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February 11, 2013

In Australia, Renewable Energy Is Cheaper than Fossil Fuels

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According to a report from Bloomberg energy research, unsubsidized renewal energy is cheaper than coal and gas electrical generation in Australia:

Bloomberg New Energy Finance’s research on Australia shows that since 2011, the cost of wind generation has fallen by 10% and the cost of solar photovoltaics by 29%. In contrast, the cost of energy from new fossil-fuelled plants is high and rising. New coal is made expensive by high financing costs. The study surveyed Australia’s four largest banks and found that lenders are unlikely to finance new coal without a substantial risk premium due to the reputational damage of emissions-intensive investments – if they are to finance coal at all. New gas-fired generation is expensive as the massive expansion of Australia’s liquefied natural gas (LNG) export market forces local prices upwards. The carbon price adds further costs to new coal- and gas-fired plant and is forecast to increase substantially over the lifetime of a new facility.

Australia levies a carbon tax on its energy providers, but even without that tax, Bloomberg found that "wind energy is 14% cheaper than new coal and 18% cheaper than new gas."

Globally, wind power capacity grew 20 percent in 2012.

Hat tip: Jeff Spross.

(AP Photo)

January 29, 2013

The World's Leading Wind Power Generators

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According to a recent survey from the World Wide Wind Energy Association, China is the world's leading producing of wind power. They boast a total of 67.8 gigawatts of wind power capacity. The U.S. is a fairly close second, with 60 gigawatts of wind power generation. Germany, Spain and India round out the top five.

Personally, I think the U.S. could probably vault to the top spot if it harnessed the abundant flow of hot air emanating from its capital.

(AP Photo)

America's Egypt Problem

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Ever since the revolt against Hosni Mubarak, the Obama administration has been groping for a strategy to cope with Egypt. A pliable dictator gone, the administration has been cultivating the Muslim Brotherhood, most recently agreeing to sell Egypt F-16s and Abrams tanks despite mounting evidence (as if any were needed) of the Brotherhood's illiberalism.

Eric Trager writes that the Obama administration ultimately cannot trust the Brotherhood:

It would be naive, therefore, to believe that Morsi won't turn on Washington when he feels the time is right. After all, the Brotherhood is already signaling that it intends to reassess the peace treaty with Israel, which comprises a core American interest: The Brotherhood's political party has recently drafted legislation to unilaterally amend the treaty, and a top Brotherhood foreign policy official recently told a closed salon that Morsi "is cancelling normalization with the Zionist entity gradually." Yet the Brotherhood is unlikely to pursue its anti-Western ambitions until after it finishes consolidating its power at home. As deputy supreme guide Khairat al-Shater explained during the April 2011 unveiling of the "Renaissance Project," the Brotherhood must first build an "Islamic government" before establishing "the global Islamic state."

For this reason, the Obama administration should work to prevent the Brotherhood from consolidating its control of Egypt through a pro-democratic policy. Specifically, Washington should withhold its support for the $4.8 billion loan that Egypt is seeking until the Brotherhood takes demonstrable steps towards more inclusive rule, which should include ending the prosecution of the Brotherhood's political opponents and media critics.

The real question is whether U.S. policy toward Egypt should be centered on efforts to micromanage their domestic politics to engineer a government that will reaffirm the peace treaty with Israel. That seems deeply misguided to me. First, it's probably not going to work. If Trager is to be believed, a more pluralistic Egypt is likely to be more sympathetic to Israel. But where's the evidence for that? Even if the U.S. were able to push the Brotherhood, grudgingly, toward a truly democratic system, there's no guarantee that Egypt writ-large will be any more amenable toward Israel.

The other alternative, backing a military coup, is equally absurd. It's likely to ignite another revolt, deepen anti-Americanism and generate more recruits for al-Qaeda. There are times when the U.S. must work with dictators, but actively consigning millions of people to live under a dictatorship to further a peripheral U.S. interest is simply counter-productive.

I don't think Trager's wrong to suggest that Egypt is veering off on a potentially dangerous trajectory and that the U.S. could take some steps to at least not make things worse. A good place to start would be to not sell Egypt weapons that could be used against Israel or provide economic relief as the Brotherhood runs the Egyptian economy off the rails. A policy of disengagement may not make Egypt embrace Israel, but it will at least not strengthen the Brotherhood. It will also signal to the Egyptian people that their destiny is in their own hands.

