Friday, September 30, 2011

Redrawing Europe’s Energy Map with shale Gas, from Poland to Bulgaria....

Redrawing Europe’s Energy Map: Poland’s Offer...

The Russian state-owned energy giant Gazprom enjoys unwavering control of gas exports to Europe with little current viable competition. The European Union, overall, receives 25 percent of its natural gas supply via pipelines from Russia, with some (mostly Eastern European) consumers almost completely dependent on the large supplier. These consumers have been actively in pursuit of diversification.

Poland’s shale gas discovery has recently given Europe reason to be optimistic in attaining its energy diversification goals and may serve as a means of tackling Europe’s most imminent energy crises. Just the potential for Poland’s offer is enough to make a change.

3 Legs Resources, Exxon Mobil, Chevron, and Talisman Energy are among companies leading the effort to unlock gas trapped in shale rocks from Poland to Bulgaria. This supply may be enough to meet regional demand for almost 80 years, according to the US Energy Information Administration (EIA). Poland has completed seven wells out of a planned 124.

EIA estimates that Eastern Europe may hold as much as 7.1 trillion cubic meters of shale gas. Poland alone may sit atop about 5.2 trillion cubic meters, amounting to more than 300 years of domestic consumption and approximately 55 percent of the estimated shale gas reserves in Europe. This exceeds projected domestic consumer need, indicating Poland may evolve from an energy importer to an energy exporter, a promising sign for Europe’s energy diversification agenda.

To date, Poland has issued 86 exploration licenses. In April, U.S. explorer Marathon Oil Corp. agreed to sell a 40 percent interest in 10 Polish licenses to Nexen. A month later, Total SA signed an agreement with Exxon to take a 49 percent stake in two licenses in eastern Poland. The licensing process is more or less complete.

Poland is a large net importer of natural gas. Of the natural gas consumed in Poland in 2009, 61 percent was imported, almost all of which was supplied by Russia. Realizing the potential for unconventional natural gas to support its declining conventional gas production, the Polish government has shown strong support for shale gas drilling and has put into place very attractive fiscal terms for shale gas development. “Exploration of our own resources is our chance and our obligation,” Polish foreign minister Radosław Sikorski said. “Shale gas is a chance to limit Poland’s and Europe’s dependence on imports.”

The US shale gas industry serves as a positive influence on the Polish drive for shale gas exploration. Shale gas already covers 20 percent of US gas consumption and Gazprom has admitted that it isn’t able to sell as much to the United States as it used to because of the shale gas reserves there. With the United States as a model, production of shale gas may serve to loosen Poland dependence on Russian gas imports and ease Europe’s energy concerns.

However, Gazprom will not loosen its grip on Eastern European markets easily. Russia has already cut crude oil exports to the major refinery base in Gdansk, sending a clear signal to Warsaw that they should expect other retaliatory actions if they renege on long term contracts with Gazprom.

These responses from Russia are not unique to Poland. Eastern Europe as a whole has been preyed upon by Russian energy and economic interests. Russia-Ukraine gas disputes have been endemic since 2005 and are widely believed to have been Moscow’s response to Ukraine Orange Revolution in 2005, when pro-Western presidential candidate, Viktor Yushchenko was elected after a highly contested election against pro-Russia candidate Viktor Yanukovych. In 2008 and 2009, disputes with Ukraine led Russia to cut off supplies, leaving customers in Kiev and Western Europe briefly without fuel in the dead of winter.

In 2007 a Russia-Belarus energy dispute began when Gazprom demanded an increase in gas prices paid by Belarus. Belarus responded by siphoning off oil from the Druzhba pipeline which runs through Belarus and the dispute escalated further when the Russian state-owned pipeline company, Transneft, stopped pumping the oil entirely. Belarus had yet another dispute with Russian energy suppliers in 2010 concerning outstanding debts.

During its ongoing energy price dispute with Georgia, Gazprom threatened to cut off supplies before finally reaching a settlement in December 2006, a doubling of the price of gas to $235 per 1,000 cubic meters.

“The gas issue in Europe and especially in central and Eastern Europe has much more significance than dollars per cubic meters,” Bulgarian Energy and Economy Minister Traicho Traikov said. “It has to do with national independence.”

The September 2011 launch of the Nord Stream pipeline carrying gas from the Russian Federation to Germany via the Baltic Sea was a successful feat for Gazprom and Russian Prime Minister Vladimir Putin. Now Russian energy exports can bypass Eastern Europe and Russia can rely significantly less on Ukrainian and other Eastern European pipelines and ensure steady gas flow to Germany and the rest of Western Europe. Shale gas production in Eastern Europe can reverse this isolation.

If initial estimates are confirmed, shale gas production in Poland will, in a decade, transform the European energy market by boosting energy security and lowering gas prices. The Russian Federation will no longer have a secure monopoly of gas exports to Europe and increased competition will ultimately force Russian producers to lower prices. Most importantly, once European shale gas starts running it will be difficult for the Kremlin to use its energy exports as a solid political lever.

Shale gas may be the key to solving some of our most imperative short-term crises. It may serve to bridge the gap to a more secure energy and economic future.

Mackensie Knorr is with the Atlantic Council’s Dinu Patriciu Eurasia Center.

Source: New Atlanticist

Obese Americans burn food so they can drive chrome wheeled black Hummers to Wal-Mart, much of Africa and Asia starve...

Obese Americans burn food so they can drive chrome wheeled black Hummers to Wal-Mart, much of Africa and Asia starve... A global food crisis is not that far off...

The Great Ethanol Boondoggle. One of my biggest disappointments with Obama/CIA skunk so far is his continued support of the ethanol boondoggle. The program was ramped up by the Bush administration to achieve energy independence by subsidizing the production of alcohol from domestically grown corn. Add clean burning moonshine (yes, it’s the same alcohol—C2H5OH), whose combustion products are carbon dioxide (CO2) and water (H2O), to gasoline, and emissions also go down.

The irony is that if you include all the upstream and downstream inputs, the process consumes far more energy than it produces. It also demands massive quantities of fresh water, which someday will become more valuable than the oil the ethanol is supposed to replace, turning it into toxic waste.

Few consumers are aware of how big the ethanol industry has grown in such a short period. Ethanol consumption of corn has soared from 1.6 billion bushels in 2006 to an anticipated 4.3 billion bushels this year. Ethanol’s share of our total corn crop has skyrocketed from 14% to 33% during the same period. Corn grown for ethanol now occupies 10% of the total arable land in the US.

Ethanol’s impact on food prices has been huge. It is the sole reason why corn is trading at $6 handle, instead of $3. You also have to add in the inflationary effects on downstream grain consumers, like the food manufacturers and the cattle industry. While spendthrift, obese Americans burn food so they can drive chrome wheeled black Hummers to Wal-Mart, much of Africa and Asia starve. A global food crisis is not that far off.

This ignores the reality that Brazil, the world’s largest ethanol producer, can ferment all the ethanol it wants at one third our cost, because they make it from much more efficient sugarcane, which has five times the caloric content of corn. They also have ideal weather. However, protective import quotas and tariffs prevent meaningful quantities of foreign ethanol imports.

The Feds financed all of this wasteful pork, because Iowa has an early primary, giving it an outsized influence in selecting presidential candidates, and has two crucial Senate seats as well. Well, it turns out that Obama needs Iowa even more than Bush, where the Democrats are ahead 4-3 in the House, and have a tie in the Senate (1-1), so the ethanol program not only lives on, it is prospering.

