The Daily Reckoning

“Masked youths…attacked the head of Greece’s largest trade union, who was addressing the crowd, and hurled stones at the police. GSEE union boss Yiannis Panagopoulos traded blows with the rioters before being whisked away, bloodied and with torn clothes.”

The Daily Mail account put the blame for these disturbances on Germany’s finance minister, who warned the Greeks that “the German government does not intend to give a cent.” At least Bild, a popular German newspaper, was trying to be helpful. It suggested that Greece sell Corfu…and that Greeks get up earlier and work harder.

Meanwhile, from Iceland comes news that every voter with an IQ above air temperature has cast his ballot against a bailout plan. The Icelanders were slated to make good $5.3 billion in bank losses. But why shackle common voters to the banks’ losses? The plan was so outrageous and so unpopular that Iceland’s normally compliant Prime Minister called for a referendum. Given a chance to vote on it, 93% said no. The other 7% probably read it wrong.

Insurrection is in the air. In England, government employees are preparing the biggest strike since the ’80s. In America, dissatisfaction with Congress is at record highs; four out of five of those polled say, “Nothing can be accomplished in Washington.”

Herewith, an attempt to deconstruct the rebel yell. By way of preview, it’s not the principle of the thing, we conclude; it’s the money.

There are more clowns in economics than in the circus. They invented an economic model that has been very popular for more than 50 years – particularly in the US and Britain. It began with a bogus insight; John Maynard Keynes thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backwards. Consumer spending is made possible by savings, investment and hard work – not the other way around. Then, William Phillips thought he saw a cause and effect relationship between inflation and employment; increase prices and you increase employment too, he said.

Jacques Rueff had already explained that the Phillips Curve was just a flimflam. Inflation surreptitiously reduced wages. It was lower wages that made it easier to hire people, not enlightened central bank management. But the scam proved attractive. The economy has been biased towards inflation ever since.

Economists enjoyed the illusion of competence; they could hold their heads up at cocktail parties and pretend to know what they were talking about. Now they were movers and shakers, not just observers. The new theories seemed to give everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. And the financial industry could earn huge fees by selling debt to people who couldn’t pay it back.

Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. But as the system aged, its promises increased. Beginning in the ’30s, the government took it upon itself to guarantee the essentials in life – retirement, employment, and to some extent, health care. These were expanded over the years to include minimum salary levels, unemployment compensation, disability payments, free drugs, food stamps and so forth. Households no longer needed to save.

As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.

If there was anyone still solvent in America or Britain in the 21st century, it was not the fault of the banks. They invented subprime loans and securitizations to profit from segments of the market that had theretofore been spared. By 2005 even jobless people could get themselves into debt. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector – it helped them to go broke.

As long as people thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting nothing for something, the masses are unhappy. Half the US states are insolvent. Nearly all of them are preparing to increase taxes. In Europe too, taxes are going up. Services are going down. And taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.

Several countries are already past the point of no return. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.

The rioters can go home, in other words. The system will collapse on its own.

Bill Bonner
for The Daily Reckoning Australia

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The Daily Reckoning

There was a time…not so very long ago…when Americans held all the top spots. We had the most…the best…the biggest companies. And the richest people.

Those days are gone…

MEXICO CITY (AP) – Mexican telecom tycoon Carlos Slim is the first man from a developing nation to become the world’s richest person – a shift that underlines the loosening of America and Europe’s stranglehold on the top spots in the billionaires’ club.

Slim’s arrival at the top aroused both pride and anger in Mexico, where many see his fantastic wealth in a poverty-afflicted nation as a sign of what ails it.

With a recovery in the value of his cell phone holdings pushing his estimated fortune to $53.5 billion, Slim jumped past Microsoft founder Bill Gates and investor Warren Buffett when Forbes magazine released its 2010 list of the world’s wealthiest Wednesday.

The rise of Slim, the 70-year-old son of an immigrant shopkeeper, is just a part of the emergence of billionaires in developing countries, Forbes reporter Keren Blankfeld said. She noted this year’s top 10 richest also include two billionaires from India and one from Brazil.

Here’s another item in today’s news:

“China becomes world’s biggest internet market,” says a Reuters headline. There are more Internet users in China than in any other country, says the article. And more cars sold. And more concrete poured.

Travel broadens your horizons, they say. More importantly, it humbles you. You realize that there are a lot more people doing a lot more things than you thought.

All over the world, people bus, hump, schlep, toil and strain. Some work hard. Some work not so hard. Some work smart; others don’t.

But over time, fashions and circumstances change. What goes around, comes around. Those that did once ride so high now lie low…

Yes, dear reader, the world turns. And traveling around…you get to see different parts of it…with different stories to tell…

This morning’s news tells us that 60,000 people are rioting in Greece…torching German cars and generally behaving badly.

What’s their beef? They’re running out of money, running out of credit…and running out of time. Modern macro-economic policies have turned against them.

But they’re not alone. The news from the plains tells us that Kansas might have to close half of its public schools…if it doesn’t find a way to close its budget gap.

The news from other states is not very different. Many foreign governments are in the same fix. Ireland has already begun its “austerity” programs. Italy and Spain can’t be far behind.

But what about the US federal government? No austerity at all. Just the opposite. The feds announced the biggest budget deficit ever – $221 billion for the month of February. In other words, per family, the American government spent approximately $2,000 more than it received in tax revenues. Hmmm….if it continues at this rate, it will spend $24,000 more than it receives per family this year. In round numbers, the typical family will pay about $25,000 in taxes…and receive about $50,000 worth of ’services.’

Is that a great deal…or what?

It’s an absurdity…it’s preposterous…it’s weird and unnatural. And it can’t last.

It is only possible now because of the peculiar circumstances of today’s financial world. Lenders, investors…Chinese creditors…give their dollars to the US government, believing it to be the most credit- worthy borrower in the world. But as the supply of US debt goes up the quality of it declines.

Already, the US is – from a GAAP accounting point of view – bankrupt. (See below…) Lenders cannot reasonably expect to get their money back. But that doesn’t seem to bother them. US debt still looks like a better bet than, say, Greek debt.

But the world is full of surprises. What a shock it will be when the US finds itself in Greece’s shoes!

Bill Bonner
for The Daily Reckoning Australia

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By Karl Denninger, The Market Ticker

Wen “cats in the kettle” Jaibao spouted:

“I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”

Oh really?

It’s time that we stop the the BS here with regard to China.

The entire premise of so-called “Free Trade” with the Chinese was predicated on the belief that if we opened our borders to their products on a “no tariff” basis that we would, over time, change their political system.  That is, we would import cheap Chinese plastic junk and export democracy.  More or less.

Well, we got all the cheap DVD players but they didn’t get any democracy.  Quite to the contrary.  There have been no meaningful improvements in areas of environmental protection, workers rights and wages or political freedom.  Indeed, the recent dust-up with Google just underlines the reality in China: Their government is a band of murderous brigands and thugs.

Disagree with them inside their nation, refuse to censor The Internet, for example, so that people can’t read about Falun Gong and China will be happy to arrest the executives of your firm inside the nation and provide this as “corrective influence” to your head:

Oh, they send the 50 cent bill for it to your family too.  Isn’t that special?

At least in this country they don’t shoot people for talking about the evil-doing that both private parties and government engage in.  If they did, well, I’d be long-dead.

Second, China hasn’t changed its spots a bit.  It has pursued a mercantilist policy for over two decades while at the same time stealing anything that isn’t nailed down (and some things that are), including such wonders of our technological prowess in nuclear warhead design.  Argue the defensive merits of nukes in a silo all you want – when they’re flying, they’re anything but defensive.

In short our policies have been an abject failure.  We’ve destroyed consumer product manufacturing in The United States, we’ve shuffled a huge amount of wealth over to China due to their manipulated currency, we’ve trashed our real standard of living and replaced production with debt and the supposed benefits of an open and free market, along with a democratic political system in China have failed to materialize.

It’s time to stop the stupid.  It’s time to force those firms who want to offshore production to return the so-called “savings” to the United States as something more than executive bonuses.  And it’s time to treat those who are a communist dictatorship as exactly that.

The simplest solution is to hit China with a 25% tariff on everything – literally everything – and close the market entirely to anything coming over here that contains stolen intellectual property.

China has done us one better with their “liquidity program.”  Instead of allowing the economy to adjust and build internal demand, they have instead stoked a huge bubble in fixed assets over there.  This, coming on the back of exactly what we just experienced in our property market, is one of the most-pernicious and outrageous series of acts I’ve seen out of a sovereign in a long time.  Couple that with questionable (at best) “official” statistics on China’s economy and you’ve got the ingredients for real trouble.

There are often claims that we’re “hostage” to China’s holdings of Treasuries and other bonds.  Nonsense.  First, if China sells them they cut off their own nose.  Second, in an extreme circumstance we could easily institute capital controls that would effectively neuter their influence entirely – and they know it.  Third, it’s time for us to live within our means anyway, so if China was to provoke that, where’s the foul?  There’s a solid argument to made for such an event being positive for America, not negative.  And finally, China needs us more than we need them – should we throw up a complete barrier to their cheap junk, along with the Euro zone who is likewise tired of the manipulation their mercantilist game would collapse on their heads.

It’s time to call the curtain down on the cock-and-bull story coming from China.  We have not achieved our goals with “engagement” and “trade”, and won’t.  Our nation has been intentionally and severely damaged by these thugs who have adopted a mercantilist “raid ‘em and loot ‘em” approach to commerce, then hidden behind their communist ability to manipulate and even kill those who disagree with them.  If we don’t deal with this now, we will wind up having to deal with it militarily, and it will be even less-pleasant than telling them to stick it with the slave-labor-produced, water-fouling and air-blackening $30 DVD players.

In short, it’s time for us to grow a pair of balls and tell the Chinese to put it where the sun doesn’t shine, neutering their interference and intentional distortion of trade balance and currency valuation.

We didn’t get what we bargained for, so it’s time for us to change the bargain.

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Journey to the Center of the Earth

Miles below the ocean floor lies enough oil to power the U.S. for more than a decade—and perhaps our best shot at energy independence.

From the window of a helicopter 1,500 feet above the Gulf of Mexico, oil platforms look like Tinkertoys in a swimming pool. Dozens dot the horizon stretching south from New Orleans and continuing out as the water deepens and turns a darker blue. Then, about 50 miles offshore, the platforms stop, and for the next hundred miles there’s nothing. This is the deepwater Gulf of Mexico, where the ocean floor is 8,000 feet down and covered in a heavy layer of muck. Below that is an ancient salt bed several miles thick, and hidden under that, trapped tens of thousands of feet down, there’s oil—billions and billions of barrels of it. And it’s all in U.S. waters.

ANALYSIS – Finding deepwater oil proves tough slog for Mexico

MEXICO CITY (Reuters) – Mexico’s state oil company Pemex is learning the hard way why U.S. oilmen frustrated by failed multimillion dollar wells once dismissed the deep waters of the Gulf of Mexico as “the Dead Sea.”

The government says 29.5 billion barrels of oil equivalent could lie beneath the seabed in Mexico’s part of the Gulf deep waters. But seven years after Pemex started to drill, the the company has little to show for its efforts.

