Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts

Tuesday, January 15, 2013

Closing Time For The Somali Pirates


It has been awhile since we checked in with our old friends the Somali pirates. A big part of the reason was simply that 2012 was not a good year for piracy, with successful pirate raids dropping off sharply.  This turn in fortune seems to be the motivation for one of Somalia's most infamous pirates to call it quits.  The New York Times is reporting that Mohamed Abdi Hassan, better known by his nom de guerre “Big Mouth”, announced his retirement last week in a press conference broadcast on YouTube.
 
Big Mouth's retirement is a big deal in that he was thought to be the head of a notorious pirate network and was identified in a United Nations report last year as one of Somalia's most influential and most dangerous pirates.  But a host of factors are now working against the Somali pirates, including more effective naval patrols in the Indian Ocean, on-shore raids aimed at disrupting pirating operations ashore and the emergence of effective governments in the capital, Mogadishu, and in the semi-autonomous northern region of Puntland.  These factors have combined to reduce the pirate's haul down to a mere 13 captured vessels in 2012, making pirating a far more dangerous and far less lucrative business today than it was a couple of years ago.

Big Mouth seems to have been further enticed by the issuance of a passport by the new Somali government that allowed him to travel abroad to visit his family, according to the Times.  In his farewell press conference, Big Mouth claimed to have also influenced a number of his pirate brethren to give up their pirating ways as well.  But while piracy seems to be on the decline off the coast of Somalia, there is concern that the pirates could come back if international navies scale back their patrols, thinking that the pirate problem has passed; at the same time, the pirate problem may be shifting to the coast of West Africa, where pirate attacks are on the rise.
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Thursday, January 10, 2013

My Bad Relationship With The NHL

I feel like I'm writing a letter to Dear Abby... See, I'm stuck in a bad relationship, I love her, but she takes off months, even a year, for no good reason, then comes back and expects that we'll pick up like nothing ever happened...

Her name is the NHL.

Let me say that I am a big hockey fan, I have been since I was about 10 years old. Growing up, my family had season tickets to the New Jersey Devils; I've ridden buses to Montreal to see a game; when I became the Sports Editor of my college newspaper, I quickly claimed the hockey beat for myself, even though my school had only a club-level team and they were, honestly, fairly bad; in short, I love the game. So you would think that I'd be overjoyed by the news that the NHL's latest labor stoppage came to an end late last week, just in time to salvage part of the 2012-2013 season.

But I'm not. Some of it is anger and frustration with the league over its third labor stoppage in 18 years, a largely pointless fight between millionaires and billionaires over how to carve up league revenues that last season topped $3 billion. But in a bigger sense, my lack of enthusiasm comes from the realization that getting back together after a breakout often seems great as an idea, though the reality is usually disappointing.

People are joyful over the idea that the last-minute labor agreement saved the 2012-2013 season. But let's not kid ourselves, the season is already lost.  Sure, the teams will take to the ice in an ersatz 48-game schedule, as they did in 1995, but this season will be looked at as far from legitimate. The New Jersey Devils won their first Stanley Cup following the shortened 1995 season, but the only reason that championship has any validity today is because the Devils went on to make the playoffs every year for the next decade and win two more championships in 2000 and 2003; without them, the Devils 1995 Cup win would be in the record books with a very big asterisk.

Nor am I looking forward to seeing the quality of the product on the ice this year. Getting ready for a full NHL season is usually a month-long affair of training camps and exhibition games; this year that process is being compressed down to a week – players will report to their teams this weekend and begin play on Jan. 19th, not in exhibition games, but to launch the 48 game season.  Some players will be coming to these mini-camps from professional leagues in Europe, others from stints in the minors, others still with no playing time since their seasons ended last April or May. The teams won't gel as cohesive units, injuries are far more likely because of poor physical conditioning; in short, the 2013 season promises to be a sloppy one.

And even more disturbing are some of the moves the league is discussing for the future. Lost in the hubbub of the labor crisis were two proposals floated by the NHL: expanding the playoffs to 20 teams and expanding the league itself to 32; both are awful ideas. A 20-team playoff format will likely add another round to the playoff structure and will stretch the season deeper into June, considering that the 2011-2012 playoffs didn't end until June 11th, another round could push the end of the Stanley Cup finals almost to the official start of summer – kind of silly for a “winter” sport. It also makes the regular season more irrelevant since 20 out of 30 teams, or 2/3 of the league would be guaranteed a spot in the post-season. Expansion is also a terrible idea, especially since part of the reason for this year's labor lockout was the league's contention that roughly 2/3 of the teams were losing money. Seattle and Quebec City have emerged as the frontrunners in the expansion talks, and while both would be fine additions to the NHL, it would make more sense for them to host teams relocated from some of the NHL's weaker cities like Phoenix or Columbus, OH than to add more teams to what many fans consider to be an already bloated league.

The rationale for these moves is money – expansion franchises must pay a fee to the league, which results in a few million dollars being funneled into the coffers of every NHL team, a hallmark of the Gary Bettman era; while more teams in the playoffs will give four more owners a chance to earn a little more revenue by hosting additional home games for their teams. Whether these moves are good for the quality of the league or the sport is irrelevant if there's a quick buck to be made. And that brings me back to my point about being stuck in a bad relationship. The NHL is never going to change, but in terms of hockey, they are the only game in town, and, unfortunately, the NHL knows that too.  
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Tuesday, June 12, 2012

India, US Set To Square Off On Iran Sanctions

The next move in the ongoing geopolitical chess match between the United States and Iran is set to take place this Wednesday when US officials will try once again to get their Indian counterparts onboard with the “crippling” sanctions regime championed by the US.