The Egyptian army is probably smart enough to understand that they will lose a war with Israel and have shown no interest to date in having another go at it. The ultimate guarantor of Egypt-Israeli peace is not the government in Cairo but the large imbalance in military power between the two countries, something the U.S. has contributed to in no small measure.

(AP Photo)

December 11, 2012

Why Doesn't Washington Trust in Incentives?

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Hadley Gamble reports from a conference on U.S. interests in the Middle East:

U.S. delegates to the summit in Bahrain's capital Manama were pounded by questions from nations making up the Gulf Cooperation Council (GCC) over the meaning of the administration's"pivot" to Asia and the possibility of a de-escalating American presence in the Gulf, this despite the half-billion dollars in investment earmarked for the Fifth Fleet's operational base in Bahrain.

But it was the specter of a rising China that pervaded much of the debate including security in the Strait of Hormuz. With over 87 percent of crude oil exports passing through the Arabian Gulf now headed to Asian markets,one question U.S.policy makers could soon be facing is whether America can or should continue to foot the bill for the security of China's oil supply.

"It's a technical problem as well as a strategic problem," says Jon Alterman, Middle East Program Director at another think tank Center for Strategic and International Studies (CSIS). "It's a global energy market that must be secured. Energy headed from the Gulf to Asia ends up fueling exports to the U.S. and America has the only navy capable of providing that security."

One reason the U.S. has the only navy capable of providing Gulf security is because none of the other stakeholders needs to make such an investment -- the U.S. taxpayer is doing it for them. It's odd that in the 21st century any outside power such as the U.S. or even China needs to be a guarantor of Gulf oil -- the Gulf states have enormous wealth and have a direct incentive to ensure that crude passes through Hormuz. The incentives align very neatly here: those that produce the oil should be responsible for securing its transit to global markets given that those regional navies are literally the best placed for such a role.

This is obviously not something that could happen over night (and in reality, it's not going to happen anytime soon since the U.S. is pouring more money into the Fifth Fleet's Bahrain base) but it's funny how a Cold War strategic imperative has morphed into an unassailable orthodoxy.

Instead of restructuring this regional bargain, the U.S. is content with a situation where it not only secures the Gulf states' oil revenue but also protect these states from Iran. In exchange, these states use the oil wealth that should be funding a regional navy to fund Islamist terrorist organizations and repress their own citizens.

(AP Photo)

November 19, 2012

The Rationale for a U.S. Presence in the Gulf

As the U.S. produces more and more of its own energy, the rationale for sustaining a large forward military presence in the Persian Gulf starts to weaken. But it's not like Middle Eastern energy won't find willing consumers. Instead, Gulf oil will flow to Asian markets, which puts major Asian oil consumers like China in something of a bind, as John Mitchell explains:

The United States military and naval presence contributes to stability in the Middle East and protects oil shipping through the Straits of Hormuz. This oil now goes east, not west, and the US security of oil supply no longer depends on it. Under these circumstances, how far will the US go to defend sea lanes that mainly benefit Asian markets?

The flip-side to this subsidy is that U.S. "defense" of Gulf sea lanes is another form of leverage over rivals like China. Any military force strong enough to keep the Gulf open could, in theory, close the Gulf down in a time of crisis (albeit at enormous costs to the global economy). That, in turn, will surely weigh on the minds of any Chinese strategist if (or when) the security competition between the U.S. and China really heats up.

On the other hand, the job of keeping the Gulf sea lanes open comes with a host of costs, like terrorism and military interventions, that the Chinese are probably happy not to bear.

November 14, 2012

American Energy Supplies: Now for the Bad News

Loren Steffy pours cold water on the IEA report noting America's growing energy production:

One paragraph above the prediction about the U.S. and Saudi, the IEA lays out a far more disturbing scenario, highlighted in boldface type: “The world is still failing to put the global energy system onto a more sustainable path.”

It goes on to outline a future in which consumer demand continues to rise faster than production as nations fight for ever bigger pieces of the same pie.