Exxon Mobil to proceed with LNG project

Exxon Mobil Corporation says it will proceed with a multi-billion dollar liquefied natural gas (LNG) project in Papua New Guinea.

Sales and purchase agreements with LNG buyers, and financing arrangements with lenders, have been completed, the company said on Saturday.

Saudi, Conoco extend refinery bids deadline-sources

KHOBAR, Saudi Arabia (Reuters) – Saudi Aramco and U.S. firm ConocoPhillips have again extended the deadline for bids for a solids handling unit at their Yanbu refinery joint venture, industry sources said on Saturday.

The deadline is now June 1 for bids on the construction of the unit at the 400,000 barrels per day (bpd) refinery, two sources close to the bidding process said.

Venezuela draws up plan to assure food distribution if energy crisis worsens

CARACAS, Venezuela (AP) – The Venezuelan government and food producers have outlined a plan to guarantee the distribution of food if the South American nation’s energy crisis worsens, an industry official said Friday.

Venezuelan Pork Federation president Alberto Cudemus said government and private-sector representatives met the previous evening on how to insulate the food sector from power outages. He said the plan involves reducing water use and investing to make food producers self-sufficient in energy within 90 to 360 days.

How long it takes will hinge on both the private sector’s willingness to make the investments, and the government facilitating permits to import electrical generators and giving access to foreign currency to purchase the equipment, Cudemus said.

“We are sort of racing against the clock in the food sector and do not want to let the country down,” he added.

Rising energy costs fuel a return to heating residences with a fire

Soaring energy prices are rekindling Britain’s love affair with the warm glow of a open fire. Householders are ripping out gas devices and installing wood burners or opening chimneys to make a traditional blaze with coal.

Sales of wood burners are increasing by 40 per cent a year, says the Solid Fuel Association, which represents the industry.

To solve our energy crisis, look to the sea

“Spirit of Ireland”, the impressive volunteer think-tank for energy independence, aims to find empty west-coast valleys to dam and flood with seawater – pumped storage for reserve hydropower linked to adjoining wind-farms. In a similar “Turlough Hill” approach, the Organic Power company would use surplus wind-power to pump seawater up to reservoirs on Glinsk Mountain, above the cliffs of North Mayo. This will feed generating turbines, when needed, as it pours back down a shaft to the ocean.

In the crisis over climate change and energy, attention comes back to nature – even to the rocks the island is made of, and the seabed all around it. There is news of Ireland’s first geothermal energy project, using the heat in deep rock strata hugging the mantle of the Earth. It will bore down to layers four kilometres deep under Newcastle, Co Dublin, and harness their heat, through a water network, to warm half the city.

Out of the endless sprawl

Conservatism itself is rooted more in the community and especially in the fertile soil of tradition than in the individual. In a land of strip malls and ten-lane freeways, of rampant materialism and unending competition, tradition and community become irrelevant – become skeletal ghosts on display behind panes of glass. Anymore, the American right views its historical patrons – Burke, Oakeshott, et alia – as somewhat quaint figures, whose philosophy should be cherry-picked for all the ripest talking-points.

Chris Martenson: Getting the story right

When I had the chance at the UK Parliament talk, I gave one “solution” (more of a ‘response’, really, but people like the word solution) – I proposed that we create a national or even international organization to study net energy and energy flows. It should be extremely well-funded and attract our best and brightest, so that we can answer such simple questions as, “Should we retroactively insulate existing structures, or should we build a new light rail system?” Because we only know the economics of that question, we can’t answer the most important question of all: “Which offers the higher energy returned on energy invested?”

Made in the U.S.A.: Efficiency Materials

While solar and wind manufacturers struggle to fend off Chinese competition, energy efficiency equipment seems to have no such problem.

According to a recent study commissioned by efficiency advocates, equipment like caulking and insulation — basic tools for retrofitting the country’s homes and businesses — is almost entirely made in the United States.

…Matt Golden, the chairman of Efficiency First, said he was surprised that the numbers were so high for caulking, but insulation was easier to explain.

“You don’t want to make it in China, because a container full of insulation costs so little it’s not worth shipping,” Mr. Golden said.

Crude Oil Falls as U.S. Consumer Sentiment Unexpectedly Drops

(Bloomberg) — Crude oil declined for the first time in three days after a report showed that confidence among U.S. consumers unexpectedly dropped this month.

Oil fell 1.1 percent as the Reuters/University of Michigan preliminary consumer sentiment index dropped to 72.5 from February’s reading of 73.6. A gain to 74 was forecast, according to the median of 68 estimates in a Bloomberg News survey. Prearranged orders to sell oil at specific prices, known as stops, may have been triggered as oil declined.

Conoco Proposes Spending $13 Billion on Norway Fields

(Bloomberg) — ConocoPhillips, the third-largest U.S. oil company, proposed development plans for the North Sea Eldfisk and Ekofisk South fields offshore Norway valued at as much as $13 billion to prolong their production lives.

Déjà vu: Energy Prices

It’s hard to believe it’s been two years this month since this column first revealed that speculators were running riot in the oil futures market. I pointed out that unrestrained commodities speculators were causing the oil price climb we were seeing, which would send the cost of crude to a peak of $147 a barrel by the summer of 2008. At the time most “experts” quoted in the media were saying that oil prices were skyrocketing because world supplies couldn’t keep up with demand, or because we had passed the point of Peak Oil. Neither position was true, of course; just looking at tanker shipments and worldwide oil supplies on hand, those concepts were obviously invalid.

Pakistan’s War on Terror and the New Cold War

A new Cold war is in beginning. This time centre of this cold war is not Europe but South Central and Euro- Asia. Keeping in mind peak oil and conflicting interests of dominant powers, probability of return of cold war is a logical conclusion.

At Strategic level we see shift in policies of all concerned powers in Afghanistan and Central Asia. US Policy has at last tilted in Pakistan’s Favor and India is on retreat. Pakistan and US are coordinating with each other against extremism and results are coming both in Afghanistan and Pakistan.

China looks to ‘combustible ice’ as a fuel source

(PhysOrg.com) — Buried below the tundra of China’s Qinghai-Tibet Plateau is a type of frozen natural gas containing methane and ice crystals that could supply energy to China for 90 years. China discovered the large reserve of methane hydrate last September, and last week the Qinghai Province announced that it plans to allow researchers and energy companies to tap the energy source. Although methane hydrate is plentiful throughout the world, the key challenge for China and other nations will be to develop technologies to excavate the fuel without damaging the environment.

Process could clean up water used in natural gas drilling

(PhysOrg.com) — Texas A&M Engineering is playing a role in a technological breakthrough that could clean up the contaminated water recovered from drilling natural gas wells in shale deposits through the process of “hydraulic fracturing.”

David Burnett of Texas A&M’s Global Petroleum Research Institute — in partnership with the Texas Engineering Extension Service (TEEX) and Carl Vavra of the TEES Food Protein R&D Center Separation Sciences Laboratory, developed the membrane filtration technology — which has been licensed to a major oil field service company for commercialization.

Coal brings Wyoming, Queensland together

CHEYENNE — Though they are on opposite sides of the world, Wyoming and Queensland, Australia, have something in common.

Coal.

And both states have critical economic interests in keeping coal saleable despite climate-change concerns.

Is Creating Green Jobs a “Sensible Aspiration” for Governments?

That’s the topic of an ongoing online debate over at the Economist.com. In one corner, green jobs advocate Van Jones, who argues that governments should engage in the active practice of creating green jobs, by, for example, incentivizing clean energy projects. In the other, Andrew P. Morriss, a professor of business and law at the University of Illinois, who argues that green job creation should be left to the marketplace.

It’s a fascinating debate, and one that needs to be had. After all, Spain solar power industry just underwent a painful collapse due to miscalculated subsidies, and policy ideas for green job generation are being considered at this very moment in the US Senate.

Slick, slim rail design to unclog city routes

(PhysOrg.com) — A driverless, electric-powered light rail system designed to whisk commuters more efficiently around central Auckland (New Zealand) and across the harbour bridge could appeal to people who snub existing public transport, says its creator.

The New Road to Energy Sustainability

Dear Congress,

We, the American People, want a New Deal for energy.

We’re tired of watching the rest of the world kick the clean energy industry into high gear while we’re still stuck in neutral, debating a weak cap-and-trade bill that doesn’t come close to meeting our energy challenge.

Lexicon of Change: The Rise of Transition Culture

You may or may not have heard of the Transition movement — described by its founder, Rob Hopkins, as “an exercise in engaged optimism”— yet Transition’s ideas are informing and even guiding the conversation of how communities confront the twin crises of peak oil and climate change.

The movement is driven by one simple idea: Rather than hand-wringing and lamenting dwindling energy reserves and climate change, Transition wants people to envision and create models for that future — and find much to be cheerful about.

Board Extends Deadline for Everglades Land Deal

OKEECHOBEE, Fla. — Facing legal challenges and growing deficits, South Florida water officials on Thursday gave themselves six more months to finance a controversial $536 million purchase of land from United States Sugar for the Everglades.

The unanimous vote by the nine-member board of the South Florida Water Management District will keep the deal alive, but officials said they continued to struggle with whether the agency could afford it.

Is nuclear necessary? Duke study touts power of renewables

How necessary is nuclear power? Renewable energy, including solar, wind and hydroelectric, can provide all but 6% of North Carolina’s electricity, finds a new Duke University study.

NRG Says Texas Power Agreements Are ‘Stumbling Block’ for Solar

(Bloomberg) — NRG Energy Inc. said the power- purchase agreements in Texas, which appropriate money one year at a time rather than several years, are a “stumbling block” to developing solar electricity plants in the state.

Wind resistance: Analysis suggests generating electricity from large-scale wind farms could influence climate

In a paper published online Feb. 22 in Atmospheric Chemistry and Physics, Wang and Prinn suggest that using wind turbines to meet 10 percent of global energy demand in 2100 could cause temperatures to rise by one degree Celsius in the regions on land where the wind farms are installed, including a smaller increase in areas beyond those regions. Their analysis indicates the opposite result for wind turbines installed in water: a drop in temperatures by one degree Celsius over those regions. The researchers also suggest that the intermittency of wind power could require significant and costly backup options, such as natural gas-fired power plants.

Aquatic ‘dead zones’ contributing to climate change

“As the volume of hypoxic waters move towards the sea surface and expands along our coasts, their ability to produce the greenhouse gas nitrous oxide increases,” explains Dr. Codispoti of the UMCES Horn Point Laboratory. “With low-oxygen waters currently producing about half of the ocean’s net nitrous oxide, we could see an additional significant atmospheric increase if these ‘dead zones’ continue to expand.”

Report: The Case for Global Warming Stronger Than Ever

One of the many crimes that climate scientists have been accused of lately is that they claim absolute certainty in a field of research fraught with uncertainty. Sure, the planet is warming, say skeptics, but that’s happened throughout Earth’s history, long before humans were burning fossil fuels. So, how can we be sure this isn’t just a natural phenomenon?

Oil Production to Peak in 2014, Scientists Predict

Predicting the end of oil has proven tricky and often controversial, but Kuwaiti scientists now say that global oil production will peak in 2014.

Their work represents an updated version of the famous Hubbert model, which correctly predicted in 1956 that U.S. oil reserves would peak within 20 years. Many researchers have since tried using the model to predict when worldwide oil production might peak.