India's continuing purchase of Iranian crude oil remains a major impediment to the “crippling” part of those sanctions.  By cutting Iran off from the global crude oil markets, the United States is hoping to put enough pressure on Iran to get them to give up their nuclear research program (folks in Washington also really, really hope that the sanctions will lead to the unlikely event of the Iranians overthrowing their government due to the negative impact a lack of oil sales will have on their economy).  While the European Union is phasing in a ban on Iranian oil, plenty of Iranian crude is flowing to China and India; making the sanctions painful, but survivable, at least in the short-to-medium term.

Even the optimists in Washington will admit they can apply little leverage to get China to abandon their Iranian oil purchases, but they hope that India could be swayed.  So far India has maintained that they need to continue to buy Iranian oil since many Indian refineries are configured to process specific types of crude that come out of Iran and that there aren't substitute volumes readily available on the global market.  India has also questioned the validity of the US sanctions since they are not backed by the United Nations.

According to the Indian publication Business Today, Wednesday's meeting is likely to focus on the US suggesting that American shale gas could be a substitute for Iranian crude oil.  This is interesting for a couple of reasons: first we're talking about replacing oil with natural gas, which would mean a massive restructuring of India's energy mix – a drastic shift away from crude oil products to natural gas (using natural gas as a vehicle fuel for example, instead of gasoline); and since the US currently lacks a liquefied natural gas (LNG) export infrastructure, it would be a number of years, at least, before large volumes of US shale gas could be heading to India in a best-case scenario.  How India would get by in the meanwhile without Iranian crude oil imports is an open question.

If accurate, the Business Today report points at American officials desperate to get their Indian allies onside with the Iranian sanctions regime.  According to the sanctions passed by the US Congress, the United States could levy penalties against any country trading with Iran in violation of our sanctions, and while it is hard to imagine the United States fracturing diplomatic relations with India with such an action, it is also clear that as long as India (and China) keep importing Iranian oil, it is highly unlikely that the sanctions will have the desired effect.

Stay tuned for Wednesday's meeting.
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Sunday, June 10, 2012

Cuba's Oil Hopes Coming Up Dry

The announcement last year of a potentially vast oil reserve off the coast of Cuba looked like a game-changer for the impoverished island nation, but Cuba's hopes suffered another blow last week as a test well came up dry.  Now Spanish oil firm Repsol said it is likely that they will withdraw from the hunt for Cuban oil, potentially giving up their stake in an reserve that could contain 20 billion barrels of oil.

But finding such a reserve in deep ocean waters can be a formidable challenge.  Repsol spent an estimated $100 million drilling their test well.  While dry wells are a common occurrence in oil prospecting, Repsol has apparently decided the likelihood of hitting oil with a future well did not justify a further expense.  This leaves Indonesia's Petronas as the only company actively prospecting for oil off the coast of Cuba; the results from their test well are expected in July.

Cuba had high hopes for the oil deposits identified in their coastal waters.  Oil taken from the offshore deposits could make Cuba energy independent, with enough then left over to transform Cuba into an oil exporting nation.  Oil exports would give the Cuban government of Raul Castro an effective tool in fighting the embargo levied against Cuba for the past half-century by the United States, as well as providing a large source of revenue for Cuba's state-run economy.  But with the global hunt for oil having success in locations around the world (with many of those places being in Africa) and techniques like hydrofracking making known, but previously not exploited, reserves profitable, there seems to be less incentive for international oil companies to hunt of elusive deposits of crude off the coast of Cuba.  At the same time, Cuba's domestic petroleum industry does not have the resources or expertise to drill in the deepwater themselves, leaving the Cuban government's oil plans on the edge of failure.
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Wednesday, May 30, 2012

A New Capital For Russia?

Is a new capital city the key to revitalizing Russia's economy?  That is the idea being floated by Sergei Karaganov, the world economy and international affairs faculty dean at the Moscow Higher School of Economics, who wants to elevate Vladivostok, the Russian port city on the Pacific, near the borders of both China and North Korea, and more than 4,000 miles from Moscow, to capital city status.

Rather than shipping the seat of Russian power and governance east, Karaganov is talking about making Vladivostok a third capital city for Russia: Vladivostok would be the economic capital of the country, joining Moscow (political) and St. Petersburg (cultural) in this strata.  Karaganov's rationale is that the focus of the global economy is drifting steadily eastward and that Vladivostok is uniquely positioned to take advantage of this shift.  An economic capital in Vladivostok would make Russia a serious player in global trade patterns of the Pacific Rim and would signal that Russia was serious about building lasting ties with emerging Asian economic powers.

