Russia Bets on Nanotechnology

♠ Posted by Emmanuel in , at 11/02/2007 02:22:00 PM
Oil exporting countries have been contemplating the question, "after oil, what?" for quite some time. While these countries are currently making it big with oil prices at stratospheric levels, two things are making them plan ahead. First, some may be running out of reserves faster than they would like in the absence of major finds. Second, even if they have plentiful reserves, the drive towards alternative energy sources might lessen the demand for oil going forward. Thus, these countries are trying to hedge their bets in a number of ways. Dubai in the UAE is attempting to become a financial center in the Middle East. Saudi Arabia is putting up a massive university that is trying to spur research in science and technology. And, in today's post, Russia is trying to become a leader in the field of nanotechnology by using petrodollar proceeds.

Right off the bat, you might become suspicious as the Russian nanotechnology venture, Rosnanotekh, is state-owned. Can innovation thrive in such a contrived environment? I do not doubt the capabilities of Russian-born engineers, beginning with the Russian nuclear and space programs to Google's Sergey Brin. However, you've got to question whether Silicon Valley-style entrepreneurship can be replicated in state hands. In any event, here is Wired on the scene:
After sleeping through the high tech revolutions of the late 20th century, the Russian government is dumping billions into the burgeoning science of nanotechnology. The Kremlin last June announced the creation of Rosnanotekh, a state nanotechnology corporation slated for $5 billion in initial funding -- an outlay that propels Russia past China in nanotech spending, and puts the country on a par with the United States in government-funded nano research.

"Nanotechnology will be the (foundation) for all industries in a science-driven economy," said Mikhail Kovalchuk, director of Moscow's Kurchatov Institute. "Nanotechnology will be the driving force of the Russian economy -- if it can overcome the legacy of the recent past."

Russia's leap into nanotechnology is the sharp edge of Russian President Vladimir Putin's push to make up for this country's failure to develop high tech industries during the computing and biotech revolutions, and to compete globally in a field considered ripe for new discoveries.

Nanotechnology is the science of assembling devices out of individual atoms or molecules. It was first theorized by physicist Richard Feynman in 1959, and today is widely expected to produce major advances in everything from pollution control to cancer treatment.

It also represents a quiet admission that Siberian oil and gas, Russia's financial wellspring, won't last forever.

For Russia to succeed in nanotech, it must first overcome the yawning chasm between its deep intellectual resources and its economic infrastructure. Russian scientists have been quiet theoretical pioneers in nanotech since 1999, when the Russian Academy of Sciences began publishing the well-regarded Journal of Nano and Microsystem Technique. But Russia has no industry to put that research to use. When St. Petersburg hosted Russia's first international nanotech conference last fall, the audience was noticeably bereft of Russian companies, but packed with note-scribbling headhunters from Western technology firms like Intel, Siemens and Bosch.

"We could compete in the world market, and we are interesting to foreigners in the field of new ideas," said Sergei Kozyrev, director of the Center for Perspective Research in St. Petersburg, during the conference. "But when it comes to competition in the realm of production, to producing working samples, we find ourselves far behind other countries.... That has been our problem ever since Soviet times."

There's also the question of where all of Rosnanotekh's billions will end up. Transparency International routinely rates Russia among the most corrupt countries in the world, and state enterprises are dominated by Kremlin insiders with little public accountability and oversight. Rosnanotekh will likely be no exception.

"There's a lot of technical talent in Russia, but not all of the funds allocated to nanotech will be deployed effectively,” said Christine Peterson, a vice president at the Foresight Nanotech Institute, in an e-mail interview. "The lack of commercialization infrastructure will also be a serious handicap. Success will depend on convincing joint-venture partners from outside Russia that it is financially safe to participate."

Rosnanotekh will be a state entity, but will be free to pursue private partnerships unburdened by direct Kremlin control. While the company will dispense the research funds, the actual work will be overseen by the Kurchatov Institute, the leafy Moscow research campus named after the father of the Soviet bomb and home to the luminaries of 20th-century Russian science. Officials at Kurchatov will oversee grants to 50 state institutes engaged in nanotech research.

At the center of Russia's nanotech dreams is Kurchatov director Kovalchuk. The 62-year-old physicist from St. Petersburg is expansive to the point of dreaminess about the potential of nanotech. In a September lecture at a conference in Helsinki, Finland, Kovalchuk shared his vision of a postindustrial future defined by the "dematerialization of production" (write your own Marxism joke) and an energy grid fueled by nano-enabled solar and nuclear power. He envisions nothing less than a "nano revolution" that will solve the energy and environmental crises during his lifetime.

"Nanotechnology is key to de-energization in the next century," Kovalchuk told Wired News. "Coupled with bionics, it has the potential to reduce drastically the amount of energy we consume, and the corresponding waste."

An interest in cleaner energy is also a pet interest of metals oligarch Mikhail Prokhorov, who sits on Rosnanotekh's board. Prokhorov has pledged to channel part of his new $17 billion investment fund into developing hydrogen fuel cells using nanotech.

This talk of clean and renewable energy can sound strange in Moscow. Russia is a petro-state known for its lax attitude toward domestic and international pollution. It has by far the most wasteful pipeline and electricity-transmission infrastructure of any industrialized nation, and is being outspent in alternative energy research by its fellow petro-states in the Persian Gulf.

But oil and gas are increasingly seen in Russia as a means to an end -- a bridge to a clean-energy future beyond oil and gas. Kovalchuk is even hopeful that nanotech will find the magic bullet to make all carbon-based fuels obsolete: fusion power. The key, he believes, lies in the nano-engineering of the Tokamak, a magnetic-confinement device considered the leading candidate to one day produce fusion energy. Its inventors? Two Kurchatov scientists named Igor Tamm and Andrei Sakharov.

