Geofinancial

Japan Inc.'s endgame: $70 Billion in acquisitions, Seeking Salvation Overseas....

2012-02-11T02:05:00.000-08:00

Japan Inc.'s endgame: $70 Billion in acquisitions, Seeking Salvation Overseas....

Japanese companies spent $70 billion on acquisitions overseas in 2011—a record. Healthcare was the largest sector, $20.6 billion. Armed with a ferociously strong yen, they’re trying to escape the pressures at home. After the Fukushima disaster, one nuclear power plant after another has been taken off line for maintenance. And they stay off line. Now, only four of the 54 are still operating. Fossil fuel plants cannot keep up with demand during peak periods, and electricity rationing—a Third-World phenomenon—has become part of corporate life. Companies also face a stagnant economy and a dwindling working-age population.

And so they seek their fortunes overseas. For example, Sumitomo Mitsui Financial Group and Sumitomo Corp. are acquiring the aircraft leasing business of bailed-out Royal Bank of Scotland for $7.3 billion. But even smaller companies, including many that had not ventured abroad before, are jumping into the fray. For example, Takara Tomy Group acquired US toymaker RC2, and Toyo Seikan bought US based Stolle Machinery.

In addition, Japanese multinationals are expanding their existing production capacity overseas. On the forefront are the automakers. Mired in stagnation, high costs, and energy challenges at home, they’re now shifting production to plants overseas. Most recently, it was Honda and Nissan with investments in China, Mexico, and, yes, the US to produce cars for local and export markets. And one of them is outright exciting. Read.... Manufacturing Supercars in America.

Electronics makers are also struggling in Japan. Last year was particularly rough: the March 11 earthquake and tsunami, Thailand's historic floods that shut down whole segments of the components industry, the strong yen, a hesitating global economy, and shrinking consumer demand at home. And then, in the fourth quarter, TV sales cratered.

Japanese TV makers, known for innovative products and advanced technologies, got clobbered by competitors from Korea and other Asian countries. Sharp Corp. forecast a loss of ¥290 billion for its current fiscal year. Unit sales skidded 38%. It will shift production from TVs to small and midsize LCD panels for smartphones and tablets. Panasonic sang a similar song last Friday when it tried to explain its losses in its TV and semiconductor businesses. It had already announced in October that it would stop production at two of its plants in Japan. Sony, after an eight-year losing spree in its TV business, remains focused on it, incoming CEO Kazuo Hirai announced on Thursday. And he'd miraculously turn it around through unspecified cost cutting measures.

But there are consequences. Shifting investment and production to locations overseas contributed to the first annual trade deficit in more than 30 years—just when Japan can least afford it: national debt will surpass one quadrillion yen by March 2013, the end of the next fiscal year, the Ministry of Finance announced in January. About $14 trillion. A breathtaking 240% of GDP. By comparison, Greece’s debt is a paltry 160% of GDP.

The forecast is based on the budget that the cabinet approved on Christmas Eve when it hoped that no one would pay attention, apparently. After excluding two acknowledged accounting shenanigans, the deficit jumps to a horrid ¥54.4 trillion. The government will have to borrow 56.2% of every yen it spends in 2012, a record even for Japan. But the government has an ingenious solution: a miracle. For more on that vertigo-inducing debacle, read... The Endgame: Japan Makes A Move.

The other solution is a consumption tax hike from the current 5% to 8% by April 2014 and to 10% by October 2015. To make it more palatable, government officials have gone on roadshows. The revenues would be used to stabilize the tottering social security system and reinforce the welfare system, they claimed—rather than for corporate subsidies or for the bailout of TEPCO, owner of the Fukushima nuke. But sales taxes hit low-income workers the hardest. And according to recent polls, 79.5% of the Japanese are opposed to them.

Once it starts, it’s never enough. On Saturday, Prime Minister Yoshihiko Noda said that the consumption tax could be raised even beyond the 10% currently proposed. So the trend is clear.

Meanwhile, life goes on in its own manner. A convoy of 20 supercars was speeding down the Chūgoku Expressway, entered a left-hand bend at 90–100 mph, though the posted speed limit was 50 mph. The highway was wet. And the rest was very expensive.... Superlative Supercar Pileup (incl. video)....

As can be seen by the desperation of Japanese officials, consumption tax is the only one tax that can be increased to really make a different. Some commentators on Japan think that this will make a huge difference and will save Japan or give it some more time. What they miss is that raising the consumption tax will not come free and will have significant implications. That’s why they proposed to start increasing the consumption tax from 5% to 10% by 2015. They can’t raise it now, because it will kill their weak economy. They planned it from 2015, because they think there will be a global recovery by then, which I doubt. Then moved to 2020. There will never be a good time to raise the consumption tax in Japan. In my opinion their action will be too late. I mean, it will pass politically and economically only after the debt crisis start. I refer you to read an IMF report called: “Raising the Consumption Tax in Japan: Why, When, How?” to get an insight about the IMPACT OF A VAT INCREASE ON GROWTH, INFLATION, AND EQUITY. Contrary to the readers, I believe that the consequences of VAT increase will be worse. They write:

“Higher inflation expectations would be a positive development for Japan, which has been trapped by deflation for year”

I agree with the writers that inflation will happen right after the tax hike, as happened before.
I disagree about it's positive impact. Japan need deflation or the private sector won’t find the Japanese bonds attractive. 10 yrs Japanese bonds yield 1% now, but with deflation of 1%, it’s 2% real yield. What happens when inflation is 1%? The real yield is 0%. So by increasing inflation the bond appetite will decrease. With rising commodity prices, there could be additional inflation spike and that could be very negative. No matter what is publicly said, Japan need low deflation, more than inflation.

“Many have expressed concerns about the short-term impact of a VAT increase on the level of activity, but Japan’s own experience does not strongly support such views.”

I disagree again. VAT will decrease GDP because the Japanese economy is very weak. Any growth decrease will affect very negativly the finance of Japan. An increase of VAT will also add to the negative local views of the economy and will hurt the low-income population. I agree with the IMF analysts, that consumption tax is positive long-term, but we must live short-term now, because such an increase could not improve the situation and could expose how bad Japan is. There is another problem. Japan can’t implement the VAT increase fast. They can’t do an increase of 5% this year or next … they can increase by some degree with time so it’s a long-term measure. Again that will not help to improve much the finance of Japan and even if it do, it will be after 2015 as they plan to raise the VAT then.

Government spending is a huge positive for GDP, and if the money is borrowed, there is no negative impact on GDP as government deficits are not figured into it. However, growth through deficit spending borrows from the future, and for Japan, the future is about to arrive....

The Japanese will work out their problem one way or the other, but it will be at the expense of the younger generation. More taxes, fewer benefits, broken promises, maybe a selective default, less pay, etc. will be an ongoing part of their lives, and they all know it and have accepted it. Hyperinflation could happen, but I doubt it—any kind of inflation will, for the above reasons, make things worse.

The Zioconned USA is on the same track, but years behind. With the difference that we have about 30% inflation every decade... an insidious form of government tax and Fed-engineered theft....and utter corruption in DC, Wall Street and more....

South Africa to Lure Miners With $40 Billion Railways Boost....

2012-02-10T05:19:00.001-08:00

South Africa to Lure Miners With $40 Billion Railways Boost....

South Africa is ramping up spending on railways and roads to lure mining investment as the government fights off calls from within the ruling African National Congress to nationalize the country’s mines.

State-owned rail and port operator Transnet SOC Ltd. will spend 300 billion rand ($40 billion) over seven years to expand capacity on iron ore, coal and manganese export lines, President Jacob Zuma told lawmakers in his state-of-the-nation speech in Cape Town yesterday.

Mining “plays a critical role in the socio-economic development of the country,” Zuma, 69, said. “We remain committed to the creation of a favorable and globally competitive mining sector.”

Zuma’s government is battling to lure investment in mining as the ANC Youth League, led by Julius Malema, pushes for the seizure of mines in the world’s largest producer of platinum, chrome and manganese. An ANC-appointed task team to investigate the matter said nationalization would be a “disaster,” while recommending higher taxes.

“The mining industry has been battered by a lot of uncertainty with regards to policy, mostly centered around nationalization,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said in telephone interview. “They are trying to eliminate that uncertainty.”

Deterring Investment

Anglo American Plc, Xstrata Plc, Rio Tinto Group Plc and BHP Billiton Ltd. have operations in the country. Anglo American, the largest investor in South African mining, and AngloGold Ashanti Ltd. are among companies that have said the nationalization debate is deterring investment.

“There are no mixed signals about this,” Zuma said in an interview with the South African Broadcasting Corp. today. “Nationalization is not the ANC’s or the government’s policy.”

South Africa needs to boost mining to more than 10 percent of gross domestic product from about 6 percent, Trevor Manuel, head of the National Planning Commission, said on Feb. 6. Mining production declined 5.1 percent in the fourth quarter compared with a year earlier, the statistics agency said yesterday.

“President Zuma has made clear that the South African government is serious about growing the mining industry and making it more internationally competitive,” Anglo American spokesman Pranill Ramchander said in e-mailed comments. “We are particularly pleased with the commitment to develop and integrate rail, road and water infrastructure, developing the capacity of our ports and containing electricity price increases.”

‘Industrialize the Country’

Zuma is betting that increased spending on infrastructure projects will help offset slower growth in Africa’s biggest economy and reduce the highest jobless rate among 61 countries tracked by Bloomberg. High port costs and a lack of rail and power capacity have been cited by the government as one of the major obstacles to faster economic growth.

“The massive investment in infrastructure must leave more than just power stations, rail-lines, dams and roads,” Zuma said. “It must industrialize the country, generate skills and boost much-needed job creation.”

The government plans to send officials to the Middle East next week to seek investment from the region’s sovereign wealth funds, Collins Chabane, the minister in the presidency, said in an interview on SAfm radio today. Transnet’s finances are strong enough to fund the projects over seven years, the South African Press Association reported, citing Public Enterprises Minister Malusi Gigaba.

Growth Slows

South African Finance Minister Pravin Gordhan has pledged to cut the budget deficit to 3.3 percent of GDP in three years from 5.5 percent in the current fiscal year.

Growth will probably slow this year to below 3 percent from 3.1 percent in 2011 as Europe heads toward recession, Gordhan said on Jan. 26. That’s less than half the 7 percent annual expansion that’s needed to cut the jobless rate to 14 percent by 2020 from 23.9 percent currently.

Rail, road and water systems in the northern Limpopo province will help unlock coal, platinum, palladium, chrome and other mineral deposits in the region and encourage investment, Zuma said. Railway lines in the eastern Mpumalanga province will be expanded to connect coal fields to power stations, while transport links between the central Gauteng province and the eastern port of Durban will be improved, he said.

‘Lead and Guide’

Transnet will spend 200 billion rand on rail projects over seven years, including links that will enable it to transport 82 million metric tons of iron ore a year, up from 60 million tons currently, Zuma said. The rail operator will build a rail-line to carry 16 million tons of manganese to the Coega port on the country’s south coast.

The government will reduce port costs for exporters of manufactured goods, saving them 1 billion rand, the president said. Zuma has also asked Eskom Holdings SOC Ltd., the state power producer, to curtail planned price increases.

“We see our role as being to lead and guide the economy and to intervene in the interest of the poor,” he said.

South Africa’s rand weakened 1.1 percent to 7.6688 against the dollar by 11:54 a.m. in Johannesburg, trimming its gain for the year to 5.5 percent.

--Editors: Nasreen Seria, Gordon Bell, Ben Holland, Karl Maier.

Aussies are not sold on the F-35, JSF 'no match' for latest Russian fighters or Chinese radar....

2012-02-10T03:43:00.001-08:00

Aussies are not sold on the F-35, JSF 'no match' for latest Russian fighters or Chinese radar....

THE stealth qualities of the futuristic F-35 Joint Strike Fighter on order for the Royal Australian Air Force are overrated and the plane's combat performance greatly exaggerated, a defense lobby group has claimed....

Aussies’ modest proposal: Sell us F-22s, mate --

The complaints by Air Power Australia, longtime critics of the $16 billion JSF acquisition, were made last night before a public hearing of parliament's defense sub-committee.

Latest-generation Russian fighters such as the Sukhoi T-50 would easily defeat the F-35 in air-to-air combat, Air Power's Peter Goon said, referring to recent modelling tests by his organization.

"The aircraft we are planning to buy is carrying over 2000 pounds (900kg) of dead weight," Mr Goon said, referring to the JSF's big jet engines.

New Russian and Chinese air defense radars would also have little trouble detecting the JSF, a craft touted for its stealth qualities, he added....

The RAAF says it wants 100 US-designed JSFs to replace the decommissioned F-111 strike aircraft, with the first squadron supposed to be operating by 2018.

But the program has been mired in cost overruns and delays.

Last month US Defense Secretary Leon Panetta ordered the purchase of US JSFs to be delayed to allow Lockheed-Martin time to resolve production and technical shortcomings.

The company is contracted to deliver the first two training aircraft in 2014 with another 12 scheduled for 2015-17.

Defense Minister Stephen Smith has said he is now considering an option to order additional F/A-18F Super Hornets to fill any capability gap created by further JSF production delays....

Air Power Australia's website is here. One of the websites that I regularly read on the F-35 program is a transplanted American who now lives in Australia. His website is here.

The biennial 2012 Singapore Airshow, Feb. 14-19, the largest aerospace event in Asia and now among the world’s top three aviation events, will focus on regional fighter programs in Australia, Japan, Malaysia, South Korea and Taiwan.

Japan’s December decision to procure the Lockheed Martin F-35A fighter for its F-X program has given the Lightning II a boost in the region, despite reluctance within the Western market for the fighter. The $8 billion deal for 42 fighters will replace Japan’s aging Mitsubishi F-4EJ Kai Phantoms. The deal could evolve into an additional 100 to 120 F-35s to replace the Mitsubishi F-15J/DJ Eagles under the F-XX program in the middle of the decade.

The F-X program selected the F-35A over the Eurofighter Typhoon and Boeing F/A-18 Super Hornet.

South Korea has taken notice of Japan’s decision and the F-35 is seen increasingly in a favorable light, officials said. South Korea’s FX-3 fighter competition pits three fighters, the F-35A, Boeing F-15SE Silent Eagle and the Typhoon, in a $7.3 billion deal for 40 to 60 fighters. A decision is scheduled to be made in October.

Singapore is also considering the F-35 for its next fighter procurement. The nation-state is a Security Cooperative Participant member of the F-35 development program. However, officials said no decision is expected within this decade.

But the F-35 program hit a snag Down Under. Australia has just announced a review of its procurement of the F-35A and could defer the purchase until problems in the program are fixed. Australia has a requirement for up to 100 F-35A fighters, but has committed only to the first 14. Australia is a Level 2 participant in the F-35 development program.

Malaysia is debating the procurement of 10 fighters to replace MiG-29s. The Saab Gripen, Typhoon and Super Hornet are competing, but no decision is expected until after 2013.

BAE Systems and Lockheed are locking horns for the avionics upgrade and weapon systems integration on 135 KF-16C/D Block 52 fighters for the South Korean Air Force, estimated at $1 billion, and on 146 F-16A/B Block 20s for the Taiwan Air Force, estimated at $5.8 billion.

Both F-16 upgrade programs include the new Active Electronically Scanned Array (AESA) radar. AESA competitors for the refits are Northrop Grumman’s Scalable Agile Beam Radar and the Raytheon Advanced Combat Radar. Singapore is also a potential customer for the AESA for its F-16C/Ds and is watching both competitions closely.

The Jan. 31 announcement that the French Dassault Rafale defeated the Typhoon in India’s $11 billion contract for 126 fighter aircraft will spark discussion.

If Eurofighter and Boeing lose in South Korea and Malaysia, as they did in Japan and India, questions will be raised over the future of these fighters in the international market.

Airshow Attendance and Events

Despite the decline in the world economy, the biennial Singapore Airshow shows no sign of waning. This year’s airshow will be the largest to date with 900 exhibitors from more than 50 countries, including 22 country pavilions and 59 of the world’s top 100 aerospace companies, said Jimmy Lau, managing director of Experia Events, the show organizer.

“The Asia-Pacific region is riding on a wave of growth as the region continues to lead in providing new opportunities in the aerospace and defense industry,” Lau said. The Singapore Airshow is “strategically positioned as a gateway into this thriving region, [and] plays a crucial role as an effective springboard for industry players to tap into new opportunities.”

In 2010, the airshow closed with $10 billion in deals and announcements in spite of a recovering economy. This year will also feature a series of high-level conferences — the Singapore Airshow Aviation Leadership Summit and the Asia-Pacific Security Conference.

The show will have two pavilions this year focusing on new technologies: the Land Defense and Unmanned Systems Pavilion and the Green Pavilion. The Green Pavilion will feature an added component called “Deminars” or seminars and demonstrations combined, Lau said.

Airshow officials would not identify the number or types of government delegations visiting the show for security reasons, but the 2010 airshow saw 259 foreign government and international delegations from 80 countries and 43,459 trade attendees from 133 counties.

Security will be tight to safeguard delegations and exhibitors. Beyond the usual prohibited items, such as firearms and explosives, the exhaustive list includes spear guns, walking sticks with daggers, nanchakus, crossbows, spears and brass knuckles.

There will be much attention paid to Chinese exhibitors and delegations this year. Those attending the China Business Forum will hear presentations from Ng Pock Too, chairman and CEO from New Board Technology, and Zhang Xin Guo, executive vice president of the Aviation Industry Corp. of China.

Chinese companies exhibiting this year include China National Aero-Technology Import and Export Corp., Commercial Aircraft Corp. of China, AMECO Bejing and, for the first time at the show, Beijing Youtaishuncheng Technology Development Co. with a UAV exhibit.

The flying display will feature the Blair Aerosports’ Rebel 300, Singapore Air Force’s F-16 and F-15SG fighter jets, and the Royal Australian Air Force’s Roulettes flying Pilatus PC-9/A trainers. Despite rumors the F-22 Raptor would appear, Lockheed indicated the Raptor will be a no show.

Jung Sung-ki in Seoul, Paul Kallender-Umezu in Tokyo and Nigel Pittaway in Melbourne, Australia, contributed to this report.

Russia's Monopoly Over Gas About To Be Broken In Europe....?

2012-02-10T03:18:00.001-08:00

Is Russia's Monopoly Over Gas About To Be Broken In Europe with huge amounts of shale?

By Michael Kahn, Braden Reddall and Gabriela Baczynska

LESNIOWICE, Poland

When Wieslaw Radzieciak took office as the mayor of Lesniowice in the gently-rolling farmland of southeastern Poland 26 years ago, the Soviet garrisons that dotted the county were a stark reminder of which superpower was in control.

The signs of Russian occupation have vanished but over the past year a new superpower has moved in, its presence spelled out on the distinctive logos plastered on the trucks used by U.S.-based oil services company Halliburton.

It's all part of Poland's ambitious goal to exploit Europe's biggest estimated deposits of shale gas. Beginning in 2014, Warsaw wants to tap an estimated 5.3 trillion cubic meters of recoverable reserves of gas - enough, according to the U.S. Energy Information Administration, to supply Poland with more than 300 years of its domestic energy needs.

But the shale gas push is about more than energy. Poland wants to break its reliance on Russian energy and reduce Moscow's power over Europe. That is one reason why Warsaw has welcomed U.S. oil majors such as Chevron, Exxon Mobil, Conoco and Marathon, even though it risks igniting tensions with Russia.

"If this thing comes true, if the American technologies deployed here at some point are really able to produce this gas, then this means a winning situation for the whole of Europe really," Radzieciak said in an interview in his small office filled with sports trophies, banners from local teams and a large map of Poland on the wall. "It would create more competitiveness on the gas market, which is now dominated by Russia, and one side would not be able to force anything unilaterally anymore."

Western European capitals are just as eager as Poland to diminish Russian influence over supplies. Russia currently supplies 25 percent of deliveries to the European Union. Daniel Yergin, a Pulitzer-prize winning author and energy historian who included a chapter on shale gas in his latest book "The Quest," sums up Warsaw's thinking: "They're motivated to develop it economically and they're motivated to develop it politically."

But Russian officials, publically at least, dismiss the challenge, arguing it will prove Russian gas is cheap.

"Oh, we're so thrilled that they are starting to produce shale gas!" Sergei Komlev, head of contract structuring at Russia's state-controlled Gazprom told Reuters last week. "Look, we do not believe in this myth of shale gas, that it is cheap gas. It is not true."

FRACKING? NO PROBLEM

There is one good practical reason Poland has turned to U.S. companies to unlock its huge shale fields: American firms dominate shale gas technology.

The breakthrough came in 2003 when independent U.S. drillers, led by Devon Energy Corp, combined drilling at once-impossible angles, known as horizontal drilling, with hydraulic fracturing, or "fracking" - an older technology in which shale rock is cracked open by chemical-laced water blasted underground along with sand to prop the cracks open.

The United States produced 4.87 trillion cubic feet from shale gas in 2010, up from virtually nothing in 2000 according to the U.S. Energy Information Administration. The agency estimates shale gas will account for about 46 percent of U.S. natural gas production in 2035 -- an encouraging sign for Poland and other eastern European nations exploring unconventional gas.

But the torrid pace of shale development has also sparked a public backlash in the United States and elsewhere over fears that fracking pollutes groundwater and may cause earthquakes. Similar worries have led to a ban in France and Bulgaria and suspension in Britain. Fracking is also the subject of public debate in Germany.

A European Union study commissioned study found in January that EU law was enough for now to regulate shale gas exploration, although changes might be needed once Europe enters the development phase.

In Poland, so far, energy security concerns have trumped environmental worries. In comparison with countries such as Britain or Germany, the green movement is less powerful in coal-reliant eastern Europe. A late 2011 poll found that 73 percent of Poles backed developing shale while only four percent opposed exploiting the unconventional gas.

A short drive outside Lesniowice, workers at a Chevron-operated well-head keep a massive drill running 24 hours a day in search of the natural gas trapped in rock deposits.

"I have no worries at this stage, the technology seems 100 percent safe," said mayor Radzieciak, who estimated that potential revenues from shale could mean a more than 10-fold increase of his office's current annual budget of 10 million zlotys ($3.15 million). "People here are more opposed to wind farms than this."

THE FEARS IN MOSCOW

A Poland awash in gas could mean dwindling revenues and further loss of influence in a region Moscow once controlled with an iron fist. Are Russian officials too dismissive of the threat?

Moscow, some diplomats and oil analysts say, believes that Poland's weak infrastructure, among other problems, will slow the country's ability to exploit its gas.

"They are aware of the dangers," one Western diplomat said. "But they really don't believe shale will happen in Europe."

That could be why Gazprom felt confident enough to cut supply to Europe during the recent cold snap.

Others say Russia is only too aware of the shifting dynamic. Poland's investment in shale gas since 2009 has already shifted the terms of trade, according to Robert Hormats, the U.S. under-secretary of state for economic, energy and agricultural affairs. One obvious change: Russia and Poland renegotiated Poland's gas contract last year at terms very favorable to Warsaw.

Amy Myers Jaffe, an energy policy expert at the Baker Institute at Houston's Rice University, sees rival gas sources as a factor behind Russia's April deal with Exxon in which state-run Rosneft brought in the U.S. giant to accelerate its development of deepwater Arctic oil and gas.

Other analysts say Poland and other rivals were not a factor in that deal.

A Baker Institute report showed that Russia's market share of European gas fell from about a quarter to a fifth in the decade to 2010, partly due to increased use of natural gas diverted from the over-supplied U.S. market.

"Especially in gas, countries like Russia that were slow to the mark are losing market share and are going to lose more market share," she said. "There's a finite market which is going to go to shale, because I can do that quickly, and it doesn't require a $10 billion (LNG) installation where I have to put all that money at risk."

Poland currently relies on coal for most of its energy needs; natural gas, most of it Russian, accounts for about 13 percent of its supply. That gives Poland more leverage over Russia than is sometimes apparent.

"The last thing they (Moscow) want is anything that upsets their monopoly on gas," said William Perry, a former U.S. secretary of defense after a trip to Moscow to discuss nuclear proliferation. "I think it's fair to say that they are very concerned about it."

The Russian Energy ministry declined to comment.

POLAND'S BUMPY ROADS AHEAD

Much needs to be done in Poland if it is to wean itself off Russian supplies. Any boom will require thousands of skilled workers to build and operate wells and construct the roads and pipelines required to transport gas westward.

"For Poland to move forward . the key thing is going to be the scale-up," said John Claussen, Chevron's country manager for Poland.

One incentive for outside investors is the fact that gas prices in Europe are more than two times higher than in the United States. And with long-term contracts in Europe and Asia tied to oil prices, shale gas remains attractive despite worries about a weak economy that could cap future demand.

Poland's government has so far granted more than 100 exploration licenses, and hopes the eight currently active wells prove that extracting gas is viable-though the first two have so far been disappointing. [ID:nL5E8D74ST]

Malgorzata Maria Klawiter, an official from near Gdansk in northern Poland, remains optimistic. Gdansk has distributed 89 concessions covering about 85 percent of the region. In total, licenses cover 58,565 square kilometers, or some 18 percent of Poland's land.

Polish Deputy Foreign Minister Beata Stelmach said the next step is to enact legislation needed to attract investors and give them assurances they will see returns for exploration that can cost hundreds of millions of dollars.

"If we move to production level, then Poland's international position can change from a gas importer, to producer, or maybe eventually even exporter," Stelmach said. "This changes not only the domestic situation by improving energy security, but also strengthens the competitiveness of our country.

