Daily Sources 6/29

1. IEA REVISES GLOBAL OIL DEMAND DOWN TO AN AVERAGE ANNUAL RATE OF 0.6% FROM 2008-14

Carola Hoyos at the Financial Times reports that the IEA has cut its forecast for incremental global oil demand from 2008-14 to an average annual rate of 0.6% or 540 kb/d, bring total consumption to 89 mb/d from 85.8 mb/d.

"This latest forecast is 3.3 mb/d lower than the previous forecast for 2013 volumes. If the agency’s most pessimistic economic scenario proves correct, oil demand could contract, with consumption falling to 84.9 mb/d by 2014, it said in a report."

Managing Director Nobuo Tanaka suggested that the current environment makes forecasting especially difficult and noted that the data on which the forecast was made, for April, is already old.

2. JAPANESE LNG IMPORTS DOWN 19.6% IN MAY FROM APRIL, BUT INDUSTRIAL PRODUCTION UP 5.9% IN MAY FROM APRIL--BOTH ARE DOWN 18.8% AND 30% FROM MAY 2008, RESPECTIVELY

Jonty Rushforth at Platts reports that Japan imported 4.24 million metric tons of LNG in May, down 18.8% from May 2008 and "19.6% from April, when Japan imported 5.27 million metric tons." (The Platts story includes a table of imports by source, month over month and year over year.) It is interesting in the context of the report released Sunday by the Ministry of Economy Trade and Industry (METI) which showed industrial production up 5.9% in May from April, though still down 30% year over year, as per Jake at Econopix. Their chart:



There has evidently been a rebound in production of passenger cars, which account for about 8.5% of the industrial production index. Worth a look.

3. NDRC RAISES GUIDELINE PRICES ON DIESEL & GASOLINE (SLIGHTLY LESS IN THE SOUTH)

Bloomberg reports that the National Development and Reform Commission announced yesterday that it will raise the price of diesel and gasoline today by as much as 11%. Prices for both will be lifted by 600 renminbi a metric ton ($87.80 or roughly $11.71/b ~ $0.28/gallon).

"Today’s price increases will vary by city and region, according to the NDRC’s statement.

In Beijing, the new ceiling price per ton for the retail grade of gasoline that meets euro III standards, known as 90 octane, will be 7930 yuan a ton (~$1,162/ton ~ $136.71/b ~ $3.26/gallon), while the ceiling price in southern Guangdong province is set at 7795 yuan (~1,142/ton ~ $134.38/b ~ $3.20/gallon)."

Guangdong is the center of economic growth in China, if I understand correctly. The NDRC is raising prices in part due to the surge in demand for cars, driven by the stimulus program.

4. PBOC GOVERNOR SAYS CHINESE RESERVE POLICY WILL NOT CHANGE SUDDENLY

Stephanie Phang at Bloomberg reports that People’s Bank of China Governor Zhou Xiaochuan told journalists today that "Our foreign-exchange reserve policy is always quite stable. There are not any sudden changes." This follows the release of the bank's review on Friday, which appeared to reiterate formally the call for an alternative to the dollar--see Daily Sources 6/26 #1. Yves Smith at naked capitalism comments:

"This certainly looks like a retreat, although Zhou may simply be clarifying the difference between long term policies and immediate plans. But that still begs the question of when and how the transition between the two comes into play.

The tension may also reflect the need to posture aggressively before a domestic audience without unduly rattling markets. But it may also result from the need to appease certain interests within the government. A New York Times article last year explained that as the central bank took foreign exchange losses as the RMB rose, it may have to go hat in hand to the finance ministry, which opposes many of the central bank's policies, particularly on the dollar ...."

5. CHINA PASSES NEW STATISTICS LAW

Andrew Batson at China Journal reports that on Saturday China passed a new law to take effect next year which will stiffen penalties for falsifying social and economic data.

"Recently, officials of the National Bureau of Statistics have become more forthcoming about deficiencies in their data, and have also started publishing a more detailed accounting of economic growth. And this year’s economic census, a quinquennial attempt to obtain basic information on every company of economic significance in the nation, is the centerpiece of the bureau’s effort to build up more accurate figures through the use modern survey techniques."

Batson quotes some examples of the misreporting the government is trying to eradicate:

"* In 2001, a township government in Liaoning province in 2001 instructed the villages it oversees to report quarterly economic indicators that were precisely one-fourth of the annual target, to ensure that the target was met.

