ODAC News
Wednesday 29 Aug
The Oil Depletion Analysis Centre
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Economics
1a/ US could be heading for recession (The
Telegraph, Mon 27 Aug)
1b/ Overheating
sees house price downturn in Europe (The
Telegraph, Mon 27 Aug)
1c/ What’s
in the Pipeline? (CIBC World
Markets, Fri 24 Aug)
1d/ Unsold
homes in US rise by 5% (Financial
Times, Mon 27 Aug)
1e/ Business
Comment: US housing crash reminds us [UK] we're due a correction
(The Telegraph, Wed 29 Aug)
Food Prices
2a/ Wheat
price surge bites baguettes (Financial Times, Sun 26 Aug)
2b/ Cost
of meat 'is set to rise' (BBC News, Tue 28 Aug)
Geopolitics – Kashagan
3a/ Kashagan Faces Russia-Style Squeeze
(The
3b/ Kazakhstan
Orders Eni to Halt Work on Biggest Field (Update3)
(Bloomberg, Mon 27 Aug)
4/ Iranian Oil Officials
Fear Second Purge As Nozari
Is Lined Up For Ministerial Role
(
Oil and Gas Revenues
5/ Peak Oil - less Govt
revenue (
6/ Middle
East risks fuel oil crunch period, says IEA
(Business Intelligence Middle East, Sun 12 Aug)
Oil Prices
7/ Investec's Guinness sees oil price doubling - FEEDBACK
(Reuters, Thu 19 Jul)
8/ NPC
Report is Hand Grenade in Bubble Wrap (ASPO-USA, Mon 27 Aug)
9/ Anna Politkovskaya’s assassination, and the subsequent investigation
9a/ Chechen
‘hitmen’ and FSB agents are held over journalist’s
murder (The Times, Tue 28 Aug)
9b/ Showing
Progress (
10a/ US
Natural Gas Supplies comment (Energy Intelligence, Tue 28 Aug)
10b/ Conoco's Mulva: "The World
Has A Natural Gas Problem" (Energy
Intelligence [World Gas Intelligence], Wed 29 Aug)
USGS – East of Greenland Oil and Gas Estimates,
2000 v 2007
11a/ USGS
Cuts Greenland Estimate (Energy Intelligence [Oil
Daily], Wed 29 Aug)
11b/ USGS
assessment indicates vast undiscovered oil, gas in Arctic
(Platts, Tue 28 Aug)
11c/ USGS
Releases New Oil and Gas Assessment of Northeastern
Greenland (USGS, Tue 28 Aug)
**********************************************************************************************************
1a/ US could be heading for recession
(The Telegraph, Mon 27 Aug)
Article: Former US Treasury Secretary
Larry Summers warned that the
Traders are braced for another week of turmoil after
the near breakdown of
"It would be far too premature to judge this
crisis over," Mr Summers said. "I would say the risks of recession
are now greater than they've been any time since the period in the aftermath of
9/11."
In
The regional government of Saxony agreed yesterday to
sell the East German bank - the biggest victim so far of the worldwide credit
rout - for a token €300m (£204m) to the Landesbank Baden-Württemberg
in Stuttgart (LBBW), ending a three-week saga that has revealed the extent of
German involvement in the some of the most treacherous areas of US sub-prime
debt.
... The scale of carnage in
1b/ Overheating sees house price downturn in
Comment: The list of European
countries where house prices are headed south, or about to, is impressive –
Article: House prices on the
overheated fringes of Europe have begun to turn down sharply, replicating the
early phase of the sub-prime property slide in the
Irish property has fallen for the past four months in
a row as higher eurozone interest rates start to bite
harder, while the speculative bubble in the
House prices in the greater
Similar booms in
In
Jean-Michel Six, chief Europe economist for Standard
& Poor's, said extreme levels of household debt across large parts of
"
French property prices fell 1.5pc in July - though they
were still up 5pc over the year. "House price inflation could turn
negative in the second half of this year," he said, adding that proposals
by President Nicolas Sarkozy to allow new buyers to
offset part of their interest costs against tax would help support the market.
"The spate of interest rate rises by central
banks is exacting its toll on disposable incomes already weighed by rising
household indebtedness," he said. The European Central Bank has doubled
rates from 2pc in December 2005 to 4pc.
