The combination of horizontal drilling and hydraulic fracturing has already transformed North America’s natural gas market in less than half a decade. In 2000 shale gas was 1 percent of America’s gas supplies; today it is 25 percent. While U.S. energy companies began fracking for gas in the late 1990s, there was a dramatic increase in 2005 after the administration of President George W. Bush exempted fracking from regulations under the U.S. Clean Water Act. According to Washington’s energy Information Agency, shale gas production has grown 48 percent annually.

But there still some snakes to be chased from the industry’s campaign to convince the electorate that natgas produced by fracking is safe, as on 8 December the Environmental Protection Agency said for the first time it found chemicals used in fracking in a drinking-water aquifer in west-central Wyoming.

Soothing the electorate, the industry group Energy in Depth reported, “The history of fracturing technology’s safe use in America extends all the way back to the Truman administration, with more than 1.2 million wells completed via the process since 1947.”

And the feds are backing fracking as well, as a new estimate from the U.S. Department of Energy, estimates that the national gas resource can be sustained for 110 years at current consumption rates.

Numbers?

In 2009 an industry-financed study reported that 622,000 people are directly involved in the discovery, extraction and distribution of U.S. natural gas.

As for “insider” influence, in 2005 former Vice President Dick Cheney, in partnership with the energy industry and drilling companies such as his former employer, Halliburton Corp., successfully pressured Congress to exempt fracking from the Safe Drinking Water Act, the Clean Air Act and other environmental laws.

Even worse, a report released the following month by the U.S. National Center for Atmospheric Research noted that switching from coal to natural gas as an energy source could result in increased global warming, mainly due to the methane leakage problem, which is common but unregulated.

In a further potential federal sandbagging of the natgas industry, the federal Environmental Protection Agency, which studied fracking and deemed it safe in 2004, is taking another, broader look at the practice and may end up taking a more active role, with a broader study expected to be finished next year.

Maalox moments all – but now fracking is being charged with contributing to global warming by releasing substantial amounts of methane, a greenhouse gas 20-100 times more potent than carbon dioxide. According to Igor Semiletov of the International Arctic Research Centre at the University of Alaska Fairbanks, “Each methane molecule is about 70 times more potent in terms of trapping heat than a molecule of carbon dioxide.”

Professor Robert Howarth, Professor of Ecology and Environmental Biology and director of Cornell’s agriculture, energy and environment program has noted that his research shows that one well-pad fracking shale gas would emit more greenhouse gases than a community of 100,000 people in a year. Methane already accounts for a sixth of U.S. greenhouse gas emissions (GGEs). In addressing earlier concerns about the pollution impact of fracking Dr. Howarth wrote in Boston University’s Comment 14 September article, “Should Fracking Stop?,” “Many fracking additives are toxic, carcinogenic or mutagenic. Many are kept secret.

In the United States, such secrecy has been abetted by the 2005 ‘Halliburton loophole,’ which exempts fracking from many of the nation’s major federal environmental-protection laws, including the Safe Drinking Water Act… Fracking extracts natural salts, heavy metals, hydrocarbons and radioactive materials from the shale, posing risks to ecosystems and public health when these return to the surface…

Because shale-gas development is so new, scientific information on the environmental costs is scarce. Only this year have studies begun to appear in peer-reviewed journals, and these give reason for pause.”

Even worse, during the UN climate change conference in Durban last week, Dominic Frongillo, a town councillor from Caroline, New York, which is atop the Marcellus Shale seam, estimated to contain 489 trillion cubic feet of extractable natural gas noted that “Before I left for Durban, Professor Howarth told me that “preventing unconventional gas extraction could be the number one thing we could do in the short term to control growth of U.S. greenhouse gas emissions.”

According to Professor Howarth, “Methane is an incredibly potent greenhouse gas… Our research indicates that methane makes up more than 40 percent of the entire greenhouse gas inventory for the U.S. … We really need to get this methane leakage under control, if we are to seriously address global warming.” His paper, “Methane and the greenhouse gas footprint of natural gas from shale formations,” written with Renee Santoro and Anthony Ingraffea of Cornell concluded that shale gas is more polluting than oil and conventional natural gas, noting, “The footprint for shale gas is greater than that for conventional gas or oil when viewed on any time horizon, but particularly so over 20 years. Compared to coal, the footprint of shale gas is at least 20 percent greater and perhaps more than twice as great on the 20-year horizon.”