The Lexus and the Communist Party

♠ Posted by Emmanuel in , at 11/01/2007 02:54:00 PM
Photo Sharing and Video Hosting at Photobucket

Some of you may have caught my allusion to New York Times columnist Thomas Friedman's bestselling book from a few years ago The Lexus and the Olive Tree. Anyway, the graphic above comes from the website for the 2nd China Private Banking & Wealth Management Forum. Given that China now has the second most billionaires in the world according to one source, it's a good bet that banks looking after HNWIs (high net-worth individuals; see an earlier post on this market if you've got the scratch) would flock to the Middle Kingdom. The above graphic claims the Chinese HNWI market is worth over $3 trillion. While China has not really liberalized its financial services sector at the retail level for a handful of reasons, it appears to be welcoming international banks that cater to the HNWI market.

What struck me is not that most of the big international HNWI players are looking to ply their trade in China, but that even officials from the Party School of the CPC Central Committee are to speak at this jamboree alongside various bourgeois luminaries like John Major. (I've encircled it above.) Truly, as Deng Xiaoping noted, to get rich is glorious--even for comrades. Chairman Mao must be rolling in his grave as the capitalist roaders have seemingly taken control of the country's commanding heights. Little red book, meet little red dress.

Climate Change and Tourism

♠ Posted by Emmanuel in , at 11/01/2007 02:21:00 PM
The UN World Tourism Organization recently held a conference on the topic of "Climate Change and Tourism" in Davos, Switzerland. (There are seemingly endless UN subunits dedicated to various issues.) The issues behind climate change and tourism are straightforward to understand but not to solve: While tourism is a good source of income--especially for developing countries--handling tourists and travel exacts an environmental cost. Moreover, disappearing snow in ski resorts, damaged reefs in beach resorts and so on are wreaking havoc on parts of the industry. Below is a background from the UN World Tourism Organization on the topic. There is also a declaration from the conference available that is a typical UN-produced document, I'm afraid, filled with lofty aspirations that do not necessarily have the multisector buy-in necessary to achieve these aspirations...
  • The growing international awareness about the fast pace of climate ‎change taking place on our ‎planet, together with the impacts that such ‎changes are having on the natural environment, on ‎humans and their ‎economic activities have become evident.
  • ‎
  • For tourism, climate change is not a remote event, but a phenomenon ‎that already affects the ‎sector and certain destinations in particular, ‎mountain regions and coastal destinations among ‎others. At the same ‎time, the tourism sector is contributing to greenhouse gas emissions ‎‎‎(GHG), especially through the transport of tourists.‎ ‎
The impacts of climate change
  • Climate is an essential resource for tourism, and especially for the ‎beach, nature and winter ‎sport tourism segments. Changing climate and ‎weather patterns at tourist destinations and ‎tourist generating countries ‎can significantly affect the tourists’ comfort and their travel ‎decisions. ‎Changing demand patterns and tourist flows will have impacts on tourism ‎businesses ‎and on host communities, as well as knock off effects on ‎related sectors, such as agriculture, ‎handicrafts or construction.
  • ‎
  • In small island states and developing countries, where tourism is a major ‎economic activity, any ‎significant reduction in tourist arrivals will have ‎serious employment impacts and generate ‎further poverty.‎ ‎
Awareness
  • Since the 1st International Conference on Climate Change and Tourism, ‎convened by UNWTO ‎in Djerba, Tunisia in 2003, a growing body of ‎knowledge has been generated addressing the ‎complex relationships ‎between the tourism sector and climate change with important research ‎‎activities on this subject.
  • ‎‎
  • There is now a wide recognition of the urgent need for the tourism ‎industry, national ‎governments and international organizations to develop ‎and implement strategies to face the ‎changing climate conditions and to ‎take preventive actions for future effects, as well as to ‎mitigate tourism’s ‎environmental impacts contributing to climate change. Furthermore, such ‎‎strategies should take also into account the needs of developing ‎countries in terms of poverty ‎alleviation and other Millennium ‎Development Goals.
The International Herald Tribune offers a write-up:
It is often said that farmers are on the front lines dealing with global warming, their livelihoods being extraordinarily dependent on the weather. But tour operators and resort owners are not far behind.

Imagine a ski resort whose chairlifts are in the lower reaches of mountains, without decent snow. Or a scuba club whose reefs succumbed to warmer and stormier seas. Or a golfing hotel in a district where water shortages made it impossible to keep fairways green. All are real possibilities, industry experts say, and in fact, early effects are already being felt.

And so, this month, the United Nations convened a conference, "Climate Change and Tourism," for tour operators and officials from nearly 100 countries to discuss the impact of global warming on their livelihoods. "The tourism industry must adapt rapidly," the final report concluded.

"The entire tourism product will be affected - every destination has a climate-related component," Geoffrey Lipman, assistant secretary general of the UN World Tourism Organization, said by telephone from the meeting, held in Davos, Switzerland. If the climate is going to change, "which we know it will, we'd all better adapt," he said.

"Some people are going to find that they had tourism before and don't now," Lipman said. "In the Canadian Rockies it may be the reverse."

In the developed world, tour operators do not generally face a crisis, though profits will depend on successful adjustment. But along the equator, keeping the tourist industry afloat is often a matter of national survival. In much of Africa for instance, tourism is the major source of income and often the only source of foreign currency.

Yet there is a heavy cost. With the industry's reliance on cars and buses, air-conditioning and especially air travel, tourism is a major source of warming gasses. It accounts for about 5 percent of the world's carbon dioxide emissions, the Davos conference concluded. And poor countries normally do not have the money to make any eco-friendly changes.

"It's nice to talk about reducing air travel but many nation states depend on it," said Lipman, of the UN tourism organization. "Think about what happens to New Zealand and Australia. More important, what happens to poor countries - the Maldives, Seychelles and Africa - who need it because it is the only way to get tourists in."

