June 2011 Archives

China's omnivorous energy requirements have been attracting increasing attention as of late, as Beijing attempts to secure any and all sources of power for its growing industrial base.

Nowhere is this more noticeable than Beijing's policies in the South China Sea, where Chinese assertions of sovereignty are unsettling the Philippines, Taiwan, Vietnam, Malaysia, Indonesia and Brunei, all of whom have counter claims on the various shoals and islets.

China's landward neighbors are also feeling the hot breath of Beijing's mandarins, however, most notably its economic rival India, with whom China fought a brief war in 1962 in the Himalayas over a disputed frontier, where the alpine conflict, according to China's official military history, achieved China's policy objectives of securing borders in its western sector in retaining Chinese control of the Aksai Chin with India accepting the de facto borders which codified along the Line of Actual Control.

Now China and India are engaged yet again in a spat, this time over the headwaters of the Brahmaputra River. According to New Delhi China is planning up to 24 hydroelectric facilities with a cumulative power generation capacity of nearly 2,000 megawatts along Brahmaputra's source, the Arun River, before it descends into India.

Further east, Vietnam, Cambodia, Thailand and Laos are alarmed by China's intentions to build three massive dams on the upper reaches of the Mekong River, adding to six existing hydroelectric facilities. What is singularly lacking in all these plans is any regional or concerted international effort to counter China's plans.

India's concerns are heightened by the fact that most of its major rivers originate in Tibet, which China invaded and annexed in 1950, declaring it an integral part of "Western China." Both the Brahmaputra and Indus rivers have their origins in a lake in western Tibet near Mount Kailash.

Complicating India's efforts to discuss the issue is China's reluctance to acknowledge the validity of satellite imagery, which Beijing regards as espionage, even though in 2010 China acknowledged as a result of India's space observation that it was in fact building the Zangmu dam on the Brahmaputra, as the imagery received from Indian satellites confirmed the construction.

Indian strategic affairs expert Brahma Chellaney observed, "China has always been unapologetic about its refusal to enter into water sharing agreements with any states. It has always maintained that it would take into account interests of the lower riparian states but about half of the world's total number of large dams are in China. India, with so many of its major rivers originating in Tibet, is going to be among the worst affected. The issue is usually soft pedaled by the water resources ministry, and there is never any international pressure on this though the list of countries suffering because of China's refusal is quite long including Russia, Kazakhstan, Burma, Thailand, Vietnam, Cambodia and Laos."

Chellaney's list of aggrieved states along China's landward frontiers is extensive - what remains to be seen is whether the region's two substantive powers, Russia and India, are willing to confront Beijing, either singly or in concert, over Beijing's efforts to harness Asia's river flow to power its industrial miracle. So far, the signs are not encouraging, as Chinese economic "soft power" seduces Russia and India as covertly as it does America's economy.

Source: http://oilprice.com/

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

It is becoming evident to many that the March nuclear catastrophe at Japan's six reactor Daichi Fukushima complex has dealt a huge, possibly fatal, blow to the nuclear industry's hopes of a revival.

A year ago even global warming enthusiasts reluctantly embraced nuclear power as a carbon-free energy generating system, and the industry was ramping up for glory days as a result.

The triple whammy against nuclear power beginning with the 1979 partial meltdown at Three Mile Island, followed by 1986's Chernobyl disaster and now Fukushima, effectively present a "three strikes and you're out" call against civilian nuclear energy power generation for the foreseeable future.

That said, with the trillions of dollars already invested in 436 nuclear power plants (NNP) worldwide, according to the International Atomic energy Agency (IAEA), the industry has begun to push back, and "ground zero" is emerging as Europe, not Japan, with the lawyers circling.

In the wake of Fukushima, German Chancellor Angela Merkel announced on 30 May that Germany, the world's fourth-largest economy and Europe's biggest, would shut down all of its 17 would abandon nuclear energy completely between 2015 and 2022, an extraordinary commitment, given that Germany's 17 NPPS Germany produce about 28 percent of the country's electricity.

If Berlin's announcement sent nuclear power proponents seating, worse was to follow, as Switzerland is examining a proposal to phase out the country's five nuclear plants by 2034.

