China's green energy revolution ~ NYT.

C. H. Tung, the first Chinese-appointed chief executive of Hong Kong after the handover in 1997, offered me a three-sentence summary the other day of China’s modern economic history: “China was asleep during the Industrial Revolution. She was just waking during the Information Technology Revolution. She intends to participate fully in the Green Revolution.”

I’ll say. Being in China right now I am more convinced than ever that when historians look back at the end of the first decade of the 21st century, they will say that the most important thing to happen was not the Great Recession, but China’s Green Leap Forward. The Beijing leadership clearly understands that the E.T. — Energy Technology — revolution is both a necessity and an opportunity, and they do not intend to miss it.

We, by contrast, intend to fix Afghanistan. Have a nice day.

O.K., that was a cheap shot. But here’s one that isn’t: Andy Grove, co-founder of Intel, liked to say that companies come to “strategic inflection points,” where the fundamentals of a business change and they either make the hard decision to invest in a down cycle and take a more promising trajectory or do nothing and wither. The same is true for countries.

The U.S. is at just such a strategic inflection point. We are either going to put in place a price on carbon and the right regulatory incentives to ensure that America is China’s main competitor/partner in the E.T. revolution, or we are going to gradually cede this industry to Beijing and the good jobs and energy security that would go with it.

Is President Obama going to finish health care and then put aside the pending energy legislation — and carbon pricing — that Congress has already passed in order to get through the midterms without Republicans screaming “new taxes?” Or is he going to seize this moment before the midterms — possibly his last window to put together a majority in the Senate, including some Republicans, for a price on carbon — and put in place a real U.S. engine for clean energy innovation and energy security?

I’ve been stunned to learn about the sheer volume of wind, solar, mass transit, nuclear and more efficient coal-burning projects that have sprouted in China in just the last year.

Here’s e-mail from Bill Gross, who runs eSolar, a promising California solar-thermal start-up: On Saturday, in Beijing, said Gross, he announced “the biggest solar-thermal deal ever. It’s a 2 gigawatt, $5 billion deal to build plants in China using our California-based technology. China is being even more aggressive than the U.S. We applied for a [U.S. Department of Energy] loan for a 92 megawatt project in New Mexico, and in less time than it took them to do stage 1 of the application review, China signs, approves, and is ready to begin construction this year on a 20 times bigger project!”

Yes, climate change is a concern for Beijing, but more immediately China’s leaders know that their country is in the midst of the biggest migration of people from the countryside to urban centers in the history of mankind. This is creating a surge in energy demand, which China is determined to meet with cleaner, homegrown sources so that its future economy will be less vulnerable to supply shocks and so it doesn’t pollute itself to death.

In the last year alone, so many new solar panel makers emerged in China that the price of solar power has fallen from roughly 59 cents a kilowatt hour to 16 cents, according to The Times’s bureau chief here, Keith Bradsher. Meanwhile, China last week tested the fastest bullet train in the world — 217 miles per hour — from Wuhan to Guangzhou. As Bradsher noted, China “has nearly finished the construction of a high-speed rail route from Beijing to Shanghai at a cost of $23.5 billion. Trains will cover the 700-mile route in just five hours, compared with 12 hours today. By comparison, Amtrak trains require at least 18 hours to travel a similar distance from New York to Chicago.”

China is also engaged in the world’s most rapid expansion of nuclear power. It is expected to build some 50 new nuclear reactors by 2020; the rest of the world combined might build 15.

“By the end of this decade, China will be dominating global production of the whole range of power equipment,” said Andrew Brandler, the C.E.O. of the CLP Group, Hong Kong’s largest power utility.

In the process, China is going to make clean power technologies cheaper for itself and everyone else. But even Chinese experts will tell you that it will all happen faster and more effectively if China and America work together — with the U.S. specializing in energy research and innovation, at which China is still weak, as well as in venture investing and servicing of new clean technologies, and with China specializing in mass production.

This is a strategic inflection point. It is clear that if we, America, care about our energy security, economic strength and environmental quality we need to put in place a long-term carbon price that stimulates and rewards clean power innovation. We can’t afford to be asleep with an invigorated China wide awake.

http://www.nytimes.com/2010/01/10/opinion/10friedman.html

PEAK CLIMATE - - PEAK RESOURCES

by Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission
December 18, 2009

Depreciating Global Warming and Appreciating Real Assets

"Hockey sticks in the air!" well summarises the Climate summit debacle and face-saving attempts by Europe's hardcore political defenders of "imminent climate catastrophe" to breathe more hot air and illusion into the Copenhagen chill, as the COP15 conference winds down and out. The attempt by Europe's climate conscious leaderships to surf the wave of public concern on so-called runaway global warming, and generate new export markets for the continent's overlevered, high output cost renewable energy corporations and companies with recession hit domestic markets, looks unlikely to succeed. The same applies to Obama, faced by a recalcitrant Congress with low conviction that now is exactly the right moment to launch an additional big government, big spending spree with borrowed public money - much of it overseas, on projects outside the USA.

One sure winner will be real resources. That is oil, natural gas, gold, some other metals and minerals, and many of the agrocommodities. The linkage is clear and easy for oil, and for natural gas: the big spending push in renewable energy (RE) is now delayed, although already proven and economically viable RE will continue to power ahead. Fast uptake of RE in the lower income countries - which would only be possible with major aid and big soft loans from richer nations - will now take a lot more time.

Both China and India will continue their own, already large RE and Cleantech development programs, but this will have little spillover to the lower income developing countries in the near term. Along with rising but confused signs of economic recovery in the US if not in Europe or Japan, and continued strong economic growth in the big Emerging Economies, the bottom line for world oil demand is clear. Demand is likely to pick up through Q1 2010. Traders will anticipate this in a trading context marked by a return to selling pressure on the dollar (presently upstaged by a falling Euro),signaling higher oil prices from the short term. To be sure, events such as the December 22 OPEC meeting will generate their own price moves, but the new fundamental for oil is that global demand is likely to grow.

Unlike the recent past, natural gas futures will also tend to rise in synch with oil, rather than falling anytime Brent and WTI rise, and rising anytime Brent and WTI fall. Gas is the clear winner from attempts at finding cheaper, lower carbon substitutes to oil, but its price has languished this year. With restored oil price growth, natural gas will this time also gain.

The J-Curve

Exactly like the global warming Hockey Stick, but real, delayed response to converging news in the trading rooms operates a J-curve for short-term prices. While traders are out to lunch and deciding how to react, their first action will be trimming positions and paring risk before they go out to a sushi meal of near-extinct red tuna. Like the impact of dollar devaluation on the monthly US trade deficit, the first impact is a deepened deficit. For traded real resources, increased and complex news that should generate price rises firstly generates lower day closing prices.

The complex news from the Copenhagen climate summit through its long, laborious and heated sessions is that this "qualified success" will do less than nothing to rapidly trim fossil energy demand in the emerging and developing countries, and probably little in the OECD group of rich nations with one-sixth of the world's population but consuming one-half of world oil production. In the OECD group and especially Europe, however, climate change business has become Too big to fail which for energy will generate higher prices across the energy space. Returning from lunch, the signs for traders will be clear that real resources are better placed to show asset growth than most mainline Equities on many markets, of course with ample exceptions, and for as long the global economy shows credible signs of coming out of recession.

This is far from radical as a near-term read out, and is reinforced by another J-curve, the reserve/production ratios which apply to an increasing swath of the real resources, aka the hard assets.

We can state this simply: Gold, copper or any other diminishing fossil or mineral asset, including the fossil fuels is still faced with relatively price inelastic, and recovering or increasing demand. Exactly as for per capita oil and gas consumption in the OECD countries relative to China and India, and therefore CO2 emissions per capita, the same stepwise difference in consumption applies to metals and minerals. Increasing world production to enable equalization of per capita demand is, to be sure, a theoretical target for global economic development, but is not possible.

Obligation to Perform

The obligation to perform overrides the almost philosophical question of deciding if the party will continue, or rather when the party's rules will change, which they will but not at Copenhagen. Easily explaining why China and India will in no way agree to global binding commitments reduce CO2 emissions, but will act to slow their increase, this simply conforms with long term trends of economising resource utilisation, recycling and substitution rarer and higher cost resources with more abundant and cheaper resources. This is a long-term factor in human history and the world economy.

Break points are however certain in a free-for-all where each player is unsure of the resources held by the rivals, each player has an obligation to perform, and many natural resources are becoming rare. As many examples show, late arrivers are not at all necessarily the losers, witness Angola or Canada for oil, Kazakhstan for uranium, Zimbabwe for platinum, and the present and future bioresource and renewable fuels exporters of Africa and Asia. Depending on technology change and metal, mineral, or fossil energy substitution potentials, this now-or-later choice will increasingly impact day traded and near-term commodity prices as global potentials for radical output hikes increasingly shrink.

Rising real asset prices have an interesting self-limiting production impact, running alongside physical depletion and rising environmental impacts from their extraction and production. When their daily market price rises, the future value of presently unexploited reserves increases, and forecast production needed for a given revenue (of course in devaluing paper money) decreases. For gold and other PMG metals there is a measurable and predictable impact of rising prices on physical output capacity, basically due to milling capacity, with easily made comparisons in other fossil extraction industries. For gold and the PMG metals, when prices rise, and if a producer moves to lower grade ores they will for some while operate the same milling capacity. Due to this, total output will fall with rising prices, not rise.

