Daily Sources 4/10

Happy Good Friday!

1. John Detrixhe at Bloomberg reports that overseas issuers have sold $180 billion of debt denominated in US dollars so far this year, the fastest rate on record.

2. Tara Patel at Bloomberg reports that the CEO of GDF Suez, Gerard Mestrallet, told reporters in Paris today that the company has entered into negotiations with OAO Gazprom on participating in the Nord Stream project.

"Gazprom, which owns 51 percent of Nord Stream, supplied GDF with 14 percent of the utility’s supply last year through long- term contracts."

In the meantime, in a report which you can only access via a subscription, but can get the relevant information via the headline, Toby Anderson at Lloyd's List reports that Merrill Lynch has forecast that the global LNG fleet will grow by slightly more than 25% or 77 ships from about 300. In the meantime, AFP reports that Ashgabat blamed the explosion on the Central Asia-Centre supply network which supplies Russia with natural gas from Turkmenistan. The foreign ministry said in a statement:

"This accident happened due to a unilateral and egregious violation by Russian company Gazprom Export of agreements and rules of natural gas purchases."

It is interesting that Ashgabat would appeal to the sanctity of contracts, but perhaps there is something to it given on December 31, 2008, it was announced that Russia had agreed to pay about $340/tcm (~$9.61/MMBtu.)

3. Paul Panckhurst at Bloomberg reports that the Chinese customs agency has released data showing that Chinese exports fell by 17.1% in March to $90.29 billion from a year earlier. Imports dropped 25.1%, producing a trade surplus of $18.56 billion.

"The 'collapse of global trade and China’s exports in the last few months was not in small part due to a freeze in trade credit and aggressive de-stocking abroad as a result of extreme uncertainty,' said Wang Tao, an economist at UBS AG in Beijing. 'As expectations start to stabilize, we expect to see export orders rebound in the coming months.'

Still, research by the National Development and Reform Commission, China’s top economic planning agency, suggests shipments may decline 10% this year, compared with a 17% gain in 2008."

Brad Setser at Follow the Money notes that "Exports had been growing steadily at a $200b a year annual pace until the fourth quarter of 2008, when they went into something like free fall." Here is his graph of rolling 12 month sums for Chinese exports/imports:

"The latest PMI data suggests that China’s economy that the pace of contraction in China’s manufacturing economy has slowed, and perhaps may even be rebounding off a low base. But the trade at least suggests that China isn’t in rude health."

Worth reading in full. In the meantime, Andrew Batson at China Journal reports that a new study put out by the Hong Kong Monetary Authority suggests that China is more vulnerable to declines in export growth than previously thought.

"The authors estimate that a decline of 10 percentage points in export growth would be associated with a decline of about 2.5 percentage points in GDP growth. 'This is about at least twice as large as what could have been expected if only the direct impact of exports is considered,' they write.

Part of the explanation, they say, is that exports are extremely important to a group of Chinese coastal provinces, which themselves account for the majority of the national economy. So changes in export demand can cause dramatic fluctuations in those regional economies, even while the inland provinces are less affected.

But of course, China’s exports have recently slowed by a lot more than 10 percentage points. In volume terms, export growth rates have swung from around positive 20% in 2007 to nearly negative 20% in the first part of this year.

The biggest effect of a decline in exports, the authors find, is on corporate investment, as companies scale back expansion plans. And since the sharp drop in exports is just a few months old, the full magnitude of the subsequent drop in capital spending may not yet be evident."

Meanwhile, John Liu at Bloomberg reports that Chinese net oil imports rose to the highest volumes seen since May 2008, or 15.87 million metric tons, or 3.73 mb/day.

"'It’s wise for the Chinese government to fill the emergency stockpile at such low oil prices,' Charles Ting, an oil analyst with China Southern Fund Management Co., said by telephone from the southern city of Shenzhen. 'Even taking the stockpiles out of the equation, China remains one of few economies still seeing flat or growing energy demand.'"

4. Sky Canaves at China Journal has the interesting story on a new study published in the British Journal of Medicine which states that in 2005 there were 32 million more males in China than females under the age of 20.

"The cause is no surprise: A one-child policy combined and a cultural preference for boys that leads some prospective parents to abort female fetuses."

This is bound to create many troubles over the long term.