Finally, if any doubts existed about Europe's commitment of nuclear energy, on 12-13 June in a referendum in which 56 percent of Italian voters participated, an eye-watering 94 percent voted against nuclear power. Following the 1987 Chernobyl disaster, Italy decided to shut down its four NPPs and the last operating plant closed in 1990. Three years ago Prime Minister Silvio Berlusconi reversed this decision but after Fukushima Berlusconi announced a one-year moratorium on his plans for new nuclear power plants, intending to restart Italy's nuclear energy program in 2014. Berlusconi spent the days leading up to the polls challenging the nuclear power measure in court, declaring he wouldn't vote and suggesting his fellow Italians stay at home too. They didn't, and Berlusconi's electoral defeat has ended nuclear possibilities for Italy for the foreseeable future. In 2010, 22.2 percent of Italy's power came from renewable energy sources. 64.8 percent were from fossil fuels, and 13 percent were imported sources, including French nuclear power. The stinging defeat at the polls is a boon for Italy's nascent renewable energy industry.

The German nuclear industry has begun to fight back, insisting that its shutdown would cause major damage to the country's industrial base. Utilities E.ON AG and Vattenfall Europe AG have already announced that they will seek billions of euros in compensation, and RWE AG and EnBW Energie Baden-Wuerttemberg AG are expected to follow soon. Germany's four nuclear operators have already announced they will stop paying into a government renewables fund, which was set up in September 2010 as compensation for longer nuclear life-spans.

In such an environment, the only nuclear energy growth field currently is lawyers' fees.

Source: http://oilprice.com/

By John Daly for OilPrice.com

An increasingly fractious maritime confrontation is developing in the South China Sea, with enormous implications for international companies interested in developing East Asia's offshore hydrocarbon resources. Far from the radars of city of London and Wall Street investors, the clash has seen Vietnam emerge as spear carrier for its fellow ASEAN members on the dispute.

Offshore drilling is the most capital-intensive form of exploiting hydrocarbons, but its expense and scarcity has also allowed technically advanced Western companies to drive hard bargains with third world countries over their offshore waters, as they don't have indigenous advanced technical resources nor finances to exploit their maritime wealth.

Accordingly, most countries attempt to procure the best bilateral deals with foreign companies to get a taste of the offshore revenues that come from exploiting their Exclusive Economic Zones (EEZs), which the 1982 United Nations Convention on the Law of the Sea (UNLOS) recognized 12 nautical miles as normal for territorial seas and waters and provided international recognition of 200 mile EEZs. On the vexed question of overlapping claims, When an overlap occurs, UNLOS deferred to the competing states to negotiate to delineate their final and actual maritime boundary, with the general principle that any point within an overlapping area defaults to the nearest state.

According to U.S. government statistics, Vietnam's oil and gas industry is currently the country's biggest foreign currency earner and a major procurer of imported technology. Since Vietnam's first oil export shipment in April 1987, crude oil has earned over $17 billion for Vietnam's economy, all of it from offshore production. Vietnam is currently Asian third largest oil producer behind Indonesia and Malaysia.

Over the past few years China has asserted its sovereign maritime claims and takeovers even as Beijing has settled most of its disputes over its land frontiers with post-Soviet Central Asian states since the early 1990s. China's expansive sovereignty claims on of South China Sea, including the Spratly (Nansha) and Paracel (Xisha) islets, putting Beijing directly in conflict with the sovereignty claims and security of five Southeast Asian states - Vietnam, the Philippines, Malaysia, Brunei and Indonesia, not to mention China's irredentist claims on Taiwan. All, except Taiwan, are members of the Association of Southeast Asian Nations or ASEAN.

Vietnam has now emerged as the plucky David challenging Beijing's Goliath. The confrontation began on 26 May when three Chinese patrol boats halted a seismic survey in Spratly waters claimed by Vietnam as part of its EEZ, 80 miles from Vietnam's coast and 375 miles south of China's Hainan Island. Following other incidents, on 13 June Vietnam's navy held live-firing exercises in an area 25 miles off central Quang Nam province after warning other vessels to steer clear.

While China has the stronger navy, both sides can currently deploy only light maritime forces, and for the moment, regional rhetoric exceeds firepower.

Besides the cover support of its ASEAN partners, China is in a dialectical trap of its own making. Asserting its unilateral sovereignty will weaken ASEAN dominated by China as a political organization and potentially drive a number of its members to closer relations with the U.S., the only significant non-Asian power in the western Pacific.

Beyond the regional posturing, the issue seems tailor-made for international arbitration. UNCLOS provides for bilateral discussions, but given the diversity of claims, ASEAN would seem to be a better forum.

