The Kremlin and the world energy war

For careful observers of the changing global energy landscape and the role of Russia in particular, recent developments do not come as a surprise. The cheap oil of the 1990s is truly a thing of the past, with markets proving a new floor of US$60 per barrel of crude oil already exists. The incontrovertible truth is that oil, and increasingly natural gas, are the very lifeblood of the industrialized, modern economies of the world. The monumentally difficult and expensive move to new, alternate sources of energy has not even begun in any meaningful way.

The Kremlin and the leadership of other oil-and-gas-rich states foresaw the global energy developments noted above. The Kremlin has moved to reconsolidate Russian natural resources industries under its control. Russia has successfully positioned itself as the key global supplier of a most sought-after commodity. Middle East instability is on the rise with no relief in sight. That solidifies Russia's new position. There is no way out in the near term. Russia easily could apply tremendous economic and political pressure to severely damage, or credibly threaten to do such damage, to the economies of the West.

The US and British economies in particular are artificial bubble disasters just waiting to happen, tremendously burdened with enormous debt loads. The dollar appears to have reversed its temporary 2005 gain, now resuming its strategic decline. China has signaled that it will diversify its huge reserves out of dollars. Russia and its key strategic allies could fight and win an economic war with the West because the energy-dependent, bubble-ridden US and British economies would be forced to "blink" first, before they were crashed. Deeply energy-dependent Europe would be forced to "blink" long before the US and Britain.

The global order is re-dividing into roughly two de facto blocs - one has the US at its core and the other has Russia-China at its core. Energy is the major dividing line between the two blocs, and as desperation for control of strategic energy resources increases rapidly, so will the sharpness of the dividing line between the two blocs. With energy thus serving as a primary catalyst, the resource-rich Eurasian bloc is attaining significantly more gravitational pull than the American bloc.

(2006-01-15 23:36:03 SGT) [Energy] Permalink

Oil imports fuel looming energy crisis

peakoil.com -> business.scotsman.com :

The world's top energy watchdog has warned that the UK economy will become a net importer of oil this year - 3 years earlier than the government has predicted. The International Energy Agency (IEA) has forecast that North Sea oil production will dip below 1.7m barrels per day this year, forcing the economy to rely on more imported supplies to meet demand.

The government's more optimistic forecasts do not see the UK becoming a net importer until 2010. The IEA's warnings raise the prospect that the government may turn out to be as badly wrong-footed by the decline of UK oil production as it was by the decline of UK gas - a failure which has put the UK on the edge of a gas crisis this winter.

The news will also come as a shock to UK oil producers who share the government's optimistic forecast. Peter Spencer, chief economist for UK Item Club, added: "We were in such a hurry to exploit all our oil and gas resources that we burnt it all off when prices were cheap."

(2006-01-15 23:08:48 SGT) [Energy] Permalink

Ukraine gas dispute warning of conflict to come

peakoil.com -> business.guardian.co.uk :

The Ukraine gas dispute is a warning of conflict to come as energy supplies fall short. Vladimir Putin had barely taken over the G8 presidency before he was turning off gas supplies to Ukraine. Of course, Putin's argument that he was simply asking Ukraine to pay a market price for its gas was spurious. The message was clear: "don't mess with me". The only reason Russia is a member of the G8 is because it is sitting on the world's biggest reserves of natural gas. Putin has made his point and the G8 will get the message.

Europe's vulnerability is that it receives a quarter of its natural gas from Russia, with Hungary, Austria and the Czech Republic especially vulnerable, as most of it arrives via a pipeline that crosses Ukraine. When Russia reduced the gas by the amount it normally supplies to Ukraine, there was nothing to prevent the Ukrainians from siphoning off some for themselves, leaving Europe short.

Concerns about the British government's energy policy are growing. Labour backbencher Colin Challen has introduced a bill calling for the contraction and convergence method for tackling climate change to be enshrined in law. C&C involves reducing greenhouse gases to a sustainable level over the next few decades (contraction) and over the same period arriving at a situation where everybody on the planet has an equal right to pollute (convergence). There is not much hope that the government will adopt his bill, but it should.

Instead, we're scrabbling around looking for a quick fix - urging Opec to pump more oil, building more nuclear power stations, occupying Iraq - in the hope that there is a magic solution to the problem of ever-rising demand and limited supply. There isn't. Russia's skirmish with Ukraine will be merely the foretaste of bigger and nastier conflicts over energy unless it is recognised that the party is over and the days of cheap oil and gas are gone for good.

(2006-01-15 22:51:49 SGT) [Energy] Permalink

Shortfall of metals risks China's rise

peakoil.com -> finance.news.com.au :

Hold tight, it's going to be another belter of a year for metals. In fact, so critical is the supply situation, according to one local analyst, that China's growth could be compromised because it cannot get its hands on enough raw materials.

Eagle Research analyst Keith Goode warned clients in a research note that they stood to lose money if they made the wrong call on China. "The main potential restriction to China's growth appears to be insufficient raw materials in the world," he said. Even with new mines coming into production, Mr Goode sees metal shortages increasing over the next few years.

He cites some places where these metals will be needed: another 110 civil airports in China over the next 10 years, $US42 billion ($55.7 billion) being invested to build 6000km of new railway lines and, by 2015, there will be 35,000km of tolled motorways. China now consumes 48% of the world's cement and 20% of its copper.

(2006-01-15 18:35:29 SGT) [Biz] Permalink

Shanghai housing bubble pops

globaleconomicanalysis.blogspot.com -> latimes.com :

American homeowners wondering what follows a housing bubble can look to China's largest city. Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices. For the first time, homeowners here are learning what it means to have an upside-down mortgage - when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.

Shanghai's housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley's chief Asia economist in Hong Kong. Although the city's 20 million residents represent less than 2% of China's population of 1.3 billion, Xie says, Shanghai accounts for an astounding 20% of the country's property value. About 1 million homes in Shanghai alone are under construction. "They'll remain empty for years," Xie said.

Shanghai's housing bust comes after a doubling of prices in the previous three years, a run-up fueled by massive speculation. People blame the popping of the housing bubble on the central government, which has applied one measure after another in the last year to quash excessive speculation and price increases. Banks were ordered to raise their best rate on home loans to 5.5% from 5%. Home buyers were required to make down payments of at least 30%, up from 20%. A 5.5% capital gains tax on home sellers' profits was imposed. Beijing also levied a 5% tax on the sale price of homes sold before two years of ownership. "It's killed the speculators," said David Pitcher, a Shanghai developer and former head of CB Richard Ellis' office here.

Internet chat rooms recently were abuzz with a story that a Taiwanese man had jumped from the 33rd floor of an apartment tower about 15 miles northeast of downtown. Many people suspect that he killed himself because he was drowning in debt after his home investments went sour. Brokers indicated that the price of some units there have plummeted by more than 50% since March, when a home fetched as much as $250 a square foot, similar to Southern California communities.

For Shanghai, prolonged weakness in the housing market could be very painful. Like Los Angeles, Shanghai relies heavily on real estate to drive its economy. Morgan Stanley's Xie calculates that property sales directly accounted for about half of $31 billion of the growth in Shanghai's annual economic output from 2001 to 2004.

Few analysts are betting on a quick turnaround. Yin Zhongli, an economist at the Chinese Academy of Social Sciences in Beijing, worries that the financial sector will be crippled by the real estate fallout. Last year, 76% of all bank loans in Shanghai were in real estate. "Now is the time to swallow a bitter pill," Yin said.

(2006-01-15 15:01:15 SGT) [Biz] Permalink

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