Some have said production already peaked. One earlier model by Swedish researchers suggested that oil would peak sometime between 2008 and 2018. And other researchers have argued there are decades to go before oil production goes into irreversible decline. The only thing they all agree on: Oil is a finite and very valuable resource.

Ramirez sees oil flowing despite worries

Venezuelan Oil Minister Rafael Ramirez said today that the country would continue producing crude oil even if its ailing electricity system were to suffer a collapse.

“We will not stop producing oil,” Ramirez said, adding that he doubts there will be any catastrophic failure of the national electricity system, so long as energy-conservation efforts continue.

FACTBOX – Pemex’s deep water Gulf of Mexico exploration record

(Reuters) – Mexican state oil monopoly Pemex
has pinned its long-term hopes on the deep waters of
the Gulf of Mexico, where the government estimates as much as
29.5 billion barrels of oil equivalent could lie.

But so far the drilling campaign has had few successes.

BP Books Tanker for ESPO Crude Oil to U.S. West Coast

(Bloomberg) — BP Plc, Europe’s largest oil and gas company, chartered a tanker to ship Russian East Siberian Pipeline Oil to the U.S. West Coast, according to fixture reports from shipbrokers.

£3bn coal power plant will test strength of Ed Miliband’s environment rules

The first application to build a coal plant in Britain since energy secretary Ed Miliband introduced tough new environmental rules will be submitted next week, the Guardian has learnt.

UK-based conglomerate Peel Group is pressing ahead with the £3bn project to build a 1.6GW plant at Hunterston in Scotland, which will partially fit experimental carbon capture and storage (CCS) technology. Its former partner, Dong Energy, dropped out last year, citing the recession. The application, which is expected to be submitted to the Scottish government on Monday, signals Peel’s confidence that the unproven technology can work.

Study sees efficiency as key to meeting energy needs

The big buzz at the CERAWeek conference may be natural gas, but a new study says it’s time to light a fire under energy efficiency to meet future energy demands.

The study, unveiled Thursday at IHS Cambridge Energy Research Associates’ annual meeting in Houston, says that of all the options available, efficiency is the best way to improve the supply-demand balance quickly while keeping costs low and greenhouse gas emissions in check.

“It’s the one thing that’s really embraced across the spectrum,” said Daniel Yergin, chairman of IHS CERA. Enthusiasm for efficiency is high “around the world, at the top of the energy agenda, whether you’re talking about China, Europe or the United States.”

That enthusiasm will be needed because doubts remain about the other paths to a cleaner energy future.

In energy, let’s not deny what we agree on

James Mulva drew a hearty round of applause when he threw out the term.

In a speech before the energy industry faithful at the CERAWeek conference Tuesday, the CEO of Houston-based ConocoPhillips labeled those who oppose oil and natural gas at any cost as “hydrocarbon deniers.”

Mulva’s point is well taken. Washington policymakers are too focused on promoting alternative fuels at the expense of conventional ones, especially natural gas.

Alberta To Cut Royalties Amid Competition

The Alberta government announced plans Thursday to cut the royalty rates it charges natural gas and oil producers in an effort to make the province more attractive to investment.

Virginia Leads the Way for East Coast Offshore Drilling

Offshore drilling legislation was signed into law yesterday by Gov. Bob McDonnell, who is positioning Virginia to be the first East Coast state to drill for oil and natural gas in Atlantic waters, the Associated Press reported Wednesday.

However, the bills’ future will ultimately be determined by the federal government and Congress’ support to drill on the outer continental shelf.

A Saudi-Turkish alliance against Iran?

STRATFOR’s thesis is the Saudis are looking to Turkey to act as an ally in restraining Iranian pretensions to regional hegemony. The Turks have their own leadership aspirations which involve pursuing a neo-Ottoman strategy that joins Sunnis and Shias under enlightened, of course, Turkish leadership.

New power outages hit Manila

MANILA – AN ENERGY crisis in the Philippines triggered by a severe drought deepened on Friday as the nation’s capital endured another round of rolling blackouts.

It was the third week this year that Manila’s 12 million residents faced power outages, while the mostly rural southern Philippines has faced blackouts daily for more than a month.

Venezuelan energy crisis hits workers’ income

The leader of the CTV said that rather than layoffs, “the work dynamics has been restructured,” especially in industries that operate with four work shifts.

For example, General Motors removed a third shift, but did not fire workers. The carmaker reassigned workers in the first and second shifts. Union leader Joel Torres said that the company is assembling vehicles from 6:30 a.m. until 11 p.m.

“This is the right way to keep production at the assembly plant without affecting labor,” he said.

No country will sell fuel to Bataan nuke plant, says research exec

BAGUIO CITY, Philippines – Reviving the Bataan Nuclear Power Plant today or building new nuclear facilities would be the quickest solution to the shortage of electricity most felt in Mindanao and make power rates attractive to investors, according to Department of Energy officials here.

But no country would sell to the Philippines processed uranium and plutonium to fuel these plants because the country’s atomic energy laws and safety regulations are outdated and do not pass world nuclear energy standards, said Dr. Vangeline Parami, acting chief of nuclear regulations, licensing and safeguards of the Philippine Nuclear Research Institute (PNRI).

Bill McKibben – Vermont: Neighbors and Online Networks

The genius of the system flows from the ways it’s unlike the rest of the Web. Instead of going global, each forum is limited to a neighborhood of about 400 homes. Instead of the anonymity that lets Internet users happily flame one another, all the folks participating in these forums clearly identify themselves. “I designed it to be as simple as possible–to use plain-text e-mail, so that everyone can take part,” Wood-Lewis explains. “I just heard from an 80-year-old grandmother who’d signed up. She said, ‘We’ve been here 50 years, but all the people we know have moved away, and we want to stay connected.’ That’s the kind of person we want to serve.”

The biggest difference between Front Porch Forum and the rest of the Web, though, is that its ultimate goal is to get you out from in front of the screen and into the world around you. “The real feedback loop is on the main street of town,” says Erik Filkorn, in his eighth year on the select board in Richmond, Vermont. “You’ll be coming out of the store and someone will say, ‘Hey Erik, I saw the thing you wrote. Here’s what I think.’ You’re not just creating an avatar and hanging out in a singles bar in Second Life — not that I would do that. But this is very much grounded in the flesh-and-blood community.”

Rapid Rise in Seed Prices Draws U.S. Scrutiny

During the depths of the economic crisis last year, the prices for many goods held steady or even dropped. But on American farms, the picture was far different, as farmers watched the price they paid for seeds skyrocket. Corn seed prices rose 32 percent; soybean seeds were up 24 percent.

IEA Raises 2010 Oil Demand Estimate on Developing Economies

(Bloomberg) — The International Energy Agency raised its forecast for global oil demand this year for a second month as fuel consumption in Asia rises more than expected.

The IEA increased its estimate for world demand in 2010 by 70,000 barrels a day to 86.6 million barrels a day. That would mean a gain of 1.6 million barrels a day, or 1.8 percent, from 2009 levels, it said. Economies outside the Organization for Economic Cooperation and Development continue to lead the recovery in consumption, the IEA said.

“Global oil demand resumed growth on a yearly basis in the fourth quarter of 2009 after five consecutive quarters of decline,” the Paris-based agency said in its monthly oil market report today. “This year’s global oil demand growth will be driven entirely by non-OECD countries, with non-OECD Asia alone representing over half of total growth.”

Oil above $82 after IEA raises demand forecasts

Oil prices moved above $82 a barrel Friday after the International Energy Agency brightened its outlook for world demand, predicting a surge in Asian economic activity will make up for a fall in developed countries.

Crude Oil May Decline on Ample Inventories, Survey Shows

(Bloomberg) — Crude oil may fall next week on rising U.S. inventories and speculation that demand will decrease next month, a Bloomberg News survey showed.

Twenty-three of 50 analysts, or 46 percent, said oil will decline through March 19. Fourteen respondents, or 28 percent, predicted that futures will increase and 13 said there will be little change in prices. Last week analysts were split, with 38 percent of those surveyed forecasting a gain and an equal number looking for a drop.

BHP, Anglo, Xstrata Ship Coal 10,000 Miles on China Price Surge

(Bloomberg) — BHP Billiton Plc, Anglo American Plc and Xstrata Plc are shipping coal 10,000 miles to China from their Cerrejon mine in Colombia for the first time this year because of surging demand and rising prices in Asia.

Cerrejon, the world’s largest open-pit mine of coal for export, started sending coal shipments through the Panama Canal to China after prices became “much better” than those in Europe, Leon Teicher, the venture’s chief executive officer, said in an interview. Cerrejon may also make its first sales to India this year, he said.

Here’s Why Peak Demand For Oil Is Still Very Far Away

EIA Washington produces a ton of energy data that’s very current and detailed on global energy production. But what’s harder to come by is Non-OECD oil and oil product consumption. As the calendar turns to March, alot of the annual data starts to complete for the prior years, and I found my way deep into some EIA caverns tonight, and drew up the following chart.

Shell May Raise Arrow Energy Offer, RBS Morgans Says

(Bloomberg) — Royal Dutch Shell Plc and PetroChina Co. may need to increase their offer by as much as 55 Australian cents a share to A$3.7 billion ($3.4 billion) to acquire Arrow Energy Ltd., said an analyst at RBS Morgans.

Exxon’s growing reliance on expensive oil

NEW YORK (CNNMoney.com) — Exxon Mobil outlined plans Thursday that rely heavily on oil from tough to reach places, extracting it from the depths of the ocean, the frozen Arctic and the tar sands in Canada’s frozen tundra.

But oil pumped in these places tends to be much more expensive than oil from more conventional sources.

Eni Expects Refining Profit in 2012, to Grow Dividend

(Bloomberg) — Eni SpA, Italy’s largest oil and gas company, expects refining to return to profit from 2012 after boosting sales and efficiency. It forecast dividend growth from 2011.

Petrofac Targets Iraq Oil After Asfari Raises Value

(Bloomberg) — Ayman Asfari, the chief executive officer whose oil and gas engineering skills guided a fourfold increase in the value of Petrofac Plc within five years, is now preparing to tap Iraq’s energy boom.

Iraq, with estimated reserves of 115 billion barrels of oil, the world’s third-largest, is set to ramp up production as companies including BP Plc, Royal Dutch Shell Plc and Exxon Mobil Corp. spend as much as $100 billion to develop fields awarded in contracts last year. A good chunk of that will go to contractors including Petrofac and larger U.S. rivals Baker Hughes Inc. and Halliburton Co.

South Africa Says Eskom’s World Bank Loan Plan Is Misunderstood

(Bloomberg) — South Africa defended state-owned power utility Eskom Holdings Ltd.’s plan to borrow at least $3.75 billion from the World Bank and said critics misunderstand its purpose.

“We are concerned that the issues related to the loan have not been properly understood,” Public Enterprises Minister Barbara Hogan said in an e-mailed copy of speech given to reporters in Pretoria today. “We are also concerned at the level of misunderstanding regarding our commitment to a transition to a low-carbon economy.”

South Africa says can’t meet power needs without loan

PRETORIA (Reuters) – South Africa will be unable to meet its power supply requirements if its application for a $3.75 billion loan from the World Bank is not approved, Energy Minister Dipuo Peters said on Friday.

