Drumbeat: October 17, 2010

U.S. deal with European oil firms hobbles Iran Air

TEHRAN - A recent agreement between four of Europe's largest oil companies and the United States aimed at further isolating Iran is already having an impact, with Iran Air, the Islamic Republic's national carrier, unable to refuel its planes in most of Europe.

The fueling problem follows a new push by the Obama administration to move beyond the strict letter of sanctions it imposed to a broader attempt to discourage international businesses from dealing with Iran.

It also illustrates a shift away from an earlier U.S. policy of reaching out to the Iranian people and trying to target mostly state organizations central to Iran's nuclear program. Officials now admit that the increased pressure is hurting ordinary Iranians but say they should blame their leaders for the Islamic Republic's increasing isolation.

Petroplus Says Refineries in France, Switzerland Affected by Labor Strikes

Petroplus Holdings AG said it is shutting down some operations at its Reichstett, France, and Cressier, Switzerland, refineries because of labor disputes.

Restart of the Reichstett plant “is dependent on the outcome of the strikes,” Petroplus said in a statement today. It will meet with the works council on Oct. 21, it said.

OPEC caught in dollar crossfire

OPEC nations seeking higher oil prices to boost revenues may get their wish as the sliding dollar sees investment switch from the US currency and into crude and other commodities, according to analysts.

Yet higher commodity prices, which help to push up inflation, are also seen as a threat to the economic recovery.

Challenges in store for the energy industry

In the past three years, oil producers have grappled with one industry-changing crisis after another.

It started in 2008 with the record run-up in crude prices to US$147 per barrel in July that year, followed by the most sustained fall in prices in the history of the industry as fuel demand dried up with the onset of the global downturn. At the same time, capital for new energy projects became much more difficult to raise because of a combination of constrained cash flow and the world financial crisis that triggered the economic collapse.

Russia and Middle East control 63% of world oil and gas reserves and 39% of world oil and gas production

Russia and Middle East energy businesses are embarking on new partnerships that will see joint investment projects in each other's core energy activities. Badr Jafar, Executive Director of the Crescent Group of Companies, explains the active role being played by Crescent in this pioneering initiative.

Despite being the world's two resource giants, with a combined 63% of world oil and gas reserves and 39% of world oil and gas production, Russia and the Middle East have until recently had a surprisingly weak commercial relationship. Whilst Russia has participated in OPEC meetings as an observer and Russia and the Middle East have a common platform in the gas sector via the Gas Exporting Countries Forum, the amount of bilateral investment between the two regions oil and gas industries has been limited thus far.

Venezuela's extravagant Chavez pledges oil supplies to ex-Soviet nation Belarus for 200 years

MINSK, Belarus (AP) — In one of his typical flamboyant gestures, Venezuelan President Hugo Chavez on Saturday promised to provide oil to the former Soviet republic of Belarus for the next 200 years.

Chavez, who was visiting Belarus on Saturday, promised that Belarusian refineries — the backbone of the country's economy — "would feel no shortages of oil in the next 200 years."

Oil Scene: Geopolitics and its impact on oil

The presentation was simple. There was a definite passion behind it. It began with the very concept of geopolitics and its impact on oil, stressing that many problems in the energy world today were on account of this — much beyond the control of the producers. And then it raised the question why OPEC that controls hardly 40 percent of the global markets today, is blamed for all the woes of the market, becoming in the process the proverbial punching bag? And if the dairy producers could try and control market for optimal reasons, why can't the OPEC?

It then went on to address the romanticism involved with the issue of oil embargo, raising the specter, if any such embargo is even possible in the current environment. The conclusion was straight forward — even if the producers’ wanted to go ahead on such a suicidal mission, such a possibility was neither feasible nor possible today, for more than one compelling reasons.

US Association For The Study Of Peak Oil (US-ASPO) Conference Thoughts: Listen To These Folks

Which voices are the most credible and the most important to pay attention to in-order to track Peak-Oil and its implications going forward?

China urges anti-Japan protesters to stay within law

(Reuters) - China called on its people on Sunday to keep within the law in their "understandable" anger at Japan, a day after protesters in both countries rallied to claim sovereignty over disputed islands.

Nigeria: FG Beefs Up Airport Security

Lagos — The Federal Government yesterday tightened security at the busy Nnamdi Azikiwe International Airport, Abuja, a day after the militant group, the Movement for Emancipation of Niger Delta (MEND) threatened an imminent attack in the nation's capital, travellers said.