"Our Gazprom contract runs until 2022 and let's until then move within the framework of this contract. But, at the same time, we have to keep our fingers crossed to develop the shale gas project."

John Buggenhagen, the Warsaw-based exploration director for San Leon energy, said that while other former Soviet-bloc nations such as the Czech Republic, Hungary and Ukraine are exploring similar developments, it is Poland that offers the most promise.

"Look at the history of Poland," Buggenhagen told a recent shale gas conference in Warsaw. "We are only 23 years from the fall of communism and we are in an energy rush with a country that has been reliant on coal and on supplies from the east."

At Chevron's site outside Lesniowice, head of drilling Tim Nowak and his crew are doing all they can to make that happen. The site is a hive of activity with trucks owned by Halliburton parked in the lot, and drill parts and pipe casings strewn across the ground. The low rumble of the drill drones on in the background.

Nowak acknowledges the challenges of creating an industry from the ground up. But as he guides a tour around the first of Chevron's five exploratory wells in Poland, he remains positive. "Right now Poland is an exciting place to be," he said.

(Michael Kahn and Gabriela Baczynska reported from Lesniowice and Braden Reddall from San Francisco; with additional reporting by Melissa Akin and Vladimir Soldatkin in Moscow; Editing by Simon Robinson, Richard Mably and Sara Ledwith)

China Military Growth Spurs Asia Demand for Boeing, Lockheed....

2012-02-10T03:13:00.001-08:00

China Military Growth Spurs Asia Demand for Boeing, Lockheed....

By Kyunghee Park and Jasmine Wang

Feb. 10 (Bloomberg) -- China’s surging defense budget, the world’s second-biggest, is helping spur military spending across Asia, offering U.S. and European suppliers a chance to offset slowing demand at home.

Lockheed Martin Corp. and Boeing Co. fighters will be on display at next week’s Singapore Airshow as the two biggest U.S. defense contractors prepare to compete with Eurofighter and Saab AB for a $7 billion South Korean order. The contest follows similar competitions in Japan and India.

Asia-Pacific spending on fighters, missiles and other equipment is set to grow an average 4.2 percent annually to $114 billion in 2016, according to Frost & Sullivan, because of economic growth and tensions in areas including the South China Sea, the Korean peninsula and the Taiwan Strait. China’s defense budget, alone, may rise 14 percent each year through 2015, according to Goldman Sachs Group Inc.

“Increased government revenues means that more money is often available for defense spending,” said Tim Huxley, executive director at the International Institute for Strategic Studies Asia in Singapore. “Many parts of Asia are also insecure or governments have reasons to feel insecure.”

North Korean shelling and an attack on a warship killed 50 South Koreans in 2010. The Communist nation has an army of 1.2 million soldiers, ballistic missiles and enough plutonium for a half-dozen nuclear devices, according to U.S. military estimates.

China is working on its first aircraft carrier and the new J-20 stealth fighter. The country planned to increase military spending 13 percent to 601.1 billion yuan ($95 billion) last year, Li Zhaoxing, spokesman for China’s National People’s Congress, said in March. The nation is boosting the budget as it replaces aging fighters and places a greater emphasis on national security amid rising territorial tensions, Goldman Sachs analysts Ronald Keung and Tom Kim said in a Jan. 17 note.

Taiwan Fighters

Taiwan, which China considers to be a renegade province, is planning to upgrade 145 Lockheed Martin F-16s in a project that will cost about NT$110 billion ($3.7 billion), according to the Ministry of National Defense. The work may include installing new radars and navigation systems, according to a U.S. Defense Security Cooperation Agency statement last year.

South Korea is planning to purchase about 60 fighters, according to the Defense Acquisition Program Administration. The contenders will include Lockheed’s F-35, Chicago-based Boeing’s F-15, the Eurofighter Typhoon and Saab’s Gripen. The nation is also buying attack helicopters for its army and navy, as well as considering a purchase of unmanned aerial vehicles, according to the agency.

Japan Fighters

Lockheed, based in Bethesda, Maryland, won an order from Japan for 42 F-35 fighters in December. The jets may cost 1.6 trillion yen ($21 billion) to buy, operate and maintain over 20 years, according to the nation’s defense ministry. Singapore has also signed up as a development partner for the fighter jet. The U.S. has ordered about 2,440 in a $382 billion project that forms its biggest weapons program.

India last week named Paris-based Dassault Aviation SA as preferred bidder for a contract to supply 126 fighters. The planemaker’s Rafale was shortlisted with the Eurofighter Typhoon after the earlier rejection of offers from Lockheed, Boeing, Saab and Moscow-based United Aircraft Corp.

Eurofighter is now targeting the South Korean tender, along with opportunities in Malaysia and the Gulf, said Chief Executive Officer Enzo Casolini. The planemaker is a venture between BAE Systems Plc, Finmeccanica SpA and Airbus parent European Aeronautic Defence & Space Co.

Asia is “an important market,” Casolini said. “Exporting the Typhoon is also very important for the European industry and for the European economy.”

Eurofighter Slowdown

Eurofighter has slowed production as European governments cut military budgets amid austerity measures. Western European defense spending fell about 5 percent last year and may decline further this year, according to Fitch Ratings.

Asia-Pacific defense spending rose 14 percent last year, making it the fastest growing region, according to Frost & Sullivan. Japan is the biggest spender on defense in Asia behind China, with a $54.5 billion outlay in 2010, according to Stockholm International Peace Research Institute data. Third- ranked India spent $41.3 billion that year. The U.S. led global spending with a $698 billion budget.

China Jets

China is also seeking to take advantage of growing defense budgets by selling domestically developed equipment overseas. At the Singapore show, the export arm of Aviation Industry Corp. of China, the nation’s biggest aerospace company, will promote the JF-17 Thunder fighter, nicknamed Fierce Dragon, which was developed with Pakistan. It will also be highlighting the L-15 Advanced Trainer Jet, and the Yilong, or Pterodactyl, drone.

“These airshows give China defense companies a global stage, which reflects their growing power,” said Ken Zhang, a Beijing-based defense-company analyst with Founder Securities Co. Companies like AVIC also need to boost exports to help pay for research costs as they probably don’t get “fat margins” from sales to the Chinese military, he said.

Lockheed also sees Asia-Pacific demand for missile-defense technologies, replicating a trend seen in the last decade in the Middle East.

“We’re watching the same or similar types of overall security risks,” Chief Executive Officer Robert Stevens said in a Jan. 26 conference call with analysts. “The proliferation of technologies, the desire to get missiles of greater performance, longer range, more precision, and the desire for governments to have some protection against that ballistic-missile threat.”

Surveillance, Drones

L-3 Communications Holdings Inc., based in New York, has had interest from the region in its SPYDR manned, airborne intelligence, surveillance and reconnaissance system, as well as unmanned surveillance drones, Chief Executive Officer Michael Strianese said in a Jan. 31 conference call.

Raytheon Co., the world’s largest maker of missiles, expects 30 percent of bookings and 26 percent of sales in 2012 to come from outside the U.S., Chief Executive Officer Bill Swanson told analysts last month.

“Asia and the Middle East are important and are still growing,” Swanson said.

In the U.S., the biggest military market, Defense Secretary Leon Panetta presented an outline on Jan. 26 for $613 billion in spending for fiscal 2013. The proposal is part of an effort to cut $487 billion, or 8.5 percent, from $5.62 trillion in defense spending that had been planned for 2012 to 2021. Automatic spending cuts could force an additional $500 billion in reductions over a decade.

“The strong growth in emerging-market demand for defense equipment is a welcome respite to western military manufacturers,” Fitch said on Feb. 1. “In the medium term, the reliance on emerging markets for the defense sector will continue to grow.”

--With assistance from Sabine Pirone in London, Gopal Ratnam in Washington, Janet Ong in Taipei and Daniel Ten Kate in Bangkok. Editors: Neil Denslow, Vipin V. Nair

Mafiosi Magician Mario Dragui's ECB, Debt, cash and bonfires....

2012-02-10T02:13:00.001-08:00

Mafiosi Magician Mario Dragui's ECB, Debt, cash and bonfires....
By Chan Akya

So we have a deal. Do we have a deal? We have a deal. Well, kind of, but the finance ministers haven't signed off on it as yet. It may therefore change before you read this. It most certainly will change after you read this, irrespective of whether you read this on the intended publication date (February 10) or many months later. Welcome to the evergreen world of European sovereign debt restructuring.

This week's deal may or may not have been agreed? You see, here's how it is supposed to work. We give the Greeks 130 billion or so - no need to put a currency sign in front of the 130bn because it doesn't really matter. In return, the Greeks agree to 3.3bn of austerity - that is, budget cuts to that extent. No need to put a currency sign in front of this 3.3bn either, because it could be in baklava for all the good it will do for you anyway.

In any case, the 130 billion will be given to people to whom the Greeks owe money, not to the Greeks themselves. So it will be transferred from the European Central Bank (ECB) offices in Frankfurt through the clearing system in Frankfurt to banks in Frankfurt, and perhaps to the odd bank or two that dare to have branches in Paris or London instead. So to be clear, nothing will go to Athens anyway.

The Greeks also get some book entry adjustments. Instead of owing debt that looks like Mount Everest (this being an Asian publication), they will instead owe debt that looks like Mont Blanc. Even that mountain of debt will be worth, in terms of intrinsic purchasing power thanks to the below-market coupons they have to pay on it now and the next round of defaults, about the same as a pile that is as high as the average speed bump in Singapore but that is the denouement in the next act and one shouldn't rush to it quite yet.

Still with me? Marvelous. So these book entry adjustments are meant to lop 70% (50% from the principal balance and the rest from the losses suffered by the comically low coupon on the now-restructured debt) off the money owed by the Greeks to the private sector creditors, but they will be done voluntarily so that a miniscule amount of credit default swaps (CDS) outstanding on the debt is not "triggered". So an official sitting in Brussels (or is it Strasbourg?) gets to tick a box that says "Destroyed a useful little market that dared to speak the truth about European sovereigns".

Meanwhile, official creditors will get seniority so that they won't have to take any pain from this write-off. So that leaves the International Monetary Fund (IMF) and bilateral government aid donors (step forward, China) without the need to write off their debt. For IMF functionaries, this is useful because you don't have to write 100-page memos to the bosses explaining what happened (even if the situation was caused by those same bosses in the first place). Its even better for the central bankers from Asia or the Middle East because they, quite literally, dodge a bullet for buying Greek debt in the first place. So far, so good.

Except for the ECB, which purchased a bunch of the now-worthless debt of the same stock that was bought by the pirates; oops sorry I mean privates. It isn't allowed to take direct losses because that is the same as providing a financial benefit (this is the world of debt, stop trying to make logical sense of anything) to sovereigns, which the rules don't allow. Instead, the ECB would enter a complicated mechanism wherein it would take its Greek exposure and effectively exchange for paper to be issued by the European Financial Stability Facility (EFSF), which will then package them into an ABCD to sell to WXYZ. Okay, I may have made up the last two acronyms but you cannot be sure of that.

Yes, yes, but what about the contagion risks you ask, especially now that it looks like Portugal will be this year's big casualty. Oh that. Let's not get too wrapped up in it. You see the ECB has now made it easier for national central banks in Europe to accept pretty much any collateral in return for providing money to their banks.

You remember the three-year money supplied by the ECB at 1% in December? Well, there's hundred of billions, if not trillions, more where that came from. So when Portugal hits the reef later this year, its banks will be able to buy government paper, discount back with the national central bank for freshly printed money; and pocket the interest rate differential. Nice living, if you can get the job.

With all that monetary easing on the sly, we are talking hundreds of billions if not trillions. Once we talk numbers that big, the concept of value loses all meaning and you can see why I have insisted on not using currency signs in this article.

The Germans are apparently not too happy because they can't count very well with big numbers and all this talk of billions and trillions is proving quite vexing for them especially as the word "trillion" in German is spelled as "W-e-i-m-a-r". It also gives them a nasty nightmare about the chap who came after the Weimar Republic: a charming gentleman by the name of Adolf Hitler, to save you the trouble of looking up the Zioconned Wikipedia....

In any event, debt frenzy has now caught on in Europe, and there's a billion in bail-out money available for every outstretched hand. Amidst the frenzy, no one wants to listen to the Germans speaking sense. Indeed, the Greeks celebrated the bailout deal by having their national newspapers print images of Nazi flags being raised in Athens; about as clear as they can get about who they consider to be the villains of the piece.

Sheesh! You go and take money out of your pocket to help a fellow man in need and he calls you Nazi for doing that. The Germans are a hardy lot, who have impeccable manners and excellent financial sense. Where do they see this European experiment going now?

Suddenly, and as if the heavens themselves sent a message, we have news from Eastern Europe that provides an answer. With a worsening cold snap through Europe, the authorities in Hungary have taken to sending their cash notes to make fuel billets, that can then be used by the country's poor to burn and keep themselves warm. Cheaper than firewood, coal or natural gas, apparently.

Hungary, you will recall, is the Eastern European miracle economy that suddenly found out that printing loads of debt doesn't add up to an economic miracle. Its old forint aren't worth a lot these days, hence the move by the central bank to do something useful with them. At this rate, there will be surging demand for Zimbabwe dollars all over Europe, as they seek things to burn - such as the paper that Greek government debt is written on, rather than being collectors' items to be hung in people's toilets (I have a nice one from their past round of defaults in mine).
Imagine what the ECB can do with its trillions in euro currency notes in three years time when the next cold snap hits the continent. People from the Middle East and Russia, hoping to sell fuel at outrageous prices to the Europeans, will be sorely disappointed to learn about this new energy source....

India signals long-term partnership with Iran....

2012-02-10T01:51:00.000-08:00

India signals long-term partnership with Iran in trade and doubles Oil imports from Tehran....

http://www.indianembassy-tehran.ir/

India figured as Iran’s number one crude oil customer in January. That may be difficult to believe but it is indeed a statement of fact. Actually, India stepped up its imports of Iranian oil by 37.5 percent, which helped Iran offset a 50 percent cut in Chinese purchases resulting from a dispute in pricing. China now imports around 250000 barrels a day as against India’s 550000 barrels a day, according to a Wall Street Journal report.

Of course, what stands out is that New Delhi’s Iran policy is crystallising. India will concentrate on its self-interests in a highly fluid regional security scenario without in the least being ideological about the winds of change blowing through that region. This is the message one gets. Indeed, the US-Iran standoff is primarily geopolitical and it doesn’t concern India, which is in any case not in the business of ‘regime change’.

In all probability, Washington too will eventually get to see the futility of this standoff and will move toward engaging Tehran. Despite the western rhetoric, the fact remains that sanctions against Iran failed to work through the past 30 years. Even a noted Iran-baiter like French president Nicolas MOSSAD Sarkozy is warning that a military strike against Iran serves no purpose.

Now, coming back to India’s oil imports from Iran, Washington will continue to dissuade Delhi from trading with Tehran. The US state department spokesperson told reporters Tuesday that the talks with the visiting Indian foreign secretary in Washington included “how India might find alternative sources… This is a two-track policy, both to encourage countries to wean themselves from Iranian oil, but also to work with suppliers around the world to help countries find alternative sources of supply.”

However, what Washington overlooks is that India’s economic relationship with Iran as such is also at stake here. Without oil imports, India-Iran trade virtually packs up. Delhi’s robust efforts to work out a reliable payment mechanism for the trade with Iran underscores that it intends to not only sustain the present level of trade but do all it can to boost the trade by stepping up India’s exports to Iran. The government is mounting a “huge” business delegation to Iran in end-February to explore the opportunities for tapping those sectors that are being vacated by the western countries following their embargo against Iran. It is a long-term approach that India is adopting, keeping in view the fact that Iran is a rich country potentially which offers a big market for India’s exports.

The new payment mechanism — providing for 45% of Iranian oil to be settled for in Indian rupees — opens up interesting possibilities. Of course, Iran has the option to leave the money in the Indian state-owned UCO Bank at an interest rate of 4% or so. But to obviate currency risks, Iran may perhaps prefer to use the money to import from India or to use India as a trading hub to buy from third countries. Iran also can invest the money in Indian bonds or equities, which Delhi might welcome. In sum, the payment mechanism acts as a catalyst to build up the momentum of economic ties as well as broadening and deepening the partnership.

By M K Bhadrakumar

Banks would rather maintain fiction after fiction in order to hide utter corruption and Greed....

2012-02-09T05:26:00.000-08:00

http://www.youtube.com/watch?feature=player_embedded&v=gHsxLhY-EvE

Banks would rather maintain the fiction ....The ‘once in a 100 year tsunami’ argument is merely a justification for changing nothing...., deregulations and utter corruption at the Top be damned....

http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201

Stiglitz argues that for 30 years after the end of the Great Depression there was no financial crisis because a newly empowered SEC was on the beat, and everything worked. A deregulation trend that started under Reagan began stripping away those protections, with the eventual disastrous repeal of Glass-Steagle in 1999. The philosophical justification adopted by many economists, including Fed chairman Alan Greenspan, was that unfettered markets always lead to efficient outcomes....thus sweeping under the rug utter corruption and greed at the Top/down of ZOG USA and Wall street....

This belief was based on simplistic models assuming that markets were always perfect, always open, and that everyone had perfect information. Stiglitz’s own work on ‘information asymmetry,’ which earned him a Nobel Prize in economics in 2001, pulled the rug out from under this theory, because it showed that one party to a transaction always has more information than the other, often the seller.

The banks used this window to introduce super leveraged derivatives that had never been regulated, studied, or even understood. They then clawed open accounting loopholes that were so imaginative that not only were shareholders and regulators deceived about how much risk was involved, senior management was clueless as well. Instead of managing risk, they created risk.

A 2006 GDP that was 80% derived from real estate transactions and a savings rate that fell to zero meant that a severe crash was a sure thing. President Bush’s response was to unleash an extreme form of ‘trickledown economics,’ with the banks given $700 billion with no conditions attached. Intended to recapitalize the banks so they could resume lending to the mainstream economy, much of the money ended up being paid out in bonuses and dividends. Of the $180 billion used to rescue AIG, $13 billion went to Goldman Sachs, and much of the rest went to German and French banks. No wonder Main Street feels cheated.

The financial system is now more distorted than ever, with major institutions wards of the state, and smaller banks that actually lend to consumers and small businesses going under in record numbers, because the playing field is so uneven. There are too many structural conflicts of interest. The ‘once in a 100 year tsunami’ argument is merely a justification for changing nothing. Banks would rather maintain the fiction that the loans on their books are good, than make adjustments, meaning there will be more foreclosures in 2012 than in 2011 or 2010. No financial system has ever wasted assets on this scale, and the end result will be a national debt many trillions of dollars larger.

The $787 billion stimulus package was too small, and should have been at least $1.2 trillion, but there was no way Obama was going to get more out of this Senate. The 40% of the stimulus that was tax cuts was saved or put into Treasury bonds and created no immediate beneficial effects on the economy. More money should have gone to the states, which unable to deficit spend, are now a huge drag on the economy. But even this meager package was able to prevent the unemployment rate from rising from 14% to 22%, as it was set to do.... Any major spending cuts will produce ‘Hoover’ outcomes....

The outlook for the economy is bleak, at best...

Bulgaria at Euro-Caspian energy crossroads; Pipelines enter post-Nabucco era....

2012-02-09T02:21:00.000-08:00

Bulgaria at Euro-Caspian energy crossroads; Pipelines enter post-Nabucco era....
By Robert M Cutler

MONTREAL - Bulgaria, in southeastern Europe, is fast becoming a fiercely fought over territory amongst competing projects aimed at transporting Caspian natural gas to Europe.

US Secretary of State Hillary Clinton has just visited the country and is sending her Special Envoy for Eurasian Energy, Richard Morningstar, to Sofia next week. Alexei Miller, chief executive of Russian gas giant Gazprom is also scheduled to visit next week, following completion of a visit by a trio of Bulgarian government ministers to Moscow.

Morningstar's visit will come in the wake of a decision three weeks ago by the Bulgarian cabinet to ban the use of hydraulic fracturing ("fracking") technology by the US oil firm Chevron, after having awarded it a license to explore the potential of shale-gas reserves in the northeast of the country.

At stake is the geo-economic shape of the extended and complex regions around the Black Sea and Caspian Sea basins, stretching from southeastern Europe to Central Asia, not to mention the future of the energy ledger of the European Union, which already imports gas from Russia via the newly opened North Stream pipeline under the Baltic Sea to Germany.

The newly announced Trans-Anatolian Gas Pipeline (TAGP, running east to west across Turkey, also called TANAP after its initials in Turkish), agreed bilaterally between Azerbaijan and Turkey just weeks ago and to be four-fifths directly financed by Azerbaijan, has stolen a march on the long-planned multilateral Nabucco project, backed by the European Union.

When first announced at the end of December, the TAGP was assigned an initial design volume of 16 bcm/y. In January it was made public that the final capacity would be set at 24 bcm/y. This figure has recently been raised to 30 bcm/y, equivalent for all intents and purposes to Nabucco's projected design volume of 31 bcm/y.

At the same time, advocates of Russia's South Stream project are trying to get their foot in the door by the end of this year, claiming landfall in Bulgaria in order to circumvent conditions of the EU's new energy package. Yet it is difficult to see how South Stream would increase security of supply to Bulgaria, which already depends on Russia for 90% of its natural gas.

Although this represents only 10% of its total primary energy supply, half of that goes for electricity generation, another quarter for industrial production, and most of the remainder for transport systems. A third of Bulgaria's total energy consumption is sourced from highly polluting coat and peat, and nearly a quarter from nuclear plants. The desire to move to more environmentally friendly natural gas is clear.

A number of obstacles stand in the way of the successful completion of the South Stream pipeline. Perhaps the most notable is the same obstacle over which Russian political and gas industry officials have continually criticized the Nabucco project: no sources for the gas to be transmitted have been identified.

South Stream's projected volume has always been declared at 63 billion cubic meters per year (bcm/y), and it is now clarified that this would putatively consist of four 15.5 bcm/y strings. In practice, that could mean starting with one string of 15.5 bcm/y with the potential for scaling up if quantities ever become available.

Nor is the route definitely established. Up until the end of December, Gazprom had touted two legs for South Stream, one through southeastern Europe to Austria and the other across Greece to Italy. Six weeks after the inauguration of the present Greek prime minister, Lucas Papademos, a technocrat and political independent, Gazprom's Miller and Russian Prime Minister Vladimir Putin in a joint television appearance discussed with one another dropping the second of the two legs.

Yet four weeks later, after Miller met in Moscow with Antonis Samaras, the head of Greece's New Democracy party, the company issued a statement putting it back on the table. Two weeks after that, an unnamed former energy minister in Athens told the weekly New Europe that the construction of the southern branch would not begin before 2015 (if it ever did). Yet the design criteria for the South Stream pipeline remain officially unchanged.

It is of interest that in November last year, before the TAGP was officially announced, Bulgaria and Turkey agreed on a natural gas contract for supply of gas via the ITG to a 115-kilometer Interconnector Greece-Bulgaria (IGB). At the time, the volumes being discussed were on the order of 1-3 bcm/y, with the possibility this might rise to 5 bcm/y. That quantity exceeds Bulgaria's current needs and could therefore allow for gas being sold onwards to other southeast European countries.

A small additional number of relatively inexpensive reversible interconnectors in the region such as the IGB (such a the already completed Arad-Szeged line from Romania to Hungary) could implement a gas ring in Southeast Europe sourced from Azerbaijan.

Thus, although the Nabucco project increasingly looks to be falling by the wayside, the new TAGP project could in effect take its place, and Bulgaria could draw advantage from this development....

Pipelines enter post-Nabucco era....

http://www.silkroadstudies.org/new/inside/turkey/2010/100621B.html

For more than a decade, Nabucco was the only pipeline project (and lately, the frontrunner project) for transporting Caspian gas to the European Union. Nabucco relied exclusively on Azerbaijani gas for the pipeline's first stage (the hopes to add gas volumes from northern Iraq proved unrealistic in any usable time-frame).

The European Commission worked hard to align the financing and gas supply guarantees for Nabucco, a strategic project on three counts: its design capacity (31 billion cubic meters [bcm] annually), its market destinations (Bulgaria-Romania-Hungary-Austria-Germany, all of which need diversification from Russian Gazprom), and its role to provide a transportation solution for Azerbaijani and Turkmen gas through the same pipeline.

The European Commission's efforts notwithstanding, Nabucco lost momentum and, ultimately, credibility in its existing form. The tipping point may be traced to November-December 2011, when several adverse developments converged.

The European financial crisis deepened (and the prognoses worsened), indefinitely postponing any decisions by lending institutions to finance Nabucco. Nor did the project's management come forth with a long-expected correction to its cost estimates. The Shah Deniz gas producers' consortium in Azerbaijan could no longer postpone the investment decision in that project's Phase Two, which necessitates determining the transportation solution in early 2012.

With that clock ticking, Nabucco was seen to be far from ready with the solution. Conversely, the Nabucco project's planning assumptions outran the slow development of a trans-Caspian solution for Turkmen gas.

Ultimately, British Petroleum and Azerbaijan's State Oil Company (the most influential shareholders in the Shah Deniz producers' consortium) offered in October and December 2011, respectively, transportation solutions to replace Nabucco outright.

BP's concept, the South East Europe Pipeline (SEEP), however nebulous at this stage, would eliminate Nabucco in its entirety, replacing it with a non-strategic, 10 bcm per year concoction of other owners' pipelines along Nabucco's original route. BP is expected to develop this concept into a project.

