Monday, July 20, 2009

Daily Sources 7/20

1. MORNINGSTAR OUTLINES US COMMITMENT TO EUROPEAN ENERGY SECURITY IN SENATE REMARKS

Richard Morningstar, the US Special Envoy for Eurasian Energy, emphasized the American commitment to European energy security in remarks made before the Senate Foreign Relations Committee on Friday. Key excerpt:
"There are three main components of our Eurasian energy strategy. First, we want to encourage the development of new oil and gas resources and also promote efficiency and conservation in the use of all energy resources. Because there is a world market for oil, new production can meet growing demand anywhere in the world, including in the US. When we are talking about new natural gas production in the Caspian region, it is unlikely that even one molecule of that gas will reach the US, but it is still important because it would add to international gas supply. Additional supply in one place naturally frees up supply in another. And as the market for liquefied natural gas grows, we can start to think about gas moving around markets in much the same way oil does.

Second, we want to assist Europe in its quest for energy security. Taking goods and services together, the EU27 and the US account for the largest bilateral trade relationship in the world. Europe is our partner on any number of global issues. We have an interest in an economically strong Europe. Of course, Europe is composed of many different states and energy security is a more pressing issue to some than to others. Some countries in Europe do not have a diverse energy mix and depend to a great degree on one supplier and one transport route. When that route is disrupted, as we witnessed in January 2009, the consequences can be severe. The populations of Bulgaria and Serbia and others who suffered in the cold can attest to that. So our aim is to encourage the development of multiple energy sources with multiple routes to market. This approach furthers competitive, efficient markets and the best prices for consumers.

Third, we want to help Caspian and Central Asian countries find new routes to market. We want to help foster economic growth and prosperity in these countries. By expanding export routes, they can increase competition for their resources and demand a higher price.

Some people have portrayed our energy policy and Russia’s as the next round in the Great Game in Central Asia. I reject this analogy. Energy security should not be a zero sum game. Zero sum games are too expensive and we need to find areas where we try to cooperate with Russia. In this spirit, on July 6, the White House announced a new binational presidential commission that will cover a host of different issues, including energy."
2. BERLIN CONSIDERS NEW MEANS OF JUMP STARTING CREDIT FLOWS AGAIN

Christian Reiermann, Christian Salewski and Michael Sauga at Der Spiegel report that Berlin, worried that a deepening credit crunch will undermine any recovery in the second half of the year, are considering various plans to restore the flow of credit to the country.
"[Finance Minister Peer] Steinbr├╝ck is now pursuing yet another plan. Officials at the Finance Ministry have prepared another version of an emergency financing plan, which calls for the government-owned KfW development bank to take action, instead of the Bundesbank. Before the crisis began, KfW and the banks through which it channels its loans onto the market each bore half the credit risk. In exceptional cases, KfW may assume 80 percent of the risk, while the other bank assumes the remaining 20 percent. In the future, however, KfW's share could be even higher, perhaps even 100 percent, according to the Finance Ministry's latest plans. The Economics Ministry is fashioning similar schemes.

Some plans are even more radical, including the possibility of KfW lending directly to businesses in the future. The funds for the new loans would come from the existing stimulus programs."
3. ADVISORY BOARD TO OUTGOING BULGARIAN GOV'T WARNS OF RUSSIAN INFLUENCE

The European Union Law blog reports that the Financial Times has acquired a report written by a six-member advisory board of Bulgaria's recently ousted Stanishev government, chaired by Dominique de Villepin, a former French prime minister, which argues that Bulgaria is at risk of falling under Russian economic and political influence. The blog quotes from the report:
"If Bulgaria fails in the fulfillment of this objective, different consequences could arise. First, the Bulgarian state could become more vulnerable, encouraging populist movements and planting the seeds of discouragement among Bulgarian civil society.