The recent turmoil has pushed up the effective rate of
borrowing even further in some countries.
1c/ What’s in the Pipeline?
(CIBC World Markets, Fri 24 Aug)
http://research.cibcwm.com/economic_public/download/aug24_07.pdf
Comment: CIBC World Markets explains
why the worst of the
This article was written by Benjamin Tal at CIBC-WM. Jeff Rubin, CIBC-WM Chief Economist and Chief Strategist,
is speaking on Day 1 at ASPO-6 in
Article: … So let’s see what’s in the pipeline.
The process of mortgage rate resets — the catalyst of the subprime meltdown —
is far from over. Interest rates on roughly $850 billion worth of [fixed-rate]
mortgages are due to be reset during 2007 and 2008. Year-to-date only one-third
have been reset. Resets will reach their peak in November this year and will
start easing slowly during the course of 2008. More than three-quarters of
those mortgages are securitized, and 80% of them are subprime.
But here we have to dig a bit deeper to really understand
what’s coming. Since the vast majority of those subprime mortgages were
originated with a teaser rate that is fixed for two years, the mortgages that
will be reset in 2007 and 2008 are the ones that were taken in 2005 and 2006.
How do these mortgages fare compared with the ones taken in 2004 (and were
reset in 2006)? Not very well — for a few reasons: first many borrowers of the
2004 vintage were able to refinance their original mortgages since banks were
still playing that game. This option is hardly available for mortgages being
reset in 2007 and 2008 as banks are in no mood to offer that option. Second,
despite the 400 basis point [4%] increase in the fed funds rate between 2004
and 2006, the average teaser rate was unchanged (at around 8% for subprime
borrowers). But since subprime loans are typically originated with payment caps
of 250 basis points [2.5%] each year, the full damage for 2004 borrowers was
not felt in 2006. It is, however, impacting 2007 delinquencies. And third,
house prices started to fall only in 2007, and every one-percent decline in
national house prices leads to an estimated 70,000 of additional
foreclosures—given that currently no less than one-quarter of adjusted rate
mortgages originated in 2006 are in a negative equity position.
Intricacies of mortgage mechanics aside, the bottom
line is that the news coming from the subprime market will get much worse
before it gets better, with delinquency rates rising to well over 20% in the
coming year. We do not know how much of that bad news the market is already
discounting—but the fact that the market rallied on the day that we learned
that US banks’ bad loans are rising at the fastest pace since the 1991
recession, might suggest that a lot of gloom is already priced in.
1d/ Unsold homes in US rise by 5%
(Financial Times, Mon 27 Aug)
http://www.ft.com/cms/s/0/392b8b5a-54b0-11dc-890c-0000779fd2ac.html
Article: The supply of unsold homes in
the US rose to a 16-year high last month amid a crisis in the credit market,
suggesting the worst is yet to come for the domestic housing market.
Inventories of houses for sale by homeowners rose 5
per cent on the previous month to the highest level since October 1991 as
purchases fell to the lowest level in nearly five years, according to the
National Association of Realtors.
Economists said the increase in supply and slowdown in
demand suggested the most severe housing downturn since the early 1990s was set
to worsen. Lending conditions had tightened following a crisis of confidence in
credit markets after a rise in defaults on high-risk subprime mortgages...
1e/ Business Comment: US housing crash reminds us [
Comment: From the
Article: Think back only a few months
and the analysts who study the
Well here we are: the second half of 2007 is upon us
and not only is the market not at the bottom, it's falling faster than ever.
Things are much worse than in previous slumps, too.
The massive size of the
Figures yesterday revealed prices across the
What's more, the market rout that occurred in August
had yet to take effect, suggesting that when the third-quarter numbers are
released, the picture will look even bleaker.
... However, this relative serenity [in the
The latter looks slightly more likely. House price
inflation seems almost certain to fall in the near future, although one of the
UK housing market's most obvious shortcomings - the fact that not enough houses
are being built - may turn out to be its saving grace, keeping prices from
tumbling too far.
