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Politics and Economics

The power of rising energy prices
Soaring costs have Md. aluminum plant on the brink

Justin Blum, Washington Post
For 35 years, the aluminum plant surrounded by fields of soybeans and corn in Frederick County has provided high-paying, reliable jobs that lured workers from faraway states.

But now the plant’s owner, Alcoa Inc., is warning the 600 employees that they could be out of their jobs for a reason well beyond their control: soaring electricity prices brought on by deregulation. The company says it can run a plant overseas for a fraction of the electricity costs at its Maryland site.

The plant’s closure, and the loss of jobs paying an average of $55,000 a year plus benefits, would ripple through the region’s economy. Eastalco Works, as the plant is known, would become be the latest victim of a U.S. industry contracting at home while expanding overseas.

…The electricity industry says the reason for the higher domestic prices is straightforward: The cost of coal and natural gas, which fuel most of the country’s power plants, has risen dramatically.

But Alcoa, with a 24-hour plant that uses more electricity than any other business in Maryland, sees another force at work. The company says electricity deregulation — allowing competition among suppliers and letting the market, not regulators, determine prices — has pushed costs higher than they otherwise would have been. That marks a dramatic shift in position for Alcoa, which years ago had championed deregulation as a way to lower prices.
(9 November 2005)

China: A miracle and a menace

Jonathan Watts, The Guardian
Hu Jintao is visiting London as president of a China at its most powerful for 200 years. It now needs resources to keep its factories running, its people sated. Its leaders want the economy to more than triple by 2020. For some, it is the business opportunity of a lifetime, but for others, the geostrategic and environmental threat of the century. In a two-part series, the Guardian examines how China is changing our world

…Once self-sufficient in many primary products, China now gobbles up global resources. Imports rose 40% last year as it surged past the US as the most important player in global commodity markets. According to the Asian Development Bank, China took 40% of the world’s steel, 30% of its coal, and 25% of its aluminium and copper. It is now a major importer of grain, soya and even rice because so much farmland is given over to factories, malls and housing.

In the past two years, Chinese demand has been credited with pushing international commodity prices to record levels. China has accounted for 40% of the growth in demand for oil over the past four years, overtaking Japan last year as the second biggest importer.

…It has also started to snap up any energy resources, no matter the economic or political expense. Since the US, Europe and Japan have tied up the majority of the most accessible supplies, Beijing has had to shop where oil and gas are technologically or politically more difficult to extract, striking deals with unsavoury regimes in Iran and Sudan.

…[Increased Chinese consumption] is likely to be the more immediate threat of China’s rapacious appetite. The past 25 years of economic growth have devastated China’s environment; another 25 could do the same worldwide.

…Lester Brown, the president of the [Earthwatch] institute, believes the squeeze on global resources will come far more quickly than policymakers are prepared for. “China is telescoping history. It forces us to focus on what happens when huge numbers of low-income people rise rapidly in affluence,” he says. “Chinese consumption shows the need to reconstruct the world economy.”

Now China has tasted the good life, there is no going back. Mrs Li will not unilaterally scale back her shopping. “Why shouldn’t a developing nation like China consume more? We have an equal right to pursue a better lifestyle. It is all very well to say we must protect global resources, but that is not just our responsibility.”

It is the new creed of China: “We have as much right to shop as you”. It is the very familiarity of the image of Mrs Li and her trolley that should concern the world. The more Chinese become like us, the more we all must change.
(9 November 2005)
The second part of the series is in the Guardian today: A hunger eating up the world – “China’s insatiable demand for proteins as well as oil is turning Brazil into the takeaway for the workforce of the world.”.

Oil and grilling don’t mix

Dana Milbank, Washington Post
Senators struck a note of populist outrage when they ordered oil executives to appear before the Energy and Commerce committees to explain high fuel prices and record company profits. Majority Leader Bill Frist (R-Tenn.), announcing the hearing, said it would expose “those who abuse the free-enterprise system to advantage themselves and their businesses at the expense of all Americans.”