The pushback has already started, with a number of his Cornell colleagues questioning Dr. Howarth’s research methodology. See Lawrence M Cathles III, Larry Brown, Milton Taam and Andrew Hunter, “A Commentary on “The Greenhouse gas footprint of natural gas in shale formations” by R.W. Howarth, R. Santoro, and Anthony Ingraffea” @ http://cce.cornell.edu/.

What is clear is that while Cornell’s faculty is divided over the consequences of fracking, the industry has impacted the university’s Board of Trustees, which among other things oversees the university’s $5.28 billion endowment fund. According to the 16 February 2010 edition of the “Cornell Sun,” “Chairman of the Board of Trustees Peter Meinig ’61 is one of the most powerful decision-makers at Cornell. But as the University begins a long process to consider whether it should lease its land in the Marcellus Shale to gas drilling companies, Meinig’s former ties to the natural gas industry has raised some eyebrows in the Cornell community and beyond. From 1993 to 2001, Meinig served on the board of directors of Williams Companies, Inc, one of the nation’s largest natural gas companies. A Fortune 200 company that generated $1.42 billion in profits in 2009, Williams transports about 12 percent of the natural gas consumed in America everyday and has interests in the Marcellus Shale basin, according to the company’s website.”

What is clear is that the impact of natural gas hydraulic fracturing at Cornell has turned into a mounting academic storm with passionate advocates on both sides of the fence. It is notable that Cathles’, Brown’s, Taam’s and Hunter’s critique features prominently on the website of America’s Natural Gas Alliance,” (ANGA) a pro-industry advocacy group.

Let the games begin!

Source: http://oilprice.com/Energy/Natural-Gas/Earthquakes-Water-Pollution-and-Increased-Greenhouse-Gas-Emissions-Fracking-Strike-Number-Three.html

By. John C.K. Daly of Oilprice.com

International condemnation was swift.

China’s Foreign Ministry spokesman Liu Weimin said at a news briefing, “It is regrettable and flies in the face of the efforts of the international community for Canada to leave the Kyoto Protocol at a time when the Durban meeting, as everyone knows, made important progress by securing a second phase of commitment to the Protocol. We also hope that Canada will face up to its due responsibilities and duties, and continue abiding by its commitments, and take a positive, constructive attitude towards participating in international cooperation to respond to climate change.”

Xinhua, China’s state news agency, labeled Ottawa’s decision “preposterous, an excuse to shirk responsibility” and implored the Canadian government to reverse its decision so it could help reduce global emissions of GGEs.

Beijing’s comments are significant, not least because the PRC is currently the world’s biggest producer of GGEs after the U.S., but China has stalwartly insisted that the Kyoto Protocol remain the foundation of the world’s efforts to curb GGE emissions, which scientists maintain are a significant contributor to global warming. Pleading its special status as a developing nation China at the recently concluded climate change negotiations in Durban was granted an extension of the terms of implementing the Kyoto protocol until 2017 even as it bowed to pressure to launch later talks for a new pact to succeed the Kyoto protocol that would legally oblige all the big GGE producers to act.

Japan also expressed displeasure at the Canadian decision, but in a more nuanced approach, Japanese Environment Minister Goshi Hosono urged Canada to continue to support the Kyoto agreement, which included “important elements” that could help fight climate change.

UN climate chief Christiana Figueres opined in a statement released to the press, “I regret that Canada has announced it will withdraw and am surprised over its timing. Whether or not Canada is a party to the Kyoto Protocol, it has a legal obligation under the convention to reduce its emissions, and a moral obligation to itself and future generations to lead in the global effort.”

A spokesman for France’s Foreign Ministry called Canada’s decision “bad news for the fight against climate change.”

Even plucky Southern Pacific island nation Tuvalu weighed in with its lead negotiator Ian Fry bluntly stating in an e-mail to Reuters, “For a vulnerable country like Tuvalu, it’s an act of sabotage on our future. Withdrawing from the Kyoto Protocol is a reckless and totally irresponsible act.”

The silence from Washington on the issue was significant, as the United States Bush administration refused to sign the protocol, arguing instead that China and other big emerging emitters should come under a legally binding framework that does away with the either-or distinction between advanced and developing countries.

Toughing it out, Canadian Minister of the Environment Peter Kent stated that the protocol “does not represent a way forward,” adding that meeting Canada’s obligations under the Kyoto convention would cost $13.6 billion, asserting, “That’s $1,546 from every Canadian family – that’s the Kyoto cost to Canadians, that was the legacy of an incompetent Liberal government.”

Canada’s decision nevertheless has garnered a few supporters. Australian Minister of Climate Change Greg Combet has defended Canada’s decision, remarking, “The Canadian decision to withdraw from the protocol should not be used to suggest Canada does not intend to play its part in global efforts to tackle climate change.” One might note here that coal is Australia’s third largest export.

