been, or even a substantial fraction of it. We are not going to run Wal Mart, Walt Disney World, Monsanto, and the interstate highway system on any combination of solar or wind energy, hydrogen, nuclear, ethanol, tar sands, oil shale, methane hydrates, thermal depolymerization, zero-point energy, used french-fry oil, or anything else you can name. We will desperately use many of these things in many ways, but we are likely to be disappointed by what they can actually do for us, particularly in terms of scale -- apart from the fact that most or all of them are probably net energy losers in economic terms.

For instance, we are much more likely to use wind power on a household or neighborhood basis rather than in deployments of Godzilla-sized turbines in so-called wind farms.

The key to understanding what we face is that we have to comprehensively make other arrangements for all the normal activities of everyday life. It is a long, detailed "to do" list that we can't afford to ignore. The public discussion of these issues is impressively incoherent. This failure of the collective imagination is reflected in the especially poor job being done by the mainstream media covering this story -- in particular, The New York Times, which does little besides publish feel-good press releases from Cambridge Energy Research Associates, the oil industry's chief public relations consultant.

These days, the only aspect of these issues that we are willing to talk about at all is how we might keep all our cars running by other means. We have to get beyond this obsession with running the cars by other means. The future is not just about motoring. We have to make other arrangements comprehensively for all the major activities of daily life in this nation.

We'll have to grow our food differently. The ADM/Monsanto/Cargill model of industrial-scale agribusiness will not survive the discontinuities of the Long Emergency -- the system of pouring oil-and-gas-based fertilizers and herbicides on the ground to grow all the cheez doodles and hamburgers. As oil and gas deplete, we will be left with sterile soils and farming organized at an unworkable scale. Many lives will depend on our ability to fix this.

We will find out the hard way that we can't afford to dedicate our crop lands to growing grains and soybeans for ethanol and biodiesel. A Pennsylvania farmer put it this way to me last month: "It looks like we're going to take the last six inches of Midwest topsoil and burn it in our gas tanks." The disruptions to world grain supplies by the ethanol mania are just beginning to thunder through the system. Last months there were riots in Mexico City because so much Mexican corn is now being already being diverted to American ethanol production that poor people living on the economic margins cannot afford to pay for their food staples.

You can see, by the way, how this is a tragic extension of our obsession with running all the cars.

In the years ahead, farming will come back much closer to the center of American economic life. It will necessarily have to be done more locally, at a smaller-and-finer scale, and will require more human attention. Many of the value-added activities associated with farming -- making products like cheese, wine, oils -- will also have to be done much more locally. This situation presents excellent business and vocational opportunities for America's young people. It also presents huge problems in land-use reform. Not to mention the fact that the knowledge and skill for doing these things has to be painstakingly retrieved from the dumpster of history.

We're going to have to move people and things from place to place differently. It is imperative that we restore the US passenger railroad system. No other project we could do right away would have such a positive impact on our oil consumption. We used to have a railroad system that was the envy of the world. Now we have a system that the Bulgarians would be ashamed of.

The infrastructure for this great task is lying out there rusting in the rain. This project would put scores of thousands of people to work at meaningful jobs, at every level, from labor to management. It would benefit all ranks of society. Fixing the US passenger rail system doesn't require any great technological leaps into the unknown. The technology is thoroughly understood. The fact that from end-to-end of the political spectrum there is no public discussion about fixing the US passenger rail system shows how un-serious we are.

There's another compelling reason we should undertake the great project of repairing the US passenger rail system: it is something that would restore our confidence, a way we could demonstrate to ourselves that we are competent and capable of meeting the difficult challenges of this energy-scarce future. ... And it might inspire us to get on with the other great tasks that we will have to face.

By the way, it is important that we electrify our railroad system. All the other advanced nations have electric rail systems which allow them to run on something other than fossil fuel or to control the source point of the carbon emissions and pollution in the case of coal-fired power generation. Electric motors are far simpler and way more efficient even than diesel engines. The US was well underway with the project of electrifying our railroad system, but we just gave up after the Second World War as we directed all our investment to the interstate highway system instead.

We're going to have to move things by boat. But we've just finished a 50-year effort in taking apart most of the infrastructure for maritime trade in America. Our harbors and riverfronts have been almost completely de-activated. The public now thinks that harbors and riverfronts should only be used for condo sites, parks, bikeways, band shells and festival marketplaces. Guess what: We're going to have to put back the piers and warehouses and even the crummy accommodations for sailors.

We're going to have to move a lot more stuff by water or our ability to do commerce will suffer. Meanwhile, if we use trucks, it will be for the very last local increment of the journey. Leaders in business and municipal politics will have to wrap their minds around this new reality.

We are probably in the twilight of Happy Motoring -- as we have known it. The automobile will be a diminished presence in our lives. I'm not saying that cars will disappear, but it will become self-evident that our extreme dependency will have to end. It is possible, but not likely, that affordable electric cars will come on the market before we get into serious trouble with oil. More likely, we'll be facing an entirely new political problem with cars as motoring becomes increasingly only something that the economic elite can enjoy.

For decades, motoring has been absolutely democratic. Everybody from the lowliest hamburger flipper to the richest Microsoft millionaire could participate in the American motoring program. Right now, let's say six percent of adults in this nation can't drive, for one reason or another: They're blind, too old, too poor, et cetera. What if that number rose to 13 percent, or 26 percent of Americans because either the price of fuel or the cost of a vehicle rose beyond their means. Do you suppose that a whole new mood of grievance and resentment might arise against those who were still driving cars? And how would the large new class of non-drivers feel about paying taxes to maintain the very expensive interstate highway systems?

Back to the task list:

We're going to have to make other arrangements for commerce and manufacturing. The national chain discount stores that took over American retail in recent decades will not survive the discontinuities of the Long Emergency. Their business equations and methods of operations will fail, in particular their remorseless cancer-like drive toward replication and expansion. They will lack the resilience to adapt due to their gigantic scale of operations -- a scale that will no longer be appropriate to the contracting available energy "nutrients."

The so-called "warehouse on wheels" composed of thousands of trucks circulating incessantly around the interstate highways will not work economically in a new era of scarcer and expensive oil. Not to mention the 12,000-mile supply line to the factories of Asia which we have tragically come to depend on for so many of our household goods.

We have to check all our assumptions at the door about how things will work in the years ahead. Lately, thanks to Tom Friedman and other cheerleaders for the global economy, we've adopted the notion that globalism is a permanent condition of life. I think we will be disappointed to learn the truth -- that globalism was a set of transient economic relations made possible at a particular time by very special conditions, namely half a century of cheap energy and half a century of relative peace between the great powers.

Those conditions are about to end, and with them, I predict, will go many of the far-flung economic relations that we've come to rely on. When the US and China are contesting for the world's remaining oil resources, do you think it's possible that our trade relations might be affected? These are things we had better be prepared to think about it. China has way outstripped its own dwindling oil supply. China has gone all over the world in recent years systematically making contracts for future delivery of oil with other nations, including Canada, as that nation ramps up production of the tar sands in Alberta.

I want to remind you that there is such a thing as the Monroe Doctrine, an American foreign policy position that essentially forbids nations outside the western hemisphere from intruding in or exploiting affairs in this part of the world. It may be an old and perhaps an arrogant policy -- but I predict the time will come when the United States will invoke it in order to preserve our access to Canadian oil supplies. And if-and-when that occurs, what do you suppose that will mean to our trade relations with China? How many plastic wading pools and salad shooters will Wal-Mart be ordering then?

These are the kinds of things we are not thinking about at all, and which leave us woefully unprepared to face a very uncertain future.

Getting back to retail trade in the US -- it is important to recognize the damage that the national discount chain stores have already done in systematically destroying local commercial economies. If you travel around the main street towns of this nation, as I do, you see places in Pennsylvania, and Michigan, and Alabama, and Oklahoma, and Connecticut, and in my region of the upper Hudson Valley in New York that look like former soviet backwaters. The destruction, the abandonment and desolation in the fabric of our towns is just out of this world.

This era of chain store supremacy will not continue far into the future, and as it wobbles and falls we will be faced with a tremendous task of rebuilding the fine-grained, multi-layered local networks of economic interdependency that the chain stores destroyed. As that rebuilding occurs we will restore social roles as well as economic roles that have long been absent in our home places.

In destroying local retail infrastructures, the chain stores wiped out a whole mercantile middle class. These were the people ran local businesses, who sat on the library and hospital boards, who sponsored the little league baseball, who employed their neighbors and had to behave decently toward them, as well as treating their neighbors decently in matters of trade. They were people who uniformly had to take care of at least two buildings in town -- the place where they did business and the place where they lived. These were the people who were the caretakers of our communities, and the extermination of this class of citizens has been devastating.

We don't know how we are going to make things again in America, for instance, ordinary household products. We're not going to re-live the 20th century, when the US was on a great upswing of energy resources and we made everything for ourselves from toasters to record players. Where I live, in the upper Hudson and Mohawk Valley region of New York, most of the factories have actually been knocked down in the past 20 years. The water power is still there in many of these places, but the buildings are gone. Among all our other wishes, there is a wish that we will innovate stunning new methods for making things, such as nanotechnology. I'd repeat that we'd better check all our assumptions at the door and that we are liable to be disappointed by what these wishes will eventually lead to.

I think the truth is, we are going to have fewer things to buy. The Blue-Light-Special retail orgy of recent decades will fade into history, and shopping will retreat into the background of daily life. Consuming things will not be our sole reason for living.

The role of finance as we know it today will be severely challenged by the Long Emergency. Declining energy supplies have one particular grave implication for industrial societies: that they can no longer take for granted the 3 to 7 percent annual growth in gross domestic product that has been assumed to be normal throughout recent history. In fact, the energy picture -- the dwindling of a particular, extraordinary, one-time, very special resource -- implies a general contraction of productive activity.

Our expectations for growth are vested in tradable paper certificates -- currencies, stocks, bonds, and other instruments that represent our confidence that society will produce more wealth, and that this increase can be enjoyed in the form of profits and dividends. What happens when that consensus about reliable increase falls apart? What happens to the entire edifice of finance when these abstract certificates are no longer backed by the faith of people who have been trading them?

We can see the beginning of this process right now in the unwinding of the home mortgage sector. This recent experiment in the abolition of moral hazard, in the suspension of norms-and-standards in lending, in the fobbing off of risk, is climaxing in one of the great debacles of modern economics. It was based on the idea that immense numbers of promises for future payment could be bundled into bonds, resold, and parlayed to leverage evermore abstract casino-like bets masquerading as investments. This is anything but investment in future productive activity.

It is now being discovered that at the foundation of all this jive-finance activity lie bundles of broken promises, "non-performing loans," as they're called. It remains to be seen how this mortgage-and-housing bubble fiasco will play out, but I think it will be one of the major events leading to an overall loss of presumed wealth for American society. And is likely, as well, to infect the jury-rigged structures of global finance to a disastrous degree.

The key to all our everyday activities in the future is scale. We will probably have to live more locally than has been the case in recent decades. I think we can state categorically that anything organized on the gigantic scale, whether it is an agricultural system, or a finance system, or a corporation, or a chain of stores, or a school, or a government, is going to run into trouble.

School is another item on our "to do" list of things that we have to make other arrangements for. The gigantic centralized public school systems all over America that depend on the massive fleets of yellow school buses for collecting the students every morning around the 50-mile-radius 'pupil sheds' -- this way of doing things will probably encounter failure. Not to mention that we used the same kind of sprawling, one-story, flat-roofed buildings in Florida as in Minnesota -- and given the situation with natural gas we'll have trouble heating these buildings in the colder states. Of course there are plenty of reasons to suspect that schools this large, designed like medium security prisons, are not optimum settings for learning even if oil and gas were plentiful.

