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No Naked Short Selling=>No Short Selling at All=>No Future Energy?
Nate Hagens, The Oil Drum
In an amazing (and as yet unconfirmed) development tonight, the SEC has announced a temporary ban on ALL short selling. In the 100 or so posts I have put on theoildrum in the past 3 years, I’ve (mostly) included my opinions in the conclusion only, and primarily have offered evidence and datapoints in the main article for the reader to form their own interpretations. Tonight I will ‘temporarily’ diverge from that pattern. IF short selling is truly banned, whether it be for a week, a month or a year, the capital markets as we know them will cease to function, which would cause a clear and present danger to the security of our energy future.
… Though I spend most of my time trying to kickstart a national energy discussion and find ways of taking at least baby steps away from our global conspicuous consumption carrot, I still maintain close friendships with many of the wall street crowd. After seeing this news, I have since talked to about 10 people. Here is an aggregate of opinions and reactions. The predictions are my own.
First of all, we simply CANNOT halt short selling. The public (Hillary Clinton and Chuck Schumer) position is that short selling was the root cause for the demise of Bear Stearns and Lehman Brothers and why Morgan Stanley and Goldman are currently on the ropes. The truth is that SOME short sellers use unscrupulous methods to make short selling stocks a self-fulfilling prophecy, and thereby profit. The vast majority of short sellers however act as cleaner-fish, policing the stock market for crooked management, unethical practices and bad business models. I have been told that what is underway is a large scale witch hunt that in the next few weeks will show the public some ‘very well known’ names ending up in jail. But just as pursuing ethanol to wean us off of oil, and pursuing oil speculators to blame oil price rises on, eliminating ALL short sellers in order to punish a few bad eggs will have wide boundary unintended consequences.
To wit: what would happen if the SEC continues down this path:
a) an enormous short covering rally. If there were no grandfather clause (meaning existing shorts would have to cover), we could see all time highs in stock market within weeks. I expect if this rule goes into effect there will be some clause preventing this – but who knows?
… e) in a world where renewable energy infrastructure needs urgent and massive scaling, and access to high quality fossil reserves is getting more expensive by the year, functioning capital markets will be vital to this transition.
(18 September 2008)
Nate is right – this is a big deal.
Reader Meadowlark suggested a related story from IHT: Global crackdown on short selling intensifies
Great Britain just banned short selling, according to The Guardian:
The government last night stunned the City when it banned short-selling of bank shares by speculators, hours after a pledge by Gordon Brown to tackle the deepening global credit crunch with a “clean-up” of the financial markets.
Amid concern that the officially brokered marriage between Lloyds TSB and HBOS could fall victim to the controversial practice of driving down a company’s share price, the Financial Services Authority said it was prohibiting the “active creation or increase” of short positions in financial companies for three months, from midnight last night.
In the US, there were similar signs of action as New York’s attorney general began a criminal investigation into short-sellers spreading misinformation to drive down banks’ stock prices.
China, climate change and US dollars (and peak oil) – video and transcript
Paul Jay, The Real News
Minqi Li: Renewable energy canceled out by growth of fossil fuels; US dollar depends on China (2 of 3)
PAUL JAY, SENIOR EDITOR: Welcome back to the next segment of our interview with Professor Minqi Li. And today we talk about the global energy crisis in China. Welcome, Professor Minqi.
MINQI LI, PROFESSOR OF POLITICAL ECONOMY: Thank you.
JAY: We’re told we’re reaching peak oil. Some people debate that concept; they say there’s still lots of oil. But one way or the other, the issue of the energy-consumption/climate-change crisis and the geopolitics of oil is determining most of what’s happening in the world right now. What is China’s role in this?
LI: Well, we’re a big role. China’s oil consumption grows very, very rapidly, accounting for about one-third of the incremental oil consumption that has happened since about 2000. And so China’s oil consumption right now is probably already 10 percent of the world’s total oil consumption. The US accounts for about 20 to 25 percent, I guess, 25 percent. China’s is growing very rapidly. And moreover, that’s the sticking place at the moment, when there’s growing evidence that probably—that the world oil production has reached its historical peak. China’s growth in oil consumption accounts for about one-third of the world’s incremental oil consumption that has happened since 2000, and now China’s oil consumption already accounts for about 10 percent of the world’s total oil consumption. And the US accounts for 25 percent, but China’s is growing very rapidly. And that is taking place, moreover, at the moment when we’re probably at the peak, overall peak, of the global oil production or very near to that. And so you have this growing demand from China and some other emerging economies against a background of stagnating or possible declining supply of global oil production in the future. And so that definitely a major factor behind the current global energy crisis. …
Minqi Li is an Assistant Professor at the University of Utah specializing in Political Economy, World Systems and the Chinese Economy. He was a political prisoner in China from 1990 to 1992. He is the author of “After Neoliberalism: Empire, Social Democracy, or Socialism?
(17 September 2008)
Latest in a Real News series of interviews with Chinese scholar Minqi Li.
A note about Cantarell – Mexico’s own double-whammy huracán (PDF)
Steve Andrews, ASPO-USA
Over the weekend, the eyes of the nation zeroed in on Hurricane Ike as it hammered Galveston, Texas. Yet 700 air miles to the south, just miles north of the Yucatan peninsula, the impacts of a different species of hurricane have been building: falling oil production and declining oil exports. Those twin impacts may end up bringing the equivalent of a crunching storm just south of our border. And soon.