So, why the abrupt Canadian volte-face? Canada has the world’s third-largest oil reserves, more than 170 billion barrels and is the largest supplier of oil and natural gas to the U.S.

The answer may lie in Canada’s far north, in Alberta’s massive bitumen tar sands deposits, a resource that Ottawa has been desperate to develop. Since 1997 some of the world’s biggest energy producers have spent $120 billion in developing Canada’s oil tar sands, which would be at risk if Ottawa went green in sporting the Kyoto accords.

According to the Canadian Association of Petroleum Producers, more than 170 billion barrels of oil sands reserves now are considered economically viable for recovery using current technology. Current Canadian daily oil sands production is 1.5 million barrels per day (bpd), but Canadian boosters are optimistic that production can be ramped up to 3.7 million bpd by 2025.

So, what’s the problem?

Extracting oil from tar sands is an environmentally dirty process and the resultant fuel has a larger carbon footprint than petroleum derived from traditional fossil fuels, producing from 8 to 14 percent more CO2 emissions, depending on which scientific study you read.

So, Canada acceding to the Kyoto Treaty terms would effectively kill the burgeoning Canadian tar sands extraction industry. The Canadian tar sands already suffered a massive setback earlier this year when the Obama administration effectively sidelined the Keystone XL pipeline, which was due to transports tar oil production across the U.S. to refineries on the Gulf Coast.

So, Ottawa on the Kyoto convention has effectively drawn its line in the sand(s.)

Where things go from here is anyone’s guess.

Source: http://oilprice.com/Environment/Global-Warming/Startling-the-Global-Community-Canada-Withdraws-from-the-Kyoto-Convention.html

By. John C.K. Daly of Oilprice.com

After leaving rates unchanged on Tuesday, the FOMC released their statement saying that although the economy has been expanding, “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

This slightly negative outlook was enough to send traders looking for cover and as the U.S. dollar and U.S. treasury markets surged, commodity dropped sharply.

Oil prices took the biggest on Wednesday and dropped more than 5% during the session. The sell-off on Wednesday was kind of the perfect storm; according to some analysts, the fact that OPEC raised oil output to 30 million barrels per day, in the face of another recession, increases the risk of oversupply in the marketplace.

Oil wasn’t the only commodity to take a major hit. Since the start of the week both gold and silver prices have been steadily selling off. On Monday the yellow metal broke below the 50-day moving average and then on Wednesday dropped decisively through the 200-day moving average and closed at $1,579.70. The strong selling pressure on Wednesday caused gold to break its long-term uptrend and the close below strong support at $1,600 highlights the risk of a continued sell-off.

Silver was just as weak and on Wednesday dropped well below support at $30 an ounce and ended the day at $29.02.

We could see some modest covering in the next few days as investor take some profits off the table; however it is hard to ignore the shift in the marketplace. As we pointed out last week, volume is relatively low during December. Wednesday’s volume was the strongest it has been since late September.

Looking at gold prices there is now a real risk that prices test $1,500 in the near to medium-term. Looking at oil prices, there appears to be some initial support at 92.50 but the strong test will come at $90.

There is a real risk that silver could end up testing support around $25 in the short to medium term.

Because the sell-off in commodities was so broad, investors will also have to closely monitor their positions in other markets and especially currencies. We all know that the U.S. dollar is the only “safe-haven,” so it is not surprising that in these conditions that U.S. dollar futures broke above 80.00 on Wednesday.

Although the euro is going to continue to take a hit the really market that is worth watching is the commodity currencies like the Canadian dollar and the Australian dollar. These are probably the two biggest commodity currencies and because of the sell-off, we would expect to see some follow through after Wednesday action.

Canadian dollar futures have been under pressure since Monday. Although there was some neutral price action on Wednesday, most analysts are expecting to see price break below initial support at $0.95 and could touch the next support level around $0.935.

There is similar price action for Australian and analysts are expecting prices to test support at $0.96.

According to government officials, the reason for moving the date forward is plummeting tariffs in the latest solar development projects, a trend that they believe is likely to continue.

Ministry of New and Renewable Energy Joint Secretary Tarun Kapoor said, “The prices will come down further next year and will continue to fall. Earlier, our aim was that solar power will achieve grid-parity by 2022, but looking at the upbeat response from the industry, we have now reduced our target to 2017. Some big names from India have proved that a large investment will soon be possible in solar projects, as huge as 2,000 megawatts. There are other reasons as well. Internationally, the price of solar cells has come down and with improved technology, the cost of operation as a whole has been reduced, thereby increasing the efficiency.”