Second, the efforts undertaken to build up a stronger, more modern and efficient state apparatus could weaken, and so would the trust of the people in the state. Finally, it could undo the ties between the EU and Bulgaria, prompting a shift of Bulgaria towards Russian political and economic interests."
4. US AND INDIA ANNOUNCE END-USE MONITORING AGREEMENT, CITIBANK TO ADVISE ONGC ON GHANA ACQUISITION

Matthew Rosenberg at the Wall Street Journal reports that Secretary of State Hillary Clinton and Indian External Affairs Minister SM Krishna announced an "end-use monitoring" agreement which will facilitate sales of arms from the US to India. Meanwhile, Joseph Chaney and Narayanan Somasundaram at Reuters reports that Indian state oil company ONGC has hired Citigroup to advise it on a bid for Kosmos Energy's stake in the Jubilee oil field offshore Ghana. The deal is reportedly worth around $3 billion.

5. FORMER IRANIAN PRESIDENT CALLS FOR REFERENDUM ON ELECTION LEGITIMACY, SHIRIN EBADI NOTES ANTI-RUSSIAN AND ANTI-CHINESE SLOGANS IN FRIDAY PRAYERS

Robert F Worth at the New York Times reported that former president Mohammad Khatami called for a referendum on the legitimacy of the recent elections.
"Mr Khatami on Sunday praised Mr Rafsanjani’s speech and said a referendum would help achieve Mr Rafsanjani’s goal of restoring trust, reformist Web sites and the BBC’s Persian service reported. He said it should be carried out by an independent body, like the Expediency Council, an arbitration group that is headed by Mr Rafsanjani.

'If the majority of people accept the situation, we also will accept it,' Mr Khatami said, Web sites reported."
"Although some Iranian conservatives have criticized Mr Rafsanjani for his speech on Friday, more have made stinging criticisms of Mr Ahmadinejad over a controversial cabinet appointment made public on the same day. The president named as his first vice president Esfandiar Rahim Mashaei, who angered hard-liners by saying in 2008 that Iranians are 'friends of all people in the world--even Israelis.' Mr Mashaei, whose daughter is married to the president’s son, also angered clerics in 2007 when he attended a ceremony in Turkey in which women performed a traditional dance.

On Saturday, Ayatollah Ahmad Khatami, a prominent conservative, called the appointment of Mr Mashaei 'completely unbelievable' and said to promote him was to 'ridicule the highest religious authorities.'"
Der Spiegel carried an interview with Iranian Nobel prize winning human rights lawyer Shirin Ebadi in which she said the following:
"[The Friday prayers led by Rafsanjani and attended by Mir Hossein Mousavi and Mehdi Karroubi] was bordering on an historic event, not just for Iran, but for the entire Islamist world--because so many people from the protest movement participated in these Friday prayers. The slogans were also important. The crowd for the first time chanted 'Death to China' and 'Death to Russia!,' they attacked the two most important countries that have supported the leadership in Tehran--at the United Nations, for example. The people have seen just who has been on the side of this regime for decades--two countries that themselves massively violate human rights."
Worth reading in full.

6. RENEWED INTEREST IN KURDISH OIL CONCESSIONS, KURDISH MINORITY IN NINEVEH THREATENS SECESSION

William MacNamara at FT Energy Source reports that Gulf Keystone was awarded two Kurdistan oil licenses this weekend at Sheihk Adi and Ber Bahr.
"One of Gulf Keystone’s joint venture partners will be Genel Energy, the Turkish company leading the incipient consolidation of the Iraqi Kurdish concessions through its proposed merger with Heritage Oil."
Geoff King at Platts reports that
"The work programs for both blocks include the drilling of one exploratory well on each block using current, existing and to be acquired data, Gulf Keystone said, and both [production sharing contracts] PSCs are subject to a 20% KRG carry and no third-party back-in rights."
Meanwhile, Jamal al-Badrani at Reuters reports that Kurdish local councilors in a Nineveh--a northern province in Iraq--are boycotting all contact with the Arab governor of the region and threatening to set up their own governing body unless he successfully addresses their concerns about marginalization. Kurdish representatives hold 16 of 37 seats in Nineveh's governing council.
"The Kurds see parts of majority Arab Nineveh as part of their ancient homeland and want them included in Iraq's semi-autonomous region of Kurdistan. They complain that [Governor Atheel] Nujaifi has marginalized them in the provincial council since he was elected in January.