Ethanol has become such a big industry that it now commands a fairly large footprint in Washington, fielding armies of lobbyists to keep the subsidies and tax breaks flowing from the appropriate agricultural committees. The problem for the rest of this is that once these lobbies become entrenched, they are almost impossible to get rid of. Think of an advanced case of scabies. Remember the tobacco lobby?

Shame, and double shame. Better to drink ethanol than burn it....

Russia Claims Major New Arctic Hydrocarbon Finds Effectively Double Nations Reserves...

Russia Claims Major New Arctic Hydrocarbon Finds Effectively Double Nations Reserves...., Bolsters military presence in the Arctic....

by John Daly

Russia, currently vying for the title of world's top oil producer with Saudi Arabia, claimed that new findings in its offshore Arctic territories have effectively doubled the nation’s energy reserves.

According to numerous Russian media reports, addressing a meeting of the sixth media forum of the United Russia Party on 25 September, Russian Natural Resources Minister Iury Trutnev said that the preliminary forecast is that resources in the Russian Arctic shelf are comparable to those in mainland Russia, adding, “Speaking of long-term planning, these reserves could last 100, may be 150 years, but longer is unlikely. Humanity will eventually have to look for new energy anyway. Recently, we completed 40-year talks with Norway, delineated the gray zone, and now obtained another 5 billion tons of fuel equivalent there.”

Trutnev’s new Arctic reserve claims are buttressed by the United States Geological Survey (USGS) 2008 survey, which estimated that 90 billion barrels of undiscovered oil and 1.668 trillion cubic feet of undiscovered natural gas lie beneath the Arctic’s waters and ice, representing 13 percent of the world’s undiscovered oil. Strong oil prices, more advanced offshore equipment and receding sea ice are leading to a growing interest in the Arctic.

Four years ago Russia’s Arktika 2007 expedition took a team of Russian geologists on a six-week voyage aboard the 50 Let Pobedy (“50 Years of Victory”) nuclear icebreaker to the underwater Lomonosov ridge in Russia's eastern Arctic Ocean, which they claimed was linked to Russian Federation territory and contained 10 billion tons of natural gas and oil deposits. The Russian Federation has been busily advancing its claims over its Arctic continental shelf ever since. Just to be on the safe side, Russia has prepared a justification for submitting in 2013 a new claim for the expansion of the borders of its Arctic shelf, according to Trutnev, who told media forum participants, "Important work was carried out this year: our vessels covered a distance of 22,000 kilometers and conducted activities to justify Russia's new claim in 2013."

Russian Prime Minister Vladimir Putin has also gotten into the act of national chest-thumping about Russia’s new-found Arctic riches. According to information posted on the Prime Minister’s website, Putin told participants at the second International Arctic Forum, "The Arctic - Territory of Dialogue" in Arkhangelsk on 22 September, “We have already installed one of the world's largest hydrocarbon platforms there. Russia is starting to develop the Arctic shelf and opening a new chapter in the history of Arctic exploration. Very soon it will contain pages on the commissioning of the Shtokman deposit in the Barents Sea and the development of resources in the Kara Sea and on the Yamal Peninsula.”

Seeking to allay the not inconsiderable environmental concerns about the Arctic’s fragile ecosystems Putin added, “All our plans will be carried out in compliance with the toughest environmental standards. A careful, civilized attitude to nature is a requirement of all development programs. Active economic development of the Arctic will be beneficial only if we maintain a rational balance between economic interests and environmental protection for the long term, not just for 10, 15 or 20 years. I mentioned the Prirazlomnoe deposit, where oil production is expected to last for at least 25 years and, hence, environmental support must be provided for this entire period. The Shtokman deposit is expected to last for 50 years.”

Just coincidently, during the Forum Putin fielded a telephone call from Rosneft president Eduard Khudainatov, who just happened to be standing on its Prirazlomnoe offshore platform in the Pechora Sea. Via sat-phone hookup Khudainatov addressed environmental safety concerns by telling Putin, "We know absolutely how to do this. We have started this work and we are absolutely certain that the risk in Arctic shelf exploration will be ruled out."

Whether of not the Russians have either the expertise or the necessary cash to exploit the region’s reserves is another matter, as Arctic oil and natural gas exploration is more technically and physically challenging than for any other environment. However, Putin added that Rosneft has a long strategic cooperation agreement with ExxonMobil, and no doubt there will be other international energy companies willing to brave Russia’s tortuous bureaucratic maze for a piece of the action.

In the early 2012 Russia plans to start the first commercial offshore oil drilling in the Arctic on its Prirazlomnoe offshore platform, hailed in the Russian media as the world’s first Arctic-class ice-resistant oil rig.

Oh, and if things do screw up in spite of Khudainatov’s promises, well, according to Russian Transport Minister Igor Levitin, addressing the same forum as Putin, the Russian government has allocated 20 billion rubles ($623 million) to construct three new nuclear and three diesel-electric icebreakers....

Canada is now starting to lay claim to major portions of the arctic, and Russia .... on the heels of this major oil/gas announcement on reserves in the arctic .... are bolstering their arctic military presence.....

Monday, September 26, 2011

3 Trillion Euros, Plan for Europe is last chance to avoid global catastrophe....

3 Trillion Euros, Plan for Europe is last chance to avoid global catastrophe....

Europe, the G20, and the global authorities have one last chance to contain the EMU debt crisis with a nuclear solution or abdicate responsibility and watch as the world slides into depression, endangering the benign but fragile order that has taken shape over the last three decades.
The threat of cascading default, bank runs, and catastrophic risk must be taken off the table," said US Treasury Secretary Tim Geithner over the weekend.

"Sovereign and banking stresses in Europe are the most serious risk now confronting the world economy. Decisions cannot wait until the crisis gets more severe."

Euroland's dysfunctional arrangements are no longer a local affair. As the European Central Bank's Jean-Claude Trichet said in Washington, EMU is at the epicentre of a global sovereign debt crisis that risks engulfing all, and is more intractable than 2008 because governments themselves are now crippled.

China, India, Brazil and the world's rising powers will not escape lightly this time if leaders let events spiral out of control. European banks have lent $3.4 trillion to emerging markets (BIS data), or three quarters of external loans to these countries.

The International Monetary Fund warned last week that emerging markets face the risk of "sharp reversals" or even a "sudden stop" if there is further spill-over from Europe. This comes at a time when Asia and parts of Latin America are already in the topping phase of a credit boom, one of epic proportions in China where loans have doubled to almost 200pc of GDP over the last five years.

Warning signs have been flashing red for the last three weeks. Shares of China's top property developer Greentown have crashed by a third this month. The currencies of Indonesia, Brazil, Korea, South Africa, and Hungary have all buckled, and central banks have begun intervening to stop the slide. "A continued flight from risk raises the growing possibility of investor capitulation in emerging markets," said Neil Mellor from BNY Mellon.

The reserve powers would be well advised to pull out all the stops to save Europe and its banking system. Together they hold $10 trillion in foreign bonds. If they agreed to rotate just 4pc of these holdings ($400bn) into Spanish, Italian, and Belgian debt over the next two years, they could offer a soothing balm. None has yet risen to the challenge. It is `sauve qui peut', with no evidence of G20 leadership in sight.

Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy.

It is an ugly and twisted set of proposals, devised to accommodate Berlin's refusal to accept fiscal union, Eurobonds, and an EU treasury. But at least it is big.

The EU's €440bn bail-out fund (EFSF) will be "leveraged" from €440bn to €2 trillion to cope with Italy and Spain. The fund will assume an "equity" stake of 20pc or so in holdings of EMU debt, supported by loans of 80pc from the European Central Bank.

Commercial banks that cannot raise money from Mid-East wealth funds will be seized by the state, partly or fully, or be recapitalized by the EFSF. This should leave them strong enough to absorb a 50pc default imposed on Greece, and potential knock-on defaults in Portugal and Ireland.

Or at least, that is the idea. We will see how the Bundestag reacts this week. It has not even voted on the July deal to boost the powers of the EFSF, itself a furiously contested plan that may provoke a 30-strong rebellion within Chancellor Angela Merkel's own coalition. German lawmakers now learn that implicit liabilities may be five times as big.

"We should not think of leveraging a public pot of funds as a free lunch," said

Ireland's central bank governor Patrick Honohan. Indeed not. The details of this financial engineering have a familiar ring to those who remember the `CDOs' and other instruments of structured disguise before the subprime debacle. The bill comes due.

We will see too whether France is willing to swallow national pride and confront its own financial elite. Christian Noyer, the Bank of France's governor, denied on Sunday that French officials were mulling a capital injection of up to €15bn to beef up banks.

"There is no plan, and we don't need one. The banks are very solid. None of them is hiding any toxic assets," he said.

What is the point of uttering such rubbish? The markets know this is untrue, and so does the IMF. It is an almost surreal refusal to recognize that investors are - for good reasons - terrified about French bank exposure to Italian sovereign debt. Mr Noyer encapsulates the mixture of stubborness and amour propre now threatening the world with disaster, and which is so like the French reflex as everything collapsed in mid-1931. Funny how they never change.

Even if the €2 trillion "Geithner Plan" does get off the ground, it can do no more than buy time - not to be sneezed at, for sure. The root of the euro crisis is a 30pc intra-EMU currency misalignment between North and South. That structural flaw cannot be solved with debt guarantees or bank rescues.

Nor can this gap in competitiveness be bridged by austerity alone, by pushing Club Med deeper into debt-deflation and perma-slump. Such a strategy must slowly eat away at Italian and Spanish society, undercutting the whole purpose of the EU Project. It would ultimately risk trapping them in a debt spiral aswell, leading to collosal losses for Germany in the end.

The Geithner Plan must be accompanied by a monetary blitz, since the fiscal card is largely exhausted and Germany refuses to lower its savings rate to rebalance the EMU system. The only plausible option is for the ECB to let rip with unsterilized bond purchases on a mass scale, with a treaty change in the bank's mandate to target jobs and growth.

This would weaken the euro, giving a lifeline to southern manufacturers competing with China. It would engineer an inflationary mini-boom in Germany, forcing up relative German costs within EMU. That would be the beginning of a solution, albeit a bad one.

Sorry Deutschland. History has conspired against you, again. You must sign away €2 trillion, and debauch your central bank, and accept 5pc inflation, or be blamed for Götterdämmerung. It is not fair but that is what monetary union always meant. Didn't they tell you?

The 20 Countries With The Most Debt --
With the recent spotlight on the debt crisis in Greece and other European nations, we take a look at the countries that are most in debt, calculated by the World Bank's data on gross external debt as a percentage of the GDP. The top ranking nations may surprise you.

The list can
be found here (click on the pictures to know each country's rating). Hint .... there are surprises in the list....

TAPI gas pipeline: Turkmenistan says no to a raw deal...

TAPI gas pipeline: Turkmenistan says no to a raw deal...

The deadline had earlier been set to July 31 but was extended when the four countries could not agree.

ISLAMABAD: Turkmenistan has rejected the gas pricing formula proposed by its prospective buyers in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, a blow to the US-backed project that Washington had been pushing Islamabad to accept as an alternative to the gas pipeline from Iran.

In a meeting held on May 17 and 18 earlier this year, Kabul and New Delhi had accepted Islamabad’s suggestion that the three buyers collectively propose a gas-pricing formula based on Turkmenistan’s cost of production, rather than being linked to the price of oil, which is the standard global practise.

Pakistan’s formula would restrict Turkmenistan to a fixed profit margin, rather than the variable rate that is usually offered to countries exporting gas. Pakistan has signed an agreement with Iran that would link the gas import price to the international price of oil.

Sources told The Express Tribune that technical teams from the four countries, in a recent meeting of the Technical Working Group held in the Turkmen capital of Ashgabat, had set October 15 as the deadline to finalise pricing details and sign the gas sales purchase agreement.

The deadline had earlier been set to July 31 but was extended when the four countries could not agree. Sources said that the buyer countries may make some concessions to Turkmenistan, including perhaps linking it to the global price of crude oil. The price of Iran’s gas exports to Pakistan are 78% based on the global price of oil.

“The four countries are expected to link the gas price with some percentage of the world crude oil,” sources said.

While no agreement appears to have yet been reached, sources familiar with the negotiations remain hopeful that the deadline for an accord will be met.

“The technical teams of all stakeholder countries have to conclude price of gas to import from Turkmenistan under TAPI gas pipeline project within ten days,” sources said adding that “We are hopeful that GSPA will be signed by October 15 to move forward on gas import project.”

In a bid to economically isolate Tehran, Washington has been pushing Islamabad to accept the TAPI project as an alternative to the Iran pipeline, going so far as to threaten sanctions if Pakistan does not comply....

Sunday, September 25, 2011

Russia in Zinc mining deal with IRAN To develop one of the world's largest zinc mines...

Russia in Zinc mining deal with IRAN To develop one of the world's largest zinc mines...

* Russia in deal with Iranian bank facing sanctions...

* To develop one of the world's largest zinc mines (Adds confirmation from Russian Energy Ministry, background)

By Vladimir Soldatkin and Thomas Grove

MOSCOW, Sept. - Russia has agreed to develop an Iranian zinc deposit that is among the largest in the world in a deal involving an Iranian bank facing international sanctions, its Energy Ministry said on Tuesday.

The agreement to develop the Mehdiabad zinc and lead deposit was reached at a trade meeting on Sept. 11 that brought Russia's Energy Minister Sergei Shmatko to Iran, the ministry said in emailed comments.

Russia, whose biggest gas firm once withdrew from Iran's energy sector due to tightening international sanctions, built the Islamic state's Bushehr nuclear power plant, which joined the grid earlier this month.

"The parties agreed to develop cooperation on a project involving the construction of a mining plant and exploitation of the Mehdiabad zinc and lead deposit," the ministry said.

Citing a source close to the talks, popular business daily Kommersant said the project's cost was estimated at $1 billion-$1.2 billion.

The deal calls for a joint venture linking state conglomerate Russian Technologies, Russian firm KAPSAD international and Iran's Saderat Bank, which faces U.S. and United Nations sanctions.

Kommersant said the deal was being shepherded by powerful Deputy Prime Minister Igor Sechin.

The source said Iran was insisting on participation of the state-owned export-focused Saderat Bank, which was named in a 2008 U.N. Security Council resolution, approved by Russia, that tightened sanctions on Tehran for its nuclear activities.