Beaumont law firm taking on a giant job

An estimated 100,000 civil lawsuits have been filed in the wake of the disaster.

Thousands of those plaintiffs are shrimpers, commercial fishermen, property owners, restaurants and hotels who claim they suffered economic loss after the spill. Relatives of rig workers killed in the blast also have sued.

Liquefied Natural Gas: When Will the United States Begin Exporting It?

Though few know of it, the global energy industry might be in for some huge changes before long. Within the next five years, the U.S. could become a major natural gas exporter in the form of liquefied natural gas (LNG).

Is Gazprom's Future Threatened? Hopefully

Halloween is fast approaching, and Gazprom is getting into the spirit (no pun intended) of the holiday by trying to scare the children in Europe. (No trip to the costume shop required. Gazprom is a monster in real life.)

Mayors junk Edsa odd-even scheme

MANILA, Philippines – (UPDATE) The Metro Manila Council (MMC), the policy-making body of the Metropolitan Manila Development Authority (MMDA) composed of the mayors of 16 cities and one town in the metropolis, on Friday decided to shelve the proposal to implement the odd-even scheme for private vehicles and city and provincial buses along Edsa in a move to decongest traffic in the major thoroughfare.

German Electricity Costs May Rise Next Year Renewable Subsidy Leaps 72%

German power users face higher prices in 2011 as record installations of solar panels will help spark a 72 percent increase in surcharges for renewable energy.

Chris Huhne to announce eight sites for new generation nuclear plants

A new generation of nuclear power stations will go ahead on eight sites in Britain, Chris Huhne, the Liberal Democrat Energy Secretary, is expected to announce this week.

German States Seek a Share of Nuclear Power Tax, FT Deutschland Reports

Germany’s federal states will seek a share today of a nuclear tax expected to generate 2.3 billion euros ($3.23 billion) annually, Financial Times Deutschland reported, citing a report obtained from an unnamed source.

GE Falls as Sales Miss Estimate on Equipment, Finance

General Electric Co. fell the most since May after third-quarter sales missed analysts’ estimates, driven by lower shipments of equipment including wind turbines and the planned shrinking of the finance unit.

A clear water revival

20 years ago, Congress and the president took on acid rain with stunning success. Could such a thing happen today?

Urbanization, Aging Will Affect Greenhouse Gas Emissions

As the number of humans already on Earth has resources bursting at the seams, researchers are now finding it's not just population size that impacts the planet's health. The composition of that population and where they live also play huge roles in the release of greenhouse gases.

Aging and urbanization, in particular, could significantly affect global emissions of carbon dioxide over the next 40 years, according to new research published this week in the journal Proceedings of the National Academy of Sciences.

re. Husain's article on geopolitics (7th item above)

Husain states:
"The talk also highlighted some of the major issues confounding the producers, the excessive speculation in times of flux, the push from the Western world to let the IOCs control some of the assets despite the fact that the NOCs seem to be doing well at least in countries such as Saudi Arabia and the history of the Seven Sisters, the still ongoing peak oil debate in complete disregard of the endless oil all around and the repercussions of this ‘politically motivated’ debate, the selective discrimination against crude and the growing stress on diversification away from it, the political dimensions of the climate change debate, the galloping cost of incremental production and the impact of the changing crude geo-political developments on international relations."

Endless oil all around? Politically motivated PO debate?

I hope someone from the IEA challenged Husain to provide evidence which might counter the data in the 2008 WEO, especially re decline rates.
Since Richard Jones was in attendance, I hope he re-stated his April 2009 observation which implied that only a fool would believe that we can find and develop six Saudi Arabias in 22 years (which is what the IEA said is needed).
Indeed, it would be helpful if Deputy Director Jones would provide an update and a more complete explanation of his observation.

I googled this guy, Syed Rashid Husain, I couldn't find his exact title but there are many articles by him in the Arab News, all of them promoting the use of fossil fuels and proclaiming that they will be our fuel for many years to come. Fossil fuel will be civilization’s engine for long The "endless oil all around" is, of course, those massive reserves OPEC nations claim to have.

He seems to be some kind of spokesman for OPEC. Take anything he says with a grain of salt.

Ron P.

Yeah. It seemed to be the party line of "There is plenty of oil! Please remain addicted to oil!"