Even its projection of U.S. oil dominance has an important qualifier. The IEA estimates the switch would happen “around 2020″ but noted that the U.S. would remain the biggest oil producer only “until the mid-2020s.” Our reign as the world’s oil king, if it ever happens, probably won’t last more than five years....

Taken as a whole, the report outlines a world in which we face a shrinking supply of oil, rising prices and a growing toll on the environment.

If Washington had the capacity for sensible long-term planning, it would use its new found energy wealth to position itself for an era of tighter oil. But what are the odds of that happening?

November 13, 2012

Leaving the Middle East Will Be Good for America

Kelly McParland picks up on the IAE report that forecasts American energy abundance in the near future and sketches out the ramifications:

The obvious first reaction would be an immense wave of relief. No more dependence on the Middle East? Great. No more wars over oil; no more catering to unstable autocracies run by corrupt sheiks with their army of princes and princelings. No more need to wonder what happens if some insurgent group of religious fanatics gains control over vital shipping lanes and shuts off the energy flow. No more oil wells blazing in the desert because one murderous dictator or another doesn’t want to give up his job.

True. So what’s it all mean? The fall of the Berlin Wall and the collapse of Soviet communism produced prophecies of halcyon days, as the world’s sole remaining superpower, the U.S., held sway over a suddenly less-threatening world. Except it didn’t quite work out like that.

Actually, it worked out rather well for Europe - the center of gravity during the Cold War. It went from being the potential locus of World War III to being peaceful (with the exception of Bosnia) and relatively stable. It's also led to a slow reduction in U.S. troops in the region - a reduction which could very easily be accelerated based on Europe's overall wealth, stability and ability to defend itself from what meager threats it does face.

A similar thing won't exactly happen in the Mideast - if the U.S. were to withdraw from the Mideast as its own production ramps up, it won't be leaving behind a peaceful and prosperous region. But with ample energy production occurring in multiple regions beyond the Middle East, America's fundamental security needs will be met. What more is there to do?

November 12, 2012

America: The Next Energy Superpower?

According to the International Energy Agency's World Energy Outlook report, the U.S. will be the leading energy producer in the world by 2020:

Energy developments in the United States are profound and their effect will be felt well beyond North America – and the energy sector. The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge – and steadily changing the role of North America in global energy trade. By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel-efficiency measures in transport. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030.
If true, the geopolitical consequences of this development are profound. Put simply: it will mean the death of the Carter Doctrine or the idea that the U.S. has to police the Persian Gulf for the sake of its own security. "Energy independence" is a chimera, but the increasing diversification of supply means that no single region can hold the world economy hostage like it used to. U.S. policy should be focused on magnifying this trend - through increased domestic production, greater efficiency and the development of alternative energy technologies.

Not everyone is convinced that the future is so rosy, like Stuart Staniford:

I am less persuaded myself that using a thousand oil rigs to generate an extra one million barrels per day of oil is necessarily a sign of a large and long-term sustainable increase in US oil production (as opposed to, say, frenzied scraping of the bottom of the barrel). But, still, I'm not certain beyond a reasonable doubt just how deep this particular barrel can be scraped.
The greater challenge will be thinking long term: if the IEA is to be believed, Saudi Arabia will soon lose its "swing producer" status. Are they ready for that? And will the U.S. be similarly prepared when it own supplies eventually draw down?

October 16, 2012

How the Sausage of U.S. Foreign Policy Is Made

The State Department has just published 1,000 pages worth of documents relating to the 1970s energy crisis. In it you'll find transcripts of meetings with key principles in the Nixon, Ford and Carter administrations. If nothing else, it provides a good insight into the role energy plays in U.S. foreign policy - particularly at a time of soaring energy prices (in other words, it might be a good primer for current and future policymakers).

CFR's Micah Zenko rounds up some of the choice quotes, including Henry Kissinger calling future National Security Adviser Zbigniew Brzezinski a "total whore" and Alan Greenspan an "amateur."