The Azerbaijan-Turkey project, the Trans-Anatolia Gas Pipeline (TAGP; Turkish acronym TANAP), would replace Nabucco across Turkey's territory, with a planned capacity of up to 30 bcm per year, comparable with Nabucco's in strategic significance. This would necessitate one or several continuation pipelines into EU territory. A reconfigured Nabucco could become one such continuation pipeline within the EU, whether under the Nabucco brand or a different name.

Nabucco's six shareholders are staying with the consortium and the project (while the Austrian management is redoubling promotional efforts). No shareholder would quit the Nabucco consortium. However, Nabucco's German shareholder RWE is multiplying its public overtures to TAGP. Turkey's government (also a Nabucco shareholder through Botas) announces that it has done "more than its share" for Nabucco and is "prioritizing" TAGP, which is "easier to implement" than Nabucco.

Romania, historically the most loyal partner in the Nabucco consortium, is drawing its own conclusions from Nabucco's loss of momentum. Bucharest seeks to revive the AGRI proposal for liquefied natural gas (LNG) transportation from Azerbaijan via Georgia and the Black Sea to Romania. AGRI is yet another competitor (albeit a small one) against Nabucco over Azerbaijani gas.

TAGP does not invalidate Nabucco's basic rationale. At its core at least, that rationale is common to Nabucco and TAGP: transporting Azerbaijani and, potentially, Turkmen gas to Europe (rather than Russia) through a dedicated transit pipeline, on a route outside Russian control. However, Nabucco seems far from ready to proceed with implementation, while Azerbaijan is capable of implementing its TAGP project without delay from its own resources. Emerging as a significant "gas nation", Azerbaijan could no longer wait indefinitely for Nabucco to proceed.

Gas extraction in Azerbaijan is expected to reach 50 bcm annually by 2025, as new fields come on stream in addition to Shah Deniz. The lion's share of that production will be available for export to points west (Georgia, Turkey, Europe). At present, BP and possibly other Shah Deniz consortium members want a quick decision in early 2012 on how to sell those 10 bcm post-2017. Azerbaijan, however, must plan for the longer term and the larger volumes.

Azerbaijan holds the main cards as gas producer country, with cash reserves to build a pipeline that Europe seems unable to finance, and coherent planning that eludes Europeans outside the European Commission.

Thanks to Azerbaijan, moreover, Turkey can finally advance toward its goal of becoming a transit country for Caspian and Mideastern gas to Europe. Other transit projects, on which Turkey had based that hope, never came close to implementation via Turkey (Russian Blue Stream Two, Iranian gas, Nabucco, Arab Gas Pipeline from Syria) while gas projects in northern Iraq or offshore Cyprus look unrealistic for the foreseeable future.

Thus far, it is mainly Azerbaijan that has enabled Turkey to become a transit country for oil (Baku-Tbilisi-Ceyhan pipeline) and it is now poised to make Turkey into a major transit country for gas. Ankara could jeopardize that prospect, however, in case it reverts to its former ambitions to become a "hub" country, rather than a transit country.

Caspian gas politics and the investment decisions are clearly moving into a post-Nabucco era. Among the five rival solutions (TAGP, SEEP, Nabucco, ITGI, TAP), the Azerbaijan-led TAGP holds an unmatched combination of comparative advantages. Baku's decision to proceed with TAGP in partnership with Turkey has cut the decade-old Gordian knot of Caspian pipeline projects.

Vladimir Socor

A pipeline from Russia to South Korea through North Korea have been given a nod of approval...

2012-02-09T02:14:00.000-08:00

A pipeline from Russia to South Korea through North Korea have been given a nod of approval; grid-lines and railways on the Korean Peninsula (connecting to the trans-Siberian railway) to come forward as well....

http://davidfday.com/category/blog/russia/

The Russian winter of discontent....
By Yong Kwon

The Eurasian steppes historically represented a serious security dilemma for Russia's rulers; without natural barriers to hinder the advance of invaders, the flat Russian borderlands proved nearly impossible to defend using pre-modern means. In the post-Soviet era, the new Russian Federation no longer needs to fear steppe horsemen or Western European troops marching towards Moscow, but controlling the Eurasian landmass still represents a major administrative challenge.

In order to best maximize its own interests alongside other political heavyweights that hold stakes nearby, the Kremlin must create a coherent and cohesive foreign policy that spans several pivotal and conflict-ridden regions. With all things considered, it is only natural that Moscow's foreign policy has evolved to be pragmatic with a long-term outlook.

Looking out at the world from inside the Kremlin helps explain quite a few things about Russia's foreign policy behavior that is not so obvious from outside its walls. For example, Professor Daniel Drezner asked in a Foreign Policy blog in January why Russia is "freaking out" when the Barack Obama administration has done so much towards the "reset". [1] In particular, the article probes why China is not being as rhetorically aggressive as Russia when the administration's "pivot" appears to be directly confronting Beijing's foreign policy.

Drezner forwards several hypotheses ranging from Russia's diplomatic style to internal weakness stemming from institutional dysfunction and demographic decay. While these conditions may all be peripherally valid, the article fails on one basic presumption: that there actually has been a Russia-US reset.

Listening to Washington's rhetoric on relations with Russia, it sounds as though the Obama administration went to great lengths to appease Moscow. In reality, the most significant step the current White House took in improving relations with the Kremlin has been the ratification of the new Strategic Arms Reduction Treaty (START). While an important landmark in US-Russian relations, significant portions of the treaty were already formulated under the George W Bush Administration; in other words, it does not symbolize the "reset" that President Barack Obama forwarded when he came into office.

What the Russian leadership expects (or rather expected) from a "reset" is a change from the Bush-era policy of unilateralism and showing "commitment to the notion that Russia can be a viable and trustworthy partner to the United States regardless of the state of Russia's domestic affairs". [2]

Considering the events of 2011, the Obama administration has not executed foreign policy in ways that would appear to be fundamentally different from the preceding administration nor has it refrained from commenting publicly on Russia's domestic conditions (albeit in reaction to Moscow's own statements).

From presidential candidate Putin's perspective, the Libyan bombing campaign was a repetition of "Western" unilateralism under president George W Bush, even if the US managed to get an endorsement from the United Nations. Since an abstention on Libya was clearly not strong enough of a message to Washington, is it any wonder then that Moscow is so firmly against (alongside Beijing) any signs that may indicate Russian approval of North Atlantic Treaty Organization (NATO) intervention in Syria? The Russian leadership is not "freaking out" as Drezner suggests, it is simply reacting to past experience.

Ultimately, the US has no leverage over Russia because Washington has become a superfluous constant in areas where Moscow feels the need to expend greater attention. A key example is Northeast Asia.

Putin has long looked to the Far East as a key area of engagement for the Russian Federation. The giant Eurasian state's reorientation towards Northeast Asia is not only a natural response to the rapid economic growth in the region, but also an economic necessity as gas fields in Western Siberia become slowly depleted. Since Russia will not be able to easily extract the resources under the East Siberian permafrost without international investment and cooperation, relations with key economic players in the area must be vastly improved.

Naturally China is at the center of Russia's attention. Both as a partner in development, but also as a key market for the mineral wealth soon to be excavated. Therefore, standing with Beijing on key areas on contention such as Iran and Syria plays a dual role of securing Russia's long standing goal of balancing the influence of the United States in the Middle East and securing channels for further cooperation with the People's Republic of China.

However, Moscow does not want to be overly dependent on exports to China; ties with South Korea and Japan also need to be developed. Even here, among the closest allies of the US in the region, the Russian leadership does not need to mind the state of its relationship with Washington. Both Japan and South Korea are increasingly anxious about their over reliance on Middle Eastern oil being delivered over contentious sea lanes.

In particular, the widening of sanctions on Iran and rising tensions on the Straits of Hormuz have rattled both countries (See East Asian energy dilemma over Iran Asia Times Online, January 24, 2012 ). Unsurprisingly, Moscow's plans to develop infrastructure for the extraction of mineral resources in the Russian Far East have already created "conspicuous fixation for Russian suppliers". [3]

In fact, plans to develop a pipeline to South Korea through North Korea have been given a nod of approval by Kim Jong-eun and will proceed as planned. [4] Once the pipeline is established, one can expect more concrete plans for the construction of gridlines and railways on the Korean Peninsula (connecting to the trans-Siberian railway) to come forward as well. Such development would open South Korea to overland shipping to Europe, significantly cutting the cost of exports.

The key piece of the puzzle is North Korea. Since the mid-1990s, Moscow had looked to Washington's leadership to maintain stability on the Korean Peninsula and coax Pyongyang into negotiations. However, the US has simply opted out of that role by giving China the chance to develop closer ties with North Korea through economic cooperation and providing aid.

This is despite Pyongyang's acceptance of negotiations on its nuclear project with Washington alongside talks for food aid. Recent reports suggest that China has delivered 500,000 tons of food aid to North Korea. [5] If true, Washington's already diminished leverage over Pyongyang, alongside America's importance to Russia's development strategy, has been further reduced.

In terms of developing ties with Japan, Tokyo already wants to find a resolution to the Kurile Island dispute in order to re-orient its defense posture from facing Russia to develop naval and air power to better confront China. The necessary conditions for a resolution favorable to Moscow have already been laid down.

As evident in these key areas, Russia does see the need to link its interests to that of the United States as it had during the 1990s and the early 2000s. More than a reflection of Moscow's insecurities, recent developments actually show how much Washington's policies have reduced its position in the world.

At the same time, Russia's policies are largely reactive and not based on irreversible misgivings about the United States. As such, specific policy alterations on key issues such as Iran or North Korea could change the Russian Federation's outlook and rhetoric towards the United States.

For now, as the unusually frosty cold front blows over Eurasia, the Russians have come boldly forward against the United States for very pragmatic reasons. Considering how synonymous the Russian winter is with the myth of indomitable Russia, one must wonder whether it will favor Moscow once again.

Notes
1. Daniel W Drezner. Why is Russia freaking out more than China? Foreign Policy, January 19, 2012.
2. VolodymyrDubovyk. The US-Russia Reset. New Approaches to Research and Security in Eurasia Memo No. 171, 2011.
3. Adam N. Stulberg. Russia's Energy Security Dilemmas in Northeast Asia. New Approaches to Research and Security in Eurasia Memo No. 170, 2011.
4. Henry Meyer. North Korean Leader Kim Backs Natural-Gas Pipeline, Russia Says. Bloomberg Businessweek, February 3, 2012. 5. South Korean activists say North Korea has received food aid from China. Voice of America, January 31, 2012.

Canada has been "driven" into the arms of the Chinese....

2012-02-09T01:30:00.000-08:00

Zioconned Canada has been "driven" into the arms of the Chinese....and China’s Achilles’ Heel....

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/chinas-canadian-energy-assets-are-adding-up/article2198656/

The Canadians might not be allowed to build a pipeline going south to the Texas Gulf Coast, so now they’re determined to build one going west to the Canadian Pacific Coast.

After President Obama rejected the Keystone XL pipeline last month, the conservative Canadian government has begun looking for another potential buyer for the oil that was intended for the pipeline. That buyer is China, the energy-craving economic giant that’s already invested more than $16 billion dollars in the Canadian oil industry in the last two years.

Canadian prime minister Stephen Harper went to China Tuesday with a delegation of 40 Canadian business leaders to discuss energy....

In a word: PIPELINE.

Among members of the Texas congressional, there’s regret and disappointment that the oil intended for the U.S. may now be purchased by China.

“It’s outrageous and unacceptable to drive our friends the Canadians into the arms of China,” Rep. John Culberson, a Houston Republican, told Texas on the Potomac. “Next to our national debt, the communist Chinese government is the biggest threat to American national security in the 21st century.”

Culberson blamed the Democratic administration for the latest twist in U.S.-Canadian relations.

“President Obama has once again strengthened the Chinese, weakened the United States and driven one of our best friends into the arm of our worst enemy,” he said.

Culberson isn’t the only Texan lawmaker who is sad and angry to see the Canadian oil going to China instead of United States.

“It means that we have to import from Saudi Arabia and other countries that may not be nearly as friendly toward the United States as Canada. It makes so much more sense to import from our Canadian ally,” Rep. Gene Green, the Democrat from Houston.

The Republican majority in the House of Representatives is still trying to make the pipeline happen through legislation that Green recognizes “probably hasn’t got a chance to pass through the Senate.”

http://winnipeg.ctv.ca/servlet/an/local/CTVNews/20120209/canada-china-free-trade-talks-120209/20120209/?hub=WinnipegHome

China’s Achilles’ Heel....

By Minxin Pei

With little in the way of force projection, China’s dependence on natural resources in unstable parts of the world could undercut its economic ambitions. There are limits to free-riding....

The seizure of 29 Chinese workers by Sudanese rebels in the southern part of Sudan last week exposed one of the most vulnerable links in China’s ambitious plan for extending its economic influence abroad. To be sure, this isn’t the first time workers sent by China to dangerous regions were kidnapped or harmed. Five years ago, three Chinese engineers were murdered by a militant group in Pakistan. When civil war broke out in Libya nearly a year ago, Beijing had to dispatch a fleet of ships and airplanes to evacuate more than 30,000 Chinese workers from the country.

Despite the release of the workers this week, such incidents – and there will be many similar ones in the future – raise several important questions about China’s strategy of “going out” in general, and its quest for natural resources in particular.

The motivations for Beijing to expand its economic reach across the globe are easy to understand. The Chinese economy is resource-intensive and depends on secure access to energy, minerals, and other commodities to sustain its growth. Unfortunately, the geopolitics and economics of natural resources are tricky. Most of them are located in unstable or war-torn countries, with poor infrastructure, corrupt governments, and intractable ethnic conflict. The global markets for natural resources are notoriously volatile and frequently go through boom-bust cycles. Worse still, as a late-comer to the scene, the low-hanging fruits have already been picked by entrenched and powerful Western multinationals, such as Exxon, Shell, BP, Rio Tinto, BHP, and the likes, which have established seemingly unchallengeable advantages in technology, capital, and risk management.

Faced with such a strategic landscape in the competition for natural resources, China has long concluded that it will risk letting its economic security held hostage by the vagaries of the market and the entrenched Western giants if it doesn’t make a concerted all-out effort to gain direct access to strategic natural resources. The policy and actions flowing from this strategic assessment in the past decade are easy to see: China has become the world’s most aggressive player in competing for access to natural resources. It has tied its foreign aid program to gaining concessions on exploiting natural resources. Its state-owned companies, supported by access to cheap (if not free) credit from Chinese banks, often outbid foreign competitors in securing contracts and exploration rights. It is willing to take excessive financial and security risks and encourages its companies to venture into areas, such as Sudan, Zimbabwe, and Congo, where their Western rivals don’t dare to tread.

But in executing this strategy, the Chinese have found themselves facing a fundamental dilemma: it’s a rising power with global economic interests, but no global power projection capabilities to protect these interests.

On most occasions, to be sure, China can free-ride on the security provided by the West, especially the United States. For example, with the U.S. Navy patrolling the sea lanes and keeping a close watch on conflict-prone areas, China gains free protection. One of the most illustrative cases is China’s $3 billion investment in an Afghan copper mine, which is protected by the U.S. Army.

Yet, free-riding has its limits. There are areas where conditions are so unstable that even Uncle Sam doesn’t want to risk the lives of its soldiers. Sudan is one such country.

If China insists on going it alone in its quest for resource security, its only option for protecting its sprawling interests is to develop commensurate power projection capabilities. This will be both costly and, more worryingly, cause anxieties among its neighbors and Western countries since it will entail sustained and massive increases in China’s military spending. This option, which will take years, if not decades, to implement, won’t meet the more immediate needs of providing security for Chinese economic interests in dangerous places anyway.

Without its own power projection capabilities, China will have to do one of two things.

First, it can simply do nothing and let itself be literally held hostage by the geopolitical and security risks prevalent in the regions where it has made valuable investments. This is hardly an attractive option because China risks losing its investments and its government, which has been subject to fierce criticisms in the Chinese cyberspace after the kidnapping of Chinese workers in Sudan, will appear weak, incompetent, and helpless.

Second, China can alter its existing go-alone strategy and join the West in ensuring collective resource security. This requires a fundamental change in Beijing’s mindset. (And obviously, similar adjustments are needed in the West as well.) Instead of viewing the quest for resources as a zero-sum game, China will see that its interests are closely linked with those of the West, and that it can make its investments and operations in far-flung regions more secure by pooling its efforts with those of the West.

Such a cooperative strategy will likely yield more benefits than China’s cut-throat competitive strategy. On the financial front, China won’t be wasting money trying to outbid its Western rivals (who will be partners). Its development aid will be more aligned with the goals of seeking conflict resolution and improving governance, rather than with obtaining competitive advantages in securing contracts. By partnering with the West in making resource-rich developing countries more stable, China will in fact reduce the risks of its investments and economic interests there. Even in crises such as the ongoing hostage drama in Sudan, a China in close cooperation with the West may seek direct assistance from its partners that have the requisite military capabilities in these areas. So for China, shifting its current strategy will be truly win-win.

To a Chinese leadership steeped in realpolitik and paranoia about the West, this proposal may sound naïve. But the alternatives are far worse. If Beijing stays on its present course of seeking resource security at any cost, it will run into crises far worse than the one they have just encountered in southern Sudan.....

What Canada's ills tell us about Iranian smugglers...

By Steve LeVine

The history of sanctions and smuggling suggests that China and India will be big winners from oil sanctions slapped on Iran -- among just a few remaining large buyers of Iranian crude, they will enjoy immense bargaining leverage with Tehran, and pay far lower than the global crude oil price. But how much will that discount be?

If a crisis faced by Canada is any clue, Iran's crude oil revenues -- $73 billion in 2010, accounting for most of the state budget -- are going to plunge: In Canada's case, a transportation bottleneck into the United States is forcing local producers to sell their crude at a 33 percent discount, the lowest price in some four years, write the Financial Times' Gregory Meyer and Ed Crooks. Specifically, we are talking a price of about $67 a barrel, compared with nearly $100 a barrel for the U.S. traded blend, called West Texas Intermediate.

(Before you round up a bunch of friends with pickup trucks and head for Hardisty, you'd need to buy a considerable number of barrels to profit from this anomaly. But one would expect deep-pocketed entrepreneurs to be figuring out how to add tanker cars to the rail line.)

Sanctions and bottlenecks are different animals -- the first can result in a seller's inability to legally market his product most places in the world; the second is a purely technical hindrance. Yet in action, they can behave similarly, and -- in the absence of hard data (at least that I have seen) on how much of a discount China, India, middlemen and smugglers are squeezing from Tehran (pictured above, Iranian President Mahmoud Ahmadinejad) -- Canada's suffering is instructive.

Last month, the Obama Administration rejected expansion of the Keystone Pipeline, which would have carried an additional 800,000 barrels a day of crude from Canada's oil sands to Houston. But, while that decision (likely to be reversed after the U.S. presidential election, regardless who wins) contributes to an atmosphere of uncertainty -- the nourishment of oil speculators -- it is not the specific reason for the bottleneck: Even if the expansion had been approved, it would not come on line for at least another year.

Instead, the trouble is that there is already a glut of supply, and too few ways to get it to refineries. What you have is a combination of booming Canadian oil production -- up by about 10 percent over the last year -- that is bumping up against rising North Dakota crude. In all, western Canada and North Dakota are producing some 2.5 million barrels of oil a day, a volume that continues to grow.

For some months, experts have suggested that conventional land transportation -- railroad cars, tanker trucks and alternative pipelines -- would manage to pick up the slack. But they are wrong. Producers do not know what to do with their crude. There is "full storage in Alberta [and] maxed-out truck and barge," Deutsche Bank oil analyst Paul Sankey told clients in a note yesterday.

If you look at prices, the transportation trouble actually goes back to the beginning of December, when the Canadian blend went from selling at an $11-a-barrel discount to West Texas Intermediate to an approximately $37 discount this week.

The bottleneck has attacked not only the select Canadian crude, but caused a chain reaction and forced down the price even of West Texas Intermediate. Residential and industrial consumers will not weep. Neither will China and India. But Iranian leaders might.

China-Canada boost ties...
By Robert M Cutler

MONTREAL - Canadian Prime Minister Stephen Harper in Beijing this week signed with Chinese Premier Wen Jiabao a declaration of intent for a Foreign Investment Promotion and Protection Agreement (FIPA), after 18 years of negotiations between the two countries. Separately, a US$1 billion fund will facilitate Chinese investment in Canadian resource companies.

Under FIPA's terms, Canadian mining companies would acquire legally binding rights and obligations in China, while Chinese investment in Canadian industries such as coal, iron ore, and potash would be likewise facilitated. The agreement, one of several reached this week, will enter into force following legal
review and ratification by the respective governments.

Chinese state-owned enterprises invested US$5 billion in Canada's resource sector in 2011 alone, nearly one-third of the nearly $18 billion they are reported to have spent buying oil and gas companies worldwide last year.

The Canadian side is hopeful that the FIPA with China will promote a better equilibrium in the balance of trade, as China has become Canada's second-most important trading partner after the US. In 2010, Canada's trade deficit with China was US$29.7 billion out of a total trade turnover (imports plus exports) of $54.7 billion.

The FIPA is not a full free-trade agreement - Canada has FIPAs in force with two dozen countries and is negotiating with nearly a dozen others - but the two sides this week made diplomatic noises about their interest in exploring the feasibility of one. Given the nearly two decades required to negotiate the FIPA, one should not anticipate a free-trade agreement anytime soon.

The FIPA is intended to give Canadian companies more protection against discriminatory and arbitrary practices and stabilize, or at least make predictable, their business environment in China. In practice, it is hoped that it will facilitate the implantation into China's economy of small- and medium-sized Canadian businesses that cannot afford to take big risks. The FIPA will not supersede Canada's existing foreign investment regime, so acquisitions and investments by Chinese firms in Canada will still be subject to review by Ottawa.

China at present accounts for 6% of Canada's world trade, and although Canada is even a smaller fraction of China's, the doubling of the level of bilateral trade in just two years has vaulted Canada into the list of China's top 10 trading partners.

Harper with his visit to China aims to diminish Canada's dependence on trade with the United States and follows President Barack Obama's decision not to build the TransCanada Keystone XL pipeline, which would have carried petroleum from Canadian oil sands in Alberta province to existing refining facilities on the US coast of the Gulf of Mexico.

Canada's oil sands are the third-largest crude deposit in the world, estimated at 170 billion barrels. The US State Department blocked approval of the pipeline on the pretext of insufficient time for environmental review. Observers of American politics attribute the decision to Obama's need to shore up support among left-of-center members of the US electorate, with a view towards the presidential elections in November this year. He has come under criticism for rejecting a jobs-producing project and forcing America's most faithful and dependable trading partner to seek other markets.

Canada is considering building the "Gateway" pipeline to carry crude from Albert to the Pacific coast in British Columbia, whence tankers could take the oil to China. The consultation and decision process will still take years, and the Keystone decision could be reversed should a Republican become president next year. Nevertheless, Harper has declared that "Canada's national interests" require the country to diversify its foreign trade, regardless of the ultimate fate of Keystone.

The Keystone decision is not at the origin of Canada's search for trade diversification but may accelerate this. As recently as 2000, trade with the US represented 85% of Canada's total international commerce. At the beginning of the present decade, that figure had fallen to slightly under 75% and it is projected to decline to roughly 67% by the end of the decade.

This evolution reflects, more than anything else, the creation of large middle classes in China itself and in numerous formerly "underdeveloped" countries across the world. International demand for Canada's raw materials, including industrial and precious metals, has increased as the now more affluent members of those population strata build houses, buy jewelry, and generally approach consumption profiles once, and not even two generations ago, achievable only in the industrially developed West and the Cold War-era 24 members of the Organization for Economic Cooperation and Development (OECD).

The FIPA declaration of intent was not the only document signed in Beijing between the two sides in the course of Harper's still ongoing five-day visit. Others covered the aviation, agriculture, energy, finance, telecommunications and science and technology sectors. A bilateral tax treaty dealing with double taxation was also agreed.

These general diplomatic and political agreements do not include a large number of particular cooperation agreements signed with specific Chinese firms by the over three dozen Canadian industry leaders who accompanied Harper to Beijing.

Notable among these is memorandum of understanding (MoU) between the large Canadian investment bank Canaccord and the Import-Export Bank of China to create a "Canada-China Natural Resource Fund" in order to facilitate Chinese investment in Canadian resource companies. The MoU calls for the fund to be capitalized to the tune of $1 billion in the first instance.

ZOG of USA says: Energy independence within reach....

2012-02-08T08:11:00.000-08:00

ZOG of USA says: Energy independence within reach With natural gas and oil output soaring, 2-decade-long decline is reversing....LOL [ That's in contradiction with what the 'Energy intelligence unit' says...]

By Rich Miller, Asjylyn Loder and Jim Polson

The United States is the closest it has been in almost 20 years to achieving energy self-sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo triggered a recession and led to lines at gasoline stations.

Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp., the world's biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.

The result: The U.S. has reversed a two-decade-long decline in energy independence, increasing the proportion of demand met from domestic sources over the last six years to an estimated 81 percent through the first 10 months of 2011, according to data compiled by Bloomberg from the Department of Energy. That would be the highest level since 1992.

“For 40 years, only politicians and the occasional author in Popular Mechanics magazine talked about achieving energy independence,” said Adam Sieminski, who has been nominated by President Barack Obama to head the U.S. Energy Information Administration. “Now it doesn't seem such an outlandish idea.”