Sinopec Changling Refinery Incur Losses on Oil Costs

(Bloomberg) — China Petroleum & Chemical Corp.’s Changling refinery in the central province of Hunan incurred losses in March as crude costs rose, the plant’s general manager Li Hua told reporters in Beijing.

The plant will break even if the price of crude is at between $70 and $75 a barrel, he said today.

Tesoro may halt refining in Hawaii

The owner of the state’s largest oil refinery is studying whether it should stop refining crude oil here and use the site as a terminal from which to distribute fuel.

“It lost money last year and it’s continuing to lose money this year,” said Lynn Westfall, senior vice president and chief economist for refinery owner Tesoro Corp. “It’s something we’re concerned about and are looking at.”

Tesoro, like other refiners, has been squeezed by high crude oil prices at a time when demand has been dropping. Tesoro’s 93,500-barrel-a-day refinery last year operated well below capacity, averaging only 68,200 barrels.

Exxon chief doubts natural gas in cars is viable move

Exxon Mobil Corp. chief executive Rex Tillerson, it seems, has not joined the T. Boone Pickens army.

Pickens has been stumping for the past two years for Americans to shift to natural gas as a vehicle fuel, particularly for heavy duty trucks. He says the move would help wean the U.S. off of foreign oil, support domestic natural gas, cut energy costs and reduce pollution.

Tillerson said he doubts natural gas would accomplish all of that. And he isn’t just promoting his own petroleum products — he’s investing billions of dollars to boost Exxon’s natural gas production. He just thinks we’ll need more natural gas for power generation, not for cars and trucks.

Beijingers get back on their bikes

Office worker David Dai is one of a growing army of Beijing residents returning to two-wheeled transport.

But the 28-year-old does not rely on his own pedal power – like hundreds of thousands of others, he has bought an electric bike.

A New Unit for (Saved) Energy

A group of scientists has proposed creating a new unit for avoided electricity use, named for Arthur Rosenfeld.

Road fatalities curve sharply down

WASHINGTON — Traffic deaths in the USA last year fell to levels not seen since 1954, and the fatality rate was the lowest since the federal government began tracking it in 1966, the Department of Transportation said Thursday.

Highway deaths in 2009 dropped to 33,963, an 8.9% decline from 2008. Road fatalities have fallen every year since 2005, when 43,510 people died in crashes.

…Some road-safety advocates are not yet ready to celebrate. They say the high-unemployment economy is still the greatest factor behind the decline in traffic fatalities.

U.S. airlines flew fewer passengers in 2009

The number of domestic and international travelers ferried by U.S. carriers for all of 2009 dropped 5.3% from the year before, according to preliminary data released by the U.S. Department of Transportation’s Bureau of Transportation Statistics.

But the planes were fuller than ever, largely because airlines cut back on flights or moved to smaller planes. U.S. carriers set a record, with flights that were on average 80.4% full systemwide in 2009, according to the report.

Home Efficiency Program Poised for Growth

A widely praised program to encourage homeowners to add solar panels and make their houses more energy efficient is on the verge of a ramp-up.

The model sets out to eliminate high up-front costs — a key reason why people resist making such improvements. It does so by allowing homeowners to pay for the renovations gradually, through higher property taxes, which can also be passed on to subsequent owners if the house is sold.

Water shortages may hit northern Rockies

Much of the nation may be snow-weary, but farmers and ranchers who rely on winter snowpack in the northern Rockies for irrigation during the dry months of the growing season could face water shortages this summer unless more snow arrives soon.

Wet spring and summer conditions in 2008 and 2009 helped pull the region out of a decade-long drought, but now hydrologists are once again reporting below-average mountain snowpack throughout much of the northern Rockies.

Evolution, Devolution, and Revolution

Devolution in the federal sense is the return of rights to states, but for the purpose of this discussion, let us use the biological definition, that is, backward evolution, or for society, a lowering of our lifestyle. Before the Grand Recession, I would guess that less than half thought that, perhaps, our civilization had peaked and will now decline. Today, I would not be surprised if more than half of Americans have an uncomfortable feeling that the combination of Peak Oil, Global Warming and our broken government is so severe that, while our economy will soon get better, there is a distinct possibility that we might have experienced the best, and future generations, beginning with our children, will only see a decline in their future life.

Reader’s Digest “10 Things to be Thankful For” and my response

First, statistics depend on who’s telling which half of the story. If you forget (or positive spin, deluding yourself) about personal/national debt, excess spending/stealing, unemployment/loss of retirement savings, poverty/malnutrition, disease, ecology issues, dwindling resources, war (all mostly in developing nations, soon to be America’s problem too) then sure you’ll feel better after reading this article, but you’ll be lying to yourself. And the two source references come from conservatives. Hmm.

(The Reader’s Digest article is here)

Coke’s Planet-Friendly Vending Machines

The kingpin of soda, Coca-Cola, is changing the face–and footprint–of the refrigeration industry by replacing its conventional fleet of vending machines with a climate-friendly model. Most vending machines rely on refrigerants known as hydrofluorocarbons (HFCs), a chemical hodgepodge that has an incredible power to cool the air. HFCs can also be 1,430 times more harmful to the climate than global warming’s main culprit, carbon dioxide.

Paradoxically, Coca-Cola’s new refrigerant of choice is carbon dioxide.

Italy to host Europe’s biggest solar plant: company

MILAN — Europe’s most powerful solar power plant is set to start operations in Italy later this year, the US company building the installation on an area as large as 120 football pitches said on Thursday.

Building the world’s longest ethanol pipeline

(Fortune Magazine) — John D. Rockefeller figured out a long time ago that the most efficient way to transport liquid fuels long distances wasn’t on wheels but in pipelines. Today POET, the privately held Sioux Falls, S.D., company that is the country’s largest producer of ethanol, and Tulsa pipeline-builder Magellan Midstream Partners are poised to make the same leap.

They want to build a $4 billion ethanol pipeline — the first in the U.S. and the longest in the world — linking cornfields and refineries in the upper Midwest to fuel-hungry markets on the East Coast, while boosting transport efficiency (equivalent to reducing the carbon footprint) 30% compared with rail and nearly 90% compared with trucks.

New Study Debunks Myths About Vulnerability of Amazon Rain Forests to Drought

ScienceDaily — A new NASA-funded study has concluded that Amazon rain forests were remarkably unaffected in the face of once-in-a-century drought in 2005, neither dying nor thriving, contrary to a previously published report and claims by the Intergovernmental Panel on Climate Change.

Japan’s Cabinet Endorses Cap-and-Trade Climate Bill

(Bloomberg) — Japan’s Cabinet has endorsed a climate-protection draft law today that would cap industrial emissions and thrust the second-biggest economy into the $125 billion market for trading carbon credits.

Some polluters will be subject to a flat ceiling on emissions while others may face a limit per unit of production, according to a copy of the bill, distributed to reporters by the Environment Ministry today. The draft leaves open which industries will be affected.

Five Countries Fall Behind on European Renewable Energy Goals

The European Commission said on Thursday that five countries were failing to meet goals for renewable energy but that they could make up their quotas by buying electricity from North Africa and the Balkans.

Fight splits backers of ballot initiative to suspend state’s global warming law

Ted Costa says his group, People’s Advocate, has been shut out of efforts to suspend AB 32, which would force oil companies to slash emissions of greenhouse gases.

Wacky winter a signal of years to come: Climatologist

From the balmy Arctic, to the open water of the St. Lawrence and snowless western fields, this winter has been the warmest and driest in Canadian record books.

Environment Canada scientists report that winter 2009/10 was 4 C above normal, making it the warmest since nationwide records were first kept in 1948. It was also the driest winter on the 63-year record, with precipitation 22 per cent below normal nationally, and down 60 per cent in parts of Alberta, Saskatchewan and Ontario.

“It’s beyond shocking,” David Phillips, a senior climatologist with Environment Canada, told Canwest News Tuesday. Records have been shattered from “coast to coast to coast.”

A storm is coming

If these new findings are correct, we may thus be living through the calm before a potential climatic storm. No-one yet knows when this period of grace will end, but it seems we may already be a decade into it. We should not count on staying shielded for much longer.

The US Department of Energy granted a US$1.37 billion loan guarantee to Brightsource Energy last week which could help clear the way for over 15 gigawatts of solar thermal power projects in California. Brightsource built a pilot plant in Israel to prove their technology and has tested it over the past 18 months. Their flagship Ivanpah project in California got a big boost when construction giant Bechtel agreed to build the plant.

Solar thermal is a way of harnessing the largest source of energy available to us, so in this post I’ll have a look at the upswing in interest in the use of this technology for power generation in recent years and look at some of the approaches being pursued to make it economically competitive with coal fired power generation.

Photo credit: http://www.flickr.com/photos/jurvetson/

Interest continues to bubble away in solar thermal power in Australia, with energy policy advocacy group “Beyond Zero Emissions” launching their “T10″ campaign to switch Australia to 100% renewable power in a decade, largely using solar thermal power, and the Desertec Asia proposal also featuring concentrating solar power (CSP) heavily. At one point Prime Minster Kevin Rudd was promising to build the world’s largest CSP plant here but that idea hasn’t had any media airtime lately – and neither has Worley Parsons’ proposal to build a large scale plant in north west WA. The most active plans to build a local CSP plant seem to be coming out of ERM Power, who are proposing gas / solar hybrid plants to be built in Queensland and/or NSW in conjunction with Siemens.

The company making the most waves from a technology point of view lately is Californian company eSolar, founded by IdeaLab’s Bill Gross. eSolar has been in the news lately as a result of their partnership to construct turnkey CSP systems with German company Ferrostaal in Spain, the United Arab Emirates and South Africa. eSolar has also received attention for Chinese plans to build 2000 MW of combined solar/biomass facilities using their technology.

Gross was recently interviewed for Yale Environment 360 and outlined his vision for improving the performance of solar thermal power generation, with some of his key points being :

* Use software to analyse and optimise performance of plants

The biggest lesson that we brought was — I don’t know if it was a lesson, but it was a philosophy — which is Internet-enable everything and put monitoring into everything.

So we have a microprocessor in every mirror and we have statistics second-by-second on the status, position, reliability, pointing accuracy — everything — of every single mirror. We structured ourselves almost like an Internet company from the beginning to have logs of everything — every revolution of the turbine, every control from the control room, every Web cam image captured — so we could do data mining and data analysis on everything.

We want the ability to make software upgrades and impact every power plant around the world. That’s probably one of the biggest differences between our technology and all other solar technology. If you [have] a big field of [photovoltaic] panels, those PV panels are there for 25 years. They’ll have that same performance, and there’s nothing you can do to change that.

We can make a software upgrade and every power plant in the world can suddenly put out 3 percent more power potentially. And we found already a number of software improvements that we can make even over the past six months, which significantly boosts performance of an already-constructed power plant. There’s new improvements we can make to the actual hardware, too, but even without changing the hardware there are software changes that can make more power, so we’re really excited about that.

* Don’t build plants, get utilities (customers) to.

For renewable energy, about 80 percent, maybe 90 percent, of the cost is upfront and there’s no fuel costs and the only cost over the years is operation and maintenance, which is small. The biggest bottleneck is that these things cost big dollars, and you’re limited how fast you can grow by how much money you can raise to build plants.