The Security Council urged states to "exercise vigilance" over the bank's activities abroad to avoid contributing to "proliferation-sensitive nuclear activities, or to the development of nuclear weapon delivery systems."

Two years earlier, the United States had barred the bank from any direct or indirect dealings with U.S. institutions citing it as a "significant facilitator" of the financial activities of the Islamist group Hezbollah.

Veto-wielding permanent member Russia has backed four successive rounds of Security Council sanctions against Iran over its nuclear programme, which Western nations fear is aimed at acquiring weapons.

But it has worked with China to water down the resolutions and has criticized additional sanctions imposed by the United States and European Union, saying they could undermine efforts to persuade Iran to rein in its nuclear activities.

While Russia is a member of the six-nations seeking to engage Tehran on its nuclear programme, it has warmer ties with Iran than Western nations do. Its state-run gas giant Gazprom said last week it may take part in developing an Iranian oil field.

Under the U.N. resolution, vigilance over the bank's activities is limited to its activities abroad, limiting the scope for opposition to the reported project.

Deposits at the Mehdiabad reserve, near Yazd in central Iran, amount to 394 million tonnes of zinc, lead and silver, it said.

Development rights until recently belonged to Mehdiabad Zinc Co, which had Australian partners, but the report said that its license had been recently revoked....

Derivatives Ownership Even More Concentrated Than Ever Threatening Global Economy...

Derivatives Ownership Even More Concentrated Than Ever Threatening Global Economy...

5 banks held 80% of America’s derivatives risk....

Since then, the percent of derivatives held by the top 5 banks has only increased.

As Tyler Durden notes:

The latest quarterly report from the Office Of the Currency Comptroller is out [shows] that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure …. the top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that’s your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

OCC%201 Amount and Concentration of Derivatives Still Threaten Global Economy

Amazingly, the top 5 banks have virtually 100% of all credit derivatives held by American banks (see the second to last line in the above table).

Dwarfing the World Economy

The amount of derivatives dwarfs the size of the world economy. As Bloomberg reported in May:

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said …“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in write-downs and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.

Huge Amount of Derivatives Are Dangerous

Credit default swaps were largely responsible for bringing down Bear Stearns, AIG (and see this), WaMu and other mammoth corporations.

And unexpected changes in interest rates could cause a major bloodbath in interest rate derivatives.

And, no, there have not been any reforms or attempts to rein in derivatives, and the Dodd-Frank financial legislation was really just a p.r. stunt which didn’t really change anything.

But the big banks and their minions claim that the huge amounts of derivatives themselves is unimportant because these are only “notional” values, and – after netting – the notional values are deflated to much more modest numbers.

But as Durden – who has a solid background in derivatives – notes:

At this point the economist PhD readers will scream: “this is total BS – after all you have bilateral netting which eliminates net bank exposure almost entirely.” True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small… Right?

Netting Amount and Concentration of Derivatives Still Threaten Global Economy

AIG is CIA Wall to Wall from inception....

…Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG/CIA...: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG/CIA.... And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd’s bank “resolution” provision would do absolutely nothing to prevent an epic systemic collapse.

Prior to Fukushima, nuclear industry engineers said nuclear was safe....

Friday, September 23, 2011

Net Asset Value of Precious Metal Trusts and Funds.... Europe's utter Indecision continues....

Net Asset Value of Precious Metal Trusts and Funds...Europe's utter Indecision continues....No one really knows where real power happens to be......

Although it is slightly less visible to those who only look at US equity markets, there is a liquidation sell off in the world markets especially Europe. This is helping to steepen the correction in the metals markets.

Notice from this chart that the gold/silver ratio is back over 50 again. And so I have become interested in silver again today for my short term interests.

It is important to keep this re-tracement in context, as alarming as it might be even for those who hold positions for the long term but watch their portfolios in the short term.

Comex expiration is next week. This is always an occasion for mischief, and I think the metals were hit particularly hard because of the delivery situation shaping up on Comex.

But the key driver is the European sell-off and the search for liquidity amongst traders and funds. So if you wish an indicator of the future watch how that situation develops.

Once the short term players have raised their cash, the selling will abate and reverse, even if the situation does not remarkably improve. That is how markets work in their different time frames. Treasuries are getting bought to insanity as investors seek to flee European related risk.

And this is why I have two sets of portfolios: short term and long term. And I use two very different sets of strategies and tactics in them. And truth be told, despite some amazing ups and downs in the short term, I make most of my lasting gains in the long term portfolio where I sit and wait on the fundamental trends.

So I have to ask, 'is the gold bull market over?' And so I have added the second chart which shows the market in a longer term context. So far we have had a fairly typical Fibonacci re-tracement, and the longer term trend lines are intact.

If Europe 'collapses' then we might see a greater sell-off similar to that of the Lehman moment in the US. Will Europe collapse in a liquidity panic even deeper than we have seen thus far? I cannot forecast the unknowable, except to say that it is possible, but not probable unless the currency war intensifies and both North America and Asia begin to beat the Europeans while they are down. And if Europe falters, then the UK is next, and then Asia. The financiers have no loyalties, but they need the US dollar at least for now.

Talk is cheap. Europe has to find itself, and decide to DO something. This is one of the darkest hours in their ongoing identity crisis. And the financial wolf packs are taking advantage of their indecision....

The Price of Gold in 2160 - Stats-guy and James Kwak

I had to read this essay twice to make sure it just was not satire. I can summarize my reaction by saying that finding gold in outer space with assumed technologies speaks to supply, but the author does not present any assumptions about population, economics structures, and of course future demand.

The method by which gold is formed in relatively rare supernova events is fairly well known, and its distribution relative to other elements and compounds is not completely eccentric, at least not as random and eccentric as pseudo-scientific economic theories might become these days.

The author's premise of the discovery of new bullion supplies in outer space is analogous to the discovery of the New World by Europeans, and the remarkable finds of gold and silver on those two vast continents.

And yet here we are today.

Some might say that the author was merely saying in a cute way that commodity based currencies always fail, with an example being salt or Yap stones as Mr. Buiter had argued to greater effect.

And I would say that all currencies do go in and out of favor in their time, since there is an element of relativism in value that can be enforced by ruling authorities, who themselves tend to come and go, even if in their time these authorities might seem invincible, their empires intended to last for a thousand years.

But some stores of value, not based on passing utilitarian criteria or force, do tend to be resilient, and come back again and again, and retain an element of value from generation to generation. Or as some might with a more profound understanding of money might say, they maintain the confidence of their steadfastness that is a pre-requisite of sound money that is difficult to maintain by mere force of will.

As some historians of money have pointed out, the Federal Reserve was initially set up to emulate this type of external immutability of value in what later became a purely fiat currency. As men like Andrew Jackson would have predicted, they failed in exactly the same ways and for the same reasons that every other attempt at this has failed throughout history.

All systems are prone to corruption and decay, but none so much as those that rely exclusively on the goodness and wisdom of small groups of powerful men, especially when acting in secret.

It does seems quite cheeky for a modern economist to criticize a natural store of value with a 5000 year history, while standing on the platform of a purely fiat currency, given the short half life of every fiat currency throughout history. They may be recreated and devalued, but they never retain much of their value and character, with the only remnant their name.