Broad implications

The transformation, which could see the country become the world's top energy producer by 2020, has implications for the economy and national security — boosting household incomes, jobs and government revenue; cutting the trade deficit; enhancing manufacturers' competitiveness; and allowing greater flexibility in dealing with unrest in the Middle East.

U.S. energy self-sufficiency has been steadily rising since 2005, when it hit a low of 70 percent, the data compiled by Bloomberg show. Domestic crude oil production rose 3.6 percent last year to an average 5.7 million barrels a day, the highest since 2003, according to the Energy Department. Natural gas output climbed to 22.4 trillion cubic feet in 2010 from 20.2 trillion in 2007, when the Federal Energy Regulatory Commission warned of the need for more imports. Prices have fallen more than 80 percent since 2008.

At the same time, the efficiency of the average U.S. passenger vehicle has helped limit demand. It increased to 29.6 miles per gallon in 2011 from 19.9 mpg in 1978, according to the National Highway Traffic Safety Administration.

The last time the U.S. achieved energy independence was in 1952. While it still imported some petroleum, the country's exports, including of coal, more than offset its imports.

Environmental concerns

The expansion in oil and natural gas production isn't without a downside. Environmentalists say hydraulic fracturing, or fracking — in which a mixture of water, sand and chemicals is shot underground to blast apart rock and free fossil fuels — is tainting drinking water.

The drop in natural gas prices is also making the use of alternative energy sources such as solar, wind and nuclear power less attractive, threatening to link the U.S.'s future even more to hydrocarbons to run the world's largest economy.

Still, those concerns probably won't be enough to outweigh the benefits of greater energy independence.

Impact on trade deficits and national security

Stepped-up oil output and restrained consumption will lessen demand for imports, cutting the nation's trade deficit and buttressing the dollar, said Sieminski, who is currently chief energy economist at Deutsche Bank in Washington.

With the price of a barrel of oil at about $100, a drop of 4 million barrels a day in oil imports — which he said could happen by 2020, if not before — would shave $145 billion off the deficit. Through the first 11 months of last year, the trade gap was $513 billion, according to the Commerce Department. Crude for March delivery settled at $96.91 a barrel yesterday on the New York Mercantile Exchange.

The impact on national security also could be significant as the U.S. relies less on oil from the Mideast. Persian Gulf countries accounted for 15 percent of U.S. imports of crude oil and petroleum products in 2010, down from 23 percent in 1999.

“The past image of the United States as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds,” former Central Intelligence Agency Director John Deutch told an energy conference last month.

That dependence was underscored in October 1973, when Arab oil producers declared an embargo in retaliation for U.S. help for Israel in the Yom Kippur war. The U.S. economy contracted at an annualized 3.5 percent rate in the first quarter of the next year. Stock prices plunged, with the Standard & Poor's 500 Index dropping more than 40 percent in the year following the embargo.

Car owners were forced to line up at gasoline stations to buy fuel. President Richard Nixon announced in December that because of the energy crisis the lights on the national Christmas tree wouldn't be turned on.

A ‘new normal'

Today, signs of what former North Dakota senator Byron Dorgan says could be a “new normal” in energy are proliferating. The U.S. likely became a net exporter of refined oil products last year for the first time since 1949. And it will probably become a net exporter of natural gas early in the next decade, said Howard Gruenspecht, the acting administrator of the EIA, the statistical arm of the Energy Department.

Cheniere Energy Partners may receive a construction and operating permit as early this month from the Federal Energy Regulatory Commission for the first new plant capable of exporting natural gas by ship to be built since 1969 in the U.S. Houston-based Cheniere said it expects the $6 billion plant to export as much as 2.6 billion cubic feet of gas per day.

The growth in oil and gas output means the U.S. will overtake Russia as the world's largest energy producer in the next eight years, said Jamie Webster, senior manager for the markets and country strategy group at PFC Energy, a Washington-based consultant.

While U.S. consumers would still be susceptible to surges in global oil prices, “we'd end up sending some of that cash to North Dakota” rather than to Saudi Arabia, said Richard Schmalensee, a professor of economics and management at the Massachusetts Institute of Technology in Cambridge....

Pakistan defiant on Iran gas pipeline....India pivots, and pivots again...

2012-02-08T05:38:00.001-08:00

Pakistan defiant on Iran gas pipeline....India pivots, and pivots again...LOL
By Syed Fazl-e-Haider

KARACHI - Pakistan on Tuesday gave an unequivocal assurance to Iran for early implementation of the US$7.6 billion Iran-Pakistan (IP) gas pipeline, a week after the toughest warning issued yet by the United States to Islamabad to shelve the project.

Islamabad and Tehran vowed to intensify work on the IP project during a meeting of the Pakistan-Iran bilateral talks, which began in Islamabad this week, led by visiting Iranian International Affairs

Vice President Ali Saeedlou and Pakistan's Finance Minister Hafeez Sheikh.

President Asif Ali Zardari gave an assurance on Tuesday that his country was committed to the early implementation of the project to meet the country's ever growing energy needs during his meeting with the Ali Saeedlou. Washington, which has intensified its efforts for increased economic sanctions against Iran, has serious reservations over the IP project.

Last week, a senior US diplomat reportedly warned Islamabad that any attempt to go ahead with the gas pipeline would be considered as "furthering Iran's nuclear program". The US has also offered to Pakistan alternative sources of energy in the form of imports of liquefied natural gas (LNG) at cheaper rates from Turkmenistan.

During his meeting with Ali Saeedlou, Sheikh assured him of the country's commitment to implementation of multi-billion-dollar gas and electricity import projects.

"Pakistan is fully committed to importing electricity and gas from Iran, and we are working on a fast-track basis to finalize these deals at the earliest," Dawn reported Hafeez Sheikh as saying.

The two sides also discussed ways to enhance banking cooperation and strike a currency swap arrangement to promote bilateral trade. Under the IP deal, the two countries signed in June 2010, Iran will export 21.5 million cubic meters per day of natural gas to Pakistan by the end of 2014.

The IP pipeline has reportedly reached Iran's border, while Pakistan has completed the survey for construction of pipeline on its side.

Last month, US President Barrack Obama signed a US defense funding bill that includes new sanctions on financial institutions dealing with Iran's central bank. The law is expected to have repercussions for Pakistan's plans to import gas from Iran and could make it difficult for the country to implement the IP pipeline project.

"Pakistan will be in for serious trouble if it does not abandon the project," The Express Tribune reported an American diplomat as saying. "Any country, any bank or any financial institution which tries to work with Iran will certainly be slapped with sanctions."

The US is dangling energy-deficient Pakistan both stick and carrot in a move to persuade it to abandon the IP gas pipeline. Washington has offered the country to provide gas at a rate approximately one-third of the price Iranian gas would cost to the country.

American energy companies have increased their gas supply in recent years, causing natural gas prices to fall 5.7% on January 12 to their lowest level in over two years. Iranian gas will cost $12 per million British thermal units (mmbtu) while LNG would cost $18 per mmbtu. The US could help Pakistan buy LNG at $4.5 per mmbtu.

The IP project is seen as an energy lifeline in Pakistan , which at present suffers chronic gas shortages affecting its industry and daily life. Petroleum Minister Asim Hussain has warned that the whole energy system of the country could collapse as the demand and supply gap of gas has reached 2.2 billion cubic feet (bcf). The gas in the system is 3.8 bcf while the demand has shot up to 6 bcf.

The IP project would help generate around 5,000 megawatts of electricity, which is equivalent to present peak shortage of power in the country. Local analysts believe that a land-based pipeline would be one quarter the cost than any other option, while the country could also earn about $200 million to $500 million annually in transit fees if the gas is exported to India or another third country.

Pakistan has settled all issues relating to IP gas pipeline project with the Iranian authorities, including a gas sale and purchase agreement (GSPA) and third-party certification for uninterrupted supply of gas from the source field to Pakistan for 30 years.

Under the IP pipeline construction plan, a 42-inch diameter pipeline would be installed to connect Balochistan, Sindh and Punjab through Khuzdar to Karachi, while the main pipeline would continue toward Multan in Punjab with a joint venture of major gas distributors Sui Northern Gas Pipeline Ltd and Sui Southern Gas Co.

Last month, US Stated Department spokesperson Victoria Nuland expressed concern over the IP project and said the law President Obama signed "forbids dealing with central Iranian banks".

"We've made absolutely clear over many months now our concern about this deal [the IP agreement] and we will continue to talk to Pakistan about it. Were it to go forward, how it might be impacted - again, this is the kind of conversation that we have to have with Pakistan and that we're starting to have now," Dawn reported Nuland as saying.

Islamabad however renewed its commitment to go with the IP project believing that US sanctions would not affect the project.

The pipeline was originally planned to extend from Pakistan to India in 1993. Pakistan has also been taking up the proposal of involving its closest ally, China, in the IP venture in a bid to deepen ties with Beijing as an alternative to increasingly fragile relations with the United States.

Financing and security of the pipeline are the two major issues confronting Pakistan for implementation of the IP project. The country plans to finalize an engineering and procurement deal for the construction of the IP gas pipeline project with China, which may also provide financing. In 2010, a visiting Pakistani delegation, led by Federal Water and Power Minister Naveed Qamar visited Beijing to seek investment, offering the contract for the IP gas pipeline to China.

Finance Minister Sheikh last month gave approval to the appointment of an Industrial and Commercial Bank of China (ICBC) led-consortium as financial advisor for the IP project.

After India's withdrawal from IP project in 2009, Beijing showed interest in building an Iran-Pakistan-China (IPC) pipeline.

Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a development analyst in Pakistan.

India pivots, and pivots again...
By Vijay Prashad

India faces a grave dilemma. It is the fourth-largest consumer of imported oil, and as a growing economy wedded to the carbon civilization, it needs to burn vast amounts of oil to maintain its growth rate.

The oil comes from a variety of sources, but mainly from the Gulf. The top five exporters of crude oil to India in 2011 in order of quantity were Saudi Arabia, Iran, Iraq, Nigeria and the United Arab Emirates. About 10% of India's imports of oil come from Iran.

Contradictory political pressures have put India's government in a serious bind.

As Subordinate ally to the Zioconned United States....
In the early 2000s, the United States wished to sequester India's respectable position within the Global South for its own parochial interests regarding Iran.

Knowing full well that it is energy dependent, India had begun to consider methods of bringing natural gas in from Iran's South Pars fields into Gujarat. Natural gas would be a sensible substitute for crude oil. There were two methods to draw the gas into the country. The first was to convert it into liquefied natural gas (LNG) and ship it to India. But this is an expensive proposition. The second was to run a pipeline from southern Iran through Pakistan into India. This Peace Pipeline would not only be a major boost for India's energy needs, but it would help create a material incentive for peace initiatives in South Asia.

To break the India-Iran ties, the George W Bush administration offered India a simple deal. It would remove sanctions against India that had come into place after India's nuclear tests of 1998. Unable to import certain technologies, India was eager to have these sanctions mitigated or withdrawn.

In exchange, the US would provide India with access to nuclear material from the Nuclear Suppliers Group, and so effectively recognize India as a nuclear power. This was despite the fact that the Indian government's own studies showed that nuclear power at best would only provide for 5% of India's energy needs and so not be a substitute for oil or natural gas.

In return, India would have to vote with the US against Iran in the International Atomic Energy Agency (IAEA).

India's bourgeois political parties went for the deal. In September 2005, India voted to find Iran in "non-compliance" with the safeguard obligations of the nuclear Non-Proliferation Treaty (NPT). What is remarkable here is that India is not a signatory to the NPT, yet it was able to judge Iran's actions based on it. This vote paved the way to move the Iranian case to the UN Security Council.

India voted in the IAEA once more in February 2006 to send the Iranian case to the Security Council. In December 2006, the US Congress ratified the US-India Peaceful Atomic Energy Cooperation Act. Its "Statement of Policy" noted pointedly that India was "to dissuade, isolate, and if necessary, sanction and contain Iran for its efforts to acquire weapons of mass destruction, including a nuclear weapons capability and the capability to enrich uranium or reprocess nuclear fuel and to the means to deliver weapons of mass destruction."

India yoked itself to the US agenda vis-a-vis Iran.

As partner with the Arab NATO and its silent ally...

India is the second-largest trading partner of the Gulf Cooperation Council (GCC) countries. The GCC, the "Arab NATO", was formed in 1981 as a shield against Iran. It has a long antipathy to Iranian assertion in the region, and considers Iran to be its principle adversary (rather than Israel, for instance). Saudi Arabia is the primus inter pares of the GCC. It is the largest seller of crude oil to India (the GCC countries supply India with 45% of its crude oil needs). In 2006, the Indian and the Saudis signed a major deal. [1] While in India, King Abdullah and Indian Prime Minister Manmohan Singh urged Tehran to "remove regional and international doubts about its nuclear weapons program."

The silent ally of the Arab NATO is Israel. Regardless of its open declarations of support for the Palestinians, the GCC is reluctant to do anything to ruffle the feathers of Tel Aviv, which would of course irritate the GCC's main partner, the United States. This opened the door for a strengthening of the India-Israel ties that germinated up in the 1990s and have flourished in the past few years. India now imports over US$5 billion of Israeli arms, making India its largest arms customer. [2]

As leading figure in the BRICS formation
Since 2003, India has been a central player in the creation of a new international formation of the "locomotives of the South": first as India-Brazil-South Africa (IBSA, 2003) and then as Brazil-Russia-India-China-South Africa (BRICS, 2009). The BRICS bloc is a serious challenge to Atlantic hegemony, mainly on the economic plane but increasingly in the political domain as well. On Libya, the BRICS countries articulated a common platform but their challenge fell apart at UN Resolution 1973 (when South Africa voted for the resolution on the urging of President Obama). On Syria, Russia and China exercised their Security Council veto while the others voted for the resolution. Political unity is not yet on the cards. This is a major limitation of the BRICS platform.

On Iran, the BRICS are more cautious. There is no appetite for war, or even for a limited military strike. There is even less appreciation for the sanctions regime set up by the Atlantic powers. These economic sanctions do not run through the UN, which means they are not legally binding. The US has been trying to force those who trade with Iran to stop doing so on pain of being sanctioned by the US in turn. It is hard for the US to muscle the Chinese, who have the upper hand as far as economic transactions are concerned. US Treasury Secretary Timothy Geithner rushed off in mid-January to Beijing and Tokyo, eager to get these East Asian states to honor the punitive US sanctions regime. China is plainly not interested. It supports the UN resolutions against Iran, but refuses to adhere to the much more rigorous European and US sanctions regime. China buys a fifth of Iran's oil. It cannot afford to isolate the country. Nor can India and Japan. For them, their energy needs trump the parochial political imperatives of the Atlantic powers and the GCC.

When the US and the EU announced their new sanctions regime, the BRICS states took umbrage. The Chinese have already increased their purchases of African oil. India and China considered paying for the Iranian oil via gold rather than dollars. The Indians buy their oil via the Turkish bank, Halkbank, whose manager, Suleyman Aslan, pledged to continue its work with its customers. After hasty negotiations, the Indians and the Iranians agreed on February 7 to trade oil for a payment mechanism that includes Indian rupees (for 45% of the crude) and other methods for the remainder. Iran's banks will open accounts in India to settle payments. This might be a way around the US sanctions that now target Iran's central bank. India's Finance Minister Pranab Mukherjee was uncharacteristically bold in late January, "We will not decrease imports from Iran. Iran is an important country for India despite US and European sanctions on Iran."

India is in a political bind. Its ruling class favors a close assignation with the United States, but this is not a practical alliance. The US demands far too much, including the subordination of India's own interests to the US agenda. Close relations with China are imperative, as is the creation of a healthy foundation of communication in South Asia with Pakistan and Iran to build trust not only for these countries but also for Afghanistan, which is too often at the mercy of Indian, Iranian and Pakistani games.

Currently, the economic needs of China and India will trump any attempt to fully strangle Iran's economy. The attack on the rial has already had catastrophic effects for inflation inside Iran. But if oil exports cease, it will bring Iran's economy to a stop. India is not acting here out of the principles of non-alignment or for the creation of a South-led alternative to the Atlantic bloc. Nonetheless, India's objective interest is a sufficient spur to timidly cross swords with the parochial interests of the Atlantic powers, who seem to want to gallop to war with Iran.

Pressure on India is on, and so are the inducements to substitute Iranian oil with oil from Iraq and Libya. India's ambassador to the United States, Nirupama Rao, has been suggesting that Iranian exports to India have decreased over the past two years. This would mean that India might be open to a new entente, not to depart from the nuclear shadows this time but to be liberated by the United States from its oil dependence on Iran. This is not propitious for the consolidation of a BRICS bloc.

Notes:
1. It's Love! India and Saudi Arabia Embrace, Counterpunch, March 1, 2010.
2. India's Reckless Road to Washington, Counterpunch, Dec 23, 2008.

Vijay Prashad is Professor and Director of International Studies at Trinity College, Hartford, United States.

Angela Merkel got extra special red-carpet treatment in China....

2012-02-08T05:33:00.001-08:00

Angela Merkel got extra special red-carpet treatment in China....

By Francesco Sisci

BEIJING - If a political Europe is ever to be born, its conception will have been in Beijing last week, during the visit of German Chancellor Angela Merkel. Within a period of about nine months, the gestational period for humans, we shall know if this new polity will be really born or we shall witness a miscarriage or an abortion.

In the Chinese capital, Merkel, in fact, spoke as the head of a European government, not simply as the leader of one EU member state; and indeed China, long fond of the political European Union, treated her as such.

China was interested in how the euro and Europe, perhaps politically united, might be saved. Merkel satisfied these concerns, pledging that the euro will not collapse. She thus implicitly admitted that Germany would step in to avoid gruesome disasters, which could ensue if major economies, like Italy, defaulted on their debts. This possibility is far from remote as some 300 billion euros (US$393 billion) of Italian bonds will be auctioned this year.

The pledge was required by Beijing to guarantee that China will not run away from the European bonds it already holds. In any case, not all Europe is the same. In the whole basket of European bonds, the German ones will be the favorites. This is also for a very practical reason: Germany alone makes up about half the European balance of trade with China.

This fact was reinforced also by German attitude in China. All EU countries speak for themselves and for the EU as a whole in China. Yet naturally Germany, the largest and most important economy in the union, is taken more seriously when doing so. This Chinese perception of Germany's strength in Europe and its interest in Beijing is further reinforced by the fact that the present ambassador of the European Commission in China is German, and he was strongly supported by Merkel.

But if Germany is Europe in China, it must be Europe also at home and in the world. The political union around Germany should be only a matter of time and details. Here, in the details, we know lodges and thrives the devil.

Despite the overall commitment, the present uncertainties in Europe prompt caution in China, where there is no rush to sell US bonds and buy European ones. In fact, notwithstanding its US$3.2 trillion of reserves, China knows it cannot attempt to save Europe. The Old Continent must save itself with a clear commitment and effective action from Europe itself.

Until here, Germany and China appear to have an entente cordiale almost made in heaven. From this point onward, however, the Chinese and European roads diverge.

The Chinese would like to see a major and quicker German effort in Europe, scared that any delay could increase the likelihood of accidents. Berlin has conversely so far preferred to push "delinquent" EU members with brinkmanship, threatening to let them go bust unless they move to reform their failing economies, and thus flaunting the anger of the average thrifty German taxpayers against the profligate southern European brethren like Greece, Portugal, Ireland, Spain and Italy (the infamous PIIGS). That is, Berlin has so far stated its confidence in managing the pace of reforms in Europe without fearing accidents. The problem is: how can one be so sure?

If this is the German stand, China is reluctant to stick too many of its reserves for Europe, even for virtuous Germany. How can China trust countries bundled in Europe, say some of the PIIGS, that Germany, the EU leader, claims to mistrust?

Therefore Chinese do not rule out International Monetary Fund intervention in the eurozone to build a firewall to protect the euro against market speculation. But this firewall should be for the 80-90% made up of European funds.

The statement by Chinese Premier Wen Jiabao last week, at the joint press conference with Merkel, was clear in this sense: "China is considering [ie has not decided on] increasing its stake in resolving the debt crisis through the channels of the European Stability Fund and the ESM", referring to the European Stability Mechanism, due to come into force in July.

According to Chinese economists - who are apparently in agreement with the Americans - the firewall of the euro should be around 1 trillion euros (US$1.3 trillion), about twice what is available today, to create the stability fund. This means that Germany should first increase its commitment in this regard.

In any case, even the Chinese consideration was already a concrete result for Merkel and the euro. After the vague statements indicating China's willingness to back up the euro, the European currency regained value against the dollar and the yen while the interest spread between some major European bonds dropped.

In this case, Merkel's journey to Beijing managed to buy time for eurozone countries to fix their balance sheets, lowered the pressure of rising spreads, and pushed Germany to come out in the open about its intentions to save Europe.

The German commitment in Europe, in any case, is not total or unconditional. There is still the possibility that some countries might exit the euro. So for China, partnering with Germany in Europe is the least risky bet.

In China, there is also great admiration for Germany. Berlin, according to many Chinese, proved its mettle when it was the first of the major developed countries to get out of the 2008 economic crisis.

These elements, then, drive Chinese interest in direct investment in Germany, home to technologies important for the future development of China. For example, its new fast railways are being built with German magnetic levitation technology. This attention is underscored by the fact that Wen in April, in just two months, will go to Germany for the Hannover industrial fair.

This success in China in turn could be a vote of confidence but also a burden for the yet-to-be-born political Europe. Germany is certainly the leader of the future political Europe but it can't be the entire Europe, Germany can't ignore this, as other European countries can't ignore the special role of Germany in China, the second-largest economy in the world.

Therefore the decisions on Europe can't just rest on the shoulders of wise Germany, and Germany should also consider some of the concerns of its profligate brethren, who with their debts helped to boost German coffers. Then they all should decide quickly what kind of Europe they want, otherwise a miscarriage will be almost certain or a deformed child will be born, a disaster for Europe and the Zioconned world....

Chinese Deflation and Currency Depreciation Coming Soon....?

2012-02-08T04:20:00.000-08:00

Chinese Deflation and Currency Depreciation Coming Soon....??? LOL

Gordon G. Chang, Contributor

On Friday, an economist with the State Council’s Development Research Center issued a warning that consumer prices could fall in the second half of this year. “China has corrected its excessive monetary policy tightening in the last quarter of 2011, but the speed and effort of turning-around are not sufficient,” wrote Wu Qing in a government newspaper, China Economic Times. “A typical deflation will emerge,” Wu predicted, if the central government does not take decisive action. The last month that China saw a year-on-year decline in consumer prices was October 2009.

This week, Beijing’s National Bureau of Statistics will issue the Consumer Price Index for January, and analysts expect another fall in the rate of inflation. In December, consumer prices, as measured by the index, rose 4.1% over the same month in 2010. That number was down from November’s 4.2% year-on-year figure. Inflation peaked in July at 6.5%.

The official inflation numbers undoubtedly mask the full extent of price increases, but they correctly show the trend. And should China actually fall into deflation later this year, as Wu suggests, that would be just another indication of a general falloff in economic activity.

And so would a decline in the value of the Chinese currency. Wu Qing also predicted that, unless the People’s Bank of China intervenes, the renminbi will depreciate this year. This seemingly startling forecast reflects behind-the-scenes mutterings in the Chinese capital about unwelcome declines in export surpluses due in large part to falling orders from Europe.

Whether because of market forces, as Wu suggests, or by official action, the Chinese currency is on a downward path. And a cheapening currency is another sign of a weakening economy.

Why do analysts question Beijing’s announcement of 8.9% GDP growth in Q4 2011? Because China’s other numbers suggest the economy is in fact faltering. It is, for instance, virtually impossible to reconcile the most recent government growth projection for this year—8.5%, from PBOC adviser Li Daokui—with Wu’s warnings of currency depreciation and second-half deflation. When we look at Beijing’s statistics for vehicles sales, property prices, or electricity consumption, we get the picture of an economy in trouble, growing at perhaps the same anemic rate as America’s.

What should Beijing do? Wu’s colleague at the prestigious Development Research Center, Zhang Chenghui, also suggested that the government loosen credit, writing that there is already “a shortage of money.” Yet Premier Wen Jiabao, China’s top economic official, still believes that the government must act to rein in the economy. Until he abandons his “fine tuning” policies by opening the money taps wide, China will continue to skid. So far, the most Mr. Wen has done is mandate one decrease in the bank reserve ratio requirement.

Despite mildly pessimistic forecasts for the current quarter, many analysts don’t worry about the downturn, arguing that it was what policymakers wanted all along. They’re probably wrong, because growth-obsessed central officials acted two years ago to stop property prices from rising further, not trigger declines. In any event, even those who trust the skills of the Beijing’s fabled economic planners must admit that the onset of deflation and a depreciation of the renminbi would indicate that events were passing beyond their control.

We are, as Wu Qing’s comments tell us, almost at that stage.

Enough Oil and Gas ?

2012-02-08T04:11:00.001-08:00

Enough Oil and Gas will buy you ALL of DC...?

By Jeffrey Folks

A report for November 2011 indicated that, for the first time in forty years, the U.S. was a net exporter of petroleum products. Liberals seized on this report as evidence that the U.S. needs no acceleration in drilling, no XL pipeline -- indeed, no new exploration or production of any kind.