Our particular strategy to deal with that is to not have us be the bottleneck for raising that money. Our customers raise that money. If we want to renewably power this planet, it’s going to take a lot of capital, and that capital has to be spent upfront.

* Avoid environmental conflicts and transmission line costs by building smaller plants on brownfield sites near cities.

We have a strategy at eSolar to never impact pristine land. And the way we address that is several-fold. First, we have a higher output per acre, so we take a smaller footprint. Second, we’re economical at a smaller size. We can be fully economical at our 46-megawatt size. Those two things combined let us use a small enough footprint that we can locate on private land closer to population centers.

So rather than needing 2,000 acres contiguous to make the economics work — which you almost only can find far away on pristine land or [federal] land — we can locate on only 200 acres very close to a city and we can buy previously disturbed farmland or other properties that’s already been developed so we’re not causing any disturbance to natural habitat. And that’s an important part of our philosophy. It gives us an economic advantage because we’re locating closer to transmission. That’s probably even a bigger factor.

It takes years and years to build the transmission out to the pristine lands. [But] the power plant, for example, in Lancaster [California], is across the street from a transmission line. We didn’t have to build miles and miles of transmission, which takes years and years to get people to approve.

* Leverage energy storage and volume of scale in manufacturing to reduce costs.

I feel we still need to get almost another factor of two in the reduction of energy costs to potentially compete with coal. We’re already close to competing with natural gas. It depends on the sunshine and the region. Another factor of two is going to require two things to make that happen: Approximately 25 percent of that can be gotten by adding [energy] storage, and 25 percent can be gotten by increasing efficiency and lowering costs by volume production.

We produced 500 mirrors two years ago, 24,000 last year, and this year we’ll produce a million. So we’re going to get a quantity break just by going to a million mirrors from 24,000.

And everything gets more efficient in the supply chains as you get up to those volumes. Anything that we buy in our lives that has dramatic cost reduction has seen a million — a million cars, or a million iPhones, or a million laptops. So far there’s only been thousands of heliostats. So finally this year we’ll cross the million number and that’s when we can get the price reduction to really be competitive with fossil fuels.

Google recently announced they have developed a prototype for a new mirror technology that could cut by half the cost of building a solar thermal plant, with both eSolar and BrightSource expressing interest in using the technology.

Previously at The Oil Drum :

Concentrating On The Important Things – Solar Thermal Power

Concentrating Solar Power

Cross posted from Peak Energy.

John Michael Greer: Barbarism and good brandy

Think of it this way. The individual photons that heat the planet Mercury each contain, on average, the same quantity of energy as the individual photons that heat the planet Neptune. Is Neptune as warm as Mercury? Not hardly, and the reason is that by the time they get out to the orbit of Neptune, the Sun’s rays are spread out over a much vaster area, so each square foot of Neptune gets a lot fewer photons than a corresponding square foot of Mercury. The photons are less concentrated in space, and that, not the quantity of energy they contain, determines how much of the hard work of heating a planet they are able to do. There are stars in the night sky that produce photons far more energetic, on average, than those released by the Sun, but you’re not going to get a star tan from their light!

This may seem like an obvious point. Still, it deserves restatement, because so many contemporary plans for using solar energy ignore it, fixating on the raw quantity of solar energy that reaches the Earth rather than the very modest concentration of that energy. A habit of comforting abstraction feeds that sort of thinking. It’s easy to insist, for example, that the quantity of solar energy falling annually on some fairly small fraction of the state of Nevada, let’s say, is equal to the quantity of energy that the US uses as electricity each year, and to jump from there to insist that if we just cover a hundred square miles of Nevada with mirrors, so all that sunlight can be used to generate steam, we’ll be fine.

What gets misplaced in appealing fantasies of this sort? Broadly speaking, three things.

ANALYSIS – OPEC may face Iraq challenge sooner than expected

DUBAI/LONDON (Reuters) – The storm brewing on OPEC’s horizon over future Iraqi oil output could engulf the producer group sooner than it would like.

OPEC was unlikely to discuss Iraq at its meeting on March 17 but it may need to do so within a couple of years.

“There’s only one issue, but it’s a big one. It’s a tsunami. Iraq,” said Leo Drollas at the Centre for Global Energy Studies.

After years of sanctions and war, Iraq is exempt from the output targets OPEC uses to set supply levels.

But as Baghdad embarks on an unprecedented oil industry development, OPEC will at some point need to bring Iraq back into the fold to prevent millions of barrels of new oil supply undoing its work to balance markets.

Drilling starts on Saudi ‘supergiant’ Manifa oil project

Saudi Arabia is pressing ahead with the biggest offshore oil development in its history, despite having about 4 million barrels per day (bpd) of idle crude production capacity.

Development of the “supergiant” Manifa oilfield, containing an estimated 10 billion barrels of reserves, is “on time and on budget”, said Mohammed al Abdulkarim, the manager of the Manifa project for Saudi Aramco, the national petroleum company, on the sidelines of the DrillTech conference in Abu Dhabi.

According to a statement on Aramco’s website, oil production from Manifa will start in 2013, two years before the project’s scheduled completion. Manifa is one of several oil developments the kingdom is pursuing to maintain its production capacity at the record 12.5 million bpd reached last June.

Shale gas could supply 100 yrs of consumption

HOUSTON (Reuters) – The natural gas shale boom in North America has more than doubled discovered gas resources and can supply more than a century of consumption at current rates, an IHS CERA study released Wednesday said.

As recently as 2007, it was widely thought that natural gas was in tight supply and the U.S. would need to import gas, said Daniel Yergin, chairman of IHS CERA.

But a long-lasting “shale gale” has squashed that outlook, he said at the annual CERAWeek conference in Houston.

Ecuador Oil Min sees no OPEC production change

QUITO (Reuters) – Ecuador Oil Minister and OPEC President Germano Pinto said Thursday that OPEC has no need to change output policies at its meeting on March 17 and sees oil prices stable in the range of $70 to $80 a barrel for the rest of 2010.

“Right now there is no change planned for (OPEC) production policy,” Pinto told reporters.

Iran Oil Fund to Expand If Crude Stays Above $65

(Bloomberg) — Iran, holder of the world’s second- biggest oil and gas reserves, will add to its oil stabilization fund if crude prices remain over $65 in the coming 12 months, the deputy central bank governor said.

“As long as the price of petroleum is over $65 per barrel Iran will gain extra petroleum revenue, which will find its way into the oil stabilization fund,” Hossein Ghazavi said in a phone interview from Tehran late yesterday. He declined to comment on the current balance of the fund, which is aimed at providing protection for the economy should oil prices slide.

FACTBOX – China in Central Asia: latest investments

(Reuters) – Energy-hungry China is stepping up its presence in former Soviet Central Asia by handing out billions of dollars in loans, snapping up energy assets and building a gas pipeline from Turkmenistan.

Below is the list of recent Chinese investments.

ExxonMobil plans 4% spending boost

US supermajor ExxonMobil will increase its capital spending nearly 4% this year to $28 billion as it evaluates new fields around the world, but it cautioned that the global economy remained unsteady.

Venezuelan president says government not to blame for energy crisis

President of the Republic Hugo Chavez Frias rejected accusations by industrial sectors in the country blaming his government for the energy crisis and he called them irresponsible for the recent comments by the leaders of Fedecamaras [Venezuelan Federation of Associations and Chambers of Commerce and Industry].

The president asked for understanding from the country’s different sectors during the ceremony to see off the Venezuelan team that will travel to the South American Games.

Mindanao now under state of calamity

President Gloria Arroyo on Thursday placed Mindanao under a state of calamity as the region continued to reel from the effects of the El Niño weather phenomenon. Defense Secretary and National Disaster Coordinating Council (NDCC) Chairman Norberto Gonzales proposed to President Arroyo on Wednesday the declaration of the state of calamity in Mindanao to counter the effects of El Niño in the region.

Now, that’s how you treat the ‘won’t pays’

Spare a thought for three protest leaders in Mexico who’ve been jailed for contesting electricity charges. Not sent a final demand, mind, nor had their electricity cut off – sent to jail.
It happened after residents of the state of Campeche in the east of Mexico refused to pay electricity bills, which they claimed were unreasonably high.

Is Saudi Aramco laughing off clean tech?

Saudi Arabia faces a conundrum on renewables. It is a wealthy country thanks to its oil exports, and its own domestic economy also benefits from heavily-subsidised oil, which is used in electricity generation. But i does share some common interests with the renewable energy industry – and not just building the odd solar plant.

Because of its role as the swing producer of the world’s oil, Saudi Arabia is more responsible for keeping oil prices high than any other country.

Without Opec’s production quotas – even with compliance levels falling – it’s widely believed oil prices would be much lower than they currently are. That almost certainly would have made the slump in renewables investment that began in 2008 much worse.

Nukes in my backyard

(Fortune Magazine) — Long left for dead, the U.S. nuclear power industry appears poised for a comeback.

President Barack Obama earlier this year announced an $8.3 billion loan guarantee to help the Georgia utility Southern Co. build two large reactors, and he wants to triple the amount of federal loan guarantees for plant construction to $54 billion. Obama hopes a slew of new plants will create jobs and lots of affordable, clean electricity.

The problem: Even with the help of loan guarantees, full-scale nuclear power plants remain insanely expensive to build (conventional plants start at $5 billion, industry executives say).

Some industry players, such as Toshiba, Hyperion Power Generation, and NuScale Power, think they have a better idea: small, distributed units designed to power the equivalent of a midsize town.

How to provide relief to rural Americans, create jobs, and lower emissions … all at once!

Who does that leave out? Who doesn’t have upfront capital and doesn’t live in a city with money to spend on PACE? You guessed it: rural homeowners.

This matters for several reasons. First off, rural homes — over 20 percent of which are manufactured homes — are substantially less efficient than their urban and suburban counterparts. That’s why, even though their homes are generally smaller and their electricity is generally cheaper, the average rural household pays $200-$400 more a year on energy bills than comparable urban households. And given that they make roughly $10,000 less per year, that’s not chump change.

Second, rural Americans are precisely the ones most politically hostile to climate action, which they see as a liberal political program that primarily benefits cities and coastal elites. Direct energy benefits to rural homeowners could help change the political landscape and ease further action.

James Howard Kunstler in Cleveland

Sunday, March 14 – The incisive social critic known for “The Long Emergency” and “The Geography of Nowhere,” a widely taught book on suburban sprawl, makes a rare appearance to discuss his ideas, and his first novel, “World Made by Hand,” which debuted to mostly strong notices in 2008.

Sprawling Misconceptions

James Howard Kunstler doesn’t think highly of libertarian newsman John Stossel. Assuming this is what Kunstler is talking about (see No. 2), you can’t blame him. Stossel defends suburban sprawl and accuses its opponents — like Kunstler — of forcing lifestyle choices onto others “by limiting where they can build.” The fallacy of this view has been pointed out about 100 times. For the 101st time: sprawl — an umbrella term for the pattern of development seen virtually everywhere in the United States — is not caused by the free market. It is, rather, mandated by a vast and seemingly intractable network of government regulations, from zoning laws and building codes to street design regulations. If Stossel wants to expand Americans’ lifestyle choices, he should attack the very thing he was defending, namely, suburban sprawl.