I don't blame him for arguing the interests of his region. But he has OPEC's best interest in mind, not the OECD's. He'd be more than happy for the OECD to load up on gas guzzlers.

I expect the guy knows diddly squat about peak oil, but even if he really does know everything, he is paid to un-know it. But my main beef is his sentences - there is such a thing as peak words - that he should know about. Sheesh.

Re: Is Gazprom's Future Threatened? Hopefully

May your wish come true but not in the way you pine for, then you won't get heavily discounted natural gas. Compare the price set by Norway to the price set by Gazprom and F*CK OFF.

I like this part from the "Listen To These Folks" in Leanan's links above:

Martenson answers the question: "How did we get two bubbles in one decade: Internet and Housing" when ordinarily they come at least a generation apart" with the answer: "They are really one big credit-expansion bubble which hasn't blown up yet".

Financial markets do not change gradually and some kind of fundamental change is about to happen...

Takeway: I've got to get more liquid so that I can change course when the big changes hit.

From the link up top:

Russia and Middle East control 63% of world oil and gas reserves and 39% of world oil and gas production

Now why would a block of countries that have 63% of world oil and gas reserves only produce 39% of the world's oil and gas? Is it because:

(1) OPEC quotas are keeping a huge chunk of their reserves idle?
(2) Russia and Middle East oil and gas fields are much more difficult to extract than the world average?
(3) Russia the Middle East countries are extraordinarily incompetent at extracting oil and gas?
(4) They actually only have 39% of the world oil and gas reserves?
(5) .....

(5) They are smarter than the industialized nations in managing their natural resources?

Perhaps Iran should join the Chamber of Commerce in that area.

UN says global farm methods 'recipe for disaster'

De Schutter said the emphasis on chemical fertilisers and a greater mechanisation of production was "far distant from the professed commitment to fight climate change and to support small-scale, family agriculture."
In addition, "giving priority to approaches that increase reliance on fossil fuels is agriculture committing suicide," he said.
"Agriculture is already directly responsible for 14 percent of man-made greenhouse gas emissions -- and up to one third if we include the carbon dioxide produced by deforestation for the expansion of cultivation or pastures.
De Schutter said that pursuing the current approach would be "a recipe for disaster."

The technicians that are responsible for the efficient running of our global civilisation are basically in charge, not the UN. The collective will of the technicians to improve the agricultural process and increase its efficiency will drive the push for greater centralisation, automation, efficiency and technical innovation. The fact that it is the wrong thing to do will not hinder the technicians progress, at least until abject failure ushers in a new regime and a new corps of technicians.

The apparent success of the "Green Revolution" in feeding the World is not going to be thrown out any time soon. The current agricultural trend will continue until it cannot. The result will indeed be a disaster of mega proportions.

Wat? If fertilizers are causing global warming then we are screwed no matter what. Do we want to starve or do we want to cook? Nice. I really don't think we could feel the world w/o modern fertilizers & pesticides. Hell, we can't even feed the world now. Then again, in my cynical old age, I'm starting to think that feeding the whole world really isn't something we want to do since that will just create more mouths to feed until we end up like yeast in a bottle of wine.

Then again, in my cynical old age, I'm starting to think that feeding the whole world really isn't something we want to do since that will just create more mouths to feed until we end up like yeast in a bottle of wine.

And that my friend, in a nutshell, is the dilemma facing the human race, it's a pretty tough nut to crack, to say the yeast...

Hell, we can't even feed the world now.

The case has been made that:
1) Hunger is a function of economics/power and not food with examples of the potato famine and the don't grow rice grow jute case of WWII.
2) If "we" stopped feeding grains to animals then eating the animals and just fed the grains to people, it'd be no problem.

yeast in a bottle of wine.

Which is not a problem for some of the yeast if it can get transferred to a new sugar solution.

This may have been posted already (if so, sorry):

A Conversation with Robert Hirsch, "The Impending World Energy Mess"

With: Dr Robert L Hirsch
16 Oct 2010

Dr. Robert L. Hirsch is a Senior Energy Advisor at MISI and a consultant in energy, technology, and management. His primary experience is in research, development, and commercial applications. He has managed technology programs in oil and natural gas exploration and production, petroleum refining, synthetic fuels, fusion, fission, renewables, defense technologies, chemical analysis, and basic research.