All is not yet completely sunny for India’s solar energy drive, however. Kapoor noted that several solar projects benefiting under a state program offering favorable tariffs to build 20,000 megawatts of capacity have already been delayed, adding that developers may lose contracts if deadlines are missed, commenting, “Two of the projects are behind schedule. In a few months, we should have a clear picture.”

The pair of miscreants are Entegra Ltd., whose majority shareholder is MW Corp Pvt., which has yet to begin building a 10 megawatt solar-thermal plant in Rajasthan and Enterprise Business Solutions, cited for delays in an October deadline to build a 5 megawatt photovoltaic plant in Punjab.

Entegra Ltd. is disputing New Delhi’s claims of sluggish performance, with its Chairman Mukul S. Kasliwal commenting that his firm faced problems raising financing for its $38 million development but that the company expects to complete the Rajasthan facility plant by its 2013 deadline. Shifting responsibility for delays to the Indian government, Kasliwal commented in an interview, “We haven’t started because we’re not going to do something that doesn’t make sense financially. Had we been allowed to function as an SPV (special purpose vehicle), then we would’ve finished financing long ago.”

Despite the travails of Entegra Ltd and Enterprise Business Solutions, other members of India’s burgeoning solar energy community are optimistic about the government’s latest pronouncements. Azure Power CEO Inderpreet Wadhwa, whose company has secured government contracts to establish solar projects to generate up to 35 megawatts said, “Solar has the same potential as personal computers had in 1970′s. Technology innovations and improvements in manufacturing would drive down costs further.”

Support for India’s solar ambitions comes from some heavyweight fiscal analytical groups. Ernest and Young partner Sanjay Chakrabarti observed, “The extent of price reduction since 2008 has been very sharp. Although solar prices will continue to drop the fall in future may not be so sharp.”

Kapoor is under no illusions however as to why foreign companies are closely following India’s interest in solar energy, noting wryly, “The only reason is that India is an emerging market and one of the few countries where solar energy is encouraged at such a massive level.”

And that emerging market is potentially lucrative indeed, as last year the Indian government launched its “National Solar Mission,” whose objective is to establish India as a global leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible.

The program’s goals are nothing if not ambitious, as the government had initially hoped to boost the nation’s solar capacity by the equivalent of about 18 nuclear power plants by 2022, at date that’s now been brought forward by five years.

Investors, anyone?

Source: http://oilprice.com/Alternative-Energy/Solar-Energy/India-Embraces-Solar-Power-Says-Price-Will-Equal-Thermal-Power-in-Five-Years.html

By. John C.K. Daly of Oilprice.com

The biggest problem traders face during the holidays is low volume. Although it doesn’t sound like a big issue, low volume creates inconsistent volatility and unpredictable price swings. If traders are not careful, they can quickly accumulate loses.

Because December isn’t finished let’s take a look at December contracts of for the S&P 500 mini contracts. This is probably one of the most active contracts in the futures market and even though volume remains high, it is much lower compared to other years.

The December contract, which is settled in at the end of the month only traded 16,719,197. In November, the December contract had a volume of 54,560,838 and in October it had a volume of 41,896,636 contracts.

The volume for the December contract decreased by more than 59% between November and December.  Another factor for the low volume could be that the December is the final month of the contract, which means by this time, most traders have focused their attention to forward March contract.

As another example, let’s look at light sweet crude oil futures, which is a monthly contract. The January 2010 contract, which trades in December, had a total volume of 4,199,634. The December contract traded 4,937,356 contracts in November. That represents a drop of more than 14%.

Looking at the monthly oil chart, we can see that the price swung in a fairly wide range with resistance at $91.00 and initial support at $87.00. On Dec 7, which had the highest activity during the month, hit a session high of $90.76 and a session low of $88.04. Despite the volatility the price ended the session in relatively neutral territory.

The holiday trading usually begins after Thanksgiving. Markets are closed on the Thursday and are only open for half a day on the Friday. The week after thanksgiving is probably the last big trading week before the Christmas break. Most of the big investors and institutional traders use that time to close out most of their positions.

Most institutional traders will have some positions in the marketplace; however these positions are much smaller because of the increased risk and lack of focus. Instead of thinking about the markets, the active traders are thinking about how they are going to spend their earnings made during the rest of the year. Like the rest of us, traders want to take the holidays to relax and unwind.

With most traders take a break the people who are left to play in the marketplace are the ones who are a little bit more desperate. Instead of thinking about the holidays these traders are thinking about making their quote.

