Big oil’s big challenge

Posted on 03/25/2011 by

Despite BP’s disaster in the Macondo well in the Gulf of Mexico zone known as Deepwater Horizon, a disaster that cost 11 lives and has burdened BP with something like $40bn in clean-up costs, compensation and penalties, never mind loss of earnings and damage to reputation, the major oil and exploration companies continue to shift their focus to ever more challenging zones of the world’s oceans. They do so in full knowledge of all the attendant risks to themselves, investors, employees and the environment.

In fact, the pace of deep-water exploration has accelerated since last April’s commercial and environmental catastrophe in the Gulf, and Big Oil is jockeying for position in remote areas that become increasingly lucrative with every dollar increase in the price of a barrel of oil. Next stop is the Arctic, as almost every week the industry moves a step closer to what energy analysts say is an inevitable deep-water future.

The reason? As energy analysts universally agree, the world needs as many hydrocarbons as can be found, however deep down they’re buried. Although a new era of renewable energy awaits in the form of wind and solar power, biomass and anything else that can replace oil, gas and coal, the conversion to cleaner power is in its infancy.

“For the foreseeable future, a society powered by renewables remains a utopian dream,” argues Mathijs van Gool in European Energy Review, noting that the EU’s mandate for 20 percent of energy to be derived from renewables by 2020 is somewhat ambitious. Others say it’s pie in the sky.

Although the European Commission has expressed grave misgivings about deep-sea wells while stopping short of adopting a formal ban, the supply of oil from deep below the ocean floor is considered essential. “Some 70 percent of new oil production will come from offshore,” explains Dan Howlett, HSBC’s head of structured finance whose firm, like other large institutions, bankrolls its fair share of this kind of exploration. “And half of that 70 percent will come from deep water.” To put it plainly, the easy onshore or shallow-water pickings for Big Oil have been plundered.

So, while clean-tech energy gets on its feet in the coming decades, the deep-water industry is plugging the gap. In early 2011 for example, in a clear indication of where future profits lie, UK-based Ensco made a $7.3bn purchase of US rival Pride International in cash and stock that created the world’s second-largest offshore drilling company. The enlarged company boasts 21 deep-water platforms, some of them classified as ‘ultra-deep’ that will likely see service in the fastest-growing exploration zones – Brazil and West Africa.

Premature
Also in early 2011, two of the main culprits in Deepwater Horizon – BP and Transocean, its contractor on the fatal rig – have quickly shrugged off the disaster and moved to pastures anew. In February, BP did a $7.2bn deal with the Ambani family’s giant Reliance Industries to go exploring for oil and gas off India’s coastline. This is in the so-called KG D6 deep-water blocks, some 23 in total that are spread across a vast area of 270,000km2 of ocean. With unintentional irony, Reliance insisted in late February that BP “provides the best technology in deep-water drilling and production”.

The deal is yet another reminder of how desperate for energy fast-growing nations such as India really are. According to Energy Outlook, BP’s own survey of future energy needs, India’s consumption of energy is likely to grow by 115 percent over the next 20 years, which is typically Big Oil’s time frame. And that’s after rocketing by 190 percent in the last 20 years.

There’s an infrastructure going on too. Transocean, which suffered its share of the blame for Macondo, has signed a $400m contract with Keppel’s Singapore shipyard to build two giant rigs that will house 150 personnel and are capable of operating in 350-foot deep waters while building wells 35,000ft below the seabed. Transocean’s overall contract is with a division of Chevron to explore off Thailand.

The rigs are getting bigger all the time. Under construction in China’s Liaoning province is what is claimed to be the biggest offshore rig yet, a $500m monster to be known as the Dalian Pioneer. The unit will live up to its name – it’s capable of operating in waters up to 10,000ft deep “at a high level of efficiency and safety”, according to a statement from China’s energy authority.

Clearly, predictions made in the wake of the Deepwater Horizon spill about the imminent death of drilling at such vast depths are premature. As recently as mid-2010 while BP was still fighting the Macondo blow-out, some energy analysts argued that the stratospheric costs of exploring for oil in these unchartered territories would quickly become unjustifiable as the price of a barrel declined steadily from the peak of $145 in 2008 in the middle of the financial crisis. And as prices fell back to $60 a barrel, some experts believed profits would become relatively marginal at best.