Karaganov's idea isn't as crazy as it may first sound.  Much of Russia's wealth in natural resources lie in the Asian portion of the nation; one of the largest economic infrastructure projects in Russia in the past decade has been the development of natural gas resources on and around Sakhalin Island on Russia's Pacific Coast; last year Russia opened the ESPO pipeline to send Siberian crude oil to energy-hungry China. And one other Pacific nation has already followed Karaganov's lead.  Earlier this year, the island nation of Samoa lost an entire day as it officially switched from one side of the International Dateline to the other – Samoa had originally opted to be on the same side of the IDL as the United States, which at the time was their main trading partner, but flipped to the Asian side to reflect the fact that now most of their trade is with countries like Australia and New Zealand.

Vladivostok today is a fairly run-down port city that has far more economic interaction with Japan and China than it does Moscow.  In fact, Vladivostok was the site of some of the largest public protests seen in Russia before last December's rallies against what were seen as rigged Parliamentary elections.  People took to the streets in Vladivostok in 2009 to protest new tariffs levied against imported used cars that Moscow launched as an effort to save Russia's ailing domestic auto industry. Importing used cars from Japan is one of the key economic drivers in Vladivostok, and local residents feared that the new tariffs would cripple their city's economy.

It's doubtful that the Putin government will take Karaganov's idea seriously, but that doesn't mean that it is not an innovative approach to deal with a very real issue in the Russian economy. 
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Wednesday, April 18, 2012

ExxonMobile Bets Big On Oil Deal In Russia

When is an oil deal more than just an oil deal?  Maybe when it is US-based ExxonMobile teaming up with Russia's state-run oil firm Rosneft.  The two companies announced a series of joint ventures on Tuesday that will give ExxonMobile access to Russian oil reserves in the Black Sea as well as the remote and frigid Kara Sea in Russia's far north.  The Arctic is widely believed to be the site of the world's last remaining major untapped oil fields; early surveys indicate that the Kara Sea field in question could by itself hold 36 billion barrels of recoverable oil – more oil, the New York Times notes, than in all of ExxonMobile's holdings in the United States. 

But the deal is even more interesting from the Russian side since it gives Rosneft a share in an ExxonMobile-owned shale gas field in Texas.  Thanks to hydrofracking and other advanced drilling techniques, shale gas and oil fields that were long thought to be near worthless due to the limitations of older drilling equipment have sparked an energy boom in the past few years.  The glut of natural gas now coming to the world marketplace were enough to prompt current Russian Prime Minister and soon-to-be President Vladimir Putin to discuss the “threat” shale gas posed to the Russian energy sector during his annual address to the Russian Duma (parliament) last week, and order the Russian energy sector to “answer this challenge”.  Rosneft seems then to be taking the “if you can't beat 'em, join 'em” approach with their partnership in ExxonMobile's Texas shale gas field.  They become the latest in a line of foreign companies who have invested in similar American fields as a way of gaining practical experience in using hydrofracking, horizontal drilling and other advanced recovery techniques to access their own domestic shale gas and oil reserves.

There's also a sense of going back to the future for ExxonMobile in the Rosneft deal.  In 2003, ExxonMobile was on the verge of signing a similar agreement with Russia's then-largest oil conglomerate, Yukos, when Yukos' chairman Mikhail Khodorkovsky was arrested on charges of tax evasion.  Khodorkovsky had hoped that the partnership would literally provide him with a krisha (Russian slang for “protection”) in his increasingly hostile personal relationship with Vladimir Putin.  Khodorkovsky was arrested before the Yukos-ExxonMobile deal could go through.

The Khodorkovsky affair could serve as a cautionary tale about doing big business deals in Putin's Russia, as could the Kremlin's forcing of Royal Dutch Shell to sell half their stake in a $20 billion natural gas project on Russia's Sakhalin Island to Russia's Gazprom.  But Russia is jockeying for position with Saudi Arabia as the world's top oil producer, which means that despite the risks, the rewards could be huge for ExxonMobile.
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Wednesday, March 28, 2012

Kenya Joins The Big Oil Club

It looks like we can add Kenya to the list of the world's petro-states.

Kenya's President Mwai Kibaki made the announcement live Monday on Kenyan TV that a prospect well had struck a reservoir of crude oil in the northwestern part of the country.  The test well was drilled by Tullow Oil Plc, a Britsih company that specializes in oil prospecting and production in Africa.  Previously, Tullow discovered oil in neighboring Uganda, kickstarting the oil industry in that country.

It is still too early to determine the true value of the Kenyan oil reserve, more test wells will first need to be drilled.  But the early indications are positive – the oil drawn from the reserve appears to be of good quality, while Tullow said that the strike went “beyond their expectations”.  Kenyan officials, meanwhile, seemed to be incredibly optimistic during the press conference.  President Kibaki talked about Kenya becoming an oil exporter in three years, while Kenya's Energy Minister Kiraitu Murungi promised that: “we will make sure that the oil in Kenya is a blessing for the people of Kenya and not a curse.”

Murungi was referring there to the “resource curse” - the paradox that often strikes developing countries when a natural resource is discovered: rather than sparking the development of the nation as a whole, the resource often leads to the concentration of wealth in the hands of a few, widespread corruption, and rampant poverty for the masses.  We talked about the resource curse here recently when oil was discovered in the Puntland region of Somalia.