Mexico’s national oil company, Pemex, achieved its all-time high crude oil production of 3.4 million barrels a day back in 2004. Since then, production slipped steadily to an average of 2.9 mmb/day this year. That modest drop of 15 percent, combined with increasing domestic consumption, actually masks a harsher reality: oil exports cratered 16 percent during the first seven months this year. The main culprit in that decline is Mexico’s super-giant oil field—Cantarell. More on this in a moment.
For a country that funds roughly 40% of its government expenditures with oil revenues, declining production spells enormous political trouble. Rocketing oil prices during the first seven months this year papered over that problem by temporarily overstuffing federal coffers. Oil exports that brought in $3.56 billion in January then actually declined 6 percent in volume by July yet raked in $5.20 billion—an all-time high for a single month. But the one-third drop in prices during the last two months is a harbinger of things to come. Mexico’s use of Pemex revenues as a cash cow may well fall off a cliff by the 2013-2015 time frame. By then, Mexico’s exports are forecast to dry up, delivering a devastating blow to government revenues.
What are the chances of beating this forecast? At the production level, they are close to nil, and Cantarell is the driver here.
… The prospects for changing the politics look better than reversing declining production. Odds are reasonable that a compromise bill will come out of the Mexican legislature within the next month or two allowing partnering between Pemex and private-owned oil companies. World-class deepwater drillers would then be able to share their expertise with Pemex, but they’ll never own any Mexican oil. From the perspective of hungry oil importers, this holds the promise of future offshore production from new discoveries and production. But the long lag time between such a deal and oil deliveries nearly assures that world oil production will have peaked before any Mexican deepwater oil rolls in. While some may feel this is another classic case of too little too late, for Mexico there may in fact be a painful but nonetheless silver lining here.
(15 September 2008)
This post is hidden inside the PDF for the Sept 15 Peak Oil Review. Scroll down through the PDF and you will find. -BA
Peak Oil: Eight Energy Titles To Pique Patron Interest
Robert Eagan, Library Journal,
The enduring prospect of sky-high fuel prices concentrates the collective mind wonderfully on energy issues, maybe even the large ones like resource depletion, climate change, and our own ravenous rates of consumption (of everything). The following recent and forthcoming titles reveal a wide range of responses to the energy crisis; most prescribe cures for our oil addiction, while a couple are purely descriptive of “peak oil,” the point at which oil production goes into a terminal decline, and attendant issues. Starred entries are highly recommended for all collections. [How libraries will play a role in this new post-peak oil world is outlined in Debra J. Slone’s “After Oil,” LJ 3/15/08, p. 29–31.—Ed.]
… Hopkins, Rob. The Transition Handbook: From Oil Dependency to Local Resilience. Green Bks., dist. by Chelsea Green. Oct. 2008. 240p. photogs. index. ISBN 978-1-900322-18-8. pap. $24.95. SCI
This book happily describes the British grassroots “Transition Towns” movement, the group Robin Mills (see below) called “mistaken, appalling and dangerous.” Meant to be a guide and motivator, the handbook discusses how several U.K. towns are preparing for the twin threats of climate change and peak oil. Hopkins, a teacher of permaculture and natural building and a cofounder of the Transition Network, urges a community response—local sustainability made fun—in which groups grapple with issues like food, transportation, energy, building materials, and waste and even develop their own local currency. Hopkins takes our “addiction” to oil literally, and so we will read of “post-petroleum stress disorder,” and see applied addictions psychology helping to ease the townies’ withdrawal symptoms. It’s a handsome book, thoughtfully designed, which may make its message a little more palatable to oil addicts on this side of the Atlantic. [See the author speak about his book and ideas at www.youtube.com/watch?v=kGHrWPtCvg0.—Ed.]
… Murphy, Pat. Plan C: Community Survival Strategies for Peak Oil and Climate Change. New Society. 2008. c.336p. photogs. maps. index. ISBN 978-0-86571-607-0. pap. $19.95. SCI
This book goes further than any of the other titles considered here, both in terms of the deep societal ills it examines and the radical solutions it proposes. It is not just peak oil, but peak America Murphy takes as his subject. His plan is based on “curtailment”—we must not only make drastic cuts in our use of fossil fuels, but also cut our rates of consumption: buy less, use less, want less, waste less; watch less television, eat better foods, give up driving private cars, and become, in short, “a nation with new values.” Murphy’s work is perhaps easy to dismiss—i.e., fringe, hairshirted—but if, as the best scientific evidence suggests, the world is already in a dangerous state of overshoot, then its message may not be that far out after all. Murphy is the executive director of The Communty Solution and coproducer of the documentary The Power of Community: How Cuba Survived Peak Oil.
(1 September 2008)
Controversal Path to Possible Glut of Natural Gas
Mark Clayton, Christian Science Monitor
After decades of declining US natural-gas production, an advanced drilling system so powerful it fractures rock with high-pressure fluid is opening up vast shale-gas deposits. Instead of falling, US gas production is rising, with up to 118 years’ worth of ‘unconventional’ natural gas reserves in 21 huge shale basins, an industry study in July reported.
Such reserves could make the nation more energy self-sufficient and provide more of a cleaner ‘bridge fuel’ to help meet carbon-reduction goals urged by environmentalists. Shale gas reserves have a powerful economic lure. Companies, states, and landowners could all reap a windfall in the tens of billions. Some also predict lower heating costs for residential gas users as production increases.
… But some warn that by expanding ‘hydraulic fracturing’ of shale, America strikes a Faustian bargain: It gains new energy reserves, but it consumes and quite possibly pollutes critical water resources.
(September 17, 2008.
(17 September 2008)