5. Mike Grinter at Lloyd's List wrote Wednesday that local news sources are reporting that Seoul plans to establish a 4 trillion won (~$2.9 billion) fund to assist South Korea's shipping industry.

"[I]t is proposed that the fund buys from existing vessel fleets at market prices from shipping companies in a bid to prevent loss of valuable national assets at rock bottom prices to foreign interests--as was experienced during the Asian financial crisis of 1997/1998.

The fund will not finance vessels under construction."

In the meantime, Seyoon Kim at Bloomberg reports that the Bank of Korea decided to leave its benchmark interest rate unchanged yesterday at 2%.

"'Although domestic economic activity has not yet been able to pull out of its downturn, some indicators point to the moderation of the abrupt slowdown,' the central bank said. 'There are signs that production activity in the manufacturing and services sectors is improving slightly.'

The bank revised its forecasts today, saying the economy will shrink 2.4% in 2009. In December it had predicted a 2% expansion.

'An economic recovery will be very slow,' Kim Jae Chun, director general at the central bank, told reporters in Seoul today. Kim said inflation will slow to a '2% level' from May, after consumer prices rose 3.9% in March."

6. James Topham and Angela Moon at Reuters report that Saudi Aramco is further cutting its supply to two major Asian refiners in May, while maintaining its current level of supply to the US.

"Asian refiners buy about half of the kingdom's exports and are normally a good barometer of policy, although state oil firm Saudi Aramco also uses its monthly allocations to shift more or less oil to one or another consuming region."

In the meantime, Hanim Adnan at the Kuala Lumpur Star reports that James Fry, a London-based international oils and fats expert at LMC International Ltd, has argued that crude palm oil will trade at MYR2,400 per metric tonne (~$665.38/tonne ~ $91.15/b (!?) ) as long as OPEC maintains crude prices at $55/b. However, if OPEC allows the price of crude to fall to $35/b, then Fry forecasts that CPO will fall to MYR1,500 per metric tonne (~$415.86/tonne ~$56.97/b).

"He added that Malaysia’s palm oil stocks could fall below 1.7 million tonnes by October if the Government’s B5 biodiesel programme succeeded in reducing palm oil stockpiles.

'I expect a 100,000-tonne drop in palm oil stocks to translate into a 5% increase in CPO prices,' Fry said at the 29th Program Advisory Committee Seminar organized by the Malaysian Palm Oil Board (MPOB) here yesterday."

The front month contract for CPO on Bursa Malaysia closed at MYR2417.00/tonne April 10. The Congressional Budget Office today released a report which argues that ethanol production was responsible for "between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI)." (h/t Keith Johnson at Environmental Capital.)

7. Dieter Bednarz, Erich Follath and Georg Mascolo at Der Spiegel conducted a long and interesting interview with President Ahmadinejad, with fairly tough questions (most of which the Iranian president deflected). Key excerpts:

"SPIEGEL: The new US president, Barack Obama, directed a video address to the Iranian nation three weeks ago, during the Iranian New Year festival. Did you watch the speech?

Ahmadinejad: Yes. Great things are happening in the United States. I believe that the Americans are in the process of initiating important developments."

"SPIEGEL: But you should not [learn from the lessons of the past as Agmadinejad asserts the US must]?

Ahmadinejad: Everyone must learn from the past."

"SPIEGEL: Again, we see no evidence of any self-criticism.

Ahmadinejad: Then why don't you tell me what mistakes we are supposed to have made. We have no interest in a historical settling of accounts."

"SPIEGEL: That doesn't sound at all like you have any interest in helping the Americans and NATO fight the Taliban. Obama is placing more emphasis on civilian reconstruction, but he also believes that radicals who seek to stand in the way of this reconstruction must be dealt with militarily.

Ahmadinejad: I am telling you now that Obama's new policy is wrong. The Americans are not familiar with the region [Afghanistan], and the perceptions of the NATO commanders are mistaken."

SPIEGEL: You are referring to India, Germany, South Africa? Should Iran also be a permanent member of the Security Council?

Ahmadinejad: If things were done fairly in the world, Iran would also have to be a member of the Security Council.

Very much worth reading in full.

8. JGW at Frontier Markets reports that a new unofficial index of the rental market in Dubai, compiled by Landmark Advisory, shows a fall in rentals by up to 45%.

"According to the data, a studio in Jumeirah Lake Towers that was going for Dh90,000 in the market last year, for example, is now being offered for Dh50-55,000."