Kenya should be well-positioned to avoid the resource curse though.  The country has reached a fair level of development already and has a democratic government, albeit a somewhat flawed one, two factors that should help to ensure that any future oil revenues are distributed properly among Kenya's citizens.  A few weeks ago Kenya announced the construction of a multi-billion port facility outside the coastal city of Lamu, that will include an oil import/export terminal.  Originally this facility was meant to be at the end of a pipeline running from South Sudan, allowing the South Sudanese to export their oil without sending it north to export facilities in Sudan, since relations between the two nations are generally terrible.  But the facility at Lamu could also be used to export any Kenyan crude to eagerly-awaiting markets in Asia as well.
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Friday, March 2, 2012

Russia's New Era Of Stagnation

Russians will be going to the polls on Sunday to return Vladimir Putin to the presidency.  Despite the mass public protests that have filled the snowy streets of Russia's major cities, the fact that Putin will once again be elected president isn't in doubt, though two outstanding questions: whether he'll avoid a run-off by getting 50% of the vote and whether or not that vote will be fair in the first place, remain.

Over at PolicyMic today, I take a look at the upcoming election, and how Putin's return could lead to a period of economic and social stagnation in Russia not seen since the 1970s.  Surf on over and give it a read.
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Friday, February 24, 2012

US Politics: Zambian Soccer and Gingrich's Gas Fantasies


I realized that I've been terribly remiss in shamelessly promoting my recent writing on other websites.

You've probably heard Newt Gingrich's claim that if elected president, he'll give everyone $2.00/gal gasoline.  I take on Newt's latest political flight of fancy over at PolicyMic and explain why market dynamics show that Newt's moonbase idea is more likely to happen than his $2.00/gal gasoline promise.

Meanwhile, over at The Mantle we take a look at the unlikely pairing of Zambian soccer and US politics.  Zambia's national team recently won Africa's Cup of Nations continent-wide tournament.  In their piece about the victory, CBS threw in some tidbits about Zambia's government.  Zambia is engaging in a series of social/economic reforms, reforms that are so sensible they don't have a chance of occurring in the United States.  See why over at The Mantle.
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Thursday, February 2, 2012

Iran Plays The Oil Card

Speaking of Iran (see the previous post), they may be turning the tables on the whole US-proposed, European-backed sanctions regime.  The United States is championing an idea to strangle the Iranian economy by banning the sale of Iranian oil globally, with the hope being that the loss of their main revenue stream will convince the Iranians to give up their nuclear research program and perhaps as a bonus bring down the Iranian government.  For the United States, the sanctions are no big deal since the US basically imports no oil from Iran, for the Europeans though it is a different matter – Europe accounts for roughly a quarter of Iran's oil export sales.  Because Europe gets so much oil from Iran, the European version of the sanctions have a six-month phase-in period to allow European countries to find  alternative supplies of oil.

But the Iranians are going them one better by discussing their own boycott of oil sales to Europe, meaning that shipments to Europe could stop immediately.  To make matters worse for the European Union, some of the countries that are the most dependent on Iranian oil are also the European economies in the worst shape, namely Greece and Italy.  The six-month phase-in was designed to put as little stress as possible on their economies, but if Iran halts shipments immediately, both countries will need to replace the volumes of missing Iranian crude on the more volatile, and more expensive, spot crude oil market, or face the prospect of massive fuel shortages; two conditions that could push their already teetering economies over the edge.

So far Iran has held off on making their embargo official, the Iranian parliament was suppose to debate the embargo bill last Sunday, but postponed action.  Other Iranian officials though are saying that the European sanctions are not a question of if, but rather when.  And in another blow to the US-led efforts, both China and India have publicly stated that they will be happy to buy up any excess Iranian crude leftover from the embargoed European sanctions.  Both countries will likely force Iran to sell them crude oil at a discount, but vast sums of money will continue to flow into Iran, severely undermining the whole point of the US-led sanction regime.
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Friday, December 16, 2011

Powerless in Afghanistan

An engineering operation that the British called the most daring of its kind since the Second World War looks like it might fall, not to Taliban insurgents, but to penny-pinchers in the US Congress.  In September 2008, British Royal Marines hauled a 220-ton generator across 100 miles of hostile territory in southern Afghanistan to the partially-completed Kajaki Dam hydroelectric plant after private contractors refused to move the equipment through Taliban-held territory.  The new generator was meant to complete the hydroelectric plant and to ease chronic power shortages in this region of Afghanistan that includes the strategically-important city of Kandahar.  But since the autumn of 2008, the new generator has sat uninstalled at the dam, and now it looks like it might stay that way permanently.

USAID, the United States Agency for International Development, is questioning whether it makes sense to complete the expensive project in the face of budget cuts from Congress.  USAID's budget was slashed from $4 billion in 2010, to $2 billion this year, with further cuts for 2012 likely.  Installation of the turbine at Kajaki would chew up a big part of USAID's Afghan budget.  Officials are instead looking at other lower-cost options, like improving transmission lines in the region, as a way to ease the power shortages in the south of Afghanistan.  That has the US military leaders in Afghanistan dismayed since Kajaki was to be the signature project for the coalition in the region, making its completion strategically-important in their minds.