This was the point of a politicsusa.com piece by Ray Medeiros appearing on January 2. In this piece, the author referred to drilling for energy independence as "the big GOP lie" and noted that America is already exporting oil products. The "ONLY real solution," Medeiros writes, is more government regulation and increased subsidies for green energy.

How mistaken liberals are, especially when it comes to energy independence.

First of all, the export of energy products such as refined fuel, kerosene, and lubricating oils bears no relation to the importation of oil, which still proceeds at 9 million barrels per day. If anything, the two figures operate inversely: the more refined products we export, the more unrefined oil we must import as feedstock for our refineries.

In reality, the U.S. still imports 51% of its oil despite the existence of vast undeveloped reserves to be found offshore and onshore. The fact that America imports 51% of its oil, at huge cost and from unfriendly regimes including Venezuela, is hardly an argument to halt drilling.

Yet that is the argument filling the pages of liberal media like the Huffington Post. America has an abundance of oil, we are told. After all, America is an oil exporter -- an outright falsehood, but one that sounds plausible to casual readers. And in the greatest lie of all, "we need not worry about future energy security. We have enough oil to be exporting it, so we need not look for more."

Not to be left behind by his green supporter, the president immediately seized on the report as grounds for eliminating $4 billion in annual tax adjustments for oil and gas companies -- tax breaks similar to those enjoyed by businesses in other sectors. The logic, apparently, is that oil companies that are able to export their products must be doing well, so $4 billion should be confiscated from them and handed over to solar and wind companies like Solyndra. That is the gist of Obama's suggestion that the "money saved ... be invested in new energy resources."

In point of fact, the International Energy Agency recently issued a warning that global oil supplies will be tight in 2012. Stockpiles are dwindling. Global demand for 2012 is estimated at 90.5 million barrels per day. At the end of 2011, global production was estimated to be 90.2 million bpd. With many of the world's older oil fields depleted, significant new production is needed to avoid a shortfall and price-squeeze.

The most recent economic reports in the U.S. and China, the world's top consumers of petroleum products, only add to the argument for increased oil and gas production. Increased employment in the U.S. will inevitably lead to more energy consumption. In China, where the overall economy has cooled along with the housing market, 2012 GDP is still predicted to expand at more than 8%. And while Europe may experience a mild recession, that slowdown is expected to be brief. Once Europe, China, and the U.S. return to normal levels of growth, demand for oil will increase well above 90 million bpd.

Along with increased demand will come higher prices, and this is where domestic production is so important. The 9 million bpd that America now imports acts like a tax on every American. At $100 per barrel, the cost of importing half our oil amounts to $328.5 billion per year. Imagine the economic effect of circulating that amount of money within our own economy rather than shipping it off to Venezuela, Saudi Arabia, Nigeria, and other suppliers.

One immediate effect of increasing U.S. oil and gas production would be increased employment. If the goal of energy independence were met, millions of new jobs would be produced -- an additional 9.2 million jobs, to be precise, the same number who now work in the energy sector. Not only that, but energy costs would be reduced for all Americans. And with a trade surplus rather than a deficit, America's currency would strengthen, thus lowering the cost of imports and reducing the prospect of inflation. Finally, government revenues from taxes and royalties would double along with production.

If increased production is such a good idea, why are the president and his leftist supporters so strongly opposed to it?

One can conclude only that the Democratic Party has put politics ahead of the nation's well-being. Despite the president's talk of support for increased domestic production, his administration has spent three years banning and stalling new production. So far in 2012, the Obama administration has nixed the Keystone XL pipeline, proposed national regulation of hydraulic fracturing, opposed arctic drilling, and continued its policy of slow permitting in the Gulf of Mexico. That does not sound like support for energy independence.

In fact, just about the only thing that the Interior Department has accomplished this year, other than to say "no" to fossil fuels, has been to order fast-tracking of mid-Atlantic wind farms off the East Coast. And those wind farms, it turns out, may never be built without Solyndra-like loan guarantees and subsidies. No one outside the Obama administration seems to think that mid-Atlantic wind farms are economically viable. If they did, they would be lining up to purchase leases instead of canceling projects, as NRG Energy did recently with the Bluewater Wind project off the Delaware coast.

Yet this president persists in thinking that the U.S. can meet 80% of its energy needs from wind and solar by 2035. Or at least he persists in saying so.

All the evidence points to the fact that America needs to increase its domestic supply of oil and gas, and soon. The left distorts the facts by suggesting that because the nation is exporting refined products, America has plenty of oil. That line is just the latest in a series of specious arguments: "we can't drill our way out of energy dependence" (actually, we can) or "oil companies aren't drilling all the leases they have, so they don't need more" (fact: drilling has a multi-year lead time and a large number of prospects don't pan out, so there will always be undrilled leases at any one time).

Another variation of the anti-drilling the argument is the idea that "more U.S. drilling won't lower gas prices, because the oil price is set on the world market." That argument flies in the face of a hundred years of history, during which the forces of supply and demand have largely set the price of a barrel of oil. The idea that additional production of 9 million bpd -- or even 2 million bpd -- would not lower prices is sheer environmentalist fantasy. If supply and demand did not determine price, the Arab oil embargo of 1973-74 would have had no effect on prices. In fact, the oil price surged from $12 a barrel in 1972 to over $100 a barrel (in today's dollars) before the crisis ended in 1982. It ended because higher prices spurred new exploration and production.

The left always resorts to distortions and outright lies whenever it is unable to win an argument on the merits. In this case, the merits of increased domestic drilling are clear. The United States will continue to rely on oil and gas for much of its energy well into the 21^st century. At present we are producing only 49% of the petroleum we need. Unless we wish to remain dependent on increasingly unreliable sources, we would do well to get behind an aggressive domestic drilling program.

Wall Street in panic mode As Anti-Insider Trading Bill Spreads...

2012-02-07T07:38:00.000-08:00

Wall Street in panic mode As Anti-Insider Trading Bill Spreads Wider Net Over Information Peddling....

Senator Chuck Grassley put an clause back into the Senate's anti-insider trader law that requires analysts who meet with Congressmen and their staffs to register their meetings.

The purpose of this clause is to bring transparency to the information peddling that represents a lucrative trade for hedge funds and banks that trade on insider information from the Congressmen themselves.

There is also large analyst trade in selling political information obtained privately to hedge funds. And rumour has it that quite a bit of that information spreads its way through the halls of the august Wall Street banks as well.

Wall Street apparently went into full court lobbying mode when they found out that Grassley had resubmitted this clause after they had successfully had it removed.

The clause only requires analysts to register their contacts and to disclose how they might be using the information provided by the Congress.

Information is power, and private access to public power is one of the great strengths of the Wall Street monied interests.

This bill might curtail the ability of JP Morgan and Goldman Sachs to obtain private information from the Finance Committees.

I am sure Mr. Obama, the great reformer who promised transparency, is solidly behind this move by the Republican Senator Grassley, right? Hard to tell right now.

Panic on Wall Street.

Bloomberg
Wall Street Sees Analysts Snagged by Political Intelligence Bill
By Phil Mattingly and Robert Schmidt
Feb 7, 2012 12:01 AM ET

A U.S. Senate measure that would place restrictions on people who gather and sell government information to hedge funds may entangle bank research analysts and others on Wall Street, according to lawyers and lobbyists. (The others are the conduits to the trading desks of the TBTF banks - Jesse)

The Securities Industry and Financial Markets Association, which represents firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co., held a rare weekend call for members on Feb. 4 to discuss the measure, according to two people with direct knowledge of the call.

The provision, part of a broader bill that passed the Senate last week and is scheduled to face a House vote this week, may require analysts and others to register with Congress and disclose contacts with government officials, according to a legal analysis prepared for the group’s members.

“There are going to be a lot of entities and organizations who will not want their people anymore to contact government officials to get information which might be used for a number perfectly appropriate purposes,” Robert L. Walker, an attorney for Wiley Rein LLP who is listed as one of the authors of the legal memo, said of the impact of the provision. ('Jump you fuckers' as the Tea Party said before they turned corporate. lol - Jesse)

The broader bill would ban lawmakers, their staffs, and much of the executive branch from trading stocks, commodities or futures based on confidential information they learn on the job. Senator Charles Grassley, an Iowa Republican, succeeded last week in adding the provision that targets trading in so-called “political intelligence.” (There is nothing 'so-called' about it. That is what it is, and it is a form of corruption, albeit lucrative. - Jesse)

Such information may include conversations with lawmakers, congressional staff or other government officials about the future of legislation or regulations that have not been made public. That information has been targeted by lawmakers, who are pushing to identify firms and individuals in the business and force them to disclose their clients....

Nazarbayev is preparing for a strategic partnership with Germany.

2012-02-07T07:36:00.001-08:00

Nazarbayev is preparing for a strategic partnership with Germany....

February 7 to Berlin to visit President Nazarbayev of Kazakhstan. Germany hopes to conclude from this Central Asian country into a strategic partnership, which implies an exchange of raw materials to technology. will be held February 7-8 visit by Kazakh President Nursultan Nazarbayev to Germany, the first since 2009. In addition to meeting with Chancellor Angela Merkel (Angela Merkel), the program host provides performance Nazarbayev at the German Society for Foreign Policy (DGAP) and the Kazakh delegation dinner in East Committee of German Economy. During the visit the parties intend to conclude a large number of agreements, especially in the economic sphere. As acknowledged by the experts, the main document, which is calculated Nazarbayev signed and Merkel – is an agreement on strategic raw materials, industrial and innovative partnership. ”It is a unique agreement, embodying all the ideas of German Ostpolitik,” – said in an interview with Deutsche Welle, Alexander Rahr ( Alexander Rahr), director of the Center named Berthold Beitza German Society for Foreign Policy. A similar agreement is in Berlin with Russia, and now appears to Kazakhstan, he said. ”German companies have access to the resources of Kazakhstan, and Astana – preferences for acquiring new technologies”, – explained the essence of the contract Rar.Meanwhile, details of a future agreement, negotiations for which were, according to the parties, not easy, and lasted over a year, has not yet been disclosed. ”After signing this document, Germany will receive a” green light “for economic expansion in the region, which has long been eyeing in Berlin” – said the editor of German magazine Zenith Alexander von Hahn (Alexander von Hahn). Kazakhstan need another partner, Nazarbayev’s visit is needed to saving maneuver on the international scene, says German expert on Central Asia, Gunter Knabe (Günter Knabe).Kazakh leader set himself the task of rapprochement with Europe as a partner, who can not and does not want to be a threat for Astana. ”At a time when Kazakhstan is sandwiched between China and Russia, and is constantly weakening the U.S. position, Kazakhstan needs another partner,” – said Knabe. ”for Nazarbayev’s visit to Berlin – an opportunity not only to demonstrate its status as one of the main partners of the EU in the region,” – indicates the Alexander von Hahn. ”Kazakhstan needs international prestige. Country wants to see itself as a bridge between Europe, Asia and the Islamic world,” – adds Alexander Rahr of the German Society for Foreign Policy. ”The meeting with Merkel as a continuation of dialogue on the prospects of cooperation with Germany and the EU in a very difficult period of growing uncertainty,” – says von Hahn. Increasing uncertainty uncertainty, he said, there remains both in terms of who will be at the helm of the country after the departure of Nazarbayev and in regard to the rapidly changing geopolitical situation around Kazakhstan. ”I am referring to the growing crisis in Russia, the ongoing civil war in Afghanistan and the economic expansion of China”, – explained the browser. Against the backdrop of the fact that the West’s relations with Iran worsen, and the European Union in the near future is going to give up Iran’s energy resources, both Kazakhstan supplier of oil and gas may obtain additional benefits from their exports, predicts Gunter Knabe. ”Astana may be a winner, although she is not interested in the outbreak of open conflict between the West and Iran,” – said German expert. Nazarbayev, according to Knabe, do not forget that this position has allowed Kazakhstan to Berlin to take a critical position for the Kazakh elite, the chairman of OSCE in 2010. ”His visit to the President of Kazakhstan wishes to express gratitude for the service previously, and for what kind of assistance at the time, Germany had to ethnic Germans from Kazakhstan”, – said Knabe. Human rights activists are also preparing for the visit of the Kazakh president’s visit to prepare and human rights activists. Hugh Williamson of the German branch of Human Rights Watch said the government should raise the Federal Republic of Germany in the negotiations a number of issues of human rights issues and the political situation in Kazakhstan.”There are three most important themes: the last parliamentary elections, the investigation of the tragedy in Zhanaozen, as well as the problems of Kazakhstan’s labor laws,” – said Williamson. Human Rights Watch has plans this week to send the Chancellor of his appeal. According to the defenders of Germany should at least reconsider their plans for closer ties with Kazakhstan, and wonder whether Astana after the bloody events in Zhanaozen continue to be stable and reliable partner. Author: Michael Bushuev Editor: Vladimir Dorokhov Deutshe Welle , February 6, 2012

South Stream Becoming a Reality....

2012-02-07T02:49:00.000-08:00

South Stream Becoming a Reality....

On December 29, 2011, Turkey and Russia signed an agreement to allow the South Stream natural gas pipeline to transit the Black Sea waters in Turkey's economic zone. This was an important development, in that South Stream now has the necessary permissions to bring the Russian pipeline system to Europe via the Southern corridor. Russian Prime Minister Vladimir Putin was so excited by the development that he ordered Gazprom to move up the date to begin construction from 2013 to 2012.
There has been much speculation that the pipeline is a bluff--designed to either stop Nabucco construction or to force Ukraine to bend to Moscow's will. The truth may be more obscure. US Special Envoy for Eurasian Energy Richard Morningstar commented in a recent speech, "The Russians have...taken to building the South Stream Pipeline, although they are the only ones who know why."
The fact is that, regardless of what the original thoughts may have been concerning the pipeline, Russia has made so many commitments concerning this pipeline that it would be almost impossible for them to back out. There are three Western European private companies who are partners in this project. It is extremely doubtful that Germany's Wintershall (a division of BASF), Italy's ENI, and France's EDF would incur start-up expenses in support of a Russian political ruse. Gazprom still controls 50% of the consortium and could unilaterally kill the project, but it would incur the wrath of its other partners.
The same goes for the various governments that have signed on. Bulgaria has hired a company for a feasibility study, Slovenia has created a JV to build and operate their share of the pipeline, Serbia looks forward to being a key transit center, Greece (now to be on a spur instead of the main line) has identified the pipeline as a national priority, etc.
Much has been made that South Stream has not identified where it will get the 63 bcm annually it needs to fill the pipeline. In fact, South Stream never planned to identify new sources of gas, but to use the gas that is presently transiting the Ukrainian pipeline system, according to South Stream CEO Marcel Kramer. European Energy Review published an interview with Kramer on this subject. "The basic and overriding target of Russia is to ensure the technical, managerial and economic reliability of its gas supply. That is where South Stream comes in. Don't forget that the pipeline system in Ukraine is in a poor state. It's being said that it is old, dilapidated, without an integrated management system. To upgrade the entire route through Ukraine would also cost a lost of money. Then you get into questions of ownership, operatorship, who puts up the money, the chances of political interference. The bottom line is, is this an arrangement that the buyers of gas in Europe can rely on? If you put all this together, the answer is clear," he said.
Ukraine, of course, is opposed to the new pipeline. Energy Minister Yuri Boiko called South Stream a threat to Ukrainian national interests. "We will always be against it," he said according to UPI.
Another question has been whether there is sufficient demand for Russian natural gas to justify the building of the pipeline. Andrea Bonzanni, former consultant to the UN and the World Bank, wrote in World Politics Review that the mid- to long-term outlook for gas demand does not seem to justify the construction of both Nabucco and South Stream.
The Russians believe Europe has a long-term need for additional gas, justifying the construction. After a meeting between Gazprom Chairman Alexi Miller and Bulgargaz executive director Dimitar Gogov, UPI reported the participants issued a statement that both sides "share the opinion that given the inevitable gas demand growth in Europe, timely implementation of South Stream would meet the interests of millions of European consumers." Miller has said, "It is clear that there will be need for additional pipeline capacities" that would help mitigate risks that could have a serious impact on the European market, according to Platts. Alexander Medvedev, deputy chair of the Gazprom Management Committee, wrote in Today's Zaman, "The fact that South Stream is primarily an investment in energy security, not in boosting the market share of Russian gas, also means that it does not compete with other pipeline projects that intend to import fresh supply volumes from other possible gas sources. South Stream does not oppose these projects." RIA Novosti quoted Gazprom's Medvedev, "Even if we take into account the Nord Stream, the South Stream, the Nabucco and liquefied natural gas, all the same, the shortage of gas supplies to Europe will be some 530-700 billion cubic feet."
Some within the European Union appear to agree with this analysis. European Energy Commission Gunther Oettinger said "we don't want to block South Stream," and arranged for South Stream executives to make their case to the commission in May. At that meeting, the Russians took the opportunity to make the case that South Stream is a continuation of Russian trans-border pipelines, and third parties should not have access to it. Ths would guarantee a Gazprom monopoly on the project flow. CEO Kramer said requiring the pipeline to open to competitors would affect the project's rate of return, and could make the project more "difficult" to carry out, according to the New York Times. Oettinger, however, remained adamant: "If South Stream...gives access to gas independents active in Russia, then South Stream would deliver on two essential criteria: namely diversification of routes and counterparties. That means a stronger contribution to European diversification efforts," he said in a speech reported by the Wall Street Journal.
Whether the doubters or the believers are correct, however, it appears that the construction of the pipeline will begin within the next twelve months....

Confidence in Nabucco fades....

2012-02-07T02:15:00.000-08:00

Confidence in Nabucco fades....
By Vladimir Socor

Confidence in the viability of the Nabucco gas pipeline project - at least in its version envisaged from 2004 to 2011 - seems to be fading all around. On January 25, the Nabucco consortium's management disclosed that it has submitted "amended" proposals to the Shah Deniz gas producers' consortium in Azerbaijan at the end of December 2011.

The producers' consortium will select one of the five competing pipeline projects for transporting 10 billion cubic meters (bcm) of Shah Deniz Phase Two gas to Europe annually, starting in 2017. Shah Deniz producers are now expected to announce a final investment decision in Phase Two of gas extraction by March, along with the final choice of a transportation solution.

Nabucco's "amended" proposals are not known publicly, but the project's Austrian management has dropped a few hints. It seeks at this late stage to remedy one of Nabucco's built-in weaknesses, namely, the absence of a major gas-producing company among the consortium's partners.

The consortium would also accept the entry of new shareholders that would contribute gas supplies or financing, and it would negotiate about some combination or even merger with one of the rival pipeline projects (rather than pressing for exclusivity as heretofore).

RWE, a German partner in the Nabucco consortium, would prefer a less costly, lower-capacity option for transporting Azerbaijani gas to Europe. This preference is unrelated to RWE's negotiations with Russian Gazprom over joint projects in Germany and elsewhere. Those negotiations have already failed. According to RWE CEO, Juergen Grossmann, the company simply needs to limit its financial exposure and reduce capital expenditures. The Azerbaijan-Turkey project for a Trans-Anatolia Gas Pipeline, announced at Christmas 2011, looks attractive to RWE,

Almost certainly, the unpublished amended proposals go further than that. At a minimum, they acknowledge, if only implicitly, that Nabucco has not lined up the gas volumes and investment funding that would justify the pipeline's design capacity of 31 bcm annually and the construction costs involved (unless and until Turkmen gas becomes available).

In the absence of financial commitments to a 31 bcm pipeline, Nabucco has fallen out of synchronism with the Shah Deniz field development schedule. That schedule necessitates an investment decision and the choice of a bankable transportation solution in early 2012, so as to launch Phase Two of production in this same year and the first commercial gas flow by 2017.

Nabucco's own development trails behind the producers' planned timeframe. Conversely, Nabucco at 31 bcm looks premature, as long as Turkmen gas has not yet crossed the Caspian Sea to the South Caucasus. If and when that happens, Turkmen gas could make possible or indeed necessary a Nabucco Two.

Last year, Nabucco's Austrian management admitted that the pipeline's costs would exceed the initial 8 billion euro (US$10.4 billion) estimate, which dated back to 2005. The management announced in 2011 that it would revise that estimate, but the result is not known. Others are estimating the construction costs in the range of 10 billion to 14 billion euros. These are educated guesses; meanwhile, the absence of publicly available cost updates from the consortium itself tends inevitably to erode confidence.

Vague, unsubstantiated references to future gas supplies to Nabucco from northern Iraq cannot encourage investors either, nor reassure potential gas consumers downstream. References to Iraqi gas fail to cite any dedicated volumes or clear timeframes; imply a feeder pipeline, Iraq-Turkey, at substantial additional cost to the Nabucco project; and seem to overlook daunting political uncertainties and risks in Iraq.

Nabucco representatives' briefings are, however, correct to insist on the project's unique advantages and promises. These include: the Nabucco Intergovernmental Agreement (legally binding treaty among Turkey, Bulgaria, Romania, Hungary, and Austria), the project support agreements (national commitments to the project), right-of-way, licensing and permitting issues, European Union legal and regulatory framework covering the project, are all signed and wrapped up. The FEED (front-end engineering design) process seems fairly advanced after some changes last year.

The European Commission's political backing was also a unique asset to Nabucco, reflecting the latter's strategic value to European energy security. That backing came close to facilitating credits to Nabucco from European lending institutions, had the other conditions fallen into place. The commission's hard work to promote a trans-Caspian pipeline for Turkmen gas could also have enhanced investor and consumer confidence in the Nabucco project.

Those unique advantages notwithstanding, the gas volumes and the funding are not yet lined up for a project on Nabucco's ambitious scale. Those hard-won advantages can be conserved for a reconfigured Nabucco (Nabucco Two) as a follow-on project, in the event that Shah Deniz producers select one of Nabucco's rival pipelines for transporting Azerbaijani gas to Europe. Those rivals are smaller, better attuned to the guaranteed gas volume from Shah Deniz, and thus more bankable, compared with Nabbucco.

Among those five rival pipeline projects, two are backed by the most influential partners in the producers' consortium. These are: Azerbaijan's State Oil Company with the project for a Trans-Anatolia Gas Pipeline (TANAP, from the Georgia-Turkey border to the Turkey-Bulgaria border); and British Petroleum with its concept of a South East Europe Pipeline (SEEP, from Turkey to Hungary, with interconnectors farther afield). Thanks to the participation of these influential producers, TANAP and SEEP seem better placed than Nabucco or the other rival pipeline projects to be selected for the transportation of Shah Deniz Gas to Zioconned Europe....

ILLUSION OF RECOVERY – FEELINGS VERSUS FACTS....

2012-02-07T01:03:00.000-08:00

ILLUSION OF RECOVERY – FEELINGS VERSUS FACTS....

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved.” – Ludwig von Mises

The last week has offered an amusing display of the difference between the cheerleading corporate mainstream media, lying Wall Street shills and the critical thinking analysts like Zero Hedge, Mike Shedlock, Jesse, and John Hussman. What passes for journalism at CNBC and the rest of the mainstream print and TV media is beyond laughable. Their America is all about feelings. Are we confident? Are we bullish? Are we optimistic about the future? America has turned into a giant confidence game. The governing elite spend their time spinning stories about recovery and manipulating public opinion so people will feel good and spend money. Facts are inconvenient to their storyline. The truth is for suckers. They know what is best for us and will tell us what to do and when to do it.

The false storyline last week was the dramatic surge in new jobs. This fantastic news was utilized by the six banks that account for 80% of the stock market trading to propel the NASDAQ to an eleven year high and the Dow Jones to a four year high. The compliant corporate press did their part with blaring headlines of good cheer. The entire sham was designed to make Joe the Plumber pull out one of his 15 credit cards and buy a new 72 inch 3D HDTV for this weekend’s Super Bowl. When you watch a CNBC talking head interviewing a Wall Street shyster realize you have the 1% interviewing the .01% about how great things are.

What you most certainly did not hear from the MSM is that the NASDAQ is still down 42% from its 2000 high of 5,048. None of the brain dead twits on CNBC pointed out the S&P 500 is trading at the exact same level it reached on April 8, 1999. Twelve or thirteen years of zero or negative returns are meaningless when a story needs to be sold. On Friday the hyperbole utilized by the media mouthpieces was off the charts, leading to an all-out brawl between the critical thinking blogosphere and the non-thinking “professionals” spouting the government sanctioned propaganda. Accusations flew back and forth about who was misinterpreting the data. I found it hysterical that anyone would debate the accuracy of BLS (Bureau of Lies & Swindles) data.

The drones at this government propaganda agency relentlessly massage the data until they achieve a happy ending. They use a birth/death model to create jobs out of thin air, later adjusting those phantom jobs away in a press release on a Friday night. They create new categories of Americans to pretend they aren’t really unemployed. They use more models to make adjustments for seasonality. Then they make massive one-time adjustments for the Census. Essentially, you can conclude that anything the BLS reports on a monthly basis is a wild ass guess, massaged to present the most optimistic view of the world. The government preferred unemployment rate of 8.3% is a terrible joke and the MSM dutifully spouts this drivel to a zombie-like public. If the governing elite were to report the truth, the public would realize we are in the midst of a 2nd Great Depression.

The unemployment rate during the Great Depression reached 25%. Without the BLS “adjustments” the real unemployment rate in this country is 23%. Cheerleading and packaging the data in a way to mislead the public does not change the facts:

There are 242 million working age Americans. Only 142 million Americans are working. For the math challenged, such as CNBC analysts, that means 100 million working age Americans (41.5%) are not working. But don’t worry, the BLS says the unemployment rate is only 8.3%. Things are going so swimmingly well in this country the other 33.2% are kicking back enjoying the good life.
The labor force participation rate and employment to population ratio are at 30 year lows. The number of Americans supposedly not in the labor force is at an all-time record of 87.9 million. A corporate MSM pundit like Steve Liesman would explain this away as the Baby Boomers beginning to retire. Great storyline, but the facts prove that old timers are so desperate for cash they have dramatically increased their participation in the labor market.