In the meantime, the South China Sea hardly seems to best potential zone for foreign energy investment companies.

Source: http://oilprice.com/Energy/Energy-General/David-and-Goliath-Vietnam-Confronts-China-Over-South-China-Sea-Energy-Riches.html

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

According to the U.S. Energy Administration, two months ago the United States total crude oil imports averaged 9,033 thousand barrels per day (tbpd), with the top five exporting countries being Canada (2,666 tbpd), Mexico (1,319 tbpd), Saudi Arabia (1,107 tbpd), Venezuela (930 tbpd) and Nigeria (918 tbpd.)

Notice anything odd about this list? First, three of the top five oil exporters to the U.S. are in the Western hemisphere, and two of them are neighbors.

Secondly, only two of the five states can comfortably be described as stable. Mexico is slowly unraveling due to the drug war, Nigeria's militant regularly attack foreign oil concessions in the Niger delta and Saudi Arabia's geriatric monarchy is nervously watching events unfold in the Middle East, wondering if the "Arab spring" may impact their autocratic hold on power, a view no doubt made more nervous by the sudden arrival on 6 June of Yemeni President Ali Abdullah Saleh to Saudi Arabia for medical treatment.

Of the remaining two, Canada is a stable, prosperous state, and its relations with Washington are excellent.

Which leaves Venezuela - while a stable state, its policies under President Hugo Chávez have rattled Washington to the point that since 2010 neither state has had accredited ambassadors.

On 28 June 2010 President Obama nominated Palmer as U.S. Ambassador to Venezuela but three months later Chávez announced on his weekly TV program that he would not allow Larry Palmer to take up his post after Palmer told a US senator that morale in the Venezuelan army was low and that members of Chávez's government had ties to leftist FARC Colombian rebels. On 28 December Chávez flatly refused to accept Palmer because of his derogatory remarks and the following day the U.S. revoked the accreditation of Venezuelan ambassador, Bernardo Álvarez Herrera.

Worse, on Sunday Venezuelan Minister of Foreign Affairs Nicolás Maduro in an exclusive interview with private TV network Televen said, "The relation (with the U.S.) is frozen... It does not move and there is no indication that there could be positive elements of communication and respect in the near future."

What led to the impasse? Chávez's final sin in Washington's eyes was Venezuela's state-owned oil company Petroleos de Venezuela (PDVSA) supplying gasoline and other refined oil products to Iran, which led the Obama administration on 24 May to impose sanctions against PDVSA. In response, Venezuela's Energy Minister Rafael Ramirez, who is also the head of PDVSA, said the following day that as a sovereign nation Venezuela would continue to maintain relations with Iran and any other country it wanted, adding, "This is a right we are not going to renounce."

Washington's myopia leads it to treat Central and Latin America as if the Monroe Doctrine were still valid. In fact, the most underreported political story in the American press over the last decade is how Latin America has gradually moved out from under Washington's smothering "big brother" embrace as first the Bush administration and now President Obama's fixated on both on the war on terror and Iraqi oil reserves. Most notable among the Latin American states rejecting Washington's dominance, along with its attendant financial institutions of the World Bank and the International Monetary Fund has been Brazil, which now, along with Russia, China and India, is lumped under the sobriquet BRIC as a collective economic powerhouse of the 21st century.

Can Washington really afford to antagonize a nation that exports nearly a million barrels per day to the U.S.? Should Venezuela turn off the taps, then the recent gasoline prices of nearly $4 a gallon will begin to look like a bargain.

And speaking of China, its economic interest in trade devoid of Washington's hectoring political lectures has found a warm reception in Caracas. China has agreed to provide more than $32 billion in assistance to Chávez's government, with the loans to be repaid in oil, in increasing amounts of it during the next decade. China is now Venezuela's biggest foreign lender, enabling Chávez's to boost social spending ahead of the country's 2012 presidential election, leading Chávez to exclaim "Viva China!" on national television.

Venezuela is now exporting to China about 460,000 barrels a day, about 20 percent of its oil exports, according to official figures, which Caracas hopes to double soon. Chen Ping, political counselor at the Chinese Embassy in Caracas noted simply, "Venezuela has what we need."

Pity that Washington, blinkered by outdated ideology, does not see its own interests as clearly as counselor Chen.