The Kajaki hydro plant is just another example of what a muddled mess the Afghanistan mission has become.  To dip into the big bag of writer's cliches, at this point the US needs to go big or go home (I vote for the latter myself), the problem is that the current strategy seems to be to do neither.  We have convinced ourselves that Afghanistan is an area vital to our national security, so the US insists on maintaining our engagement there.  But it is not enough to simply base a lot of troops in the country. In a very real sense Afghanistan doesn't exist as much more than a name on a map; a state and civil society needs to be built almost from scratch.  But the US also insists that it does not want to be involved in nation-building, even though a nation clearly needs to be built.  To make matters worse, we have a Congress that is looking to cut funding for everything that doesn't drop a bomb and the wholly-corrupt regime of Afghan President Hamid Karzai for a partner, meaning that much of the money that is sent to Afghanistan never actually gets to its intended project.

Not installing the generator amazingly hauled through enemy territory at great cost may be seen as a fiscally-responsible move by some at USAID, though in reality it means that the money spent up to this point on the Kajaki generator project was simply wasted.  It is another sign of an increasingly pointless mission, and another argument for why it is time to just leave before we waste more money (and likely more lives) on similar projects that will ultimately go unfinished.
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Friday, November 11, 2011

Now Here's A Reason To Oppose The Keystone XL

The Keystone XL pipeline project, which would bring bitumen down from Alberta's Oil Sands region to refineries along the United States' Gulf Coast, has been in the news a lot lately.  Opponents are trying to block approval of the US portion of the pipeline since they argue that Oil Sands crude production is a major source of greenhouse gas emissions, destructive to the arboreal forests in Alberta and that the pipeline puts the American heartland and the massive Ogallala Aquifer at-risk since bitumen is highly corrosive, making pipeline leaks more likely, and difficult to clean when it spills.  Late Thursday they may have won a partial victory as the Obama Administration requested an additional review on the potential impacts of the pipeline which will likely punt any final yea or nay decision out past the 2012 presidential elections.  Of course a delay is not a denial and it's quite likely the pipeline could get the green light late next year or early in 2013, especially if a Republican wins next year's presidential elections, so the protests against the pipeline continue.


In an earlier post, I was critical of the protesters, not so much because I whole-heartedly support the pipeline idea, but because I find a lot of their rationale incredibly parochial – if we Americans refuse to build the Keystone XL, those silly Canadians will stop ruining their environment.  Of course Oil Sands production began before the Keystone XL project was even thought up and Canadians have a couple of Plan B's in mind in case Keystone XL is blocked.  One is to build pipelines west to the Pacific, where the bitumen can be shipped off to always energy-hungry China; the other is to build “upgraders”, a kind of refinery that converts heavy, lower-value into light, valuable synthetic crude oil (SCO) that can be processed like natural crude oil and which fetches a premium on the open market. In fact, some Canadians are wondering why they're even shipping out the lower-cost bitumen and not the higher-value SCO in the first place.


In a column in The Guardian, Sen. Bernie Sanders hits on a much better reason to oppose the Keystone XL – namely that little, if any, of the Oil Sands bitumen will actually be used in the United States.  The Oil Sands are being touted as a hedge against more unreliable sources of imported oil (i.e. the OPEC nations).  But internal documents from Valero, the refining company most invested in seeing Keystone XL completed, show that the company plans to convert the Alberta bitumen into gasolene and diesel fuel that they will then ship out to Latin America and Europe.  The reason is that their refinery in Port Arthur, TX is in a special enterprise zone where no export taxes are charged, so shipping the gas/diesel abroad is more profitable than selling it in the US, plus Europe has a much larger market for diesel than does the United States.


That argument knocks the legs out from the Oil Sands argument in the US – namely that they will provide America with a source of imported oil from a stable and trusted ally.  It also makes opposition to the pipeline a lot more palatable - why should the United States put its environment at-risk so a private company can make profits selling products from our “domestic” oil abroad – than some fantasy that if we “tell” the Canadians to stop exploiting the Oil Sands they actually will.


Update: According to Toronto’s Globe and Mail, Canadians are pissed about the delay decision.
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Tuesday, August 16, 2011

Green Energy Perspectives

I recently spent a few days up in the Lake Ontario/1,000 Islands Region of New York State (and if you ever have the opportunity to visit this beautiful area, you really should), while I was up there for a vacation, I managed to have several very interesting talks with local residents about energy issues, specifically green/renewable energy projects in the area.

The one topic that seemed to come up in every conversation was wind power. Several major projects are being proposed for the area. On one hand, installation of the wind turbines is being touted as a job-producer for a region that has seen its manufacturing base ebb away. But most of the people I spoke to were opposed to the turbines. Some of the opposition were the expected complaints that wind turbines are big and ugly and that scattering them about the area would have a significant aesthetic impact on a region that now relies heavily on tourism as an economic driver; one man, and avid bird-watcher, also worried about how the turbines would affect the local and migrating bird populations. But a lot of the critique went beyond simple NIMBY-ism; another common complaint raised was the fact that wind turbines just aren't terribly efficient: while wind turbines obviously can't produce electricity when the wind is not blowing, they also can't produce it if the wind is blowing too strongly – in this situation, the turbine will go into a “safe” mode to avoid rotating too fast and literally tearing itself apart; as a result, a wind turbine will typically only generate 35-40% of its rated electrical output, not a terribly efficient form of generation. I had one discussion about other wind generation technologies that are not being as actively pursued as turbine development, such as using kites to generate power, which has shown promise in experiments.