9. Platts reports that the IEA cut its forecast for 2009 oil demand to 83.4 million b/d, down 2.8% or 2.4 million b/d on 2008.

"Based on more recent pessimistic indicators, the IEA said it now assumes that global GDP will contract by 1.4% this year, rather than expanding modestly as it had been expecting in previous reports.

Demand is expected to be particularly weak in the developed countries of the OECD, where it is seen falling to 45.2 mb/d, 4.9% lower than 2009 and 760 kb/d below the IEA's previously estimate."

The IEA cut the call on OPEC crude and stocks by 700 kb/d from its last estimate to 28.2 mb/d.

10. Jeff Stein at Spy Talk reports that Luis Carriles Posada, a onetime CIA agent and a member of the anti-Castro terrorist organization CORU which was likely responsible for the bombing of a Cuban airliner in 1976, has been indicted by US authorities. However, it appears that the US Justice Department violated most of his rights in Posada's naturalization hearing in 2005--a key part of the case against him, evidently. I feel no sympathy for men who blow up commercial airplanes, but the continuing revelations about the abuse of power at the Bush DOJ is not encouraging, to say the least. Worth reading in full.

Daily Sources 2/11

1. Kevin Hamlin at Bloomberg reports that Chinese exports fell by an annualized rate of 17.5% in January while imports fell 43.1% as per the customs office.

"'It’s a very eye-catching trade surplus [of $39.1 billion] and people will ask how it can be so high at a time that everybody else’s economy is suffering,' said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd in Hong Kong. 'What’s happening here is really dramatic, underscoring plunging global demand.'"

Brad Setser at Follow the Money notes that historically the correlation between Korean, Japanese, and Taiwanese exports to China and Chinese exports to the rest of the world have been tight. Given that the correlation continues, Setser and CFR colleague Paul Swartz drew up a graph demonstrating that the future looks bleak:



Setser concludes:

"In some sense, it is hard to imagine a worse combination. China’s export are falling, making China understandably reluctant to allow its currency to appreciate. But China’s trade surplus is also rising … certainly in nominal terms and quite possibly in real terms. … At a time when the world is short demand, China seems to be subtracting from global demand not adding to it."

Meanwhile, Yves Smith at Naked Capitalism speculated yesterday that the recent email response by former adviser to the People's Bank of China Yu Yongding to Bloomberg reporter questions that suggests the US should guarantee Beijing's holdings of US sovereign debt represents the government view.Yves comments:

"What is weird is this particular threat is empty. Stop buying Treasuries? Great! The dollar will tank (which is what the Fed should want, the 40% depreciation of the dollar in 1934 played a major role in reviving the US economy) which would hurt China export competitiveness (Stephen Roach, a Morgan Stanley economist who now heads their Asian operations, contends that China needs to devalue its currency. It thus needs to buy even more dollar assets to effect that).

Or this may simply be an effort to blow smoke. 'We want assurances you won't weaken the dollar because it will hurt our FX reserves.' That is one way of dismissing Tim Geither's demand that China quit manipulating its currency, and the result would be that the dollar would fall relative to the yuan.

So this broadside seems either to be a retort to US demands ('you want us to let the yuan rise? Not unless you improve the quality of the guarantees on the paper we hold') or part of a long-term effort to move towards a new currency regime (China resents the way the US has abused its reserve currency standing, and also wants a fixed price currency regime, seeing that as producing more stability, which in turn is more conducive to trade)."

Although Smith's characterization of a non-government official response to an emailed query by a wire reporter as a "demand" seems, well, a tad wound up, I think that at this moment in time there are likely more than a few governments who suspect that Beijing's putative notion of fixed currency regimes would indeed ensure more stability and thus better encourage trade.



As you can see from the graph above, many governments with currencies clearly tied to the fate of oil printed prodigious amounts in order to prevent appreciation and, so I infer, inflation. The reserves so acquired have not been enough to really halt the reverse slide, however. (This is not true of some of the currencies in the Middle East--for example the Saudi riyal--though their foreign exchange reserves must be coming under pressure, even given a shallower market. The situation appears to have been aggravated in Russia by the recipients of government largess using said largess to short the ruble.)

2. Daniel Pimlott and Peter Garnham at the Financial Times report that Bank of England governor Mervyn King said the bank will probably begin quantitative easing next month as the UK economy is in deep recession.