Ironically, over the weekend I listened to Andrew Scott Cooper discuss his book The Oil Kings, which deals with the same subject matter. It's fascinating stuff - it sheds light not just on the challenges the Nixon, Ford and Carter administrations faced in the oil realm, but how much back-biting and internal squabbling hindered the U.S. response. Cooper also details how the U.S. completely missed how Iran's troubled economy could force a challenge to the Shah's rule from the clerical establishment.

October 15, 2012

The Future of Energy

The Atlantic Council hosted author and energy expert Daniel Yergin for an interesting discussion about energy and the impact of emerging energy trends on geopolitics in 2030.

September 7, 2012

Are Saudi Arabia's Oil Wells Drying Up?

This is just what the world economy does not need:

If Citigroup is right, Saudi Arabia will cease to be an oil exporter by 2030, far sooner than previously thought.

A 150-page report by Heidy Rehman on the Saudi petrochemical industry should be sober reading for those who think that shale oil and gas have solved our global energy crunch....

The basic point – common to other Gulf oil producers – is that Saudi local consumption is rocketing. Residential use makes up 50pc of demand, and over two thirds of that is air-conditioning.

The Saudis also consume 250 litres per head per day of water – the world's third highest (which blows the mind), growing at 9pc a year – and most of this is provided from energy-guzzling desalination plants.

The study predicts that the Kingdom could be a net importer of oil starting as soon as 2030. Needless to say, the consequences of such a move would be profound. Saudi Arabia would not only see its strategic weight plummet, but (more importantly) global energy supplies would be that much tighter.

August 3, 2012

China's Solar Boondoggles

Bill Powell says that after pinning its hopes on solar, Chinese firms are finding it to be a "capital destruction" machine:

These are epic, historic collapses in market valuation, made all the more stunning by the assumption, so prevalent just four years ago, that "clean" energy's time had come. How ironic it is that Barack Obama's insistence that the United States invest government money into the creation of so called "green jobs" -- which led to the debacle of Solyndra and other wasted investments -- was predicated on the fact that if the U.S. didn't do so, the industry of the future would be Made in China. A credulous political press, egged on by the environmental lobby, swallowed the reasoning wholesale.

Powell argues that solar's ability to reach "grid parity" - where it is price competitive with other fuel sources - has been dealt a big blow by the collapse in U.S. natural gas prices, but may yet still happen in China, where gas is still expensive. That is, until they start fracking.

July 25, 2012

In Brazil, Prisoners Turned Into Power Plants

In Brazil, they've found a novel way to generate "alternative" energy:

Since the oil shocks of the ‘70s, Brazil has been home to a carnival of renewable energy initiatives that now generate a whopping 85 percent of the country’s power. At Santa Rita do Sapucaí prison, inmates are contributing to the effort by riding stationary bikes which charge batteries that fuel lights at a nearby park that previously didn’t have electricity. That makes the park safer and shaves a little off the city’s carbon footprint, while giving the inmates a chance to get buff – and reduce their sentences.

July 17, 2012

The Race for the Arctic

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Steve Hargreaves says that the race for Arctic resources is about more than oil:

In addition to oil and gas, the Arctic is is thought to contain world-class reserves of iron ore, zinc, nickel, gold, uranium, and other minerals.

Already, the world's largest zinc mine is in Arctic Alaska, while the largest nickel mine is in Arctic Russia. One estimate in a Geological Society of London paper said the mineral value in Russia alone could exceed $2 trillion.

Fishing is also an important resource in the region, and could grow as more waters become accessible and species such as cod migrate northward.

Clearly, there will be expanding uses of the Arctic as it thaws.

Whether humans can successfully tap these resources without further damaging the environment, and whether Arctic riches will offset the likely substantial costs imposed by global warming elsewhere on the planet, is another matter entirely.

I don't think these cost/benefit calculations are going to slow the march. If there's gold (black or otherwise) in them thar ice flows, history suggests they'll be exploited.

(AP Photo)

June 4, 2012

Global Gas Taxes

Oil prices have moderated a bit of late, but consumers still feel pain at the pump, often from very high taxes on gasoline/petrol. This infographic takes you on a tour of the world's gas taxes.

May 1, 2012

Leaving Egypt to the Egyptians

It’s been five weeks since the Obama administration granted Egypt its full $1.3 billion in annual military aid despite its government’s failure to meet conditions set by Congress for advancing democracy. In granting a waiver on national security grounds, administration officials argued that continuing the funding was more likely to encourage cooperation with the United States and progress on human rights than a cutoff would.