Complicating the issue is the fact that our school systems are at the center of the psychology of previous investment. We have put so much of our collective wealth in these sprawling, oversized, vehicle-dependent institutions -- with all their fabulous amenities of swimming pools, video labs, and free parking -- that it will be very difficult for us to let go of them -- even after it is self-evident that they are no longer working. What will replace our giant centralized public schools? School districts will be starved for cash in the Long Emergency. I doubt that we will be able to replace the centralized schools with a whole new system of smaller buildings distributed more equitably around the places where people live. If anything, I suppose a replacement may arise out of home schooling, especially as home schools aggregate into larger neighborhood units so that every parent doesn't have to duplicate the vocational role of teacher (and of course not all parents would even be capable of acting in that role).

The destiny of higher education ought to be especially troubling. The giant universities are exactly the kinds of institutions that will prove unwieldy and unsupportable in the Long Emergency. College will cease to be the mass consumer activity it became in the cheap energy heyday. If it survives at all, it is likely to be -- as earlier in history -- an activity for a much smaller economic elite.

The question of class relations per se will be affected by our energy situation, since it is necessarily linked to our economy. The Long Emergency is going to produce a lot of economic losers -- a whole new group I call the formerly middle class. They will lose jobs, vocations, and incomes that they will never get back. They are going to be full of grievance, anger, resentment, and bewilderment at the loss of their entitlements to the "non-negotiable" American way of life, including home ownership and affordable happy motoring. They are likely to express these feelings politically. We will be lucky if they do not turn to demagogues who promise to mount one sort of campaign or another to restore the entitlements of suburbia.

Such a campaign would be an enormous exercise in futility and a gross waste of our scarce remaining resources. But it is the kind of thing that happens when a society comes under extreme stress, and we had better be prepared for it. Social friction may also be prompted as agriculture comes closer to the center of our economic life, and we're faced with conflict between those who retain wealth in productive land and those who must resort to working in agriculture to make a living. In history, this typically sets the stage for the radical redistribution of property, seizure of land, in short, for political revolution. It could happen here. We are certain to experience epochal demographic shifts in any case. The 200-year-long trend of people leaving the rural places and the small towns to go to the big cities will very likely go into reverse.

Our hyper-gigantic cities and so-called metroplexes are a pure product of the 200-year-long upward arc of cheap energy. Like other things of gigantic scale, our cities will get into trouble. They are going to contract substantially. The cities that are composed overwhelmingly of suburban fabric will be most susceptible to failure. Orlando, Houston, Atlanta. The cities that are overburdened with skyscrapers will face an additional layer of trouble -- the skyscraper, like the mega-city, was a product of cheap energy, and we are going to have trouble running them, especially heating them without cheap natural gas.

As our cities contract, I think they will re-densify at their centers and around their waterfronts, if they are located favorably on water, and depending on how (or if) rising ocean levels might affect them. The process of contraction in our cities is likely to be difficult, disorderly and unequal. Some cities will do better than others. In my opinion, Phoenix and Tucson will be substantially depopulated. They will face additional problems with their ability to produce food locally and with water.

In Las Vegas, the excitement will be over. That will be a good thing since it has become the holy shrine of America's new chief religion: the worship of unearned riches -- based on the belief that it is possible to get something for nothing -- a belief that underlies, by the way, a great deal of the delusional thinking abroad in this land about the ability of alternative fuels and energy schemes to rescue our current mode of living.

It is hard to be optimistic about the destiny of our suburbs. My referring to them as the greatest misallocation of resources in the history of the world pretty much says it all. There will be a wish to rescue them, of course, but it is unlikely to go beyond the wishing stage. We will be a less affluent society in the years ahead than we were when we built the suburbs in the first place, and we will have fewer resources to fix them or retrofit them. The Jolly Green Giant is not going to come and move the houses closer to the shopping -- to undo the vast absurdities of single-use-zoning.

We could reform our codes and regulations which have virtually mandated a suburban sprawl outcome in every American locality -- but it's a little late for that. The horse is out of the barn on that one. And anyway, I believe the mortgage-and-housing bubble fiasco will mark the end of the whole project of suburbanization per se. I don't believe the production home builders will ever recover from it in our lifetimes; we certainly don't need a single additional WalMart or fried food joint; and the energy problems we face will eventually overcome all our wishes to keep that system going, whether we like it or not.

Realistically, I think we will have to return to a set of traditional ways of inhabiting the terrain -- towns, smaller-scaled cities composed of walkable neighborhoods, and a productive rural landscape with more of a human presence than we see in today's countryside. We have thousands of smaller towns and cities waiting to be re-inhabited and re-activated. Most of them occupy geographically important or valuable sites, especially the ones near fresh running water.

For the past two decades I have been associated with the New Urbanist movement. The New Urbanists were architects, planners, and developers who recognized the tremendous weaknesses and liabilities of the suburban pattern and have been campaigning to reform the way we build things in this country. Their methods are consistent with what we are going to need in the decades ahead to refashion human habitats that have a future and which are worth caring about.

The great achievement of the New Urbanists was not in the projects and new towns that they designed and caused to get built in recent years, but in their heroic act of retrieving lost knowledge from the dumpster of history -- a whole body of principles, methods, and skills necessary to design places worth living in. This was knowledge and principle that we had thrown away in our mad rush to become a drive-in utopia. We threw it away thinking that we could replace urban design and artistry with mere traffic engineering and statistical analysis. The result of that is now visible for all to see in the tragic landscape of the highway strips and the single-income housing pods. What we managed to do was build a land full of scary places that turned us into a nation of scary people. But this was the final tragedy of suburbia: we put up thousands of places that aren't worth caring about, not understanding that when we had enough of them, we might be left with a nation not worth defending.

So there you have a comprehensive "to do" list of efforts we can make to meet the challenges of the permanent global energy crisis, things we can do to mount an intelligent response to these circumstances that reality is sending our way. Growing more of our food locally; restoring our railroads and other forms of public transit; rebuilding local networks of commerce and economic interdependency; reorganizing education at an appropriate scale for the future.

We cannot assume a seamless transition between where we are today and where we're going. It maybe turbulent and disorderly.

We cannot assume that technology alone will rescue us. In fact, one of the major obstacles to clear thinking these days is the mistaken belief that technology and energy are the same thing; that they are interchangeable; that if you run out of one, you can just plug in the other.

Energy and technology are related to each other but they are not the same. Technology may help us get energy resources, or use energy resources, but it is not an energy resource itself. We assume magical properties for technology largely because, in our lifetimes, the energy has always been there behind it, steady, dependable, and cheap.

What's more energy and technology both entail very insidious side effects. Energy throws off entropy, a protean force of disorder and loss that manifests in everything from the wasted heat coming out of an engine tailpipe to the immersive ugliness of the American commercial highway strip -- which is entropy-made-visible.

Technology throws off diminishing returns, in the sense that the more complex you make things, often the worse the effect on society as a whole. My favorite example is the telephone system. For more than two decades we have invested billions in computerizing every phone system in the land. The net result, after all that investment and effort, is that it is practically impossible to reach a live human being on a telephone -- not to mention the monumental ten-times-a-day aggravation of getting booted into a computerized phone menu leading to the purgatory of terminal "hold."

I hope we can overcome our tendencies to try to get something for nothing and to engage in wishful thinking. The subject of hope itself is an interesting one. College kids on the lecture circuit always ask me if I can give them some hope. Apparently, they find this view of the future to be discouraging. It may mean fewer hours playing Grand Theft Auto with a side order of Domino's pepperoni pizza, but there are many positive implications for our lives in the future. We may once again live in places worth caring about, where beauty and grace are considered everybody's birthright. We may work side-by-side with our neighbors, on things that are meaningful. Instead of canned entertainments, we may hear the sounds of our own voices making music, see the works of our own dramatists and dancers.

Hope is something we really have to supply for ourselves. We are our own generators of hope, and we do it by demonstrating to ourselves that we are capable of facing the circumstances of our time, of working competently to meet these challenges, and of learning the difference between wishing and doing. In fact, what we need is not so much hope, but confidence in our inherent abilities and the will to act.

We've got a lot to do. We've got to put down the iPods and get busy. There's no time for hand-wringing and whining. As Yogi Berra said, our whole future's ahead of us.

January 14, 2007

Why Iran Is Next

Source: Free-Market News Network

By Noel Gibeson
Thursday, January 11, 2007

In the petrodollar wars, stage one was Iraq and stage two is Iran. Both dared to propose to use the euro instead of the U.S. dollar (USD) to buy Middle East oil. That was a big mistake because it jeopardized the solvency of the USD, a fiat currency; and, therefore, the very heart of the U.S. economy itself. Big business will not stand for that.

What is a fiat currency? A fiat currency in the case of the USD is a currency that is NOT based on gold, silver, or anything else of tangible value; but rather it is "a promise to pay." Essentially, it is an IOU ("I owe you") note that is based on the good faith and credit of the issuer that it will be redeemed at the face value of the note, a USD in this case. This is its weakness for holders of the note, but its strength for the issuer of the currency, in this case the U.S. government who simply continues to print as much money as it wants to in hopes that it will never have to redeem these dollars at their face value all at one time. It is much like an international Ponzi scheme. In reality, it is play money or monopoly money.

New York Post columnist Ralph Peters in "Eyeing Iran" (NYP, January 8, 2007) described the new U.S. military Middle East leadership lineup with General Patreus going to Iraq and Admiral Fallon going to CENTCOM as a sign for the future. Appointing a naval officer to command CENTCOM for the first time is seen as a harbinger of things to come with regard to Iraq, Somalia, and in particular, Iran. The Persian Gulf and the Indian Ocean are key geographical areas in this region. Any attempts by Iran (or anyone else for that matter) to block key strategic geographic features, such as the Strait of Hormuz, or otherwise impede the transport of oil or strategic materials could be met with an instantaneous naval military response. The presence of increased naval forces in the area could also be a sign of potential military action.

What has become more even important than national boundaries, according to Anthony Wile in High Alert (High Alert Publishing, 2007), is the control and domination exercised by global elites over the economies of nations and the destinies of people. Few people are aware of this relationship and this excellent book goes into detail describing how this works. These are the forces that are currently in play worldwide that affect the U.S., Iraq, and Iran, among many other nations.

So when Iraq President Saddam Hussein said in 2000 that Iraq would begin selling Iraqi oil using the euro instead of the USD he instantly became a marked man. Why; because it is vital to the solvency of U.S. fiat currency that there are many foreign holders of the USD in order to keep it afloat; to keep it solvent. This is particularly important in the oil markets where trade must be conducted using the USD that the United States set as the standard long ago for oil purchases. This was done on purpose (Krassimir Petrov, "The Proposed Iranian Oil Bourse," Energy Bulletin, January 26, 2006).

Iran's plan to compete with dollar-dominated and American-owned New York's NYMEX and London's IPE, met with frosty reception from the beginning and things never got better. Because of the United States' high debt levels and stated neo-conservative quest for world domination, the euro inroads to establish a foothold in the dollar-dominated world oil market and posed a direct threat both to the U.S. dollar and to the U.S. economy (William Clark, "The Real Reasons Why Iran is the next Target," Energy Bulletin, October 26, 2004).

The chief obstacle to establishment of a euro-denominated marker has been the three dollar-denominated oil pricing standard, or oil markers as they are referred to in the industry. They are the West Texas Intermediate crude (WTI), Norway Bent crude, and the Dubai crude. Since 2003 Iran has been selling their oil exports to Europe and Asia/ACU in euros. However, in 2004 when Iran announced that it intended to establish an Iranian Oil Bourse that was euro-based, that sent shockwaves through the U.S.-dominated international oil industry because it would compete with the U.S. owned NYMEX and IPE. That set Iran on a path of confrontation with the United States (William Clark, Oil, Iraq, and the Future of the Dollar, New Society Publishers, 2005).