These traders will to try to capture the big moves; however this is associated with higher risks. It doesn’t really matter why volume is low but it is important to recognize that it can create wild swings.

If you are going to trade during the holidays it is important to have a defensive strategy, taking your profits and cutting your losses quickly will help you protect your capital and maybe insure that you have a happy and stress fee holiday.

With no major tape bombs released last week, the S&P 500 managed to float within our predicted trading channel. European nations have agreed to allow a central agency to provide oversight of their budgets, which should help to instil some confidences in the marketplace. As long as investors feel that the politicians have the debt problems under control, there won’t be any panic selling. For now watch for the 200-day moving average at 1,263 to cap any advances. Even if that area does break there is strong resistance at 1,275 in the near-term. On the downside the 50-day moving average at 1,219 should act as a floor in the near-term. If investors do get jittery over the week, the next major support level to watch would be 1,200.

The Dow Jones Industrial Average continues to be the bigger winner in the equity markets. As we have pointed out before, most investors are testing the waters by looking for value stocks. In these conditions the larger cap companies will continue to do well. Looking at the index, the 200-day moving average at 11,944 continues to act as support. There appears to be some initial resistance around 12,200 and with volume expected to be light prices could continue to consolidate within these areas. On a broader scale we could see the market bounce between resistance at 12,300 and support at 11,800.

Volatility appears to be alive and well in the tech sector, which is not surprising. Some of the smaller tech companies in the NASDAQ Composite pose a lot of risk to traders are quick to get in and out of positions. Despite the volatility, prices have remained within their channel between the 200-day moving average at 2,670 and the 50-day moving average at 2,601. This area should hold in the near-term as most investors are focused on taking a few days off for the holidays.

With markets starting to calm down it is not surprisingly that gold prices took the biggest hit of all the markets we are watching. On Friday gold closed the week down 1.95%; however, the weakness has not really impacted the long-term uptrend.  We have pointed out before that gold has been very volatile lately as it no longer correlates with other safe-haven plays but to break the uptrend the price will have to drop below support at 1,675. For now it appears that the 50-day moving average at 1,714 is acting as initial support. On the top side, $1,750 is acting as initial resistance and there is a strong ceiling at 1,800.

It was a relatively boring week in currency markets. Although U.S. dollar index futures were relatively volatile, they stayed in a modest range last week. The moves we cause last week looked to be more about taking profits then establishing a position; the spinning top candle stick, which was formed on Friday is an indication that prices can easily go either way in the short-term. We continue to watch the broader range with support at 78.00 and resistance at 80.00.

Last on our list is the euro futures and surprise, surprise, there was more consolidation. Looking at the price action last week, there looks to be a little bit of a downtrend happening, which is an indication that prices will probably bottom-feed in the near-term. Even if the risk sentiment improves and the U.S. dollar drops, it would probably get a significant move to entice investors to jump back into the euro. For now watch support at $1.3200 and resistance around 1.3550 to 1.3600.

Unclear – but a little ray of sunshine for alternative fuels was provided on 1 December, when the Inter-American Development Bank (IDB) approved a $70 million loan to Mexico to boost funding for renewable energies in electricity generation to reduce greenhouse gas emissions.
The loan, whose funds were provided from the IDB Clean Technology Fund, will be matched by financing from Mexico’s loan Nacional Financiera (NAFIN) development bank, along with an additional $70 million provided by an existing IDB conditional line of credit approved two years ago, for a total of at least $210 million.
The Clean Technology Fund IDB loan will be used for the construction of at least 10 renewable energy facilities, in particular wind power plants and small hydroelectric plants, increasing Mexico’s installed energy capacity from renewable sources, generating an estimated savings of greenhouse gas emissions of up to two million tons of CO2 annually.
Bereft of its platitudes and PR buzz, the discussion comes down to simple facts.
Does Mexico want the quick peso by developing its shale natural gas reserves as soon as possible, or is it willing to take a longer term approach to renewable energy? Given the immense fiscal reserves of its giant northern neighbor and its mastery of fracking technology, the answer might seem to be fairly clear cut, and one cannot discount the inevitable influence of corruption in advancing agendas.
According to the 2000 census, only 55 percent of Mexicans received drinking water of adequate quality. Given fracking potential to pollute aquifers, if might be time for Mexico city to forgo the quick peso and tell its remaining 45 percent to citizens to be a tad more patient while the government acquires more renewable energy grants.

Source: http://oilprice.com/Energy/Natural-Gas/Mexico-Rising-Natural-Gas-Superstate.html

By. John C.K. Daly of Oilprice.com

The grim statistic was contained in the recent report, “Keeping the Home Fires Burning,” issued by the Australian Strategic Policy Institute.