But instead of calling oil executives on the carpet yesterday, senators gave them the red-carpet treatment.

The companies summoned to testify have given about $400,000 in PAC money this year alone — and much of that has found its way to those who served as the executives’ interrogators. So while protesters came to the hearing wearing “Exxpose Exxon” T-shirts, most lawmakers opted to extol Exxon Mobil — and Chevron, ConocoPhillips, BP and Shell.

“First, let me begin by thanking each of you and the companies for what you all did to save lives, to save property, to restore the communities along the Gulf Coast,” said Sen. Mary Landrieu (D-La.), who has taken $249,155 in oil and gas money over five years, according to the Center for Responsive Politics.
(9 November 2005)
Many other related articles have appeared online, including:
Oil Tycoons Grilled on Windfall Profits (The Nation)
Oilmen remain cool as senators grill them on high prices and huge profit (SF Chronicle)
New pressure on ‘big oil’ (CS Monitor)
Kabuki by David Roberts at Gristmill

House shelves Alaska drilling in budget fight

Carl Hulse, NY Times
WASHINGTON – House Republican leaders were forced to jettison a plan for oil drilling in the Arctic National Wildlife Refuge in Alaska on Wednesday night to save a sweeping spending bill.

In dropping the drilling plan and a second provision, on coastal exploration, the leadership was trying to win over moderates in the party to enhance the chances of winning initial approval on Thursday of more than $50 billion in spending cuts demanded by House conservatives. But the decision is likely to meet objections from the Senate, where senior lawmakers are insisting on the drilling plan.
(9 November 2005)
Related story from Reuters.

The coal war

Forrest Wilder, Texas Observer
At 75, Robert Cervenka is a weathered rancher who is only too willing to tell you that he has “never cared much for environmentalists.” It’s a curious thing for Cervenka to say, considering that he and his family are at the forefront of a surprisingly sophisticated grassroots environmental group located in President Bush’s home county. It wasn’t always that way. Cervenka’s activism began in September 2003 when he, his wife Jo, and their sons Darrell and Randy learned from a newspaper article that LS Power, a private St. Louis company that builds coal-fired power plants in rural areas around the country, was planning on constructing a $1 billion 800-megawatt coal-burning plant about one mile from their home just outside Riesel, a small town east of Waco.

The proposed plant would generate enough electricity for about 500,000 homes and create 100 permanent jobs. In churning out jobs and juice, the plant would also burn an estimated 120 railcars a day (24 million pounds) of coal brought from the Powder River Basin in Wyoming, sending thousands of tons of ozone-forming gases as well as mercury and soot into the air each year.

Along with six other proposed coal-burning units in the state, the Riesel facility is part of a national “coal rush” that threatens to roll back gains made in air quality and make it difficult for urban areas to meet EPA-mandated reductions in ozone and smog levels. (See sidebar, page 16) It is estimated that more than 100 coal-fired power plants are in the works around the country, spurred on by high natural gas prices and billions in subsidies and tax breaks offered as part of an energy bill passed by the U.S. Congress this year. If state environmental officials approve its construction, the Riesel facility would be the first coal-fired power plant constructed in Texas since 1988. Robert Cervenka is determined not to let that happen. His campaign to stop a local facility near the Cervenka homestead has transformed the Central Texas rancher into an advocate for changing the way we power our lives.
(4 November 2005)

And now to ‘streamline’ King Coal’s beheading of Appalachia

Francis X. Clines
Six years ago, Jim Weekley, a watchful retiree in Appalachia, became angry enough to defend his seven-tenths-of-an-acre homestead in West Virginia’s Pigeon Roost Hollow from a gargantuan mining process with a formidable name – mountaintop removal – that tells only half the truth.

The other half is the obliteration of countless streams, forests and hamlets lying below as mountaintops are systematically decapitated with dynamite to leave mesa-like tabletops. Rich low-sulfur coal veins are thereby exposed and mammoth 20-story-tall bulldozers move in to dump millions of tons of slag waste down into mountain hollows like Pigeon Roost.