While the United States has no bone with the people of Iran who are generally viewed with great favor in the U.S., it does have a major problem with the Ahmadinejad government of Iran for two reasons; first, their desire to establish an Iranian Oil Bourse, and second, their continued development of a nuclear weapons along with their vow to destroy Israel. Israel would never allow this to happen, nor would the United States.

But perhaps a sin even greater than continued nuclear weapons development has been their quest to establish the Iranian Oil Bourse.

For contrast, North Korea has an even more developed nuclear weapons program and is guilty of proliferating missile technology to Pakistan, Indian and Iran, yet the U.S. does not seem interested in invading them, at least so far. What is the difference? North is not an oil producer, whereas, Iran not only is a major oil producer but intends to setup a non-dollar denominated oil bourse as well. That is why Iran is the next U.S. target.

December 29, 2006

The Proposed Iranian Oil Bourse

Source: Axis of Logic

The Proposed Iranian Oil Bourse
By Krassimir Petrov
Dec 29, 2006, 05:48

I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms—usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world’s gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960’s was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ’s Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of “severing the link between the dollar and gold”, in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond— the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would want to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have went into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished—he had successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.

The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

The Russians have inherent economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy.
Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York’s NYMEX and the London’s International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter—those of Europeans, Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation’s exchange:

Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.

Coup d’état—this is by far the best long-term strategy available to the Americans.

Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fails, then negotiation is clearly the second-best available option.

Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.

Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.

Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.
Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis—between deflation and hyperinflation—it will be forced fast either to take its “classical medicine” by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard’s America’s Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem—to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world—that barbarous relic called gold.

--------------------------------------------------------------------------------

Recommended Reading
William Clark “The Real Reasons for the Upcoming War in Iraq
William Clark “The Real Reasons Why Iran is the Next Target

About the Author
Krassimir Petrov (Krassimir_Petrov@hotmail.com) has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U. A. E.

