Thursday, January 15, 2009

Daily Sources 1/15

1. Keith Johnson at Environmental Capital argues that nuclear power is the big winner in the Russo-Ukrainian gas dispute. Both Slovakia and Bulgaria are planning to restart nuclear reactors in order to provide electricity and heat, even though doing so violates the conditions for entering the European Union. Italian government officials are calling for additional nuclear power as a security measure and reportedly even the German green party might rethink their no nuke policy. Erik Kirschbaum at Reuters reports that the CEO of Vattenfall--a Swedish energy company whose portfolio is 35% nuclear and operates as the electric utility for a number of German states--told him that he expected the debate over nuclear power to re-open in Germany. Nuclear supplies about 30% of Germany's power needs and so far the Merkel Administration has hewn to the 2001 law which would phase out nuclear reactors by 2021. CEO Lars Jossefson said,
"The discussion in Germany will continue. There are two important components of the discussion: the climate change problem and, secondly, energy security. These two issues will push the discussion forward in Germany."
Worth reading in full. Meanwhile, Maher Chmaytelli reports that Greece has purchased two LNG cargoes on the spot market to replace volumes lost in the Russo-Ukrainian dispute.

David Jolly at the New York Times reports that the Ukrainian prime minister, Yulia V. Tymoshenko, spoke with prime minister Putin by phone today and has agreed to meet in Moscow this Saturday to negotiate. It may be that European Commission President José Manuel Barroso's threat to encourage litigation by European energy companies may have more bite than one might expect, simply because such legislation could bring the actual contracts for the gas into public scrutiny. As it stands we have flat dollar prices per thousand cubic meters--$450/tcm being the Russian proposition, which is allegedly similar to the price European companies have paid, and $201/tcm being the Ukrainian counteroffer. But natural gas contracts are usually tied, by some formula, to front month futures contracts on some exchange--and often have a floor or ceiling provision. If it turns out the numbers quoted to the press are divorced from the commercial reality, it would prove politically problematic--perhaps extremely so. Meanwhile, Jonathan Gleave at Reuters reported that IEA chief economist Fatih Birol told a conference in Madrid that Russia is no longer considered by European policy makers to be a reliable source or supply.

2. Just after having spent $7 billion defending the ruble in a single day, Emma O’Brien at Bloomberg reports that Bank Rossi has allowed the currency to depreciate against the dollar and euro again today. "The currency dropped to as low as 32.4668 per dollar, the weakest since Russia redenominated the ruble at the start of 1998, before the government’s default in August that year."

3. Doug Merrill at Fistful of Euros reports that a senior German defense official said in remarks at a meeting of his counterparts in Tblisi on Tuesday that Georgia was likely to be a NATO member this year. Apparently the German ambassador's jaw dropped. Would definitely be interesting if there was more support for Tblisi's entry following the gas dispute.

4. The European Central Bank cut its benchmark interest rate by 0.5% to 2% today. Real Time Economics carries the full text of ECB President Jean-Claude Trichet's introductory statement. Key excerpt regarding stimulus efforts in member countries:
"Regarding fiscal policies, the Governing Council welcomes the European Council’s reconfirmation of its full commitment to sustainable public finances. In this respect, the current economic situation calls for particular prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country. The operation of automatic stabilisers will provide a relatively large and powerful fiscal impulse to the weakening economy, in addition to already announced expansionary fiscal policy measures and the government support for the banking sector. Taken together, the additional measures decided so far put a considerable burden on public finances in a large number of euro area countries. If not reversed in due time, this will negatively affect in particular the younger and future generations. It is therefore essential to return to a credible commitment to medium-term budgetary objectives as soon as possible."
Worth reading in full.

5. Eurointelligence reports that Greece's debt was downgraded by S&P and that Ireland made an effort to deny that it requires IMF assistance.

6. Ambrose Evans-Pritchard at the UK Telegraph reports that the OECD's gauge of leading indicators has the economic situation in China, Russia, and Germany deteriorating at the fastest speed among the developed economies. Asia and commodities exporting nations are facing the worst difficulties. "The index for Russia has seen the sharpest slide, falling 4.3 in November, China fell 3.1 and Germany was down 2.0, the worst performer in the G5 bloc for the third month in a row."

7. Dan Harris at the China Law Blog reports that China's foreign direct investment policy for 2009 will "highly restrict" any investments in projects that have large energy requirements. "The current response from the PRC regulators suggests that there will be a qualified return to the export led growth model." (h/t Carlos Tejeda at China Journal)

8. David Barboza at the New York Times reports that Beijing announced plans to roll out new media organizations internationally in the South China Morning Post on Monday. "The plan ... includes the creation of a 24-hour news channel modeled on Al Jazeera, the Arabic-language news network, with correspondents around the world." As I wrote on Monday in response to Beijing's internet black lists, China will not willingly abandon control of the flow (or spin) of information.