Source: Full article at: www.oilprice.com

By. John Daly for OilPrice.com

Sometime in the next 12 months, an energy IPO offering in distant Mongolia already has foreign investors salivating.

The darling of the international energy community is coal company Erdenes-Tavan Tolgoi ("Five Hills") Ltd., popularly known as TT, which has yet to begin operations.

To give an idea of the potential foreign interest, analysts believe that the IPO will be handled by Goldman Sachs Group Inc. and Deutsche Bank AG.

What is TT bringing to the market that has caused such interest? A massive deposit located in the east Tsankhi area of the Gobi desert and estimated to hold over 6.4 billion metric tons of coking coal, the world's biggest untapped deposit of its kind.

Mongolia's government is currently selecting an operator for the massive deposit and is expected to be a large, experienced foreign mining company. Heightening investor interest was a successful public offering last fall in the autumn of 2010 by Mongolian Mining Corp., Mongolia's largest privately held domestic producer and exporter of coking coal, whose Ukhaa Khudag (UHG) mine is within the Tavan Tolgoi coal formation in the southern Gobi. Mongolian Mining Corp.'s IPO was floated on the Hong Kong Stock Exchange and raised $651 million.

In contrast, analysts are predicting that the TT IPO could raise as much as $10 billion.

What makes the TT IPO unique is that the Mongolian government has just given each citizen 538 shares in the Erdenes-Tavan Tolgoi IPO. If the IPO hits its anticipated $10 billion, each Mongolian shares would be worth about $360. The government stock giveaway totaled 1.5 billion shares, equal to 10% of TT and reserved another 1.5 billion TT shares for thousands of Mongolian business enterprises. Besides the 20 percent handed out to local enterprises and citizens, the government aims to retain 50 percent of TT, with the remaining 30 percent to be listed on an overseas stock exchange.

The TT stock giveaway is an integral part of a governmental effort to convince its citizens that its decision to pursue large-scale mining in Mongolia will have a direct bearing on their well-being, following several earlier contentious mining deals.

Mongolians complained bitterly about the arrangements surrounding the $6 billion Oyu Tolgoi project, jointly owned by Canada's Ivanhoe Mines , Rio Tinto and the Mongolian government, which will be the world's biggest copper mine outside Chile once full operation starts in 2013.

Underwriting Mongolia's mining boom, two years ago the Ulsyn Ikh Khural (State Great Hural, or Parliament) finally repealed the 68 percent windfall profit tax on foreign mining operations, which came into effect in January, setting the stage for massive foreign investment.

Even Russia has gotten into the act. Earlier this month, Mongolian President Tsakhiagiin Elbegdorj visited Moscow and met with Russian President Dmitrii Medvedev, who commented on rising bilateral trade possibilities, "We need new powerful projects such as nuclear projects or Tavan-Tolgoi, which will promote bilateral cooperation."

Besides coal, copper and gold, Mongolia has massive deposits of other materials the world desires, including uranium and rare earth elements (REEs.) As these deposits are developed, analysts predict the economy will flourish, with the International Monetary Fund predicting that Mongolia's annual economic growth may surge to 23 percent in 2013 as Oyu Tolgoi and other projects begin production.

With energy-hungry China next door, a Mongolian energy or mining investment is looking like one of the global economy's more certain bets, and in the case of TT, one doesn't need the resources of a Goldman Sachs to buy in - yet.

Source: www.oilprice.com

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

Investors looking for the next big thing after a hydrocarbon economy have a panoply of options, from solar to wind, as well as biofuels.

In terms of quickly ramping up production biofuels clearly win the race, but navigating the PR fluff and reality is not a simple thing.

The three main contenders for investor dollars are algae, jatropha and camelina. All have strengths and weaknesses, leaving investors to choose amongst them. Stripped of PR flummery, the only issue is where and when production can begin on a viable commercial scale. Investors who unravel the complexities of biofuel production and have cast-iron stomachs stand to profit, but biofuel production in the U.S, while having major players like Goldman Sachs and the Carlyle Group, are moving their chess pieces around a board already gamed by the major players.

While everyone agrees that biofuels are the future, investment is lagging.

But the interest is there. Fuel and oil comprise 25 percent of civilian airlines' operating costs. When the price of jet fuel rises one cent, it increases the global cost of aviation $195 million.

Camelina as an additive is a "drop in" fuel - engines need no modification, and a series of Pentagon tests over the last two years have proven its feasibility as something to add to a 50 percent JP-8 blend. The Pentagon

So why, no U.S. production?