Also by this author
“China’s Great Depression”
“Masters of Austrian Investment Analysis”
“Austrian Analysis of U.S. Inflation”
“Oil Performance in a Worldwide Depression”
See: www.financialsense.com/editorials/petrov/main.html


~~~~~ Notes from the Editor of Energy Bulletin~~~~~

An excellent and thought provoking article by Krassimir Petrov!

However, I think perhaps it's not entirely correct to state that "critics can’t explain why Bush would want to seize those fields." The Bush regime are probably aiming to set themselves up as policeman of the Middle East oil fields, 'protecting' oil supply to Asia and Europe in return for various advantages at any future negotiation tables. Meanwhile billions of dollars of unaccountable no-bid contracts have been handed to corporations with ties to Bush administration, and the Iraqi oil industry is set to be privatised. So the reasons for the war are rich and varied. However Petrov has given us one of the clearest explanations yet of one of the most important, and certainly least understood, motivations for the war.

-AF

http://www.energybulletin.net/12125.html

December 28, 2006

Tense countdown to Russia-Belarus 'gas war' begins

Source: Agence France-Presse

by Sebastian Smith
December 28, 2006

MOSCOW (AFP) - The tense countdown to Russia's threatened cutting of gas supplies to Belarus, which could also hit deliveries to western Europe, has entered its final hours of confrontation over pricing.

Negotiations continued in Moscow Thursday, said Sergei Kupriyanov, spokesman for Russia's state-controlled monopoly Gazprom.

He refused to give details of the talks, slightly more than three days before a deadline laid down by Russia which is causing concern in the
European Union.

Gazprom chairman Alexei Miller has warned that gas supplies to Belarus will be turned off at 10:00 am in Moscow (0700 GMT) on Monday if Belarus, an ex-Soviet republic, does not agree to a more than doubling of price.

With Gazprom and Belarus both warning of a knock-on effect for western European customers who rely on Belarus as a transit point for Russian gas, the crisis increasingly resembles the showdown between Russia and Ukraine at New Year's 2006.

"A second gas war has been declared," said the respected Vedomosti business daily in Moscow. "Belarus will be cut off, like Ukraine."

The European Union, where Russian imports accounted for 24 percent of total gas requirements in 2005, is watching closely.

"I call on the two parties to reach as soon as possible a satisfactory agreement that does not put in question gas transits to the EU," Energy Commissioner Andris Piebalgs said in a statement.

"The Commission is following the situation very closely since it may affect gas supplies to the European Union."

Gazprom accuses Belarus of preparing to siphon off gas destined for Europe in the event of a cut to its domestic supplies and has warned that compensation for a loss in volumes might be impossible.

Belarus argues that if it is unable to agree with Gazprom on a new contract for its domestic supplies in 2007, then the contract governing transit of Russian gas westward will also become void.

Gazprom says the price increase would bring Belarus' fee closer to international standards and away from Soviet-style subsidies, while critics accuse the giant company of using energy as a weapon to bring neighbouring countries under Kremlin dominance.

Ironically, the dispute pits Belarus' President Alexander Lukashenko against the one major country that supports his authoritarian regime.

In contrast, Gazprom's strong-arm tactics in Ukraine 12 months ago, culminating with the brief cut-off in gas, were widely seen as part of a Kremlin strategy to weaken strongly pro-Western President Viktor Yushchenko.

The current crisis is on a smaller scale than the Ukraine episode, since just 20 percent of Russian gas exports to Europe go through Belarus, compared to 80 percent through Ukraine.

Last winter was also one of the coldest recorded in Europe.

So far, this winter is one of the mildest and so demand for energy is lower. According to the European Union, reserves are big enough to deal with any temporary shortfall.

Russia's media predicted that Belarus, a country of 10.3 million people sandwiched between Russia and the European Union, will find the cost too high to maintain defiance for long.

"Unpredictable he may be, but Lukashenko will not continue the conflict with Russia for long," Vedomosti quoted an unnamed Kremlin official as saying, suggesting that Lukashenko might accept a compromise in which Belarus took a loan from Moscow that covered the increased gas price.

However, commentators in Belarus said the country was ready to stand firm.

"In the end they will come to a deal. Belarus has its own cards in this fight -- transit, Russian military bases stationed on its territory, political relations," said analyst Andrei Fyodorov.

Belarus currently pays Gazprom a highly subsidised 46.68 dollars per 1,000 cubic metres of gas and Gazprom originally demanded an increase to 200 dollars, which is closer to western European prices, unless Belarus agreed to sell 50 percent of its pipeline operator Beltransgaz.

This would give the Russian state-owned giant an important strategic foothold on the European Union's eastern border.

Gazprom has since reduced that demand to 105 dollars per 1,000 cubic metres -- 75 dollars per 1,000 cubic metres in cash payments, plus the equivalent of another 30 dollars in shares of Beltransgas.

Belarus is so far refusing to accept the deal.

"Russia is not only after extra revenues, but wants to take under control certain parts of the property in neighbouring countries," Belarussian parliament deputy Anatoly Krasutsky said. "The government should have diversified its energy sources earlier, but you learn by your mistakes."

December 27, 2006

As the symptoms of peak oil and gas production become more evident, the competition for these resources will likely also become more visible. There is trouble brewing in Eastern Europe over former Soviet countries who are unhappy with the prices they are being forced to pay Russia for badly needed natural gas supplies.

Since Russia supplies much of Europe with natural gas through pipelines that run through Belarus and Ukraine, those countries have a degree of leverage over Russia in their negotiations for the price of their own gas deliveries.

------

Source: Reuters

By Andrei Makhovsky and Dmitry Zhdannikov
2 hours, 16 minutes ago

MINSK/MOSCOW (Reuters) - Belarus issued an implicit threat that it could stop Russian gas deliveries through its pipelines to western Europe unless Russia's gas monopoly Gazprom relented on demands Minsk pay steep price increases in 2007.

The threat is likely to revive unpleasant memories of gas cuts to Europe last year when Russia was locked in a similar pricing row with Ukraine. But Belarus ships smaller volumes of gas to Europe via its territory and Russia said Europe was safe as Gazprom (GAZP.MM) had stockpiled extra gas in Germany.
"We are inter-dependent. If I don't have a domestic gas supply contract, Gazprom won't have a transit deal," Belarus's Deputy Prime Minister Vladimir Semashko said at Minsk airport late on Tuesday after his return from failed talks in Moscow.

About 80 percent of Russian exports to Europe are pumped via Ukraine, with the rest going through Belarus. Russia supplies a quarter of Europe's gas to more than 20 countries.

Belarus, whose President Alexander Lukashenko is accused in the West of crushing human rights, has long been a Russian ally.

Vladimir Putin's distaste for Belarus's Soviet-style economic policy and reluctance to share enterprises with Moscow.

Semashko did not say whether Belarus was prepared to stop all gas transit via its territory.

Two years ago, Minsk took no such action in a similar dispute, but Gazprom accused it of taking gas from transit pipelines for its domestic needs. Gazprom said it viewed Semashko's latest comments as a new threat to steal gas.

Two years ago, the row generated no major criticism of Russia in the West due to Lukashenko's poor political image.

Last year, Russia came under fire from politicians in the European Union and the United States following gas cuts to Ukraine. The dispute accentuated rocky relations between Moscow and Ukraine's pro-Western leadership, since tempered by the return of a prime minister friendlier to Russia.

U.S. ACCUSATION

The sniping reached a climax when Vice President smaller neighbors.

Some analysts say Moscow may decide against resorting to cuts this year given the Ukrainian experience and the growing importance of Germany as its top trade partner.

"Belarus has a very strong negotiating position with its gas transportation infrastructure and we believe that Gazprom will have to be very flexible with its Belarus pricing policy," said Yelena Savchik from Renaissance Capital brokerage.

But a Gazprom source told Reuters some top employees had been told to cancel New Year holidays: "It looks exactly like one year ago with Ukraine."

Gazprom still hopes for a deal to allow Belarus to receive supplies and Gazprom to transit gas to Poland and Germany.

Gazprom says it offered major concessions to Belarus on Tuesday such as lowering the proposed price to $110 per 1,000 cubic meters from the previous proposal of $200. On Wednesday, it lowered its offer still further to $105. Gazprom has also said the country could pay part of its bill in assets.

Belarus now pays $46.7, or as much as consumers in Russia. By comparison, Gazprom will charge Moldova $170 in 2007 and Georgia $235, while consumers in Europe pay over $250.

December 25, 2006

The second largest oil field in the world is exhausted

Source: Kuwait Times

By Peter J. Cooper
December 25, 2006

KUWAIT: It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field's 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate. Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields.

However, it is surely a landmark moment when the world's second largest oil field begins to run dry. For Burgan has been pumping oil for almost 60 years and accounts for more than half of Kuwait's proven oil reserves. This is also not what forecasters are currently assuming.

Last week the International Energy Agency's report said output from the Greater Burgan area will be 1.64 million barrels a day in 2020 and 1.53 million barrels per day in 2030. Is this now a realistic scenario?

The news about the Burgan oil field also lends credence to the controversial opinions of investment banker and geologist Matthew Simmons. His book 'Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy' claims that ageing Saudi oil fields also face serious production falls.

The implications for the global economy are indeed serious. If the world oil supply begins to run dry then the upward pressure on oil prices will be inexorable. For the oil producers this will come as a compensation for declining output, and cushion them against an economic collapse.

However, the oil consumers then face a major energy crisis. Industrialized economies are still far too dependent on oil. And the pricing mechanism of declining oil reserves will press them into further diversification of energy supplies, particularly nuclear, wind and solar power.

All this was foreshadowed in the energy crisis of the late 1970s when a serious inflection in oil supply by the year 2000 was clearly forecast. How ironic that those earlier forecasts now look correct, while more modern and recent forecasts begin to look over optimistic and out-of-date with geological reality.

Nobody can change the geology, and forces of nature that laid down reserves of oil and gas over millions and millions of years. Could it be that we have been blinded by technological advances into thinking that there is some way to beat nature?

The natural world has an uncanny ability to hit back at the arrogance of man, and perhaps a reassessment of reality at this point is called for, rather than a reliance on oil statistics that may owe more to political manoeuvring than geological facts. - AME Info FZ LLC.

December 23, 2006

Running on Fumes

Source: NRDC.org

December 10, 2006

How bad is the current energy crisis? Really, really bad, says oil expert Charley Maxwell.

After half a century in the oil business, Charles Maxwell is widely referred to as the dean of energy analysts. As a Marshall Scholar at Oxford he specialized in Arabic and Persian language and history before joining Mobil in 1957. He spent a decade with the oil giant, scheduling tanker shipments, working in a field office in Nigeria, and negotiating Middle East production agreements. When the Arab oil embargo hit in 1973, he was already being hailed by Institutional Investor as Wall Street's number-one oil analyst. Today he is a senior energy analyst with Weeden & Co., which provides proprietary research to institutional investors.

Charley Maxwell is not your classic environmentalist -- he favors further development of coal and nuclear energy and sits on the board of a coal-bed methane company in Denver. But in this late-September conversation with Sonia Shah, author of Crude: The Story of Oil, Maxwell urges a new conservation ethic that may -- or may not -- save us from the worst energy crisis we have yet faced.

You are famous for coining the term "energy crisis" in the 1970s. Do you think that we're entering another crisis now?

I do. In the first energy crisis, we tried to keep prices low and ration the physical gasoline. People sat in these long queues and it was a huge loss of time and money. When the second energy crisis hit, in the late seventies and early eighties, we just allowed the price to rise. And that's what we're doing now -- rationing by price. The fact that gasoline recently hit $3.20 a gallon would suggest that we are in crisis. I would say even $2.50, which is where it is now, represents some form of crisis.

What are the underlying reasons?

There are four, I think. First and foremost, there was a lot of oil that could have been discovered that wasn't, because the national oil companies such as Saudi Aramco didn't invest enough in exploration. Second, the big oil companies didn't exercise much vision. When prices went up in 2000, they basically pocketed the money. Of course, if you're an executive and you have stock options, you start to think that the whole world depends on your stock price rather than on getting more oil. And who's to say that we should have more oil? If it means that everyone is going to work harder and longer to make possible the greater use of SUVs, is that a worthy end in the world of God?

And the other two reasons?

The third is political instability around the world. And the fourth is that we are now approaching the 50 percent mark of recoverable oil. Global oil production will reach a maximum rate and then it will inexorably start to go down. I predict that will be between 2015 and 2020. When that happens it will be the single biggest problem that we face.

And we're using more oil all the time.

Yes, as the world economic system grows, we're needing about 1.5 percent to 2 percent more oil every year. Right now the non-OPEC countries are providing about half of that. But those proportions are changing fast. In 2010 that door slams shut, and we will have to call on OPEC for all the new oil we need. So they will have complete control over its availability and its price.

How much more oil is still waiting to be discovered?

There is still a lot of oil out there. But if it takes 30 years rather than 10 to discover it, then we're not going to be producing enough each year to meet our needs. What's happened is that the search has slowed dramatically. So we're in deep trouble.

Exxon has said there could be up to 4.8 trillion barrels of oil still recoverable. And there are other industry estimates that go as high as 7 trillion.

I read that stuff and it's good background humor, you know what I mean? But I really hope they don't think anyone takes them seriously.

So is it just a PR thing?

No, I think Exxon actually believes it, which is really sad.

What's the outlook for new sources of oil, so-called unconventional sources?

Most of that is actually gas. There's coal-bed methane, which is the gas from coal deposits. There's the gas from so-called tight sands, which are geologic formations on the way to becoming sandstone. And then there's shale, which gives up the gas very slowly. That makes it uneconomic when [natural] gas costs $2 [per million Btu], but in a world of $7 gas, you'd accept the slow production and you'd still be happy to get it.