The
**********************************************************************************************************
2a/ Wheat price surge bites baguettes
(Financial Times, Sun 26 Aug)
http://www.ft.com/cms/s/0/302bcb2c-53fd-11dc-9a6e-0000779fd2ac.html
Comment: It might be the weather that
is causing record high wheat prices this year, but wheat-to-ethanol in Europe
and the demand for more and better food from an increasingly wealthy
Article: The surge in global wheat
prices is finally catching up with
With international wheat prices at a 10-year high,
bakeries across
The move comes after
Prices for agricultural commodities such as wheat,
cocoa and coffee have risen sharply over the past year as severe droughts,
rising consumption in developing countries and the increasing use of crops for
biofuels lower supplies.
In
... Discontent over record bread prices helped spark
the start of the French Revolution more than 200 years ago. The new increase is
not widely seen as a cause for panic, but it has nonetheless stoked fears of further
food price inflation to come.
In
An acceleration in food prices could be politically
damaging for President Nicolas Sarkozy, who has made
a rise in consumer purchasing power one of his priorities.
French farmers and supermarket groups met last month
to discuss ways of curbing an expected increase in food prices, but the meeting
ended in deadlock.
2b/ Cost of meat 'is set to rise'
(BBC News, Tue 28 Aug)
Comment:
**********************************************************************************************************
3a/ Kashagan Faces Russia-Style Squeeze
(The
http://www.moscowtimes.ru/stories/2007/08/27/001.html
Comment: Couldn’t have put it better
myself: “
Article:
With oil prices about $50 higher than when Kashagan's first well was drilled in 2000,
As resource nationalism spreads to
The Eni-led consortium appears eager to avoid the
drawn-out battles that have marked foreign oil majors' efforts to maintain
majority stakes in their Russian projects. Both Shell and BP lost large stakes in
key projects in the country after high-profile disputes with the Natural
Resources Ministry.
Talks on changing the terms of the Kashagan deal are
due to start Monday, Eni CEO Paolo Scaroni told
reporters in
"There are 60 days to find an amicable
agreement," he said. The announcement came less than one week after the
Kazakh Environment Ministry threatened to revoke the consortium's license over
purported environmental violations.
... Last month, Kazakh Energy Minister Baktykozha Izmukhambetov said the
government hoped to change the terms of its production-sharing agreement with
the Eni-led consortium so that the state would receive 40 percent of the
profits from the project.
... Located in the Kazakh sector of the
The Kazakh government says projected costs over the
project's 40-year lifespan have shot up drastically, from $57 billion to $136
billion.
... Analysts said
Yet Martha Brill Olcott, a
Central Asia expert at the Carnegie Endowment for International Peace in
"A lot of the Kazakhs' grievances predated the
current Russian cycle," she said, adding that
"We should expect to see all the governments
across Central Asia replicating what has happened in
... Analysts warned that BP, which lost its flagship
project in
Azeri Energy Minister Natiq Aliyev said earlier this year that the state would
eventually control marketing and gas sales from the field.
3b/
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVFKMv5v42B8&refer=home
Article:
The Eni-led Kashagan development was suspended for at
least three months because of ``environmental violations,'' Environment Minister
Nurlan Iskakov said on
state television today. Kazakh officials also suspended construction of an Eni
refinery for allegedly violating safety rules and opened a criminal probe into
alleged customs violations by an Eni unit.
``This is an attempt to replicate
Kashagan holds 12 billion barrels of recoverable
crude, enough to supply the
**********************************************************************************************************
4/ Iranian Oil Officials Fear Second Purge As Nozari
Is Lined Up For Ministerial Role (2)
(
Comment: Subscription required for full
article.
Article: Iranian oil industry and
government officials fear a damaging second major wave of changes throughout
the country’s petroleum sector, now that President Mahmoud
Ahmadinejad has decided to line up National Iranian
Oil Company (NIOC) Managing Director Gholamhossein Nozari to take on the role of dismissed Minister of Petroleum
Kazem Vaziri-Hamaneh on a
permanent basis (MEES, 22 August). According to MEES soundings, senior oil
industry officials believe that Mr Ahmadinejad had
decided to dismiss Mr Vaziri-Hamaneh a long time ago,
and they fear that the removal of the only petroleum minister since the Iranian
revolution to have extensive and in-depth knowledge of the oil industry will
prove costly.
**********************************************************************************************************
5/ Peak Oil - less Govt revenue
(
http://www.trinidadexpress.com/index.pl/article_opinion?id=161195061
Comment: Mary King writes
semi-regularly on Peak Oil for the T&B Express, warning recently that the
T&B economy could be hurt bad by a global downturn in tourists as Peak Oil
starts to bite. Her messages can be applied to other economies, and this
article is no exception – loss of government income as oil and gas revenues
fall.