It’s odd that self-described libertarians such as Stossel are so slow to grasp that government planning makes sprawl ubiquitous. You would think that libertarians would instinctively grasp the deeply statist nature of suburban development. First of all, with a depressingly few exceptions, virtually every town in America looks the same. That is, it has the same landscape of arterial roads, strip malls, and residential subdivisions, accessibly only by car. Surely, given America’s celebrated diversity, you would also see a diversity of places. As it turns out, all but a few people live the same suburban lifestyle. Government, as libertarian assumptions would predict, is the culprit.

Are “More Jobs” Sustainable or Necessary in the Post-Peak Oil World?

What was required for a growing economy, that was supposed to uplift all of modern humanity, is at root a false notion for the manipulated public: the overwhelming majority must work for others to enrich the few so that all of society benefits through unlimited expansion. This problematic profit-scheme is failing to hold up, what with general economic uncertainty on the rise (apart from “Hope”) and the advanced depletion of easily extracted, cheap oil.

To put even greater pressure on our bankrupt (in so many ways) system, the ecological crisis is knocking at the door ever more threateningly, demanding not mere policy adjustments but a radically different approach to treating the Earth and all its people and species.

How Your Twitter Account Could Land You in Jail

The raid occurred just as the protests were starting, but even as Madison and Wallschlaeger were arrested, the information flowed from the other tweeters without a blip. “A comms facility was raided, but we are still fully operational please continue to submit reports” stated one subsequent tweet.

The real-time updates were available to anyone who followed the feed, allowing protesters to see the theater of operations and add information to the picture. It was as if the demonstrators had gotten their own helicopter. Tin Can Comms sent out messages such as “SWAT teams rolling down 5th Ave towards Schenley” and “40 cops, w/ bus, headed towards friendship park.” The police knew they were being outflanked, but could do little against a decentralized foe: “SCANNER JUST SAID: BE ADVISED WE’RE BEING MONITORED BY ANARCHISTS THROUGH SCANNER,” noted one Tin Can tweet.

…Madison calls the arrest an attempt to “stifle dissent” and says his actions were “perfectly legal.” His lawyer, Martin Stolar, calls them “absolutely protected speech.” Madison also points out the irony that last June the State Department asked Twitter to delay scheduled maintenance so as not to interrupt Iranian protesters tweeting from the barricades.

The curious story of Chinese oil refining

The narrowing gap between current and forward crude oil contract prices in recent weeks has been been widely attributed to two things.

OECD oil storage, the story goes, is falling and oil stored at sea is also widely believed to be declining – both paving the way for Asian demand growth to really kick in, in terms of prices. Yet it’s not completely clear cut: crude inventory volumes are mostly a pretty opaque affair, and the all-important Chinese demand for crude and products is particularly fuzzy. In fact the IEA pointed out in November that uncertainty over demand for, and storage of, refined products in China was such that it made the entire worldwide demand outlook rather challenging.

Now, Olivier Jakob of PetroMatrix makes a strong case that, far from using up its product inventories, China is awash in product – so much so that it’s exporting it.

Oil near $82 as traders eye weak US demand

Oil prices hovered around $82 a barrel Thursday in Europe as traders weighed stagnant U.S. crude demand against a gradual global economic recovery.

By early afternoon in Europe, benchmark crude for April delivery was up 20 cents to $82.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 60 cents to settle at $82.09 on Wednesday.

IEA’s Oil Demand Forecast Will Be Little Changed, Tanaka Says

(Bloomberg) — The International Energy Agency’s global oil demand forecast will likely be little changed this month, as economic uncertainty in developed nations overshadows emerging-market growth, Executive Director Nobuo Tanaka said.

The AGE of ENERGY SCARE city

There is an assumption many on this Earth share: one that says the world revolves around money. It doesn’t. It revolves around oil. Cheap oil. And without it, the gears that run this current globalized economy will come screeching to a halt. Over the last few decades, we were warned about a time when the demand for petroleum would outpace supply.

Unfortunately, this time will soon come: it’s called peak oil.

Natural gas industry charged with making case to policymakers

The emergence of natural gas shales could extend U.S. energy supplies for decades and help address climate change concerns, but the industry faces what one executive called a “promotion challenge” in convincing policymakers and the public of the fuel’s benefits.

The industry must do more to make the case, oil and gas leaders said Wednesday at the CERAWeek energy conference. That means dispelling what they consider myths about the ability of renewables to quickly replace fossil fuels and about environmental dangers of new natural gas extraction techniques.

No ‘crude expropriation’ of BP gas field

MOSCOW – A top Russian official said Thursday there should be no ‘crude expropriation’ of a huge Siberian gas field owned by a unit of British energy giant BP amid a dispute over its license.

The dispute over the Kovykta field — seen as a potential source of energy to China — should be resolved amicably, Deputy Prime Minister Igor Sechin was quoted as saying by Russian news agencies.

India Seeks Partnerships With Rosneft, Gazprom for Russia Areas

(Bloomberg) — India will seek stakes in Russia’s oil and gas fields in partnership with Rosneft Oil Co. and Gazprom OAO during Prime Minister Vladimir Putin’s visit to New Delhi, a government official said.

The South Asian nation wants stakes in fields in the Yamal Peninsula, East Siberia and the Sakhalin-3 project for state- owned Oil & Natural Gas Corp., the official said in New Delhi today, asking not to be identified before the talks.

Russia may invite India ONGC to energy projects-govt

MOSCOW (Reuters) – Russia is considering inviting India’s state-run Oil and Natural Gas Corp to develop oil and gas fields in Russia, the government said on Thursday, ahead of Prime Minister Vladimir Putin’s visit to India.

BP wins foothold in Brazil with £4.7 bln deal

LONDON (AFP) – Oil giant BP said Thursday it will pay US firm Devon Energy $7 billion (£4.7 billion) for assets in Brazil, Azerbaijan and the Gulf of Mexico.

The London-listed firm will pay US firm Devon Energy in cash for the assets, the group said in an official statement, which announced the “broad-ranging deal.”

“BP today announced a transaction that will deliver a material exploration position in … deepwater offshore Brazil and significantly enhance its position in core strategic areas,” the company said.

The Brazilian assets will mark the British group’s first foray into the emerging market country.

Brazil Lawmakers Pass Bill to Boost Some States’ Oil Royalties

(Bloomberg) — Brazilian states and cities that don’t produce oil would get a bigger share of revenue raised from offshore output under a measure passed by the lower house.

Shell confirms shift away from oil sands

EDMONTON – Royal Dutch Shell’s apparent change of investment emphasis away from the oil sands could put future Canadian projects in jeopardy.

In yesterday’s edition of London’s Financial Times, chief executive Peter Voser said future oil sands developments would be “very much slower.”

Shell shelved long-term planning in late 2008 for new projects, and has not revisited the decision.

Alberta’s Tar Sands and the Dead Duck Trial

In an Alberta court, the oil sands giant Syncrude Canada has entered the second week of a high-profile case brought by federal and provincial prosecutors over the widely publicized deaths two years ago of 1,600 migrating ducks that were trapped in the toxic sludge floating on one of the company’s vast tailings ponds.

Insisting that the failure of its bird-deterring air cannons doesn’t constitute a crime, Syncrude has pleaded not guilty.

Texas earthquakes may be linked to wells for gas mining

Saltwater pumped deep into the earth in a natural gas mining operation offers a “plausible,” though not definitive, explanation for small earthquakes in Texas in 2008 and 2009, scientists say.

Middletown Building Official Declares 6 Major Buildings At Kleen Energy Power Plant Unsafe

MIDDLETOWN — – The owners of the Kleen Energy power plant, extensively damaged in a Feb. 7 natural gas explosion that killed six people, face a substantial rebuilding project.

Six major buildings at the site have been declared unsafe by Middletown’s building official, John Parker. These include the plant’s central core — the power block building that houses the three turbines, the generators and the pair of 220-foot high stacks that make up the heat-recovery system.

Toyota could face criminal charges related to safety recalls

Toyota could be the first automaker to face tough penalties enacted after rollover recalls involving Ford autos and Firestone tires in 2000.

Oil Execs Chortle as Obama Admin Promotes Renewables

HOUSTON — Renewable energy is being praised in Washington, but it is generating snickers here in the nation’s traditional energy capital, where oil, gas and utility leaders are gathered for a major industry conference.

The Lithium Chase

For many years, few metals drew bigger yawns from mining executives than lithium, a lightweight element long associated mostly with mood-stabilizing drugs.

Suddenly, the yawns are being replaced by eurekas. As awareness spreads that lithium is a crucial ingredient for hybrid and electric cars, a global hunt is under way for new supplies of the metal.

China Idles 40% of Windpower Turbine Output Capacity

(Bloomberg) — China is idling as much as 40 percent of its wind-turbine factories following a surge in investment driven by the government’s renewable-energy goals, the vice president of Shanghai Electric Group Corp. said.

Prices of turbines have tumbled more than 30 percent from 2004 levels in the world’s third-biggest windpower market by generating capacity because there are “too many” plants, Lu Yachen said in an interview in Beijing today.

Developers Lament Loss of Federal Wind Subsidies in Canada

The Canadian Wind Energy Association is expressing disappointment with the federal government’s recent decision not to expand or extend the so-called ecoEnergy program — which delivered subsidies to renewable energy developers — in its new budget.

Solar power could provide 10% of US energy: report

WASHINGTON (AFP) – The United States could source 10 percent of its electricity from solar power by 2030, a report said Tuesday, winning support from a US lawmaker who wants to boost the number of US solar panels.

The report, produced by the independent environmental group Environment America, was presented to Congress with backing from Senator Bernie Sanders who in February introduced legislation to install 10 million solar panels across the United States within a decade.

Solar Prospectors Chase Italian, Israeli ‘Gold Mines’

(Bloomberg) — Olivier de Vergnies quit managing family fortunes at Dexia Private Bank (Switzerland) Ltd. in 2008 to run a New York start-up at 100 Wall St. that’s trying to tap riches in solar energy.

The chief executive officer of two-year-old Prime Sun Power Inc. is hiring hundreds of workers to build solar plants in Italy, where he can sell electricity for about six times the price paid to coal- and natural gas-fired generators.

Los Angeles Electric Rate Linked to Solar Power

LOS ANGELES — Los Angeles averages more than 300 days of sunshine a year, and it often seems as if environmentalists outnumber rattlesnakes in many parts of the sprawling city. It would seem, then, that solar energy would be a thriving local industry here.

But that has never been the case, and experts cite cost as the main reason.

Now, the Los Angeles Department of Water and Power, the largest municipal utility in the United States, is poised to pass a roughly 5 percent rate increase on electricity use. The proceeds would be earmarked for renewable energy purchases and programs, including one that would repay people or businesses that use solar panels to contribute to the power grid.

California Utility Regulators Not Quite Ready for Fuel Cells

While Google, Wal-Mart and other corporations have embraced fuel cells, California regulators have turned down requests from the state’s two biggest utilities to install the technology.

In a preliminary decision, an administrative law judge with the California Public Utilities Commission found unwarranted an application from Pacific Gas and Electric and Southern California to spend more than $43 million to install fuel cells that would generate six megawatts of electricity.

