Comment: The BNP, on the far right of British politics, is turning into a Peak Oil campaigning group. Reads more like a manifesto for the Greens than the BNP.

Article: In a stunning reversal of its previous dogmatic ‘business as usual’ stance, the International Energy Agency has belatedly accepted the reality of Peak Oil, and the huge impact the phenomenon is going to have on the entire world.

The crucial and potentially devastating nature of the point at which humanity has used half of the world’s oil reserves - with the remaining half being overwhelmingly lower in quality, in smaller and harder to reach fields, and in less stable parts of the world – has been a BNP theme for more than five years.

... The International Energy Agency report avoids the truly apocalyptic predictions that appear to follow logically from a full appreciation of the Peak Oil crisis. And it ‘spins’ the oil supply crunch it predicts as a problem of excess demand and lack of refinery investment (the first point is in any case an integral part of the Peak Oil analysis, the second is the consequence of oil companies being reluctant to invest massively in an industry whose raw material is going to be in increasingly short supply).

But despite such continuing coyness about the inescapable geological facts underlying the crisis, the new IEA report has contributed to the widest grasp of the real issue so far. Its prediction that the current record oil price will soar even higher as the supply/demand crunch hits over the next five years is certainly helping to concentrate minds. Radio Four is serialising a play about a Peak Oil researcher this week, and scarcely a day goes by without a Peak-related story appearing in the financial columns of the main British newspapers.

... Peak Oil solutions, by contrast, will mainly be national in origin and impact. They would involve governments working primarily to set their own houses in order. Massive efforts need to be put into rebuilding home industries and food production, and into researching the new technologies needed to make even a transition from perpetual growth to steady-state sustainability.

Most important of all a recognition that the cheap energy era is over will bring globalisation mania to a grinding halt. Unless self-sufficiency shading towards near total autarky is the inevitable future – hardly an appealing message for the liberal-left mentality which dominates mainstream political thought in the West.

But every day in which our Masters refuse to see the danger is another day lost from the time which remains to find the solutions that could enable us to cope with the unprecedented problems of the declining half of the Age of Oil.

We ask readers to read our in-depth Peak Oil section and then write letters to local and national newspapers, try to raise the issue on radio phone-ins, and pester Establishment politicians to take a serious look at the Peak Oil problem. This isn’t a question of party political point-scoring, it’s a matter of civilisational survival.

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2a/ Russia to Build Over 20 Nuclear Power Plants Within Decade (FC Novosti, Mon 23 Jul)

http://www.fcinfo.ru/themes/basic/materials-rfcm-index.asp?folder=3352

Comment: An article in FC Novosti on 23^rd April stated: “Russia’s demand for electricity may reach around 340,000-392,000 MW by 2020, as compared to today’s production level of 153,000 MW”, which is a well over doubling. Coal and uranium will be the two main fuels.

Article: The upper house of Russia’s parliament approved a concept of reforming and developing the nuclear generating sector, which provides for building more than 20 nuclear power plants within a decade…

2b/ Rouble to Become World’s Reserve Currency – Medvedev (FC Novosti, Mon 23 Jul)

http://www.fcinfo.ru/themes/basic/materials-rfcm-index.asp?folder=3352

Article: The Russian rouble should become one of the world’s reserve currencies, said First Deputy Prime Minister Dmitry Medvedev. The rouble is already fully convertible, he said. If it becomes a reserve currency, it will be of interest for many different countries, he pointed out.

Foreign economies are oversaturated with the US dollar and no one is protected against a dollar crisis that can spread globally, Medvedev said.

2c/ Gazprom to Extract Coalbed Methane (FC Novosti, Mon 23 Jul)

http://www.fcinfo.ru/themes/basic/materials-rfcm-index.asp?folder=3192

Comment: Wikipedia on Coal Bed Methane: “Seven percent of the natural gas (methane) currently produced in the United States comes from CBM extraction.”

Article: Alexander Ananenkov, deputy CEO of Gazprom, promised Aman Tuleyev, governor of Siberia’s Kemerovo Region, to produce 5bn cu m of methane from coal mines in the Kuznetsk coal basin (Kuzbass)... In general, experts are sceptical about coalbed methane extraction.