Recognizing that tourism and climate change are intimately intertwined, Fiji combined its Ministries of the Environment and Tourism this summer.

"Tourism is the vehicle for poverty alleviation in Fiji - that's how important it has become," said Banuve Kaumaitotoya, permanent secretary of Fiji's new Ministry of Tourism and Environment, who attended the Davos conference. "Without it, our economy would collapse. So we have to plan to mitigate and adapt to climate change."

For some destinations, both warm and cold, climate change is already having an impact on tourism and planning.

In Fiji more frequent storms that scientists say are caused by warming are eroding mountains and driving dirt and fresh water into the sea. That threatens to erode pristine beaches, and endangers coral reefs which need considerable salt in the water.

Fijian planners are trying to gauge the course of such change and set new standards, like guideline for how far above the water bungalows should be built to be safe if the sea level rises. "At the moment the effect is subtle, but we don't want our reefs - our island - to disappear," Kaumaitotoya said.

At the Whistler Blackcomb Ski Resort in Canada, glaciers are receding and good snow is found higher up the mountain than 10 years ago. "We've been building lifts higher, in more snow-reliant zones to give us more stability," said Arthur De Jong, the mountain planning and environment resource manager at the resort.

Ski lifts last 25 years, De Jong said. To decide where to place new ones, the resort has run a mix of computer simulations to try to determine where the snow will be depending on varying calculations of how much the temperature might rise over 30 years.

In addition, the resort has a broader green plan. It is making energy to run the lifts from snow runoff on the mountain. Its ski village is car free. And the resort has diversified from snow and it now has a booming summer business as well...

"Adaptation is expensive and the finances are a big challenge for place like Kenya," said Judith Gona, executive director of Ecotourism Kenya, which is trying to make that country's travel industry greener.

"In recent years Kenya has become a mass tourism destination - hotels were built to hold as many people as possible. Things like air-conditioning systems are not very efficient..."

At the end of the Davos conference, the UN World Tourism Organization advised travelers to take the climate into account and "where possible to reduce their carbon footprint." But if Europeans stop flying to Fiji or Antalya, poverty will worsen, tourism officials said.

"Water Rage" Claims Victim in Oz

♠ Posted by Emmanuel in at 11/01/2007 01:33:00 PM
The prolonged drought in Australia is likely to claim PM John Howard as an electoral victim. In the meantime, a poor soul has just lost his life in a "water rage" incident as an irate neighbor took umbrage to what he mistook for the profligate use of water. [UPDATE: The Sydney Morning Herald says the victim suffered a heart attack.] It's an anecdotal story, but gee, can you imagine these things happening on a wider basis as the world's water supplies dwindle? It may not be as far-fetched as you think as tempers run high. From Reuters:
A man has been charged with murder in Australia after an elderly man who was watering his garden was bashed to death in an apparent case of suburban water-rage.

Australia is in its sixth year of severe drought and most towns and cities have imposed strict limits on household water use, prompting a rise in suburban arguments and neighbors informing authorities about those who waste water.

In the latest incident, police said 66-year-old Ken Proctor was using a hose to water the front lawn of his suburban Sydney home when a man walking past made a remark about water waste.

Proctor then turned the hose on the passer by, prompting a fight. He was knocked the ground and was punched and kicked. He was treated by ambulance officers, but died later in hospital.

Authorities said Proctor was not in breach of water restrictions, as he was using a hand-held hose and was watering his lawn on his allocated day. A 36-year-old man charged with Proctor's murder appeared briefly in a Sydney court on Thursday. He was denied bail and will remain in jail until his next court appearance on November 15.

Most of Australia, apart from parts of the island state of Tasmania and towns in the tropical north, have banned garden sprinklers, made it illegal to hose down cars and pavements, and allow gardens only to be watered on set days.

Chinese Bank Expands...in Africa

♠ Posted by Emmanuel in , at 10/31/2007 06:49:00 PM
This one caught me somewhat by surprise. I've already coined the term "Yellow Man's Burden" to describe the activities of China in Africa which some say smack of neo-colonialism: tied aid and all that. Well, here's a counterpoint care of columnist Bill Pesek over at Bloomberg. According to him, the world's largest bank by market capitalization, ICBC, is now setting its sights on the African financial services market as a purely business--not political--play:

It's rare that a business deal intrigues investors and political scientists alike. Industrial & Commercial Bank of China Ltd.'s move to buy 20 percent of Africa's largest bank is such a transaction.

It's the biggest overseas investment by a Chinese company, in this case the world's No. 1 bank by market value. ICBC's $5.6 billion purchase of the Standard Bank Group Ltd. stake is the largest in South Africa since apartheid ended in 1994.

Yet there's something even bigger at play here. This is arguably the first Chinese investment in Africa that doesn't carry a whiff of political strategy. Nor is it directly related to China's desire for resources, which can often help despots more than African households.

ICBC's Standard Bank deal may be the watershed that begins propelling China's designs on Africa from talk to just plain business, and smart business at that.

``From the regulators' point of view, this kind of diversification is a great idea,'' says Michael Pettis, a finance professor at Peking University. ``Chinese banks are too highly concentrated in China and it's not in their best interest that banks depend exclusively on Chinese growth. That kind of dependence is highly pro-cyclical and can feed booms and busts.''

Standard Bank has offices in 18 African countries, including Nigeria and Kenya, and 21 other nations such as Argentina and Taiwan. The Johannesburg-based bank has 713 branches in South Africa and 240 throughout the continent. The deal is a sign that even if the Chinese Communist Party has strategic reasons for investing in Africa, companies are heading there for the economic potential...

ICBC's stake in Standard Bank comes without that kind of baggage. It's a state-controlled China bank, making it hard to figure out where politics end and business begins. Yet the deal shows China is now making bets on Africa's economy.