This is a stealthwise change of physical output capacities, finally impacting the obligation to produce, and aiding the policy shift to a preference for slower exploitation of depletable resources. This shift is in fact nothing more or less than an update of the old-time wisdom of gold miners. This was a simple one-liner: Worst grade first, best grade last.

Despite the fact that other considerations also count, this one-liner is hard to beat. Ecology minded economists going as far back as Georgescu-Roegen and Daly, and in fact even further back can echo this wisdom, with multiple caveats, drawing on ecosystem behavior and functions. More than 90% of the trophic hierarchy acts this way, allowing just a few breakthrough and emergent alpha male species to act otherwise. To be sure there is one really large difference: natural ecosystems are close to 99% based on renewable energy, but the global economy is around 84% based on non renewable fossil fuels, and 100% dependent on non renewable metals and minerals including uranium, phosphates and all other one-shot, only partly recyclable resources.

Obligation to Deplete

Only one remedy applies to maximising output of non renewable resources that start depleting and fading away: energy. When or rather if there was 'unlimited energy' we could imagine all manner of science fiction, and economic fiction futures. In the real world and in all history, we have neither the time nor energy for this.

The above theoretical aside can be terminated by looking at the way major gold mining, fossil energy and minerals producer companies have cozied up to host governments, and through a long period of about 1985-2005 chose suicidal producing strategies. Accelerated depletion is surely one large, but hidden real world driver of the loud public statements that we face "climate catastrophe" if national budget deficits are not further raised, this time to finance Green Energy rather than bail out near-bankrupt finance sector players. Fighting depletion of energy and other real resources is the scarcely hidden message of OECD leaders, which failed at Copenhagen.

Brave words are advanced on the theme that accelerated depletion of fossil energy will 'jumpstart' innovation in alternate energy, and speed the 'modernization' of the economy. For the non renewable resource of gold, this innovation in fact has a long pedigree. Taking gold as a fiduciary money base, it can be substituted by silver, then bronze, then iron, and why not aluminium, paper, plastic and most recently electrons ?

Debate on whether we can sustainably extract oil from tarsands , or copper and other metals from sea water is basically a question of energy. This is due to energy needs spiraling as leaner and leaner orebodies and resources are exploited. Stepping down in orebody richness does not generate a linear increase in energy needed to extract the same amount of metal, but much much more, determined by many convergent factors we can call 'entropic'. This stepwise increase in energy demand is only partly covered by technology progress - and is a major physical determinant of rising prices for current generation resources, and a marker for the certainly rising capital costs of future energy and minerals supplies.

The 'Climate Catastrophe'

The re-valorisation of gold and other real assets is taking place at a time of surreal change in economic policies and policy making, symbolised by the strident calls for a massive and massively rapid shift away from fossil fuels, to the renewable energy sources and systems. Failure of the Copenhagen farce, however, will surely reawaken media and public opinion to the real, and very complex trends of both natural and anthropogenic climate change, along with anthropogenic ecosystem disruption, degradation, and destruction. In the same list, ongoing and rising pressure on natural resource supply capacities for constantly growing human population numbers and even faster growing urban populations will exercise a constant impact.

Extreme flights of fancy of the world's deciders, hinged on global warming, are likely to be put on the back burner, for example attempts to save the US dollar, through proposals to replace it as the world reserve money, with a "CO2 Bancor". This new plaything for FX traders and central bankers could be cobbled together from a shifting pile of carbon finance instruments, CO2 offset bonds for 'soft energy' loans to developing countries, carbon tax revenues and their derivatives, and other creative paper promises of future value built on the shaky struggle to fight climate catastrophe. This will signal a return to normal business, in a context where both Equities and Commodities are now completely interdependent and interchangeable trading chips - for traders and financial market operators.

This changes nothing on the ground, or rather underground. Long-term trends to more sustainable resource development - meaning long term production strategies - will be accelerated in a context of higher energy prices. For gold mining this is already clear: companies who want to remain in business for more than a few decades have already started to shift back to mining at the marginal grade. This raises production costs, and caps output, moving the threshold up for future price corrections on exuberant and always exaggerated trading floors.

Higher commodity prices effectively cause the marginal grade of every gold mine to drop. In the energy space this shift will be intense, as the world shifts to lower intensity, harder to use and higher capital cost renewable energy which can only increase slowly, after big capital expenditure. The net result is simple to forecast: as for gold output which has shown little or no responses to a tripling of the dollar price since 2002, world energy supply is set in a relatively slow growth, or no growth outlook, we can summarise as net energy and natural resource output falling as prices rise and because prices rise.


© 2009 Andrew McKillop

http://www.financialsense.com/editorials/mckillop/2009/1218.html

Climate deal 'good but not perfect', says Flannery

Copenhagen Climate Council chairman Tim Flannery says a draft climate accord reached by world leaders is ‘‘good but not perfect’’, and has described Prime Minister Kevin Rudd’s role at the summit as ‘‘outstanding’’.

Speaking in an online briefing from Copenhagen shortly after 11pm local time (9am AEDT), while final details of the draft accord were still to be announced, Professor Flannery said the science community believed the draft text was a few hundred gigatonnes short of ideal, but that he was ‘‘not entirely dissatisfied with the agreement’’.

Wealthy and key developing nations have agreed to limit global warming to two degrees Celsius, according to a US official, with each country required to list the actions they would take to cut global warming pollution by specific amounts.

‘‘We need a more aggressive reduction target by the US ... (we need) China to tighten up its emissions standards,’’ Professor Flannery said.

This, combined with a concrete agreement among European countries, he said, would ‘‘put us in a better position ... where we need to be’’.

But he said the talks in the Danish capital were ‘‘not the end of the story’’.

‘‘We’ve seen a huge advance at this meeting ... This is a step on a long road and I’m not entirely dissatisfied with the agreement.’’

The draft text was ‘‘good but not perfect’’, he said.

Professor Flannery said he was impressed by the direct and honest role played by Mr Rudd at the summit.

‘‘Our prime minister has played an outstanding role. I was at a briefing he gave on Thursday. He was frank and honest ...
He said he was doing his best but there was absolutely no guarantee of success.

‘‘He’s been working very hard the last few months,’’ he added.




http://www.smh.com.au/national/climate-deal-good-but-not-perfect-says-flannery-20091219-l67n.html

Climate change and the global energy policy nexus

A fine piece. News Kontent does not endorse paranoia and denial and asks if its the climate science community or the owners of fossil carbon infrastructure who have the biggest incentive to muddy the debate. We think the later.



CLIMATE CRISIS: CHOOSING
POLICIES FOR A NEW FUTURE
by Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission
December 9, 2009

Basic Complexity of the Issues

On December 7, some 56 leading newspapers in 45 countries took the unprecedented step of publishing a common joint editorial. The reasons for this were described by these papers as due to humanity facing a profound emergency. The editorial said that unless there is worldwide and vigorous common action, climate change will 'ravage our planet and with it our prosperity and security'. The same editorial gave examples of the grave menaces that it says have been building for a generation. It said :'Now the facts have started to speak: 11 of the past 14 years have been the warmest on record, the Arctic ice-cap is melting and last year's inflamed oil and food prices provide a foretaste of future havoc'.

In the same way, and with a little more creative networking of ideas, global warming and climate change can be blamed, or heavily implicated in many other fields. These can include erosion, salination of agricultural lands, high building land prices, global spread of seasonal and other virus diseases including influenza, economic migration from poor countries to rich - but not, for example, low natural gas prices or low interest rates.

Given the intensity of world mining, fishing, agriculture, industry, transportation and urbanization it would be surprising if there was no anthropogenic climate change, or human-intensified natural climate change. As the 'climate sceptics' say, world climate change has always existed: our problem, today, is accelerated climate change joining other long-term processes making a secure and prosperous future less and less likely. Among these, mineral depletion and bioresource loss or species extinction are major long-term features of the 'environmental pessimists' agenda, and a constant challenge to technological optimists.

Single and Multiple Causes

The search for key causes, or even unique causes, is constant but it is constantly frustrated by complexity, which itself has a one-way tendency to increase. This can be explained by the present global crisis issue of climate change. This change is certain, while global warming is not certain. The identification of CO2 as the overwhelmingly most important, or even the nearly unique driver of both global warming and climate change is also uncertain and theoretical, although saying this is not politically correct.

CO2 is at least the driver that we can act on, reducing CO2 emissions by large or massive amounts in a short period - which could or should also stop oil prices from rising, if oil demand is also capped or reduced. If we find that reducing CO2 in the atmosphere (or in fact, slowing its growth) does not slow climate change, but appears to reduce global warming, and helps slow the growth of world oil demand and limits oil price growth, and also helps launch "the green economy", this could be considered a large if partial victory. This might be the situation by let us say 2025.