As it turns out, the administration was wrong. In a number of tangible ways, U.S.-Egyptian relations and the military’s treatment of civil society have deteriorated since the waiver was issued March 23. The threat to nongovernmental organizations, whose prosecution triggered the threat of an aid suspension, has worsened. Conditions for U.S.-backed pro-democracy groups elsewhere in the Middle East have deteriorated as other governments have observed Egypt’s ability to crack down with impunity. - Washington Post

Clearly the Obama administration thinks it's preserving an ally in the Egyptian military, but the Post is right to note the cynicism. This isn't being done for the sake of Egyptian democracy and it's fair to point that out (it's also an egregious waste of U.S. resources at a time of soaring debts) . Yet the Post would have the U.S. wade into Egypt's domestic affairs even more forcefully so that the country comports itself according to our standards. That's equally counter-productive. The U.S. can only do so much to influence events in Egypt, and I'm willing to bet that what effort it does make is far more likely to backfire than to work effectively.

Not 14 days before Mubarak was run out of office, Secretary Clinton was claiming that the leadership was "stable." This kind of breath-taking affirmation of American ignorance about the state of Egyptian affairs should have given both the Obama administration and the Post pause before declaring that they know just the right levers to press to engineer just the right outcome inside Egypt.

April 23, 2012

Obama's Solar Trade War

The Obama administration decided last month to slap tariffs on Chinese-made solar panels because, they claim, Chinese subsidies undercut U.S. manufacturers. It's an odd industry for the administration to target - all those Chinese subsidies have made solar roughly price-competitive as an energy source for the first time, something the supposedly environmentally-minded administration would approve of. Now the administration wants to make it more expensive.

Yet as DigiTimes notes, Chinese suppliers may be able to skirt the costs:

China-based solar firms, however, have been finding ways to avoid paying the tariff such as transfering solar cell orders to Taiwan. Taiwan-based solar cell makers have been experiencing rising capacity utilization rates but indicated that orders from China-based firms often have unprofitably low quotes. China does not want to give up on the US market because it is one of the fastest growing solar markets in the world.

Beyond that, it's very odd that the Obama administration would go to such great lengths over Iran, including, potentially, using military force but won't countenance cheap solar panels from China. One policy potentially threatens the lives of American service personnel and runs the risk of a near-term recession if a brief war in the Gulf causes oil prices to soar (among a host of other potentially negative outcomes). Letting cheap Chinese solar panels into the U.S. market, however, hurts the employment prospects of a small industry (unless these panels are somehow dangerous - a case I've not yet heard).

Obviously these two events are not tightly correlated, but they are related. Solar power isn't going to ween the U.S. off of oil as a transport fuel in the short-term (as I understand it, the solar roof experiment on the Prius was a bit of a flop), but the more alternative energy sources go online, the more the overall energy mix will tilt away from oil and the greater the chance that Washington can finally stop obsessing about the Mideast.

March 25, 2012

Energy Independence Won't Save the U.S. from the Mideast

The New York Times claims that the U.S. is "inching toward energy independence" which would deliver a host of benefits:

Taken together, the increasing production and declining consumption have unexpectedly brought the United States markedly closer to a goal that has tantalized presidents since Richard Nixon: independence from foreign energy sources, a milestone that could reconfigure American foreign policy, the economy and more. In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005.

We often hear from politicians that "energy independence" through more domestic drilling is a way to save the U.S. from all of its Mideast headaches. But that's simply not the case.

Oil is priced on a global market, so even if the U.S. were able to source all of its oil domestically, the price it pays is set globally and thus subject to the same geopolitical dynamics (like Mideast tension) that have caused prices to spike in the past. If U.S. foreign policy today is based on the principle that Mideast supply must pass through the Gulf unmolested less prices soar, it's going to remain anchored in that principle even as the U.S. produces more oil domestically.

To truly reap any foreign policy dividends from "energy independence" would require not just pumping more oil domestically but either: 1. finding so much oil in North America that's economically viable to extract that it would literally be impossible for any regional supply shocks to significantly impact prices; 2. using another energy source that is not impacted by oil price fluctuations. Neither of these options seems particularly plausible in the short-to-medium term.