In fact, rather than just saying no to wind, the people from the region that I spoke with had a number of suggestions for other methods of generating power. Hydroelectric was obviously one alternative discussed. Rather than constructing dams, run-of-river plants are one alternative, another discussed were subsurface turbines. At its outlet from Lake Ontario, I was told, the St. Lawrence River has a current flow of about four knots, and unlike wind in the area, this flow is constant. Turbines placed along the river's shipping channel, which is more than 100-200 feet deep, could provide a constant source of power, while going unnoticed by tourists to the region. A demonstration turbine project along New York City's East River, utilizing the river's (which is actually an estuary) daily tidal flow has show promising results. A local politician also told me of her suggestion that biofuel crops be grown in the region. Biofuels typically have been problematic – while they are a truly renewable fuel source since more fuel can be grown each year, in practice biofuels have taken arable land out of food production and anecdotal evidence indicates that biofuels have caused a rise in food commodity prices. But the 1,000 Islands region has numerous farms that have been abandoned; the land has already shown it is arable, so if these abandoned farms were reclaimed for biofuel production, they could grow biofuel crops without negatively impacting the region's food supply.

Finally, there's nuclear. The region is already home to the Nine Mile Point Nuclear Generating Station, the cooling towers of the plant can be seen looming above the shore of Lake Ontario. Grudgingly, most of the people I talked to said that expansion of nuclear power may be the best alternative; nuclear clearly provides the best EROI (energy return on investment) of all the options presented. The plant has operated in the region for years without incident. And despite the the recent events in Fukushima, Japan looming over the nuclear industry, everyone I spoke to said that the chances of a tsunami in Lake Ontario were pretty remote. There remained a certain wariness about nuclear power, but also a realization that, when properly designed and maintained, nuclear power plants can operate safely and efficiently.

There were a couple of takeaways from the energy discussions I had during my trip. The first is, as a friend put it, that there is no “silver bullet” in the energy picture, no one single solution to meeting our growing demands for power, so advocates of wind, nuclear, or even an old standby like drilling more oil wells, cannot present their pet project as THE solution. Second, the average citizen knows far more about sources of energy and has a much clearer view of the energy picture in this country than they are generally given credit for having by the so-called experts, and they also can have some pretty innovative suggestions for meeting our energy needs.
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Tuesday, August 9, 2011

The Maestro?

With the twin economic events of the S&P credit downgrade and Monday's stock market plunge dominating the news, it seems like every financial analyst, economics professor and business journalist able to put together a coherent sentence has appeared on some television channel during these past few days. So it should be no surprise that the former chairman of the Federal Reserve, Alan Greenspan, joined the televised economic chorus. What is surprising though is what he offered by way of commentary. Greenspan contends that the S&P downgrade of America's creditworthiness was not necessary since America would never default on its debt obligations because the country can always “print more money”.

What Greenspan said is technically true, the government can just keep the printing presses at the Mint running 24/7, and this is a great financial strategy – if you want to end up like Zimbabwe. In modern global economics, currency is not back by tangible assets like gold and silver, but rather by perceptions of its worth. A US dollar is worth a dollar because that is what people perceive its buying power to be. If you follow Greenspan's advice and just print more dollars, you're not doing anything to intrinsically increase the dollar's worth, you're just putting more of them out there. And a fundamental law of economics is that when supply increases, the value of a given commodity drops. So if the guy at the corner deli knows you suddenly have more money in your pocket because the government has magically made more currency, that one dollar pack of gum will quickly become a two dollar pack of gum. Your buying power as a consumer has not increased because you have more money in your pocket, it has actually decreased.

This was the situation faced by folks in Zimbabwe. The government of Robert Mugabe reacted to a financial crisis by printing more Zimbabwean dollars. The market reacted by immediately devaluing those dollars, which prompted a response by the government to simply print more dollars, and so on and so on until you wound up with this:



Despite all the zeros, at the height of Zimbabwe's financial crisis, that bill wouldn't even cover your bus fare across Harare. Again, it is simple economics, which is why it was so disturbing to hear the man who once had so much control over the nation's economy that he was dubbed “The Maestro” put forward such a dumb economic idea. Though on second thought, perhaps it helps to explain the mess that we currently find ourselves in...

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Thursday, July 28, 2011

Even More African Pirates

There's news from Monday, via the BBC, that the Anema e Core, an Italian-owned oil tanker, was seized off the coast of Africa. I know what you're thinking, thanks to the ever-industrious Somali pirates, this really isn't news... Now here's the kicker, the Anema e Core wasn't sailing off Africa's east coast, but rather its west, in the Gulf of Guinea, just south of the nation of Benin.

We talked about the threat of West African piracy some time ago. Unlike their high-profile Somali brethren, west African pirates seldom go after prizes as large as an oil tanker and subsequently rarely make the news, but the problem does exist and some experts fear it could get worse. Many of the piracy drivers are the same for both east and west Africa – impoverished, sea-faring people who are able to exploit lax enforcement of the sea-lanes thanks to poorly-functioning local governments and a lack of interest on the part of the international community. And though West African piracy has not nearly reached the levels of Somali piracy, there is fear that it will climb as more nations in the region attempt to follow the example of Nigeria, and now Ghana, and begin to exploit offshore reserves of crude oil and natural gas. Exploitation of these resources will lead to more shipping off the coast and will create more targets for the would-be pirates.