In turn however this will demand the implementation and pursuit of very large alternate energy spending. This will particularly concern carbon capture and sequestration at coal fired electric power stations, which worldwide supply around 55% of all today's electricity. These already complex, high cost and uncertainly feasible long-term actions focused in the energy sector, we can call 'energy levers for CO2 reduction', but several other sectors are also clearly concerned. These include agriculture, forestry and other land use, where many accompanying measures and actions will be needed, also on a long-term basis, if we want to achieve the first goal of a final cap on global CO2 emissions, perhaps around 2025-2035, before moving on to large and reliable annual reductions in total CO2 emissions.

The dates are of course "fuzzy". Media and political attention is riveted on the renewable energy sources, where bigger and bigger targets are announced. Satisfying even 5% to 7% of world total commercial energy demand from non-hydro renewables like wind farms and solar photovoltaic power plants, by 2030, would however be quite a heroic task. This particular goal is costed by myself in published studies at around US $ 11 trillion in 2006 USD value, over 20 years. Many other spending and investment scenarios exist, and new ones are published almost daily. Amounts proposed are always increasing - but the most effective framework assumption of quickly achieving zero growth in world energy demand, then reducing it, is as yet rarely considered.

The reasons for this careful avoidance of the 'zero option' are so evident we do not have to list them, but can simply take the 'per capita' argument used by Chinese and Indian leaderships for refusing global, immediate and binding CO2 emissions cuts. If or when these two countries achieved even one-haf the present oil or gas intensity (demand per capita in barrels or barrel equivalent) of the OECD in 2009, their combined CO2 emissions from oil and gas burning would make any chance of capping global emissions impossible. The 'zero option' for both OECD and nonOECD countries is therefore latent, and certain in the future, but for the present is not politically correct.

This in turn and however generates further powerful complexities. Some of them are evident and others less so. Missing a certain key target, either national or global for a key date may make the set of options and policies related to attaining or achieving those goals obsolete or inapplicable. This is similar to problems in range finding and targeting of artillery fire, missile fire control, or celestial mechanics - exactly the bases of cybernetic science. Systems theory is needed for planning various 'critical paths' with various levels of redundancy, at various levels of confidence.

Global Warming versus No Global Warming

If there is no global warming (GW) why support actions to prevent or limit human-caused emissions of GW gases and particulates or aerosols ? Unfortunately for the sceptics, both sides in the climate change debate have substantial theoretical credibility and supporting scientific evidence. Modelling and forecasting planetary change of a 'simple thing' like daily weather requires the largest computing power outside the world's military. Weather forecasts are not always right, and usually there are few excuses offered by national and world weather forecasting institutions when they get their daily forecast scenarios wrong. In no way does this mean we lose all faith in computing power, and return to bark strips or tea leaves for weather forecasting, although removal of 'offending' tree ring data by GW researchers and theorists, because its 'performance' in showing constant GW was disappointing, is also too radical.
Exactly the same applies to intervention or non-intervention in global, regional and national energy economies. This can use a business application of systems thinking: the "marginal" concept used in business planning, which starts with a comparison of risks and probabilities for each action, at and for a certain time, and with various degrees of investment spending or intensity of action. If we take actions to reduce greenhouse gases, but find later on that human GW was actually insignificant or less than we feared, our net loss would be the cost of these actions, as well as hypothetical alternate uses for the same resources through the same period.
We however have another and much more certain driver for transiting away from fossil fuels and developing alternate and renewable sources and systems: Peak Oil, qnd the sure and certain depletion of the easiest and largest reserves and sources of oil, coal and gas. As with population control to limit the demographic crisis, this is another politically incorrect, carefully avoided driver for alternate energy, but in no ways prevents it from being real. Large spending to force energy transition away from fossil fuels and other resource conserving features of "the green economy" will also generate the benefit of earlier substitution of non-renewable resources in the economy, causing a situation very similar to that when coal started substituting wood as a major industrial heat source, or petroleum oil started substituting whale oil for street lighting.

If we take no action, the laisser faire path, there will inevitably be higher future monetary costs, and lost options, for correcting or mitigating the higher level of accumulated damage to our planet. Running out of oil will no longer be a theoretical graph curve, but a reality. Comparing the consequences of these two extreme alternatives (no action versus massive action) it is very apparent that the most basic lever for change - depletion of fossil fuels and need for alternate energy - will become more critical and costs will rise radically, if we do not soon act to replace non-renewable fossil fuels. This will probably be joined by action to cap and then reduce world total commercial energy utilization, preceded by this option becoming politically correct and able to be discussed. Not taking action, now, only pushes forward the date when we, or our descendents will have to take action. Calculating the 'opportunity cost' of different policy sets or ensembles will tend to show we have plenty to gain with little to lose by taking action now.

Policy Making for Transition

Current and recent policy making across the wide, interdependent and converging fields of energy-economy-environment and climate has always been sector isolated, often short term, many times ad hoc. This applies not only to public policy, but also corporate private enterprise and other entities and groups, all of which, however, have a common interest in a managed, optimized and predictable future. When results do not match expectations, locating the causes, bottlenecks, conflicts and interference between different policies, or elements of operated policies is usually difficult. Those responsible for setting policy of course seek 'overall best fit' or good 'system performance', but the areas where they should focus their effort are not necessarily clear, nor their actual choices. They are often left with no choice but to rely on ad hoc methods, on intuition, or abandoning current policies without attempting to bridge conflicting goals with various critical path modelling techniques. Doing this, could enable lower cost and effective reforms and modifications to be made, without abandon of the policy implementation structures and any cumulative positive results obtained.

This challenge will be especially strong as energy-economy-environment become more welded together, less easy to dissociate and treat separately. Negative feedback from incompatible and divergent policy mixes will rise quickly in cost, and could threaten overall progress towards the highest levels goals: preventing runaway climate change and substituting first oil, then gas and coal in the global energy mix.

Examples of this are easy to give. The long and hesitant process of generating recovery in OECD economies and elsewhere has included, or still includes government subsidies, cash gifts or soft loans to car buyers. Cars purchased are almost exclusively oil-fuelled, if somewhat higher fuel efficient than the traded in, and often scrapped cars, in some countries often including cars less than 6 years age. Given that car lifetimes in OECD countries are usually above 13 years, this economic recovery policy has at least two negative impacts. Future oil demand for private road transport tends to be maintained, and future subsidies needed to encourage trade in of these 'economic recovery cars' and replacement by electric or hybrid cars will have to be higher, than in the absence of the state aid to buying cars. To be sure other negative impacts can be included, for example subsidies given to private car buying make it difficult to also give subsidies to urban mass transit development, or intercity high speed rail.

Financing Global Energy Transition

One essentially avoided critical issue, at present, is financing what will inevitably be a worldwide transition away from fossil fuels. Although heavily implicated in, and basic to transition away from fossil energy to green energy, the linkage is presently not formal and open. More important for operation of what can only be a massive, long term and global process, no explicit energy transition fund or funding framework exists. Many reasons exist for the absence of decision leading to creation of a 'global energy transition fund'. These range right across the spectrum from scientific and technological, to industrial, economic, monetary and other factors, even political ideology, opposed to multilateral 'big government' or world government action. This type of action we can note is usually reserved for post-catastrophe, postwar situations. Climate crisis plus oil depletion have as yet to achieve that status. If we believe the statements of leading G20 politicians on the climate issue, this is an oversight that is now being corrected.

As noted by myself in previous articles (www.financialsense.com/editorials/mckillop/2009/0930.html)
we already face what will become radical either-or decisions in global energy financing due to spiralling needs for conventional oil and gas capex, versus ever growing estimates of what is needed in alternate and renewable energy spending. Choosing both is likely impossible even today, and will become yet more impossible by as early as 2020, notably because of further capex needs due to oil depletion being joined by gas depletion and global coal infrastructure limits by that date. Action to mitigate climate change by massive investment in renewable and alternate energy, as noted above, only jumpstarts certain inevitable longer term investment and spending decisions, not only in the energy sector.

This is a complex issue, not easily brought into the political arena, but planning ahead is always appreciated when it delivers proven, and provable results. To this end, therefore, financing frameworks will enormously benefit from systems-based design, definition and implementation. Upstream from this, the needed global policy mixes or ensembles for ensuring best possible 'system performance' will necessary include the consideration of energy, economy and environment as fundamentally linked and convergent.

A Few Conclusions

The pace of events in climate change alarm, and G20 government climate-related energy and economic policy (with environment soon to enter), all tend to underline the critical lack of coherent and mutually-reinforcing policy sets or ensembles. In addition, the lack of any real global financing framework or system for green energy transition will likely deliver even lower success or 'bang for the buck', than the complex, speculative, limited and specialized 'semi private', but in fact public-private, financing frameworks typified by emissions cap-and-trade. This could be called a worst case mix of public policy irresponsibility and incompetence, and private sector opacity and greed.

To be sure every possible financing method and process can be suggested. Mass issuance of 'citizen energy credits' is suggested by several NGOs and associations. The other extreme is similar. The two extremes meet in an increasingly possible IMF-managed creation and issuance of a new world money, the "CO2 Bancor", at least nominally restricted to energy-and-climate financing, but also designed to relieve pressure on the US dollar as world reserve money.