"He was speaking as the Bank unveiled its latest inflation report that suggested inflation will fall to 0.5% and may remain well below the Bank’s 2% target for much of 2010 and 2011."

Quantitative easing is defined a creating money with which to purchase assets. The Bank of England expects the economy to contract throughout 2009, hitting a low of -4% in the second quarter.

3. Bruno Waterfield at the UK Telegraph reports that the paper has been given access to a confidential European Commission document which was discussed by EU finance ministers yesterday warned that estimates of asset writedowns by European banks are large relative to GDP of EU member states.

"In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart."

(h/t Jesse's Café Américain.)

4. Christopher E. Smith at the Oil & Gas Journal reports that the Wintershall Chairman, Reinier Zwitserloot, told the CERA conference in Houston yesterday that the likelihood of completing the Nord Stream natural gas pipeline was 100%.

"The Nabucco pipeline could be built, Zwitserloot allowed, but the only realistic supply source is Iran. Gas from Turkmenistan is not crossing the Caspian, he said. It will go instead either to Russia or Iran. Azerbaijani supplies could reach Europe, but that is by no means certain; 'so, your choices for gas from the region are either Iraq or Iran,' Zwitserloot said.

Additional gas from Russia will have to be part of the path forward and will require additional infrastructure. 'The Yamal system is full, full, full,' said Zwitserloot. 'The system through the Ukraine is in very bad condition even without the political problems and will require large investments just to keep capacity from shrinking year by year.' Nord Stream should therefore be seen not as an alternative or bypass route but as a needed additional path for energy supplies to reach Europe, he said."

BASF oil and gas division Wintershall has a 20% stake in Nord Stream, Gazprom holds 51%, E.On Ruhrgas 20%, and NV Nederlandse Gasunie 9%.

5. Upstream Online reports that the Canadian statistics office today posted the country's first trade deficit in 33 years.

"Exports to the US--which takes around 75% of all Canada's exports--dropped by 10%.

'With the real deficit widening as well, Canada's trade sector remains a drag on economic growth,' said Derek Holt and Karen Cordes of Scotia Capital Research.

Finance Minister Jim Flaherty said the deficit was partly due to past strength of the Canadian dollar, but that recent weakness in the currency should help the situation.

'It has a lot to do with the currency,' he told reporters. 'The dollar has adjusted. It will make a difference going forward.'"

6. Garth Theunissen and Paul Okolo at Bloomberg report that interbank currency trading has halted in Nigeria after the central bank there mandated that all foreign exchanges banks are unable to sell within five days of its acquisition must be handed over to the central bank. The central bank also prohibited the banks from buying or selling currencies for more than a 1% price differential from which it auctions dollars to commercial lenders.

"Foreign exchange 'shall be for the use of customers and shall not be used for inter-bank transactions,' the central bank said in a statement on its Web site. It also prohibited banks from buying and selling foreign currency at levels diverging by more than one percent from the rate it auctions dollars to commercial lenders.

'They’ve effectively banned their interbank currency trading market,' Hugman said in a telephone interview. 'This places significant restrictions on the interbank foreign-exchange market.'"

In early December the Nigerian central bank limited sales of US dollars to $100 million from the sales being seen at that time of $800 million (see Daily Sources 12/4 #10.)

7. John Kingston at the Barrel reports that at the CERA meeting in Houston this week, analyst James Placke described the upcoming Iraqi bidding round as "very, very, onerous"--"The Iraqis set the targets, they control the operations and the companies pay the bills." Another CERA analyst, Andy Barrett, thought that 2009 Iraqi production would average around 1.9 mb/d, as against Placke's forecast of 2.3-2.4 mb/d and Platt's estimate of 2.3 mb/d.

8. Walter Pincus at the Washington Post reports that on Monday the Krygyz Parliament decided to delay voting on President Kurmanbek Bakiyev's decision to shut the Manas base until Russia provides the $450 million in aid and loans Moscow promised in a recent meeting.

9. Salman Masood at the New York Times writes that a Pakistani government report was leaked to local television networks allowed that at least 5 of the 10 gunmen in the Mumbai attacks were from Pakistan.

"But officials here have rejected India’s assertions that the assault was conceived and planned inside Pakistan. According to the television networks, the government report says that investigators have concluded that the attacks were planned in a European country and Dubai over the Internet, and that the planners used Bangladesh for logistical support."