* In one town near Ningbo, Zhejiang province, a party secretary reported a total industrial output of 463 million yuan in 2001, which was later determined to be 76% more than the actual figure.

* The leaders of one town near Chongqing in 2004 altered the statistical reports of local companies they sent to higher authorities, in one case changing output of 5 million yuan to 8 million yuan, and in another adding a zero to make output of 3 million yuan into 30 million yuan.

* Over-reporting is not confined to eager officials: one company in Wenzhou, Zhejiang province reported output of 32.15 million yuan in 2003, which was then discovered to exceed the actual figure by 71%."

The post includes a number of links to sources--worth a look.

6. NATO & RUSSIA RESUME OFFICIAL TIES; RUSSIA STARTS WARGAMES IN THE CAUCASUS, A FEW WEEKS AFTER NATO WARGAMES IN GEORGIA

The Associated Press reports that NATO and Russia have resumed ties after NATO suspended them in reaction to the Georgia conflict.

"Russian Foreign Minister Sergei Lavrov met his counterparts from NATO's 28 member nations on the western Greek island of Corfu ahead of a broader informal meeting of ministers from the 56-nation Organization for Security and Cooperation in Europe.

Mr. Scheffer described the talks as 'open and constructive, which means we did not try to paper over our differences on Georgia, for example. But we agreed not to allow those agreements to bring the [NATO-Russia Council] to a halt.'

He said the renewed military contacts would involve meetings of the chiefs of staff of Russia and NATO countries.

The meeting in Corfu, which came as President Barack Obama and Russian President Dmitry Medvedev prepare to hold a summit next week, reflected the trend toward improved relations with Russia."

Meanwhile, Michael Schwirtz at the New York Times reports that Russia has begun war games using 8,500 troops from all branches of the armed services in the Caucasus region.

"The event is also occurring a few weeks after NATO concluded its own exercises in Georgia, drawing complaints from the Russians.

'The Russian exercises, given the timing, are a definitive response,' said Dmitri O. Rogozin, Russia’s envoy to NATO, Interfax reported. 'We are conducting them to ensure the defensive capabilities of Russia in those areas where we see threats.'

Georgia on Monday expressed worry about Russian exercises so close to its borders.

'These exercises are a source of concern because they involve an unprecedented number of servicemen and the newest military hardware of Russia,' said Alexander Nalbandov, Georgia’s deputy foreign minister, Interfax reported. 'We hope that the events of last August, when the Russian army invaded Georgia and occupied its lands, will not repeat.'"

7. GAZPROM SEALS PURCHASE OF 500 MILLION CU M OF NAT GAS FROM AZERBAIJAN IN 2010, SAYS IT WILL RECEIVE PREFERENTIAL TREATMENT ON SHAH DENIZ GAS

Lyubov Pronina and Lucian Kim at Bloomberg report that Russian President Medvedev sealed a deal in Baku today for Gazprom to purchase 500 million cubic meters of natural gas from Azerbaijan next year.

"Gazprom will get priority treatment when the State Oil Co. of Azerbaijan determines the buyers for the [Shah Deniz] offshore field, said Alexei Miller, chief executive officer of the Russian company. Azerbaijan’s gas production will rise 11% to 30 billion cubic meters next year, Aliyev said."

Shah Deniz is a key source of potential supply for the Nabucco pipeline project--the alternative possibility of sourcing from Iran looks particularly politically difficult at the moment.



This follows the news Friday that former German foreign minister Joschka Fischer has been signed on as a consultant to Nabucco--see Daily Sources 6/26 #3.

8. INDIAN REFINERS RUN 2.4% MORE CRUDE IN APRIL, DOWN 4.3% FROM MAY 2008

Vandana Hari at Platts reports that Indian refiners ran 12.77 million metric tons (~3.02 mb/d) of crude in May, up about 2.4% from April, but down 4.3% from May 2008.

"The utilization rate against the country's total installed refining capacity was 102.5% in May, versus 107.1% a year ago.

Between January and May, Indian refiners have run around 65.57 million metric tons of crude, roughly 1.5% lower from a year ago. The trend contrasts with a 3.6% year-on-year increase in 2008 crude throughput over 2007."