The answers are both complex and simple.

First, new biofuels are up against the well established ethanol lobby.

Secondly, given renewables' battle against the ethanol Goliath, there are yet exist no subsidies, crop insurance or any other incentives to bring farmers onboard to provide camelina feedstock, and farmers are hardly the most progressive green community.

Accordingly, U.S. companies such as Sustainable Oils face an uphill battle to sign up farmers, one by one.

But the technology exists, the product has been approved, most notably to fuel USAF C-17 Globemasters, as further Pentagon weapons testing continues.

Unfortunately for biofuel producers, the Pentagon only purchases fuel, and does not invest.

So, at the end of the day, the Pentagon role is passive - as for the civilian market, they are awaiting commercial volumes to be produced.

U.S. production to ramp up camelina derivatives is constrained by a lack of subsidies, crop insurance and record-high commodity prices for such alterrnatives as ethanol's major feedstock, corn.

But camelina's future as a civilian aircraft biofuel has been validated by the March announcement that a European consortium announced a project to produce Jet A-1 for civilian aircraft. European aircraft manufacturer Airbus and Romanian state-owned airline Tarom and a consortium of partners announced plans to establish a bio-fuel production center in Romania to manufacture fuel for the airline industry.

An American company is also prosing to produce biofuel in Uzbekistan.

So, the question is - how ironclad are investors' stomachs? The question is no longer if biofuel will be produced - only where and when. Given that it is ultimately an agricultural product, sharp investors may see their profits expand before the end of a growing season.

Source: http://oilprice.com

By Dr John C.K. Daly for OilPrice.com

The world's unceasing quest for new oil deposits has combined with offshore technology to impel many countries to investigate their offshore resources in their "exclusive economic zone," (EEZ) defined by the 1982 United Nations Convention on the Law of the Sea Part V, Article 55 as extending 200 nautical miles from a nation's coastline.

Difficulties arise in congested maritime areas where overlapping claims create friction, and one of the most contested areas in the world today are the waters surrounding the Spratly islands of the South China Sea.

The Spratly islands consist of more than 750 islands, islets, atolls and cays and their EEZ real estate is variously claimed by China, the Philippines, Taiwan, Vietnam, Malaysia and Brunei. While there are no native islanders, about 45 islands of the archipelago are now occupied by Vietnamese, Chinese, Taiwanese, Malaysian and Filipino forces, all determined to assert their nations' claims of sovereignty. Given the potential resources, the possibility of confrontation is significant and is already occurring.

On Wednesday the Philippines said it had formally protested to China about its intentions to situate an oil rig in the disputed waters of the South China Sea. China's charge d'affaires in Manila was summoned to the foreign ministry where it "requested clarification from the Chinese embassy on the recent sightings of a China Marine Surveillance vessel and other People's Liberation Army Navy ships." Filipino officials queried the Chinese diplomat about Beijing's apparent intention to install in July its most advanced offshore oil rig in the South China Sea near the Amy Douglas Bank, which is "well within the Philippines' 200 nautical miles Exclusive Economic Zone." The rig's intended site is about 26 nautical miles from Flat Island, one of the outcrops in the Spratlys archipelago occupied by the Philippines, and 125 nautical miles from the Philippine island of Palawan.

The issue is a complex skein of international law, as China claims all of both the Spratly and the Paracel Islands in the South China Sea as well as their adjacent waters but the Philippines maintains that any construction in the area violates a 2002 agreement signed by China and the 10 Association of Southeast Asian Nations (ASEAN) member states.

Moving on the diplomatic front beyond bilateral relations, in March the Philippines filed a formal protest at the United Nations over China's claims to the Spratly islands and adjacent South China Sea waters.

The Spratly dispute has enormous implications for the global quest for offshore hydrocarbons. China's immense economic and military power make it the dominant power in the dispute, but it is worth remembering that China and Vietnam fought a brief but bloody border war in 1979. It is in the world's interest to support a diplomatic solution to the problem, which, if successful, could provide a template for other disputed maritime disputes, most notably an equitable division of the Caspian's offshore waters, an issue unresolved since the 1991 collapse of the USSR, which saw the diplomatic arrangements between the Soviet Union and Iran replaced by conflicting claims between Iran and the USSR successor state of the Russian Federation, Azerbaijan, Kazakhstan and Turkmenistan.

Source: http://oilprice.com

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com