Monthly Archives: October 2013

Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

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Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

The brinkmanship demonstrated over recent weeks between the Executive, House of Representatives and the Senate reveals a total disregard for how a few ultra-right wing politicians can cause great concern in the international markets. I argued in my blog, EU/Eurozone – Start Again or Plod On – A New Government, that having the upper and lower houses in a democratic system both elected, especially at different times in the economic and political cycle, can result in stagnation of the governmental process.  This has to be a flaw in the democratic system, especially when just a few people can hold the World economy to ransom. The USA has shown time and time again that, in any global issue, their own interests are most certainly the top priority. Albeit that, if my calculations are correct, this stand-off stagnation has occurred 18 times during the past 30 years does this fact make the global uncertainty created any more palatable? As USA debt reaches levels that are unassailable in terms of any hope of repayment is it time to seriously look at this problem?

The debate that I think is needed is related to the introspective nature of the USA, as provider of the global reserve currency. Only some 15% of USA citizens have passports, very little is taught in their schools regarding the World at large, they are taught that America is the best place in the World, they are the biggest and the best at everything (they have a World Series in a sport that is only played in the USA), and very few can indicate on a map of the World where major countries are located, let alone cities. Indeed I took my teenage daughter to the USA some years ago where she was told that a nominal relief in Boston was the largest relief in the World, and when we walked past the CBS building in New York there was a screen proclaiming ‘America, the oldest surviving democracy in the World’. Is such a culture to be trusted with the broader obligations of the holder of the global reserve currency?

Up until recently one of the fears within the political circles of the USA was their increasing dependence of the greater World for strategic resources such as oil & gas. This did provide a more tempered approach to how they dealt with international issues. However they have now become energy self-sufficient so will this change attitude to international issues as they recede into their natural state of introspection?

The other side of the debate is what is the alternative? Forget the Euro or Renminbi replacing the USD as the global reserve currency as neither is remotely qualified to assume this role. However it was not so long ago that the USD, and thus the World economy, was linked to the Gold Standard, and this was removed overnight; driven by the UK. Can we devise an alternative that can both commands the level of confidence required by the World markets to be acceptable, and disconnected from the introspective political wrangling that artificially impacts it credibility, and thus stability.

I am reminded of structures in the past such as a basket of currencies, e.g. Special Drawing Rights (SDR’s) but these can be unduly influenced by stronger participants, albeit more dampened than the impact of the USD as a sole reserve currency.

My thoughts are that there is a lateral solution out there, and long overdue. I also suggest that recent events make a solution to this problem ever more urgent as I do not see the USA reforming its political system to prevent the stagnation we have seen over recent weeks.

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FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

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FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

Having watched with interest over the past weeks discussions relating to the strategic development of future energy generation I noted one discussion that questioned if the major oil & gas companies today would be the energy companies of tomorrow. This question did not arouse much discussion, but then I thought that if we beg the question of why these companies have not already diversified into the energy generators of today we might have a more interesting debate. After all they have both the Balance Sheets and the income generation to engage in energy generation, and they have the environmental lobby trying to drive them out of the business of fossil fuel production. So why have they not, at least, diversified their activities, but continue to pursue ever more costly development of fossil fuel production?

Looking at the business model of the major oil & gas companies such as BP, Exxon, Shell, etc. they all engage in exploration, development, production, refining, wholesale and retail distribution of fossil-based products. Thus their business model fully accommodates the substitution of power generation (even nuclear as a means to offset the fossil fuel debate) for refining which then provides for both wholesale and retail distribution of electricity. The companies have both the Balance Sheets and income profile (cash flow) to support the development of new primary generation capacity using the new generation of nuclear reactors, namely thorium reactors, as a logical diversification away from fossil fuels.

Before anyone raises the fact that these companies, in various degrees, have invested into renewable energy projects I would suggest that an intelligent review of their capital commitment to such projects is less than their annual promotional costs, and would further suggest that these projects are undertaken as part of their promotional costs, taking full advantage of all available government grants and subsidies, in order to create the illusion that they care about the impacts they may, or may not, be contributing to climate change. Of course we must remember that such impacts are not as yet reasonably proven, and are essentially propaganda by bodies fronted by the UN IPCC committee.

So why do these companies not take the environmental lobby seriously? Why do they continue with the ever increasing cost of developing ever more expensive fossil fuel recovery, yet do not spread their risk into other sources of energy?

Could it be that the latest IPCC climate change report provides a significant clue as to why these companies do not see the need to contemplate energy generation as part of their business strategy. Indeed could the advent of successful fracking for both oil and gas provide an even stronger foundation to the forward strategies of these companies in that the net production costs of recovering fossil fuels is getting cheaper? And the quantum of fossil fuel recoverable reserves has never been in doubt other than by the doomsayer environmentalist activists.

Why do these major oil & gas companies not see the need to diversify into energy generation even though such activity fits within their existing business model? I would suggest that they understand the business of energy, and their fundamental involvement in secure supply of fuel for the foreseeable future – much to the chagrin of the environmental lobby. These companies know that they will maintain their position as the primary source of fuels for generations to come, regardless. They are the only consistent source of fuels for primary energy generation, especially now that the nuclear program has been stalled by the unrealistic (but understandable) reaction to events such as the Fukushima incident. They are likely to have to find ways of reducing the hostile emissions of fossil fuels but, as with the creation of solutions such as the syntroleum process to remove the sulphur content from natural gas thus providing clean feedstock diesel fuel, they will find cost-effective solutions to other emission issues.

I share their confidence – that is until either/or thorium reactors and fusion reactors provide a significant commercial alternative. Other initiatives such as hydrogen fuel cells are unlikely to be cost effective enough to replace internal combustion engines. Indeed there are cheaper and much cleaner fuel alternatives that can be used in the existing internal combustion engine – if the powerful oil & gas interests will let such fuel alternatives see the light of day, even though they are the logical producer and distributor of these alternate fuels.

The major oil & gas companies are formidable political lobbyists. They will ensure that the revelations of uncertainty in the latest IPCC climate change report will set back the climate change/fossil fuel debate by decades, and I expect to see political support of the environmental lobby begin to cool. Indeed politicians in need of votes are likely to slowly but surely defuse the debate by asserting the current lack of reasonable evidence. Germany has irrationally indicated its lack of support for nuclear, not by reference to renewable alternatives, but to a return to coal of which they have significant reserves. Thus I propose that fossil fuels are the preferred reliable source of primary energy generation for the foreseeable future, and as such the major oil & gas majors are in no hurry to diversify.