Do you think price levels are high enough at the moment to start triggering changes in our behavior?

Even with $3 gas, nobody's saying, "I can't take Johnny to the soccer match." But there's no doubt we're going to have to change our habits. We're going to have to design our cities differently. We're going to need greater population densities and more public transportation. We're going to have to build our houses to different building codes. But the system can't change overnight. We can change our habits in two or three years and the next generation of equipment will be developed with energy conservation in mind, but people will have to go on with their present equipment for a time.

Even so, I think we're already triggering some favorable changes at $3, like the decline in SUV sales and the increased sales of smaller sedans. I read the other day that in 10 years, 10 percent of the country will be using hybrids -- which isn't that much. So there's got to be more than hybrids, and I think Honda is on to it with a new small diesel with a very efficient engine. One advantage of diesel is that the engine lasts longer than the gasoline engine.

But doesn't our whole model of economic growth depend on throwing things out and getting new ones?

Yes, but I think this new conservation ethic is going to come in. It will be hard on General Motors and Ford and Chrysler, and it may take some subsidies. I don't think the government can afford to put any of those companies into bankruptcy.

Do you see any prospect of a gasoline tax? Or is that still a taboo?

I think it's changing. But there are lots of ways to do it. You don't have to have a gasoline tax; you can have a tax on horsepower and thus give a huge lift to lighter cars with less powerful engines. There's a recognition that we have to decrease the weight of vehicles. We can now make cars with traditional engines that are half the weight of the cars today. There are some marvelous new plastics that give us this very light weight with great strength, so we'll be able to hold on to these cars for much longer.

Where's the political leadership on all this? I mean, when the president talks about our being "addicted to oil" and needing more ethanol...

Well, he's just being told what to say by his minions, you know. Ethanol, for the moment -- meaning ethanol from corn -- is a stupid investment, as people are discovering. Pretty close to 100 percent of the savings [in oil consumption] that you get on ethanol is consumed by the hydrocarbon fuel that has to be used to grow the corn. You do save something in national security terms -- it's not from the Middle East, and you're not putting dollars out into the wider world. But if they can convert cellulose to sugar, and sugar to alcohol, then we will really have something.

They're using sugarcane in Brazil, of course. But you mean other crops, like switchgrass?

Yes, that's right, and that would give you maybe a 40 percent savings. That's coming, but probably not for six or seven years.

What about solar and wind and other alternatives?

I'm very keen on solar, because it works and it's getting more efficient every year. But the problem is that today it represents maybe one-tenth of 1 percent of the energy we produce. In 10 years it may be half a percent. So it won't solve the problem. Wind will be a little better, a little bigger. And I do believe that when the problem is solved, it will be solved by a host of small contributions like this, from different directions.

And that will take a lot of technological innovation.

Yes. You know, entrepreneurs are doing all kinds of things -- racing to design new types of wiring for electric motors, new types of batteries for cars. In garages around the country, the inventive geniuses are being let loose. I think it's going to become an American jamboree, in a way, because what we do best is innovate.

Does that make you an optimist?

I think we'll get through this problem by about 2020 to 2025. My worry is how we get there. We have a time when oil is winding down before anything is able to slide over and solve the problem. A lot of nuclear development is being brought along by the incipient shortage of future oil, and it's putting people into a proliferation mode. The whole world could come under this threat, and it's a terrible one. We could also be in deep trouble as a social system. How do we achieve fairness [in rationing scarce energy supplies] when the gridlock between rich and poor already stops us from having an energy policy in this country? We could see democracy entering its death throes.

Russia eager to appoint foreign fund manager for petrodollars

Source: Times Online UK

Julian Evans in Moscow

The Russian Government is considering hiring a foreign fund manager for a proposed oil-and-gas fund that it hopes will account, eventually, for 60 per cent of its GDP, or about $500 billion (£255 billion) at present estimates, a source at the Ministry of Finance told The Times.

It would be one of the biggest funds in the world. The Government has stowed $83 billion in petrodollars in its Stabilisation Fund, which the central bank manages and is invested entirely in AAA-rated US Treasury bills.

However, the ministry wants to take more risks with its money. It is proposing that the Government set up two new funds, including a reserve fund, accounting for 7 per cent to 10 per cent of GDP, which, a ministry source said would probably be managed by the central bank. However, it would be allowed to invest in all investment-grade assets. The fund would be used to manage oil price shocks.

The second fund would be a savings fund and, eventually, it would account for 60 per cent of GDP, according to sources. This fund could be dipped into by the Government. It would have a more aggressive risk profile and be allowed to invest in foreign equities, corporate debt and money-market instruments.

A source from the Ministry of Finance said: “We are considering who should manage this. It could be a foreign investment firm, the central bank or a state-owned bank.” The state-owned Vnesh-econombank (VEB) looks like a favourite to win the enormous mandate. Not to be confused with Vneshtorgbank (VTB), VEB is a Soviet-era state-owned bank whose original mandate was to manage the debt of the USSR. However, its ambitious management, led by Vladimir Dmitriev, its chief executive, is expanding its remit aggressively.

A botched reform process in 2003 meant that Russian citizens did not have the time or education to choose private fund managers for their state pensions, so about 95 per cent of pensions ended up being managed by VEB. Private fund managers, including Deutsche UFG and Raiffeisen Bank, were disappointed.

VEB has since put almost all the pension fund in Russian government bonds, so the state pension fund significantly underperforms privately managed pension funds. VEB is considered a Silovik bank, meaning that it has close ties to the Russian security services. It is thought to have covertly shifted federal money to the state-owned Rosneft in December 2004 to help it to acquire Yuganskneftegaz, Yukos’s main asset, in a controversial auction. The Kremlin denies that Rosneft used federal money to buy the asset.

VEB is also the favourite to become the new Russian development bank, which the Government wants to set up next year to help to renovate the country’s infrastructure via multibillion-dollar public- private partnership deals. And now it is favoured to manage what will be one of the biggest investment funds in the world.

A source at the Ministry of Finance said: “VEB manages the Government’s debt, so perhaps it should also invest the Government’s money. However, it has little experience of active investment management . . . The problem is that few private Russian fund managers have much experience, either. Only foreign managers have much experience.” Hiring foreign managers would be sensitive, but it would allay fears that the Government’s petrodollars could be misused.

Another option being considered is setting up a special agency to manage the fund, under the auspices of the central bank but employing a large team of professional investment managers, similar to what Norway did to manage its huge petrofund.

Capitalism at its finest

- Russian Government has accumulated $83 billion in oil revenues in its Stabilisation Fund

- Fund, managed by the central bank, is invested 45% in US Treasury bills, 45% in euroland government bonds and 10% in gilts

- The Kremlin wants to set up two new funds. One will have a conservative risk profile, investing only in investment-grade securities

- The other fund will be allowed to invest in equities, corporate bonds and other instruments

- Eventually, sources say, it will account for 60% of Russian GDP, which could be $500 billion, making it one of the biggest funds in the world

- The Government has not decided who will manage the fund, but is considering holding tenders and accepting bids from foreign managers

UN Imposes First Sanctions on Iran's Nuclear Program

Source: Bloomberg

By Bill Varner

Dec. 23 (Bloomberg) -- The United Nations Security Council voted 15 to 0 to impose sanctions on Iran for its nuclear program for the first time, including a ban on acquisition of materials and technology that might be used to build an atomic bomb.

The measure demands that Iran halt uranium enrichment and heavy-water projects that the U.S. and its European allies have said may lead to the development of nuclear weapons. It freezes the financial assets of 12 named individuals and 11 groups such as the Atomic Energy Organization of Iran.

The resolution also requires the UN's nuclear watchdog agency, the International Atomic Energy Agency, to report on Iran's compliance within 60 days. ``Further appropriate measures'' such as economic penalties and severance of diplomatic relations will be required if Iran doesn't comply, it says.

``We are sending Iran an unambiguous message that there are serious repercussions to its continued disregard of its obligations and defiance of this body,'' U.S. Acting Ambassador Alejandro Wolff said. ``We look forward to Iran's full, unconditional and immediate compliance with this resolution.''

The vote, the result of more than two months of negotiations largely aimed at winning Russia's support, occurred as the U.S. and Britain are close to increasing naval power in the Persian Gulf in a display of military resolve, the New York Times reported, citing unidentified Pentagon and military officials.

Serious Message

``Russia views this resolution as a serious message being sent to Iran regarding the need more actively and more openly to cooperate with the IAEA to lift or resolve the remaining concerns relating to their nuclear program,'' Russian Ambassador Vitaly Churkin said. ``We hope that Iran will correctly and very seriously perceive the contents of this resolution and take the necessary measures to redress their situation.''

The Security Council action will likely add to tensions in the region and may contribute to rising oil prices in 2007, according to Ian Bremmer, president of the Eurasia Group, a New York-based organization that analyzes political risk for businesses. Iran is the second-biggest oil producer in the Middle East.

``Oil markets won't move very much on this resolution,'' Bremmer said. ``But we think Iran is one of the biggest risks out there and that there will be escalation of tensions in 2007 as Iran retaliates. They can disrupt markets by driving proxy wars in Iraq, Lebanon and the Palestinian territories.''

Retaliation

Senior Iranian lawmakers said today that their parliament might retaliate by blocking inspections by the IAEA, according to IRNA, the state-run Iranian news agency. Legislation to suspend inspections has been passed by the parliament's security and foreign affairs committee, the agency reported.

At the UN, Iranian Ambassador Javad Zarif said suspension of enrichment activities was ``not a solution,'' that it was instead a ``temporary, stop-gap measure'' that didn't work from November 2003 to February 206. Without specifying how Iran would react to the vote, he said the ``days of bullying, pressure and intimidation by some nuclear-weapons holders are gone.''

Zarif said the Security Council was guilty of hypocrisy for taking no action against Israel after Prime Minister Ehud Olmert appeared to confirm recently that Israel has nuclear weapons.

The U.S. and its European allies, Zarif said, which ``pushed this council to take groundless punitive measures against Iran's peaceful nuclear program, have systematically prevented any action to nudge the Israeli regime towards submitting itself to the rules governing the nuclear non-proliferation regime.''

Russia agreed to vote for the resolution after Britain, France and Germany dropped a proposed travel ban on Iranian officials and narrowed the scope of the trade embargo to ``proliferation sensitive'' materials and technology. An earlier version of the text, first circulated in October, would have banned any item that could contribute to Iran's nuclear or missile programs.

Nuclear Power Plant

The resolution's sponsors also deleted any mention of the Bushehr commercial nuclear power plant that Russia is helping Iran build. An earlier text would have barred delivery of fuel to the plant.

``It is an important symbolic move, but it is hard to see that this puts sufficient pain on Iran to compel it to do anything,'' said Bruce Reidel, senior fellow at the Brookings Institution in Washington. ``At best, this is a warning shot across the bow of the Iranian state, a long way from authorizing the use of force.''

Iran ignored a July 31 resolution requiring it to suspend enrichment activities by Aug. 31, and President Mahmoud Ahmadinejad, pronounced ah-ma-deen-ah-ZHAD, has said his government will continue its nuclear program.

Vigilance

The resolution creates a Security Council committee to monitor implementation of the sanctions and calls on UN member nations to ``exercise vigilance'' regarding the international travel of the 12 Iranian officials and any ``specialized teaching or training'' of Iranian nationals.

UN member governments are to report to the committee within 60 days on steps they have taken to implement the resolution.

The sanctions would be suspended by Iran's decision to suspend enrichment activities and terminated by a report that the government in Tehran has complied with all UN Security Council and IAEA requirements.

Undersecretary of State Nicholas Burns said in a conference call with reporters that the U.S. would follow the vote with new efforts to persuade other nations to enact the same type of financial and trade sanctions on Iran that the U.S. has had in place for 27 years.

``Russia and China tell us that want to deny Iran a nuclear weapons capability,'' Burns said. ``We want to see more vigorous action by them. We would like to see them stop selling arms to Iran and limit export credits to Iran. We think it is time to an end for business as usual.''

To contact the reporter on this story: Bill Varner in the United Nations at wvarner_at_bloomberg.net.
Last Updated: December 23, 2006 13:02 EST

December 21, 2006

Energy Rivalries Set to Heat Up

Source: Houston Chronicle.com

Dec. 21, 2006, 11:18AM
By ALEX NICHOLSON AP Business Writer
© 2006 The Associated Press

MOSCOW — A golden statue of Saparmurat Niyazov rotates on a pedestal in Turkmenistan's capital to always face the sun _ a testament to the leader's personality cult and a garish product of the Central Asian nation's vast energy wealth.

Now, the autocratic president's death on Thursday is set to fuel a rivalry between Russia, the United States and China for access to the former Soviet republic's massive gas reserves in what analysts call a repeat of 19th-century rivalries in the region.

"Turkmenistan has returned as a key piece in the new Great Game," said Alfa Bank strategist Chris Weafer, referring to Russia and Britain's jostling for pre-eminence in Central Asia in the 1800s. "It is a big prize."

Over the past year Niyazov, who personally brokered the country's energy deals, had sought to balance Russia's influence _ courting Turkish and, in particular Chinese companies, to help explore and develop its nearly 3 trillion cubic meters of proven gas reserves.