“I ran free in this hollow all my life,” explained Mr. Weekley, the lone holdout who refused to sell his place in one of the serial hamlets routinely bought for evacuation and obliteration by mountaintop miners.

The machines operate round the clock across four states, and from the air the earth scars resemble tracts of moonscape peeling nonstop across verdant Appalachia.
(7 November 2005)

Uzbekistan ‘facing oil crisis’

Ian MacWilliam, BBC
Uzbek businessmen say the country’s oil shortages will continue to worsen unless the government gives up its monopoly control over the oil industry. Most of the country is already short of petrol.

Recent rises in world oil prices may be bringing Uzbekistan’s oil problem to a crisis. But as so often in Uzbekistan, the authorities have pulled a veil of secrecy over what is happening in the oil business.

While motorists throughout the country have been queuing for scarce petrol for weeks, the government insists that nothing is wrong. Only the capital, Tashkent, is usually protected from what appears to be a worsening fuel crisis.

Private businessmen involved in the oil industry say a major cause is the government’s insistence that Uzbekistan should be self-sufficient in oil.

While it has oil reserves, mostly in the west, they are not sufficient for the country’s needs. But critics say officials exaggerate production figures to suggest they are.

New technology could boost production, they say, but instead, cost-cutting and poor management have led to the rapid exhaustion of oil fields. Many Uzbek oil experts have left to work in Kazakhstan or Russia.

Economists say Uzbek oil production is falling by about 20% a year, so the current deficit can only get worse. Uzbekistan needs to import oil, but the government cannot afford to, especially at current high world prices, and will not admit it needs to.

Private businessmen rarely speak publicly to avoid government reprisals. But increasingly, they say the only solution is to end the government monopoly where the authorities set petrol prices, control distribution and restrict imports.

Neighbouring Kazakhstan and Kyrgyzstan already have a free market in oil. Economists say that ending rigid government controls in Uzbekistan would rapidly enable private suppliers to fulfil the country’s oil needs at market prices.
(10 November 2005)
This is a recurring theme in oil-producing countries: national oil monopolies vs private oil companies. This BBC article seems to accept the viewpoint of the private oil companies uncritically, without naming its sources. -BA

Recycling the petrodollars

The Economist
Exporters of oil are saving more of their recent windfall than in previous price booms. It’s hard to spot where the money is going
MANY American politicians and pundits explain their country’s enormous current-account deficit by pointing at the surpluses of Asian economies, especially China. Undervalued currencies and unfairly cheap labour, they complain, have undermined America’s competitiveness. In fact, looking at the world as a whole, the group of countries with the biggest current-account surpluses is no longer Asia but oil exporters, on which high prices have bestowed a gigantic windfall.

This year, oil exporters could haul in $700 billion from selling oil to foreigners. This includes not only the Organisation of Petroleum Exporting Countries (OPEC) but also Russia and Norway, the world’s second- and third-biggest earners (see chart 1 below). The International Monetary Fund estimates that oil exporters’ current-account surplus could reach $400 billion, more than four times as much as in 2002. In real terms, this is almost double their dollar surpluses in 1974 and 1980, after the twin oil-price shocks of the 1970s—when Russia’s hard-currency exports were tiny. The combined current-account surplus of China and other Asian emerging economies is put at only $188 billion this year (see chart 2 below).

Relative to their economies, the oil producers’ current-account surpluses are far bigger than China’s.

…The rise in oil prices represents a big redistribution of income from those who buy oil to those who produce it. Past periods of high prices have not lasted long, but this time oil producers’ extra revenues might prove to be more durable. The futures market expects oil to stay expensive, even though the price of a barrel of West Texas Intermediate, an industry benchmark, recently slipped back to around $60.

What will happen to all these petrodollars? In essence, they can be either spent or saved. Either way, a lot of the money can be recycled to oil-consuming economies and thus soften the impact on them of higher oil prices.
(10 November 2005)