The data being dished out by the government on a daily basis does not pass the smell test. The working age population since 2000 has grown by 30 million people. The number of people working has grown by only 4.7 million. A critical thinker would conclude the unemployment rate should be dramatically higher than the reported 8.3%. But the government falsely reports the labor force has only increased by 11.8 million in the last eleven years. They have the gall to report that 17.9 million Americans just decided to leave the workforce. The economy was booming in 2000. It sucks today. Don’t more people need jobs when times are tougher? The Boomers retiring storyline has already proven to be false. The fact that 46 million (15% of total population) people are on food stamps is a testament to the BLS lie. A look at history proves how badly the current figures reek to high heaven:

2000 to 2011 – Not in Labor Force increased by 17.9 million.
1990′s – Not in Labor Force increased by 5 million.
1980′s – Not in Labor Force increased by 1.7 million.

The Not in the Labor Force category is utilized to hide how bad the employment situation in this country really is. They conclude that 17 million out of 38 million Americans between the ages of 16 and 24 are not in the labor force. That is complete bullshit. From the time I turned 16, I worked. Everyone I knew worked. I worked through high school and college. It is a lie that 45% of these people don’t want a job. If you dig into their data, you realize the horrific state of employment in this country:

74% of 16 to 19 year olds are not employed
85% of black 16 to 19 year olds are not employed
31% of black 25 to 54 year old men are not employed
40% of 20 to 24 year olds are not employed
22% of 25 to 29 year old males are not employed
22% of 50 to 54 year old males are not employed
According to the BLS, 11% of men between 25 and 54 are not in the labor force

Not only is real unemployment at Depressionary levels, but those that do have jobs are falling further and further behind. Wages have gone up less than 2% in the last year and have been rising at an annual rate below 3% for the last four years. According to our friends at the BLS, inflation has risen 3% in the last year. This is almost as ludicrous as their unemployment rate. Anyone living in the real world, as opposed to the BLS model world, knows that inflation on the things we need to live has been rising in excess of 10%. It is a fact that if you measure CPI exactly as it was measured in 1980, at the outset of our great debt inflation, it exceeds 10% versus the fake 3% reported without question by the MSM to a non-thinking public. A poor schmuck making the median salary of $25,000 who gets a 2% raise thinks he has $500 more to spend when in reality he has lost $2,000 of purchasing power. Federal Reserve created inflation is an insidious hidden tax that destroys the 99%, while enriching the 1%.

Until Debt Do Us Part

“Insanity is doing the same thing, over and over again, but expecting different results.” – Albert Einstein

The recovery storyline being touted by the oligarchy of politicians, bankers and media is designed to make consumers feel better. This is a key part of their master plan. Any honest assessment of the financial disaster that struck in 2008 would conclude it was caused by too much debt peddled to too many people incapable of paying it back, too few banks having too much power, the Federal Reserve keeping interest rates too low for too long, and that same Federal Reserve doing too little regulating of the Too Big To Fail Wall Street mega-banks. I wonder what Albert Einstein would think about the “solutions” rolled out to fix our debt problem. Would he find it insane that total credit market debt has actually risen to an all-time high of $53.8 trillion, up $533 billion from the previous 2008 peak? Our leaders have added $6.1 trillion to our National Debt in the last four years, a mere 66% increase. This unprecedented level of borrowing certainly did not benefit the American people, as real GDP has risen by $96 billion, or 0.7%, over the last four years.

Would Einstein find it insane that the governing elite would encourage the 4 biggest banks, that were the main culprits in creating a worldwide financial collapse, to actually get bigger? The largest banks in the U.S. now control 72% of all the deposits in the country versus 68.5% in 2008. The Too Big To Fail are now Too Bigger To Fail. Rather than liquidating the bad debts, breaking up the insolvent banks, selling off the good assets to well run banks, firing the executives, and wiping out the shareholders & bondholders foolish enough to invest in these badly run casinos, the powers that be chose to protect their fellow .01% brethren and throw the 99% under the bus.

Ben Bernanke, in conjunction with Tim Geithner and his masters on Wall Street, implemented a zero interest rate policy designed to enrich the Wall Street banks, force investors into the stock market, and encourage Americans to borrow and spend like it was 2005 again. Rather than accepting that our economy has been warped for decades, with over-consumption utilizing debt as the driving force, and allowing a reset, the Federal Reserve insanely encouraging banks and consumers to do the same thing again. We do know Bernanke has stolen $450 billion of interest income going to savers and senior citizens and handed it to Jamie Dimon, Vikrim Pandit, Lloyd Blankfein and the rest of the Wall Street cabal. The “austerity is bad” storyline is pounded home on a daily basis by the politicians, corporate chieftains, Wall Street billionaires, and MSM pundits. The definition of austere is “practicing great self-denial”. Did you see the mob scenes on Black Friday? Americans are incapable of any self-denial, let alone great self-denial, and the masters of our country will not allow it to happen. One look at our GDP figures confirms the non-austerity occurring in this country. In 2007, prior to the collapse, consumer spending accounted for 69.7% of GDP. Today, consumer spending accounts for 71% of GDP, with investment accounting for 12.7% of GDP. In the good old days of 1979 prior to the epic debt bubble, when the financial industry do not run this country, consumer spending accounted for 62% of GDP and investment accounted for 19% of GDP. What an insane concept. You spend less than you make and save the difference. You then invest that money where you can get a reasonable return (.15% in a money market account is not exactly reasonable).

As Ludwig von Mises pointed out, a false boom created by credit expansion will ultimately collapse. We had the chance in 2008 – 2009 to voluntarily abandon the Wall Street induced credit expansion and allow our country to reset. The pain and misery would have been great, especially for the 1% who own most of the stocks, bonds and peddle the debt to the ignorant masses. As you can see in the chart below, the powers that be need debt per employed American to grow at an ever increasing rate to maintain their power and wealth. The miniscule reduction in debt from 2009 to 2011 was unacceptable. The governing powers will not be satisfied until von Mises’ final currency catastrophe is achieved.

Bernanke and his Wall Street puppet masters’ plan is actually quite simple. It’s essentially a confidence game. A confidence game (also known as a con, flim flam, gaffle, grift, hustle, scam, scheme, or swindle) is an attempt to defraud a group by gaining their confidence. The people who commit such tricks are often known as con men, con artists, or grifters. The con man often works with one or more accomplices called shills, who help manipulate the mark into accepting the con man’s plan. In a traditional confidence game, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be random strangers who have benefited from successfully performing the task. Bernanke and the 1% are the con men. They are attempting to defraud the 99% by convincing them their “solutions” will benefit them. The shills acting as accomplices are Wall Street bankers, bought off economists, politicians, journalists, and mainstream media pundits. You are the mark. The game has multiple facets but is based on more freely flowing low interest easy debt. The con man has reduced interest rates to zero at the behest of his puppet masters. The Wall Street accomplices offer enticing financing to the marks for big ticket items like automobiles, furniture and electronics. As the marks go further into debt, the Wall Street shills report record earnings ($26 billion from loan loss reserve accounting entries), consumer spending rises and GDP goes higher. The mainstream media accomplices dutifully report an improving economy. The government accomplices massage the employment and inflation data and declare a jobs recovery with no inflation. The marks are supposed to feel better about the future and spend even more borrowed money. This is what is considered a self-sustaining recovery by the psychopaths running this country.

All you have to do is open your daily paper to see the confidence game in full display. Last week the MSM reported another surge in automobile sales. Our beloved American automobile manufacturers are back baby!!! Automobile sales are now pacing above 14 million on an annual basis. This is up from the depths of the recession in 2009 when the annual rate was below 10 million. We’ve breached the Cash For Clunkers level and there is nowhere to go but up. The storyline is that Obama was right to save GM and Chrysler with your tax dollars. They are now making splendid vehicles (except for the exploding Chevy Volts) and employing millions of Americans. This is a true American comeback success story. Clint Eastwood should do a commercial about it.

There is one little problem with this storyline. It’s bullshit. Remember GMAC? You bailed them out when all their subprime auto and mortgage loans went bad in 2009. They have a brand new business plan. Change your name to Ally Bank and start making as many subprime auto loans as possible. You will be happy to know that according to Experian, 45% of all auto loans being made today are to subprime borrowers. What could possibly go wrong? In addition, the average loan term has grown to almost 6 years. Executives at Ally Financial said that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. I’m sure they have everything completely under control. Gina Proia, a company spokeswoman, said the company places “greater emphasis on the higher end of the nonprime spectrum” and only lends to people who show they can pay. I can’t believe they are restricting their loans to only people who they think can pay. I’m surprised Obama isn’t condemning them for such restrictive loan terms. If you open your paper to the auto section you will see financing offers of $0 down-payment, and 0% interest for 7 years across the board on most models. But why buy, when you can lease a luxury automobile for $300 per month? It is simply amazing how many vehicles you can “sell” when “credit challenged” Americans can rent them for seven years. I wonder if this explains why I see dozens of $40,000 luxury autos parked in front of $25,000 dilapidated hovels during my daily commute through West Philadelphia. It also seems the Big Three are “selling” a few extra vehicles to their dealers in January as pointed out by Zero Hedge. No need to let a few facts get in the way of a feel good story.

Ford month-end inventory 86-day supply at end of Jan. (492k vehicles) vs 60-day supply (466k) as of Dec. 31
Chrysler had 83-day supply (349k units) end of Jan. vs 64-day (326k units) as of Dec. 31
GM month-end inventory 89-day supply (619k units) vs 67-day supply (583k) Dec. 31

The facts prove the issuance of billions in easy credit is creating the illusion of recovery. Non- revolving (auto & student loans) consumer credit outstanding is now at an all-time high of $1.7 trillion. Even with billions in bad debt write-offs since 2009 the amount outstanding has risen by $100 billion. Does this sound like austerity is gripping the nation? The Federal government is dishing out student loans like candy, as hundreds of thousands of students get worthless degrees from for-profit diploma mills like the University of Phoenix and its ilk. By keeping them occupied in school, the government is able to keep them in the Not in the Labor Force category. Not to be outdone, our friends at GE Capital, Wells Fargo and the other too big to fail entities have been doing their part on the revolving credit side of the scam. I’ve recently been seeing an ad by the largest U.S. furniture retailer, Ashley Furniture, offering 0% interest with no payments for 7 years. I don’t know about you, but my kids destroy a couch in less than 7 years. Wells Fargo Credit doesn’t seem too worried. A critical thinker might ask, how can Wells Fargo possibly make money offering these terms? But there is the rub. Ben Bernanke is loaning Wells Fargo money at 0% so they can perpetuate the confidence game. These insane bankers truly believe they can kick start this moribund debt saturated economy by issuing billions more in debt to people incapable of repaying them. Einstein would be amused.

The McKinsey Group put out a report a couple weeks ago analyzing the amount of American household debt and optimistically concluding that it could be back on a sustainable path by 2013. Mike Shedlock pointed out that sustainable is in the eye of the beholder. It seems the bright fellows at McKinsey haven’t grasped the concept of regression to the mean. First of all their analysis is flawed because real disposable personal income is actually declining and Ben Bernanke’s master scam is working and Americans are now adding to their household debt. The little blue line has turned upwards since they gathered their data. Secondly, as Mish so accurately points out, the sustainable level of household debt is really at the levels prior to the debt bubble that began in the early 1980s. That is a debt level of approximately 70% of disposable personal income, as opposed to the current level of 110%.

The implications of household debt levels regressing to their long-term mean would be catastrophic to the 1%. Their kingdom of debt would come crashing down. Their power and wealth would be swept away. This is why it is so vital for them to create the illusion of recovery. Their confidence game is built upon an ever increasing flow of credit expansion. It will not work. There is no avoiding the final collapse of a boom created solely by credit expansion. Those in power will never voluntarily relinquish their grand game of pillaging the wealth of the nation, so economic collapse will be the ultimate result. They will continue to use propaganda, printing presses, and half-truths to further their agenda. But those who examine the facts will come to a logical conclusion that we are being sold a great lie.

“Half the truth is often a great lie.” – Benjamin Franklin

If real unemployment is nearly 25%, what do you suppose it would be with your “therapeutic” austerity measures? Austerity is a prescription for the destruction of liberal civil society. It means fascism. That would be the real world outcome of the Ron Paul libertarian daydream applied to 21st century mass society. He’s got good intent and fine principles, but he belongs to another time.

The 1% create this deflationary environment. Don’t kid yourself about inflation. People don’t have any money. It is a lack of money fueling this economic trauma. Commodities price inflation is pure speculation, not increased demand. In a world wide slowdown, the price of oil rises, in spite of falling demand. Pure manipulation. The market is rigged to force prices always upwards.

The solution is regulation to prevent commodities speculation. Regulation to curtail the derivatives market and force it into the daylight. Regulation to break up the TBTF banks. Regulation to get rid of the Fed insider’s club. The people need credit at low cost. Instead it is being given to speculators. There are no low interest rates for consumers. 40% or more of debt is usurious interest paid to so-called “investors”, parasites.

We need more transparent government to regulate and get rid of the libertarian sonsofbitches now in control, playing their insider games and fucking the people.

Nobody with an IQ above 100 is going to risk their savings to create a new business in the predator controlled USSA, and that’s why employment will continue to fall until the system completely collapses (probably due to hyper-inflationary efforts to mask the truth with fiat toilet paper).

The USSA is finished. And almost certainly, mankind is finished. Humans are dumber than rocks, dumber than any other species. No other species honors, defends, supports, sanctions and finances the predators who prey upon them. Only humans do that. MORONs....

Its breathtaking. How long can this tottering tower of debt continue to sway in the financial breeze. My fear is that the collapse will lead to worse than the great depression. Because in some ways we have already virtually arrived, and there must be further to go, another huge drop, before the “Great Recession” becomes the “Greater Depression”....

Japan’s Energy Security Predicament; Japanese companies sign $70bn LNG deal....

2012-02-06T07:48:00.000-08:00

Japanese companies sign $70bn LNG deal....

Japan’s Energy Security Predicament in the Aftermath of the Fukushima Disaster....

Japan is the world’s fifth largest energy consumer, and a resource-poor country, which imports close to all of its fossil fuel requirements. Large demand for energy and high import dependence has made energy security one of the top priorities of any government in Tokyo, particularly since the two oil crises in the 1970s. The 1973 and 1979 oil crises caused the Japanese economy to record negative growth rates for the first time in its post-war history. Their impact on the lives of ordinary Japanese remains deeply etched in people’s minds. As a result, the Japanese government adopted policies aimed at improving energy efficiency and reducing the demand for oil. These policies have resulted in unprecedented success. Overall, Japan’s oil demand dropped from 5.4 million barrels per day (b/pd) in 1979 to 4.4 million b/pd in 2010. In terms of the share of oil in electricity generation, oil fueled approximately 72% (340 TWh) of electricity in 1973. This figure stood at 7% (68 TWh) in 2009. Japan’s oil demand by sector has also been transformed as a consequence, with the transportation sector replacing the industrial sector as the predominant user of oil.

Data Source: IEA

Today after three decades, energy security is once again at the center of attention among Japanese policy-makers and the general public. However, unlike in the 1970s when the focus was on affordability and security of oil supplies, the current challenge is multidimensional. While the renewed interest in energy security issues was triggered by record oil prices in 2008, it was brought to the forefront of public discourse in the aftermath of March 11, 2011 (hitherto referred to as 3/11) earthquake and tsunami, which caused a nuclear catastrophe in Tokyo's Electric Power Company's (TEPCO’s) Fukushima Daiichi nuclear power plant. By October 2011, only 11 out of 54 of Japan’s commercial nuclear reactors are operating.

Consequently, largely absent since the two oil crises in the 1970s, the energy security debate in Japan has been revived in the aftermath of the 3/11 disaster. Some analysts have suggested that Japan should move away from nuclear energy citing safety concerns in an earthquake prone country which lies on several fault lines. For example, the Japanese government claims it is scrapping plans to build as many as 14 new nuclear reactors over the next two decades. It is worth recalling that the government-stated plans were to increase nuclear’s share of total electricity generation from 24% in 2008 to 40-50% by 2030, according to the Ministry of Economy, Trade and Industry (METI). The former Prime Minister Naoto Kan announced that the government would have to “start from scratch” in devising a new energy policy for the country. He has announced a major energy policy review that would promote solar and other alternative energies, stating that Japan should increase the share of renewable energy in power generation to 20% by the early 2020s. This is a considerable challenge given Japan’s current electricity generation profile, in which renewable sources start from a low base.

Figure 2:

Data Source: The Federation of Electric Power Companies of Japan

This paper evaluates Japan’s current energy security situation and places future energy policy options in the appropriate context. The paper adopts UNDP’s definition of energy security as the availability of energy at all times in various forms, in sufficient quantities and at affordable prices, without unacceptable or irreversible impact on the economy and the environment. When this conceptualization is applied in the present Japanese context, the analyses indicate that Japan is facing an energy security predicament. The country’s energy policy has to address challenges related to the future availability of diverse energy sources, increasing cost of fuels, and adverse impacts of its energy and power trajectory on the economy and the environment.

In many ways, the scale of the Fukushima disaster is such that previous energy security thinking needs to be reassessed in lieu of a changed environment. While recognizing the significance of 3/11, Japan’s energy future is path constrained. It is embedded in a specific political, economic and social context, constrained by Japan’s existing energy system, but also affected by changes in the global energy system. For Japan, the challenge of moving away from the present pattern of energy use is constrained by a combination of four sources of path dependency: historical trends; beliefs and perceptions; institutions and organizations; and relative prices and technology. These constraints make energy transitions slow. At the same time, a significant disruption to any of these sources of path dependency comes at an enormous cost to energy and economic security. In Japan’s case, one such major disruption has been the 3/11 disaster. This event has shaken the foundations of Japan’s energy system and has affected its path dependency.

Historic trends

Scholarship on energy transitions suggests that they have been both gradual and complex. Decades are required for the diffusion of significant innovation, and even longer time spans are needed to develop infrastructure. Coal had been in use for thousands of years, but it was not until growing urbanization led to a shortage of wood that the use of coal became more commonplace. Similarly, oil derivatives were used in lamps throughout the nineteenth century, decades before they became the world’s dominant source of energy.

An examination of historical energy demand trends in Japan (Figure 1) and globally (Figure 2) reveals that substantial changes in proportions of energy use from various sources take decades. Having said this, the discovery of superior sources of energy has sometimes resulted in a relatively rapid transition to a new energy source, as in the case of coal and oil. Occasional supply shocks, such as the 1970s oil crises, only marginally affect the historical pattern, with return to pre-shock levels within two decades. Currently, fossil fuels make up 87% of global and 82% of Japan’s energy demand, with no serious competitors on the horizon.

Source: Full Report, BP Statistical Review of World Energy, 2011

Source: BP Statistical Review of World Energy 2011

Japan is the world’s largest importer of liquefied natural gas and coal and the third-largest importer of oil. As Japan is heavily dependent on energy imports, the government has been promoting nuclear energy as a means to diversify its energy sources. The re-evaluation of energy policy in the aftermath of the 1973 oil crisis resulted in diversification and in particular a major nuclear construction program. A high priority was given to reducing the country’s dependence on oil imports and more broadly curbing oil demand. Consequently, with improvements in energy efficiency and substituting oil for natural gas and nuclear power in electricity generation, Japan’s fuel oil demand dropped significantly by the mid-1980s, only to return to pre-crisis levels by the mid-1990s. The Japanese government has treated nuclear power as a semi-indigenous form of energy supply. As a country with virtually no natural resources, it perceived nuclear power as a central pillar in reducing dependence on imported fuel oil for power generation and enhancing energy security. Since the 1980s, nuclear energy has been an integral part of Japan’s energy supply system (Figure 1). It provides 25-30% of electricity and 13% of primary energy supply.

The realities of energy transitions and the particularities of Japan’s energy system hinder any quick move away from coal and oil. Japan has reduced its nuclear power output and this reduction is likely to remain for the foreseeable future. With Fukushima and other nuclear plants offline, industry analysts calculate that in order to replace lost nuclear capacity, Japanese oil imports (to be used as fuel oil by utilities) are likely to rise by at least 350,000 b/pd (or 8% per annum), and imports of natural gas by approximately 1.2 billion cubic feet per day (or 13% per annum), mostly in the form of liquefied natural gas, or LNG. Regional suppliers, such as Australia, are already reaping the benefits of Japan’s increased demand for coal and LNG. Yet, the issue is that fossil fuels, and particularly supplies of fuel oil, are constrained. Consequently, the nuclear crisis poses a serious challenge to the nation’s energy security both in terms of supply security and affordability.

Similarly, and despite a significant policy commitment to renewable energy in Japan, it will take decades before renewable energy becomes competitive with fossil fuels in electricity generation and in the transportation sectors both in Japan and globally. A glance at past energy consumption trends (Figure 4) indicates that renewable energy is a newcomer. Renewable energy sources are a fraction of total output in the current global energy system. The same applies for Japan, where they start from a very small base (see Figure 3). While the share of renewable energy in global terms and in Japan’s energy mix will grow, this will happen at a very slow pace due to relative higher costs and other limitations (discussed below) that inhibit a fast uptake of renewables.

Beliefs and perceptions

There is a strong commitment in Japan that a move from nuclear power and towards other sources of energy is desired, both in terms of public opinion and government policy. While public opposition to nuclear energy is not a new phenomenon, the change of government policy is. Driven by a high dependency on imported fossil fuels and the negative impact of two oil crises, the government has been committed to nuclear power as a preferable energy source because it is domestically produced, and thereby more secure. As outlined in Japan’s New National Energy Strategy of 2006, the aim was to increase the share of nuclear to at least 40% by 2030.

At the same time, the Japanese public has been opposed to nuclear power since a series of nuclear accidents occurred over the 1990s. The 3/11 nuclear disaster, although the most severe, has not been the only nuclear accident in Japan. In fact, several reactor accidents occurred during the 1990s, the most serious of which was the 1999 accident in Tokaimura, which killed two workers. These accidents have contributed greatly to negative public confidence in government and corporate nuclear oversight. The share of Japanese people feeling “very uneasy” about nuclear power grew from 21% before the 1999 Tokaimura accident to 52% afterwards. In a survey released in March 2000, 64% of energy experts surveyed expressed strong concerns about the risk to energy security posed by limitations to securing sites for nuclear power plants; and 49% about risks posed by large accidents at nuclear power facilities. This survey data shows that both the public and experts did not accept the government’s argument that nuclear power is safe well before 3/11.

However, after 3/11, this opposition has become even more pronounced. In the Asahi Shimbun poll in June 2011, 74% of Japanese respondents favored a gradual phase-out of nuclear energy and only 14% were against such a gradual reduction. The poll also showed 64% of respondents believed “natural energy” such as wind and solar power would replace nuclear power in the future. Mirroring public opinion, in early July 2011, PM Kan urged a nuclear-free future for Japan, stating that the country should aim to develop alternative energy sources such as solar, wind and biomass fueled electricity. This is a significant policy shift and a clear indication that the Japanese government and key policy-makers are starting to judge the future of nuclear energy in Japan dispassionately, rather than primarily on supply security grounds.

Institutions and organizations

Japanese energy policy and its future direction are embedded in the country’s institutional and organizational structure, in the METI, with the utility monopolies at the center. However, as argued post-3/11 societal pressure to move away from nuclear power has translated into a significant force for change. Traditionally, energy policy has been the purview of the METI, which has close ties to the business community. Among METI’s chief private-sector allies are the ten regional utility monopolies. These utilities monopolize control over Japan’s major electricity-usage regions and collectively produce more than 85% of Japan’s electricity. Given their regional monopoly status, these utilities charge much higher electricity prices than those in the US and Europe. Nuclear energy generation differs with each of the ten utilities in Japan, but ranges between 21% and 45%. However, nuclear power is one of their preferred sources in the energy mix as it is relatively cheap (discussed below). Consequently, they are unlikely to simply give in to societal pressure to move away from nuclear power. These deep-pocketed monopolies and industrial energy users have cultivated salubrious ties with influential politicians through generous campaign contributions. Lobbyists from large power utilities have in the past opposed more ambitious renewable energy goals. They have substantial influence at the local and national governmental levels. The plan to downsize or eliminate nuclear energy is also certain to face considerable opposition from companies such as Toshiba Corp., which generates about 10% of its revenue from building and servicing reactors.

Japan’s nuclear regulators are also not independent of industry influence. In the aftermath of 3/11, the government largely left the response up to the plant’s operator, TEPCO, which demonstrates a cozy relationship between government and the utilities. TEPCO, the largest of the regional monopolies, supplies over one-third of Japan’s electricity. Some of Japan’s most densely populated and economically important regions get their power supply from TEPCO. Yet, the company has lost much credibility and trust from the Japanese public in its handling of the nuclear crises following the 3/11 disaster. It has a track record of safety cover-ups, helped by soft regulation by a government organization tasked with promoting nuclear power. From autumn 2002 to the middle of 2003, TEPCO closed all seventeen of its nuclear reactors as a consequence of falsified reports in which the company concealed scars on the shrouds or supporting devices of fuel rods inside the reactor. This situation suggested negligence in safety and security by TEPCO.