However, if there was any doubt about the industry’s increasing deep-water focus, it was dispelled in February because of the turmoil in the oil-rich Middle East that once again drove prices above $100 a barrel. Thus the odds have swung heavily back in favour of the deep-water branch of the industry.

It all comes down to scarcity. “Current production levels will decline and prices will rise,” HSBC’s Howlett said late last year. His far-flung team – based in Calgary, Houston, Aberdeen and Dubai – helps provide the debt capital that enables companies to find the oil on which nearly all modern economies rely. He predicts that prices will hover around $75-$100 a barrel over the next few years. And in general, a perusal of the research of the oil majors shows it to be in broad agreement.

Management failures
The subsequent enquiries into the Macondo blow-out show that, as rigs are anchored in increasingly deep waters, the risks have multiplied but without operators adopting management practices to match them. Deepwater Horizon was an accident waiting to happen.

The Oil Spill Commission appointed by President Obama was composed of a cast of stars, a veritable dream team of oil, environmental, engineering and other experts. And the report it produced was the most thorough, definitive and far-reaching investigation undertaken so far into deep-water drilling. It has become required reading for the entire deep-water fraternity.

And after holding six public hearings in the aftermath of the blow-out, after summoning scores of experts to give testimony, after (unusually for a commission) conducting its own “listening” tours in the Gulf region, its conclusion was that the disaster was due to a series of technical and managerial deficiencies by the operators – BP, Transocean and Halliburton – as well as by various government agencies. Indeed the official bureaucracies came in for considerable flak. In summary, hardly any organisation, commercial or public, emerges with much honour.

The disaster – the worst oil spill in American history – was not only “preventable”, the commissioners practically guaranteed there would be repeat performances unless the US deep-water industry tidied up its act. “Similar large-scale, future disasters [were] likely without action by Congress, the administration and industry”, the report warned. In words that rang throughout the tower blocks of Big Oil and the downstream industry, senior commissioner William K. Reilly, 71 year-old former founder of the WWF and administrator under President Bush of the powerful Environmental Protection Agency, observed:
“Our investigation shows that a series of specific and preventable human and engineering failures were the immediate causes of the disaster. But, in fact, this disaster was almost the inevitable result of years of industry and government complacency and lack of attention to safety. This was indisputably the case with BP, Transocean, and Halliburton, as well as the government agency charged with regulating offshore drilling – the former Minerals Management Service. As drilling pushes into ever deeper and riskier waters where more of America’s oil lies, only systemic reforms of both government and industry will prevent a similar, future disaster.”

As a wrap on the risks, these four sentences can hardly be bettered.

A litany of errors
But what went wrong? Practically everything, it seems. The investigation, which was conducted during a complete shut-down on drilling in US waters more than 500ft deep, turned up a series of mistakes that were made under admittedly enormous pressure as well as alarming deficiencies in training and preparation of personnel for what is very much pioneering exploration.

So many technical, judgemental and managerial errors were committed that they are too numerous to catalogue (the full report is 381 pages long). Suffice it to say, once it was known there were problems with the well, the main failures occurred in the process of attempting to seal the rogue well with slurry cement. Although this was manifestly a challenging task, the inability of the crew of experts to get it done illustrates how unprepared the industry was for this kind of event.

And so were the regulators. Having grown up with shallow-water drilling, government organisations were simply not up to the job of supervising the industry as it shifted further and further offshore. “Neither inspectors on the front lines nor senior Interior Department officials in charge of the Minerals Management Service had the experience or training to oversee deepwater offshore drilling”, the report maintained.

Damningly, the commissioners also found that the industry did its best to block the introduction of tougher regulations that may have prevented the disaster, apparently because they would have added extra costs and delayed production. “The Department of the Interior lacked sufficient in-house expertise to enforce existing regulations, and was unable to impose more stringent safety regulations due in large part to industry resistance,” the report summarised.