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3a/ Santos Plans LNG Export Scheme Using CBM [Coalbed Methane] (Energy Intelligence [International Oil Daily], Thu 19 Jul)

e-mail Energy Alert, no link.

Article: Australian independent Santos is responding to rising export gas prices with an ambitious plan to develop the world's first LNG facility to be fed entirely by coalbed methane (CBM) gas. The new terminal could cost up to $6 billion and start exporting in 2014, the company said Wednesday.

3b/ Peabody and ConocoPhillips Enter Into Agreement to Explore Development of Midwest Coal-to-Substitute Natural Gas Facility (CNN Money, Mon 23 Jul)

http://money.cnn.com/news/newsfeeds/articles/prnewswire/AQM04723072007-1.htm

Article: Peabody Energy and ConocoPhillips today announced they have entered into an agreement to explore development of a commercial scale coal-to- substitute natural gas (SNG) facility using proprietary ConocoPhillips E- GAS(TM) technology.

The project would be developed as a mine-mouth facility at a location where Peabody has access to large reserves and existing infrastructure. It would be designed to annually produce 50 billion to 70 billion cubic feet of pipeline quality SNG from more than 3.5 million tons of Midwest sourced coal. In addition, presuming there is a supportive regulatory framework in place, the project scope will provide for carbon capture and storage.

... Peabody and ConocoPhillips would participate in project ownership along with other potential equity partners. The preliminary design and economic assessment is expected to be complete in early 2008.

... Gasification has been used for the refining, chemical and power industries for more than 50 years. E-GAS(TM) technology converts coal or petroleum coke into a clean synthesis gas, allowing virtually all impurities to be removed.

Natural gas demand has grown rapidly in recent years, and development of coal-to-SNG projects is gaining increasing interest. In a 2006 study, the National Coal Council called for using coal to provide at least 15 percent of U.S. natural gas consumption, or 4 trillion cubic feet per year, using nearly 350 million tons of coal annually.

Peabody Energy is the world's largest private-sector coal company, with 2006 sales of 248 million tons of coal and $5.3 billion in revenues. Its coal products fuel approximately 10 percent of all U.S. electricity generation and more than 2 percent of worldwide electricity...

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4/ Falling dollar puts pressure on Opec (Financial Times, Mon 23 Jul)

http://www.ft.com/cms/s/743a52a2-3959-11dc-ab48-0000779fd2ac,s01=1.html

Comment: Login required for full article. The gist of the articles is this: oil is traded in US dollars; the Middle East and North African OPEC countries have increasing trade with the European Union, which trade mainly in Euros and the pound sterling; the US dollar is at record low values against the Euro (lowest ever) and pound sterling (26-year low); therefore, despite rising crude prices, indeed near record nominal prices, OPEC members can buy less with their dollars, and are in no hurry for oil prices to fall. On the contrary, if OPEC members want to maintain their purchasing power, and the dollar keeps sliding, then oil prices will have to go up.

Article: The falling US dollar is lowering the Organisation of the Petroleum Exporting Countries’ purchasing power by up to a third, making the powerful oil cartel more reluctant to increase production and cut prices.

Although oil is trading near last August’s record $78.65 a barrel, Opec calculations show that, when adjusted for the weaker dollar and inflation, an average of the 12 Opec members’ crude oil prices has fallen in the past year…

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5/ Sanctions fail to fuel dissent on Iran’s streets (Financial Times, Tue 24 Jul)

http://search.ft.com/nonFtArticle?id=070724000707

Article: When angry motorists torched petrol stations as Tehran introduced rationing last month, Iran's opponents scented success. Israeli prime minister Ehud Olmert said it showed "economic sanctions are working increasingly well".

But after three weeks of rationing, riots have given way to grumbling. Tehran's streets are less congested, its air more breathable, and the government says it is on target to reduce a bill for imported petrol that was due to hit $7bn this year.

