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How hedge funds, traders, and Big Oil are really driving gas prices
Nelson D. Schwartz and Jon Birger, Fortune magazine
…Half a world away, near Los Angeles, the managers of the Pimco Commodity Real Return fund are deploying $12 billion into an energy-heavy index of commodities – holding millions of barrels of crude for retirement nest eggs the way an S&P 500 index fund owns GE and Microsoft.
Once upon a time, in the late 1990s, these billions might have been chasing Internet stocks. Now the hot money wants to be in energy. But this isn’t just another investment fad. Because while no one was obligated to own Amazon or Pets.com during the tech bubble, all of us buy gasoline to drive our cars or heating oil to stay warm in the winter. Even if we were greener than Al Gore and heated our homes with peat and solar panels, we’d still have to pay higher energy costs being passed along by airlines and hotels and supermarkets.
It’s no surprise, then, that the parallel rise of commodities trading and energy prices has sparked a fierce debate over whether hedge fund managers like Karim and other financial players are responsible for $3-a-gallon gas, with the blame game stretching from the boardrooms of Big Oil to Capitol Hill and Bill O’Reilly’s Fox News studio in New York.
Indeed, just about everyone is ducking for cover. Big Oil is pointing fingers at hedge fund managers, who blame commodity index funds, who in turn cite surging demand in China, production losses in Nigeria and Iraq, and hostile regimes in Iran and Venezuela.
Fox’s O’Reilly, at least, is clear: He blames all “these Vegas-type people [who] sit in front of their computers and bid on ‘futures’ contracts.” As he puts it: “Supply and demand? – my carburetor, this has nothing to do with the free market.”
If only it were that simple.
(17 May 2006)
Shorter version of the article.
Greece: High time to be weaned off oil
In spite of oil crises creating huge problems for the Greek economy, the country continues to behave as if it were an oil-producing state rather than a consumer. Greece languishes at the bottom of European Union tables when it comes to energy production from renewable sources even though the Greek climate is ideal for such ventures.
For example, our wind parks produce just 600 mW while, in contrast, the small northern country of Denmark produces five times that amount. Often-cloudy Germany, in turn, last year installed 1,000 more photovoltaic systems than sun-kissed Greece.
The absence of alternative sources of energy has far-reaching consequences. The toll on the environment from burning fossil fuels is but one negative effect. The second is that Greece is a signatory to the Kyoto Protocol, the blueprint for the reduction of dangerous emissions, and every infringement of that agreement carries a hefty fine. Last year alone, the Public Power Corporation (PPC) had to pay 60 million euros in fines. The third, and equally significant, effect is that the Greek economy is completely exposed to fluctuating oil prices.
The government has an obligation to seriously examine ways to reduce the economy’s dependence on oil. This means it must attract investment to alternative energy sources. It is no longer viable for Greece to subsidize electric energy production for a mere 10-year period, when almost all other countries are doing so for 15-25 years. Nor can tax relief for households purchasing photovoltaic systems hover at 3-8 percent, whereas countries such as Austria give a 25-percent break.
Greece’s dependence on oil is taking a big toll on the economy on a daily basis. The government’s intentions and programs may be well and good, but what is needed is strict procedures and a specific timetable for further development.
(17 May 2006)
The paper is “Greece’s International English Language Newspaper.”
Indonesia: Government likely to terminate gas exports
The Jakarta Post,
In line with the government’s plan to optimize gas utilization at home, a minister says he is considering the gradual halting of liquefied petroleum gas (LPG) exports.
Energy and Mineral Resources Minister Purnomo Yusgiantoro told reporters Tuesday that the halting of exports would likely be needed to meet a surge in demand at home as the government pressed ahead with its plan to replace the domestic use of kerosene with LPG starting in 2007 in a bid to reduce the cost of the kerosene subsidy.
“We will review LPG domestic needs and exports,” he said, adding that based on the review, LPG export contracts could be terminated.
He did not give any figures for overall domestic demand, but said that current demand in Jakarta was about 600 million kilograms of LPG per year, of which only 200 million kilograms could be met from domestic sources.
(16 Mar 2006)
UK: Ex-minister hits out at nuclear
Ex-Labour environment minister Elliot Morley has rejected the case for a new generation of nuclear plants after Tony Blair indicated his backing.
Mr Morley, who was dropped in this month’s reshuffle, said no private firm would take on the risks.
Mr Blair provoked anger from the anti-nuclear lobby on Tuesday when he said new nuclear power stations were back on the agenda “with a vengeance”.
He said he had seen the “first cut” of the government’s energy review.
Critics accused the prime minister of pre-empting the review, which is due to report in July.
But Mr Blair warned that Britain risked becoming reliant on foreign imports to meet its energy needs.
The recent reshuffle saw David Miliband become environment secretary, replacing Margaret Beckett, who was seen as a nuclear sceptic.
Friends of the Earth’s Tony Juniper said: “It’s probably no coincidence that a number of nuclear sceptics were removed from key Cabinet posts earlier this month.”
(17 Mar 2006)