On Financial Sense Newshour, Robert Hirsch discusses with Jim Puplava that peak oil will be here sooner than we think, and how we got into this mess.


Re: Sanctions on Iran prevent Iranian airlines from refueling in most of Europe -

Is there anybody else out there who think there's something wrong with this picture?

Let's see ..... continental Europe has to import nearly all its oil, and the US imports over two-thirds of its oil, yet they are trying to use the 'oil weapon' on one of the world's major oil producers. Is this a smart thing to do? Are these people oblivious to the fact that Iran and other oil producers could make things far more unpleasant for Europe than vice versa?

This strikes me as akin to a situation in a little remote medieval village which receives all it grain from a handful of neighboring farmers. The village baker has a grudge against one of the farmers. To punish the farmer the baker declares that he's not going to sell the farmer bread anymore. The farmer shrugs his shoulders and says that he's not selling anymore grain to the village and from now on will only do business with the next village over. Well that sure taught the farmer a lesson didn't it?

Many years ago, before the Revolution, I worked for Iran Air. At that time, their aircraft were all Boeings and their pilots all US-trained and their Shah was a good friend of America. In fact, they pretty well bought any new military gadget that the US came up with - and paid cash upfront. The Shah regularly put up the price of oil and when the Western press asked why he did so, he replied that the Americans asked him to. I did not believe him but at the same time but I could not work out why he should want to or need to lie.

In fact, it he was telling everyone the truth. The higher oil price was good news for US oil companies with their expensive production and the extra money could be used to help out the US arms industry which had suffered greatly with the end of the Vietnam war. Nixon/Kissinger got to please two very powerful constituencies - oil companies and the military-industrial complex. The third most powerful constituency, the banks, were also happy as they got to keep the money - oil could only be bought for US dollars. In return for the largesse of the Shah, he was promised protection - a promise the US failed to respect even when he fell ill. This, my friends, was what the "Nixon Doctrine" was all about. The same principle is still in operation and the deal is now a little more complicated as Saudi Arabia and Israel are part of it. I will leave it for you to work it out as I hate spoon-feeding.

All I can say about this little additional act of war, for that is what it is, is that it will make the ordinary Iranians even more pissed off with the US. It will be further proof, as if any were needed, that the US would love to make as big a mess of Iran as it has with Iraq. If you were Iranian, what would you think?

As an American its very painful to realize that there are so many people in the world who are so justified in hating us. Yet we continue in our collective daze that we are the shining city on the hill.

that we are the shining city on the hill.

We can still be shining from the hill. The relevant question is what effect those rays are having? Are they helping people, or are they blinding them?

Since immigration seems to vastly exceed emigration, I guess those rays are attracting people like moths to a flame...

Roughly the same deal given to the Saudi as outlined in Diary of an Economic Hitman, for whatever it's worth. The Saudis were allowed to nationalize their oil industry as long as they recycled the dollars into treasuries and arms purchases. Makes you wonder if someone made the same deal with the Chinese over manufactured goods, but with their purchases restricted to treasuries. In any case, it seems that mode of operation is drawing to a close.


OPEC caught in dollar crossfire

“A weaker US dollar is not without consequence as it erodes OPEC revenues in real terms and ends up tending to force higher oil prices and other commodity prices to compensate,” said Neil MacKinnon, an economist at investment group VTB Capital.

“So oil producers face a dilemma here as oil prices much above 90 dollars would threaten the global economic recovery at a time when the US economy is already slowing down and the Fed looks ready to add more monetary stimulus,” he told AFP.

Did you catch those two paragraphs? The conflicting perspectives of the first paragraph explaining about how the eroding dollar is hurting OPEC profits, while the 2nd describes the danger of pushing a weak economic recovery with higher oil prices.

My question is a simple one; Why doesn't OPEC insist on oil being traded in Euros or some other currency they feel would better reflect the value of oil? If the dollar continues to tank, while the Euro continues to rebound, and a switch did take place to peg oil to the Euro, then would the US end up paying an equivalent of 90-100 dollars or more for a barrel of oil?

MacKinnon doesn't make sense. If the dollar weakens against other currencies and if the price of oil in dollars goes up, then the price of oil in other currencies is roughly stable. Therefore, the global recovery is not threatened.

The US recovery may be threatened by a higher oil price in dollars.

The Chinese may be forced to let the yuan appreciate, but I thought that was what was desired.