Green energy financing by strict market-only mechanisms is unlikely, now, simply because public expectations have risen fast with political grandstanding by G20 leaders, and because oil depletion will not wait another 5 years or more, for trial-and-error to eliminate inefficient and low net energy candidates, such as crop base fuel ethanol. By 2015, loss of world oil export capacity could reach 2.5 Mbd a year, about the present total import need of South Korea or Germany, yet world biofuels production growth is at best a few hundred thousand barrels/day each year. We are forced to conclude that costs and time requirements for free market trial-and-error policy and programme selection are too high. This is due to accumulated impacts of past inaction, notably the long period of cheap oil through 1986-2000, and through market mediated wrong choices, shifting too many resources to poor energy performers, while starving potential high performers of resources needed for their sustained development.

Probably the key factor for ensuring sufficiently rapid and reliable transition away from the fossil fuels and global capping of greenhouse gas and particulate emissions by around 2035 is policy. Present policy making in the energy, economy, and environment plus climate fields remains sector focused, often firewall separated, generating mutual antagonism and weakening of initiatives and programmes implemented. Apart from not attaining initial goals, programme costs are raised by unnecessary duplication of single-sector policies that soon lose credibility. The default solution is often abandon of the policy, major financial and economic loss, and the start of a new cycle of ad hoc 'solutions'.

The real answer is simple to identify but difficult to apply: coherent policy ensembles of convergent or non-antagonistic programmes, implemented only after comprehensive study of all single policy interactions and elimination of unproductive policy sets. Regional and national effort will be prime in setting these ensembles, with regional and national financing and funding mechanisms dovetailed into global frameworks, for example through reinforced versions of currently emerging climate-related aid and assistance to most affected low income countries. In this way, the goal of setting and achieving long term transformation and transition of the economy and society will have a higher chance of being realised.


© 2009 Andrew McKillop

http://www.financialsense.com/editorials/mckillop/2009/1209.html




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Blowing the Whistle on Cheap Oil

IEA credibility under fire
by Tony Allison

Is the Peak Oil clock ticking closer to midnight than generally believed? The credibility and integrity of the International Energy Agency (IEA) took a hit this month after two whistle-blowers from the IEA claimed the agency has been deliberately underplaying a looming oil shortage under pressure from the US government. The striking allegations appeared in the British newspaper The Guardian, and not surprisingly, were largely ignored by the mainstream US media.

The allegations raise serious questions about the accuracy of the organization’s latest World Energy Outlook publication on global oil supply and demand. In the Guardian article, an unnamed senior IEA official claims the US played an influential role in encouraging the agency to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

Future oil supply questioned

“The IEA in 2005 was predicting oil supplies could rise as high as 120 million barrels per day by 2030, although it was forced to reduce this gradually to 116 million and then 105 million last year,” said the IEA source in the Guardian article, who was unwilling to be identified for fear of reprisals inside the industry. “The 120 million bpd figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this. Many inside the organization believe that maintaining oil supplies at even 90 million to 95 million bpd would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources,” added the source.

A second senior IEA whistleblower who has left the agency (but also remained anonymous) said that an unwritten rule at the IEA was never to anger the Americans, and that there was not as much oil in the world as the agency claimed. “We have (already) entered the peak oil zone,” the source told The Guardian. “I think that the situation is really bad.” The Guardian article significantly noted that the British government, among others, uses the IEA statistics rather than any of its own to argue that there is little threat to long term oil supplies.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out of oil and this had profound implications for British government energy policy.

“Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on,” said Hemming.

World Energy Outlook a “political document”?

After the release of the IEA’s annual World Energy Outlook this month, Uppsala University in Sweden published its own assessment, blasting the findings of the IEA. According to a follow-up article in The Guardian, Kjell Aleklett, a professor of physics at Uppsala University and co-author of a new report titled “The Peak of the Oil Age” claims oil production is more likely to be 75 million barrels per day by 2030 than the “unrealistic” 105 million bpd used by the IEA in its newly published World Energy Outlook 2009.



Aleklett, who runs a Global Energy unit at Uppsala, described the IEA’s latest report as a “political document” developed for consuming countries with a vested interest in low prices. The IEA dismissed the suggestions of political influence on its analysis as “groundless”. It said the annual document was reviewed by 200 different and independent experts.

“I am a scientist, not an economist or a politician”, added Aleklett. “I believe in facts, and if someone can prove me wrong I will happily change my mind.”

Colin Campbell weighs in

Colin Campbell, a geologist and prominent proponent of the theory of peak oil, wrote a letter to The Guardian, responding to their article on the IEA whistleblowers. The following is an excerpt from a more extensive letter.

“A debate rages as to the precise date of overall peak but rather misses the point when what matters is the vision of long decline on the other side of it.

Given the central role of oil in the modern economy, the peak of production promises to be a turning point of historical magnitude. It seems that banks have been lending more than they had on deposit, confident that Tomorrow’s Economic Growth was collateral for Today’s Debt, without recognizing that the expansion was fuelled by cheap oil-based energy. The governments are now printing yet more money under Keynesian principles in the hope of restoring past prosperity, which may meet with a brief success. But if it does, it would stimulate the demand for oil that would again soon breach the supply limits, leading to another price shock and an even worse consequent economic depression. In fact, today 28 billion barrels a year support a world population of 6.7 billion people, but by 2050 the supply will have fallen to a level able to support less than half that number in their present way of life. (emphasis added)

There is a great deal that can be done to reduce waste and bring in renewable energies. Coal and nuclear power can also ease the transition although they are themselves also subject to depletion. The challenges are however great, and it is clear that governments must move urgently to prepare for what unfolds.”

The “present way of life” that Campbell refers to is likely to change for millions of people, for better or worse. By 2050 China and India’s per capita oil consumption should grow considerably.

Annual Per Capita Oil Consumption – 2009

United States – 25 barrels
Japan – 16 barrels
Korea –15 barrels
China – 2 barrels
India – 0.9 barrels

Growing oil demand from Asia

This is the crux of the demand problem. In future decades, China and India (approximately 40% of the world’s population) will likely use much more oil per capita (per person) as they continue to industrialize and develop their economies. China is already the world’s largest automobile market in annual sales numbers and is just scratching the surface of potential auto demand.

This means the world is likely to face a growing demand for a depleting resource in the decades ahead. This is a sure-fire recipe for both higher prices and rationing unless the world switches over to alternative fuels very rapidly. The big issue for the US is that 95% of our transportation fleet runs on oil. As Matt Simmons has noted many times, this situation is a “disaster in the making”.

A weaker dollar means higher prices

To make matters even more challenging for US consumers, oil is still traded and priced globally in US dollars. Since the US unfortunately now imports 65-70% of its energy, the price of imported energy will get more costly if the US dollar continues to weaken. And given the long-term weak fundamentals of the dollar, that scenario is certainly a strong possibility. This means that even if supplies are sufficient to meet demand, the price of oil may continue to rise based on the dollar falling in value.

The total lack of a coherent domestic energy policy makes higher prices nearly inevitable. Since many prospective areas within our boarders are currently off-limits to energy exploration, our level of energy independence is not likely to improve anytime soon. This alarming situation should be grounds for a national wake-up call, but unfortunately our political leadership rarely sees or plans beyond the next election cycle.

The low-hanging fruit disappearing

For more than a century, the availability of cheap energy offered the prospect of prosperity without limit. Future generations will hopefully create new paths to prosperity, but they will never enjoy the natural endowment of inexpensive energy we have experienced since the oil age began 150 years ago. Peak oil does not mean the end of oil, only the end of cheap oil. Most of the world’s low-hanging fruit has been picked and consumed. The bulk of future oil lies miles beneath the sea or in the dense tar sands. This is fruit that will not be easily picked. And when finally brought to market, (after great effort, cost and energy expended) this oil will carry a price reflecting those factors.

Learning the hard way

It is unfortunate that organizations such as the IEA have not been more transparent and less political. Perhaps the world would be father along in developing alternative energy sources. But political expediency seems to always trump common sense. When the cheap oil stops flowing, the political landscape will turn on a dime and energy policies will abruptly change, but unfortunately not a minute before. Using history as a guide, civilizations tend to learn critical lessons in only one manner: the hard way.

As to the investment implications, it seems clear that well-run energy companies should do very well if energy prices are indeed on a rising long-term trend. The problem for many investors is holding good companies in a currency that is losing value. It would seem prudent looking forward to hold a portion of one’s portfolio in quality energy stocks denominated in foreign currencies, if one has access to that service.

Today’s Markets

Investors halted a three-day losing streak on the stock market Monday, sending prices broadly higher on a weaker dollar and better-than-expected home sales numbers.

Major stock indexes soared more than 1 percent, including the Dow Jones industrials, which rose 133 points to a 13-month high. The Dow rose 132.79, or 1.3 percent, to 10,450.95, after losing 120 points over the previous three days. The Standard & Poor's 500 index rose 14.86, or 1.4 percent, to 1,106.24, while the Nasdaq composite index rose 29.97, or 1.4 percent, to 2,176.01.
Crude oil for January delivery, the new front-month contract, gained 11 cents, or 0.1%, to end at $77.56 a barrel on the New York Mercantile Exchange. It earlier rose to $79.97.