Coffee, an alternative fuel? “Car-puccino” runs on espresso

The car, averaging 56 espressos per mile, has a system that converts used coffee grounds into flammable gas.

More maize ethanol may boost greenhouse gas emissions

In the March issue of BioScience, researchers present a sophisticated new analysis of the effects of boosting use of maize-derived ethanol on greenhouse gas emissions. The study, conducted by Thomas W. Hertel of Purdue University and five co-authors, focuses on how mandated increases in production of the biofuel in the United States will trigger land-use changes domestically and elsewhere. In response to the increased demand for maize, farmers convert additional land to crops, and this conversion can boost carbon dioxide emissions.

The analysis combines ecological data with a global economic commodity and trade model to project the effects of US maize ethanol production on carbon dioxide emissions resulting from land-use changes in 18 regions across the globe. The researchers’ main conclusion is stark: these indirect, market-mediated effects on greenhouse gas emissions “are enough to cancel out the benefits the corn ethanol has on global warming.”

City sets out healthy amibitions for local food

Bristol City Council has launched its first ever Food Charter, setting out its ambitions for healthier and more locally produced food.

The charter aims to promote Fairtrade and locally produced food, encourage people to get their ‘five a day’, and deal with the impact of Peak Oil and the challenges it presents our food supply.

Increasing Yields and Decreasing Fertilizer Waste on Subsistence Farms

A new agricultural technology that cuts nitrogen fertilizer waste in half while increasing rice yields is spreading quickly in Bangladesh and is being investigated by 15 other nations, including more than a dozen in sub-Saharan Africa.

The water-energy nexus

Available water, says Simmons, is increasingly brackish or saline, which is energy-intensive to convert to drinkable water.

And energy – particularly some newer sources, such as solar thermal and shale gas, are extremely water-intensive:

Simmons is not alone in this view. At the CERA Week conference under way in Houston, the water problem was addressed in a panel on Wednesday.

Cyprus conflict closes leaders’ eyes to water shortage

Water has been rapidly disappearing in Cyprus since the 1970s, but conflict between Turkish and Greek communities means fixing the problem is not high on the political agenda. The BBC’s Alex Bell finds that Cypriots are now struggling for control of land that is slowly dying.

No longer the great white north

The future presents lots of things to worry about — melting glaciers, giant asteroids, Iranian nukes, peak oil. The smart futurists, however, know that nothing is as scary as the declining birthrates in western countries like Canada. Without people we won’t have workers, and without workers we won’t have an economy.

Arctic ‘doomsday vault’ growing

A “doomsday” vault storing crop seeds in an Arctic deep freeze is surpassing 500,000 samples, to become the most diverse collection of food seeds in history.

Set up on the Norwegian archipelago of Svalbard two years ago, the vault aims to store seeds of all food crops deep beneath permafrost to withstand threats ranging from a cataclysmic nuclear war to a mundane power cut.

How Green Is My Mansion?

MITCH KAPOR, the software mogul and philanthropist, has given millions of dollars to environmental groups.

Now Mr. Kapor wants to build a 10,000-square-foot house, complete with a 10-car garage, in Berkeley, Calif.

When the house won planning approval earlier this year, many neighbors were surprised — not so much by the size of the house, or by its sleek design, but by the fact that, under Berkeley regulations, the house will qualify as “green.” In Berkeley, building proposals are evaluated on a “green point” scale, earning credit for such eco-conscious features as low-flow shower heads and insulation. A house with more than 60 points is labeled green, regardless of its size.

Noel Kempff project is ’saving the forest’ by forcing destruction elsewhere

It is the ultimate greenwash nightmare. A tough international deal to curb emissions of greenhouse gases is passed in Mexico later this year. Companies then meet their targets not by cutting their own pollution but by buying into hundreds of forest “conservation” projects round the world. But those projects then fail to deliver real benefits for forests or staunch the flow of carbon into the atmosphere.

Some big-time green groups prosper but the planet burns.

UN is not working, says Sarkozy

French President Nicolas Sarkozy on Thursday demanded a revamp of the United Nations and urged negotiations under a small group of countries to accelerate efforts to fight climate change.

Sarkozy, in a speech to open a one-day conference on fighting deforestation, stood by the UN, saying there was “no alternative strategy” to a forum that gave all nations, rich and poor, a voice in a global arena.

But he said changes to the UN were way overdue.

Industry slow to sell biocharcoal climate merits

LONDON (Reuters) – Industry has struggled to commercialize a charcoal technology which some say could reverse the effect of manmade carbon emissions, as countries fail to implement incentives and technical problems nag.

Questions about research slow climate change efforts

STATE COLLEGE, Pa. — The violent threats are not what bother Michael Mann the most. He’s used to them.

Instead, it’s the fact that his life’s work — the effort to stop global warming — has been under siege since last fall. That’s when Mann suddenly found himself in the middle of the so-called “climategate” scandal, in which more than 1,000 e-mails among top climate scientists — including Mann — were obtained illegally by hackers and published on the Internet.

Japan weakens climate bill after industry pressure

TOKYO (Reuters) – Japan watered down legislation to fight climate change on Thursday after weeks of wrangling within the government over plans for an emissions trading system that has met stiff opposition from industry.

The climate bill, set to be enacted by parliament by mid-June, said the government would consider using emission caps per unit of production in the planned trading scheme, which would allow rises in emissions when output grows.

Emissions figures don’t stack up: professor

THE Rudd government ramped up the environmental benefits of its botched $2.45 billion home insulation scheme by grossly overstating the cuts in greenhouse gas emissions that could be achieved by households, expert independent analysis says.

Greenhouse gas limits to change ops

MARINE CORPS AIR STATION YUMA, Ariz. – In June, the air station will know how much it needs to reduce its greenhouse gas emissions and that could lead to some big changes in station operations.

The Department of Defense is expected to soon release reduction goals for military bases after President Barack Obama tasked all federal agencies to establish new greenhouse gas policies in an executive order, released Oct. 8, 2009.

The price of the yellow metal bounced up off two week lows on Morning trade on Monday but the market remained concerned about speculation European authorities may use gold reserves to help bail out struggling Euro-zone states.

Read more….

The Daily Reckoning

Well Friday was a snoozer in New York. Markets didn’t make new highs. But they didn’t crash either. The S&P 500 remains near a 17-month high. And by most accounts, everything is fine in Greece, everything is fine in China, and the whole world is convalescing nicely from the last two years of crisis.

Or not.

Last week, we took up the case for why a second wave of falling asset prices would happen sooner and not later. You’d get the one-two combination of more deleveraging and falling stocks and bonds, followed by a massive government-induced inflationary campaign. Today, you’ll see why we think it is a matter of months before this happens.

First though, whose gold is China buying? It’s own!

Gold prices were down on Friday again and gold is 3.6% off its recent high. Old yellow metal is trading at around $1,101.70, according to the April futures contract. The sense of urgency over the Greek crisis has eased. And no one thinks China is going to buy IMF gold. Why?

Speaking last week at the National People’s Congress, China’s foreign exchange regulator Yi Gant told a press conference that, “currently a few factors limit our ability to increase foreign-exchange investment in gold.”

As we wrote in a note this weekend, most analysts immediately took that to mean China would not be a buyer of the 191.3 metric tons of gold the International Monetary Fund announced it would sell on February 17th. And if China were out as a major buyer of gold on international markets, speculators reckon that the gold price is in for a fall.

Yet China bought almost 50% of the gold purchased by central banks in 2009. So where did that gold come from?

China purchased 454.1 tons of gold on its domestic market last year. It didn’t have to go shopping overseas. China can buy its own home-grown gold because for the last three years in a row, it’s been the world’s largest producer. China produced over 300 tonnes of gold for the first time ever in 2009, according to the China Gold Association.

That means that last year’s domestic gold consumption exceeded mine supply. Were Chinese authorities buying above ground gold too? The number of producing gold mines in China has fallen from 1,200 in 2002 to 700 in 2009. You can see China is scrambling to produce as much gold as fast as it can.

This could be a case of a “Do as I do, not as I say.” Why bid up the price of gold on international markets when you can buy your own domestically produced gold? As a senior People’s Bank of China figure reportedly said that, “China should formulate a long-term plan and constantly and secretly increase its gold holdings… PBoC should try to buy as much gold as possible from China’s annual gold output of almost 300 tons, while the gold needed by industries and residents could be imported.”

But the case for gold is pretty simple. To paraphrase fund manager David Einhorn, if you believe monetary and fiscal policy across the world are sensible, sell gold and buy Treasuries. If you believe monetary and fiscal policy around the world are bad, sell Treasuries and buy gold. You don’t have to a cult follower or a true believer to profit from that kind of trade.

Gold made its big move in 1980. It peaked at $850 in early January. What’s interesting is that ten-year U.S. Treasury yields didn’t peak (at around 16%) until over a year later, in June of 1981. The speculators blew the top off the gold market well before they were sure Paul Volcker had a lid on inflation. Once it became clear punitive U.S. rates would kill inflation, the gold bull died.

But wait! U.S. rates went up because the Fed was fighting inflation. And it was fighting inflation because…there was inflation! How can we expect gold to rise on higher rates if there’s no inflation to fight?

The answer is that the Fed’s quantitative easing program is set to end this month. Over the last year, the U.S. central bank has spent over $1.25 trillion buying mortgage-backed securities. This has kept ten-year U.S. interest rates low and mortgage credit flowing to the American housing market. The Fed has said that program will end by the end of this month.

What will happen next? Already we’ve seen investors crowding into the short-end of the U.S. Treasury market. Treasury notes with maturities of three-years less are a nice, near-cash, highly-liquid alternative to taking any risks anywhere else. Hence lower short-term U.S. interest rates, driven partly by the Fed and partly by the market.

With the Fed set to end its QE program, we’d expect market forces to assert themselves in the bond market. You’ll get a steeper yield curve. Without the government gaming the trade, investors are going to price U.S. bonds based on the soundness of U.S. fiscal and monetary policy. In this scenario, we think gold will attract more speculators (although the big ones like George Soros have already positioned themselves for this move.)

The news that European finance ministers have agreed, in principle, to a bailout of Greece, might take even more urgency out of the sovereign debt crisis theme. And that, in turn, might even drive the gold price lower. But all these things are prelude to a bigger crisis. Papering over the insolvency of the Welfare State can only last so long – and we think the dominos will begin to fall in months, not years.

In the meantime, though, the continued de-leveraging of the private sector means even larger public sector deficits. According to flow of funds data released the by the Federal Reserve last week, both U.S. household and businesses reduced debt in 2009. The government added debt.

In fact the Fed data show that U.S. households reduced debt on an annual basis for the first time ever in the history of the data series, going back to 1946. Household debt levels shrunk by 1.7%, with mortgage debt declining by 1.6% and credit card debt declining 4.6%.

It’s obvious at the household level, where the employment picture is awful, that Americans are preparing for less spending and less income growth. They are not borrowing from future earnings to sustain current living standards. The worm has turned.

And you can’t blame businesses for reducing debt by 1.8% either. Why borrow if you’re not going to increase capital spending or employment growth? There’s a political issue here too. You could argue that business investment is cyclical and will go up eventually. But with the U.S. Congress deadlocked over health care legislation (that if passed might be repealed by the next Congress elected in November), there is a lot of uncertainty. You could also call that political risk.

