Sunday June 08, 2008

Angry citizens protest as Malaysia eliminates subsidies, raising petrol prices 40% overnight

This article belongs to the Malaysia inflation watch story arc.

channelnewsasia.com :

Angry Malaysians took to the streets of Kuala Lumpur and the northern town of Ipoh on Thursday [5 Jun 2008] after the Malaysian government increased pump prices by 40% overnight. Led by opposition parties, protesters said they would not let up until the government reviews its decision and reinstates fuel subsidies. Malaysians who have relied heavily on government subsidies for many years are waking up to a new reality. Many could not comprehend why Malaysia - an oil-producing country - cannot continue the fuel subsidies amid soaring prices and a slowing economy. PM Abdullah said cutting fuel subsidies will save the country US$4.3 billion and the money can go towards improving food security, including subsidising imported rice, flour, bread and cooking oil. But many were not convinced. Analysts said Mr Abdullah is taking a huge political risk with this move, especially when inflation is set to exceed 5% this month.

- Many Malaysian citizens cannot understand the reason why, but peakoilers both in the country and in neighbouring Singapore have been monitoring the situation for years. We have expected fuel subsidies to be reduced as oil prices continue to set new records and Malaysian oil and gas production continues to decline, putting an increasing strain on the government budget on both the top and bottom line.

We peakoilers have known all along that continued subsidies would be impossible. But even us peakoilers would have been taken aback by the suddenness with which the subsidies have been eliminated. Instead of gradually easing off the subsidies in graduated steps, the Malaysian government has instead chosen shock therapy. We may now have to be concerned with the possibility that their crude oil and gas production could be falling off the cliff leading to this unusual move. Earlier, channelnewsasia.com had also reported on the political ramifications and it was mentioned that electrcity rates would also be increased as part of the move :

Malaysia's Prime Minister Abdullah is taking a major political risk in removing price controls even as he attempts to recover from disastrous March elections that dealt the ruling coalition its worst results in half a century. Rising prices of food and fuel were a major factor in the ballot, which has triggered repeated calls for the premier to stand down. As part of the subsidy reform, industry and power producers will be charged higher prices for gas from July. Electricity tariffs will rise 18% for householders, and 26% for commercial and industrial users.

- As an investor and fund manager, I am always on the lookout for correlations. When both Indonesia and Malaysia, Southeast Asia's major oil producers, decide to cut subsidies drastically within 2 weeks of each other, the jig is up. Especially with Indonesia deciding to pull out of OPEC with immediate effect. Malaysia does not have an OPEC membership to pull out of but the implications couldn't be more clear. We all know that they are running out of oil and gas, and I am starting to suspect that they are running out rapidly. Citizens of Southeast Asia, welcome to Peak Oil. Check out the chart below :

See also :

1. Fuel prices seen stoking Malaysia inflation in 2008
2. Southeast Asian oil output likely to peak by 2013 (and gas output by 2020)
3. Indonesia hikes fuel prices by 28.7% despite protests
4. Indonesia to pull out of OPEC with immediate effect as oil production declines

(2008-06-08 23:47:40 SGT) [Energy] Permalink

Two major Chinese airlines including China Southern Airlines to cut flights over jet fuel costs

channelnewsasia.com :

Two major Chinese airlines plan to cut the number of international flights they offer due to spiralling fuel costs, the carriers said Tuesday [3 Jun 2008]. China Southern Airlines, the country's top carrier in terms of fleet size, said it planned to suspend an unspecified number of flights to cut costs. The state news agency Xinhua reported that the airline would cut flights from southern China's Guangzhou to Ho Chi Minh, Vietnam and Angkor, Cambodia from June to September [2008]. The company will also offer fewer flights between Guangzhou and Hong Kong, and Singapore during that same period and services between Beijing and Seoul will also be affected. China Eastern Airlines, a major carrier based in Shanghai, said it had similar plans as China Southern.

In addition, iht.com reports that :

Continental Airlines is the latest carrier to announce cuts, saying Thursday [5 Jun 2008] that it would ground 67 planes, cutting 3,000 jobs. In all, airlines in the United States have announced plans since March to park more than 200 aircraft, from regional jets to Boeing 747s, representing more than 10% of the major airlines' fleets. As they cut costs, they are also raising ticket prices and adding surcharges and fees to help offset soaring fuel costs. This year, half a dozen smaller carriers have gone out of business or filed for bankruptcy. Jamie Baker, an analyst with JPMorgan, said airlines could lose a collective $7.2 billion this year if fuel prices stay at current levels or rise further.