My read is that Islamabad is working to prepare its constituents for closer cooperation with the US and India on this matter.

10. Judy Dempsey at the New York Times reports that Jaap de Hoop Scheffer--the secretary general of NATO--said today that the organization will follow international law as it pursues its new strategy of bombing poppy processing plants in order to deny the Taliban those revenues.

11. John Fund at the Wall Street Journal reports that the outgoing CIA director, Michael Hayden, has told the journalist that Mexico represents the second-largest security threat to the US after al-Qaeda. The Western world--and especially the US--exports instability by targeting supply and not consumption. The other solution is to legalize the offending drugs and regulate their production--unlikely, given the political complications, and a longer road to cutting off the export of political instability, given that the illicit drugs would remain illicit elsewhere.

12. Ethan Bronner and Isabel Kershner at the New York Times report that the election results in Israel basically indicate a draw, with some increase in leverage for the far right. Kadima (left) took the most seats so far with 28. The Likud (right) took 27. Far-right Yisrael Beitenu took 15 seats. Labor (left) took 13. The Arabs took 9. Both Kadima and Likud had indicated that they wanted to include Labor in any governing coalition, but the rise of Yisrael Beitenu suggests a sense of embattled-ness in Israel--a further radicalization.

13. Grant Smith at Bloomberg reports that the IEA today cut its forecast for 2009 oil demand by 570 kb/d to 84.7 mb/d, down 1 mb/d from 85.68 mb/d in 2008. Platts reports that the IEA expects Chinese demand growth to slow to 0.7% in 2009, forecasting demand of 7.92 mb/d in 2009 over 7.86 mb/d in 2008.

14. Shobhana Chandra at Bloomberg reports that US exports in December fell 6%, while imports fell 5.5%. The trade deficit fell 4% to $39.9 billion from November, a smaller change than most economists had expected.

15. The EIA reported today that crude stocks built by 4.7 million barrels in the week ended February 6 to 350.8 million barrels. A Bloomberg survey had analysts expecting a build of 2.75 million barrels. Though well above the historical five year average, the stocks number is still below the numbers seen in July 2007:



Gasoline stocks, however, fell by 2.6 million barrels versus Wall Street expectations of a 500 kb build. Gasoline stocks are now at about the middle of the historical range. Distillate stocks fell by 1 million barrels. Though mixed, the data, taken in isolation, should put downward pressure on prices.

Daily Sources 11/12

1. China's National Development and Reform Commission said today that it will build an additional 169 million barrels worth of storage for its strategic reserves program, reports upstream online. Purchases to fill strategic reserves push up prices--petroleum economist Philip Leverett identified US SPR purchases of light sweet crudes as a major contributing cause to the run up in prices to this Summer--and, as such, purchases could be coordinated with OPEC nations in order to provide them with a measure of price stability. In a related story, Abdallah S. Jum'ah, CEO and president of Saudi Aramco--Saudi Arabia's national oil company--said yesterday in Beijing that the company intended to take a larger share of the Chinese crude market, so as to increase their energy cooperation.

One of the major concerns of OPEC, and especially Saudi Arabia, is the notion of "demand security," their side of the "supply security" issue in the consuming countries. China's stimulus plan--whether it mostly PR or not--was very welcome in the commodity exporting nations (not just oil, but metals producing nations in South America) etc., because the stimulus in theory is an attempt to put a bottom on commodity prices. Similarly, China, by building large strategic petroleum reserves, gives itself the ability to try and manage price--in cooperation with OPEC--by filling its reserves when prices get too low.

2. Brad Setser at Follow the Money has another especially interesting post which argues that China may not stop purchasing US treasuries due to its fiscal stimulus plan. His post is well-worth reading in its entirety, but in essence I take his argument to be that China's imports will, at least in the near term, fall faster than exports, meaning, in the absence of foreign investors withdrawing their cash, that their China's foreign currency reserves will continue to grow. (That said, Sandra Tsui at Lloyd's List reports that southern Chinese ports are experiencing steep reductions in international container traffic.

"Guangzhou port said it had lowered its international container throughput target for this year by 10%. ... Nevertheless, boosted by strong growth of domestic traffic, the port is still set to record 24% increase in overall container throughput this year"

"Chiwan Wharf, a major operator in west Shenzhen, has posted a 19.4% decrease in October box volume, to 474,400 teu, compared to the same month last year.