So, who is the Australian Strategic Policy Institute? Tree-hugging, wallaby and kangaroo friendly ecological leftists or energy company flacks?

Uh, no.

According to the Australian Strategic Policy Institute website, “ASPI is an independent, non-partisan policy institute. It has been set up by the government to provide fresh ideas on Australia’s defense and strategic policy choices… It aims to help Australians understand the critical strategic choices which our country will face over the coming years, and will help government make better-informed decisions.”

Accordingly ASPI’s conclusions cannot be seen as either energy industry shills nor environmental advocates, which makes them accordingly worth careful consideration.

The report starts ominously, “Australia, like all modern economies, needs an assured supply of energy to function effectively. As a net exporter of energy, Australia is well placed in most respects. But we are still reliant on external sources of oil.”

Authors Andrew Davies and Edward Mortimer pull no punches, first noting that Australia’s massive indigenous energy reserves of coal and natural gas would shield it from political disruptions in the Middle East before adding, ”The energy security policy challenges of the next 20 years are likely to pale into insignificance compared to those that will arise when the availability of fossil fuels declines significantly. Unfortunately, it doesn’t look like renewable sources of energy will be able to provide adequate substitutes, at least based on current technology. Developing countries are even less likely to be able to adopt alternative energy sources on a large scale. As a result, any large reduction in fossil fuel usage will most likely be due to scarcity and price rather than choice. The timescale is decades rather than years, and the decline of existing fuel stocks will be gradual rather than precipitous, so there’s scope for technological advances to come to the rescue – but there are no obvious solutions at the moment.”

So, solar power to the rescue? According to the authors, ”The requirement (to generate solar power per capita) can also be expressed as 200 square meters of panel per person, or about four times the average amount of roof area per person in Australia today.” As for the country weaning itself off fossil fuel power and diverting to solar power generation, the authors conclude, “As a rough estimate, if the cost per panel could be halved (due to economies of scale), the total cost would be around $100 billion.”

What to do?

Davies and Mortimer suggest that in conjunction with neighbors New Zealand, Papua New Guinea and the Pacific Island countries Australia develop a strategic oil reserve to maintain transport and industry if and when Middle East disruptions imperil supplies.

For a government sponsored institute providing “fresh ideas,” ASPI seems stuck in a “business as usual” rut, looking at the immediate bottom line versus the long-term picture.

As for establishing an oil strategic reserve, the rising tensions in the Middle East over Iran’s nuclear programs could change the dynamics of Persian Gulf oil exports to East Asia long before strategic reserves could be established.

Australia does indeed have significant reserves of coal as well as access to natural gas, including the offshore Sunrise natural gas field, shared with Timor Leste and estimated to contain 5.1 trillion cubic feet of liquefied natural gas and 226 million barrels of condensate, the largest petroleum resource in the Timor Sea. Development of the field with Timor Leste has been blocked by disputes with the Timorese government for the last nine years.

Charming as the idea of boring holes in the ground and pumping Middle Eastern oil down them for a rainy day, would it not be in Australia’s interest to negotiate fairly with Timor Leste over the Sunrise field? Even if solar power gives Canberra sticker shock, it seems preferable to make local arrangements for more environmentally friendly fuels such as natural gas rather than continuing to import hydrocarbons from the Middle East or burning local coal. Best then, at the end of the day, it’s an economic issue, with quality of life considerations coming second.

But if Canberra has to give its energy import policies hostage to fortune, Timor Leste is a lot closer than the Persian Gulf.

Source: http://oilprice.com/Alternative-Energy/Solar-Energy/Australia-Going-Solar-Gonna-Cost-Ya-Mate.html

By. John C.K. Daly of Oilprice.com

Since the financial crisis started in 2008 a lot of attention was has been focused on the U.S. dollar; however there is one other currency that many traders have been following, which is the Japanese yen.

Most people realize that since the financial crisis the U.S. dollar has acted as “safe haven” currency; however people forget that the yen was also a considered a “safe haven,” which is why the currency has been able to rebound from the recent chaos.

Although Japan has some massive debt problems and major natural disasters, the yen has been able to weather the financial turmoil rather well. Over the last few years there has been some decent volatility; however, as we can see from the chart, since mid-2010, the currency has made some decent gains.

One of the reasons why the currency is considered a “safe haven” is because the country has strong international investments. In fact the country is the largest creditor holding more than $3 trillion in foreign investments.

Also helping to push the yen higher in the last few years has been the unwind of the carry trade. Before 2008 investors would take advantage of Japan’s low interest rates by selling the currency and using the money to buy higher interest bonds.