Of course, there's nothing about America's oil consumption that mandates our current policies in the Middle East. But pumping more oil domestically is not going to sway the argument one way or another.

March 12, 2012

Oil and Brains Don't Mix

My crude paraphrasing of this OECD study:

OECD’s PISA study shows that there is also a significant negative relationship between the money countries extract from national resources and the knowledge and skills of their school population (see figure): Israel is not alone in outperforming its oil-rich neighbors by a large margin when it comes to learning outcomes at school, this is a global pattern that generally across 65 countries that took part in the latest PISA assessment. Exceptions such as Canada, Australia and Norway, that are rich of natural resources but still score well on PISA, have all established deliberate policies of saving these resource rents, and not just consuming them. Today’s learning outcomes at school, in turn, are a powerful predictor for the wealth and social outcomes that countries will reap in the long run.

One wonders how the U.S. will fare with its own potential resource boom in shale oil and gas. (Via: Simone Foxman)

March 1, 2012

Oil Prices: Nowhere to Go But Up?

But any success in tightening sanctions on Iran could squeeze global oil supplies, pushing up prices and causing serious economic repercussions at home and abroad.

“It’s a bind for Obama,” said Mr. Kloza at the Oil Price Information Service. “How do you get tough on Iran without getting tough on American wallets?” - New York Times


I think the answer is obvious: over the short-term, you can't.

But Iran is one facet in surging prices. Increased demand from Asia and a recovering U.S. is another. This analysis (pdf) of the global oil market from Citi Group's Edward Morse points to sustained triple digit prices through 2012.

It's interesting to contemplate the implications of persistently high oil prices. Economist Jeff Rubin, for instance, has argued that it would precipitate a "de-globalization" as supply chains that were economically attractive when oil was cheap collapse under the weight of sustained triple digit prices.

February 1, 2012

The Developing World's Solar Leap

In the industrialized world, solar power has struggled to be an economically viable alternative to fossil fuels. But according to a new report from Kevin Bullis, that's no longer the case in the developing world:

The falling cost of LED lighting, batteries, and solar panels, together with innovative business plans, are allowing millions of households in Africa and elsewhere to switch from crude kerosene lamps to cleaner and safer electric lighting. For many, this offers a means to charge their mobile phones, which are becoming ubiquitous in Africa, instead of having to rent a charger.

Technology advances are opening up a huge new market for solar power: the approximately 1.3 billion people around the world who don't have access to grid electricity. Even though they are typically very poor, these people have to pay far more for lighting than people in rich countries because they use inefficient kerosene lamps. While in most parts of the world solar power typically costs far more than electricity from conventional power plants—especially when including battery costs—for some people, solar power makes economic sense because it costs half as much as lighting with kerosene.

January 23, 2012

European Sanctions Will Hurt Iran

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The Obama administration has thus far managed to successfully tighten the economic screws on Iran and now they've apparently convinced the Europeans to do the same. Now, based on the chart above via the Wall Street Journal, it's clear that this is a move that will deal another major blow to the Iranian economy. Obviously the next step for the administration is to convince Asian governments to similarly restrict Iranian oil exports, since they are the countries most likely to pick up the slack in European demand. But to do that, the U.S. will have to some plausible alternative to Iranian oil to fuel Asian economies.

Where is that oil going to come from?

January 18, 2012

Can Saudi Arabia Pump More Oil?

Saudi Arabia's geostrategic value lies in the fact that its immense reserves of oil make it a "supplier of last resort" able to meet global demand. Kevin Drum says that Saudi power is in this regard is basically spent:

Neither the Saudis, nor anyone else, control the price of oil anymore. Saudi Arabia has very little spare capacity to speak of, and couldn't open the taps to bring the price of oil down even if it wanted to. So no matter what the price of oil is, that's approximately the price the Saudis say is fair. That way they don't have to admit that they no longer have the ability to seriously affect oil price movements.