Meeting parliamentarians on Sunday, interior minister Mostafa Pour-Mohammadi claimed a "strategic, historic" decision had cut consumption by between 11m and 16m litres from a daily pre-ration figure of 75m litres.

Few analysts in Tehran doubt the action was prompted by a fear that importing about 40 per cent of its petrol made Iran vulnerable to international action as members of the UN Security Council consider a third round of sanctions over its nuclear programme.

Tehran's response, analysts say, shows how sanctions do not undermine government policy but rather reinforce its tendency to choose state-led rather than market solutions. "These sanctions are like a flood that overcomes the private sector but also strengthens the state and all its network and agencies," says Mohammad Tabibian, a prominent reform-minded economist.

"I would go as far to say Mr Ahmadi-Nejad welcomes sanctions," says a second economist. "He says he believes in the private sector, but he doesn't really, and the state is barely affected by these measures as long as it sells oil."

The government opted to ration petrol rather than raise the price - among the lowest in the world - to a market level, as Mr Ahmadi-Nejad stuck to his promises to be "fair" to less affluent Iranians.

... But business with China is booming. Last year Beijing signed a $100bn deal to import Iranian natural gas and Chinese companies will be 50 per cent stakeholders in the Yadavaran oil field.

China has also become the second biggest market for Iran's non-oil exports, taking $1.72bn in 2006-7, after the UAE with $2.5bn. Iran's overall non-oil exports rose 47.2 per cent to $16.3bn. "The situation over sanctions is a huge opportunity for China, former Soviet republics and regional countries," says one Asian diplomat in Tehran.

The medium to long-term outlook may not be so rosy, he adds, if Iran cannot overcome problems in oil and gas production, where contracts often go to domestic companies with limited experience.

Akbar Torkan, managing director of the Pars Oil and Gas company that oversees development of the South Pars gas field, said last month that more than $4bn was needed this year to develop the field, up from $2.7bn last year.

Iran faced "problems in attracting finance and foreign investment", Mr Torkan said; a plan to sell $3.5bn bonds inside Iran, offering a 8-15 per cent return, had been sent to Mr Ahmadi-Nejad.

But Iran has a poor record in raising capital by privatisation; it is doubtful bonds can replace investment offered by companies - including OMV of Austria, Spain's Repsol and Royal Dutch Shell - which are hesitating over involvement in Iran's energy sector.

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6/ DUBAI: Energy shortages could scupper plans (Financial Times, Tue 24 Jul)

http://search.ft.com/nonFtArticle?id=070724000724

Comment: This is one of several reports on Dubai in today’s (Tue 24 Jul) FT. There is a bit of a disconnect between this article on energy and the others. Dubai has very serious energy supply problems on the horizon, which do and will lead to power cuts, and perhaps not enough fresh water. As this article points out, Dubai’s future energy supplies are anything but secure. Now might seem like a good time to halt any new developments, secure energy supplies, then continue with development. But that is not how it is done. Develop, and hope the energy supplies turn up. The other reports, of a rosy nature (e.g. DUBAI: Emirate sets its sights on trebled GDP by 2015, DUBAI: Pillars of economic success), assume energy supplies will not be a problem.

"... Last year we had 650,000 Brits and even 353,000 Americans [visit Dubai as tourists]."

Article: ... The question that residents and analysts are beginning to ask is: does Dubai have access to enough power to meet the incremental demand? Can the government summon the kind of expertise and political will to find extra feedstock to provide drinking water and power for the massive expansion schemes that have been announced? In short, can it do a Salik and find a quick fix?

In the short term Dubai is to be supplied by the Dolphin gas system that pumps gas from Qatar's enormous North Field to members of the UAE and Oman. Dolphin started pumping in late June. Up to 2bn cubic feet daily is available and the intention is to increase that to 3.2bn cu ft daily - although the Qatari government has not yet agreed to this.

According to a study by Wood Mackenzie, the energy consultants, the UAE may face a gas shortfall as soon as 2012. That means looming problems with desalination for sweet water and power supply for Dubai. Already Dubai residents report power cuts of an hour or more.