In fact, the string of nuclear accidents in Japan in the 1990s revealed a lack of regulatory oversight and preparedness. Over a decade ago experts have called for an adversarial regulatory culture with appropriate laws and institutions. They called for an effective nuclear safety and regulatory commission, which is independent, transparent and encourages public participation. Yet the Nuclear & Industrial Safety Agency (NISA) within the METI remained responsible for nuclear power regulation, licensing and safety. The fact that the Japanese government did not restructure its nuclear regulatory framework in the aftermath of accidents in the 1990s shows the strength of nuclear lobby in the country.

As of October 2011 close to 80% of Japan’s nuclear reactors were offline. In what mirrors public opinion, after 3/11 many local governments have been vehemently opposed to nuclear power. Before reactors can restart, METI needs agreements from local governments, even after routine inspections. In any case, and regardless of societal and local opposition to nuclear power, it is hard to imagine that the powerful nuclear lobby and its allies will relinquish their cause. The structural adjustment in the coal industry in Japan serves as an important precedent. In 1968 a decision was made to gradually phase out Japan’s inefficient coal industry in response to the increased costs of domestic coal. Yet two decades later, for its Eighth Coal Program (1986-91), the government had only agreed to some minor adjustments and decided to maintain price differentials and protect the industry more heavily with subsidies for domestic producers and tariffs on imported coal. It was only in 2002 that Japan stopped domestic coal mining because it was no longer economically viable.

Relative prices and technology

A glance at Table 1 reveals that nuclear power is the cheapest source of electricity in Japan, followed by coal and LNG. Renewable alternatives are considerably more expensive. This is a clear indication that there is little economic incentive for utilities to move away from traditional energy sources.

Sources: Craig Dale, ‘Energy angst: Japan’s Post-Tsunami Power Crisis’, Ministry of Economy, Trade and Industry, Japan, Paul Scalise, ‘Rethinking national energy policy: Japan’s electricity crisis, nuclear power, and the fate of TEPCO

Besides high direct costs, renewable energy faces other significant hurdles in Japan, all of which add to indirect costs related with the uptake of these sources of energy. Geothermal power would appear to be an attractive option given that there are more than 100 active volcanoes and thousands of hot springs. But some of the best locations are in national parks and host springs are attractive for tourists. Consequently, exploring that option could be problematic for the green lobby and tourism industry in particular. Offshore wind farms also seem worthy of consideration, but they are likely to draw the ire of fishermen. In addition, the most productive sites for wind power are located far from where the electricity is needed, necessitating the construction of new power lines often in the face of local resistance. In terms of solar power, the existing power system could accommodate enough photovoltaic generating capacity to provide only about 6% to 8% of the electricity supply. Japan’s hydroelectric potential is largely exploited. Finally, given the intermittent nature of many renewables, the amount of capacity that must be built to produce every kWh of electricity will be several times greater than for other sources, greatly reducing their cost-effectiveness. According to one estimate, even 100 GW of installed photovoltaic capacity, or the equivalent of nearly 40% of current power generating capacity, would meet only 12% of Japan’s electricity demand. For all these reasons, METI predicted in 2009 that the share of the primary energy supply provided by renewables in 2030 would reach only 11.6%, even with a “maximum introduction of technology”.

The government has also been promoting energy efficiency since the 1970s oil crises. Further increases in energy efficiency in order to reduce dependence on fossil fuels are desirable, yet unrealistic. Japan is the most energy-efficient country in the world. The energy consumption per unit of output in America and Europe is around twice that of Japan’s and China’s is eight times as much. In fact, Japanese industry uses a similar amount of energy as it did during the oil shock of 1973. From the 1990s, Japan has also attained the highest level of efficiency in thermal power generation, a level it still maintains. Without a doubt, while minor efficiency gains are possible, any significant gains are highly unlikely in all sectors.

Consequences and future directions

If we are to define energy security as indicated earlier, Japan’s is facing a serious predicament and a dilemma regarding the direction of its future nuclear energy policy. The Japanese people will be paying more for energy, the supply of which will be less secure and diversified. Moreover, the higher cost of the future electricity mix, which is likely to be heavier on the fossil fuel side, will have an adverse effect on both the economy and the environment.

During the coming decade, Japan will face supply shortages and higher electricity prices, and general political and economic uncertainties, particularly if the country decides to move away from nuclear power. On the one hand, the commitment to emissions-intensive fossil fuels in the electricity sector will result in an increase in greenhouse gas emissions which may be difficult to accept for Japan’s environmental interests groups. On the other hand, the commitment to prohibitively expensive renewable electricity will result in severe consequences for an already struggling economy. In any case, rising electricity prices are likely to make Japanese corporations less competitive and fuel the movement of jobs offshore.

When considering relative costs, the feasibility of increased production and availability of fuels, Japan is bound to increase consumption of fossil fuels to make up for lost nuclear power. The most feasible option for Japan to remain economically competitive is that a significant part of any future short-to-medium term expansion in power production capacity comes from more imported fuel oil, coal, and LNG. However, the increased use of thermal plants to make up for the loss of nuclear output will result in higher electricity and fuel import costs, negatively affecting the trade surplus. According to data from the Institute of Energy Economics, Japan (IEEJ), a regular household’s electricity bill is likely to increase by ¥1,049 per month (US$13.44) on average due to a rise in fuel costs. Residential and industrial electricity prices are already considerably higher in Japan than in most G-20 economies. The economic burden associated with these higher electricity costs is increasing for Japan as the competitiveness of other countries is enhanced due to deregulation of their electricity sectors.

Early results of the impact of down-scaled nuclear power generation is that Japan has been paying substantially more overall for fossil fuels. Consumption of LNG rose 31% in June 2011 from a year earlier and imports rose to a record 4.46 million tons for the month. LNG prices have also risen as Japan buys more, with spot prices reaching $14 per million Btu, up 40% from before 3/11. LNG use in FY2012 is likely to rise by over 10% of the nation’s annual demand. Japanese demand for coal is expected to increase by 7 million tons (or close to 6% on an annual basis) in 2011 as the country adjusts its energy mix in response to the nuclear shutdown. According to Morgan Stanley, in order to make up for the loss in nuclear power, Japan will need to boost its fuel oil consumption to be used for power generation by 8%, or about 350,000. Their assessment is for a total of 540,000 bpd of oil demand for power generation between June and December in the worst case if all reactors are closed down, compared to an average of 192,000 bpd in 2010. The IEEJ estimates are less conservative. They estimate that if nuclear reactors shut for maintenance (2/3 of capacity) are not allowed to resume due to safety concerns, demand from utilities for fuel oil and crude oil would soar to 706,000 bpd in 2011/12, over triple that for fiscal 2010/11. The price of fuel oil has risen as Japan boosted consumption by 25% in June 2011 from a year earlier. It is not difficult to imagine how additional demand would further boost prices, adding to the costs that must be borne by Japanese consumers and industries. The IEEJ estimated that the increase in use of thermal power to cover the loss of nuclear power would push up the nation’s annual fuel costs by ¥3.5 trillion (US$44.8 billion) in FY2012.

It is unrealistic to expect that the renewables take up nuclear’s share of power generation. Renewables can contribute, but to make up for most of lost nuclear power would take massive investment, probably too much for a country where government net debt is close to 200% of GDP. In fact, removing up to 30% of Japan’s electricity generating capacity is not possible without inflicting serious harm to Japan’s already vulnerable economy. If industries continue to be required to cut electricity, some Japanese companies may relocate their operations overseas, where electricity is in stable supply and cheaper, ushering in higher unemployment and further squeezing public funds. If nuclear power was scrapped altogether, Japan would face costs from changing its power generation mix, from buying more carbon pollution allowances and from the inevitable movement of manufacturing offshore.

There are also severe consequences for Japan’s environmental policy following a reduction in nuclear output. According to the EIA, nuclear power reduces Japan’s CO2 emissions by 14% per year. Replacing nuclear power with fossil fuels will boost annual emissions by as much as 210 million tons, potentially costing as much as $3.4 billion to buy permits. Moreover, this would make it virtually impossible for Japan to reach the Kyoto Protocol 2020 target of reducing CO2 emissions by 25% of 1990 levels. If Japan is to achieve its Kyoto targets, it will have to make even greater reductions in the future than it did before the earthquake. In the case where Japan achieves this target, the reduction cost would be $239.3/ton CO2, which is extremely expensive when compared with the current price of emissions rights in Europe (approx. $20/ton CO2). Paying such high costs would result in Japan’s GDP dropping by 1.9%. If Japan remains committed to its Kyoto targets and four-fifths of nuclear power plants remain shut down, this will severely damage Japan’s post-3/11 economic recovery.

Where to from here for Japan?

There is now an energy policy rethink in Japan. Japanese policy-makers are faced with the difficult task of building a new energy policy that can appease growing anti-nuclear public sentiment without adverse effects to the powerful nuclear lobby, regional utility monopolies and industry. Energy security, the environment and the economy have long been the three pillars of Japanese energy policy. The new energy policy cannot overlook any of these three pillars. Yet, there are significant challenges associated with each of the pillars, and the government is in an extremely difficult position of finding the best policy with which to tackle a multitude of interconnected challenges. Although former PM Kan spoke of replacing cancelled reactors with renewable energy systems such as wind and solar, this policy option will remain wishful thinking unless Japan is ready to forgo economic growth for the foreseeable future. This has been recognized by new PM Yoshihiko Noda, who just over six months after the earthquake, acknowledged that while public safety concerns will make it tough to build new reactors, decisions on operational reactors and those already under constructions will be made on a “case-by-case” basis.

One of the origins of Japan’s ambitious nuclear policy lies in the concerns of Japanese leaders who have interpreted history as a series of unreasonable assaults on an island nearly devoid of natural resources. They perceive Japan as exposed to inexplicable supply disruptions and argue that Japan would be too weak without recourse to an independent energy supply. Nuclear energy has been an integral part of Japan’s energy supply system. The benefits of nuclear energy for Japan have been manifold. Nuclear energy adds to energy diversification, reduces dependency on fuel oil, can be produced at a stable price, and is a clean fuel in terms of emissions. The future of nuclear energy must be weighted wisely if Japan is to remain an economic power.

The energy transition will be slow and needs to be managed with extreme caution in order to minimize economic dislocation. If any lessons are to be taken from previous energy transitions, as witnessed by economic depression in former major coal-mining regions, severe socioeconomic dislocations are likely to occur in Japan and elsewhere. Consequently, energy policy is too salient to be relegated to swings in public opinion. Japan now needs an integrated energy policy that is grounded in a new post-Fukushima reality. Such an energy policy will require a reassessment of priorities for Japan. Even if public opposition to nuclear power could be overcome, the scale of the Fukushima crisis will undoubtedly delay the expansion of existing nuclear plant capacities and the construction of new plants. The 1999 Tokaimura nuclear accident slowed down the rate of subsequent nuclear development. Various projects were delayed or cancelled.

Yet, energy policy cannot be relegated to industry either. A firewall needs to be created between regulators, government and industry. Only when regulators are independent from government and industry-capture will Japan’s nuclear industry receive proper oversight, which will likely prevent future accidents. The Japanese government should also reassess the value of preserving Japan’s regional state-regulated and privately-owned electricity monopolies, who some have blamed for relatively high electricity prices. The government should engage in a comprehensive reassessment of the structure and the future operations of its power industry while developing its new energy policy.

Contributor Dr. Vlado Vivoda is a Research Fellow at the Griffith Asia Institute, Griffith University, Brisbane, Australia.

In a significant boost for Australian exports, five Japanese power companies have committed to buying $70 billion of liquefied natural gas (LNG) ahead of a final investment decision on the Ichthys project in the Northern Territory.

Australia’s Resources Minister Martin Ferguson said Japan’s INPEX and Total of France secured 15-year sales and purchase agreements with five power companies to supply LNG from the proposed offshore project.

It was the strongest indication a final decision is imminent on the project, which is in one of Australia’s largest offshore gas fields, Mr Ferguson said.

AAP newsagency says the project is poised to create more than 2000 jobs during its five-year construction and 300 jobs onshore once fully operational.

There will be a further 1000 jobs offshore during construction and 400 during operations.

“These agreements are a great step forward for the Ichthys project and for the Australian LNG industry,” Mr Ferguson said.

“With expected LNG output of 8.4 million tonnes a year, the Ichthys project has the potential to significantly boost Australia’s standing as a major energy supplier,” he said.

“It will create jobs, particularly in the Northern Territory, significantly boost export revenues and help meet the energy needs of one of our oldest, largest and most valuable LNG trading partners, Japan.”

Japan is the world’s largest LNG importer, accounting for a third of the world’s imports in 2010, with demand growing substantially since the Fukushima nuclear disaster in March.

“Australia is a proven, reliable LNG supplier and this year became the largest supplier of LNG to Japan,” Mr Ferguson said.

“The sales and purchase agreements concluded today will cement this relationship and help maintain Japan’s energy security.”

If it goes ahead, Ichthys would represent Japan’s biggest single financial investment in Australia and be the first Japanese-operated LNG project.

It would have the capacity to produce 8.4 million tonnes of LNG each year, about 1.6 million tonnes of liquefied petroleum gas (LPG) a year, and 100,000 barrels of condensate a day.

In 2010-11 Australia exported 20 million tonnes of LNG worth $10.5 billion.

There are currently more than $140 billion of LNG projects under construction in Australia that, when combined with the Ichthys project, have the potential to quadruple Australia’s existing export capacity....

There will be a massive fiscal contraction in 2013....

2012-02-06T05:23:00.000-08:00

“Under current law of utter corruption and wild Hubris in ZOG USA, Old Europe, and the Zioconned West, there will be a massive fiscal contraction in 2013,” said Benshalom Bernanke, chairman of the crooked Federal Reserve....

Now that's the understatement of the Century, especially after the cascading Vetoes at the UNSC and the wild west at the UN of General Ban ki MOON THE CREEP....

Central Asia: Struggling to Keep the Lights On....

2012-02-06T05:06:00.000-08:00

Central Asia: Struggling to Keep the Lights On....

A combination of severe cold and antiquated infrastructure this winter is leaving millions of people in Kyrgyzstan, Tajikistan and Uzbekistan in the dark. Power outages are posing an especially difficult test for Kyrgyzstan’s nascent parliamentary democracy.

In Tajikistan, where rolling blackouts have long been a regular feature of life, residents in the capital Dushanbe report that electricity supplies are actually better so far this winter than during the same period in previous years. Rural areas of the country, however, are still lacking power, with many towns having only about six hours of electricity per day. Part of the reason for the improved situation this year is that officials appear to have curtailed electricity exports to Afghanistan.

Power cuts have also been reported in Uzbekistan, Central Asia’s most populous state and a minor energy exporter.

It seems Kyrgyzstan is the hardest hit Central Asian state this season. Scarcely a month into office, Kyrgyzstan’s new prime minister is struggling with regular power outages of the kind that helped bring down President Kurmanbek Bakiyev in 2010. An unusually harsh winter is straining the energy grid’s capacity, which is dependent on a steady supply of melted snow. In an effort to quell rising anger, which has seen protesters block roads in Bishkek, the government has responded by ousting electricity officials and publicly criticizing the energy minister.

Power outages are not a new phenomenon in Kyrgyzstan, where the energy generation, distribution, and transmission systems have not been updated since the Soviet era. In addition to the failure of obsolete equipment and cables, as well as frost, unregulated growth, especially in Bishkek, has caused a surge in demand that, according to energy officials, the system is simply not equipped to handle.

But rather than give reforms the time they need to take hold, top officials seem to be looking for scapegoats, industry observers say. On January 23, two top technocrats at Severelektro, the distribution company responsible for the north of the country, were forced to resign in a move reformers called counterproductive.

“We need stability, we need to be given time to conduct reforms,” said Nurzat Abdurasulova, the co-chair of a public advisory council overseeing the Ministry of Energy.

Part of the present problem may be related to overconfidence among some top officials. In November, Minister of Energy Askarbek Shadiev, a non-specialist with a good reputation among reformers, announced that the national system was “100 percent ready” for the heating season.

When an early cold snap descended in mid-December, however, temperatures reached minus 21 degrees Celsius (minus 6 Fahrenheit) and the promise of regular supplies quickly proved impossible to fulfill. Blackouts across the country grew more frequent as the cold snap stretched into the New Year. Using a tactic common for Kyrgyzstan, protesters have repeatedly blocked roads to demand service, most recently along the capital’s Deng Xiaoping Avenue, a major thoroughfare in western Bishkek, on January 29.

In a small grocery on the avenue, women wearing heavy coats were sitting in darkness at four in the afternoon one day recently. “We get about three hours of electricity a day,” said Natalya Ten, an ethnic Korean selling homemade carrot and cabbage salads. “It shuts off at least four times a day. I’ve got a small son. How am I supposed to raise him, if I can’t even heat up kasha?”

In the eyes of reformers, Prime Minister Omurbek Babanov has been the first to pass on responsibility for the crisis, especially in the public dressing-down he gave to Shadiev on January 19.

“In 2009, [Babanov] was vice premier in charge of this sector, and what did he do to fix it?” protested Nikolai Kravtsov, an energy expert and member of the ministry’s advisory council. “You can’t call someone to account when you have not given [him] the chance to do his work.”

As finger pointing goes on in Bishkek, the possibility of more serious outages looms. Due to Soviet integrated planning, more than one-third of the energy Kyrgyzstan produces in its southern hydroelectric plants reaches the north via a high-voltage line that passes through Uzbekistan and Kazakhstan before returning to Kyrgyz territory.

With Kazakhstan and Uzbekistan engaged in a tense standoff over Kazakh claims that Uzbekistan is illegally tapping energy from the line, both countries have threatened to “withdraw” from what is referred to as the Central Asian Unified Energy Grid by tearing up existing agreements, thereby leaving their downstream neighbor Kyrgyzstan in the dark. In the worst-case scenario, 40 percent of customers in northern Kyrgyzstan would face severe electricity shortages.

In the medium-term, a solution to the regional problem exists in the idea of a new high-voltage line, Datka-Kemin, that would carry power directly from south to north without transiting other countries. Negotiations with China over financing the project, suspended after Bakiyev’s ouster, have resumed. Kravtsov predicts the line could be built in two and a half years, and that along with ongoing repair work to replace obsolete cables and equipment, the system could be righted.
It will not be cheap. A 2011 USAID/CIA skunks-sponsored report suggested that merely repairing the system and making investments to ensure reliable service would cost as much as $2.1 billion over a five- to 10-year period. That estimate did not take the potential Datka-Kemin project into account.

To bring about the kind of change the industry requires, patience and political will are needed. “You don’t plant wheat and then expect to harvest the same day,” said Kravtsov.

Nate Schenkkan is a Bishkek-based journalist.

SEC Allows America's Biggest Wall St. Banks To Continually Flout the Law....

2012-02-06T04:07:00.000-08:00

SEC Allows America's Biggest Wall St. Banks To Continually Flout the Law...., just as they allowed Bernie MADOFF to flourish for well over 15 years...., knowing full well about his PONZI Scheming from Markopoulos among others....

The NY Times has discovered that the Banks that were rescued by the public have turned into serial fraud offenders. JP Morgan is near the top of their ranks, with Goldman Sachs and Bank of America not far behind. Only Citigroup seems to have fallen out of favor.

This is not news to any of the regular patrons of the Cafe, but it is good to see the mainstream media taking notice. Perhaps they might have a look at the Silver manipulation investigation that the CFTC has been sitting on for over three years. Not to mention the outrageous theft of customer money by MF Global and the Banks.

Obama talks a good game, and presents a moral face through the media, but an examination of his actions and his record shows that his administration serves the monied interests to the detriment of the public interest. In many cases they are merely following the same practices begun in the Clinton Administration and carried on by Bush. It is a bad situation indeed when the 'reformer' elected by the people has failed to reform.

He may not be as brazen and open as his Republican opponents in promoting the interests of the Wall Street, perhaps, and certainly is not as favorable to Big Oil, but the corruption of justice for all in American politics seems to have become pervasive over the last fifteen years.

NY Times
S.E.C. Is Avoiding Tough Sanctions for Large Banks
By Edward Wyatt
February 3, 2012

WASHINGTON — Even as the Securities and Exchange Commission has stepped up its investigations of Wall Street in the last decade, the agency has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.

JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010...

Read the rest here.

Gold ; an undated put option on the US ZOG dollar's reserve role....

2012-02-06T02:11:00.001-08:00

Gold ; an undated put option on the US ZOG Dollar's reserve role....

By Spengler

Investors generally misunderstand gold. It is not a hedge against inflation, not, at least, against the sort of inflation we see in store prices. This becomes clear when we compare the gold price to the two components of the 10-year Treasury yield, namely the yield of inflation-indexed Treasuries (TIPS) vs the so-called breakeven inflation rate, that is, the yield difference between ordinary coupon Treasuries and TIPS.

We observe almost no relationship between gold and breakeven inflation expectations embodied in the 10-year yield, but an extremely close relationship between gold and the inflation-protected Treasury yield.

Exhibit 1: Gold vs 10-year TIPS (left-hand scale) and 10-year break-even inflation (right-hand scale), daily data from February 2, 2006 to February 2, 2012

Source: FRED, World Gold Council.

The r-squared of regression between gold and TIPS yields during the past five years is a remarkable 87%. Between gold and breakeven inflation, it is zero. Nonetheless, economists, commentators and financial advisers insist on referring to gold as an inflation hedge.

We find a solution to the puzzle when we cease to view expectations as a fixed point but rather as a range of possibilities. Gold is not a measure of the future price level, but an undated, out-of-the-money put option on the US dollar's reserve role. Bonds (especially inflation-indexed) are an option on prospective inflation.

The fact that the value of both these forms of optionality is rising tells us that markets are extremely uncertain as to whether we will have inflation or deflation. Investors pay up for hedges on both. That is the theory; empirical observation strongly supports the textbook.

The market is suffering from something like Margaret Dumont's double blood pressure in the Marx Brothers' classic A Day at the Races. Fiscal strains in most of the major industrial countries might lead to inflation on the Latin American model, or deflation on the Japanese model.

Deflation can arise from fiscal strains when governments are unable to borrow and are forced to cut expenditures drastically, for example, the southern European countries in the context of the European Union. If these countries leave the eurozone, revert to their old national currencies, and turn on the printing presses, the result could well be inflation.

The 10-year inflation-indexed Treasury pays a negative yield of 40 basis points. If inflation remains where it is now, investors get back less principal than they invested. They are willing to buy into a loss in order to be insured against an unexpected jump in the inflation rate.

Gold tracks TIPS much more closely than coupon Treasuries, because it also represents an option on inflation.

Investors suffer from one-dimensional thinking; the market is not betting on a specific score, but rather on the point spread. The risk of an extreme change in the value of money motivates investors to pay a negative yield to own TIPS, and to own a sterile asset in the form of gold....

It's all about the oil .... nothing less and nothing more; Beijing’s South China Sea Gamble...

2012-02-06T01:35:00.000-08:00

It's all about the oil .... nothing less and nothing more; Beijing’s South China Sea Gamble...

Will Rogers, The Diplomat

If China is right, then there is enough oil under the South China Sea to feed global consumption for several years. But Beijing may be making an aggressive bet on the wrong horse....

Beijing seems to be doubling down in the South China Sea. Why? In large part it’s to secure access to potential deep sea hydrocarbons like oil and natural gas – many describe the South China Sea as the next Persian Gulf, given the possible richness of resources that supposedly lay beneath the seabed. And while there are significant differences between the two regions that complicate such a comparison – including the ease of access to fossil fuel resources and the cost of developing them – it’s a useful analogue for understanding why China views the region as critical to its core interests.

But Beijing may in fact be overestimating the strategic significance of the region’s oil and natural gas – and taking unnecessary risks that could undermine its peaceful rise.

China’s voracious appetite for energy to feed its continued economic development will become increasingly important as the state continues its transition into an industrial powerhouse. In 2009, China just barely overtook the United States as the largest consumer of energy in the world; by 2025, its energy consumption is projected to eclipse the United States by nearly 50 percent. In order to secure access to the energy resources it needs to fuel its economy, Beijing is developing a broad range of energy sources, including investments in solar technology and hydroelectric development. Yet conventional fossil fuels, China is betting, are likely to remain dominant.

As a result, Beijing is developing a robust portfolio of fossil fuel resources from a variety of locations, including the Middle East, Central Asia and the South China Sea, in an effort to reduce its vulnerability from any one source. Middle East oil must transit through the Strait of Malacca, which, as Beijing is acutely aware, poses a strategic vulnerability should any state choose to compromise the sea lines of communications by blocking the strait. Beijing’s investment in a vast infrastructure of overland energy pipelines from Central Asia means oil must cross volatile transit states like Burma and Pakistan and is delivered to western China where Beijing’s influence waxes and wanes. Consequently, Beijing is eying the South China Sea as a safer way to ensure access to the energy its needs to thrive.

Yet Beijing’s plan may be flawed. Estimates vary widely as to the size of the hydrocarbon reserves beneath the sea floor. The U.S. Geological Survey calculates that there may be roughly 28 billion barrels of oil – enough to feed global oil consumption for about 11 months according to 2009 statistics. The Chinese government, meanwhile, estimates that the South China Sea region contains nearly 200 billion barrels of oil, or enough to meet global oil consumption for more than 6.5 years. Analysts tend to agree that China’s estimates are wildly optimistic. These disparate estimates need to be resolved, yet recent efforts to survey fossil fuels reserves by states like Vietnam have been stalled by the China Maritime Safety Administration, which has taken to cutting survey cables of vessels chartered to provide better information.