Reliance started operating the Jamnagar addition of 500 kb/d capacity on Christmas--see Daily Sources 1/7 #3.

9. IRAQI VP TO BOYCOTT TUESDAY AUCTION, OIL EXPORTS UP 80 KB/D IN MAY (THE ADDT'L OIL CAME FROM THE NORTH), AND THE CABINET WILL NOW DELAY RATIFICATION OF THE OIL AUCTIONS TOMORROW INDEFINITELY

Ahmed Rasheed at Reuters reports that Iraqi Vice President Tareq al-Hashemi has announced on his website that he will boycott the auction on Tuesday to award concessions for eight oil and gas fields.

"'There are many existing reservations over this vital issue concerning Iraq's oil resources,' Hashemi said in a letter, posted on his website, to Oil Minister Hussain al-Shahristani.

He urged the minister to 'hold off on awarding bids to the winning companies and give parliament enough time to study these bids,' said the letter, released by Hashemi's office."

Ben Lando at the Iraq Oil Report notes that Iraqi oil exports grew to 1.9 mb/d in May from 1.823 million in April.

"In the south, where most of Iraq’s production and exports are located, May was a down month, exporting only 1.38 mb/d compared to 1.413 mb/d in April. In the north, however, exports increased to 522.6 kb/d from 410 kb/d in April."

Meanwhile, Faleh al-Khayat at Platts reports that the oil ministry said today that it will not announce the winners of the auction tomorrow, and instead only provide the names of the bidders and a score card of their bidding parameters.

"The cabinet may refer the contracts for approval by the parliament if it
deems this as necessary, marking another new element in the process.

As a result, the August 15 deadline for contract ratification by the council of ministers has been pushed back indefinitely, senior sources close to the licensing department said.

'The winner will not be declared by the score of each bidder and the name of the bidder will be declared,' said one source.

The formula to determine the winning bid has also been changed whereby the ministry will give more weight to the incremental production rather than the remuneration fee submitted by each of the bidding companies, the sources said."

10. ISLAMIC EMIRATE OF AFGHANISTAN THINKS OBAMA IS A BIGGER THREAT TO THE JIHADIST MOVEMENT THAN BUSH

Thomas Hegghammer at jihadica reports that the main story of the July issue of the Arabic-language magazine of the Islamic Emirate of Afghanistan argues that the Obama administration is more dangerous to al-Qaeda than the Bush administration was. The primary reason is that Bush, through foolhardy policies, did much to undermine American power, in language the Obama administration has already disavowed. However, the writer argues that the policies, in effect, will not change. I couldn't agree more insofar as the writer believes that Obama will work to protect the national interest of the US, something that the Bush administration seemed to abandon. (The president's ability to wield soft power is generally more unbounded than hard power--I suggested, as did others, that Obama's credibility advantage will present the largest challenge to our enemies in a piece in March 2008:The Geopolitical Consequences of the Candidates.) Hegghammer's post is worth reading in full.

11. ISRAEL NOT TO PURCHASE LCS'S FROM LOCKHEED MARTIN

Galrahn at Information Dissemination reports that Israel has decided not to go ahead with plans to purchase a number of Lockheed Martin's Littoral Combat Ship (or LCS). Galrahn notes:

"The interesting part of this story isn't necessarily that Israel doesn't want to buy the LCS anymore, and that is a big deal. The interesting thing is that the US would fund the LCS, but not the MEKO [built by the Hamburg-based ThyssenKrupp Marine Systems (TKMS)], through FMS [the Financial Management Service bureau of the Treasury] grant money. By choosing to buy the MEKO, Israel will try to fudge the system and get some of the parts paid for by buying US, with US funding."

12. FAO POLICY BRIEF ON INTERNATIONAL INVESTMENTS IN THE AGRICULTURAL SECTOR IN AFRICA SUGGESTS CONCERN A LITTLE OVERPLAYED

Denis Drechsler and David Hallam at VoxEU argue that concern regarding foreign acquisition of African farmlands is somewhat misplaced. They note that official development assistance going to agriculture has been on a downward trend since 1995:



Key findings:

"* Investments have increased
* Deals seek access to resources, not markets
* Main form of investment: land purchase or long-term lease
* Share of total land assets owned by foreigners is small
* Major investors: Gulf States, China, Republic of Korea
* Main target region: Africa
* Investors: mostly private sector, but governments involved
* Investment partners in host countries: mainly governments
* New focus: production of basic foods and animal feed"

Worth a look.