Standard Bank is gaining access to the fastest-growing major economy and fattening its capital base. China is getting a foothold into Africa's nascent investment-banking and insurance industries. It's also a way for China to use its growing cash piles overseas rather than making fresh domestic loans that may go bad or fuel inflation.

All this is stellar news for Africa, which usually suffers from the ``paradox of plenty.'' All too often, inhabitants of resource-rich nations fail to prosper while corrupt politicians and their cronies get wealthy and ignore the development needs of the struggling masses.

That has been Africa's experience for far too long. And the failure of Western efforts to reverse the dynamic left the region's leaders open to Chinese investment.

One interesting element of ICBC's deal is how different it is from the usual overture from Western banks. It didn't come laden with demands about how much control ICBC will have over Standard Bank. It didn't require pledges for financial change. It's merely one bank buying a piece of another with transparent terms and conditions. It's a sign Chinese managers are willing to treat Africans as peers.

The West hasn't learned that lesson with its aid programs and lecturing. By trying a new tack, China may be testing what development economists have argued for years: Africa doesn't need more aid, it needs more genuine investment and trade.

Bono and Columbia University's Jeffrey Sachs will keep plugging away, and thank the gods for that. But Chinese companies appear to see something in Africa many in New York, London and Tokyo don't. Africa represents huge and lucrative business opportunities if it gets its act together.

That's a big ``if.'' With the exception of Botswana and Ghana, Africa's biggest consistency seems to be to pull the rug out from under wide-eyed investors. China's interests are offering Africa a rare opportunity to boost its economies.

Another interesting angle here concerns investors. Looking at ICBC along with other Chinese deals of late -- like Citic Securities Co. buying a stake in Bear Stearns Cos. -- it's clear something transformational is afoot.

In recent years, China sought foreign investments in financial firms to shore up capital and gain expertise. Now, cash-rich from trade, stock offerings and surging share prices, China no longer needs Wall Street's money. Increasingly, it's foreigners who want a cut of China's money.

``Getting access to China's market may no longer require putting money in China,'' says Brad Setser, director of research at Roubini Global Economics LLC in New York. ``It may instead require accepting investment from China.''

China may have just found a way to tame its own pressures and tap Africa without the baggage of the past.

Birth Defects and Pollution in China

♠ Posted by Emmanuel in ,, at 10/31/2007 03:19:00 PM
What is the price of pollution-powered progress? The answer, according to Chinese authorities, includes a rise in birth rate defects likely tied to greater air pollution. In particular, China's boom in coal mines needs to be singled out. You often hear about an environmental Kuznets curve where development is initially accompanied by rising levels of pollution as development progresses but tapers off at later stages once folks become more cognizant of environmental issues. The common worry is that a totalitarian government like China's would not allow such concerns to be voiced. See the example of local authorities jailing an environmentalist for pointing out flagrant pollution. From Agence France Presse:
Birth defects in heavily polluted China have increased by nearly 40 percent since 2001, with a deformed baby born every 30 seconds, state media reported on Tuesday.The rate of defects appeared to increase near the country's countless coal mines, which produce the bulk of China's energy but are also responsible for serious air and water pollution, the China Daily newspaper said, quoting government officials.

Birth defects nationwide have increased from 104.9 per 10,000 births in 2001 to 145.5 last year, it said, citing a report by the National Population and Family Planning Commission.They affect about one million of the 20 million babies born every year, with about 300,000 babies suffering from "visible deformities.""A baby with birth defects is born every 30 seconds in China and the situation has worsened year by year," said Jiang Fan, deputy head of the commission and author of the report.

About 30-40 percent of the deformed children born each year die shortly after birth.There is a correlation between birth defects and proximity to environmentally degraded areas, said An Huanxiao, head of family planning in the heavily polluted northern province of Shanxi, source of much of the nation's coal. Shanxi tops the nation in birth defects, Xinhua said. A correlation can also be drawn with parents' poverty and low education, An was quoted as saying. China suffers from serious pollution, the price of its stunning economic rise, with air quality in major cities regularly exceeding danger levels and millions of people lacking access to clean water.

Lay Back and Think of, er, Oil

♠ Posted by Emmanuel in at 10/31/2007 02:34:00 PM
You may have heard of the "peak oil" theory that petroleum supplies have reached or will soon reach their peak and are set for a long decline. This International Herald Tribune story says otherwise and cites many energy industry experts who point out that there are jillions of barrels yet to be extracted. One of them is Daniel Yergin, author of The Prize, so I am inclined to believe that there's some truth to this story. To them, availability is not an issue but of geopolitics and the economics of extracting the oil. What about alternative energy sources? While they may be less polluting, many believe that their cost-benefit ratios work against their favor. In other words, TINA--there is no alternative (to oil):

Energy demand is surging as robust growth in developing economies offsets slower demand in the West. At the same time the scientific warnings are becoming ever starker over the global warming caused by more carbon emissions from fossil fuels.

Interest in alternative, sustainable energy sources has never been stronger. Yet, despite accelerating investment, the output capacity of these energy forms remains barely more than embryonic. Fossil fuels, reliable and accessible, will continue to provide more than 90 percent of global commercial energy needs to 2030, according to the Organization of Petroleum Exporting Countries.

Leo Drollas, an executive director at the Center for Global Energy Studies in London, shares the assessment. "Oil will be the world's most important energy source for some time," he said. "Many times we hear that it's the end of oil, it's the end of the world. It's never happened."

Oil provides about 40 percent of the world's primary energy, according to both OPEC, the exporter's cartel, and the International Energy Agency, in Paris, which advises consumer governments.