Because interest rates around the world are near zero, the carry trade has not been very popular so investors have been slowly closing out their positions and repatriating the funds back to Japan.

In early 2011 a major earthquake and tsunami devastated the country, which then resulted in a meltdown at a nuclear power. Not only was country overwhelmed but the economy took a major hit as the power shortage caused a disruption in the global supply chain. Companies throughout Japan make crucial components for everything from toaster ovens and automobiles to iPhone and computers.

The problems caused a massive sell-off and in a couple of weeks the yen fell from a high of 1.27080 and drop to a low of 1.1732. Since then, the currency has managed to recover and managed to test resistance between 1.31 and 1.32.
On Oct. 31 there was some panic selling in yen, which caused futures to drop to a low of 1.2582. However since then prices have managed to find initial support around 1.2800. It appears that the currency is starting to carve out a new channel and we could see a push up to initial resistance at 1.30. In the medium term, investors should keep an eye on 1.32.

Although the yen has been able to make some decent gains in the last few years, some analysts are expecting to see weakness in the long-term.

“Weak fundamentals, loose monetary policy and official intervention in yen, have done little to reverse the currency’s appreciating trend. Yen positive repatriation and safe haven flows have played a major role in the currency’s rise; however we would expect these to fade in 2012,” wrote currency strategists from Scotia Capital in their December FX outlook report.

Given that roughly 100 fuel tanker trucks along with 200 other trucks loaded with NATO supplies cross into Afghanistan each day from Pakistan, Pakistan’s closure of the border has ominous long-term consequences for the logistical resupply of ISAF forces, even as Pentagon officials downplay the issue and scramble for alternative resupply routes.

Pakistan, long angry about ISAF/NATO cross border raids, has apparently reached the end of its tether. Following the 26 November NATO aerial assault on two border posts in Mohmand Agency in Pakistan’s turbulent NorthWest Frontier Province, Islamabad promptly sealed its border with Afghanistan to NATO supplies after the allied strikes killed 24 Pakistani soldiers.

The U.S. military insists a joint patrol with Afghan forces was fired upon first and only responded with return fire and calling in airstrikes on the posts, which a commander mistakenly identified as Taliban training camps, after reportedly checking that there were no Pakistani military forces nearby. Pakistan Major General Ishfaq Nadeem, director general of military operations, rebutted Washington’s assertions one by one, commenting, “The positions of the posts were already conveyed to the ISAF through map references and it was impossible that they did not know these to be our posts.”

So, what does this mean for logistical support of ISAF forces? According to Nesar Ahmad Nasery, the deputy head of Torkham Customs, around 1,000 trucks cross into Afghanistan on a daily basis, nearly 300 of which are NATO contractors carrying NATO supplies in sealed containers. Khyber Transport Association chief Shakir Afridi said that each oil tanker has a capacity of 13,000-15,000 gallons. In October 2010 Chairman of the Joint Chiefs of Staff Admiral Michael Mullen said that fossil fuels are the number one import to Afghanistan.

Noting the obvious, as Afghanistan has no indigenous hydrocarbon supplies, every drop must be brought in, with transit greatly increasing the eventual cost. For 2001-2008, almost all U.S. and NATO supplies were trucked overland to Afghanistan through parts of Pakistan effectively controlled by the Taliban.

Ground supplies are shipped into Pakistan’s Arabian Sea Karachi port and offloaded onto trucks before being sent to one of five crossing points on the Afghan border, the most important being Torkham at the Khyber Pass and Baluchistan’s Chaman. The recent attack has put all these routes at risk, perhaps permanently. Pakistan, being the shortest and most economical route, has been used for nearly a decade to transit almost 75 percent of the ammunition, vehicles, foodstuff and around 50 percent of fuel for coalition forces fighting in Afghanistan.

On 27 November Interior Minister Rehman Malik, addressing journalists at the Ministry of the Interior’s National Crisis Management Cell, after strongly condemning the NATO attack on Pakistani forces, stated that the resupply routes for NATO via Pakistan have been stopped “permanently,” adding that the decisions of the Defense Cabinet Committee (DCC) on the NATO forces attack inside Pakistan would be implemented in letter and spirit, stressing that “The decisions of the DCC are final and would be implemented.”