The result was that when the well did blow on the night of Tuesday, April 20, 2010 – a day that will be burned on the corporate memory of BP, Transocean and Halliburton – no party in industry or government was up to the task of containing it. Despite predictions, the report didn’t turn into a witch-hunt of BP as the only foreign company involved. (Both Transocean and Halliburton are long-established American groups). Instead it concluded the disaster was “not the fault of a single rogue company” (namely, BP) but was the consequence of a collective failure. “At the time of the blowout, BP – and industry more generally – had no proven options for rapid containment in deep water other than attempting to close the blow-out preventer,” the report said.

As the report repeatedly makes clear, nobody really knew what they were doing. As the situation deteriorated, the parties tried one thing after another in little more than the hope it just might work.

Shockingly, Big Oil had done little to improve its emergency procedures since the Exxon Valdez spill more than 20 years before, an ecological disaster off Alaska that demonstrated beyond any doubt the industry’s relative casualness to the risks it brings to pristine and sensitive environments. “Neither industry or the government has made significant investments in spill-response research and development, so the clean-up technology used following the Deepwater Horizon spill was largely unchanged [from Exxon Valdez in 1989],” the commissioners found.

About the only good thing the report could establish was that an even worse disaster could have happened at Deepwater Horizon, even though it affected the health of residents and continues to do so, destroyed fish and wildlife, is still destroying wetlands at the rate of a football field every 38 minutes, and seriously damaged tourism and the fishing industry, perhaps beyond repair. The “clean-up” is in name only.

However Armageddon was indeed averted. “At one point, industry experts feared that a significant portion of the 4.6bn gallon oil and gas reservoir beneath the sea floor could be released into the Gulf,” the commissioners found in a chilling observation that says too much about the too little that Big Oil knows of the consequences of deep-water drilling. Or, more specifically, American Big Oil. Time and again, the president’s commissioners refer to the much more professional and strict practices of the industry in Norway and Britain’s North Sea. By comparison, the US sector sometimes sounds like a redneck industry straight out of the wildcatting days.

Unsurprisingly, the report is concerned about the possibility of similar disasters in or near US waters, noting that deep-water exploration is moving into the Arctic and neighbouring seas. For instance, Mexico and Cuba are planning operations in the Gulf.

Nobody’s denying that the human tensions and scientific challenges of operating at vast depths are significant, as another prestigious report into the blow-out points out. Probably the most advanced study of the science of deep-water drilling – and indeed, of its shortcomings – this report was conducted by two of America’s leading repositories of hard sciences: the National Academy of Engineering and the National Research Council. It involved geophysicists, petroleum engineers, accident investigators, specialists in safety, in risk analysis, in human and organisational behaviour. Hopefully, its contents will have been devoured by the technical departments of Big Oil as they embark on voyages into deeper waters.

A technical affair
These experts focused not so much on what went wrong in the run-up to the blow-out and its immediate aftermath, as did the president’s commission, but on the scientific unknowns in this particular disaster. Principally, this was the effectiveness or otherwise of cementing what is known as the “long-string production casing [a form of tube] to prepare the well for temporary abandonment”. In short, they concentrated on what was done when the mayhem broke out.

Disturbingly, they conceded they may never really know everything that went wrong because 11 crucial witnesses lost their lives, the rig took vital records down as it sank burning into the Gulf, and the unprecedented difficulties in retrieving reliable forensic data from an incident occurring so far below the waves. However, the academicians were able to make several absolutely vital conclusions about the incident.

There were “several clear failures” in the monitoring of unwanted flows of hydrocarbons into the well. Because of the high risk to life from such an event, it’s usual for the mud-logging company, drilling contractor and operator to undertake regular checks on these flows. However BP’s own report shows that the well became “under-balanced” (dangerous leakages of hydrocarbons) without anybody knowing at first. This happened at 20:52 on April 20th, and the inflow was identified by instruments six minutes later. That is, a full 51 minutes before the first explosion at 21:49. By 20:58, a further 31 barrels of hydrocarbons were in the well. That’s 41 minutes before the fatal blast, yet nothing was done.