Another 20 percent comes from natural gas, with the remainder coming mainly from coal, with relatively minor inputs from nuclear, biomass, hydro-power and other renewable sources. By 2030, oil's share in the energy mix will barely have declined, to 36.5 percent, according to OPEC. Similar forecasts have been made by Washington...

In July, the International Energy Agency forecast that global oil demand would rise by an average 2.2 percent a year to 2012. Production slowdowns, it said, could lead to a supply crunch as OPEC's spare capacity dwindled.

Looking farther ahead, the U.S. Energy Information Administration, in its international energy outlook published this year, predicted a 58 percent rise in
oil consumption from 2004 to 2030, to 118 million barrels per day. To feed
consumption, it projected that production would increase by 34 million barrels
per day over the period.

Demand is being led by transportation, factories in developing countries and U.S. consumers. Energy consumption in less-advanced economies should grow 2.6 percent a year through 2030, the energy administration forecast. In the developed world, where consumption growth fell last year for the first time since the early 1980s, energy use is projected to grow 0.8 percent a year.

There is a caveat to such projections: China, which has leapfrogged Japan to become the second largest user behind the United States, heavily subsidizes oil - as does India [see supply problems related to subsidies in China]. Demand could moderate if those governments should decide that their consumers must pay more.

With that in mind, gauging the remaining viable life span of the world's oil reservoirs is one of the most vexing questions in energy policy.

"You can arrive at any number of estimates," Drollas said. "What counts is not estimates but what's extracted. And here, factors like investment, economics, recovery rates and technology come in."

"Reserves" are usually classed as oil in a reservoir that can be extracted at a specific assumed cost.

Estimates of global proven reserves are constantly revised; for example 157 billion barrels at the end of 1954 became 1.317 trillion barrels as of January, according to Oil & Gas Journal. At current rates of extraction, those would last 42 years, Drollas said.

According to the journal, 56 percent of proven reserves are in the Middle East. Since 2000, the largest net increase has been in Canada, with the addition of 174 billion barrels from oil sands. Iran and Kazakhstan have also had upward revisions.

"It's not that the oil's not there," said Paul Stevens, professor at the University of Dundee in Scotland. "It's whether there's the investment to get it out. The issues are geopolitical and economic."

The largest reservoirs, or "super giants," are the cheapest to develop, in terms of cost per barrel. But the last true super giants were discovered in 1967 and 1968, according to a paper by Robert Hirsch, Roger Bezdek and Robert Wendling that has become seminal to "peak oil" theorists, who argue that reserves will soon peak at a maximum production rate, and decline thereafter.

The 2005 paper, "Peaking of World Oil Production" collated estimated dates for the peak, ranging from last year to beyond 2025. It concluded that government intervention to slow demand was required, "because the economic and social implications of oil peaking would otherwise be chaotic."

Peak oil theory is controversial. A study released last November by Cambridge Energy Research Associates, a U.S. consultancy, estimated the remaining oil base at 3.74 trillion barrels, well above peak theorists' estimates.

There have been significant recent discoveries, in Kashagan and Tengiz in Kazakhstan, Angola, Brazil, Rajasthan and the Gulf of Guinea.

But, as the easiest oil reservoirs have been found, the major oil companies have had to invest in increasingly inaccessible sites, like the Arctic Ocean, or in expensive forms, like shale.

The scarcity of rigs, other equipment and engineers, alongside the nationalism in producer countries like Venezuela and Russia, and the scramble for deals by the state oil importers in China and India, have all combined to create a sense of an industry on the edge.

Still, "this is the fifth time that the world is said to be running out of oil," said Yergin, the chairman of Cambridge Energy. Each time, "technology and the opening of new frontier areas has banished the specter of decline. There's no reason to think that technology is finished this time."

Although the drawdown on reserves should make for a more expensive barrel, and oil's climb toward $100 per barrel has appeared to add weight to the argument, prices tend not to follow consensus for long. Fundamentals of supply lead prices for a while, then economics or geopolitics takes over.

Many current oil bulls may forget that prices were below $10 a barrel as recently as 1999, when the Asian financial crisis crimped demand. The world was awash in oil, reports said at the time, and several hundred million barrels of oil were said to be "hiding," waiting for prices to rise...

Stevens, of the University of Dundee, said the most likely scenario in the next five to 15 years was for oil to stay above a floor of $60 a barrel. Ultimately, that will trigger a demand response, as the price trims consumption in China and India and as biofuels win market share. At that point, the floor might be tested.

In April, a UBS economist, Jan Stuart, estimated a long-term price of $50, below which oil would fail to yield returns that would encourage investment in production capacity growth. HSBC has a similar long-term forecast. Its analysts, Paul Spedding and David Phillips, have just raised their 2010 forecast to $55 from $47, which "should preserve oil's competitive position in the energy stakes, slowing competition from natural gas and coal." "It should also be sufficient to meet the financial needs of most OPEC countries," they said.

Within the exporter group, there are differences on pricing strategy. Those with large reserves, especially Saudi Arabia, want crude to remain competitive. But the majority are keen for prices to stay above $50 as their own consumption - mostly heavily subsidized - expands and they become increasingly reliant on oil and gas revenue to feed budgets swollen by development and demographic pressures.

UBS estimates the "breakeven" price for major producers in a range from $23 for Kuwait to between $50 and $55 in Venezuela, where production costs are high, and Iran, which has a big population relative to production and reserves.

Whatever the price, the role of OPEC is in flux, altered by unconventional resources and the emergence of Russia and Mexico as major global suppliers. According to the Energy Information Administration in Washington, the OPEC producers' share of world oil supply fell to 41 percent by 2004, from 52 percent in 1973.

According to the Oil & Gas Journal, Canadian oil sands now represent 50 percent to 70 percent of reserves that are not off-limits to international oil companies because of government restrictions on operators. Canada is a welcoming and stable host - but production is expensive and twice as energy-intensive as normal oil extraction because of the energy needed to separate the bitumen from the surrounding sand.