13. HONDURAN PRESIDENT OUSTED BY MILITARY, HONDURAN SUPREME COURT AND CONGRESS SUPPORT THE MOVE, THE REST OF THE WORLD EXPRESSES CONCERN

William Booth and Juan Forero at the Washington Post report that soldiers forcibly removed President Manuel Zelaya from the Honduran presidential palace yesterday and put him on a plane to Costa Rica.

"Zelaya was removed from office as Hondurans prepared to vote Sunday in a nonbinding referendum asking them whether they would support a constituent assembly to rewrite the constitution. Zelaya's critics said he wanted to use the referendum to open the door to reelection after his term ends in January 2010, an assertion that he denied.

The referendum--which US officials described as more of a 'survey' than a true vote--was condemned by broad swaths of Honduran society as an obvious power grab. The Honduran Supreme Court called the referendum unconstitutional, and leaders of Zelaya's own party denounced the measure."

Both the Honduran National Congress and the Supreme Court voiced support for the move by the military to oust Zeyala. The Honduran military broke off contact with the US following the coup. (The Post article is worth reading in full.) Condemnation of the move was widespread, coming from the OAS to Venezuela to Cuba to the US.

15. CANADA PASSES SUBSIDY FOR PAPER SECTOR IN RESPONSE TO (ALTERNATIVE FUELS) SUBSIDY FOR US PAPER SECTOR

The Wall Street Journal's editorial board notes that in 2007 Congress extended a $0.50 credit for every gallon of a blend of traditional and alternative fuels used to a broad spectrum of corporations, and it turned out that "'black liquor,' a carbon-rich substance the paper industry has used for decades to power its mills, qualified.

"All the paper industry had to do was blend some fossil fuel in with their alternative fuel and--voila!--billions of dollars in federal subsidies were within reach. So they did."

The Journal notes that the US paper industry is set to collect $6 billion in tax credits in 2009, enough to reduce the cost of paper products by 25%.

"Not surprisingly, Canadian paper companies are miffed at this subsidized windfall to their competition. Now they've gotten their Parliament to do something about it. Following the two-wrongs-make-a-right logic of trade wars, Canadian lawmakers recently passed a subsidy worth $882 million for their domestic paper industry."

Worth reading in full.

16. BANK FAILURES UP IN US, CONCENTRATED IN GEORGIA, BUT CONSOLIDATION LIKELY HAS A WAYS TO GO

Rebecca Wilder at News N Economics reports that bank failures are up slightly in 2009 from 2008, but the sector's consolidation has yet to see the number of failures experienced during the S&L crisis. Her graph:

"Notice that roughly 20% of the bank failures in 2008 and 2009 have been in Georgia, or as Camden Fine says to the WSJ, 'Georgia is basically the Chernobyl of banking right now; it's radioactive down there'. And according to the Wall Street Journal, the failures in Georgia have only just begun ..."

Worth reading in full.

17. COLORADO PASSES NEW LAWS PERMITTING RAINWATER HARVESTING

Kirk Johnson at the New York Times reports that two new laws have been passed in Colorado which allow people with private wells to legally collect rainwater, formerly they had only been allowed to do so if they possessed the water rights on their property.

"State water officials acknowledged that they rarely enforced the old law. With the new laws, the state created a system of fines for rain catchers without a permit; previously the only option was to shut a collector down.

But Kevin Rein, Colorado’s assistant state engineer, said enforcement would focus on people who violated water rules on a large scale.

'It’s not going to be a situation where we’re sending out people to look in backyards,' Mr. Rein said.

Science has also stepped forward to underline how incorrect the old sweeping legal generalizations were.

A study in 2007 proved crucial to convincing Colorado lawmakers that rain catching would not rob water owners of their rights. It found that in an average year, 97 percent of the precipitation that fell in Douglas County, near Denver, never got anywhere near a stream. The water evaporated or was used by plants.

But the deeper questions about rain are what really gnawed at rain harvesters like Todd S. Anderson, a small-scale farmer just east of Durango. Mr. Anderson said catching rain was not just thrifty--he is so water conscious that he has not washed his truck in five years--but also morally correct because it used water that would otherwise be pumped from the ground."