I hear the sounds of printing presses over the horizon. Get ready for Quantitative Easing European style, and massive European bailouts, and increasingly absurd arguments from the econo-sphere as they avoid the subject of justice for the sake of expediency.

I have some limited sympathy for the dilemma facing the increasingly desperate western central banks, and understand their rationalizations. But they are doing something that is the very epitome of moral hazard, and abuse of power, in their attempts to stabilize the unsustainable, without allowing for meaningful change and reform.

The heart of the issue is that the existing monetary and financial system is becoming increasingly arbitrary and corrupt. A relatively small group of interconnected crony capitalists wishes to create a digital money out of nothing, and distribute it increasingly as they will, to whom they will.

And this is the basis of my resentment with this policy abuse, and the irritation with the assault on reason by those in the financial demimonde engaging in what might be politely called perception management.

This self-serving arbitrariness, even if done for 'good motives,' is the very reason why all fiat currencies fail. No matter how you want to rationalize it they are going to create money out of nothing, and give it to whom they will, while corrupting the political system in the process.

And the cumulative results of this abuse of power are corrosive to society. Lawless example by a ruthless few brings out the worst in all the people, always. And that is a shame.

"Our government teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”

Louis D. Brandeis

“A year from now the dominoes will be falling in Europe. The world is going to be a more destabilized place….The risk free rate isn’t risk free any more. We’re not growing as we should be because there is a diminishing rate of return for each additional dollar of debt. In a year, we’re going to be in recession again,”

Use the Spike to Trash the Euro. Some 25 minutes before the Thursday opening, news hit the tape that the largest European central banks would pool funds to provide short term liquidity for European banks. Shares rocketed, with most bank shares rocketing 10% or more in minutes. More importantly, the Euro popped as high as $1.3940 in the futures market.

I prayed that the European currency would levitate for a few more minutes. Then, when the options market opened, I hit the market as fast as I could, loading up on puts on the Currency Shares Euro Trust ETF (FXE).

I think that the central bank move was at best a temporary Band-Aid designed to staunch the capital pouring out of the continent’s largest financial institutions. Many US banks have been boycotting European borrowers in the money markets in recent days, so governments are stepping in to provide crucial short term liquidity.

I have been arguing vociferously that the Euro was about to break out of the $1.40-$1.45 range that prevailed all year into a new, lower $1.35-$1.40 range . However, I didn’t expect the Euro to make the entire move down to the bottom end of the new range in a single day, which it did.

This move does absolutely nothing to address the European Community’s long term structural problems, which will continue to be a recurring investment theme for years to come. Not only does Europe lack the mechanisms and the institutions to implement an American style quick fix, like the TARP, it is also missing the will to enforce them. History in Europe is measured in millennia, and solution of the current debacle could take as long.

So I have to take this morning’s hot money short squeeze back up to the top of the new range as a gift. If the Euro continues to appreciate all the way back up to $1.42, I will double up. If we make it as high as $1.43, and unlikely event, I will stop out of my short positions. I’ll be taking a profit on the options the next time we close in on $1.35, which should give me a 60% profit.

Notice that I went out to the December expiration (12-16-2011) with this trade. I think that we could get a further year end liquidity squeeze that could break the Euro out of this new range all the way through $1.30. Would that be a nice way to get into Christmas, with one more home run?

Those who are unable to play in the options market, there is an excellent ETF that gives you a 200% short position in the Euro against the dollar, the (EUO). You should be buying this on dips to capitalize on this trend, since this is an inverse ETF.

What is my longer term goal for the Euro? Parity against the dollar....

Nondominium - the Caspian solution... A Caspian partnership...

Nondominium - the Caspian solution... A Caspian partnership...
By Chris Cook

Twenty-first century problems cannot be solved with 20th century solutions. Nowhere is that saying so true as in territorial disputes where oil and gas are involved.

The riches of the Caspian Sea have been the subject of dispute for years, and relatively simple - but still intractable - binary issues between Iran and Russia are now multiplied by the conflicting claims of what are now five littoral Caspian nations: Azerbaijan, Iran; Kazakhstan; Russia and Turkmenistan. Their claims relate not just to rights on the Caspian Sea surface, but to rights in the sea, and above all to the rights to the treasures that lie under it.

There are two 20th century legal approaches: international law and common law (equity). There have been proposals for "co-ownership" by the nations, but such a condominium - as it is known - has received little favor. In the North Sea, rights to production from oil and gas fields are now dealt with through the use of a common law "Master Deed" agreement. While this is imperfect, it is a great improvement on the complete legal nightmare that preceded it.

At the Gas Infrastructure World Conference in Baku, Azerbaijan, this week the hot topic was the unprecedented agreement of all 27 European Union nations to join forces in support of the proposed Trans-Caspian Gas Pipeline, which will enable Turkmen gas to fill - and make more economically viable - the proposed and troubled Nabucco gas pipeline to Europe.

Good news and bad news
There was no official Iranian presence at the conference, but, speaking purely in a personal capacity, Mahmood Khaghani had some very interesting things to say in response to the UK Foreign Office representative, Angus Miller. Khaghani was for many years a very senior, and innovative, official of Iran's Petroleum Ministry, including a period as the director general of oil and gas affairs in the Caspian region. He originated the Caspian Swap, whereby Caspian producers of crude oil could supply crude oil to Iran and receive in exchange crude oil in the Persian Gulf.

After dryly congratulating the EU 27 on being able to agree on something, Khaghani's intervention was to the effect that he bore good news and bad news. The bad news was that in his opinion, neither Russia nor Iran had any interest - under the current Caspian international regime - in consenting to such a sub-sea Trans-Caspian pipeline.

The good news was that he brought with him a constructive and innovative 21st century proposal that may enable the current Caspian logjam to be broken. Moreover, if the proposal can work in the Caspian, it can probably work anywhere.

A Caspian partnership
The proposal is that the littoral states should form a Caspian Foundation legal entity, and commit to that entity all existing rights in respect of the use, and the fruits of use (usufruct), of the Caspian Sea, and everything on it, in it, or under it. The Caspian Foundation would act as custodian or steward and the nations would have agreed governance rights of veto.

This negative or passive veto right of stewardship is very different from conventional property rights of absolute ownership and temporary use under condominium. Moreover, it does not have the active power of control held under common law by a trustee on behalf of beneficiaries, and the legal complexities and management conflicts which go with it.

The Caspian Foundation would be a subscriber to a Caspian Partnership framework agreement between the nations, investors of money or money's worth, and a consortium of service providers.
This Caspian Partnership would not be yet another international organization, with everything that goes with that. It would not own anything, employ anyone or contract with anyone: it would simply be an associative framework agreement within which Caspian nations self-organize to the common purpose of the sustainable development of the Caspian Sea.

While such a consensual framework agreement would tend to align the interests of the Caspian nations, it is entirely possible that expectations will diverge so much as to make any agreement impossible.

My first reaction is that within such a framework agreement much is possible. In particular, I can envisage a new "pool" of Caspian oil and gas production that would open up the sort of new financing and funding options through unitization (ie simply the issue and sale by producers of credits redeemable in payment for gas) of which I have written previously.

It also opens up the possibility of a Caspian "balancing point" spot gas price in just the same way as there is already a virtual national balancing point at which the UK spot natural gas price is set.