Russia's state-controlled gas monopoly OAO Gazprom controls the only transit route for Turkmen gas exports to other former Soviet states and Europe.

Keen to lock in fresh energy sources to feed its exploding economy, China saw its efforts rewarded with Niyazov's promise to pipe 30 billion cubic meters of gas beginning in January 2009. It also won an invitation last month to tap the giant Iolotan fields, which the late president declared, to international disbelief, to contain 7 trillion cubic meters of natural gas _ or more than even Saudi Arabia's proven reserves.

Washington, meanwhile, has lobbied for a pipeline out of Turkmenistan across the Caspian Sea to the west, bypassing Russian territory. That would meet a U.S. strategy of tapping sources of crude and gas outside the Middle East, and drawing Caspian states away from Russia and closer to the West.

Niyazov ultimately proved "too difficult" for U.S. officials to deal with, Weafer said.

The Turkmen leader used revenues from energy investments to nourish lavish construction projects _ a huge, man-made lake in the Kara Kum desert, a vast cypress forest to change the desert climate, a ski resort and a 40-meter (130-foot) pyramid to celebrate the anniversary of the country's independence from the Soviet Union.

"Russia will want to retain its political influence in the country and one assumes that the U.S. will try to use the opportunity (of Niyazov's death) to get back in there, increase its influence and resurrect the plan for the pipeline across the Caspian," Weafer said. "But my guess is that the Chinese will have the biggest delegation at the funeral."

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, says that multinational oil companies will prick up their ears at the news of Niyazov's death, but serious reforms would need to be undertaken before they could enter the promising market.

"The big guys, the people who might be interested, can't touch the place _ it doesn't come close to meeting the standards of corporate responsibility," he told The Associated Press.

"Obviously they can't afford not to look that this place and the possibility that it might open up _ it's obviously clear that they need to consider this," he said. "I just don't think we'll see any rapid developments. We need to finds out if there will be real change in status quo."

That could come in the form of some indication of democratization in the capital Ashgabat or open auctions of its hydrocarbon reserves.

"Given the resource base, it's always been at the back of peoples minds, but it's become increasingly difficult to work there because of the centralized decision-making and dominance of state-run monopolies," said analyst Hilary McCutcheon of energy consultants Wood MacKenzie. "That may be on the brink of changing."

Turkmenistan's burgeoning relationship with China has also rattled Ukraine, which relies on cheap Turkmen gas supplies to keep its domestic bill down.

Gazprom has a contract until 2009 to buy 50 billion of the 60 billion cubic meters that Turkmenistan produces annually, most of which it then re-exports to Ukraine.

While a recent price hike secured by Niyazov just months before his death suggests that pact is unlikely to be reconsidered in the near future, analysts say little will be clear until a successor is named.

Turkmenistan's State Security Council named Deputy Prime Minister Kurbanguli Berdymukhamedov the acting president, even though the Constitution required Parliament Speaker Overzgeldy Atayev to take over as acting head of state. The council said the Prosecutor General's office has opened a criminal investigation against Atayev, making him ineligible to fill in as president. The move could herald a battle for succession between rival groups in the Turkmen administration.

If Ashgabat makes good on its deal with China, and if fresh reserves are not developed apace, supplies to Ukraine could be cut, analysts say.

If that happens, Kiev would be forced to buy more expensive Russian gas, potentially putting it into a situation similar to a price fight with Gazprom last winter, which resulted in some cuts in supplies to some European cities.

December 13, 2006

Iranian oil bourse

Source: Wikipedia

Iran is planning to open a commodity exchange, referred as 'Iran Petroleum Exchange', 'International Oil Bourse' or 'Iranian Oil Bourse'. A Petrobourse for Petroleum, petrochemicals and gas in various non-dollar currencies, primarily the Euro. If successful, this would establish a euro-based pricing mechanism for oil trading, or oil marker as it is called by traders.

The acronym 'IOB' has been used as it can be interpreted as either "International Oil Bourse" or "Iranian Oil Bourse", but it has no official status.

The geographical location is expected to be the Persian Gulf island of Kish (which is designated by Iran as a free trade zone.)[1].
Contents

Background

The three current oil markers are all US dollar denominated: North America's West Texas Intermediate crude (WTI), North Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are the New York Mercantile Exchange (NYME) in New York City and the International Petroleum Exchange (IPE) in London. The proposed Iranian bourse would establish a fourth oil marker, denominated by the euro.

Timeline

The Iranian oil bourse, first reported in 2005, was to have a planned opening date of March 20, 2006 [2], which is the Iranian New Year, Nauroz. According to an April 2005 report, the Tehran Stock Exchange (TSE), the Wimpole Consortium and a private staff fund for retired petroleum workers will together form the consortium developing the exchange [3].

In January 2006, Chris Cook of the Wimpole Consortium referred to delays in the process due to the election to the presidency of Mahmoud Ahmadinejad and subsequent difficulty in appointing a new oil minister acceptable both to the president and parliament [4].

In March 2006, the Petroleum Minister of Iran, Kazem Vaziri Hamaneh, announced that due to "technical glitches", the Bourse launch was postponed, with no new date set. [5]. However, as of April 26 Iran had restarted its move to open the oil market, and Kazem announced the bourse was set to open the first week of May [6].

In May 2006, Minister of Economic Affairs and Finance Davud Danesh-Jafari said the Oil Ministry has a two-month deadline for presenting the Articles of Association of the Iranian Oil Bourse. Danesh-Jafari said that the Euro had not yet been finalized as the legal tender of transactions in the oil bourse, and the final decision about that depends upon the Oil Ministry’s proposed IOB Articles of Association [7]

During the first phase of its implementation, the Iranian Oil Bourse plans to offer financial derivatives relating to crude oil.

In July 2006, a building has been purchased and the projected opening date is September 2006. [8] On September 15, Oil Minister Kazem Vaziri-Hamaneh stated that all preparatory requirements had been arranged for launching the oil stock market in the country.[9]

In December 2006 Bloomberg cited two Iranian newspapers reporting Iran's Minister of Economy Davoud Danesh-Ja'fariIran as wanting to cut US dollar based transactions to a minimum.[10] Iran-Kyrgyzstan Joint Economic Commission will credit 50 Million Euros to Kyrgyzstan for primarily industrial joint projects, showing a strong commitment to large Euro dealing. [citation needed]

See also

* Ministry of Petroleum of Iran
* Petrobourse
* Petroeuro
* Petrodollar
* Petroruble
* Petrodollar warfare
* Economy of Iran

Citations

1. ^ Kish Oil Exchange Planned, Iran Daily, January 24, 2006
2. ^ The Iranian line in the sand, Dan Crawford, The Republic (Vancouver), August 18 to 31, 2005
3. ^ A star rises in the east, Stella Farrington, April 2005
4. ^ Speaking freely: What the Iran 'nuclear issue' is really about, Chris Cook, January 21, 2006, Asia Times/energybulletin.net
5. ^ A frenzied Persian new year, March 22, 2006, Asia Times
6. ^ Iran oil bourse next week, April 26, 2006, Iranian.ws
7. ^ Ministry to offer IOB Articles of Association in two months, May 19, 2006, Mehr News Agency
8. ^ Iranian Journel, building has been purchased and new date is September, accessed July 6 2006
9. ^ Iran's oil bourse to be launched, September 15, 2006, Mehr News Agency
10. ^ Iran May Reduce Use of Dollar, Tehran Papers Say, December 6, 2006, Bloomberg

Literature

* Clark, William R.: Petrodollar Warfare : Oil, Iraq and the Future of the Dollar, New Society Publishers, 2005, ISBN 0-86571-514-9

External links

* PetroTalk Portal for petro related Articles, Discussion, Links and more
* infowars article, infowars, May 9, 2006
* Iran oil bourse next week, Persian Journal, Apr 26, 2006
* Iran takes on west's control of oil trading, The Guardian
* The Real Reasons Why Iran is the Next Target: The Emerging Euro-denominated International Oil Marker
* Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse
* The Proposed Iranian Oil Bourse
* Trading oil in euros – does it matter?
* Will the Iranian Oil Bourse Threaten the Dollar?
* Petrodollars and Nuclear Weapons Proliferation: Understanding the Planned Assault on Iran, Centre for Research on Globalization, February 10, 2006
* The Iranian line in the sand
* Petrodollar or Petroeuro? A new source of global conflict
* The Iranian Threat: The Bomb or the Euro?
* The Real Reasons Why Iran is the Next Target
* Will Iran’s oil kill the U.S. dollar?
* Strange ideas about the Iranian oil bourse (a counterpoint with countercounterpoints in comments...)
* Why Iran's Oil Bourse can't break the Buck

Iran plans to reduce use of dollar in trade

Source: The Financial Express

Posted online: Thursday, December 07, 2006 at 0000 hours IST

DEC 6: Iran, the world’s fourth-largest oil exporter, plans to reduce its use of the US dollar in world trade and increase use of the euro, two Tehran-based newspapers reported.

The Tehran Times said on Wednesday Iran has started substituting euros for dollars in oil sales, citing an unidentified person at the oil ministry. Iran Daily reported Iran wants to cut its dollar-based transactions to a minimum, citing minister of economy Davoud Danesh-Ja’fari. Iran’s policy of selling oil in US dollars ‘‘has not changed yet,’’ said Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., in a statement read to Bloomberg News from his office.

The US and several European nations are pushing the United Nations to sanction Iran for its nuclear programme.

The dollar touched a 20-month low against the euro this week, and central banks in the Middle East including the United Arab Emirates have plans to convert some of their dollar reserves into euros. Exporting nations ‘‘are only holding so many dollars because of all the trade in the currency, but if the trend begins to move out of it, then it’s going to be a positive for the euro and add to the negative sentiment on the dollar,’’ said David Mann, a foreign-exchange strategist at Standard Chartered Bank Plc in Hong Kong.

Organisation of Petroleum Exporting Countries members including Qatar earlier this week expressed concern about the falling dollar, saying output should be cut to drive prices higher.

—Bloomberg

Tehran Times: Iran Has Started Substituting Euros for Dollars in Oil Sales

Source: Digital Journal

Posted Dec 8, 2006 by Sam Elfassy

The end of the petrodollar is the end of the dollar hegemony. And the end of the dollar hegemony is the end of the United States of America as a superpower, if not worst than that.

Full story: financialexpress.com

The Tehran Times, a central media outlet of the world’s fourth-largest oil exporter, said that Iran has started substituting euros for dollars in oil sales. The minister of economy, Davoud Danesh-Ja’fari, announced that Iran wants to cut its dollar-based transactions to a minimum.
Bloomberg News reports: "Iran's oil export contracts for months have included a clause that allows the nation to seek payment in the euro and other currencies, creating a mechanism for a switch should Iran's policy change, according to traders who buy Iranian oil".

It was expected: Iran seems like it is defending itself from Iraq's diabolic fate generated by the same US which declares it to be next.

Accordingly, Iran, as an act of self defense, signals straight to Washington it can hurt harder.
And it can indeed: by shifting the most valuable commodity on earth nowadays, oil and gas, from a dollar tied commodity (hence “the petrodollar”, trading oil in US dollars) to a euro tied commodity (hence “the petroeuro”) it can collapse, surprisingly easily, the already fragile dollar hegemony. Due to the fact that others will follow.

Other economies around the world will join Iran out of their own substantial reasons. like Iran, they have their own motivation and necessity to get loose from United States’ violent grip. Venezuela, another important OPEC member is one, Russia another, and others. Add it to the just announced new Chinese oil wholesale market plus the upcoming Iranian oil bourse plus the efforts of major central banks to get rid of their dollars while the collapse of the petrodollar looming and the reason for Washington’s panic is getting much clearer.

Iran still leaves an open door for diplomacy, it is sending the message “I can do this already”, but on the other hand “I didn’t start operating the whole transition yet”. It looks as if the Iraq Study Group that showed up suddenly to recommend a diplomatic channel with Iran was formed only to enable Washington to climb down the tall tree it is on.

When asked for an official statement regarding Iran's energy trade policy, by US Bloomberg news, Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., played the game of the official lines and replied that Iran’s policy of selling oil in US dollars ‘‘has not changed yet’’.

December 12, 2006

Oil producers shun dollar

Source: Financial Times (FT.com)

By Haig Simonian in Zurich and Javier Blas and Carola Hoyos in London

Published: December 10 2006 20:11 | Last updated: December 10 2006 20:11

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency.

Market liquidity is traditionally low in December, and many traders have locked in profits, potentially reinforcing volatility.

Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.

Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.

The BIS, the central bank for the developed world’s central banks, is customarily cautious in its language. However, it noted: “While the data are not comprehensive, they do appear to indicate a modest shift over the quarter in the US dollar share of reporting banks’ liabilities to oil exporting countries.”

The review shows that Qatar and Iran, whose foreign exchange policy has sparked widespread market speculation, cut their dollar holdings by $2.4bn and $4bn respectively.

Such shifts may be modest compared with the total assets held, but they provide a crucial indication on future thinking.

Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.

The last time oil-exporting countries cut their exposure to the dollar – in late 2003 – it pushed the euro to an all-time high against the dollar. Eighteen months ago, the exposure to the dollar of oil producing countries was above 70 per cent.

BIS data is the best guide financial markets have to the currency investment trends of oil producers, which otherwise do not provide figures. The rise in oil prices since 2002 means oil producing countries have amassed a current account surplus of about $500bn, according to the IMF. This is 2½ times the current account surplus of China.

Overall, Opec’s dollar deposits fell by $5.3bn, while euro and yen-denominated deposits rose $2.8bn and $3.8bn, respectively. Placements of dollars by Russians rose by $5bn, but most of their $16bn additional deposits were denominated in euros.

The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy.

Additional reporting by Peter Garnham in London

Copyright The Financial Times Limited 2006

December 07, 2006

The Peak Oil Crisis: The Saudi Op-Ed

Source: Falls Curch News Press Online

By Tom Whipple
Thursday, 07 December 2006

On November 29, the Washington Post carried an op-ed by Nawaf Obaid, an advisor to the Saudi government. Despite the obligatory "the opinions expressed are his own", and a press release denying government involvement, the piece clearly carries an important message from Saudi King Abdullah to President Bush, Washington, and the American people.