If the dollar weakens against other currencies and if the price of oil in dollars goes up, then the price of oil in other currencies is roughly stable.

But what if oil gets pegged to a different currency that is going up while the dollar continues to tank? Then we'll have to spend more dollars for that same barrel of oil.

Yes, in that case the exporting countries would want higher prices in US dollars so that their purchasing power is preserved in euros, yen or whichever currency is needed to fund their imports. However, they might also buy a larger percentage of their imports from the US, since they would now be cheaper relative to buying in Europe or Japan.

A weaker dollar would cause imports of oil to be more expensive, shrinking demand and eventually reducing our imports, and it would cause our exports to be less expensive, increasing demand and eventually growing our exports. At least that's the theory. In the short run the weaker dollar might increase dollar outflows for oil due to higher prices on inelastic demand, and it might reduce our export dollar inflows until foreign customers order more goods. So there may be a unfavorable transition to a beneficial long-run state.

Merrill writes:

then the price of oil in other currencies is roughly stable. Therefore, the global recovery is not threatened.

The US recovery may be threatened by a higher oil price in dollars.

AFAICT he is describing exactly the same scenario you raise with your question and answer.

Actually, this might actually be the mechanism by which the US's addiction to oil is resolved with a degree of freedom from manipulation, such as might be called for by groups like "Citizens for Affordable Energy". The US has managed to keep energy costs relatively low even though it has had to import increasing amounts of oil, especially since US production peaked. Since it appears that the US's role as the driving force behind the global economy seems to be diminishing, world currency and commodity markets might actually bring about this overdue correction.

Alan from the islands

More on the mortgagegate, for those interested.

I mentioned yesterday that the issuance of mortgage backed securities, in my view, didn't follow federal rules and regulations. Although I didn't specifically say this a day ago, that would make MBS worth much less than present value.

Apparently the Federal Home Loan Bank of Chicago agrees that banks "did not tell .. the truth" about MBS, but "in fact .. purchased toxic stew". It can't get any clearer than that.

Bank of America Sued by Chicago Home Loan Bank Over Subprime Mortgages
By Andrew M. Harris - Oct 15, 2010 6:37 PM ET

Federal Home Loan Bank of Chicago sued lenders including Bank of America Corp. claiming their failure to disclose relaxed subprime mortgage underwriting standards, led it to unknowingly buy risky mortgage-backed securities.

“The defendants did not tell the bank the truth about the loans that comprised the mortgage pools,” underlying the securities, the Federal Home Loan Bank alleged. While it believed it was acquiring “safe” securities, “in fact the bank purchased a toxic stew of doomed mortgage loans,” according to the complaint.


Note that the FHLB wants all of its money back - plus interest.

If these kinds of lawsuits spread through the investment world, banks would become liable for damages that could total $1 trillion or more. Of course, the banking system would never survive those kinds of losses.

But before you sell evertything please note that PIMCO, one of the largest retirement funds in the world, is heavily buying MBS. They either think that the MBS will be the beneficiary of these kind of lawsuits and/or they expect a government intervention to halt most mortgage related problems.

At this time, if events are left to unfold by themselves, a la 2008, things could get nasty fast. So I do expect some type of government intervention fairly soon.

So I do expect some type of government intervention fairly soon.

And what do you think this Govt. intervention would entail? How would they stop more lawsuits from moving forward?

If the past is any indication, the bankers will probably walk into Congress and demand a fix "or else". TARP passed due to a threat of martial law being required by the end of the week.

The bankers will conveniently bring with them some multi-thousand-page piece of pre-written legislation that, although completely unconstitutional, will result in an overturn of all relevant state and federal legislation retro-active to the point where they started massively breaking the law. It will also rewrite a thousand years of contract law and give all the banks civil immunity. This legislation will be passed in a few hours without anyone in Congress reading it.

The President will sign it into law.

The stock market will go up.

Welcome to 21st century America, where anything is possible. Until it isn't.

If you say it isn't possible, I invite you to look into the passing of TARP and the GM bailout. Both were just as illegal and cheered by nearly everyone even as they dismantled the rule of law.

If you say it isn't possible, I invite you to look into the passing of TARP and the GM bailout.