Gold futures rallied Monday for a seventh session, hitting a new high above $1,170 an ounce as the dollar fell and war games in Iran boosted global tensions, increasing gold's appeal as a safe-haven investment. Gold futures have already seen a seven-day winning streak ended on Nov. 11. The metal has only recorded one losing session this month.

Wishing you a good evening,

Tony Allison
Registered Representative

Copyright © 2009 All rights reserved.

contact information

Anthony Allison, Registered Representative
PFS Group
PO Box 503147
San Diego, CA 92150-3147
(888) 486-3939 Toll Free
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BOOMERS – WINTER IS COMING

Quinn is fantasic as an exponent of the generational hypothesis...but in the later half of this article he runs right off the rails on energy, imo into a partisan rant. The fact is, green jobs and energy efficiency have enormous upsides that many very intelligent americans seem unable to grasp.


July 13, 2009

Thus might the next Fourth Turning end in apocalypse – or glory. The nation could be ruined, its democracy destroyed, and millions of people scattered or killed. Or America could enter a new golden age, triumphantly applying shared values to improve the human condition. The rhythms of history do not reveal the outcome of the coming Crisis; all they suggest is the timing and dimension. - Strauss & Howe – The Fourth Turning



Winter is coming. Are you prepared? Americans see time as their enemy. Most Americans have bought into a view of the past and future as linear. When you observe the world in linear way and things are going well, the population is happy and confident. If you view the world in a linear way and things are going badly, the population sees nothing but terrible times ahead. This linear outlook of history and the future is not rational or supported by facts. I’m convinced that world history is not on a linear path towards Armageddon and the Rapture. This belief is preached by many of the mainstream religions, but the truth is that we’ve seen this movie before and it doesn’t end in the 2nd Coming of Christ. The American belief in a destiny of never ending progress will undergo its 3rd major crisis period since its founding. The resolution of this crisis is 10 to 20 years in the future. The outcome will remain in doubt until the definitive resolution.

Our everyday lives clearly support a cyclical view of the world. There are 24 hours in day progressing from light to darkness and back again. There are 365 days in a year progressing from Spring to Summer to Fall to Winter, and then starting the cycle over again. A month is dictated by the four phases of the Moon. Our oceans rise and fall in a predictable pattern of high tides and low tides based on lunar phases. Even Christian religions that preach a linear view of the world, celebrate their beliefs in a predictable annual cycle encompassing the life of Christ from is birth, life, death and resurrection. The human life cycle extends 80 to 100 years going through the stages of childhood, young adulthood, midlife, and elderhood. This cycle has not changed over the whole history of earth. A long human life approximates a century of time. The rhythm of time has a regularity and cadence that is predictable on a generational level. The elites, most academics, religious zealots and social engineers scoff at the idea of predictable cycles of history. It throws a monkey wrench into their deceptive self aggrandizing agendas.

Generational Theory

We perceive our civic challenge as some vast, insoluble Rubik’s Cube. Behind each problem lies yet another, and another, ad infinitum. To fix crime we have to fix the family, but before we do that we have to fix welfare, and that means fixing our budget, and that means fixing our civic spirit, but we can’t do that without fixing moral standards, and that means fixing schools and churches, and that means fixing the inner cities, and that’s impossible unless we fix crime. There’s no fulcrum on which to rest a policy lever. People of all ages sense that something huge will have to sweep across America before the gloom can be lifted – but that’s an awareness we suppress. As a nation, we’re in deep denial. - Strauss & Howe – The Fourth Turning

Anyone who is being honest recognizes the country is on a path towards a major calamity. We have been living beyond our means for decades and the fiscal mismanagement of the country will come to a dramatic climax in the next decade. What many deny is that this crisis was pre-ordained based upon a predictable timeline of generational forces repeating over and over again throughout history. The elites are continuously stunned that every 20 to 25 years a fresh mood engulfs the country and new generations act differently than the generations who proceeded them. The privileged are astounded because they don’t want to accept the fact that progress is not linear and that society will undergo highs and lows over the course of a century.

Strauss and Howe have been able to trace consistent 80 to 100 year generational patterns throughout modern history. The 20 to 25 year quartiles are a High (1st Turning), an Awakening (2nd Turning), an Unraveling (3rd Turning), and a Crisis (4th Turning). They have also identified four archetypes that occupy their necessary position within the 80 to 100 year cycle. These archetypes are Prophets, Nomads, Heroes, and Artists. History forms the generations as the generations create history in a repetitive dance throughout the ages. The archetypes always follow the same path. As an example, the Prophet archetype is always born during a High, comes of age during an Awakening, enters midlife during an Unraveling, and spends their elderhood during a Crisis.

Below are charts detailing the archetypes and the 12 Turnings since the founding of the American Republic. There is a remarkable consistency of timing and scope regarding the previous Turnings in our history.

FIRST
TURNING
(High) SECOND
TURNING
(Awakening) THIRD
TURNING
(Unraveling) FOURTH
TURNING
(Crisis)
GENERATION ENTERING:
Elderhood Nomad Hero Artist Prophet
Midlife Hero Artist Prophet Nomad
Young Adulthood Artist Prophet Nomad Hero
Childhood Prophet Nomad Hero Artist
CIVIL WAR SAECULUM
Era of Good Feelings Transcendental Awakening Mexican War & Sectionalism Civil War
(1794-1822) (1822-1844) (1844-1860) (1860-1865)



GREAT POWER SAECULUM
Reconstruction & Gilded Age Third Great Awakening World War I & Prohibition Great Depression& World War II
(1865-1886) (1886-1908) (1908-1929) (1929-1946)

MILLENNIAL SAECULUM
American High Consciousness Revolution Culture Wars Millennial Crisis?
(1946-1964) (1964-1984) (1984-2005?) (2005?-2026?)




The archetypes that comprise a human life cycle follow the same repetitive pattern throughout history and they show the same traits and attitudes as their preceding archetype. Strauss & Howe describe the archetypes as follows:
A Prophet generation grows up as increasingly indulged post-Crisis children, comes of age as the narcissistic young crusaders of an Awakening, cultivates principle as moralistic mid-lifers, and emerges as wise elders guiding the next Crisis. (Boomers – indulged, narcissistic, moralistic, wise)
A Nomad generation grows up as under-protected children during an Awakening, comes of age as alienated young adults of a post-Awakening world, mellows into pragmatic mid-life leaders during a Crisis, and ages into tough post-Crisis elders. (Generation X – abandoned, alienated, pragmatic, tough)
A Hero generation grows up as increasingly protected post-Awakening children, comes of age as heroic young team workers of a Crisis, demonstrates hubris as energetic mid-lifers, and emerges as powerful elders attacked by the next Awakening. (Millennial – protected, heroic, hubristic, powerful)
An Artist generation grows up as overprotected children during a Crisis, comes of age as the sensitive young adults of a post-Crisis world, breaks free as indecisive mid-life leaders during an Awakening, and ages into empathetic post-Awakening elders. (Homelanders – suffocated, sensitive, indecisive, empathetic)

The First Turning is referred to as a High. A High always follows a period of Crisis. The hallmark of a First Turning is a heightened sense of community and collective confidence, driven in part by the fact that the society has just come through a difficult and challenging period. Consequently, during First Turnings, societal institutions tend to be strong while individualism is weak. The post-World War II "High" of the mid-1940s through early '60s is the most recent example of a First Turning. The victory over Nazism and Fascism marked the beginning of this High. The United States was on top of the world. We exited World War II as an ascending superpower. The Marshall Plan rebuilt Europe and Japan. The middle class grew and flourished as former GI’s built the suburbs and the interstate highway system. During this period Old Prophets disappear, Nomads enter elderhood, Heroes enter midlife, Artists enter young adulthood—and a new generation of Prophets is born. These new Prophets were the Baby Boom Generation.

The Second Turning, called an Awakening, starts out feeling like the high tide of a High, with signs of advancement and prosperity everywhere. Just as everything seems to be going along swimmingly, large swaths of society begin to chaff under the social conformity of the High, beginning to gravitate to more individualistic pursuits and demanding that their personal interests come first. The "Consciousness Revolution" of the mid-1960s through early 1980s was our most recent Awakening. The trigger for this Turning was the assassination of John F. Kennedy. No one expected the turmoil that would occur over the next 10 years. Urban riots, campus riots, Civil rights protests, Kent State, Woodstock, Watergate, the feminist movement, counterculture, drugs, violent crime and family strife marked the next two decades. The New Age movement and Me Generation dominated the culture until the Reagan era. During this phase Old Nomads disappear, Heroes enter elderhood, Artists enter midlife, Prophets enter young adulthood—and a new generation of child Nomads is born. These Nomads are known as Generation X.

The Third Turning, called an Unraveling, is the opposite of a High. Individualism rules, while establishments such as government, religion and military are increasingly weak and discredited. Neil Howe describes a typical Unraveling:

"This is a time when social authority feels inconsequential, the culture feels exhausted, and people feel bewildered by the number of options available to them. It is a time of celebrity circuses and a tremendous amount of freedom and creativity in our personal lives, but very little sense of public purpose.”