'If no solution is found, we will be forced to form the Nineveh council to run the 16 administrative units,' said Kurdish councilor Derrman Khitari, adding that he would ask the central government to divert part of its Nineveh budget."
"Nujaifi told Reuters he would come down hard on any local councilors who attempt to secede.

"Their demand is illegal and the constitution will not endorse it. It violates the provincial council law. If any local council within these areas violates the constitution, we have the authority to dissolve it and form a new one," he warned.

He said the door was still open to dialogue. A delegation of Shi'ite Arab politicians from the movement of cleric Moqtada al-Sadr is mediating, but have yet to produce results."
7. NIGERIA, NIGER, AND ALGERIA SIGN TRANS-SAHARAN PIPELINE AGREEMENT

The Wall Street Journal reports that the Nigerian national oil company signed an agreement with Algeria and Niger to create a $10 billion trans-Saharan pipeline to ship natural gas to Europe. On September 8, 2008, the European Commission and African Union Commission established an "African-EU energy partnership" and created an informal joint experts group on energy which was to first meet in October of that year--see Daily Sources 9/22 #5. In late February, Total SA indicated that it was interested in participating in any such project--see Daily Sources 2/26 #5. Gazprom announced late last month that it would begin construction of the pipeline late next year after having established a 50-50 JV with the Nigerian national oil company to handle oil, gas, gas processing and transportation projects--see Daily Sources 6/25 #10.



8. GAO REPORT DETERMINES THAT VENEZUELAN STATE SUPPORT FOR FARC MAKING VENEZUELA KEY HUB IN COCAINE TRAFFICKING

Juan Forero at the Washington Post reports that a GAO report commissioned by Sen. Richard Lugar (R-IN) in February 2008 concludes that state aid from Venezuela to FARC has turned Venezuela into a key source of cocaine being trafficked into the United States.
"Since 1996, successive US administrations have considered Venezuela a key drug-trafficking hub, the Government Accountability Office report says. But now, it says, the amount of cocaine flowing into Venezuela from Colombia, Venezuela's neighbor and the world's top producer of the drug, has skyrocketed, going from an estimated 60 metric tons in 2004 to 260 metric tons in 2007. That amounted to 17% of all the cocaine produced in the Andes in 2007."
9. ORTEGA CALLS FOR END TO TERM LIMITS

Reuters reports that Nicaraguan President Daniel Ortega--who accepted the results of elections after serving as the Communist leader of the country from 1979-1990--has called for a change in the law which now prevents presidents from serving two consecutive terms. In a speech yesterday he said,
"Congressman are re-elected all the time. Mayors are not allowed to be re-elected. If we are going to be just and fair, re-election should be allowed for all (public officials)."
Ortega was elected president in 2006--beginning his term in 2007; the next elections are scheduled to be held in late 2011.

10. WSJ STUDY SHOWS COMMERCIAL MORTGAGES BEING CHARGED OFF AT FASTEST RATE IN NEARLY 20 YEARS

Lingling Wei and Maurice Tamman at the Wall Street Journal report that commercial banks have been charging off commercial mortgages at the fastest rate in close to 20 years.
"At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.

The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year.

The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc, JP Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions."
The commercial real estate market represents about 13% of US GDP.

11. PETROLEUM IMPORTS NOW REPRESENT LARGEST SHARE OF THE TRADE DEFICIT

Brad Setser notes that as of May the largest share of the trade deficit is due to petroleum imports.



And comments:
"Discussions about the policies that gave rise to imbalances typically focus on macroeconomic policy choices. That increasingly strikes me as incomplete. Energy policy should enter the calculus too. The US isn’t going to start exporting petrol--not on a net basis--anytime soon. But it certainly could do more to reduce its demand for imported energy."

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