Oh no, I think it's very possible. When I watched the movie (can't remember the name) by Michael Moore that showed how the bailout was orchestrated, I understood then that anything was possible. When the Supreme Court used their decision to instill Bush jr. as prez in 2000, I knew anything was possible. People in powerful positions do whatever they chooe to do. Bush jr. forced a war in Iraq and didn't care what anyone thought. Again anything is possible and will happen to keep BAU going a bit longer.

The banksters might demand more relief, but there are no guarantees that Congress will oblige. They might find that there is no appetite for trying to pass another bailout. Especially after the record bonuses that the big banks are awarding again.

If there is one thing politicians love, its power.

Last time they got bounced into agreeing to something because they were behind the curve on understanding what had been happening. Everyone was except those that knew and took part in the mass fraud that was the basis for the finance industry. Since a second recession has been on the cards of years now, I'd expect them to be better prepared for the bankers to return, cap in hand.

If it were me I'd simply takeover whatever organisation were first on the list, and arrest all of the board - charged with fraud and thrown in the nastiest prison I could find, no bail. The organisation would be protected, but the bosses would be punished.

I'd bet that things would rapidly turn around as the boards of ever other organisation realised that they didn't have a choice but to fix their own mess. Crisis averted, minimal money spent. And most importantly, power retained.

I'm really not sure exactly what they can or will do.

Don't think they can pass any laws to retroactively cover the MBS securities at this point before elections, they tried that already and it didn't work.

Possibly the government will have to assume ownership of all defective mortgages and mortgage related securities, although that would not be a very popular idea. However if the stability of the financial system was threatened - again - they may be able to force through some unpopular bail out.

Given this, they will probably try if possible to introduce any kind of bail plan after election day.

Basically there are many possible outcomes here so its very difficult to guess what could happen.

Anybody who put a California mortgage into something called a "debt obligation" should be sued for fraud.

If I understand California law rightly, the borrower does not get the deed for the home. Instead it is held by a trustee for the life of the mortgage. The lender gets a stream of repayments of principle and interst that look like repayment of a debt so long as the borrower doesn't default. However, if the borrower defaults, the lender's only recourse is to go to the trustee and get the deed to the property. The borrower has not further obligation to the lender.

So what the lender really has is an equity interest in a home held by a trustee which is under a long term contract for deed to the borrower. Seems like an equity downside with no equity upside.

I can't imagine why lenders would invest in California mortgages without at least 30 to 40% down.

Of course, most of the mortgages were originated by CountryWide, IndyMac, GoldenWest, WaMu and even shadier ilk. The exectutives of which have decamped from these now-defunct "thrift" institutions with almost all of their ill-gotten gains intact.

between fraud on the origination side and on the securitization side the problem is truly too big to fail. we can't have the ROW hold securities which in essence are not good. the hit in confidence in the US would be too big.
My guess is that somehow a bunch of iffy securitizations are retroactively going to be made good - adding to the socialization of losses.

Some of that happened already. If memory serves me correctly, when JPMC acquired Bear Stearns and WaMu, it was only with the provisio that the Federal Reserve stand behind about $30 billion of the worst mortgage paper of each acquired company. Similar deals were done in the rescues of Merrill Lynch, Wachovia, etc.

Furthermore, the charade that Fannie and Freddie are not fully backed by the taxpayer came to an end when both were nationalized. They are no longer "government sponsored entities" but are now fully part of the government.

There is essentially little or no market for securitized mortgages except those which are guaranteed by Fannie and Freddie.

Investors around the world are well aware that the US borrower is not creditworthy. That is why the outstanding borrowings of the consumer are showing a decline -- partly due to writte offs and partly due to the withdrawal of credit -- it is not just some new-found virtue of saving.

At the same time, the government's debt is exploding because it is taking over and nationalizing consumer and business debt in a major way so that lending does not collapse completely.

PS - commercial and residential mortgage securities as well as collateralized credit card debt, etc., were also held by money market funds, which is why Treasury had to step in and guarantee MMF balances in order to prevent a run on MMFs that would have "broken the buck".

Banks are not the major providers of money for lending in the US.

But before you sell everything please note that PIMCO, one of the largest retirement funds in the world, is heavily buying MBS. They either think that the MBS will be the beneficiary of these kind of lawsuits and/or they expect a government intervention to halt most mortgage related problems.

Ah yes, the old Pimco classic, "EOW Put" (End Of the World Put).