As of Monday, officials from Benin were trying to track the whereabouts of the Anema e Core.
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Thursday, July 21, 2011

Next For Liberia: Oil?

Steve LeVine, over at his excellent energy-themed blog The Oil and The Glory is reporting that the war-torn West African nation of Liberia is looking to oil as the catalyst for rebuilding after decades of civil war. Large deposits of oil are known to exist in the Gulf of Guinea along Africa's coast. Nigeria was the first nation to cash in on the offshore riches, Ghana joined the club of oil exporting nations late last year. Now Liberia is hoping that the good fortune and oil reserves will continue to spread west. Exploration activities will begin in a few months. If the reserves pan out, Liberia could be producing oil by the end of the decade.

Near the end of his piece LeVine talks about the threat of the “resource curse” striking Liberia, it's a point worth taking a closer look at. In case you're unfamiliar with the term, the resource curse is a concept in international development coined to describe situations where impoverished nations suddenly discover a valuable natural resource, but instead of lifting the nation out of poverty, the country is gripped by corruption, crime, and political (occasionally actual) infighting, with the people in some cases winding up poorer than they were before the resource was found. The resource curse has struck nations around the world, but the causes are often the same – poverty produces a poorly-educated population and civic institutions that barely work, if they function at all. The country can't absorb the wealth suddenly flooding into it: institutions that barely worked before now have massive budgets to mismanage, politicians often become fixated on pet projects to build their legacy without concern over whether or not they help the nation (skimming a healthy amount off the top is also commonplace), and fights break out over control of the natural resources, sometimes rising to the level of insurgencies if not full-blown civil wars. Foreign companies historically have taken advantage of unsophisticated local governments to sign deals that massively favor them while depriving the people of promised wealth.

Given the fragile state of civil governance in Liberia, you can't be terribly excited about their prospects. They could do a lot worse than to follow the example of their Ghanaian neighbors, though. Faced with a similar petro-windfall, Ghana has taken pains to try to avoid the resource curse. Part of that plan has been to start an education program to create a home-grown generation of oil engineers, accountants and other experts, the nation developed a comprehensive strategy to become energy independent within the next 10 years and to fund needed infrastructure projects, and debates over what to do with the oil money have become a staple of public discourse. It is too early yet to determine how well Ghana has done, but they are actively trying to avoid becoming the latest victim of the resource curse.
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Tuesday, June 21, 2011

Stunning Corruption, Even For Afghanistan

Tomorrow President Obama is scheduled to make another “major” announcement on America's decade-long involvement in Afghanistan. There has been a lot of talk about Afghanistan in the blogosphere and among the punditocracy recently, circulating mostly around US troop levels and whether or not its a good idea to talk with the Taliban. But one major story getting almost no attention is the ongoing mess surrounding the Kabul Bank, a situation that could cripple the entire country.

We first talked about the Kabul Bank late last year when the institution collapsed after the top executives – including a former professional poker player and President Hamid Karzai's brother Mahmoud - essentially used the Kabul Bank as their own personal slush fund, ripping the institution off to the tune of approximately $900 million, using the money to invest in half-built luxury villas in Dubai, a dysfunctional national airline and the reelection fund of Hamid Karzai. To put that in perspective, Afghanistan's total Gross Domestic Product is only about $12 billion. And to make matters worse, the Kabul Bank hosts the payroll accounts for the nation's army, police and civil servants (a kick-back for the Karzai reelection fund); the loyalty of the first two is already an open question, so one can only imagine what would happen if they didn't get paid. The Guardian's Jon Boone has put together a wonderfully detailed account of the stunning corruption affecting the Kabul Bank.

In fact, the only thing more stunning has been the Afghan government's official reaction to the Kabul Bank scandal. Shortly after the collapse, Hamid Karzai scolded foreign accountants hired by international agencies to oversee the bank for not preventing the fraud – in other words, he blamed the international community for not keeping his brother from robbing the nation's largest bank (which is almost as good a definition of chutzpah as the boy who kills his parents then asks the judge for leniency because he's an orphan). Currently the International Monetary Fund is negotiating with Afghanistan for a bailout of the Kabul Bank, but here too Afghan officials are putting on a great display of kleptocratic arrogance. Not only does the IMF want strict controls put in at the Kabul Bank to prevent the outflow of capital into the pockets of the bank's top execs, they also want people to go to jail for running the bank into the ground in the first place. Seems reasonable, well to everyone that is except Afghanistan's Finance Minister Omar Zakhilwal who accused the IMF of “playing games” for trying to instill a sense of fiscal responsibility and good corporate governance to the Kabul Bank and said that the government was “running out of patience” with the IMF - no word on what Zakhilwal or the Afghan government will do to make good on that threat.