Article: Prime Minister Manning,
supported by experts at the last petroleum conference in Port of Spain, claimed
in his Budget presentation that the Ryder Scott comment that at the present production
rate of natural gas we have but 12 years left of gas, is simply an industry
indicator that we have to go looking for more gas. He also garnered support for
this view from the fact that the same Ryder Scott gave a figure of eight years
in 1974 when we were at the start of our natural gas based industry - gas then
was a flared waste product and a vehicle for oil-gas lift.
In a producing area the proven reserves are not discovered
all at the same time, will be reduced by production and increased by continuing
successful exploration. Also it is an industry phenomenon that is the cheapest
to explore and produce resources are the first exploited. A corollary is that
as the production area matures it becomes increasingly costlier to explore and
produce the petroleum resource - drilling in deeper waters and more expensive
production techniques.
Governments like ours, that depend generally on taxes
from Big Oil for their revenues to support the county's economy, then have to
give more and more incentives to encourage Big Oil's exploration. Countries
with the Dutch disease are caught in a Catch 22 situation since the
exploitation of and returns from the natural resource are the unique drivers of
the economy.
The revenues due to government, that reflect the new
exploration and increased production costs funded by further incentives, will
be consequently reduced. Peak Oil/Gas is reached then for such governments when
change in revenue from taxes etc, with respect to corresponding change in
production (i.e. marginal returns to government on production) is
inconsequential.
What this means is that the remaining petroleum to be
explored may be un-commercial or does not exist physically. Hence the then
current proven reserves would be all we have, subject to technological or
economic change.
... In the singular case of bpTT's
[BP - Trinidad & Tobago] deep Ibis well this marginal revenue is zero and
the expected marginal return at the last bid round was also zero. The requests
by Big Oil for increased incentives are strong indicators that we are heading
down the depletion curve of marginal revenues.
bpTT is telling
us that to drill an exploration well is now of the order of US$50 million up
from US$25 million five years ago, as for required infrastructure. Further,
these companies are claiming that they do not expect to get the kind of unit
size of reserves they were accustomed to, they are now going after smaller
fields and the unit costs of finding and producing will be higher...
**********************************************************************************************************
6/
http://www.bi-me.com/main.php?id=12371&t=1&c=33&cg=4
Article: The International Energy
Agency yesterday warned that the
Fuel oil demand in the region, which sits on nearly
three-quarters of the world’s proven reserves of crude oil, has reportedly
spiked on the back of hefty power generation requirements as gas supplies
become insufficient to meet electricity demand, the IEA said.
The region’s rapid economic expansion coupled with the
start of Summer has led to power shortages in
For some countries, such as
Rather than upgrading refineries or processing lighter
crude oil to reduce fuel oil output – whose value has sharply diminished as export
markets have shrunk, notably in
Nevertheless, if fuel oil demand sharply increases,
the region will arguably be obliged to become a net importer, just when the
worldwide supply of fuel oil is expected to diminish as a large amount of upgrading
capacity comes on stream by the end of the decade, the agency said.
Demand for oil products in the
Middle East oil demand, unchanged in the new report
against expectations in June, is seen reaching 6.6mn bpd this year, up 4.5% on
the year, and almost 7 million bpd next year.
This forecast remains contingent on several factors
that may influence demand, most notably the potential reduction of fuel
subsidies.
The report stresses that its forecast figures for the
region don’t incorporate the effects of a gasoline rationing scheme in
“Given the lack of detailed data, we believe it is
premature to make an adjustment to the country’s gasoline demand outlook for
2007 and the years ahead. Nevertheless, we will adjust our figures as new
information becomes available,” the agency said.
**********************************************************************************************************
7/ Investec's Guinness sees oil price
doubling – FEEDBACK
(Reuters, Thu 19 Jul)
Comment: This article was posted in an
end of July newsletter. In it Ian Henderson, a fund manager, is quoted:
<<AA-rated Ian Henderson, manager of the JPM
Natural Resources fund, said the oil price could double in five years.
He also warned there could be an oil shortage before
this date due to lack of investment in the industry.