The most recent Third Turning began in 1984 with Ronald Reagan’s optimistic Morning in America message led to the fall of communism and the collapse of the Berlin Wall. The culture wars that have raged since the mid-1980’s have turned the initial optimism into an overwhelming sense of pessimism. There is no national consensus. The country’s leaders have ignored national problems such as unfunded Social Security and Medicare obligations, a coherent energy policy, and a deteriorating educational system. Popular culture centers around celebrity circuses like Michael Jackson’s death and Michelle Obama’s fashion choices. Americans reflect darkly on the future as growing financial and social inequality tears at the fabric of the country. The rich take advantage of the financial service economy and grow ever richer at the expense of the middle class. The poor pay no taxes and receive social transfer payments and take advantage of easy credit to live like the rich. The middle class is disillusioned and angry as manufacturing jobs leave the country. Previous periods of Unraveling in American history were also decades of cynicism and bad manners. The Roaring 20’s were the last Unraveling period that led to the stock market crash in 1929, the Great Depression and World War II. History teaches us that Third Turnings inevitably end in Fourth Turnings. During this phase, Old Heroes disappear, Artists enter elderhood, Prophets enter midlife, Nomads enter young adulthood—and a new generation of child Heroes is born. The latest Hero generation is the Millenials

Lastly, there is the Fourth Turning, called a Crisis. We are currently on the verge of a Fourth Turning. This is a time of great turmoil, when society's basic institutions are torn down and rebuilt, and seemingly intractable problems are addressed. The apparently unsolvable financial dilemma of the country along with comprehension that Peak Oil has occurred will trigger the Crisis. The ultimate resolution could be rational and well thought out or it could end in a fiery fight to the death between countries or generations. During Fourth Turnings, America engages in a struggle for its very survival and redefines its identity as a nation. Large wars are often a part of this process. The American Revolution, Civil War, Great Depression, and World War II were all facets of past Fourth Turnings. During this period Old Artists disappear, Prophets enter elderhood, Nomads enter midlife, Heroes enter young adulthood—and a new generation of child Artists is born.

According to Strauss & Howe past Fourth Turnings in U.S. history we have overcome intractable problems and forged a new beginning:

“In the 1790’s, they triumphantly created the modern world’s first democratic republic. In the late 1860’s, wounded but reunited, they forged a genuine nation extending new guarantees of liberty and equality. In the late 1940’s, they constructed the most Promethean superpower ever seen.”

Sometime between today and 2025, this nation will undergo a test of its very survival. The ultimate outcome will be in doubt. Strauss and Howe paint a dire picture of the coming decades:

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.”

Boomers Unraveling

America feels like it is unraveling. Though we live in an era of relative peace and comfort, we have settled into a mood of pessimism about the long-term future, fearful that our superpower nation is somehow rotting from within. - Strauss & Howe – The Fourth Turning

Most of my adult life has been spent during the current Unraveling. In 1984 I was twenty-one years old and about to enter the workforce. The country was recovering from the worst recession in decades and the turmoil of the 1970’s was subsiding. Ronald Reagan (GI Generation) won re-election with a 49 state to 1 landslide victory over Walter Mondale using his Morning in America campaign slogan. Reagan’s tax cuts, interest rates starting a two decade decline and increased military spending combined to juice the economy. Reagan’s policies were the final dagger in the side of communism. The Soviet Union collapsed and the Berlin Wall fell. What many thought was the end of history, with democracy and capitalism victors, turned out to be a fleeting high. The initial signs of Unraveling were seen during Reagan administration. The Space Shuttle Challenger exploded, leading to questions of competence at NASA. The Iran-Contra scandal derailed the Reagan agenda as he showed signs of mental decline. The American military retreated from Lebanon after 220 Marines were killed in a terrorist attack. The stock market crashed, losing 508 points in one day, a 23% decline. The movie Wall Street with its amoral cynical view of the world captured the darkening mood of the country.

The first George Bush administration was marked by the Gulf War, which planted the poisonous seeds for our future War on Terror, and the recession which cost George Bush a 2nd term. The unraveling could clearly be seen in the 1992 Presidential election, as Ross Perot won the most votes as a 3rd Party candidate since 1912. During the Clinton administration the country continued to fragment, became more divisive, and cynical. Politics became gridlocked, which resulted in reduced government spending. A laissez-faire attitude was promoted by Alan Greenspan and Robert Rubin for the financial markets. This led to the Dot.com bubble and its eventual collapse. Trust in financial, government, and religious institutions continued to erode. The Oklahoma City bombing and the Columbine high school slaughter convinced many that something was very wrong with our culture. A distrustful alienation had solidified into an overwhelming gloom.

The Unraveling picked up speed during George W. Bush’s administration. The stock market continued to implode, the economy entered recession and half the country felt that George Bush was not a legitimate President. Then the country was shaken to its core by the 9/11 attack. For a brief time, the country rallied around the flag and fully supported the invasion of Afghanistan. This appeared to be the trigger for the next American Crisis. Instead, it resulted in an acceleration of the Unraveling. A true trigger for a Crisis period will rally the entire population (Fort Sumter, Pearl Harbor). The disastrous invasion of Iraq, horrific financial management of the economy by Alan Greenspan, individualistic greed and hubris of Wall Street, blatant corruption in Washington D.C., and complete lack of regulation by governmental agencies led to the collapse of the global economy in 2008. Decisive public action regarding $56 trillion of unfunded social liabilities, soaring public and private debt, and non-existent energy policy has been deferred for decades. Now there is no doubt that this paralysis and inaction will lead us into the next Crisis. The majority of Americans feel we are not on the right track, because we’re not. The coming catastrophe will truly test the mettle of our country.

Generation X – Assuming Command

We yearn for civic character but satisfy ourselves with symbolic gestures and celebrity circuses. We perceive no greatness in our leaders, a new meanness in ourselves. Small wonder that each new election brings a new jolt, its aftermath a new disappointment. Not long ago, America was more than the sum of its parts. Now, it is less. Around World War II, we were proud as a people but modest as individuals. Fewer than two people in ten said yes when asked, Are you a very important person? Today, more than six in ten say yes. Where we once thought ourselves collectively strong, we now regard ourselves as individually entitled. Yet even while we exalt our own personal growth, we realize that millions of self-actualized persons don’t add up to an actualized society. - Strauss & Howe – The Fourth Turning

Barack Obama became the 1st Generation Xer to be elected President of the United States. His background is a classic Nomad story. He has lived the life of a wanderer, living all over the globe, a child of divorce, fatherless, raised by grandparents, and a free agent in his career. Generation X grew up as abandoned children and alienated young adults. Generation X leaders will be pragmatic, savvy and practical. Obama has proven thus far to be pragmatic and able to get his agenda initiated. Previous Nomad leaders who proved to be highly competent doers during a time of Crisis include Dwight D. Eisenhower, George Patton, and Harry Truman. You may not agree with Obama’s plans or policies, but it is clear to anyone that he is an intelligent, pragmatic man that will institute dramatic change in the policies of the United States.

It is very likely that Barack Obama will lead the country into the next Crisis. He will not lead us out of the Crisis, as it is unlikely to subside until 2025. As the Unraveling transitions into Crisis the apathy reflected in historic low voter turnout will reverse itself as Americans become mobilized by the Crisis. The economy always undergoes wrenching transformations during a Crisis. The U.S. economy will likely be racked by panic, depression, inflation and war. We have witnessed a preliminary financial panic, but the real panic will be much more traumatic. The separateness and blame witnessed during the Unraveling will transform into gathering and family togetherness. McMansions will become useful as three generations will more frequently live under one roof. Immigration will decline as the population will fear outsiders and place strict restrictions on foreigners entering the country. During the coming crisis, our culture will likely be cleansed, censored, and harnessed for the public good. The current ongoing financial debacle will ultimately contribute to the Crisis causing trigger of a worldwide oil shortage.

China builds rare-earth metal monopoly

I recommended Arafura Resources on fundamentals a while back......

CHINA has triumphed in a 15-year quest to become the "ultimate monopolist" in the supply of rare earth metals - a dominance that industry experts say could give Beijing control over the future of consumer electronics and green technology.

Industry sources believe that with China dramatically cutting its annual rare earth export quotas, the time may be rapidly approaching when it will be impossible for any company to produce a wind turbine or hybrid electric car outside the communist country.

After a long, relentless campaign of price wars and export quota reductions, more than 95 per cent of the global supply of rare earth metals - a group of 17 "lanthanide" elements employed in hundreds of technologies ranging from mobile phones and BlackBerrys to lasers and aviation - is produced by China.

Although China has the resources and refinery capacity to produce enough lanthanum, terbium, neodymium and dysprosium to satisfy a global demand that is rising at 10 per year, its rare earth export allocation for the whole world this year is expected to be about 38,000 tonnes - less than the quantity required by Japan alone.

Furthermore, as the world tries to make itself more energy-efficient, China's dominant position will become more strategically critical because of the wide range of cutting-edge environmental technologies, such as wind turbines, low-energy light bulbs and hybrid cars, that depend heavily on the rare earth metals.