I imagine that if the stimulus program is the mere repackaging for public relations of ongoing public spending that this outcome is even more likely. However, if the infrastructure program is new money, for which, in the medium-to-long term, represents a build in demand for commodities, and this is done in a global economy where Chinese exports continue to fall, I imagine that China's reserves will, in fact, fall.

3. The IEA released its World Energy Outlook 2008 publication today. Sadly, only the Executive Summary is freely available. Their reference scenario require investments of $26 trillion from 2007-2030. Over 52% of that is in the power sector. The organization also projected that OPEC would account for most additional oil production required by world demand, saying that non-OPEC production has already plateaued and is likely to start falling in the coming decade. The IEA estimates that the average decline rate for fields that have passed their peak to be at 6.7%. The conclusion they draw is that at least 1 mb/d of additional capacity must be added every year in order to meet demand. The executive summary's concluding line is "Time is running out and the time to act is now." According to Platts, the actual publication also concludes that African natural gas exports to Europe are set to triple by 2030, overtaking Russia as its largest supplier.

4. Oleg Shchedrov at Reuters reports that Prime Minister Vladimir Putin has told Finland's Prime Minister, Matti Vanhanen, that Russia will decide to build LNG plants if Europe does not decide to go ahead with the Nord Stream pipeline soon. Nord Stream would be a pipeline to pass through the Baltic Sea direct to Germany from Russia. Several Baltic states dislike the plan, because it means they would receive no transit fees from the gas, specifically Poland, Lithuania, and Estonia. The price of LNG shipments is higher than piped gas, in part because piped gas has no alternative market but its destination and LNG can be shipped anywhere with a LNG receiving terminal.



5. Guy Faulconbridge at the Washington Post reports that Russia has rejected recent overtures by Washington which were an effort to reduce their fears regarding the intentions of the missile defense program for Eastern Europe. Moscow does not want to conclude any deals prior to the US presidential inauguration. Tass quoted an anonymous source as saying the Bush Administration,

"is intent on putting the new U.S. president in a hopeless situation, so that he should take responsibility for what they concocted without him."

6. Anna Shiryaevskaya at Platts reports that Russia, Iran and Qatar are planning to set up a JV to develop South Pars natural gas fields, as per a story in today's Russian business journal Kommersant. The plan is to pipe the gas to a liquefaction facility in Qatar for export. Iran has been having trouble developing South Pars according to schedule, and there are arguments in the Majlis--the Iranian Parliament--as to how best to use the natural gas.

South Pars phases 11-14 have been all dedicated to various LNG projects. Phase 11 was to be a joint venture with NIOC, Total and Petronas (the Malaysian national oil company)--Total left the project this summer under pressure from the international community regarding Iran's nuclear program. Phases 13 and 14 were dedicated to the Persian LNG project, which was to be jointed developed by Shell, Repsol (a Spanish oil firm) and NIOC. Shell and Repsol also withdrew from Iran this summer. The phases were scheduled to come on line between 2011-14. It seems that Russia and Qatar are proposing to take their places.



Iran has grand designs for the development of South Pars, and much of the talk surrounding the programs will never happen. If Iran wishes to maintain production at its crude oil fields--and crude oil sells for much more, on a BTU and cost of production basis than natural gas--it will need to use a considerable amount of the South Pars gas for re-injection. Moreover, Iran's power generation needs are growing at about 8%/year (if I remember correctly), and, given that Tehran will not soon have nuclear generation and that it would prefer to export oil than burn it for power, it is reasonable to think that much of natural gas slated for export will end up being burnt for power instead. Moreover, recent analysis suggests that due to large additions to natural gas reserves in North America, mostly, upward pressure on international prices is less likely to be strong going forward than, say, for crude.

Nonetheless, Iran needs the technical expertise of foreign firms to efficiently develop South Pars, especially in terms of LNG, and Russia happens to have that expertise. Moscow has an interest in the eventual direction of this natural gas as one of the potential feeds for the Nabucco pipeline would be Iran. (The Nabucco pipeline would pass from Turkey through Bulgaria and Hungary to Austria, carrying 30 billion cubic meters/year and is a major effort by the EU to diversify their natural gas sourcing.) Moreover, Iran's nuclear power plants are being constructed by Russian firms. Qatar, though an ally of the United States, would be well-served by increasing cooperation with Tehran (and Moscow) and would end up being the locus of export.