Into the household caution and business uncertainty, the Federal government increased debt by 22.7% in 2009. It was below the 2008 record of 24.2%. But it’s clear that as the private sector deleverages, the government – under the misguided Keynesian assumption that it must support demand – is trying to fill the breech with borrowed money.

This sets the stage for the next episode of the U.S. dollar crisis. Right now, that may look remote, given the easing of tensions in Europe. But don’t get too complacent. The underlying fundamentals of the dollar suck. With the Fed’s QE program set to end this month, a veritable monetary Pandora ’s Box will be opened.

Of course the Fed could just announce it’s extending its QE program. But what effect would that have on the dollar? On gold? On oil? And how does Australia fit in all of this? More on that tomorrow…

Dan Denning
for The Daily Reckoning Australia

Similar Posts:

• The Story Behind China Dumping its US Treasury Debt
• China is a Key Driving Force in the Gold Market
• We Can Expect More and More People to Want to Own Gold
• Is China Trying to Back its Currency With Metal?
• Fall in Commodity Prices Will Reduce Inflationary Forces

More articles from The Daily Reckoning….

The Daily Reckoning

Bacon, Bacon, Bacon…

The bacon reference has been claimed. Marius Gustavson has written a brilliant article on the sovereign debt crisis facing the world. From The Market Oracle:

Smells Like Bacon

“The Greek debt crisis has led many observers to believe a eurozone-wide contagion is in the making, including all of the PIGS – Portugal, Italy, Greece and Spain – and it could spread to the north-western periphery as well. As Ian Bremmer and Nouriel Roubini recently commented in the Wall Street Journal:

“The current crisis in Greece is only the worst example inside the EU. The PIGS … all boast public debt above or headed for 100% of GDP. Though the PIGS acronym was apparently coined by British bankers, Britain, Ireland and Iceland also smell distinctly of bacon.”

Debt distressed nations being called PIGS, countries smelling of bacon, and dubious political spending referred to as pork. What’s next? Maybe Bernanke will bypass money dumping helicopters and grow wings himself – pigs might fly.

The U.S. budget deficit certainly is soaring. It “widened to a record in February as the government boosted spending to help revive the economy.” How spending money that had to be borrowed from someone else can stimulate is a mystery. It just moves money around. How it indebts future generations is not a mystery:

“The figures show the deficit this year will likely surpass the record $1.4 trillion in the fiscal year that ended in September.” The light at the end of the Keynesian tunnel is a runaway steam train loaded with debt obligations.

Wall Street still only sees the light. It has marked its best 12 month performance since the rebound from the Great Depression.

Who done it?

The latest European blame game has begun. After believing the Keynesian free lunch would provide for a cushy future, it seems Europe’s politicians are descending into an even deeper state of denial and delusion. Marius Gustavson at The Market Oracle continues:

“So far the two PIGS most afflicted by the European debt crisis, Greece and Spain, blame mysterious foreign conspirators, rather than home-grown macroeconomic mismanagement.

“Greek Prime Minister George Papandreou expressed the view that the crisis is “an attack on the euro zone by certain other interests, political or financial,” whereas the Spanish government has, reportedly, ordered an investigation into the alleged “collusion” between American investors and the media to hurt the Spanish economy.”

Considering those evil financial institutions hold vast amounts of government debt, as well as facilitate bond markets, the Greeks and Spaniards might want to keep their mouths shut.

Biting the hand that feeds you is a bad idea. This is no less true if that hand is attached to something as unscrupulous as a bank. In fact, it holds even more true.

Amusingly, those unscrupulous banks find themselves in the same fix as Shylock did. If they hold countries accountable for their excesses by requiring higher bond yields, then the bank’s capital base weakens. If they continue to buy bonds, they expose themselves to sovereign risk.

And yes, losing a pound of flesh does compare to losing capital. The real difference is that Shylock could walk away from the debt. Although, with million dollar bonuses, I suppose bankers could walk away quite comfortably. That’s where derivatives like Credit Default Swaps come in. We’ll leave that for another day.

Me, Myself and the Lenders

Sadly, it seems the delusions of politicians have filtered down to the citizens. They now also feel some sort of entitlement to being lent money.

The vast benefits promised by governments and provided by debt markets seemed endless. When it turns out they aren’t, trouble brews. Greece is just the beginning.

“The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” said El-Erian, co-chief investment officer at Pacific Investment Management Co, known as PIMCO.

If Greece is where the world is headed (metaphorically speaking) then things could get interesting.

Bloomberg reports that “Greece’s unions will shut down hospitals, airports and schools today in the country’s second general strike this year to protest Prime Minister George Papandreou’s latest round of budget cuts to curb the European Union’s biggest deficit.”

The Economist, far more insightfully, reports that “Militant pensioners unexpectedly broke through a police cordon blocking the road to Mr Papandreou’s office as he was announcing the new measures.”

Please take a moment to picture that.

Militant pensioners… And it’s not like they have nothing better to do. It’s just that they want to claim what they can while they still can. Marko Papic of Stratfor has forecasted that interest will amount to 6% of GDP for the Greeks by next year. That is past the point of no return, according to Professor Altman, who developed a popular model used to calculate corporate defaults.

His reasoning is that Greece faces structural problems, which are difficult to turn around, even in the long run. Based on this, any bailout will be like a bandaid for a cancer patient. Nobody but two year olds and stock brokers would be comforted. That does leave room for a short term rally. Caveat emptor. Please don’t confuse that with Carpe diem.

One clever solution did pop up in the press. According to two German senior ministers, it would be a good idea for Greece to sell a few of its islands to pay off debt. No kidding, zose German politicians are getting power hungry again.

Meanwhile, the Italians are being themselves as well. “For Greece, the problem is completely over,” said Romano Prodi, a former Italian prime minister. The reason this is newsworthy is that a predictor of the Argentinean debt crisis, Charles Calomiris, has stated that Italy is the next Greece in terms of debt problems – because of political corruption.

Be-ratings Agencies

Those ratings agencies are still at it. Having been beaten and humiliated by the public and the government, they are getting their own back.

The ratings agency Fitch warns of sovereign debt downgrades for the UK if plans for austerity are not outlined. If they are outlined, Fitch will realise the severity of the problem and decide to downgrade anyway.

Karma in action.

So, when will the crisis hit? When does the sovereign debt bubble burst?

After staring into a crystal ball for several moments, the answer strikes as being obvious. The sovereign debt crisis begins when people get rational again. It’s that simple.

Rationality isn’t a terribly difficult thing to get a grasp on. But irrationality is a pain in the neck for an economic forecaster. How long it can last cannot be explained, as it is by nature irrational. So you see the quagmire.

For now, my claim is to be telepathetic, not telepathic, of Mr Market’s intentions.

Tightwire to Nowhere

Regarding forecasts on economic growth, talk has again turned to the letters V U W. V being the rapid recovery that often follows recessions, U being a longer period of anaemic growth, and W being a double dip recession. Nouriel Roubini and his team at RGE have indicated they see an increased risk of the W scenario developing.

That is stating the obvious. Government has gone from being a major player in the economy to being the major player in the economy. If its institutions stuff up, the ability of the free market to correct the mistakes is now severely hampered. The problem is that governments inevitably stuff up.

They can’t even manage their own balance sheet, despite having the power of the law to play with. Now they claim to be gallantly walking a tightwire between inflation and deflation.

The managing director of the International Monetary Fund, Dominic Strauss-Kahn, explained this supposed balancing act policy makers face in their use of fiscal and monetary stimulus:

“If we exit too late … it’s a waste of resources, it’s bad policy, it’s increasing public debt, we should avoid this … But if you exit too early, then the risks are much bigger.”

Michael Pomerleano sees it very differently. Rather than bothering with a balancing act, take a look at where the economy is headed:

“Nationalisation of private debt injects considerable inefficiency into the economic system, inhibiting Schumpeter’s process of Creative Destruction that is essential in a market economy and needed to maintain the private sector.”

But what of the audience watching the spectacle? A V shaped recovery isn’t much different to a U or W if the jobs situation remains awful. One quickly gets the impression they just want to see someone plunge to their death instead of prancing around for applause.

For the “history repeats itself” buffs:

“As historical research conducted by University of Maryland economist Carmen Reinhart and Harvard University economist Kenneth Rogoff shows, financial crises are usually followed by government-debt crises. This starts as private debt is shifted onto the balance sheet of the government, through bailouts and purchases of toxic debt. The government-debt problem is then made worse as the economic downturn leads to an increase in expenditures in the form of unemployment benefits and stimulus spending, coupled with a decrease in tax revenues.”

Here in Australia, the economic outlook could not be more ominous for history fans. According to The Age, the profit outlook for SMEs is the best it has been for 2.5 years.

“Optimism among small and medium size firms about future profits is at its highest level since before the global financial crisis, a survey finds.”

“… before the GFC” are the key words. Just like in 2007, the future is based on optimism. When that turns out to be a load of rubbish, the games will begin again.

Capital Crunch

Enthusiasts of the Austrian School of Economics have mixed feelings for legendary economist Adam Smith. Nevertheless, we don’t like to think of him rolling over in his grave. He must have done so when it was decided that the 20 pound note would bear his face.

You see, Adam Smith was an investor and firm believer in Scottish Free banking. The idea that government should hold a monopoly over issuing currency would not be agreeable to him. Putting his face on a Bank of England note is like having Tony Abbott on abortion ads.

Strangely enough, the UK still has 10 note issuing Banks. People don’t seem interested in the reason. They have bigger things to worry about – like what their government has in store for “its” banks. The Telegraph reports:

“Jonathan Pierce, from Credit Suisse, believes UK banks will have to reduce the size of their balance sheets by as much as £530bn over the next three to four years to meet new regulations.

“According to his analysis, British banks need to issue £420bn-£750bn of long-term wholesale funds. “We don’t think this is plausible and hence we expect balance sheet footings to fall by 6pc-18pc to compensate,” he said.”

In a world that relies on credit to turn, somebody has to get burned if bank balance sheets really do contract that much.

House Prices Uncovered

Based on feedback, it seems property comments are fair game for the Daily Reckoning. So here goes.

That reputable institution, the Reserve Bank of Australia, has not informed us that house prices could rise. It has warned us that house prices could rise. Hmm, so that’s a bad thing now.

It doesn’t have to be. In a free market, an increase in house prices is a signal to builders to build more houses. Once they do, prices normalise again, as supply balances demand.

The idea that house prices can steadily rise relative to incomes is flawed. Why would one generation want to pay more as a percent of their income on housing than another?

More importantly, why would builders not build more homes as prices rise?

The answer is zoning laws, town planning and all regulations remotely similar. Yes, it’s the government again.

If you examine where house prices rise (and then plummet) the most and compare those areas to where prices remain stable relative to income, you will find a remarkable correlation to the intensity of planning and zoning laws.

This was best illustrated in the US. Areas that had the most planning experienced the biggest booms and busts because supply couldn’t adjust to demand. Areas with low planning had little problem and simply built more as demand increased. They haven’t experienced the same subsequent bust either.

Have a great weekend.

Nickolai Hubble.
The Daily Reckoning Week in Review

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