Moreover, Beijing’s bet that fossil fuels will remain the dominant energy source seems to ignore developments in energy technology and the broader energy market. Indeed, the once-single energy source transportation sector, which accounts for about 60 percent of oil consumption in OECD countries, is now being diversified by electric vehicles as well as serious research and development of second-generation liquid biofuels derived from feedstock like algae that can displace the demand for oil.

However, serious research and development of second-generation liquid biofuels derived from feedstock like algae that can displace the demand for oil. Indeed, the scaling up of alternative fuels will alter the strategic value of whatever resources lie beneath the South China Sea floor as they reach price parity with conventional fossil fuels. Experts contend that if production continues apace, these alternative fuels may be commercially available and at price parity with petroleum in a decade.

What is more, not all oil is created equal, at least as far as cost is concerned. Some analysts project that the price of a barrel of oil from deep water wells could be as much as four times that of a barrel produced from conventional reserves like those in the Middle East. Thus the cost of extracting South China Sea oil could be much more expensive than fuels derived from algae, other biomass or even dirtier sources like coal and natural gas, making deep-seabed oil less strategically important than those other sources.

Whether those hydrocarbon resources in the South China Sea are strategically important or not, the perception in Beijing seems to be that they are vital. It’s no surprise, then, that China has taken an increasingly zero-sum approach to securing access to those resources, becoming more aggressive with neighbors that it suspects are trying to exploit oil and natural gas on their own. In that light, even Beijing’s push for joint development could be taken as an effort to slow roll other countries’ efforts while its own Chinese National Offshore Oil Company gets the edge in developing those resources first.

But Beijing’s efforts could all be for naught if energy trends continue to develop as projected, and especially if the South China Sea turns up dry (so to speak). As a result, China’s continued assertiveness in the South China Sea could compromise its claim to a peaceful rise and reinforce the call from countries like Vietnam and the Philippines for the United States to step up its military presence in the region.

Perhaps the most important step the United States can take in the near term to diffuse tensions in the region is to promote the message that those energy resources aren’t as valuable as Beijing believes. At the same time, the United States should encourage Southeast Asian countries to lead a multilateral effort through partnerships like the Asia-Pacific Economic Cooperation to survey fossil fuel resources, putting to bed once and for all the uncertainty around how much oil and natural gas really lies beneath the ocean floor. Maybe then Beijing will realize that its bet in the South China Sea is one it can’t afford to make.

S. China Sea – possession is nine-tenth of the law.

Tension in the S. China Sea region has been increasing lately due to the disputes of sovereignty over parts of the S. China Sea which include the Xisha Archipelago or Paracel A. and Nansha Archipelago or Spratly A. I will present first the historic proofs of China and demonstrate why its claim of sovereignty is the only tenable one. I will then give the arguments of the other countries on which they base their respective claim and show why their arguments are false, facetious and untenable. The other claimants are Vietnam, the Philippines, Malaysia and Brunei.

In the West the determination of sovereignty is based on their international laws which are mostly compiled by Westerners. The main elements and factors for claiming sovereignty under the Western international laws are as follow:

Terra Nullius or Res Nullius
Discovery
Occupation
Conquest
Cession
Prescription
Abandonment
Uti Possidetis

The principle way for gaining sovereignty over a territory is by discovering it when it is unoccupied by anybody (terra nullius or abandonment) and not already claimed by anybody as their sovereign territory. Then the prospective sovereign owner must conduct a ceremony to declare officially that he is making it his sovereign territory. Finally, the new sovereign owner of the territory must demonstrate that he is indeed the sovereign owner by exercising exclusive control and governance over his new possession by excluding all other claimants – occupation and control. There are other ways of gaining sovereignty over a territory which are conquest, cession and prescription. There is a familiar saying that possession is nine-tenth of the law. This corresponds to the principle of uti possidetis, ita possideatis – as you did posses, so you shall possess. This means if there are many claimants equally strong in their claims then whoever is in physical possession of the land may continue to possess it.

The determination of sovereignties in the S. China Sea is complicated by the United Nations Convention on the Law of the Sea or UNCLOS. Article 57 of UNCLOS allows a coastal state to have certain sovereign rights to exploit the resources within 200 nautical miles from the baseline of its coast in terms of exclusive economic zone or EEZ. Article 76 of the UNCLOS also allows 350 nm of continental shelf for sovereign exploitation. These are sources of confusion as it has misled many people into thinking that a coastal state may claim sovereignty over every feature within this water such as islands, atolls, banks, shoals, etc. In actuality UNCLOS in general and the EEZ and rights over continental shelf in particular cannot be used to determine sovereignty as EEZ and rights over continental shelf are derived from sovereignty and therefore do not exist until sovereignty has been determined. Also when EEZs and rights over continental shelf overlap, the EEZ and the rights over continental shelf of either coastal state is determined by proximity or by some other factors agreed to by all parties concerned.

Ultimately, China’s claim of sovereignty over the S. China Sea is based on historical and documentary proofs. China’s history with the S. China Sea began as early as the Han Dynasty and continued from then on down to today without interruption. China had established sovereignty over S. China Sea by including Nansha A. in the administrative map of Tang Dynasty in 789 A.D. As of that time, Nansha A. had become China’s inalienable sovereign territory and the Chinese people have the right to defend it against all invaders. (2, 3)

Throughout subsequent dynasties, China had maintained and reaffirmed its sovereignty over S. China Sea and all the features within it. Sung Dynasty, Yuan Dynasty, Ming Dynasty, and Qing Dynasty had all established sovereignty and control over the S. China Sea. Unfortunately, Qing Dynasty became weakened and in its latter years China was invaded by Japan and many Western countries. However, this does not negate China’s sovereignty over S. China Sea just as all the invasions by Japan and Western invaders into China’s sovereign land territories did not negate China’s sovereignty over them. Taiwan and Manchuria were even ceded to Japan for a time. But China did not lose sovereignty because of the cession. After the WW2 China recovered all lost land territories. By the same token just because Japan and Western countries had invaded S. China Sea and temporarily established their control over it does not mean China had irretrievably lost sovereignty over S. China Sea. China still had the sovereign right to recover the S. China Sea and reestablish sovereign occupation and control over it. (2, 3)

Following WW2 the government of the Republic of China had reestablished its control over S. China Sea in 1946 by sending Special Commissioners accompanied by troops to the Xisha and Nansha Islands to take over the two archipelagoes with ceremonies and erected marks of sovereignty on the islands.

During the era of the WW2 Japan had control over the entire S. China Sea and established military bases on some islands therein. From the legal perspective of the Westerners, the Cairo Declaration of 1943 and the Potsdam Proclamation of 1945 legitimized the transfer of the sovereignty of S. China Sea back to China by returning to it all territories stolen by the Japanese through armed invasion. The returned territories included “Manchuria, Taiwan and the Penghu Islands.” At that time, Japan put the Nansha Islands under the jurisdiction of Taiwan. Therefore, Nansha A. was legally returned to China together with Taiwan under the Cairo Declaration of 1943 and the Potsdam Proclamation of 1945. But, of course, China did not need these declaration and proclamation to establish its sovereignty over S. China Sea. China had already established sovereignty over S. China Sea starting in the Tang Dynasty. Regardless of the Cairo Declaration and the Potsdam Proclamation, China by itself has the sovereign right to recover its possessions and establish control over them. (2, 3)

China’s sovereignty over S. China Sea was established through its long history of relationship and government jurisdiction over the entire S. China Sea region. Or in other words, China established its sovereignty over S. China Sea based on discovery and historical usage and governmental control and occupation over more than two thousand years. Obviously, once China had discovered the archipelagos in the S. China Sea, it is absurd that it could be rediscovered by anyone else. Nor can any other country establish control over S. China Sea except by invasion to rob China of its sovereignty. And any invasive occupation of any S. China Sea territories or features cannot deny China’s sovereignty over them. Therefore, even if China were temporarily robbed of its sovereign territories, ultimately it has the sovereign right to recover its lost territories by any means open to it including armed force such as used in its fight against Japan. By the same token, if any other countries today dared to make false claims to Chinese sovereign territories in the S. China Sea and invade to occupy them then they are like Japan in WW2 and China has the same sovereign right to fight them with armed force to take back and defend its sovereign territories. (2) (3)

Vietnam claims Nansha A. by alleging that it had discovered and then occupied and controlled it from the 17th Century. It also claimed that it had received it through succession from France. How could Vietnam have discovered Nansha A. when it was discovered by China some two thousand years previously? It is nonsense. By the 17th Century, Zheng He had already passed through Nansha A. at least two hundred years ago in the early 15th Century. There is plenty of evidence that Zheng had seen and therefore “discovered” Nansha A. even if there were any question about whether the Chinese had discovered it in the Han Dynasty. Therefore, Vietnam’s claim that it was the first ever to have discovered Nansha A. is obviously false and facetious and its claim of sovereignty due to discovery must of necessity also be false and facetious and untenable.

As to France’s claim on Nansha A. it was no more than Japan’s. Both France and Japan were invaders who robbed China of its sovereign territories. Japan could not have legitimately left it to anybody through succession, therefore, neither could France have legitimately left it to Vietnam through succession. Ultimately, China reclaimed its rightful sovereign territories by defeating Japan. And as it was with Japan, China has the right to reclaim its rightful sovereign territories even if France had left them to Vietnam. It is like stolen properties. No recipient of stolen property has the right to keep it. It is in fact a crime to receive stolen properties. Therefore, Vietnam’s claim to sovereignty over Nansha A. due to succession of title from France is untenable.

Because Vietnam has no sovereign right to Nansha A. either by discovery or through succession from France, it cannot claim sovereignty by maintaining effective occupation and control. That is to say, Japan could not have established sovereignty over Nansha A. by invading and then maintaining effective occupation and control over it, therefore, neither Vietnam could have established sovereignty over Nansha A. by invading it and then maintaining effective occupation and control over it. Ultimately, China reclaimed its rightful sovereign territories after defeating Japan with armed force. By the same token, China ultimately has the right to reclaim its rightful sovereign territories from Vietnam with armed force if necessary. Therefore, Vietnam cannot claim sovereignty over Nansha A. due to occupation and control no matter how long it occupied it or controlled it.

The Philippines is claiming essentially a group of features it calls the Kalayaan Island Group (KIG). The claim is based on discovery, proximity, and occupation and control. Proximity is not a valid basis for claiming sovereignty under international law. So that can be dismissed immediately. Its claim of discovery is based on the illegal action of a Filipino citizen by the name of Tomas Cloma who in 1956 simply claimed some 53 features of the S. China Sea as his own private property. (1) The gall of this man is truly amazing. It seems his guiding principle was “what I see, I can keep.” This is obviously the guiding principle of a pirate and a thief. But again, since these features were already the sovereign territories of China and had been discovered by the Chinese thousands of years ago there is no valid basis for his claiming these features.

Subsequently, these features were taken over by the Philippines government in 1971 which tried to justify Cloma’s claiming the features by calling it discovery of res nullius arguing that these features had been abandoned and therefore the Philippines government can establish sovereignty over it by effective occupation and control. But the Chinese government had never abandoned these features. In 1971 the Vietnam War was in full swing. The U.S. navy was in dominant control of the S. China Sea. The Chinese navy had no ability to challenge the U.S. navy for occupation and control of the S. China Sea. But this does not mean the Chinese had abandoned its sovereign territories in the S. China Sea. China still asserted its sovereignty over S. China Sea. And the Philippines occupation and control are just as illegal as the Japanese occupation and control of the S. China Sea. And just as China had the right to take back these sovereign territories from the Japanese, it has the sovereign right to take back these sovereign territories from the Philippines no matter how long they were illegally occupied.

Another illegal and immoral argument put forward by the Philippines government is that it has the right to annex Nansha A. because its proximity poses a danger to the security of the Philippines. Such arguments is scurrilous because it would allow any country to attack any other country to take their sovereign territories by claiming insecurity and threat from the attacked country. If such an argument is valid then China can also use it to take back not only Nansha A. but also to acquire Palawan citing the dangerous threats posed by the proximity of Palawan.

Therefore, the reasons provided by the Philippines to justify their claim of sovereignty over the 53 features in the S. China Sea are obviously either absurd or simply untenable.

Philippines also claims that its territorial sea is defined by three treaties, which are the 1898 Treaty of Paris, the Cession Treaty of 1900 and the 1930 Treaty of Washington. (1) What the limit of its territorial sea is as based on these treaties is not important. What is important is the principle that old treaties can be used to define the limit of territorial sea today. Obviously, if the Philippines can use historical documents to define its territorial sea then China can also use its historical document to define its territorial sea. Therefore, the Nine-dotted line map can effectively define the extent of China’s territorial waters. And the Chinese government must exert itself to protect the sovereign rights of its territorial legacies.

Malaysia is claiming sovereignty over some eleven features in the Nansha A. based on the argument that they are on its extended continental shelf as well as under its effective occupation and control. Malaysia had claimed sovereignty over these features simply by passing a law in 1966 defining the extent of its continental shelf and then in 1979 published a map and claimed sovereignty over features within the map. Continental shelf is not a valid reason for claiming “sovereignty.” Therefore, it is illegal for Malaysia to claim China’s sovereign territories based on UNCLOS’ provision for continental shelf.

Article 76 of the UNCLOS allows a coastal country to have up to 350 nautical miles of continental shelf. But Paragraph 10 of Article 76 also made it clear that UNCLOS does not have anything to do with the question of sovereignty.

Article 76, Paragraph 10:
10. The provisions of this article are without prejudice to the question of delimitation of the continental shelf between States with opposite or adjacent coasts.

How two states with overlapping claims to continental shelf resolve their conflicting claims is strictly up to the parties involved. If two coastal countries have coasts closer than 700 nm then obviously neither can have exclusive rights to 350 nm of continental shelf. The usual solution is to make the distance of the continental shelf of either country to be half the distance between them. Of course, this depends on both coastal countries’ first agreeing to abide by the provisions of UNCLOS. However, China had long before the existence of UNCLOS demarcated its sea boundaries. Therefore, UNCLOS cannot force China to abandon its long established boundaries and China is entitled to maintain its sovereignty over the Nansha A. and the sea boundaries that it had established for thousands of years before the existence of UNCLOS. UNCLOS cannot even determine the respective EEZ and continental shelf when countries claim them under its provision. In the end, the countries themselves have to work it out between themselves. Therefore, UNCLOS cannot be invoked to infringe into China’s sovereign sea boundaries.

Once the sea boundaries of China had been established by historical documents, Malaysia’s claim of continental shelf cannot extend into China’s sovereign sea boundaries. Many coastal countries claim a territorial sea that extends up to 12 nm under the UNCLOS. But China had demarcated its territorial sea clearly on maps before UNCLOS came into existence and therefore its territorial sea is not derived from UNCLOS and therefore not subject to the provisions of UNCLOS. Which means China is entitled to maintain its territorial sea as indicated by its maps. And UNCLOS cannot give Malaysia any continental shelf inside China’s sovereign territorial seas.

Wherever China did not demarcate any territorial sea then it will claim territorial sea, contiguous zones, EEZ, continental shelf, etc. according to the provisions of UNCLOS. But wherever China had already demarcated territorial seas based on historical evidence then it must enforce its own sovereign territorial seas based on its historical documents and evidence. And no countries can use UNCLOS to force China to change its long established historical sea boundaries. Specifically, Malaysia cannot claim continental shelf to the extent of intruding into China’s territorial sea.

Malaysia’s claim of sovereignty based on effective occupation and control is inapplicable because it is seizing China’s sovereign territories. No country can seize the sovereign territories of any country and establish sovereignty by occupying and controlling it for a long time. The sovereignty of Nansha A. still belongs to China. For a time China was distracted by wars and unable to drive out the invaders. But now China is again strong and it is ordering the invaders out of its sovereign territories.

What Brunei is claiming is uncertain. It could be claiming sovereignty over Louisa Reef and Riflemen Bank or it could be claiming some portions of the nearby sea in terms of EEZ or continental shelf under the UNCLOS. It is also unusual with respect to other claimants in that it is disputing Malaysia’s claim over Louisa Reef based on some delimitation done by the UK in 1958 over Brunei’s continental shelf. (1) Currently, UK is disputing on behalf of Brunei the map published by Malaysia in 1980 claiming Louisa Reef as part of Malaysian continental shelf.

But Brunei’s claim either of sovereignty or EEZ or continental shelf are all invalid because China has long ago established sovereignty over these areas.

Looking at the claims of Vietnam, the Philippines, Malaysia and Brunei, it is clear that China has prior and stronger claim than any of them. In the East China Sea, China had agreed to the 12 nm territorial sea and 200 nm EEZ and other provisions under the UNCLOS. But in S. China Sea, China had already established its sovereign sea boundaries since ancient times and have historical documents to validate them. Therefore, China must claim sovereignty over portions of the S. China Sea according to its historical documents while in other parts of China’s coast it can agree to the provisions of the UNCLOS.

This means that since China’s territorial sea boundaries in the S. China Sea is based on its historical documents, it is not claiming any EEZ based on the provisions of the UNCLOS. Some people have argued that since some rocks that China currently occupy are submerged during high tide therefore China is not allowed to claim 200 nm of EEZ based on them. But China is not claiming EEZ based on the UNCLOS but is claiming territorial sea based on its historical documents. Therefore, their arguments are invalid. Moreover, China claims all the features within the Nansha A. as its sovereign territories according to its historical maps and other documents and evidence. That means just because some of the rocks that China is currently actually occupying within Nansha A. may be submerged during high tide does not mean all the features within the Nansha A. are submerged during high tide. There are many other features within the Nansha A. that are above high tide. So even if the sea boundaries as demarcated on the Chinese maps were ultimately not allowed, still the sovereignty of China over all features within the Nansha A. would allow it to establish 200 nm from the outermost limit of its outermost qualifying features. The result would be substantially the same as the current sea boundaries on its ancient maps.

Therefore, China can object to Japan’s establishment of 200 nm of EEZ over Okinotorishima which is not qualified because of the Article 121 of UNCLOS which requires an island to be “a naturally formed area of land, surrounded by water, which is above water at high tide” and that “rocks which cannot sustain human habitation or economic life of their own shall have no exclusive economic zone or continental shelf.” Since Japan is claiming 200 nm of EEZ around Okinotorishima based on UNCLOS provisions and since UNCLOS provisions disqualified it based on its Article 121, therefore, Japan cannot have 200 nm of EEZ around Okinotorishima. But China can claim all its territorial sea boundary in S. China Sea based on its historical documents and evidence.

Israel claims sovereignty over Palestine arguing that God had given it to their ancestors. Nobody can substantiate this because no one has ever demonstrated that God exists. And God obviously had never come to earth, proved that he is indeed God and then proclaimed that he had given Palestine to the Israelites. But Israel is a member of the UN. The point is sovereignty is not based on any definable law but based on force to maintain occupation and control. In other words, it is your land if you can occupy it and control it. Therefore, if Israel can gain sovereignty over Palestine by claiming God had given it to them then China’s claim over S. China Sea is much more substantial based on abundant factual, tangible and genuine historical and documentary evidence and proofs.

But even though Israel claimed Palestine based on its being gift from God, yet Israel did not rely on it to convince the Arabs to let them keep it. The Arabs understandably demurred. And Israel fought many wars to maintain occupation and control over Palestine. Therefore, China should learn a lesson from the Israelites. China has rightful sovereignty over S. China Sea. But many countries are trying to take it from China. Therefore, China must fight to take it back and maintain effective occupation and control over them. In the end, whether the Jewish people are right or the Arabic people are right is not germane. What is germane is that only force can maintain sovereignty. This is the reality. And the Chinese government should take cognizance of it and act accordingly.

This brings me back to what I said earlier about possession being nine-tenth of the law and uti possidetis as one of the principles in international law for determining sovereignty over disputed territories. When several claimants dispute over a territory with conflicting laws and reasons, ultimately the only way to solve it is to allow the country in possession of the territory to keep it. For the last several decades the CPC government had been derelict in its duty to maintain occupation and control of the S. China Sea. To some degree this could be excused due to the weakness of China and the wars raging within it or around it. But since China regained its power starting in the 1980’s it should have made determined efforts to regain occupation and control of this vital part of China’s sovereign territories. But the CPC is much more concerned with suppressing the rebellion of the Chinese people and much less concerned with defending China’s sovereign territories. This is a repeat of the Sung Dynasty where China’s sovereign territories were traded off to gain peace that benefited only one man, the emperor of China. The CPC desperately tries to avoid conflict with other countries because it is afraid engaging other countries in wars will unleash internal rebellion. Therefore, the CPC would rather give away China’s sovereign territories to foreign aggressors than to risk losing dominance over the Chinese people. This is contemptible and reason why the CPC is unfit to rule China.

China is now obsessed with soft power. It spends hundreds of billions of yuan to put up fantastic shows of Olympics, World Expo, futuristic airports, etc. to dazzle the world while China’s military, especially the navy, languished. This is a repeat of Qing Dynasty where the Empress Dowager Cixi squandered the money earmarked for rebuilding the navy to build a luxurious summer palace. As a result China was not able to safeguard its seas and ultimately allowed Japan to invade and take Manchuria and Taiwan and ultimately to invade and occupy China’s mainland. I’m not saying Olympics, World Expo, modern airports, etc. are not important things. But they are not the kind of things that will protect China from external aggression. The only effective things that can enable China to defend its sovereignty is a powerful military. Therefore, China must not be lulled into complacency that it can dazzle the world with its modernity and thereby stop its enemies from attacking and taking its sovereign territories.

There are many conflicting laws in the world. UNCLOS provisions and international laws are often contradictory. The International Court of Justice also take into consideration when applying international law such things as international conventions, international custom, general principles of law, judicial decisions and the teachings of the most highly qualified publicists of the various nations to determine what the rules of law should be. Therefore, it is possible to find some law to substantiate any claim. This means China should not give credence to laws that seem to support other countries’ claims. It must rely on its own historical documents and proofs and disregard all other countries’ proofs. This means China must immediately regain possession of its sovereign territories and thereby remain in possession of it.

In the final analysis, China has the rightful claim for sovereignty over S. China Sea as proven by its long history and many historical documents. It is the duty of the Chinese government to protect that sovereignty against foreign aggressors. Vietnam clearly cannot establish sovereignty over Nansha A. on the basis of discovery in the 17th Century since China had discovered it in the 3rd Century B.C. And its claim of succession from France is invalid since China had protested against France’s baseless and illegal claim of sovereignty over China’s sovereign territories. China had also regained its sovereignty from the Cairo Declaration of 1943 and the Potsdam Proclamation of 1945. The claim of the Philippines is facetious because proximity is never a valid reason for sovereignty; the discovery of Nansha A. by the pirate Tomas Cloma 1956 is nonsensical farce; annexing Nansha A. because its proximity is a threat is baseless; the treaties it signed with other countries simply cannot give it what rightfully belonged to China. Therefore, the Philippines has no credible claim of sovereignty over Nansha A. Malaysia is claiming sovereignty over Nansha A. based on continental shelf by passing a law in 1966 and publishing a map in 1979 that predates Nov. 16, 1994 when the convention of the Third United Nations Conference on the Law of the Sea that formalized continental shelf came into force. But UNCLOS cannot determine sovereignty by any of its provisions. Therefore, Malaysia has no credible claim on Nansha A. Finally, it is not clear whether Brunei is actually claiming sovereignty over Louisa Reef and Riflemen Bank or just claiming EEZ or rights of continental shelf under the UNCLOS. But like Malaysia, UNCLOS cannot confer sovereignty to any claimant. Therefore, Brunei’s claim is just as baseless and untenable as Malaysia’s. Even the most cursory examination of the arguments provided by Vietnam, the Philippines, Malaysia and Brunei reveal that they are all facetious and untenable. Therefore, China’s sovereignty is incontestable and the Chinese people and the Chinese government must not give away one single inch of their sovereign territories. China must not unjustifiably invade and take even one single inch of other countries’ rightful sovereign territories. But it also must defend every inch of its own sovereign territories.

These four invasive countries have already established facilities over many islands and other features of Nansha A. If China did not immediately evict them then their argument based on effective occupation and control will strengthen with the passage of each and every day. It has been excusable for China to have been unable to evict them before due to its military weakness and social turbulence due to wars. But China is now relatively strong and is perfectly capable to retake these territories with force if necessary. If it still did not take back these territories then the invaders can argue reasonably that China had abandoned its sovereign territories and they can then treat them as terra nullius and establish their sovereignty by effective occupation and control.

The Chinese government has been trying to negotiate joint development of Nansha A. This is extremely foolish and will not work. All the claimants in the S. China Sea want the oil desperately due to their poverty. Therefore, they will not agree to anything short of total control. They will see China’s offer of joint development as infringement on their rightful territories. Even if China gave up its sovereignty, it will not garner any gratitude from these aggressive countries. They will simply argue that they had sovereignty to begin with and therefore owe nothing to China. And China will come away looking like a thief who got chased away by the rightful owners. Therefore, China will not garner any gratitude or consolidate any harmony by giving up its sovereignty.

Ultimately, it is the duty of the Chinese government to protect the sovereign territories of China. Therefore, there is no need to think so much. Just enhance the military power of the Chinese navy, air force, and all other branches of the Chinese military and evict the invaders immediately. That is the only way to protect China’s sovereignty and the realistic way to establish peace and harmony in the S. China Sea.