A bond fund like PIMCO is net long some flavors of bonds by default. In an is-the-world-going-to-end type of crisis, either the world ends and the bond fund goes down in flames along with everyone else, or it doesn't end, the price of formerly distressed bonds rises, and the bond fund makes a killing. PIMCO is not necessarily taking the buyers side by choice, because if these MBS morph into unsecured loans and this becomes public knowledge, the ensuing banking crisis can only be resolved by massive haircuts to bondholders. Like PIMCO.

I am saying that PIMCO could be going long-side all-in simply because the opposite means betting that the world might end and take PIMCO down with it. I am not sure it is because they know something about MBS that we don't.

This is similar to Warren Buffet buying into Goldman and Wells Fargo at the time of the crisis. It might not be because he saw another Gillette or Coca-Cola in them, but simply that if the system collapses, he is left with nothing; hence it is no surprise that his investment decisions "conveniently" support the system as well as making him money if the system survives.

The high level of up front capital investment required to develop, test, construct and deploy many interrelated applications in alternative energy production is discouraging synthetic fuel production.

How can these costs be reduced?

Take the Pearl project for example: the Pearl gas to liquids (GTL) project will produce synthetic petroleum product, (syncrude). It is based in Ras Laffan, Qatar and will convert natural gas into liquid petroleum products. When constructed, it will be the largest GTL plant in the world at a cost of $24 billion.

Because Shell's contract provided them with the input gas for free, the project was calculated to be viable once the price of oil exceeded the range of $20 to $40 per barrel. The project has a capacity to produce 140,000 barrels per day (bpd) of GTL products which include diesel, kerosene, naphtha and lubricant oils.

Producing natural gas

Qatar's North Field is the world's largest natural gas field. It contains over 900 trillion cubic feet of natural gas, about 15% of the global total. Two unmanned offshore platforms each operate 11 wells. The gas flows through two pipelines to processing facilities at the onshore Ras Laffan industrial zone.

Converting natural gas to Syngas

The first step in the GTL process is synthesis gas, or the syngas step. This process converts the natural gas to hydrogen and carbon monoxide by partial oxidation, steam reforming or a combination of the two processes. The key variable is the hydrogen to carbon monoxide ratio with a 2:1 ratio recommended for Fischer-Tropsch (FT) synthesis.

In preference to steam reforming, the process used in Pearl takes the partial oxidation route. This provides the desired 2:1 ratio and is the preferred route in isolation of other needs. There are two routes: one uses oxygen and produces a purer syngas without nitrogen; the other uses air creating a more dilute syngas. However, the oxygen route requires an air separation plant that increases the cost of the investment.

In the gasifier at around 2,200-2,650°F (1,400-1,600°C) the methane and oxygen are converted into a mixture of hydrogen and carbon monoxide known as syngas.

Extracting pure oxygen

In Pearl, pure oxygen for the Syngas process is extracted from the air through eight vast air separation units. Air is cooled to liquefy the oxygen and nitrogen. Distillation separates out oxygen in a “cold box” – like an icebox, this helps to maintain the low temperature that is required to separate the oxygen. Each distillation cold box is as tall as a 10-storey building. The air separation units produce over 28,000 tones of oxygen each day. If this were not produced on-site, more than 1,000 trucks per day would be needed to bring it in.

Under conditions that may be considered reasonable, a GTL project with present technology could be cost competitive with crude oil prices around $25 per barrel but any shifts in the key cost factors could significantly raise the competitive price. This uncertainty about world oil prices, rather than the technology has served to limit GTL investment.

Some background on Water Dissociation


2 H2O -> 2 H2 + O2 (delta H = + 118 kcal) (endothermic reaction)

Production of

• 100 tons of Hydrogen and

• 800 tons of Oxygen

requires input of

• 900 tons of water and

• 3 x 10^12 kcal = 3.5 x 10^9 kWh = 3.5 x 10^3 GWh
In Nuclear Water Dissociation, for every ~1 MWt of nuclear thermal capacity, ~0.3 tons/day of H2 is produced. This translates to 2.4 tons/day of pure oxygen.

To replace the 28,000 tons/day with nuclear oxygen production (28,000 t/d)/ (2.4 t/d/MWt) = 11667 MWt is required or 11.667GWt of nuclear capacity.

But there is a tremendous over production of hydrogen in the nuclear process to the tune of 4H per every CH4 molecule converted in the nuclear sysgas process. By adding one C atom (from coal and/or petroleum coke and/or oil bottoms) to the sysgas process, the amount of natural gas used can be cut in half.