"Stepping Into Iraq" starts by reminding President Bush that in February 2003 the Saudi Foreign Minister had warned him that if the US removed Saddam Hussein by force he would only be solving one problem by creating five more.

Obaid goes on to point out that had the President followed the Foreign Minister's advice, Iraq would not now be facing "full blown civil war and disintegration."

The thrust of the message, however, is a thinly veiled warning to the US not to walk away from Iraq. Obaid quotes the Saudi Ambassador who said last month: "Since America came into Iraq uninvited, it should not leave Iraq uninvited." And Obaid adds, "If it does, one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shiite militias from butchering Iraqi Sunnis."

"As the economic powerhouse of the Middle East, the birthplace of Islam and the de facto leader of the world's Sunni community (which comprises 85 percent of all Muslims), Saudi Arabia has both the means and the religious responsibility to intervene," he continues.

The Saudis, of course, are reminding us that while America can get on its ships and planes and go home, Saudi Arabia is going to be left right at the heart of what is starting to look more and more like the beginnings of a regional war. Should the fighting increase, it is only a manner of time before the vital interests or perhaps the very existence of the Kingdom, or at least the Royal family, is threatened.

The Saudis are clear about why they are sending this message to America. "Just a few months ago it was unthinkable that President Bush would prematurely withdraw a significant number of American troops from Iraq. But it seems possible today." Obviously the American election, with the unmistakable message that the American voters want out is much on Saudi minds. "The Saudi leadership is preparing to substantially revise its Iraq policy," says Obaid.

The critical part of all this is just what the Saudis are going to do in the face of an American threat to withdraw. The op-ed lists three options. First Riyadh could give their Sunni kinsmen (money, arms and logistical support. So far they claim to have refrained from doing this because the Sunni insurgents were busy shooting and blowing up Americans so it was considered highly impolitic to aid them. This of course shows commendable self-restraint as the Iranians have been supporting the Shiites for years.

The second Saudi option would be to fund, equip, and train new "Sunni brigades" to offset the Shiite militias. This of course would formalize the "civil war."

Now, however, we get to the Saudis' third option as suggested by Obaid— oil. "King Abdullah may decide to strangle Iranian funding of the militias through oil policy." "If the Saudis boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices."

Now the notion of the Saudis flooding the 85 million barrel a day world oil market with enough oil to halve the world price and destroy the Iranian economy is a stretch. Saudi oil production has been dropping in recent months and some analysts believe this is from necessity not choice. Even if the Saudis were to attempt to increase output, it would likely be hard-to-sell heavy crude, and the effort would probably damage future oil production by over producing existing fields.

The Saudis may no longer be able to increase production enough to attain their political objectives, however, there is no reason why they can't cut their production. Cutting is easy and it can be done is many ways varying from an overt embargo as happened in the 1970's to more subtle reductions.

Why are the Saudi's continuing to produce circa 9 million barrels a day? Given the tight worldwide oil market, the Saudi's could cut their production in half; the price of oil would more that double; they would get richer; their oil fields would get a much needed rest; and there would be oil left for their great-grand children to export.

What keeps them from cutting production and reaping all these benefits? That too is simple, their relationship with the USA. So long as the US was their number one protector, and needed the oil to keep flowing, the Saudis historically would bend over backwards to help Washington out. The only exception was the short-lived oil boycott back in 1973.

Now, however, everything has changed. Against Saudi advice, the US charged into Baghdad and set 27 million Iraqis at each other's throats. America's partners in the invading "coalition" are bailing out one by one. The US people have just voted to change something and it is clear that "stay the course" is not going to obtain for much longer.

The key Saudi foreign policy objective at the minute clearly is to keep sufficient US military forces in Iraq to keep the lid on the situation for as long as it takes to keep the mess from spilling over into Saudi Arabia itself.

The threat to the existence of the Saudi Royal Family from a spreading civil war now is much greater than any threat from an unhappy Washington. Can anyone imagine the new US Congress voting to invade some other large Middle Eastern country in the near future? With what?

Could a major cutback in Saudi oil production bring down America? Maybe not, but it sure could do a lot of harm. The most blatant action would be cut their oil production in half. Taking 4-5 million barrels a day off the world oil market would get everybody's attention very quickly. Oil prices would certainly go well over $100 per barrel. In short order, the US and world economies would suffer greatly.

The Saudis could, however, bring pressure without doing anything so provocative as a major production cut. Simply ratcheting down production in an unobtrusive manner should be enough to scare Washington into reconsidering leaving Riyadh, as the leader of the world's Sunnis to deal with the mess on its own.

Just before President Bush met with the Iraqi Prime Minister in Jordan last week, Vice President Cheney was summoned to Riyadh to receive the whole Saudi message. It may be many years before we learn exactly what that message was, but already President Bush is back to talking about "staying the course."

It may be a lot harder, or a lot more expensive, for the US to get out of Iraq than anyone ever thought.

November 28, 2006

ASPO to hold key oil conference in Cork

Source: RTE Business

November 28, 2006

ASPO to hold key oil conference in Cork

November 28, 2006 13:21

The Association for the Study of Peak Oil and Gas (ASPO) is to hold its sixth International Conference in UCC in Cork in September 2007. The conference will be sponsored by NTR.

ASPO is a global not-for-profit organisation which aims to raise awareness about the timing of the peak of the world's production of oil and gas.

The scientists and engineers who set up ASPO five years ago have assembled a data base and have used this to make an independent assessment of future hydrocarbon supply. This suggests that the generally held opinion that the world can rely on oil supplies continuing to meet demand for several decades more is simply wrong.

'Ireland may well be one of the countries which will be most affected by oil and gas supply failing to meet demand,' commented Jeremy Gilbert, ASPO President.

'Holding the ASPO Conference in Ireland provides a great opportunity for our politicians and decision makers to become better informed and to begin developing strategies for dealing with a frightening situation,' he said.

This year's conference was held in Italy.

October 18, 2006

The Truth About Hydrogen

Source: Popular Mechanics

BY Jeff Wise
Published in the November, 2006 issue

hydrogen1106_450w.jpg

WHEN ASSESSING THE State of the Union in 2003, President Bush declared it was time to take a crucial step toward protecting our environment. He announced a $1.2 billion initiative to begin developing a national hydrogen infrastructure: a coast-to-coast network of facilities that would produce and distribute the hydrogen for powering hundreds of millions of fuel cell vehicles. Backed by a national commitment, he said, "our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom, so that the first car driven by a child born today could be powered by hydrogen, and pollution-free." With two years to go on the first, $720 million phase of the plan, PM asks that perennial question of every automotive journey: Are we almost there?

And the inevitable answer from the front seat: No. Promises of a thriving hydrogen economy — one that supports not only cars and trucks, but cellphones, computers, homes and whole neighborhoods — date back long before this presidency, and the road to fulfilling them stretches far beyond its horizon.

The Department of Energy projects the nation's consumption of fossil fuels will continue to rise — increasing 34 percent by 2030. When burned, these carbon-based fuels release millions of tons of carbon dioxide into the atmosphere, where the gas traps heat and is believed to contribute to global warming.

At first glance, hydrogen would seem an ideal substitute for these problematic fuels. Pound for pound, hydrogen contains almost three times as much energy as natural gas, and when consumed its only emission is pure, plain water. But unlike oil and gas, hydrogen is not a fuel. It is a way of storing or transporting energy. You have to make it before you can use it — generally by extracting hydrogen from fossil fuels, or by using electricity to split it from water.

And while oil and gas are easy to transport in pipelines and fuel tanks — they pack a lot of energy into a dense, stable form — hydrogen presents a host of technical and economic challenges. The lightest gas in the universe isn't easy to corral. Skeptics say that hydrogen promises to be a needlessly expensive solution for applications for which simpler, cheaper and cleaner alternatives already exist. "You have to step back and ask, 'What is the point?'" says Joseph Romm, executive director of the Center for Energy & Climate Solutions.

Though advocates promote hydrogen as a panacea for energy needs ranging from consumer electronics to home power, its real impact will likely occur on the nation's highways. After all, transportation represents two-thirds of U.S. oil consumption. "We're working on biofuels, ethanol, biodiesel and other technologies," says David Garmin, assistant secretary of energy, "but it's only hydrogen, ultimately, over the long term, that can delink light-duty transportation from petroleum entirely."

The Big Three U.S. automakers, as well as Toyota, Honda, BMW and Nissan, have all been preparing for that day. Fuel cell vehicles can now travel 300 miles on 17.6 pounds of hydrogen and achieve speeds of up to 132 mph. But without critical infrastructure, there will be no hydrogen economy. And the practical employment of hydrogen power involves major hurdles at every step — production, storage, distribution and use. Here's how those challenges stack up.

HURDLE 1: Production
The United States already uses some 10 million tons of hydrogen each year for industrial purposes, such as making fertilizer and refining petroleum. If hydrogen-powered vehicles are to become the norm, we'll need at least 10 times more. The challenge will be to produce it in an efficient and environmentally friendly way.

FOSSIL FUELS: At present, 95 percent of America's hydrogen is produced from natural gas. Through a process called steam methane reformation, high temperature and pressure break the hydrocarbon into hydrogen and carbon oxides — including carbon dioxide, which is released into the atmosphere as a greenhouse gas. Over the next 10 or 20 years, fossil fuels most likely will continue to be the main feedstock for the hydrogen economy. And there's the rub: Using dirty energy to make clean energy doesn't solve the pollution problem-it just moves it around. "As a CO2 reducer, hydrogen stinks," Romm says.

Capturing that carbon dioxide and trapping it underground would make the process more environmentally friendly. In July, General Electric and BP Amoco PLC announced plans to develop as many as 15 power plants over the next 10 years that will strip hydrogen from natural gas to generate electricity; the waste carbon dioxide will be pumped into depleted oil and gas fields. And the Department of Energy is largely funding a 10-year, $950 million project to build a coal-fed plant that will produce hydrogen to make electricity, and likewise lock away carbon dioxide to achieve what it bills as "the world's first zero-emissions fossil fuel plant."

Whether carbon dioxide will remain underground in large-scale operations remains to be seen. In addition, natural gas is a limited resource; the cost of hydrogen would be subject to its price fluctuations.

ELECTROLYSIS: Most of the remainder of today's hydrogen is made by electrically splitting water into its constituent parts, hydrogen and oxygen. This year, a PM Breakthrough Award went to GE's Richard Bourgeois for designing an electrolyzer that could drastically reduce the cost of that process. But because fossil fuels generate more than 70 percent of the nation's electrical power, hydrogen produced from the grid would still be a significant source of greenhouse gas. If solar, wind or other renewable resources generate the electricity, hydrogen could be produced without any carbon emissions at all.

NUCLEAR POWER: Next-generation nuclear power plants will reach temperatures high enough to produce hydrogen as well as electricity, either by adding steam and heat to the electrolysis process, or by adding heat to a series of chemical reactions that split the hydrogen from water. Though promising in the lab, this technology won't be proved until the first Generation IV plants come on line — around 2020.

HURDLE 2: Storage
At room temperature and pressure, hydrogen's density is so low that it contains less than one-three-hundredth the energy in an equivalent volume of gasoline. In order to fit into a reasonably sized storage tank, hydrogen has to be somehow squeezed into a denser form.

LIQUEFACTION: Chilled to near absolute zero, hydrogen gas turns into a liquid containing one-quarter the energy in an equivalent volume of gasoline. The technology is well-proven: For decades, NASA has used liquid hydrogen to power vehicles such as the space shuttle. The cooling process requires a lot of energy, though-roughly a third of the amount held in the hydrogen. Storage tanks are bulky, heavy and expensive.

COMPRESSION: Some hydrogen-powered vehicles use tanks of room-temperature hydrogen compressed to an astounding 10,000 psi. The Sequel, which GM unveiled in January 2005, carries 8 kilograms of compressed hydrogen this way-enough to power the vehicle for 300 miles. Refueling with compressed hydrogen is relatively fast and simple. But even compressed, hydrogen requires large- volume tanks. They take up four to five times as much space as a gas tank with an equivalent mileage range. Then again, fuel cell cars can accommodate bigger tanks because they contain fewer mechanical parts.

SOLID-STATE: Certain compounds can trap hydrogen molecules at room temperature and pressure, then release them upon demand. So far, the most promising research has been conducted with a class of materials called metal hydrides. These materials are stable, but heavy: A 700-pound tank might hold a few hours' fuel. However, exotic compounds now being studied could provide a breakthrough to make hydrogen storage truly practical. "High-pressure tanks are a stopgap until we can develop materials that will allow us to do solid-state storage efficiently," says Dan O'Connell, a director of GM's hydrogen vehicle program.

HURDLE 3: Distribution
Even in portable form, hydrogen is a tough substance to move from place to place. It can embrittle steel and other metals, weakening them to the point of fracture.

hydrogenstation_1106_200w.jpgCLEAN FUEL: This fueling station in Burlington, Vt., uses electricity to convert water into hydrogen for powering fuel cell cars. It is part of a Department of Energy program for testing alternative fuels in colder climates.

TRUCKING AND RAIL: Currently, most hydrogen is transported either in liquid form by tankers or as compressed gas in cylinders by trailers. Both methods are inefficient. Trucking compressed hydrogen 150 miles, for instance, burns diesel equivalent to 11 percent of the energy the hydrogen stores. It also requires a lot of round trips: A 44-ton vehicle that can carry enough gasoline to refuel 800 cars could only carry enough hydrogen to fuel 80 vehicles.