This, by the way, is the same dynamic at work in OPEC meetings. They meet, they talk, and then they release a statement saying that they aren't going to increase production quotas because the current price is fair and "customers aren't asking for more oil." Well, of course they aren't. By definition, customers aren't asking for more oil as long as oil is selling at the market-clearing price. Which it is. Because if it's not, then the price goes up, and guess what? Markets clear and customers aren't asking for more oil. Nonetheless, this charade regularly gets played out anyway, because OPEC doesn't want to admit that their production quotas are mostly meaningless these days.

December 6, 2011

A New Policy Toward the Middle East

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Kenneth Pollack calls for a reappraisal of U.S. strategy toward the Middle East, advocating a move away from backing oppressive autocrats to supporting democrats. Here's his rationale:

Whether we like it or not, the changes sweeping the Middle East will affect America's vital national interests as well. We hate to admit it, but we must face the fact that our economy -- and the economy of the wider world, with which we are inextricably intertwined -- is addicted to oil. And the price of oil, and thus the welfare of our economy and that of the rest of the world, is deeply affected by what happens in the Middle East.
From this observation, Pollack goes on to sketch out a strategy whereby the U.S. aids the Middle East through a complicated political transition without angering Saudi Arabia, endangering Israel or empowering autocratic Islamist forces.

That's certainly one way to avoid high oil prices, but there are other ways to mitigate rising or unpredictable oil costs. Between improved automobile mileage standards, research into alternative fuels, better urban planning and domestic drilling - the U.S. has other policy options available than attempting a complicated strategy of micromanaging Middle Eastern politics.

(AP Photo)

November 2, 2011

Military Think Tank: Get Off Oil

According to the Guardian:


An influential military think tank is urging America to cut its oil use by 30% over the next decade, as a national security imperative.

In its report, the Military Advisory Board said the US should aim to drastically reduce its energy imports over the next decade – or else risk exposing the economy to devastating oil price shocks.

"This is a national security threat that grows ever year, and we as a nation need to recognise is at such," said vice admiral Dennis McGinn, a former deputy chief of naval operations, and one of the authors of the report.

"This isn't just about the volatility of gas prices at the pump. This isn't just about big oils vs the environment. This is a national security problem, manifesting itself economically, diplomatically and militarily, and it is not just going to go away."


September 13, 2011

Oil Is Fungible

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The Alberta-to-Houston oil pipeline has drawn some domestic criticism, but as Peter Fairley reports, the oil has to go somewhere:

Protests in front of the White House earlier this month against the proposed Keystone XL oil pipeline, which would run from Alberta to the U.S. Gulf Coast, brought attention once again to the potential environmental impact of Canada's oil sands deposits. But industry experts say that the fate of that particular pipeline—which President Obama will decide upon later this year—will have little effect on the ultimate future of the vast petroleum resources in the oil sands.

One reason is that the oil will simply go elsewhere. Proposed pipelines to Canada's Pacific Coast could give Alberta's oil producers access to rapidly growing Asian markets. That would accelerate the demand for oil sands crude, which is made into gasoline. If the Keystone pipeline is not approved, says Ralph Glass, director of energy valuation and operations at Calgary-based petroleum industry consultancy AJM Deloitte, "there will be a stronger push for sending the oil offshore."

(AP Photo)

July 28, 2011

Revolutionary Guard Commander to Head OPEC?

The Guardian reports:

A senior commander of Iran's revolutionary guards, who is subject to comprehensive international sanctions, has been nominated as the country's oil minister, a position that currently includes the presidency of Opec.

Mahmoud Ahmadinejad, the Iranian president, sent a list of four ministers, including Rostam Ghasemi, commander of the revolutionary guards' Khatam al-Anbia military and industrial base, to the parliament for approval, the semi-official Fars news agency reported.

Should the parliament confirm Ghasemi's nomination next week, the commander, who is targeted by US, EU and Australian sanctions, will be automatically appointed as head of Opec, giving the revolutionary guards access to an influential international platform.

June 28, 2011

Nuclear Power: Globally Unpopular

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According to a new poll from Ipsos MORI:

New research... shows that three in five global citizens (62%) oppose the use of nuclear energy – a quarter (26%) of those have been influenced by the recent nuclear disaster in Fukushima, Japan.