In addition, electric power can be generated as a byproduct from the waste heat associated with the nuclear GTL process. Also, a substantial amount of natural gas is not wasted producing high temperature heat for the sysgas gasifier.

So at the end of the day, what does the nuclear designer need to do to play in this ballgame?

For nuclear power to double nature gas efficiency in the GTL process and be cost effective the question becomes, can 12 GWt of high temperature (1200C to 1600C) nuclear capacity be deployed for $12 billion, the cost of the eight current Pearl air separation units?

In conclusion IMHO, if politicians are serious about formulating a national energy policy, they should encourage the research and development of a high capacity high temperature thermal reactor in the 1200C to 1600C output temperature range.

And if they were serious they'd take a harder look at methanol, especially advanced approaches that skip syn-gas completely, going instead with various selective oxidation schemes. I haven't followed catalytic and liquid-phase oxidations for a few years, can anyone here point me to a terse update?

I wonder if we could adopt GTL fuels (ie liquid) for aircraft and as range extenders for compact PHEVs. Stay with the gas phase (mainly CNG) for workhorse vehicles like vans, pickups, buses and trucks. In both cases I think energy densities (excluding the weight of tanks) will be comparable to oil derived petrol and diesel ie ~40 MJ per kilogram.

Note this cuts out methanol which I think has under 25 MJ per liquid kilogram. It takes up too much volume for its energy content even allowing for lightweight tanks. This is a version of the Methane Economy with the two main players being petrol-like GTL and compressed gas.. synthetic, bio or natural.

The energy density of methanol is simply not an issue. Yes, it has half the GJ/kg of petrol, but so what? For a 1200kg (2640lb) car, that carries 50L (80lbs) of petrol, it will need to carry 100L of methanol, an extra 80lbs. That is a 3% weight increase - less than half an occupant.

Yes, this may preclude it for aircraft operation, but for anything else, it is fine.

Not only that, methanol, in an appropriate high compresion engine, can achieve diesel like efficiency (40%) , so you actually only need 50% more for the same range.

Given that companies are building battery electric vehicles that weight much more, and have a range of much less, methanol is a great alternative.

And it can be made from any carbonaceous feedstock.

Bring it on.

The shear size, magnitude and complexity of this type of GTL technology speaks volumes to the passing of peak oil.

We are way past it by now. Why waste $24 billion on this?

24 years of investment into fusion, 3GW - 6GW solar. How many fission reactors?


There is something that just doesn't add up about this project. $24bn for 140,000bpd is $170k per bpd of capacity. That is double the cost of oilsands ($70k) and still well above the cost of Sasol's coal to liquids ($90k). I wouild hazard a guess that even oil shale would be feasible for less than this.

Either some of these cost numbers are wrong, or this plant is doing much more than just GTL.

In case anyone is interested, this was just posted at Energy Bulletin re. national security aspects which were discussed at ASPO-Washington:

Thanks Rick

France's petrol pumps could run dry by Wednesday

The country's oil industry association UFIP said that if strikes continued at all 12 of France's refineries then there would be national shortages.

... The government has now authorised oil companies to eat into their own emergency stocks, but has not yet touched its strategic reserves, which have a three-week capacity.

... Cash delivery drivers said are also considering striking raising the prospect of cash dispensers also running out of money.

All this unheavel over:

The government wants to raise the retirement age from 60 to 62 and the full state pension age from 65 to 67.

Isn't it age 72 here in the US to get full social security benefits? Even with the change they'll still be ahead of us by 5 years. I saw in the Michael Moore movie about US healthcare a comparison with France. Those people are so spoiled its not funny. They have 100% full medical and can take as much time off from work, while getting paid in full, to recover. No one shows up to their house to say, you're well enough to go back to work. They even have a program where the govt. pays for someone to go to people's houses to housework, cleaning, laundry, etc. They get a full year off for maturnity leave. They get 6 weeks paid vacation a year! And they can't work a couple more years to help with austerity measures? Spoiled rotten! They need a good kick in the pants.

I think, under current law, it's 66 for Social Security benefits, and it's gradually rising. If I want full retirement from SS (I'm 44), I have to wait until 67. For now.

"They get 6 weeks paid vacation a year! And they can't work a couple more years to help with austerity measures?"

Many of them do not work, look at the unemployment rate amongst youth in France.