Dubai's electricity demand surges by 30-35 per cent in the summer months and power stations in Dubai have recently been burning expensive fuel oil, rather than gas, according to analysts. To an outsider it seems strange that a region associated with hydrocarbon excess should have any problems with feedstock for power generation at all. But that is to underestimate the complexity of the oil and gas equation in the Gulf.

To begin with, the precious gas is needed elsewhere - primarily for reinjection into ageing oil wells. Second, breakneck economic development means that incremental production is simply eaten up. And, third, gas may be difficult to reach or promised elsewhere - as is the case with Abu Dhabi's reserves.

Wood Mackenzie believes that in the medium term, Dubai and the other emirates may have to look to Iran, which along with Qatar is the other owner of the North Field, the driver of Dolphin. But the Iranian regime is a notoriously fickle counter-party and has a poor record of execution and delivery.

"The only emirate that has sufficient gas reserves to meet its own internal demands is Abu Dhabi. The others are struggling," says Colin Lothian of Wood Mackenzie.

"This [shortfall] is due to the predominance of gas-fired generation and economic growth. It has come about very quickly. Rates of growth have spiralled. They [the Dubai authorities] are trying to play catch-up to a rapidly increasing demand-slate," he says.

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7a/ US subprime woes start to spread (Money Week, Mon 25 Jun)

http://www.moneyweek.com/file/31223/us-subprime-woes-start-to-spread.html

Comment: This article is a month old, but it is a very good summary of what went wrong with the US-based Bear Stearns hedge funds based on the US subprime housing market, that are creating a lot of heart-ache at the moment. Article also covers US house prices and inflation.

Article: One of the key worries is the condition of two hedge funds ran by investment bank Bear Stearns. The funds both invested in securities related to the US subprime mortgage market - the elephant in the global economy’s living room that all the participants are desperately trying to ignore in the hope that it will just go away.

So what exactly is the problem - and could this be the start of something bigger?

Two of Bear Stearns’ hedge funds - the High-Grade Structured Credit Fund and the High-Grade Structured Credit Enhanced Leverage Fund - are experiencing problems. In essence, the funds made some bad bets on the US housing market, and now they’ve run into trouble. Other banks that had loaned the funds money to make those bets now want it back, but they don’t have it.

The troubles emerged when Bear Stearns stopped investors in the second fund (the ‘enhanced leverage’ one) from pulling money out - which is, as Bloomberg put it, “the first sign of an impending collapse.” So naturally, “the investment banks who had lent money to the Bear Stearns hedge funds said – ‘We want our money back. And if we can’t get our money back right away, we may seize collateral and sell it,'” Janet Tavakoli of Tavakoli Structured Finance told CBS.

... The idea the funds might collapse certainly has some analysts worried.

“The demise of two Bear Stearns managed Leveraged Mortgage Funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration that would lead to cascading de-leveraging and ultimately [end] with higher rates to new mortgage borrowers,” reported Bank of America analysts last week.

So how would this happen? Well, derivatives are complicated beasts, but like most things in finance, the basic concepts aren’t that difficult to get your head around.

The big problem with the Bear Stearns funds is that a lot of the assets they have are of dubious quality and are illiquid - in other words, they don’t change hands very often. That means that no one is entirely sure of how much those assets are actually worth. And that situation is made worse by the fact that in the wake of the subprime mortgage collapse, they are probably worth much less than they were when everyone in America still believed that house prices could only go up.

“The problem is not what we see happening but what we don’t see,” Joseph Mason, of Drexel University in Philadelphia, told Bloomberg. “We don’t know the price of these assets. We don’t know which banks are exposed to this sector. These conditions are classic conditions for financial crises across history.”

If Bear Stearns has to sell off its assets, it will probably reveal that they are worth much less than anyone had thought. And that means that anyone else who has invested in similar assets could see huge writedowns on their value – it could also lead to a sharp rise in the number of people trying to rush out of the market.