9. Margaret McQuaile and Robert Perkins at Platts report that OPEC expects global oil demand to fall in 2009 by 180 kb/d, as per their Monthly Oil Market Report published today.
"OPEC expects demand for its own crude this year to average 29.48 mb/d, 1.4 mb/d lower than 2008 demand and partly reflecting Indonesia's exit from the cartel at the end of 2008."
OECD oil demand is expected to fall by 980 kb/d in 2009 to 46.73 mb/d. Asia and the Middle East are expected by the organization to grow by 600 kb/d, with the rest evidently coming from Africa and South America. The OPEC report itself can be found here.

10. Brad Setser at Follow the Money has a post where he and Rachel Ziemba of RGE Monitor argue that the sovereign wealth funds of the Gulf--the Abu Dhabi Investment Authority/ Abu Dhabi Investment Council, the Kuwait Investment Authority, the Qatar Investment Authority and the Saudi Arabian Monetary Agency--suffered capital losses in 2008 that "overwhelmed" gains from high oil prices. They also concluded that the Abu Dhabi Investment Authority (ADIA) was never as wealthy as people suspected, estimating that it had about a $330 billion portfolio at the end of 2008. They think that the Saudi Arabian Monetary Agency took a much more conservative approach than the other sovereign wealth funds from the region, benefited the most from oil price, and is now holds the largest portfolio of the set. They also make the common sense conclusion that the Gulf states care more about the performance of these funds when the price of oil is $40/b than when the price is $140/b, because their budgets were established with oil price assumptions which were higher than $40/b. They published a much longer analysis, which I haven't had time to read yet but should prove very interesting and can be found here.

11. Jay Solomon at the Wall Street Journal reports that the Bush Administration is planning to sign a nuclear power cooperation agreement with the United Arab Emirates today. The pact could help the UAE become the first Arab nuclear power nation by 2017.
"Rep. Ileana Ros-Lehtinen of Florida, the ranking Republican on the House Foreign Affairs Committee, has introduced legislation seeking to hold up the nuclear-cooperation accord until the UAE provides guarantees that it is assisting US efforts to combat Iran. The UAE is among Iran's closest trading partners, and the Emirates have served in the past as a major conduit for military technologies entering into Iran, according to US officials."
Either way, the decision gives the lie to the argument that an oil rich nation would have no economic justification for nuclear power. Stanley Reed at BusinessWeek reports that an Abu Dhabi official told him that the UAE hopes to generate at least 25% of its power requirement from nuclear. That could mean more than six nuclear power plants. The UAE currently generates 60% of its power from natural gas, and gets the bulk of its supplies from Qatar. However, Qatar has already sold the bulk of expected new gas capacity additions for at least a decade out and may not be able to accommodate expected incremental demand increases of 9% in the UAE. Reed's piece is worth reading in full.

12. Upstream online carries a wire story which reports that Iranian president Mahmoud Ahmadinejad told a news conference that an oil embargo in response to Gaza was a good idea, but not in the works yet. To wit:
"I think it is a good proposal if Arab countries co-operate. It can't be that nations give oil and it is turned into a bullet, a missile or a bomb on the heads of the people of Gaza. This is not a fair equation."

13. Simon Romero has the interesting story in the New York Times that PdVSA is soliciting bids from Western companies on Orinoco Belt projects. This comes after the decision to nationalize projects that Western companies had stakes in--sparking law suits just last year. (see my very first blog piece: Venezuela vs ExxonMobil)
“If re-engaging with foreign oil companies is necessary to his political survival, then Chávez will do it,” said Roger Tissot, an authority on Venezuela’s oil industry at Gas Energy, a Brazilian consulting company focusing on Latin America. “He is a military man who understands losing a battle to win the war.”
Perhaps, but what sort of guarantees could Chavez credibly extend to the majors at this stage? I suppose it's possible, if not especially likely, that he could reverse his nationalization of Exxon and Conoco's projects. Chavez could bet that the majors will bet that they will outlast him. That would be thinking like them. That said, he is seeking a change in the constitution which would let him run for president indefinitely.

14. Alex Emery and Karla Palomo at Bloomberg report that Peru's finance minister told them he is in talks with the Fed and the People's Bank of China to set up dollar swaps for the sol. "The country may tap another $9 billion in loans from multilateral lenders to help finance about $35 billion in mining, energy and other development projects." Lima plans a $3 billion stimulus package for 2009 and had enjoyed five years of 7% annual growth prior to the financial crisis.

15. Choe Sang-Hun at the New York Times reports that North Korea has said that normalization of relations with the United States was a prerequisite for Pyongyang to abandon their nuclear program.

16. Shobhana Shandra and Bob Willis at Bloomberg report that the Labor Department announced that initial jobless claims were at 524,000 for the week ended January 10.

17. Dan Levy at Bloomberg reports that US foreclosures rose 81% last year, according to RealtyTrac, Inc. "More than 2.3 million properties got a default or auction notice, or were seized by lenders ... ."

18. Justin Hyde at the Free Press reports that Obama's pick to lead the EPA has promised to quickly revisit the waiver request California has made in order to pursue stricter vehicle emissions standards than federally mandated. 17 other states are in line to follow California's example, but the EPA under the Bush Administration last year denied the waiver request.

19. Ucilia Wang at Greentech media reported yesterday that several states under budgetary pressure are considering cutting solar energy subsidies, including Maryland, Connecticut, and New Jersey.

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