Many indigenous peoples, such as American Indians and Australian Aborigines, find it impossible to understand how anyone can own land. Whereas, most religious traditions - including Christianity, Islam, and Judaism - were all founded upon a belief that absolute ownership, particularly of land, is God's alone, and that a tribute should be paid accordingly, such as a tithe.

I believe that an apt term to describe this proposal's essentially Gandhian approach to the property relationship is as a Nondominium - and my instinct is that such a framework could revolutionize international economic relations.

Chris Cook is a former director of the International Petroleum Exchange.

Thursday, September 22, 2011

Russia dominates ’great pipeline game’ with fresh moves...

Russia dominates ’great pipeline game’ with fresh moves...
Ali Kayalar
September , 2011
Moscow is gaining more influence through new deals to provide natural gas for Europe and might become the sole supplier in the continent soon, experts say.

Russia’s Gazprom has taken another step forward in a fierce competition to carry natural gas to the European Union after a hot week of deals, share transfers and critical decisions.

The EU’s decision last week to “directly” negotiate a treaty with Azerbaijan and Turkmenistan was a move that weakened Turkey’s position in both buying and transferring natural gas to Europe, according to Necdet Pamir, a board member at the World Energy Council Turkish National Committee.

Turkey has already signed “unbeneficial” accords regarding Nabucco, the languishing project to carry Caspian gas to Europe, according to Pamir. “Nabucco is an important project for both Europe and Turkey in terms of supply security,” he told the Hürriyet Daily News, adding that current contracts are not in Turkey’s favor.

“The state-owned Turkish Pipeline Company, or BOTAŞ, correctly insisted on better transfer prices and the right to sell the gas in a bid to turn the country into an energy hub,” Pamir said. “Unfortunately, the government could not achieve these benefits.”

Azerbaijani Industry and Energy Minister Natig Aliyev said last week that the remaining conflicts between Turkey and his country about a supply deal are over costs.

Stronger Moscow

Russia meanwhile reacted harshly to the EU’s decision to negotiate directly with Azerbaijan and Turkmenistan. “Outside attempts to meddle in affairs in the Caspian ... could very seriously complicate the situation in this region [and] negatively affect the ongoing five-party negotiations on the Caspian Sea’s legal status,” the Russian Foreign Ministry said on its website.

In another development, Russian behemoth Gazprom strengthened Moscow’s hand by adding France’s EDF and Germany’s Wintershall to its South Stream, and launching the Nord Stream. Russia announced that the first unit of Nord Stream, which will transfer gas to Germany via the Baltic Sea, bypassing Ukraine, will be finished by the end of this year. The project is expected to cut gas carried over Ukraine by 50 percent.

An energy market professional close to the issue said that with Nord Stream, which is a more concrete project than either South Stream or Nabucco, Russia is nearing its goal to become almost the sole natural gas supplier for Europe.

“Domestic production in Europe is falling since the resource in Norway is old,” the source told the Daily News, speaking on condition of anonymity. “Europe will have to meet 74 percent of its natural gas [needs] from Russia by 2030.”

Regarding possible suppliers of gas for the Nabucco pipeline, Pamir said Iranian resources can scarcely meet domestic demand of 137 billion cubic meters annually. “Iraq, another possible supplier, is facing political problems,” Pamir added.

Commenting on other handicaps of Nabucco, Pamir said the project’s initial cost was calculated at 4.6 Billion euros. “Today it is estimated at more than 12 billion euros,” he said....

“Russia has constructed pipelines and knows how to play this game,” Pamir said. “The U.S. is rising with shale gas, but Russia has the potential to become the main actor once again.”

Mongolia resource sales hit headwind, and Russia heads for slowdown...

Mongolia resource sales hit headwind, and Russia heads for slowdown...
By Steven Borowiec

ULAN BATOR - As Mongolia is cashing in on its enormous resource wealth, tensions are building between the Mongolian government and foreign investors. Strain is also growing in Mongolian society in general, as citizens push their government to closely regulate foreign businesses and more widely distribute revenue from resource deals.

The Mongolian government is moving forward on a number of projects to turn its minerals into money. None of its endeavors are bigger than the privatization of Erdenes Tavan Tolgoi, the state-owned firm that controls one of the world's largest deposits of coal, which is expected to raise US$300 billion. Tavan Tolgoi's initial public offering has been delayed until at least the first quarter of 2012 and will likely be made on three different exchanges: Ulan Bator, London and Hong Kong. Mongolia seems to be looking to put its eggs in a number of baskets.

The first proposals for the development rights to Tavan Tolgoi, submitted by consortiums from China, Russia, and the United States, were rejected by Mongolia's National Security Council.

Thailand's biggest coal producer, Banpu, hasn't been deterred by the challenges of working in Mongolia. It recently committed to buying all remaining shares of Hunnu Coal, of which it currently owns 12%. In order for Banpu to gain full control of Hunnu, the bid must be approved by Mongolia's regulatory council. Hunnu has 11 coking and thermal coal projects in Mongolia, which will be fully controlled by Banpu if the acquisition is approved.

How to split the spoils of Mongolia's extractive industries is a sore point between foreign firms and the Mongolian administration, and there are signs that the Mongolian government might be getting more selective about what terms it is willing to accept. A group of 20 members of Mongolia's parliament are petitioning for changes to an agreement with Australian firm Rio Tinto over the Oyu Tolgoi mine. The members of parliament hope to get the Mongolian government a larger share of the revenue from Oyu Tolgoi.

The toughening government stance is believed to be inspired by displeasure among the public who see their country's resources being carted off without tangible improvements to their quality of life.

Relations between the government and foreign investors could worsen significantly if a ban on mining in Mongolia's river and forest areas, which is set to expire at the end of 2011, is extended in October when the Mongolian parliament convenes for its autumn session. The ban went into effect in 2009 and interrupted the workings of firms whose licenses were suspended. Intended to protect forests, rivers and lakes from harmful mining projects, the deal has been roundly criticized by investors who called it unfair and claimed it cast unhelpful doubt on their ability to do business in the country.

The Mongolian government appears to be making an earnest effort to help citizens who aren't directly benefiting from the current influx of revenue. Resource-rich countries have always grappled with the question of how to build a broadly successful society from a source of wealth that doesn't employ many people and is controlled by a small group. In Mongolia, the extent of inequality and challenges of distribution are severe.

In an attempt to boost domestic, non-mining businesses the Mongolian government has raised 108 billion tughrik (US$85.5 million) in bonds as part of a 300 billion tughrik bond issue. The bond sale began on August 9. The bonds are being sold on the Mongolian Stock Exchange.

The 300 billion tughrik will be distributed as assistance to small and medium-sized enterprises, producers of wool and cashmere products, and herders who provide unrefined camel and sheep wool to domestic factories.

In July, government revenues were $199.8 million more than had been projected. While the coffers are swelling, many Mongolians are living in poverty. Mongolian officials have allotted a portion of the country's new riches to programs intended to address poverty and unemployment. Many of Mongolia's poor live off government benefits and are driven to alcoholism by boredom and purposelessness.

From July's budget surplus, $74.4 million will be used for initiatives to boost employment and health programs. About $2 million will be used to develop small communities in the hinterland and therefore discourage rural to urban migration.

The Mongolian government is sponsoring job fairs in the capital and has declared 2011 the "year of employment". The recent Job Fair 2011 targeted a certain kind of job seeker: well-educated, fluent in English, and recently returned from studying abroad. Few Mongolians fit this description.