Jack Lifton, an expert on rare earths, said: "Deng Xiaoping's comment in 1997, where he said that China would be for rare earth metals what the Middle East was to oil, has become a very stark reality. The world has to wake up and start thinking of this group of elements as the 'technology metals' without which there will be no technology. China is already working out how these metals are going to give its companies a competitiveness that the rest of the world will find very difficult to match."

China's rising strength in rare earth supply and its apparent willingness to use that as "a 21st-century economic weapon" have triggered what government sources in Tokyo told The Times was an invisible tsunami of panic in Japanese industry, which in turn has called on the Government to fight its corner with Beijing. Japan, which imports nearly 100 per cent of its rare earths from China, sees the group of elements as a probable battleground for future trade wars.

Toyota and other big carmakers are hurrying to secure alternative supplies in Vietnam and Malaysia. Mines in the United States that were forced out of business by price wars may be brought back into use. Yet many industry observers believe that Beijing may engineer a global supply crunch before any serious rival sources become available.

China's strategy, said Yoichi Sato, head of the rare earth division of Mitsui, suggested a complex game being played between Beijing and the world's rare earth consumers. The perceived idea behind China restricting its rare earth exports is twofold. First, it gives its own high-tech industries a chance to flourish and gain a huge competitive edge over rivals in Asia, Europe and the US - a politically useful gambit by a Government whose legitimacy lies in the provision of jobs and economic growth. Second, it may force foreign companies to move their high-tech factories and research centres to China to circumvent quotas, a move that Japanese companies will resist for fear of losing industrial secrets.

Mr Sato also believes that China will seek to use its existing monopoly status to crush any competition that emerges. Although about 42 per cent of worldwide reserves of rare earth ores lie outside China, very few places have significant refinery capacity.

Mr Sato said: "Of course many people are looking at establishing alternative refineries and sources outside China, but the investment is not necessarily a sound one because of the threat of price revenge by China. If new projects emerge, as they have recently in Malaysia and Australia, China could just drop its prices and force rivals out of business."

Prospects of developing the industry outside China have been hit by a sudden decision by investors in Lynas, the Australian group, to pull funding for a project under which a big refinery would have been built in Malaysia for operation by the end of this year. A company source said that the project, which would have given companies such as Toyota and Honda a welcome diversity of supply, is unlikely now to open as scheduled.

Moreover, China's push to remain the globally dominant player appears to have intensified. Within the past fortnight, a Chinese investment company has acquired 25 per cent of Arafura Resources, an Australian rare earth miner, and last month China Minmetals Rare Earth Company laid out plans to invest dollars 300million (pounds 212million) to cement its position as the globally dominant corporate force in the field.


http://www.theaustralian.news.com.au/business/story/0,28124,25158871-36418,00.html

Energy, agriculture and metals moving to center stage

"The years ahead can be best described by the two Chinese symbols which when used together make the word danger; crisis and opportunity. Three trends will greatly influence investment considerations during the next decade; the current financial mess, agriculture, and energy. It is essential to understand how they are interconnected in order to position your portfolios to benefit. I must also note that of these three themes only the current financial mess has an immediate solution, and that solution is inflation.

Financial crisis.

The policy response of Central Banks to the current financial crisis has been money creation in order to generate inflation. Calls for deflation are abating as some begin to realize that these reflationary policies (inflation) are working. We don't even talk in terms of billions anymore, everything is in trillions. Germany understands the inflationary consequences of this policy, having suffered from hyperinflation twice in the last hundred years. Germany's response, which has been to begin to restrain both it's bail outs and money creation, is been followed by an increasing number of G20 nations also questioning the rational of current US policy. The US's biggest European supporter, the UK, is also being criticized in the European Parliament. Look up Daniel Hannan on You Tube and watch the "Devalued Prime Minister" to see how some European politicians feel about Gordon Brown's fiscal policy. At the same time we are starting to hear more chatter about the need for a lower $US; even the IMF has called for the consideration of a new basket of currencies to include gold for global trade. To top it off the US needs to borrow at least $US 5 Trillion this year, and this is highly unlikely without the printing press. The devaluation of the $US is inevitable as the US needs to inflate to keep up. Up to now the pundits on Wall Street and the media do not talk about the recent rise in hard assets because they are looking at the relative values of their own currencies, not noticing that all hard assets are rising in tandem against all currencies. Yes the $US might be high right now but they are all sinking in tandem; this just what I expected as we begin to witness the transfer from paper assets to hard assets, an exact replay of what has historically taken place. Like the lack of movement noticed when all vehicles move forward at the same time, the rise of hard assets since October has been almost unnoticed; gold is up 32% since it's October lows of $681, WTI is up 41% from it's December low of $35.13, and it's the same story with the grains. Going forward I expect that this rise will become more noticeable as currency values start to diverge between the fiscally prudent, hard asset based, and economically viable ones. This is just being witnessed by the resent rise in the $Cdn, $Aus, Brazilian Real, and others."

http://www.financialsense.com/Market/carrasco/2009/0422.html

Commodity outlook bullish on Inflation /1935-1945 record

Puru Saxena makes the case......


Today, there are many deflationists who are claiming that the prices will remain depressed for many years due to the weak economic activity. However, these folks should note that even during the Great Depression of the 1930's, prices of commodities stabilised and began rising in 1933. Figure 1 confirms that due to monetary inflation in the early 1930's, the CRB Index embarked on a secular bull-market which had a violent correction in 1937 (marked by purple arrow). Following that crash, commodities bottomed out in 1938 and thanks to the super-inflationary efforts of President Roosevelt, the CRB Index surged for more than a decade.

Figure 1: CRB Spot Index - (1930-2007)



Source: Commodities Research Bureau

Contrary to popular opinion, that huge commodities boom took place despite an economic depression. Furthermore, it is worth pointing out that commodities rose relentlessly despite the fact that private-sector debt and bank lending remained essentially flat until 1945. Back then, similar to the current situation, banks accumulated large reserves but didn't loan these reserves into the broad economy. However, from 1932 onwards, the US government borrowed so much new money into existence that prices began to rise way before private-sector credit started to expand.

A similar drama unfolded in the 1970's when commodities went through the roof. During that time, economic activity was dismal but governments decided to tackle the recession with money creation. The net result was surging hard asset prices and mind-numbing inflation!

Turning to the present situation, US private-sector debt is shrinking as banks remain fearful of lending. However, the US government (along with other nations) is borrowing and creating gigantic sums of money and this should cause prices to rise for the next 3-4 years. Accordingly, we are maintaining our positions in top-quality businesses in the resources sector.

http://www.safehaven.com/article-13104.htm

Face to face with T. Boone Pickens

It's hard not to like T. Boone Pickens. At 80 years, he could have retired many times over from a multi-billion dollar career in the old and gas industry. But this is a man on a mission, and you could see the fire in his eyes when he got up close and personal during a press meeting this morning in Santa Barbara.

Pickens was put on the hot seat earlier this morning at the Wall Street Journal ECO:nomics summit, answering questions and responding to a general sense of skepticism about the Pickens Plan (40% of attendees polled by digital hand-held devices were against the Plan). In case you are not familiar with the now famous Pickens plan it goes like this...

There currently is no comprehensive plan to wean ourselves form foreign oil. This is a very big problem. At any point, OPEC which now controls about 55% of our oil supply could chose to "flip the switch," forcing the U.S. to pay much higher prices. With rapidly diminishing oil supplies in the U.S. (Pickens endorses Peak Oil theory) our demand for foreign oil will surely rise, resulting in what Boone calls "the fastest transfer of wealth in history," a transfer from North America to the Middle East.



The transference will be further accelerated when Mexico, our 3rd largest source of oil, runs out (their demand is rising dramatically while their supply has dropped from 2.2 to 1.4 billion million in the last 5 years). And Canada's infusion of oil might be troubled by the increasingly controversial Alberta Tar Sands. In the background we have the spectre of explosive demand for oil in China, India and South America.

There is a looming inevitability that belies the current $44 per oil barrel. Like the quiet before a storm, it's only a matter of time before we hit the violent crossroads of demand and supply.

Pickens has a solution, and it's called the Pickens Plan. After spending $56 million marketing the plan, it is gaining traction. Over 1.5 million people have pledged their support online (a fact, according to Pickens, that has finally gained him real access in the political sphere) and just last week he presented the plan to Obama's energy team in Washington.


But Pickens has had major criticisms to overcome from both sides of the political spectrum. On the left the "greenies," as Pickens refers to them, have been reluctantly coming board, though hardly anyone has forgotten his machiavellian support of the anti-Kerry 'Swift Boat' campaign, his under-the-radar acquisition of surface water rights in Texas, or the divisive Prop 10 which he introduced on last year's California ballot.

On the right, Wall Street (and notably the Wall Street Journal) has lambasted Pickens for violating the sacred tenets of the free market.