Unless the Kabul Bank is reformed though a host of international aid groups are threatening to withhold further donations to Afghanistan – why throw money down a rat hole is the prevailing thought among them. Currently, foreign aid makes up about 40% of Afghanistan's budget, so this loss would be a big blow to the country. And the whole Kabul Bank affair has seriously undermined faith in the banking sector among average Afghans. It’s also another example of the incredible corruption and incompetent leadership of a country in which the United States has already invested far too much.
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Thursday, May 26, 2011

Laws Keep US From Cuban Oil Bonanza

Every now and then you come across a story that reenforces the enduring stupidity of the United States' decades-long embargo against Cuba. So it is with this story from an oil industry trade journal about how a deep-water drilling rig is beginning its long, slow journey from Singapore to the waters off Cuba to begin exploration in fields off the coast of the island nation. Specifically, the rig will be drilling in waters roughly 20 miles from Havana, and less than 60 miles from Key West, Florida. Surveys estimate there may be more than four billion barrels of oil off the coast of Cuba, along with sizable deposits of natural gas. Cuba is taking steps to exploit these resources with the goal of not only becoming energy independent but also of joining the club of oil exporting nations – a move that could breathe real life into the largely stagnant Cuban economy.

Now logically US-based firms should be all over these Cuban oil fields – with vast experience drilling in the Gulf of Mexico, such a partnership would make perfect sense. But that's not going to happen because of the economic embargo the US slapped on Cuba at the height of the Cold War to protest the takeover of Cuba by Marxist forces led by Fidel Castro. Of course not only has the embargo outlived the Cold War it also in six decades has failed to do the one thing it was designed to do, namely bring down the Castro regime.

But wait, it gets worse. If there were to be an accident with a Cuban well, like the kind that struck BP's Macondo well in the Gulf of Mexico last year, that oil would wind up on the beaches of Florida Keys within a couple of days and would, if enough oil was spilled, slip into the Gulf Stream and spread up the East Coast of the United States. But thanks to the embargo, any companies responding to this hypothetical accident could not request rescue or clean-up equipment from the United States, since that would be perceived as “doing business” with Cuba, something forbidden under the embargo. And, again thanks to the embargo, the United States does not participate in regular oil spill recovery drills with Cuba as it does with another regional oil producer, Mexico.

So not only is the now-pointless Cuba embargo preventing American companies and workers from earning money off the Cuban oil fields, it is also putting the country at risk should there be a spill. Can you say short-sighted government policy?
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Wednesday, May 25, 2011

Yandex Hits It Big

Russian Internet giant Yandex had a good day yesterday, their initial public offering (IPO) on New York's Nasdaq stock exchange earned the company $1.3 billion, $300 million than expected. Not bad for a day's work...

Yandex is Russia's answer to Google. Last year Yandex accounted for roughly two-thirds of the Internet searches conducted in Russia, their free email service is also very popular in the Russian-speaking world. Their IPO wasn't harmed by revelations which came to light earlier this month that Yandex had passed information to the FSB (Russia's state security bureau) about payments made through their online service to a popular anti-corruption watchdog website. Yandex even admitted that doing business in today's Russia is challenging in the prospectus they provided to the Security and Exchange Commission in the United States ahead of their IPO where they warned that as a company they “may be subject to aggressive application of contradictory or ambiguous laws or regulations, or to politically-motivated actions.”

At the time of the FSB admission, Georgy Voronkov, an analyst from research firm Investcafe, dismissed its likely impact on Yandex's IPO, telling the BBC that “all big funds who plan to invest a lot of money in Russia are already aware of these risks.” Apparently he was right.
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Tuesday, May 24, 2011

A Danish Pole

According to a leaked report, Denmark is set to lay claim to the North Pole. Officially, the North Pole belongs to no one, but both the Danes and the Russians would like to change that. Their actions are another indication that the Arctic region is heating up politically along with physically.
Climbing global temperatures are making the formerly inaccessible Arctic wastelands valuable territory as ice retreats and new, shorter sea routes between Asia, Europe and North America open up. The Arctic is also estimated to contain 25% of the world's remaining undiscovered natural gas and oil reserves, all of which makes ownership of chunks of the Arctic a prized commodity.

Under current international law, the nations bordering the Arctic Ocean can all claim the first 13 miles from shore as their national territory; each country can also claim an area of ocean 200 miles from their coast as their Exclusive Economic Zone (EEZ). As the name suggest, each nation has the exclusive rights to use this piece of ocean for economic interests – fishing, drilling for oil and gas, whatever. But there is a clause in the United Nations Convention on the Law of the Sea (or UNCLOS) that allows nations to extend this EEZ beyond the 200-mile limit if they can demonstrate that a geographic feature, like a mountain range, extends from their territory out beyond the 200-mile limit. That's just what the Russians and Danes are trying to do, ironically with the same feature, a sub-sea mountain range called the Lomonosov Ridge: Russia claims the Ridge runs from northern Siberia out under the sea, directly beneath the North Pole, the Danes claim that the Ridge runs from Greenland (which is still nominally controlled by Denmark) under the Pole as well.

Eventually this will be a matter for the United Nations to settle. Of course the situation could get even more confused if Greenland were to gain their independence from Denmark. Greenland recently gained a large measure of autonomy from Denmark, despite having a population of only about 60,000. Greenlanders now control their own domestic affairs, while foreign policy decisions are still made by Denmark. As a measure of Greenland's growing clout, its capital city, Nuuk (pop. 15,000) recently hosted an international gathering of representatives from the world's Arctic nations, the Arctic Council, which included the US Secretary of State, Hillary Clinton. The purpose of the meeting was to begin discussion about how the resources and territory of the Arctic could be used and shared, with the Arctic Council serving as a mediator in these affairs.
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