The latest Ipsos Global @dvisor survey shows that support for nuclear energy is far below that for solar power (97%), wind power (93%), hydroelectric power (91%) and natural gas (80%) as a source of electricity.

Just one in four (38%) adults across 24 countries support the use of nuclear energy. Support is highest in India (61%), Poland (57%) and the United States (52%).

(AP Photo)

May 12, 2011

Oil and Terror

When I first joined the Navy, our military footprint in the Middle East consisted of a one-star admiral and three ships. We now have multiple three- and four-star generals, and 150,000 men and women of the armed forces are deployed at great expense to our blood and treasure.

It is no coincidence that as our nation’s reliance on oil has grown, so has our military presence in this area, which is rich in oil and ripe with volatility.

Reforming our energy policy will take time and political will, but the stakes to our national security are too high not to act. It took nearly a decade to find bin Laden. Let’s start our next attack on Al Qaeda right now — working to end our oil dependence. - Dennis Blair

Transforming America's energy economy in the way Blair states is the work of decades. It will do nothing about al-Qaeda or radical recruitment in the short and medium-term. Indeed, this energy independence argument has little to do with U.S. national security - oil wealth will flow to terrorists so long as their are people who need oil and terrorists who need money. American dollars can easily be substituted with Chinese yuan in this regard.

This is actually an argument about whether or not the U.S. should sustain a large military footprint in the Middle East. I'd agree that such a large military footprint in the Mideast is counter-productive and should be reduced, but we don't need to go on a crash course to reduce oil consumption to do that - it could be done in relatively short order for far less money than transforming America's energy economy.

May 1, 2011

Fungible Oil

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The FT had an interesting note on oil markets last week. It seems U.S. traders are floating barges full of oil down river from Oklahoma to Louisiana where a barrel fetches an extra $15.10.

Record stocks of 40m barrels at landlocked Cushing, Oklahoma (the delivery point of West Texas Intermediate (WTI), the U.S. benchmark price), have produced a supply glut. There’s talk of building a pipeline to move 400,000 barrels per day from Cushing to Houston to connect “stranded” barrels with the global energy infrastructure. In the meantime, oil is being moved by truck, train and boat to take advantage price differentials.

The economics and infrastructure are such that one oil company is even sourcing Canadian crude from a pipeline in Mississippi and literally shipping it to refineries in Louisiana.

“We’re taking a steady diet of crude through our proprietary barge system down to our Garyville refinery,” said one oil executive. “Who would have ever thought that we would be moving western Canadian all the way down to Louisiana?”

The current trend of price anomalies reconfiguring energy markets is reminiscent of the oil price swings of 2008.

At that time, however, it wasn’t geographical price differences—exacerbated by a Middle East supply shock, growing emerging markets and loose monetary policy—that traders were cashing in on. It was quite the opposite, in fact. As the world economy fell off the precipice in 2008, traders, oil companies and even investment banks were taking advantage of the record price differences between tumbling current prices and rebounding future prices caused by oil supply outstripping global demand.

Punters were hoarding the cheap, excess oil, storing it offshore on super tankers, while at the same time entering agreements to sell that oil at a future date and at an agreed upon higher price, thereby locking in a profit. The difference then between WTI for immediate delivery and a one-year forward contract was $21.50 a barrel.

But not all oil is created equal, independent of whether or not it's bought today or tomorrow. The crisis in Libya has halted the production of its light, sweet crude that is prized for being easily refined into diesel and petrol, and for having a low sulfur content, making it cleaner to burn.

Saudi Arabia has said it “will meet any shortage” of oil supply but its oil is heavier and higher in sulfur, leaving it as a more expensive product for oil refineries to work with. WTI oil, also sweet and light, is a better substitute for Libyan oil, which means unrest in North Africa has helped push the U.S. benchmark to $114 a barrel.

Luckily a flattening has been occurring across the crude spectrum in the last few years. Since oil prices reached their record level of $147 a barrel in 2008, refiners have invested heavily in infrastructure allowing them to process heavy crude much more efficiently; thus putting a smaller premium on the sweeter variety.

Had this not been the case, who knows how far, and by what means, traders would be moving Canadian oil just to make a quick buck.

Alim

(AP Photo)