Thursday, June 23, 2011

Prince Turki Proposes Saudi Wahhabis Lead Economic Warfare Against Iran...

Prince Turki Proposes Saudi Wahhabis Lead Economic Warfare Against Iran..., fasten your seat belts, OIL might go back down to 50/60$$$...

[It looks like Prince Turki is still keeping the "Safari Club" still alive, still serving in his position as secret financier and organizer for the CIA. The specialty of the organization is acting for the agency whenever there is no Congressional support for the latest secret plans, as when they rallied international support for supplying the "Contras" after the Boland Amendment had made that support illegal.]

Shackley decided to privatize some of CIA’s covert operations. The money for these activities came what was called the Safari Club. This was established when George Bush was director of the CIA. This was admitted by a speech made by Prince Turki (February 2002). He claimed:

“In 1976, after the Watergate matters took place here (in the US), your intelligence community was literally tied up by Congress. It could not do anything… In order to compensate for that, a group of countries got together in the hope of fighting Communism and established what was called the Safari Club. The Safari Club included France, Egypt, Saudi Arabia, Morocco, and Iran. The principal aim of this club was that we would share information with each other and help each other in countering Soviet influence worldwide, and especially in Africa.”

Saudi Arabia may be forced to use its oil policy and enormous economic clout as a way to foil Iran’s nuclear power program and regional ambitions....

Price dollars in gas.....
By Chris Cook

Too much of the discussion at the World Economic Forum in Davos is high-tech glitz and mutual back-scratching among the financial elite of the developed nations. In and around the three-day 15th St Petersburg Economic Forum this month, on the other hand, there were a couple of riveting - and extremely important - conversations concerning a crucial subject: energy.

In one multilateral discussion, Nobuo Tanaka - the head of the International Energy Agency, present membership 28 countries - suggested to producer nations that they should join the US-led IEA. "We all really have a common interest. You cannot take oil in isolation from gas security, energy efficiency and electricity from renewables."

Gazprom head Alexei Miller is not so sure about this offer, saying recently: "My forecast is that Russia will not join the IEA, which represents the interests of consuming nations."

In another, bilateral, negotiation between Russia and China there were hopes that a 30-year US$1 trillion gas supply deal might finally be signed off at St Petersburg by heads of state: but as Reuters reported:
... a source close to the talks said Russian state-controlled gas export monopoly Gazprom and China National Petroleum Corp (CNPC) had not been able to close the gap on price terms.

The Chinese want a fixed price and the Russians are seeking to uphold the oil market link that underpins Gazprom's existing export contracts.
It is rarely we see so starkly illustrated the opposing interests and entrenched positions of the two global energy market "end-user" constituencies of energy producers and consumers.

Perhaps a new market approach could square the circle?

Oil, gas and the dollar
There has for decades been a close relationship between oil and gas prices, particularly while crude oil and heavy fuel oil were in general use for power generation. Many long-term natural gas contracts have therefore historically been indexed to oil prices; for example, those contracts between European consumers and Russian producers such as Gazprom which have been in place since before the fall of communism.

At zero dollar interest rates, financial demand for oil from investors - who wish to hold anything but dollars - has been increasing dramatically, driven by investment banks hyping memes such as "inflation hedging" and "commodity supercycles" to credulous and fearful investors.

This financial demand for oil has since 2005 increasingly been satisfied by producers through "financial oil leasing". These transactions take place secretively off-exchange through sale and repurchase agreements in respect of oil reserves effectively stored by producers at nil cost in the ground. In other words, producers are able to monetize oil and obtain interest-free loans in dollars from investors, while investors borrow or lease oil in return, and thereby protect themselves against a fall in the value of the dollar relative to oil.

In commodity markets, there are two limiting price levels: firstly, in a sellers' market, when demand is high, there is an upper boundary price level at which demand is destroyed; and secondly, there is a buyer's market, when the market is oversupplied and the market price falls until production is withdrawn or shut in.

By early 2009, the oil market price had been re-inflated by financial demand to a level of US$70 to $80 per barrel, at which the key producer, Saudi Arabia, declared itself "comfortable" and which the US could clearly tolerate. However, the Arab Spring, and particularly the absence of Libyan crude oil, has seen a wave of genuinely speculative financial demand for oil which has again, as in 2008, seen the oil price spike through the upper boundary at which demand destruction sets in.

The result has been that the historic relationship between the prices of oil and gas has broken down. Those consumers, such as Gazprom's European customers, who have access to alternative supplies (eg liquefied natural gas), have been attempting to move away from oil-linked prices which they regard as excessive. These attempts are of course being strenuously resisted by Gazprom and other producers.

The actual amount of spare oil capacity is a closely kept secret and is quite possibly not what it is claimed to be. Moreover, while oil prices have reached levels which the Saudis and other members of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates - consider is too high, it is not clear what they are actually willing or able to do about it.

But whatever they do, it is only a matter of time before demand is choked off - if it hasn't been already - and any risk-taking speculators who are long on oil exit the market. If the risk-averse inflation-hedger financial purchasers also leave the market as they did in late 2008, then we will see the oil market crash to levels which are painful for producers, exactly as happened before.