Mongolian officials are in the midst of a difficult balancing act. They are trying to maintain good relations with its foreign business community while assisting citizens and protecting the country's environment as they seek to profit from it. With business and government digging in their heels as a series of high-profile agreement are pending and citizens discontent apparently on the rise, it remains to be seen if they can make everyone happy....
Russia heads for slowdown...
By Robert M Cutler

MONTREAL - Near-term economic growth in Russia will be consumer-driven, as government spending and transfer payments, together with an unwillingness to raise taxes, will lift disposable income and real wages in the run-up to parliamentary and presidential elections.

That is the consensus of three authoritative public policy studies by different Moscow research centers, according to the Russia newspaper Nezavisimaya gazeta. Also, economic growth is not foreseeable, and a new crisis is increasingly likely.

According to the newspaper, political uncertainty over the presidential elections next year, in addition to a general mistrust of the investment climate, is responsible for a decline in investment. The privatization plan announced with great fanfare in 2010 was expanded this year, but the full plan has still not been authorized and may undergo further modification before approval.

Newly released economic statistics from Russia point to a stall in the economy, and there is a consensus inside and outside the country among independent experts that things will likely get worse before they get better. Paradoxically, business confidence inside the country is higher than a year ago. The Purchasing Managers Index (PMI) in manufacturing dipped below the neutral level of 50 in August but remained expansionary at 52 in the service sector.

Gross domestic product (GDP) during the second quarter of the year grew only 3.4% over the same period in 2010, compared with a 4.1% growth rate in the first quarter. Russia is the slowest-growing of the BRIC (Brazil, Russia, India, China) countries. A major reason why is that that oil and gas make up about one-sixth of its GDP (the figure for Brazil, for example, is one-tenth) and two-fifths of government revenue; and world prices for these energy resources have been falling.

The price of Urals blend, Russia's benchmark export product, has been oscillating lately around $110/barrel after hitting a high near $123/barrel in April. Commerzbank has estimated that a $10 decline in the price of oil increases the government budget deficit by 1.5% of GDP, while a separate study last year estimated that such a decline also slows overall economic expansion by 0.5%.

Thus last week the economic ministry warned that a hypothetical negative world economic scenario next year, with an oil price decline to US$60, could stymie economic expansion and lead to a "substantial" devaluation of the rouble. Finance Minister Alexei Kudrin affirmed the estimate publicly in St Petersburg.

Nevertheless, President Vladimir Putin earlier this month projected GDP growth at 4.2% to 4.3% for calendar year 2011. This is slightly higher than the independent international consensus. The World Bank expects the Russian economy to grow by only 4% this year, with the rate falling to 3.7% in 2012.

The rouble-denominated MICEX stock index in Moscow closed at 1,507 yesterday, down from a high of 1,860 in early April after breaking to the downside through a combined medium- and long-term support at 1,525 (short-term support still at 1,430), while the dollar-denominated RTS was at 1,503, down from 2,124. The fact that they are at nearly the same nominal level yet with radically different highs for the year reflects the rouble's weakness. Indeed, the rouble has closed down against the central bank's dollar-euro basket for nine consecutive trading days, falling 5% in two weeks.
The central bank's current target "corridor" for the rouble between 32.15 and 37.15 to the dollar in a "managed float", where the market is in general allowed to determine its value while the central bank, rather than trying to influence it on a day-to-day basis, intervenes so as to alter overall patterns in the fluctuation or to reduce the effects of external economic shocks.

The Customs Union with Kazakhstan and Belarus has so far had little effect on the Russian economy. Ukraine's new orientation towards negotiating a free trade agreement with the European Union will draw away an important potential anchor. Only smaller, further-flung economies such as Kyrgyzstan and Tajikistan have expressed an interest in joining the Customs Union, which remains mainly a multilateral fig-leaf for managing Russia-Kazakhstan economic relations. This is, in fact, more a political than an economic union.

According to the World Bank, a series of simulation exercises showed that the implementation of the union would put brakes on trade with third countries, weakening the international position of its participants. Moreover, their membership in the Customs Union will only complicate their individual attempts to join the World Trade Organization, while the prospect of their adhesion en bloc lacks a well-defined organizational mechanism.

The fact that Russian industry is generally uncompetitive on world markets and the dependence of the country's trade turnover on natural resources are disincentives for Moscow to embrace a global trading regime. And Georgia, where Russian troops in South Ossetia and Abkhazia have only cemented the Kremlin's grip on these regions, continues to block Russia's bid for World Trade Organization membership....

Wednesday, September 21, 2011

OVL–Cyprus-Based Indian Oil and Gas Co. and Gazprom....

OVL–Cyprus-Based Indian Oil and Gas Co. and Gazprom....

[Through a series of acquisitions and renaming of operations, connections between national oil and gas corporations are hidden... Only through a thorough researching of the names involved can we hope to know who is drilling where and who is offering cover for big corporations devouring little fish and stirring-up international tensions in the process.... We see from the following that the international monster corporation Gazprom is tied to the new Indian/Vietnamese/Chinese tensions developing in Vietnam's Block 128. Gazprom is also tied to Israel/Cyprus/Turkey/Lebanon tensions over drilling in the Mediterranean... Gazprom and Vietnam are partners on much of the offshore drilling, except, reportedly, on block 128. Now we find that Vietnam's partner in the coming intrigue, OVL of India, has a base of operations in Cyprus, which has purchased Russian assets in Siberia and Sakhalin. Through a complicated of arrangements, Gazprom's hand is hidden in the challenge to China and India's possible involvement in the tensions brewing in the Eastern Med are hidden, as well... Behind all of this, the US hand is nearly invisible, as is the British Petroleum connections....but we have to remember that Russia has joined the axis of Evils CIA/MOSSAD/MI6 for good....]

OVL, ONGC Videsh Ltd., is a wholly owned subsidiary of Cyprus-based, ONGC–

Ongc Nile Ganga (Cyprus) Limited
Themistokli Dervi, Nicosia 1066, Cyprus

Blocks of Vietnam's continental shelf in Gulf of Bac Bo

Blocks of Vietnam’s continental shelf in Gulf of Bac Bo

Gazprom and Vietnamese oil and gas corporation Petrovietnam signed a cooperation agreement on November 20, 2006. The agreement provides for cooperation of the companies in the following areas:

Blocks Nos. 112 and 129–132

–[excludes Block 127 and 128, India/Vietnam block. Even though Gazprom is not an obvious partner in India/China/Vietnam spat, OVL and Gazprom partner in Siberia, making Gazprom indirect participant in China S. China Sea challenge.--editor]

Gazprom and Petrovietnam signed a strategic partnership agreement on December 15, 2009. The document provides for cooperation of the companies in the following areas: (AREA 3)

  • active cooperation in oil and gas projects in Russia, Vietnam, and third countries within the established Gazpromviet company (in particular, the parties are considering potential participation in development of the Naguman oil, gas and condensate field as well as in projects for exploration and development of subsurface areas in the Republic of Sakha, Eastern Siberia, and the Far East);
OVL Logo



Sakhalin-I :

Participating Companies and their Shares :OVL – 20%,Exxon–30% ,Sodeco – 30% ,SMNG – 11.5% ,RN Astra – 8.5% (Operator – Exxon Mobil)

Sakhalin-1 is a large oil and gas field in far east offshore in Russia. OVL acquired 20% PI in the project in 2001. The exports of Sakhalin -1 crude oil started from September, 2006. The project is operated by Exxon Mobil. OVL’s share of production from the project was 1.474 MMT of oil and 0.415 BCM of gas during 2010-11 as compared to 1.532 MMT of oil and 0.390 BCM of gas during 2009-10.