The major issue at stake here for ISAF and U.S. forces is fuel, all of which must be brought in from abroad at high cost. In October 2009 Pentagon officials testified before the House Appropriations Defense Subcommittee that the “Fully Burdened Cost of Fuel” (FBCF) translates to about $400 per gallon by the time it arrives at a remote Forward Operating Base (FOB) in Afghanistan. Last year, the FBCF reached $800 in some FOBs following supply route bombings in Pakistan, while others have claimed the FBCF may be as high as $1,000 per gallon in some remote locations. For many remote locations, fuel supplies can only be provided by air – one of the most expensive ways being in helicopter fuel bladders.

The majority of U.S. tonnage transported into Afghanistan is fuel – 70 percent, according to Deputy Undersecretary of Defense Alan Haggerty. The Marines’ calculate that 39 percent of their tonnage is fuel, and 90 percent is either fuel or water.

According to ISAF spokesman Colonel Wayne Shanks, there are currently nearly 400 U.S. and coalition bases in Afghanistan, ranging from the massive Bagram airbase outside Kabul down to camps, forward operating bases and combat outposts.

The Pakistani supply lines have come under increasing attack by militants. Baluchistan Home Secretary Akbar Hussain Durani noted that last year, 136 NATO tankers were destroyed in 56 attacks in the province, with 34 people killed and 23 wounded in the assaults.

But NATO and the Pentagon have a backup plan – since 2009 they have been shifting their logistics to the Northern Distribution Network (NDN), a railway link running from Latvia’s Riga Baltic port through Russia and Kazakhstan terminating in Uzbekistan’s Termez on the Afghan border.

The NDN is a joint initiative of multiple Department of Defense agencies, including the US Transportation Command, CENTCOM, the US European Command, the Defense Logistics Agency and the Department of State. The NDN’s first shipment was sent on 20 February 2009 from Riga 3,212 miles to Termez, with U.S. commanders stating that 100 containers daily would be transported via the NDN. The supply trains have been given preferential right-of-way to speed the trip to about nine days. According to Pentagon officials, its goal is eventually to be able to bring 75 percent of its equipment into Afghanistan from the north.

But the true number of forces to be resupplied is far higher. Last year the Pentagon’s Central Command put the number of contractors for the U.S. military at 107,000.

According to ISAF spokesman Lieutenant Gregory Keeley in Kabul, the NDN now accounts for 52 percent of coalition cargo transport and 40 percent for the U.S., which also receives around 30 percent of its supplies by air.

Cost?

According to the FMN Logistics, the Washington DC-based logistics company that oversees the NDN and provides “full supply-chain management to ensure the smooth transit of(European Union) government cargo from various Ports of Entry including Riga, Latvia;

Poti, Georgia; Mersin, Turkey and Bandar Abbas, Iran, through to multiple NATO/ ISAF camps in North and South Afghanistan,” in January Russian Railways increased rail tariffs for freight by 10 percent and is suggesting an additional increase of 11.7 percent in 2011 to cover “operating costs.” Further east, Uzbekistan increased rail tariffs twice last year.

Bringing supplies overland on the NDN costs two or three times as much as shipping them by sea and moving them up through Pakistan.

And the NDN is not without problems of its own. On 16 November Uzbek media reported an explosion on an NDN railway line on a railway bridge on the Galaba-Amuzang section of track on Uzbekistan’s border with Afghanistan.

Besides the NDN, the Pentagon also uses a supply route through Georgia’s Black Sea Poti port via Azerbaijan’s capital Baku, where goods are transshipped across the Caspian Sea to Kazakhstan, where the goods are carried by truck into Uzbekistan to Afghanistan. While shorter than the NDN, it is also more expensive because of the constant on-and-off loading from trucks to ferries and back onto trucks. A third supply route, a spur of the NDN, bypasses Uzbekistan from Kazakhstan via Kyrgyzstan and Tajikistan, but poor road conditions in Tajikistan limit its usefulness.

So, given Pakistan’s shutdown, can the NDN absorb the increased railway traffic?

Probably, but it won’t be cheap, and will take some time to implement.

NATO’s investigation of the Mohmand attack, led by a one-star general, will release its findings on 23 December. What does Pakistan want to resolve the issue? A formal apology and resolute action taken against those responsible for the deadly cross border air strike.

The U.S. military’s Transportation Command deputy commander Vice Adm. Mark Harnitchek said of resupplying Afghanistan, “This is the logistics challenge of our generation.”

If the Pentagon does not issue an apology, then the U.S. military had better expect “the logistics challenge of our generation” to continue.

Or get out and push and push the HUMVEES and helicopters.

Source: http://oilprice.com/Geo-Politics/International/Furious-at-Latest-U.S.-Attack-Pakistan-Shuts-Down-Resupply-Routes-to-Afghanistan-Permanently.html

By. John C.K. Daly of http://oilprice.com