- For now the airlines are billing it as a temporary measure due to jet fuel costs, and the intention is to bring back these flights when fuel prices come down. But peakoilers know better - there is nothing temporary about Peak Oil and there is nothing temporary about sky-high oil prices. The peak for conventional light sweet crude oil is already in the past - we reached it back in May 2005. Peak Oil is a permanent phenomenon and high oil prices are here to stay. We may have reached the era of Peak Airlines.

See also :

1. British Airways to ground part of its fleet over rising fuel cost
2. Airlines tremble at prospect of $100 oil

Updated :

1. Peak Oil, Peak Airlines - as oil prices go up, airlines cut flights and jobs

(2008-06-08 22:27:04 SGT) [Energy] Permalink

Plasma TVs, gaming consoles guzzle electricity: study

news.yahoo.com :

Don't blame the fridge for your steep power bills - an Australian consumer agency study has found that videogame consoles and plasma flat-screen TVs are major electricity guzzlers, even when left on stand-by. The recent study by Choice said Sony's Playstation 3, closely followed by Microsoft's Xbox 360 and plasma television sets, consumed the most power out of a list of 16 electronic devices tested, including laptops, stereo systems and DVD players. The report advised consumers to switch off their electronic devices at the source, rather than just from the remote control, which puts them on power-consuming stand-by mode. "This saves on money, not to mention carbon emissions," it added.

- The report is over at choice.com.au and the detailed table is over here.

The device that consumed the most power in our test when in use was the PlayStation 3, closely followed by the Xbox360 and Plasma TV. Even when idle (on, but not in use), these systems consumed the most power of the devices tested. Incredibly, the Playstation 3 consumed over 10 times as much power as the Nintendo Wii. Our tests also found that leaving a PlayStation 3 on while not in use would cost almost $250 a year in electricity bills (charged at 15c per kWh). This alone is around five times more than it would take to run a refrigerator for the same yearly period. The Xbox 360 was not far behind the PlayStation 3 in energy usage costs per year, serving as an important reminder to turn off videogame systems after use. The Plasma TV set was also a power hungry device, consuming over four times more power than a traditional CRT analogue TV set.

Quite the energy guzzlers aren't they, all these gadgets. Those folks playing with PS3's on plasma TV's have got to be incurring quite a cost. In part 4 of my inflation-beating guide, I recommended a switch to LCD TV's - as opposed to plasma TV's which don't actually save energy at all and in fact consume even more energy than CRT's. And whatever appliances you have, it's always a good idea to switch them off at the wall socket instead of leaving them in standby mode - read more about that here.

See also :

1. Your power bill is standing by
2. Teenagers' gadgets : big energy wasters
3. Power bill and other updates

(2008-06-08 19:51:40 SGT) [Energy] Permalink

China forex reserves hit US$1.76 trillion

channelnewsasia.com :

China's foreign exchange reserves rose to US$1.76 trillion at the end of April [2008], state media reported Monday [2 Jun 2008], reaching a level higher than the rest of Northeast Asia's combined. China's reserves, by far the largest in the world, expanded by another US$74.5 billion during April, the China Business News reported, equivalent to about US$100 million every hour. At US$1.76 trillion, China's reserves are now larger than those of Japan, Taiwan, South Korea and Hong Kong combined.

The growth in reserves came amid rising official concern about a fresh surge in hot money - or speculative inflows - spurred by a strengthening yuan and a widening spread between falling US interest rates and rising Chinese rates. The increase in reserves was roughly three times larger than the trade surplus and the value of incoming foreign direct investment - the two traditional sources of reserve growth.

- Even in a world full of large numbers, $1.76 trillion is a very large number. There are a lot of things they could do with such a huge amount of money - build maglev railways across all of China - that's one. Or they could launch a space-based solar power project and start moving away from fossil fuels. In the meantime, they could lock up the world supply of crude oil for the next 40 years - but of course if they actually tried that, the oil price will quickly go beyond $130,000 per barrel instead of staying at the $130+ level where it is at now.

In fact, a small fraction of that money could be - and is - being spent to lock up supplies of resources and commodities of all kinds. Money sloshing around like this is a huge positive factor for the commodities markets. That's what the contrarians are talking about when they mention things like "unlimited money chasing limited goods". Just watch and observe.