"The issue is about money and access. Not enough
money is being invested in the industry and so the access to the oil reserves
is not as good as it should be," said
An ODAC News subscriber writes:
Feedback: Just thought I take a second
to comment on the Oil Price story below.
**********************************************************************************************************
8/ NPC Report is Hand Grenade in Bubble Wrap
(ASPO-USA, Mon 27 Aug)
http://www.aspo-usa.com/index.php?option=com_content&task=view&id=201&Itemid=91
Comment: The National Petroleum
Council of the
The author of the article below is Randy Udall, a
founder member of ASPO-USA. He, and ODAC, were involved in the Peak Oil tele-conferencing part of the NPC study, along with about
14 other Peak Oil groups / individuals. One of the individuals was Jean
Laherrere, whose feedback included pointing out that some of the data used in
the NPC reports is out of date, by years.
Article: The working draft of the
National Petroleum Council’s forecast of global oil and gas trends runs to
nearly 500 pages. Weighing as much as the chunk of foam that brought down the
Space Shuttle Columbia, this curious document reads like a hand grenade encased
in Bubble Wrap.
Since its release, the report (and a more digestible
40-page executive summary) has received 750,000 hits at www.npc.org.
Facing the Hard Truths About Energy is perplexing,
even schizophrenic. In maddening fashion, it blends numerous cautions about the
“accumulating risks” to global oil and gas production with repeated, rosy
reassurances that we “aren’t running out,” as if anyone said we were.
A call for maximum sustained improvements in
automobile efficiency—a welcome first for Big Oil—is paired with a cheery
statement about our “vast” global endowment of petroleum and natural gas. Peak
oil may be near—but then again we might have 10 times more oil left than we
have already used. Carbon emissions are a concern—but coal-to-liquids seems
promising.
News coverage reflects the report’s confusing duality.
Some headlines called it “alarming.” Other reporters found it a snooze.
One prominent chart suggests that the world will be
lavished with an additional 16 million barrels/day of
What’s a reader to believe?
Early in their research, the NPC solicited the views
of ASPO-USA and other peak oil concernists here and
in
In this discussion, it soon became clear to us that
the report’s rosy patina is largely due to a reliance on forecasts from the
U.S. Energy Information Administration. (The NPC deliberately did not develop
any forecasts of its own.) Unfortunately, the EIA relies on an outdated
computer model that simply forecasts how big the economy will be, then supplies
the necessary energy, without consulting the Saudis. The EIA’s
influence is most noticeable in the study’s Supply Chapter, which reads as if
it were co-authored by the Wizard of Oz.
After the conference call, Udall sent the NPC’s authors an email, excerpted below: …
**********************************************************************************************************
9/ Anna Politkovskaya’s assassination, and the
subsequent investigation
Comment: Anna Politkovskaya,
formerly
9a/ Chechen ‘hitmen’ and FSB agents are held over
journalist’s murder (The Times,
Tue 28 Aug)
http://www.timesonline.co.uk/tol/news/world/europe/article2337406.ece
Article: Members of the Russian
security services were involved in a conspiracy with organised crime to assassinate
Anna Politkovskaya, the investigative journalist, the
country’s chief prosecutor announced yesterday.
Yuri Chaika said that ten
people had been arrested for the murder, five of whom were officers of the
Federal Security Service (FSB), the successor to the KGB, and the Ministry of
Internal Affairs (MVD).
They had tracked Ms Politkovskaya
and passed information about her movements to a gang of Chechen hit men who had
carried out the killing. She was shot in the lift of her apartment building on
October 7, President Putin’s 54th birthday.
“The group was headed by the leader of a
The arrest of security service officers brings the
inquiry uncomfortably close to the authorities, whom Ms Politkovskaya
had accused repeatedly of collaborating with criminals to eliminate opponents
of the Kremlin.
Mr Chaika insisted that the
FSB and MVD played no role in the assassination of one of Mr Putin’s most vehement critics. He described the arrested
men as “black sheep” in the organisations.
... Mr Chaika blamed her death
on an exiled Russian determined to destabilise the regime. He declined to
identify the suspect but said that the victim had “known him and met him”, and
that an extradition request would be prepared. In what appeared to be an
oblique reference to Boris Berezovsky, the
billionaire businessman who has called for the overthrow of Mr Putin’s regime, Mr Chaika said:
“Our investigation has led us to conclude that only people living abroad could
be interested in killing Politkovskaya. Forces
interested in destabilising the country, changing its constitutional order, in
stoking crisis, in a return to the old system where money and oligarchs ruled,
in discrediting national leadership, provoking external pressure on the
country, could be interested in this crime.”