Specifics on OVL’s Vietnamese South China Sea Acquisitions....


Block 06.1 :

Participating Companies and their Shares :OVL-45%,BP-35% ,PV-20% ,(Operator – British Petroleum (BP))

OVL, British Petroleum (Operator) and PetroVietnam have developed the Lan Tay field in Block 06.1 offshore Vietnam. The field started commercial production of Gas in January, 2003. The project is operated by British Petroleum. OVL’s share of production from the project was 2.249 BCM of gas and 0.038 MMT of condensate during 2010-11 as compared to 1.967 BCM of gas and 0.042 MMT of condensate during 2009-10. OVL’s share of the development expenditure was about USD 244 Million till 31st March, 2011.

Vietnam Asset Block 127 :

Block 127 is an offshore deepwater Block, located at water depth of more than 400 meters with 9,246 sq km area in Vietnam. The PSC for the Block was signed on 24th May, 2006. OVL holds 100% PI in the Block with Operatorship. OVL has acquired 1,150 sq km 3D seismic data in the Block and the interpretation of the seismic data has been completed. Location for drilling of exploration well was identified and the well was drilled in July 2009 to a depth of 1265 mts. As there was no hydrocarbon presence, the Company has decided to relinquish the block to Petrovietnam. The Company has invested approx USD 68 million till 31st March, 2010.

Block 128 :

Participating Companies and their Shares :OVL- 100%

OVL signed a contract for 100% stake in the project in May, 2006. The project is operated by OVL. OVL had deployed the Rig Hakuryu-V on well B 128-RV-1X on 2nd September 2009 for drilling. However rig could not be anchored despite adding Piggy Back to the existing anchors. The drilling activity was terminated and it is planned that the location would be drilled in 2012 subject to successful field testing of anchors. OVL has invested about USD 46 million till 31st March, 2011 ....

Who needs banks but the utterly corrupt elites working in the shadows...?

Who needs banks but the utterly corrupt elites working and plotting in the shadows...?
By Chan Akya

Three years ago at the height of the liquidity crisis in 2008 I wrote a series of articles on the outcome of various interventions (see "Related Articles"). It is with grim satisfaction that I note many of the predictions have indeed come through; some of which were:

1. Asia would need to focus on physical assets to maintain purchasing power;
2. European sovereign debt would erupt if governments tried to save their banks (See:
Europe - into the end game, Asia Times Online, September 15, 2011);
3. Anyone who purchased bank shares at the 2008 "lows" would regret their decision.

Over the past 10 days or so, a number of headlines have popped up which take my "banks are not trustworthy" thesis well past its logical end point and into entirely uncharted territory. That point would be the otherwise-unmentionable notion (and that is all it is

for now) that the global financial system may have reached its breaking point, and perhaps even its sell-by date.

Before delving into that conclusion though let us look at recent developments:
  • Firstly, there is the discovery of the trifling US$2.3 billion in losses due to unauthorized trading by UBS in its London operations. That such a loss could happen in a bank that was rescued barely three years ago by the Swiss central bank is bad enough; revelations that the loss pattern (ie the mechanism that keeps the dangerous trades hidden from review and proper risk management) took hold in 2008 and went undiscovered for three years made it a whole lot worse. Singapore's Government Investment Corporation, which is nursing a multi-billion dollar loss on its investment in UBS, issued a terse statement earlier in the week expressing its disappointment. Where is Singapore-style corporal punishment (remember Michael Fay - the young American sentenced to caning in 1994 for theft and vandalism) when you really need it?
  • European newspapers are reporting that large companies in the region, including household names like Siemens and others, have cut their deposits with banks and placed funds directly with the European Central Bank (ECB). This helps them to circumvent credit risk altogether but does bring into question what the role of banks as deposit taking institutions would be.
  • The UK released its much-anticipated "Vickers report" that calls for a split between real banking and its casino counterpart through capital barriers and avoiding all manner of cross-funding. What was a good idea, though, fell on its face during the execution as the report called for an eight-year implementation time-frame (2019); if all other reforms are any indication, then one should expect that the real deadline is "never". This kind of shameless lobbying shouldn't be possible by any industry, let alone one that essentially survives on the public whim.
  • Reports out of the US that Bank of America was considering an idea to place its troubled Countrywide subsidiary into bankruptcy (even if the rumor was strenuously denied) helped to bring forward awkward questions about the rest of the bank and its solidity.
  • The downgrade of French banks has been followed by reports of Asian (mainly Chinese) banks have been pulling swap lines and terminated foreign exchange (FX) trading relationships with the banks.
  • A number of French banks were reported to have put out large portfolios of assets for sale - one bank put up $70 billion for sale on its own. Alarmed by the possibility of European liquidity events driving down prices of American fixed-income assets (deservedly in my opinion, but that is absolutely not the main point here), the US Federal Reserve provided a swap facility to the ECB under which the latter could provide US dollar funding to European banks in return for European (ie euro-denominated) collateral.

    Considering that the ECB accepts all manner of collateral including Greek debt, in effect the Federal Reserve (and ultimately US taxpayers) are now lending money against Greek bonds. If the regulatory and central banking authorities have to resort to such morally bankrupt measures three years after effecting a wide-ranging rescue of the banks, then we all truly have to wonder quite how bad things are below the surface.
  • Bank earnings for the third quarter of 2011 - set to be released in less than a month - are expected to reveal falling profitability due to declining revenues from fixed-income trading as also continued rises in actual defaults by borrowers, particularly in areas such as individual and mortgage borrowers in the US.
  • On the issue of Greece, press reports continue to highlight the gaps in banks' provisions for the country. Recent reports have shown that two state-owned "bad" banks in Germany own almost half of the country's total exposure to Greece. This is a good thing - considering that in various other European countries exposures are more widely spread and far less provisioned. In every possible way, a nightmare for regulators.
  • The really bad part is that I have so many other stories to add here but will not in the interests of space: the little scandals dotting Italian banks, the bigger problems being faced by American banks on their accounting for dodgy assets, rising loan losses in Japan, irrational lending in China, corruption in Indian banks and so on.

    When you step back and think this through, it is apparent that the banking system is failing in its basic functions of taking deposits, making loans and even in terms of transferring payments (as happens when Chinese banks no longer want to face their French counterparts) across borders.

    So what does a world without a developed financial system look like? It is quite likely that international payments will simply shift back to central banks - so when a transfer needs to be made from Hungary to Thailand, it is not branches of private banks that do the transfer but the two countries' central banks. Similar stuff happens within payment zones, for example within the euro-zone where banks seem most chary of facing each other.

    Once the payment functionality is removed from the banks, what remains is the basic lending and deposit taking functions. There isn't a whole lot of evidence that banks can do these functions any better than non-banks; if anything the current evidence is to the contrary. After De-leveraging and significant rises in capital, the consolidated banking system would become a more boring place that is less integral to the global economy. Good thing, that.

  • Weak and corrupt leadership from all around the world, not just one country, but all of them....