Will other fuels to step in to meet demand?

According to estimates by Goldman Sachs, nonconventional fuels like oil sands and shale, ethanol and biomass liquids, coal and natural gas will meet 3.5 percent of demand by 2015, up from 2.8 percent in 2006, and the share could rise to 10.6 percent by 2030. That is a considerable change, but not enough to plug the oil wells.

In recent decades, more processes have emerged to synthesize liquid hydrocarbons from natural gas and coal. There is no shortage of supply - 65 years of proven gas reserves and 150 years for coal, compared with 40 years for oil, according to BP - but it means using one high-emission fossil fuel to create another.

After oil, coal is the No. 2 source of energy. Growth is driven mainly by developing countries; every week to 10 days, a coal-fired power plant opens in China. But coal combustion needs rail, water and power lines, and it also produces more carbon dioxide per unit of energy than oil from conventional sources.

Projects that convert natural gas to petroleum products, like Shell's Pearl project in Qatar, have proved more complex and expensive than planned. The same is true of so-called coal-to-liquids, although analysts suggest that this may be a feasible option for China, given that country's vast coal reserves, modest capital cost assumptions and soaring demand for oil.

In terms of renewable sources, there have been bold steps by governments, including an EU plan to generate 20 percent of all EU energy from renewable sources by 2020.

The largest nonfossil energy source is biomass. Liquid fuels from biomass - mainly ethanol - have grown but still contribute only about 1 percent of the energy provided by oil. Wind and solar energy produce about 1 percent of the world's energy, a share that U.S. government forecasters predict will rise modestly.

Hydro power, which supplies about 2 percent of world energy, is not likely to grow significantly, outside of China and other developing Asia-Pacific areas. Nuclear power contributes about 6 percent of energy, and could expand its share if concerns over safety, security and waste disposal can be overcome.

In all of these areas, there will be advances. But squaring the needs of global economic growth with the imperative of curbing global warming will also depend on major long-term changes in consumption behavior.

Meanwhile, oil's pride of place looks assured. Prices will rise and fall, reserves will run dry and be discovered. But the thirst will continue, and will continue to be quenched.

Dubai Dreamscapes & Nightmares

♠ Posted by Emmanuel in , at 10/30/2007 03:48:00 PM
Ah, the wonder that is Dubai. Not only is the emirate reaching for the heavens with towering skyscrapers including one set to be the world's tallest, but it is also attempting to offer any sort of weather condition you want with indoor skiing and man-made beach islands. Pretty much any material thing your heart desires--and your pocketbook will allow--is available in Dubai. But, behind this modern-day tale of an economic boom lie many questions about what exactly is driving it. The Washington Post had a fine politico-architectural commentary [!--read it; I'm not kidding] about the place over the weekend, a brief snippet which I attach here:
But merely listing projects, or marveling at the architectural gigantism, doesn't get at what is unique about the emirates, which are emerging as the world's great post-democratic cities. They are rising at a time when American power seems to be in remission, when democracy has, in many parts of the world, lost its luster as an ideal, or necessary endpoint of social and political development. Material splendor and authoritarian government can, it turns out, go together. And architecturally, despite all the dissonance, the strange juxtapositions of the vulgar and the sleek, the blue-chip buildings next to the shabby high-rise clad in garishly colored glass and surmounted by a pagoda folly, the emirates are essentially an advertisement to an increasingly wowed world: Look at what enlightened, corporate, efficient and non-democratic government can do...

Which hints at a deeper politics underneath the architectural eclecticism. Like the vast investment in shopping malls, the celebration of materialism, the encouragement of unashamedly conspicuous consumption, architectural eclecticism is another way of reassuring people that you have everything you need here. The state has provided. The government doesn't just build mega-projects as investment, but to demonstrate competence, power and problem-solving. The striking thing about the hundreds of concrete support pillars that have sprung up in recent months along Sheik Zayed highway -- which will support a new light rail system -- is how quickly they're going up. The delays, the disputes, the litigation, the whole messy business of "Not in My Back Yard" simply doesn't exist in the country.

"Dubai is the achievement of a certain fantasy or utopia, of a society in which the corporations, private ownership and the state are all collapsed into one another," says Mike Davis, who has written about Dubai in the recently published "Evil Paradises: Dreamworlds of Neoliberalism." The book, definitely in the left-wing tradition, surveys urban planning, social justice, environmental destruction and other issues in emergent and rapidly developing cities around the world. Whereas people in the Emirates argue that they are blazing a progressive path forward relative to other Arab and regional nations, Davis writes that Dubai is pointing the rest of the world back to "a nightmare of the past: Speer meets Disney on the shores of Araby."

Dubai is even aiming to take on the City of London as a global financial center according to the Telegraph. Goodness knows what would happen if all those petrodollars went to Dubai instead of London--not an unimaginable scenario:

With a regional tide of petrodollars waiting to be deployed around the globe, Dubai's objective is simple: to establish itself as one of the world's leading financial centres.

"We aim to become one of the top three exchange groups in the world in the international capital markets," according to a spokesman for Borse Dubai, the holding company of the Dubai International Financial Exchange (DIFX) and its domestic counterpart, the Dubai Financial Market...

The Middle East's pan-regional boom looks well-set to play into Dubai's hands. Huge sovereign wealth funds amassed by neighbouring states such as Abu Dhabi and Qatar are contributing to the wall of capital which has turned the Gulf into one of the most formidable global centres for outbound mergers and acquisitions activity...

But there are reasons to suspect that Borse Dubai's long-term goal of becoming a top-three exchange group may have a touch of the desert mirage about it — or that, at least, it may take even longer to achieve than the state's ambitious rulers are hoping for.