... Now they can’t do that anymore [“borrow money against the ever-increasing value of their homes”]. So if you can’t borrow more money, then you either have to cut back on your spending, or you have to earn more. And one of the easiest ways to earn more is to demand more from your employer. And why shouldn’t employees ask for more? After all, we’re always hearing about how the global economy is in a ‘sweet spot’ and that times have never been so good and that corporate profits are at record levels compared to employees’ wages - why shouldn’t the workers demand a bigger slice of that?

Of course, the problem with that is that higher wage demands tend to drive up inflation. That puts pressure on interest rates to rise too, and that makes debt servicing even harder. As the US (and the UK) economic 'miracles’ have been built on cheap debt, its absence is likely to kick the legs from under them. Already in the UK we’re hearing concerned noises from more and more retailers - music chain Fopp was forced to deny rumours of impending financial problems at the weekend, for example.

Yesterday the Bank for International Settlements (the BIS, or the ‘central banker’s central bank’ as it’s also known) warned of the consequences as borrowing becomes more expensive. “Given the key role that a benign credit environment has been playing in boosting the performance of the financial sector over the past years, a turn in the credit cycle represents a significant risk to its outlook.”

So Bear Stearns may live to fight another day - but the more testing times for the global economy are just beginning.

7b/ Lender Sees Mortgage Woes for ‘Good’ Risks (NY Times, Wed 25 Jul)

http://www.nytimes.com/2007/07/25/business/25lend.html?hp=&adxnnl=1&adxnnlx=1185372051-usGvGK5Sv+9OLcLCSxWOgQ

Comment: This article is freely accessible now, it might not be tomorrow. The US housing market saga is getting grim.

Article: Countrywide Financial, the nation’s largest mortgage lender, said yesterday that more borrowers with good credit were falling behind on their loans and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades.

... The slumping housing market has become the biggest worry for the stock market, which just four days ago set records, because of its potential impact on the broader economy and financial system.

Countrywide’s stark assessment signaled a critical change in the substance and tenor of how housing executives are publicly describing the market. Just a couple of months ago, some executives were predicting a relatively quick recovery and saying that most home loans would be fine with the exception of those made to borrowers with weak credit who stretched too far financially.

Executives at Countrywide had for some time been more skeptical than others but the bluntness of their comments yesterday surprised many on Wall Street. In a conference call with analysts that lasted three hours, Countrywide’s chairman and chief executive, Angelo R. Mozilo, said home prices were falling “almost like never before, with the exception of the Great Depression.”

... Countrywide’s earnings were the latest in a series of shocks that have rattled the markets in the last two months. Recently, Bear Stearns said two of its hedge funds were virtually worthless after brash bets on investments backed by risky mortgages with billions in borrowed money.

Last month, the usually optimistic Robert I. Toll, the chairman and chief executive of the luxury home builder Toll Brothers, acknowledged that housing might not rebound before April 2008. In early February, Mr. Toll had told Wall Street analysts the industry was “at the beginning of the comeback trail.”

... What was added to the worries yesterday was the idea that even credit-worthy homeowners would default on mortgages at higher rates as home prices fall — and that even a well-run company like Countrywide could be hit by big losses.

At the end of April, home prices were down 2.1 percent from a year ago, according to an index that tracks 20 large metropolitan areas compiled by the research firm Case-Shiller. That compares with an 11.2 percent increase from April 2005 to April 2006.

Countrywide said about 5.4 percent of the home equity loans to customers with good credit that it held an interest in were past due at the end of June, up from 2.2 percent at the end of June 2006. By comparison, more than a fifth of subprime loans were past due at the end of June, up from 13.4 percent a year ago.

... Another problem is how Countrywide pays Mr. Mozilo, 68, and one of the company’s two founders. Though he is considered a pioneer in the mortgage business, he has become a target for shareholder activists as more attention has focused on executive pay in general and on the lucrative rewards reaped by mortgage executives in particular during the housing boom.

On the conference call yesterday, one investor asked Mr. Mozilo how he could justify selling stock while Countrywide was buying shares, which have fallen.

In the last five years, Mr. Mozilo has exercised options and sold shares for a profit of nearly $380 million, according to data compiled by Thomson Financial. Starting last fall, Mr. Mozilo significantly increased the number of shares he was selling on a regular basis for profits of more than $130 million...