All in all, the story could be that much more white noise, but there are some reasons to think, in my opinion, that the reported plans are genuine and will be followed up upon.

7. Marsoud Barzani, the President of the Kurdistan Region of Iraq, has an op ed in today's Wall Street Journal. In it he claims that obstructionist efforts by the Kurdistan Regional Government insofar as the new oil law and other parliamentary efforts in Baghdad go is an insistence upon the meaning and intent of the Iraqi Constitution. Insofar as Barzani is a strict constructionist, he is "only following America's great example." Pandering aside, Barzani also signals his commitment to closer relations with Turkey--which could prove especially significant going forward.

8. The Regional Times reports that the United States intends to drop Mullah Omar--of the Taliban--from its list of terrorists to smooth talks with the leader. (h/t Informed Comment)

9. Peter Finn at the Washington Post reports that the closure of the Guantanamo Bay facility is a priority for the Obama Administration. The news of its closure will be a soft power success, I believe. You cannot sustain such a prison in the United States, unlike most of the rest of the world.

10. Choe Sang-Hun at the New York Times reports that North Korea has announced new restrictions on nuclear inspectors there, preventing them from taking soil and nuclear waste samples. Such samples are required for determining the extent of the nuclear program in North Korea. Inspectors were also to be confined to Yongbyon, the main nuclear complex in the country, which apparently complicates investigations into whether Pyongyang is exporting nuclear technology.

11. Shobhana Chandra and Fergal O'Brien at Bloomberg report that a survey by the media company shows that there is very little confidence in the global economy internationally. The Bloomberg Professional Global Confidence Index read 6.6 in November--anything below 50 means pessimists outnumber the optimists. Greg Farrell at the Financial Times reported yesterday that the CEO of Merrill Lynch, John Thain, warned that the global economy is entering a slowdown comparable to the events following 1929.

12. Nouriel Roubini's RGE Monitor nicely summed up the European Union's action plan for the G20 meeting this Saturday, to wit:

"i) Submit rating agencies to registration and surveillance, especially with a view to credit ratings’ prominent role within the Basel II capital requirement framework.
ii) Adopt principles to ensure the ‘convergence of accounting standards’.
iii) Decide that no market segment, no territory and no financial institution should escape regulation or at least oversight.
iv) Establish codes of conduct to avoid excessive risk-taking in the financial sector, including on the ‘remuneration’ of executives.
v) Give the IMF the ‘initial responsibility’ and ‘necessary resources’ for ‘recommending the measures to restore confidence and stability’ in the international financial system."

13. Eurointelligence reports that the FT Deutschand has the story today that Germany's Council of Economic Advisers is calling for a stimulus program on the order of 0.5-1% of GDP. The plan would thus be for between €12-24 billion ($15-30 billion) as opposed to the current Merkel Administration plan for about €5 billion ($6.255 billion). The council is apparently referred to as "the wise men group" and has typically been skeptical of stimulus packages.

14. Brian Blackstone at Real Time Economics reports that in Luxembourg the Vice Chairman of the Federal Reserve indicated in his prepared remarks that "we will need to continue to consider whether additional steps are needed to re-open credit flows and support the economy." He also indicated that currency swap with other central banks and credit auction facilities might become permanent. (The Fed extended currency swaps with South Korea, Brazil, Mexico and Singapore on October 29 in order to ease downward pressure on their currencies as international redemptions of dollar-denominated debt were pushing up the dollar on the currency markets.) Also today, Bank of England Governor Mervyn King said policymakers are prepared to cut interest rates as low as possible to prevent the recession from causing deflation, as per Sarah Jones at Bloomberg.

15. The Treasury, FDIC, and Fed released a statement today urging banks use the public monies being made available to them to lend. Real Time Economics has the text of the statement.

"The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers. Moreover, as a result of problems in financial markets, the economy will likely become increasingly reliant on banking organizations to provide credit formerly provided or facilitated by purchasers of securities. Lending to creditworthy borrowers provides sustainable returns for the lending organization and is constructive for the economy as a whole.

It is essential that banking organizations provide credit in a manner consistent with prudent lending practices and continue to ensure that they consider new lending opportunities on the basis of realistic asset valuations and a balanced assessment of borrowers’ repayment capacities."