Novaya Gazeta, the newspaper where Ms Politkovskaya
worked, welcomed the arrests but said that it was too early to consider the
case solved. In a statement it said: “The people who carried this out, their
helpers and the real people who ordered this, must be identified and convicted.”
Mr Chaika said the same gang could also have been
involved in the murder in 2004 of Paul Klebnikov, an
American journalist, and of Andrei Kozlov, the deputy
head of the Russian Central Bank, who was shot in September...
9b/ Showing Progress (
http://www.russiaprofile.org/page.php?pageid=Politics&articleid=a1188309135
Article: Russian Prosecutor General Yury Chaika yesterday announced
progress in the Anna Politkovskaya case, telling
President Vladimir Putin that the murder of the journalist last October has
been solved. At a press conference in
The announcement came three days before what would have
been Politkovskaya’s 49th birthday, and almost a year
after the journalist and prominent Kremlin critic was assassinated in her
The person who ordered the crime, said Chaika, was living outside
Experts and former colleagues of the assassinated
journalist expressed satisfaction that arrests had been made, but skepticism at Chaika’s
conclusions.
“It’s good that there has been progress in the case,” said
Igor Yakovenko, secretary general of the Russian
Union of Journalists. “If we believe everything that Chaika
says then this is the end of the sad tradition of the murders of journalists in
Dmitry Muratov, the editor of Novaya Gazeta, the opposition newspaper where Politkovskaya
published her hard-hitting reportage on Russian politics and the conflict in
… He [Chaika] refused to
name the mastermind, but separately stated that Russia’s long-standing efforts
to have Boris Berezovsky brought before a Russian
court could bear fruit soon, if the former oligarch is extradited from the UK
to Brazil, where he is wanted on charges of financial irregularity, and from
there to Russia.
If all Chaika’s claims are
to be believed, it would mean that current members of
... But others expressed heavy scepticism at the Berezovsky link. “We have no guarantees that the names of
those who really ordered the killing and the names of those who will be accused
of it will be the same,” said a statement from Novaya
Gazeta’s editorial team posted on the newspaper’s
website. “We have no complaints about the investigative team. We’re working
together… But we want to be certain that nothing ‘expedient,’ with no actual
relation to the crime, influences this joint work.”
Indeed, many might wonder if it’s a little too convenient
that Chaika’s statement neatly confirms what have
been the Kremlin’s allegations from the start. “It makes you wonder if we are
dealing not only with an ‘ordered’ killing but with an ‘ordered’ investigation too,”
said Yakovenko of the Russian Union of Journalists.
**********************************************************************************************************
10a/ US Natural Gas Supplies comment
(Energy Intelligence, Tue 28 Aug)
No link. From newsletter.
Comment: From the commentary section,
‘World Watch -- Comment & Interpretation on Today's News’, of the daily
newsletter.
The comment below refers to a “warning of serious
future shortages” of natural gas from ConocoPhillips CEO Jim Mulva. Natural gas prices in the
Article: US natural gas futures prices
hit fresh lows for the year on Monday at $5.38 per million Btu. And as markets
look toward autumn, there are few signs of support. The tropics are quiet once
again, with no new hurricane warnings yet and only a month or so left in the
peak season. Meanwhile, gas inventories are at record highs and likely to
prematurely reach the usual pre-winter level 3 trillion cubic feet this week,
with another 6-8 weeks of inventory building still to go. Meanwhile, LNG
imports have continued to flood into US receiving terminals all summer.
Nevertheless, the longer term outlook for North American gas markets is not
nearly as flush as the current glut indicates. ConocoPhillips CEO Jim Mulva is warning of serious future shortages and calling
for fast action on mega projects such as the Alaska gas pipeline to keep up
with expected demand and declines in mature areas. Tom Wallin,
10b/ Conoco's Mulva:
"The World Has A Natural Gas Problem"
(Energy Intelligence [World Gas Intelligence], Wed 29 Aug)
No link. From newsletter.
Comment: &