The evidence of the period since the DIFX's September 2005 launch suggests it will take more than opera singers and snow in the desert to tempt large international companies to Dubai.

So far, only a handful have chosen to list there: in terms of trading volumes and funds raised, Dubai is not yet playing in the same league as London, New York or even Shanghai.

Data from Thomson Financial shows that, last year, IPOs in Dubai raised just $2.3bn, barely one-sixth of the total of London's junior AIM market.

While the amount of capital raised through equity offerings is only one measure of an exchange's success, the figures suggest the DIFX has a long road to travel to compete with more mature capital markets.

Big money and all these palaces in the sky bring up the natural question, "Who puts up these architectural wonders in this playground for the wealthy?" The answer is less heartening: South Asian workers who are largely sealed off from the wonders of Dubai--that's who. It is no exaggeration to say that they are being treated as second-class citizens for they have no path to eventual citizenship in the UAE, as with most Middle East countries. While the government claims that it is attempting to better relations with these workers, such doesn't seem to be the case as a number of them have gone on strike. [Hat tip Daniel Altman.] The caption of a picture of police watching South Asian workers on Altmans's blog is apt: "Soldiers won't build those skyscrapers." From the Associated Press:
Thousands of foreign construction workers, mostly of south Asian origin, went on strike Sunday over harsh working conditions in this booming Gulf city, a day after the government threatened to deport those who had rioted over low and delayed salaries.

Inexpensive foreign labor, drawn from the impoverished underclasses of India, Pakistan and Bangladesh, form the vital underpinnings to Dubai's spectacular building boom, which includes not just soaring office towers and sprawling residential compounds but whole artificial islands and winter ski resorts in this desert city.

The workers, however, have complained about long hours, no minimum wage, harsh living conditions and no legal forums in which to air their complaints about management.

Despite the illegality of strikes in the United Arab Emirates, the laborers refused to go to work over the weekend and protested in the labor camp of Dubai's Jebel Ali Industrial Zone and on a construction site in Al Qusais, a residential neighborhood.

They demanded pay increases, improved housing and better transportation services to construction sites. Some workers threw stones at riot police that heavily outnumbered the protesters on Saturday. Ali bin Abdullah al-Kaabi, the Emirates' minister of labor, described the workers' behavior to the state news agency WAM as "uncivilized."

UPDATE 11/2: The Economist adds that the workers are unhappy about the falling value of the dirham, which is of course pegged to the falling US dollar.

"Chinese stocks fairly valued, really"

♠ Posted by Emmanuel in at 10/30/2007 02:15:00 PM
Which of the following is the world's largest bank by market capitalization?
(a) Citigroup
(b) Dai-Ichi Kangyo Bank
(c) Industrial and Commercial Bank of China
(d) Bank of America

You may be surprised to know that (c) ICBC, is the correct answer. Given the incredible run-up in Chinese bourses, it was bound to happen sooner or later. In addition, you may know the reason why I threw in (b) Dai-Ichi Kangyo Bank in there as well--in 1986, the Japanese bank had surpassed what was then known as Citibank as the world's largest bank in terms of assets. So, is it the same old, same old with China instead of Japan as the flavor of the decade? The following article from Reuters argues no, and gives further reasons as to why Chinese stocks are fairly valued despite their pricey valuations. Basically, it boils down to "China is such a whopping huge market that growth opportunities are humongous."

I'm not so sure about that. Certainly there's a bubbly element to these proceedings as Chinese retail investors have no choice but to stick with local markets for there are limited opportunities to invest abroad. Still, there are many tidbits you can pick up. Did you know that SAIC Motors now has a larger market capitalization than General Motors? Like when Japan was poised to rule the roost according to some, there are many Chinese firms appearing on the scene. Did you know that PetroChina now has the second largest oil market capitalization in the world?
China has the world's largest commercial bank, its biggest aluminum maker, its No. 2 oil firm and its fourth-largest investment bank. It has five of the world's 10 biggest companies, versus three for the United States.

Never mind that outside their home markets, the companies' business operations are dwarfed in size and sophistication by Western and Japanese giants.

Soaring prices on the Shanghai Stock Exchange have propelled listed Chinese firms' capitalizations -- including shares held by government and institutional investors that have not yet become freely traded -- to the top of global tables.

For some investors, particularly foreigners, that's a sign Chinese share prices are ludicrously high [count me in].

But with China's economy on track for its fifth consecutive year of double-digit percentage growth, the market is simply looking farther into the future to value stocks, others say. And that future justifies such prices -- except perhaps for resource stocks.

"The current A-share bull run is very similar to what happened previously in Japan, Korea and Taiwan," when those economies and markets took off in the 1980s and 1990s, says Miao Junwei, CEO of ABN AMRO TEDA Fund Management.

Shanghai's stock market is up five-fold since the start of 2006. It is trading at above 40 times projected earnings for this year, dwarfing the S&P 500's 16 times. But it is still well below the 70-plus hit by Taipei at its peak in 1990, for example.

While the yuan currency keeps appreciating against the dollar and profit growth remains strong -- and there's no sign of this changing -- many blue-chip prices may continue climbing, and an extended pull-back is unlikely, Miao believes.

Take Industrial and Commercial Bank of China (ICBC), the country's biggest bank. When ICBC overtook Citigroup as the world's largest bank by capitalization in late July, it was seen as an especially absurd sign of a bubble.

Citigroup, one of the world's most sophisticated financial institutions with operations around the globe, posted net profit of $21.5 billion last year, over three times profits at ICBC, a state-controlled behemoth that is trying to modernize itself and operates almost entirely inside China.

But there's method behind the madness. ICBC has a network of around 17,000 branches across China. Citigroup, with more than a dozen Chinese branches, incorporated locally this year and entered the yuan retail banking sector, but it is unlikely ever to have a Chinese network approaching CIBA's.