But Pickens has a response for both. He has deflected blows from the left by creating an alliance with Al Gore (who backs his plan) and by declaring to the dismay of his Texas oil friends, "I buy Global Warming." To his right-wing critics that say he is disrupting the free market, he retorts:
Free market? Who's kidding who? OPEC is not a free market. We’re in a game where we have no cards. If you’re in a game with no cards, get out of the game.
In 1990 the U.S. was importing 40% of its oil. The number has steadily climbed to 67%. With the current trajectory we will be at 75% in a few years, a tipping point which will threaten both our economic and national security. According to Pickens we are seeing early warning signs of an impending crisis. Just two weeks ago, Saudi Arabian oil futures traded higher than West Texas oil for the first time in history. As he repeated today, "We will see a $60 barrel of oil, before we see a $40 barrel... if you don't think you're gonna see a $200 barrel of oil, you're joking."

I believe Pickens is onto something in more ways than one. First off, his framing of the situation, while all but ignoring the rhetoric of global warming, still serves the cause by focusing on the more tangible threats of weakened national security and unpredictability in the oil market.

As has been proven time and again, while Americans largely believe global warming is a threat, few connect to the issue emotionally, and fewer still actually make lifestyle changes based on the perceived threat of climate change. While suddenly shifting gas prices and the idea of Middle Eastern countries theoretically owning the United States is something every American can relate and react to.

And the plan, as a stepping stone to a more sustainable economy based on renewable energy sources, makes a lot of sense. The key of the Pickens Plan is to focus on converting the trucking industry to natural gas. Trucking and shipping in the U.S. accounts for 70% of all oil consumption, and of the 6.6 million 18-wheelers currently in operation, about 340,000 are up for replacement.




If these trucks were replaced with LNG trucks, we could kick-start a natural gas infrastructure for vehicles. His proposed $80,000 per vehicle incentive would offset the additional costs for the trucking industry and result in a skeleton distribution network of 2,000 stations, creating 450,000 jobs, while reducing a vehicle's carbon emissions by 20% and pollutant emissions by 90%. And according to Pickens we have decades of untapped natural gas reserves. A gallon of LNG could sell for as low as $1.50.

Both Al Gore and T. Boone Pickens agree that natural gas is a temporary (and a partial solution). Electric technology might be great for passenger vehicles in the near future, but will likely not provide the power needed for an 18-wheeler. But as electric technology improves in the coming decades, it's possible that wind and other renewable energy sources could power our entire fleet.

In the meantime, natural gas is looking like a step in the right direction.

China loan turns Russian oil east

MOSCOW - Officials involved in the Russian oil industry, and the country's state treasury, breathed a sigh of relief as the Chinese and Russian governments announced agreement on a revolutionary shift in future Russian crude oil flows.

According to the announcement from Beijing last Tuesday, where Deputy Prime Ministers Wang Qishan and Igor Sechin were meeting, China and Russia have finally agreed on terms for a China Development Bank loan of US$25 billion to Russian state oil exporter Rosneft and pipeline company Transneft to finance crude oil shipments over a 20-year period of not less than 241,000



barrels per day (15 million tonnes per annum).

The fine-print of the financing and oil-supply deals have not been released. However, the availability of $15 billion in 10-year finance for Rosneft and $10 billion to Transneft at a sub-market interest rate of around 6% will guarantee China's priority for East Siberian crude oil deliveries for the foreseeable future.

The loan and oil-supply agreements implement the inter-government memorandum of understanding signed more than three months ago, on October 29, 2008. They are the second major initiative between Beijing and Moscow, following the Chinese financing in 2004 for Rosneft's acquisition of Yuganskneftegaz in exchange for delivery of 48.4 million tonnes (194,000 barrels per day) between 2005 and 2010.

For China in the medium to long term, according to one Russian bank, the new deal will "provide an impetus to massive development of Eastern Siberia" from which China is best placed to benefit. "We believe that two options are possible: greater [Chinese] access to the East Siberian fields (currently two upstream projects via a joint venture with Rosneft) and the potential transformation of East Siberian Pacific Ocean pipeline network into a joint stock company, with China getting 49% or 50% control in it."

If the latter materializes, that would give Beijing a control stake in an oil port to be built at Kozmino Bay, near Nakhodka, on the Sea of Japan.

Reporting the loan as one of the largest in Russian credit history, a Moscow newspaper speculated that in financing the new Russian oil source, "China will reduce its dependence on deliveries of oil from the Persian Gulf, which currently comprise about 80% of China's oil imports."

The enormous size of the loan also adds to the strategic influence Beijing will have on the development of the Russian economy in the short term. According to Victor Mishnyakov, oil analyst at Uralsib Bank in Moscow, "We think that the development should offer support for the rouble and underlines our expectations that the devaluation of the rouble is over if crude prices remain at their current level throughout the year."

Troika Dialog Bank analyst Yevgeny Gavrilenkov reported, "For the balance of payments, this is really positive news," while Mikhail Galkin of MDM Bank commented that it was "a super-favorable loan for Russia".

At least $9 billion of Rosneft’s debt, due to be refinanced or settled this year, can now be covered.

Transneft will use part of the money to complete the first stage of its East Siberian Pacific Ocean (ESPO) pipeline for overland oil shipments to China, via Skorovodino to Daqing, due to start next year; and to extend the second stage of the ESPO pipeline to Kozmino Bay with additional capacity to ship up to 1 million barrels per day (50 million tonnes per annum). Transneft was saying last month that lack of finance would force postponement of commissioning of this new Asian oil outlet until 2013.

China's undertaking means that new Russian oilfields, such as Rosneft's Vankor field in central Siberia, will move oil eastwards to Asian markets, rather than westwards to Europe. This geostrategic shift of Russian energy flow has been a Chinese objective for years. Last week's signing defeats a similar objective pursued by the Japanese government, which has also been lobbying the Kremlin with promises of financing for the ESPO pipeline to the sea.

John Helmer has been a Moscow-based correspondent since 1989, specializing in the coverage of Russian business.

Peak oil arrives in Australia: report

Oil production in Australia has already peaked and the alternative fuels industry needs to be dramatically ramped up in response, an expert research group says.

After years of a stop-start approach to ethanol production, Australia is fast running out of time to end its love affair with crude oil, much of which is imported, the NRMA Motoring funded Jamison Group says.

"Oil production in Australia has already peaked," the group's report, A Roadmap for Alternative Fuels in Australia, warns.

"Meanwhile, Australia's demand for petroleum is increasing at a rate of two per cent a year, from 750,000 barrels per day currently to 800,000 barrels by 2009/10."

The domestic arrival of peak oil means more and more crude will be imported from the Middle East.

One of the researchers, former CSIRO automotive expert David Lamb, passionately called for change.

"Our cities, our towns, our farming, our food distribution are all very heavily oil dependent," Mr Lamb told reporters on Tuesday.

"It leaves us with a large trade deficit for the oil we import.

"We owe it to ourselves to plan our way out of this situation."

The Jamison Group has refined its 57-page report to 12 points, some of which deal directly with the biofuels industry.

"The goal to reduce oil dependence should translate into a commitment to develop alternative fuels in Australia as well as to reduce consumption and improve energy efficiency generally," the report says.

Mr Lamb warned the nation's security was at risk if action was not taken.

"We were deeply concerned that there may not be enough oil to go around," he said.

Having a strong economy would not protect Australia from a global oil shortage.

"It's like having a pocket full of money and going into a shop with empty shelves.

"Our lifestyle is totally dependent on cheap oil."

China's energy blackhole: Buildings

Buildings account for nearly 30 percent of China’s energy use and are responsible for about a quarter of the nation’s greenhouse gas emissions, according to the latest assessment on China’s energy development. The report, the 2007 China Energy Blue Book, concludes that inefficient buildings and homes waste a tremendous amount of energy each year.

The report notes that nearly 95 percent of existing buildings in China are energy intensive, while more than 80 percent of new buildings built each year—covering some 2 billion square meters in area—fail to meet efficiency rules. China typically spends two or three times as much energy per unit of building area as most industrialized countries.

In 2005, energy required for heating, cooling, ventilating, and lighting China’s 40 billion square meters of buildings accounted for nearly a third of the nation’s total energy consumption, up from roughly 10 percent in the 1970s. Heating and cooling systems alone use nearly 55 percent of this total. As much as 30 percent of the heat generated from conventional heating systems is lost directly, while another 7 percent leaks out through windows opened by residents who are unable to control room temperatures themselves.

Most Chinese buildings are also water inefficient, with sanitary facilities requiring 30 percent more water than those in industrialized countries. Each year, some 20 percent of the water carried via municipal supply networks is lost to leaks, representing almost 10 billion cubic meters of wasted tap water each year, or more than is currently targeted for delivery under China’s massive new south-to-north water transfer project [1].

Office buildings in China use 10 times as much energy as most residential buildings. Government buildings, in particular, waste significant amounts of energy in the absence of consistent government standards on energy use, the report says. Electricity consumed by Chinese government departments and agencies accounts for 5 percent of the nation’s total use.

The report suggests that some 135 million tons of standard coal could be saved each year if all existing and new buildings in China were renovated or designed to meet 50-percent energy savings standards.

Jianqiang Liu is a senior investigative journalist with China Southern Weekend and a visiting scholar at Peking University. Outside contributions to China Watch reflect the views of the author and are not necessarily the views of the Worldwatch Institute.