7c/ Credit crunch threatens sale of Cadbury’s US drinks arm (The Times, Thu 26 Jul)

http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2141551.ece

Comment: “The problems are so severe that bankers are asking if this is the beginning of the end or the end of the beginning?” The financial chickens are coming home to roost.

Article: The crisis in global debt markets looked close to claiming another high-profile scalp yesterday, amid fears that Cadbury Schweppes could be forced to delay or even abandon the multi-billion-pound sale of its US drinks arm.

... But the sale, which is being handled by Morgan Stanley, Goldman Sachs and UBS, could run into trouble after the banks were forced to lower the amount of debt – called staple financing – available for the deal.

It is understood that the banks had originally agreed to lend on a multiple of 9.5 times Cadbury’s earnings before interest, tax, depreciation and amortisation. But as jitters over the collapse of the US sub-prime mortgage sector have spread to the leveraged loan market, the banks have been forced to decrease that multiple to 8.5 times, to ensure they can syndicate the debt to investors after the deal is completed.

... Cadbury and Alliance Boots are the latest victims of the fallout from the US sub-prime market, which has caused dozens of deals to be postponed or cancelled altogether.

The price tag for the Cadbury business is now believed to have dropped by as much as £1 billion – from initial estimates of £8 billion-plus to closer to £7 billion. Although it is still technically feasible for Cadbury to seal a deal, the original timetable now looks increasingly farfetched.

... n the past few weeks the global credit market has essentially ground to a halt.

Dozens of big deals on both sides of the Atlantic have had to postpone or cancel the syndication of billions of dollars worth of debt.

The problems have been caused by the collapse of the US sub-prime mortgage market. As a result, investors have the jitters and are refusing to buy the loans outright or demanding better terms.

The problems are so severe that bankers are asking if this is the beginning of the end or the end of the beginning?

What’s clear is that private equity deals which have yet to be underwritten won’t get done. This will lead to a fall in deal volumes - certainly in the short term...

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8/ Coal reserves and resources - a gentle cough (The Oil Drum, Tue 24 Jul)

http://www.theoildrum.com/

Comment: The coal reserves debate continues. As usual with The Oil Drum, some of the best parts of the link are in the Comments section, but you need a lot of time to check them all.

Article: I have written recently about some of the reasons that coal reserves, as currently understood, might not be quite as large, at present, as they are assumed to be. However, while I could continue on that tack for some additional time, it is perhaps time to give a gentle cough and suggest that there is perhaps a little terminologically inexact thinking in some of the discussions on the actual size of reserves, relative to the overall resource and that there is another viewpoint that should be considered in this debate. Particularly this relates to how much is left and how long it will last.

Firstly it should be recognized that a number of studies of coal reserves have put caveats on their numbers along the lines of “under current operating and economic conditions.” And so let me first put back up the table I posted in my last post , relating to the coal reserves of the UK back in 1952.

Note that this is coal that has largely been proved to be in place. However, in the time frame between 1952 and today it has not been mined or gone away, but it has become, at present, uneconomic to mine. And thus under current conditions it is no longer a reserve. And the one thing that those who write here should know better about assuming is the “current conditions.” Jeepers! We have spent over two years here accumulating convincing evidence that current conditions are not sustainable, and yet that argument is accepted, with little discussion, when it is proposed.

The problem that I have with Dr Rutledge’s argument, and those of similar inclination, is that they conflate physical and economic removal from the stockpile. But in reality is it to a large extent the economic conditions that currently prevail, not the physical ones. In large measure the coal is still there – and yes that includes quantities of Pennsylvanian anthracite. As was noted in the comments, one of the major reasons for the collapse of the industry around Wilkes Barre was that a mine broke into the bottom of the river . This caused extensive flooding and it was not, at that time, economically viable to do the necessary geological repairs to recover the deposits. So let me give you some numbers from a couple of studies on coal volumes, from back when it was not competing as ferociously with oil as it has been for the past few decades. (Because that is the prevailing condition we are moving into).

I am therefore going to start with the 1974 Survey of Energy Resources...

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