The influx of these tidal waves of money financializes the markets and detaches the price from the reality of consumption and production. This creates levels of price volatility and uncertainty, which make investment in infrastructure almost entirely impossible, while generating phenomenal profits for the intermediaries who own and operate the existing oil market casino. New transparent, sustainable and resilient 21st century frameworks for both trading of oil and gas, and investment and investment in energy infrastructure are urgently necessary.

Firstly, as the stalled China/Russia negotiation indicates, the pricing of oil by reference to the dollar, and of gas by reference to oil, gives rise to intractable conflicts.

Secondly, the financing and funding of the trillions of dollars of investment necessary for the transition to a low-carbon economy is not going to come from our existing moribund and completely dysfunctional deficit-based dollar economy.

These 21st century problems cannot be solved with 20th century solutions.

I propose a "gas clearing union" (GCU). This would not be another monolithic and unaccountable global organization and bureaucracy. It would simply be a collaborative agreement between gas market consumers, for example members of the International Emissions Trading Association, and producers - such as members of the Gas Exporting Countries Forum - which would all be GCU subscribers.

Gas market contracts and transactions would be recorded and registered with a transaction and title registry - GasClear - held by a neutral, trusted third party (a custodian), and the gas market platform would be developed, managed and operated by service providers.

Contract performance would not involve a central counterparty, where all market risk is concentrated within a single entity, but would be supported by a mutual guarantee agreement - a trust framework.

It was Stalin who said "trust: but validate'".

Validation would be provided firstly by financial provisions or collateral from members held by the custodian; secondly by sharp regulatory teeth: that is, the restriction, suspension or termination of the right to register gas market transactions on GasClear; and thirdly - sunshine being the best disinfectant - by transparency in relation to market data.

Producers of natural gas who are members of the GCU may instruct the GCU manager to create and issue undated credits - Gas Units - redeemable in payment for a fixed standard amount of gas or for the equivalent in energy. Units would not be a standard volume of gas (for example cubic meters) but would be an energy standard, such as the 1 MMBtu (one million British thermal units) standard used in the US.

Producers will agree sales of physical gas with consumer members of the GCU at whatever price - in US dollars or otherwise - is mutually acceptable, but will always accept Gas Units presented in payment by the buyer.

The outcome is a "gas loan".

Gas loans
China's proposed energy relationship with Russia offers a useful case study. Firstly, China would enter into a long-term, say 30-year, supply agreement as now. Secondly, China would set a final gas price to consumers at a global market price level sufficiently high as to drastically restrict demand. From this price, China National Petroleum Corp (CNPC), the country's largest oil and gas producer and supplier, would subtract a proportion to cover costs, collect a substantial carbon levy on behalf of the government, and pay the balance to Gazprom in whatever currency is agreed.

China would deploy the funds collected from the CNPC carbon levy in massive investment in renewable energy and energy savings by making "energy loans", which are denominated in energy.

China would also distribute an energy dividend of units to their population, who could either redeem them against profligate use of gas; invest them privately in energy projects; or possibly just exchange them for other goods and services.

Thirdly, China would have the ability to buy gas units from Gazprom and thereby fix the price of supply as they state they wish to do. Such forward sales of gas would result in an interest-free loan to Gazprom for as long as the units are outstanding.

The outcome of such gas loans is compelling:

China need no longer hold financial reserves in a deficit-based currency such as the dollar, but rather in what could well become a gas-based currency, since they would find units become accepted in exchange by other nations within the GCU, such as European Union customers of Gazprom.

Gazprom and CNPC would be able to co-finance the new infrastructure which will produce and deliver Russian gas to China, who could provide equipment, engineering and so on in exchange for gas units.

Gazprom would also be able to replace existing interest-bearing dollar loans with gas loans from any nation, and dramatically cut funding costs.

Russia could also withdraw wasteful subsidies on domestic gas supplies and compensate their population with an energy dividend of gas units available for investment in renewable energy and energy savings, and also in exchange for goods and services, in particular Chinese.

Units should be understood by anyone who is capable of understanding frequent flyer currencies like Air Miles or retail loyalty "points" such as the Tesco Clubcard.

Consumers waste what they do not value, and gas is wasted on an enormous scale by the populations of producer nations for that reason, as are other carbon fuels. This gives rise to the need for colossal and increasing subsidies.

Unitization of undervalued carbon fuels will revolutionize the energy policy not only of all producer nations, but in particular of the greatest energy consumer of all - the United States.

Transition through gas
Instead of gas being priced against oil, which is in turn priced against the dollar, we would see oil and dollars both being priced against the energy value of natural gas.

The outcome could be a global carbon-based currency for the period of the transition to renewables, which would be based upon the inherent energy value of carbon in gas, rather than upon intrinsically worthless value of carbon in carbon dioxide as envisaged by the Kyoto initiative.

A new and holistic global energy settlement - going beyond gas to other forms of energy - could then be agreed. This would be an International Energy Clearing Union; a collaborative framework agreement within which energy producers and consumers transact directly.

Transaction intermediaries, for their part, would cease to put capital at risk with a view to extracting profit, and would become service providers sharing mutually created surplus value. Could Russia and China combine to lead a transition through gas?

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