The Chinese bank's earnings may grow faster than Citigroup's for years. ICBC announced a 76 percent jump in third-quarter profit last week, while Citigroup's third-quarter net fell 57 percent, partly because of exposure to the U.S. subprime loan crisis.

China's United Securities analyst Ge Jinbo estimates ICBC's profits will keep rising strongly on the back of China's economic expansion, which should produce national loan growth of about 10 percent a year, and surging non-interest income as it diversifies into areas such as insurance and investment banking.

"ICBC's earnings are expected to catch up with Citigroup's by 2010," he wrote in an article this month, predicting annual profit growth of about 35 percent in the next few years.

ICBC, which now has a market capitalization above $300 billion against Citigroup's $212 billion, also has plenty of money to grow through acquisitions. Last week it said it was buying 20 percent of South Africa's Standard Bank Group for $5.6 billion, the largest foreign investment in Africa.

ICBC's relatively backward retail banking operation could actually help earnings grow, as the bank takes modernizing steps that Citigroup and other Western banks took long ago.

Acquisitions may spur growth of China's blue chips in the next few years. At home, the government wants to consolidate industries to improve efficiency, and Beijing is encouraging investment abroad as it seeks access to resources and markets.

Another positive factor may persist for a year or two -- injections of major assets into listed firms by their state parents.

SAIC Motor quadrupled its earnings this year, and rocketed to become the world's ninth largest auto maker by capitalization, exceeding General Motors, by obtaining manufacturing ventures from its parent in a $2.4 billion deal.

The government now appears to be grooming SAIC as a "national car champion" by encouraging mergers with other local players.

In general, fund managers argue stocks related to consumer spending growth may deserve their high valuations. Lower labor costs, first-mover advantages and huge local networks of branches and customers may help these firms beat foreign competition.

Fund managers are most skeptical about valuations in the resources sector. Oil giant PetroChina, for example, which last week raised $8.9 billion in a Shanghai share offer, is now the world's second largest oil firm by market value, second only to Exxon Mobil.

In contrast to consumer stocks, resource firms' margins are in the long run expected to depend mainly on the cost at which they can obtain their raw material from abroad, while the global commodities markets mean they are unlikely to get away with charging their customers any premium.

"I really don't understand why China's resource firms should command such high premiums to their overseas peers," a senior portfolio manager at a major Chinese house said.

"PetroChina, like its foreign counterparts, sells its crude oil at international market prices and it does not hold any advantage in terms of reserve replacement."

China Pushes for FTAs w/ ASEAN

♠ Posted by Emmanuel in ,, at 10/30/2007 01:39:00 PM
Talk about noodle bowl arrangements galore between China and the ASEAN member countries. Not only is China seeking individual pacts with various ASEAN members, but it is also seeking a regional FTA with ASEAN. With the stalling of the WTO Doha Round, can we expect to see more of these bilateral and regional deals? It seems many countries are still keen on establishing trading ties despite pessimism on a global deal. WTO, we hardly knew ye? From Radio Singapore International:

China and ASEAN, should continue to step up dialogue on investment policies and work towards an early conclusion on establishing a free-trade area investment agreement. Chinese Vice-Premier Zeng Pei Yan made the call at the start of the Fourth China-ASEAN Business and Investment Summit yesterday. Trade between China and its southern neighbours grew to almost US$160 billion last year. China is expected to establish free trade pacts with Singapore, Brunei, Malaysia, Indonesia, Thailand and the Philippines by 2010.

Dr Sarah Tong, an economist from the National University of Singapore’s East Asia Institute, tells Michael Tan that a major shipping hub like Singapore will benefit from greater China -Asean economic cooperation.

ST: I think Singapore is a very efficient and important shipping hub and it does have a very important role to play in this respect. Particularly, I think this is one of the most obvious and strong comparative advantages of Singapore among ASEAN members and in the relationship with China, that will be a very important part because China - ASEAN trade within the region has become very significant. For example, components and parts, maturity of the import and export of the region are from the region so a trading hub will be essential for these closer economic relations between China and ASEAN.

China is expected to establish free trade pacts with several ASEAN countries in 2010. How is a free trade pact with China expected to benefit South-east Asian nations like Singapore?

ST: Well, I think among the ASEAN members, each member is very different in terms of their structure, industrial structure, economic structure, so they’re going to benefit in different aspects. For a country like Singapore, which is, in terms of manufacturing, playing a relatively small part in the over-all economy, and also the manufacturers are a bit more up-scale, more technologically sophisticated, in which case it doesn’t have as much direct competition with the Chinese industries, so in which case there is a lot more complementarities between the two in terms of manufacturing. And Singapore also has strengths in research and development and in high-tech products, in which case, closer relations or more trade and cross-over investments between the two countries will benefit tremendously for both.


And what would you say needs to be done to ensure a profitable partner-ship here?

ST: Well, I think the countries and the members on both parts have been pushing forward in increasingly positive aspects which is important for anything to be profitable and beneficial. Both parties, ASEAN and China, I think it’s more important to have a positive and long-term prospect and also having more dialogue which increases the understanding of both the strengths and the advantages and disadvantages of each party, understanding, and mutually respecting. I think that’s the way to go.

Chinese Vice-Premier Zeng Pei Yan has called for an early conclusion of talks on a China - ASEAN free trade area investment agreement. What is the likelihood that dialogue of this nature reaches fruition?

ST: I think relative to the free trade area, investment agreements probably vary more widely in terms of involving more broad areas, so it’s probably a little bit more difficult, relative to just product trade. I think the important thing is not the speed of how fast you can complete something, but rather to have more transparent, deeper understanding and more meaningful and effective dialogue and agreements. I’m not sure how long that will take, but I think it’s probably more difficult for an investment agreement to be reached because it does involve a lot more parties and areas.