PIPELINES: One way to avoid this endless back-and-forth would be to send the hydrogen through a pipeline. About 700 miles of hydrogen pipelines now operate in the States, generally near large users such as oil refineries. The longest in the world is a 250-mile line between Belgium and France. Treating pipelines to protect them from embrittlement and high pressure makes them expensive up front-about $1 million per mile. But once built, they are the cheapest way to deliver high volumes of hydrogen.

LOCAL PRODUCTION: Given the difficulty of transporting hydrogen, why not just make it where you need it? That's what's done at roughly half the 36 hydrogen fueling stations currently operating in the U.S. Four rely on natural gas; the rest use electrolysis. In 2003, Honda introduced a Home Energy Station that performs steam reformation right in the owner's garage-but because natural gas is the feedstock, it still releases carbon dioxide to the atmosphere.

A greenhouse gas-free approach would use on-site wind or solar power to produce hydrogen through electrolysis. Honda also designed a solar-powered hydrogen refueling station, which has been operating at the company's California lab since 2001. If the national power supply becomes more eco-friendly, clean electrolysis could run off the grid.

ON-BOARD PRODUCTION: Several prototype vehicles make their own hydrogen from stored hydrocarbons, eliminating the question of distribution altogether. The DaimlerChrysler NECAR 3, for example, produces hydrogen from methanol. Researchers are also experimenting with more futuristic on-board production technologies, which combine ordinary water with reagents like boron or aluminum to produce hydrogen, oxygen and a metal oxide residue. These, however, are still a long way off.

HURDLE 4: Use
Once hydrogen reaches consumers, is there anything they can do with it except drive vehicles? Home energy generation is one other option. The question is whether hydrogen would be more practical than current methods. Hydrogen produced by steam reformation or by electrolysis loses energy when it is converted into electricity. The resulting efficiency is roughly equal to that of today's power plants — which pay a lot less for raw materials. Direct generation of electricity through wind and solar power will also be more efficient for most stationary applications. That leaves transportation as the most promising use for hydrogen.

INTERNAL COMBUSTION: The most straight-forward approach is to burn hydrogen in an adapted model of your garden-variety internal-combustion engine (ICE). Since little modification is required, these engines are relatively cheap, and 25 percent more efficient than gasoline-powered engines. BMW built its first hydrogen ICE back in the 1970s, and the concept still has legs: Ford began production of a hydrogen ICE shuttle bus last July.

hydrogenfuelcell1106_200.jpgFUEL CELL: First invented in 1839, a fuel cell combines hydrogen and oxygen to generate electricity without any moving parts. Several different varieties exist, but only the proton exchange membrane (PEM) fuel cell is lightweight and responsive enough to be practical for vehicle use. Though twice as efficient as ICEs, PEM fuel cells are hindered by high prices — even in mass production, they would currently cost about $36,000 each.

Once the technical hurdles are crossed, hydrogen's huge price tag may still make the technology prohibitive. A recent analysis by the Department of Energy projected that a supply network adequate for even 40 percent of the light-duty fleet could cost more than $500 billion. And that leads to a classic chicken-and-egg problem: How do you get millions of Americans to buy hydrogen-powered vehicles before there's an infrastructure in place to refuel them? And how do you get energy companies to build that infrastructure before there's a potential customer base?

"Companies are not willing to invest if they don't think there's going to be a market," says Daniel Sperling, director of the Institute of Transportation Studies at UC Davis. "The government has to be behind it. There has to be leadership."

There's reason to hope the technology will advance even without much government involvement. Hydrogen fuel cells already replace batteries in niche equipment, such as TV cameras and forklifts, and provide power at remote locations, such as at cellphone towers. They even power the police station in New York's Central Park. As these applications continue to develop, they will force advances in technology that will make hydrogen vehicles more feasible. Even then, hydrogen might make the most sense for fleet vehicles that don't require widespread infrastructure for service and refueling.

Ultimately, hydrogen may be just one part of a whole suite of energy alternatives. Any one of them will involve investing heavily in new infrastructure. Though the price tag will be steep, we can't afford oil's environmental, economic and political drawbacks any longer.

SIDE BAR:

Hydrogen: How To Make it or Break It
By Alex Hutchinson
Diagram by Transluszent.de

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HYDROGEN IS THE universe's simplest atom: a single electron orbiting a single proton. In a fuel cell, incoming hydrogen gas is separated by a catalyst at the anode into protons and electrons. The protons pass directly through a proton exchange membrane (PEM), while electrons are forced through an external circuit, causing electric current to flow. When the protons and electrons meet at the cathode, they join with oxygen to form water and heat, which are released as exhaust.

A single fuel cell produces just over 1 volt, so hundreds are stacked together for typical applications. PEM fuel cells, used in NASA's Gemini flights in the 1960s, are the design of choice for fuel cell cars, but other configurations are suited for applications ranging from laptops to power plants.

Electrolysis is the exact opposite process. Electricity from a power supply splits incoming water into protons, electrons and oxygen, which is released as a gas. Electrons reunite with protons at the cathode to produce hydrogen gas.

Other electrolysis designs being developed use solid-oxide membranes instead of PEMs, which improve efficiency but require operating temperatures of 900 to 1500 F — heat that could be supplied by nuclear reactors.

October 01, 2006

Intelligence Brief: Escalating Tension between Georgia and Russia

Source: PINR

October 2, 2006

Russian troops in Georgia were put on "high alert" on Sunday and ordered to "shoot to kill if provoked" while defending Moscow's two military bases in the Caucasian country. Tensions between Russia and Georgia are escalating after Tbilisi arrested four Russian officers on September 27 on spying charges.

As a consequence, Moscow withdrew its diplomats from Tbilisi and warned that it could postpone pulling out its troops by 2008 as initially planned. Russian Foreign Minister Sergei Lavrov told the press on September 27 that the situation is "very serious," and, therefore, "when the U.N. Security Council will consider the Georgia-Abkhaz settlement in the next two weeks, we will insist on assessing Georgia's activities as subversive."

The crisis has its roots in the pro-Western, pro-U.S. turn of Georgian national elites epitomized by President Mikhail Saakashvili and his "Rose Revolution." The situation had already worsened in August when Georgian security forces attempted to secure control of the Abkhazian river valley of the Kodori Gorge in order to regain control of the breakaway regions of Abkhazia and South Ossetia. Tbilisi then called for the replacement of Russia as the official mediator in Georgia's regional conflicts. Moscow maintains peacekeepers there along with two military bases.

This escalation signals that Georgia is likely to become the catalyst for U.S.-Russian geopolitical conflict for strategic and economic influence in the Caucasus. Washington criticized Moscow's reaction to the officers' arrests and continues to sponsor Tbilisi's gradual integration into N.A.T.O. Saakashvili has never concealed his pro-U.S. stance and frequently accuses Russia of being the destabilizing force behind breakaway regions South Ossetia and Abkhazia. Although Moscow officially says that Georgia is a sovereign state and is free to join N.A.T.O., Russia is working to maintain strong influence in the Trans-Caucasus region.

As PINR pointed out on September 19, the recent Russian-backed Transdniester pro-independence referendum may be a pattern for the two Georgian separatist regions' attempts to gain national independence. The United States and N.A.T.O., however, are likely to be more active in preserving Georgia's national integrity by strongly supporting Saakashvili than they have been in Transdniester. Therefore, a continued dispute between Tbilisi and Moscow with significant U.S. and European participation on the Georgian side is to be expected in the coming months. [See: "Intelligence Brief: Transdniester Votes for Independence"]

The stakes in the southern Caucasus region are significant. Georgia and Azerbaijan form a gateway linking the Black Sea to the Caspian Sea and are vital for the control of Central Asia's massive fossil resources, as the well-known Baku-Tbilisi-Ceyhan pipeline testifies.

Georgia's geographic position is also critical to N.A.T.O.'s ability to secure the Black Sea region and it allows Washington to project power toward the Middle East. Furthermore, at a time of uncertainty on Turkey's E.U. accession bid and on Ankara's geostrategic orientation -- due to Turkish Prime Minister Recep Tayyip Erdogan's unwillingness to subscribe to U.S. military actions in Iraq -- Georgia's geostrategic importance for Washington is increasing.

Tbilisi's new pro-Western course is predicated upon a strategic relationship with the United States and N.A.T.O. and serves the purpose of a post-Soviet national elite that is eager to eliminate Russian hegemony. Disputes with Abkhazia and South Ossetia are worrying Tbilisi, but, on the other hand, they are enabling the Saakashvili administration to distract international attention from its increasingly authoritarian rule and provide him an effective ideological tool to boost nationalism and use it against remaining Russian influence.

As a consequence, tensions are likely to remain high in the coming months. While it is unlikely that Russia and N.A.T.O. will make moves that could openly put one against the other in the region, Moscow's support for separatist movements in Abkhazia and South Ossetia will probably continue. Chances that a smooth diplomatic solution to Georgia's regional issues will be implemented soon are decreasing, while Tbilisi's approach to separatism remains militaristic.

September 29, 2006

Russia: Plans to close bases in doubt

Source: Yahoo News, AP

By MISHA DZHINDZHIKHASHVILI, Associated Press Writer
September 29, 2006

TBILISI, Georgia - Russia warned on Friday that its plans to close military bases in Georgia were in doubt and Georgia claimed Russia was moving troops near their shared border, as relations between the countries deteriorated in one of their worst crises since the collapse of the Soviet Union.

Tensions between Russia and Georgia, which have increased since pro-Western President Mikhail Saakashvili came to power in 2003, escalated after the arrest in Georgia on Wednesday of four Russian military officers accused of spying.

Russia has recalled its ambassador, evacuated some diplomats and their families and issued a formal protest to the United Nations. Russian Defense Minister Sergei Ivanov has denounced Georgia as a "bandit" state.

Georgia on Friday accused Russia of redeploying additional troops closer to the border and said the Russian Black Sea fleet was expected to start maneuvers in the next few days. "I would advise our colleagues to stop saber-rattling. "This is unacceptable for a democratic country and we don't understand that," Interior Minister Vano Merabishvili told reporters.

Since gaining power in the Rose Revolution, Saakashvili has pledged to move the country out of Russia's orbit, take control of breakaway provinces of Abkhazia and South Ossetia and join NATO in 2008. Georgia's pro-Western course has vexed the Kremlin, and Georgian authorities accused Russia of backing separatists.

Tbilisi courts on Friday ordered the four Russian officers remanded in custody for two months, Anzor Khvadagiani, a Tbilisi prosecutor, told The Associated Press. A fifth serviceman also arrested Wednesday was released the next day for lack of evidence. The courts also extended the arrest of 10 Georgian citizens accused of involvement in a Russian spy ring.

Gen. Andrei Popov, commander of Russian military forces in Georgia, said Russia's obligation to close its two remaining military bases in Georgia by the end of 2008 still stands, but added that "if our servicemen are arrested and put in custody, there will be problems with the withdrawal since there will be no people left to prepare weapons for the pullout," the Interfax news agency reported.

Popov's spokesman, Col. Vladimir Kuparadze, confirmed his statement.

Russia has between 3,000 and 4,000 troops at its two military bases in Georgia proper, and 2,500 peacekeepers deployed to separatist regions of Abkhazia and South Ossetia.

Ivanov, meeting Friday with NATO members in Slovenia, said the arrests were aimed at pushing Russian troops out of Georgia so the government could seize control of the breakaway provinces by force, and he accused unnamed newer NATO members of illegally supplying Georgia with Soviet-made weapons.

"It is absolutely clear to us that Georgia has chosen the military path, the forceful path, for resolving the conflicts in South Ossetia and Abkhazia," he said, adding that Georgia's actions were "to push Russian peacekeepers out by any means possible ... and then to submit an application to join NATO."

Two Russian planes, meanwhile, evacuated 84 diplomats and their relatives from Georgia, officials said. The Russian ambassador to Georgia, Vyacheslav Kovalenko, said after returning to Moscow that families of all Russian military in Georgia also will depart, Interfax reported.

Georgian police surrounded the Russian military headquarters in Tbilisi on Friday, hoping to detain another Russian officer accused of spying. Russia has refused to surrender the officer.

In Moscow, police blocked streets around the Georgian Embassy. They allowed some 20 nationalists to protest briefly against Georgia's president before detaining them for holding an unsanctioned rally.

Russia's ultranationalist leader Vladimir Zhirinovsky called on Friday for "the most resolute action, up to the deployment of forces and air raids." A Kremlin-connected lawmaker, Konstantin Kosachev, said Moscow would not yield to what he called Georgia's provocation and stressed that "any forceful measures are absolutely excluded."

Separately, an official in South Ossetia claimed that masked Georgian officers shot out the tires of a car carrying four Russian peacekeepers, a woman and a child Thursday night, then ordered the men out and beat them. One peacekeeper sustained a fractured skull, according to the internationally unrecognized South Ossetian government, and Ivanov said there was proof they were "brutally beaten."

Georgian officials denied the allegations, saying police stopped a car with Russian peacekeepers, checked their documents and released them.

Russia's Foreign Ministry advised its citizens to refrain from traveling to Georgia, citing security concerns, and its embassy in Tbilisi stopped issuing visas to Georgian citizens.

Saakashvili denounced the moves as hysteria.

NATO Secretary-General Jaap de Hoop Scheffer called for "moderation and de-escalation, and that goes for both parties," and a U.S. State Department official said both sides had to work toward a solution.

Matthew J. Bryza, in Berlin for diplomatic consultations on Abkhazia, also told journalists that "Georgia has expressed its sovereign view ... that it doesn't want Russian peacekeepers on its territory. There is a question of what is prudent, and what is the most effective way of asserting that right in the case of Tbilisi."

September 28, 2006

Japan-Iran oil talks look stuck - Japanese trade minister

Source: Reuters

By Ikuko Kao
September 28, 2006

TOKYO, Sept 27 (Reuters) - Talks between Japan and Iran over a development project in the giant Azadegan oilfield appear to be hitting a dead end, Japan's new