See also :

1. China's currency reserves climb 40% to $1.68 trillion
2. China inflation surges to 8.7% in Feb 2008, highest in 11 years
3. Cashed-up China set to hunt down more US bargains
4. China signals reserves switch away from dollar
5. Chinese personal savings hit 14t yuan

(2008-06-08 17:39:58 SGT) [Biz] Permalink

Space-based solar power - beaming it down from space

edition.cnn.com :

American scientist Peter Glaser introduced the idea of space solar power in 1968. The satellites would electromagnetically beam gigawatts of solar energy back to ground-based receivers, where it would then be converted to electricity and transferred to power grids. And because in high Earth orbit, satellites are unaffected by the earth's shadow virtually 365 days a year, the floating power plants could provide round-the-clock clean, renewable electricity. NASA and the United States Department of Energy studied the concept throughout the 1970s, concluding that although the technology was feasible, the price of putting it all together and sending it to outer space was not.

Skyrocketing oil prices, a heightened awareness of climate change and worries about natural resource depletion have recently prompted a renewed interest in beaming extraterrestrial energy back to Earth. And so has a 2007 report released by the Pentagon's National Security Space Office, encouraging the U.S. government to spearhead the development of space power systems. "A single kilometer-wide band of geosynchronous Earth orbit experiences enough solar flux in one year to nearly equal the amount of energy contained within all known recoverable conventional oil reserves on Earth today," the report said. The study also concluded that solar energy from satellites could provide power for global U.S. military operations and deliver energy to disaster areas and developing nations. Russia, China, the European Union and India, are interested in the concept. And Japan, which has been pouring millions of dollars into space power studies for decades, is working toward testing a small-scale demonstration in the near future.

- This is one of the responses to peak oil becoming a national security concern. The other one is the move toward electrification and running more military equipment on battery power. Put these two together and you will have the beginnings of an electric economy. Like I said earlier, the military is leading the way.

The logistics supply chain bringing up critical supplies including and especially fuel is one of the most vulnerable parts of a wartime operation. Fuel is heavy, bulky, explosive, and prone to attacks by insurgents. One can easily imagine why the military would be very interested in reducing the vulnerability of that supply chain by having power beamed directly to any arbitrary location, no matter how remote, that they would wish to setup shop at.

See also :

1. Pentagon considering study on space-based solar power
2. Beam it down : How the new satellites can power the world

(2008-06-08 15:36:45 SGT) [Energy] Permalink

OPEC chief insists speculation behind crude oil price rises

channelnewsasia.com :

OPEC president Chakib Khelil again blamed speculators for the steep rise in oil prices, insisting that supply was not a problem. "There is no problem of supply, the problem is much more linked to speculation," he told a press conference. He also said the price of oil was closely linked to the exchange rate of the US dollar, which has fallen steeply against other major currencies. OPEC, which pumps 40% of the world's oil, is reluctant to bend to demands that it produce more to dampen the red-hot market. Analysts said recent speculative oil trading had been driven by tight global supplies, the weak dollar, unrest in key crude producers like Nigeria, and OPEC's unwillingness to boost output.

- Ah, the reason du jour. Every day there seems to be a new reason for the rise in crude oil prices. If you remember back in 2005, it was the hurricanes, then there were all the other reasons - Iran, Nigeria, the dollar, and now it's supposed to be speculation. Time after time, the media tells us that this or that crisis was supposed to add "x number of dollars" to the oil price, where x was some arbitrary number with absolutely no objective basis.

What is the "speculative premium" supposed to be - $4? $5? $10? Or are we supposed to believe that the cumulative speculative / dollar / Iran / Nigeria premium is actually over $110 since oil touched a low of $10 back in 1999? If that sounds like the most ridiculous thing you ever heard, that's because it is. There is no speculative premium. It is exactly zero dollars. There is always a long side (the buyer) and there is always a short side (the seller) in the futures markets. It is a zero sum game.

As legendary Texas oilman T. Boone Pickens puts it, it's all about supply and demand. We have 85 million barrels per day of supply and we have 87 million barrels per day of demand. Something has got to give, and that's what you see happening in the oil price as it continues to set new record highs on a regular basis. The faster demand rises relative to supply, the faster new oil price records will be set. That is what is really driving the oil futures markets.

See also :

1. OPEC keeps output steady in face of $100 oil
2. OPEC: High and volatile prices may be new norm

(2008-06-08 13:09:32 SGT) [Energy] Permalink

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