The committee does not say whether the disaster could have been averted at that point, but it does say that an explosion soon became virtually certain. “Once the uncontrolled flow of hydrocarbons had enveloped the deck of the rig on April 20, ignition was most likely, given the large volume of gas, the multitude of ignition sources on the rig, moderate temperature, and limited wind conditions,” it notes.

Because of the failure of what should have been automatic warnings, personnel did not have sufficient time to evacuate the semi-submersible rig.

Bafflingly, although data from the well was collected continuously and sent ashore, there was no real-time monitoring of that data back at base. If there had been, suggests the committee, these warning signals may have been picked up.

There were numerous other mistakes, some technical, others managerial:
The well was abandoned before the integrity of the cementing processes – crucial to blocking the spontaneous and devastating leakage of hydrocarbons – had been confirmed. Indeed the crew did not know that the spill was already pouring into the well and riser, bringing it to the surface.

The series of decisions leading to temporary abandonment were taken in spite of several indications of danger as confirmed by negative-pressure tests. “These decisions raise questions about the adequacy of operating knowledge on the part of key personnel,” the report said.

Despite the “markedly different fluid pressures” in the various zones in the deepest part of the well, the crew tried to cement the critical areas “in a single operational step”. The conclusion was that the different pressures on the cement required commensurate densities to cope with them. Put simply, the great forces being exerted at such depths were too great for the strength of the cement that was employed.

Too much mud was allowed to mix with the cement, corrupting its strength.

A float shoe should have been built into the bottom of the casing “as an additional barrier to hydrocarbon flow”.

The emergency disconnect system that might have saved the day “failed to operate”, as seemingly did the various alarms on the rig. This “potentially affected the time available for personnel to evacuate.”

The blow-out preventer, a standard defence against a rogue well, operated only partially and was therefore almost totally ineffectual.

There were “insufficient checks and balances” in the decision-making process over whether to abandon the well and whether it was safe to do so. In short, the crew rushed things.

All of the parties – BP, contractors, Minerals Management Service, other regulators – failed to identify, let alone correct, the accuracy of these ultimately disastrous decisions. Just as importantly, there’s no industry consensus on exactly what could or should have been done about the cement on which the successful plugging of the well so crucially depended.

Overall, the operators simply lacked a systematic approach for the management of “the multiplicity of factors potentially affecting the safety of the well, monitor the overall margins for safety, and assess the various decisions from perspectives of well integrity and safety.” They were very much flying blind.

Brink of disaster
The inescapable conclusion is that deep-water drilling, as practised in much of the US at least, teeters on the brink of disaster. Training appears perfunctory. It’s conducted mainly on the job and, if there is any formal instruction, it’s been done in one-week refresher courses every few years.

The regulators, notably the MMS, got in each other’s way. They were confused as to which body was doing what and were slow to act. Indeed the MMS had been working for nearly a decade on draft regulations for blow-out preventers, but never managed to get them done. (The MMS has since been disbanded and its responsibilities handed over to the new Office of Natural Resources Revenue and the Bureau of Safety and Environmental Enforcement.)

And yet deep-water drilling goes on apace. Apart from the Gulf of Mexico, the most sought-after deep-water reserves are off Brazil and Africa but there are others off India, China, Australia and UK. Between the Gulf, Brazil and Africa alone, there are an estimated 90bn barrels of oil and gas.

An enormous downstream industry has gathered around the coat-tails of Big Oil’s deep-water ventures, from shipyards such as Keppel to relative tiddlers such as Trico Marine Services that rents out vessels for transporting equipment to offshore rigs at $25,000-plus a day. Investors are rushing to prosper on the back of the deep-water sector such as hedge fund king John Paulson who recently bought nearly eight million shares of Anadarko Petroleum now working on nine deep-water discoveries.

The capital sums involved are towering – Anadarko spends over $5bn a year on maintaining a success rate of about 50 percent in its drilling while Andrew Gould, chairman and chief executive of oil services giant Schlumberger, estimates the industry needs to invest about $350bn in every year between now and 2030 to meet the global energy demand.

And yet the big worry is whether the industry has learned the lessons of Macondo as it starts drilling in other frontier zones such as the environmentally sacred Arctic where such blunders could be exponentially more serious than they were in the Gulf. Noting that the Arctic is an important area for future oil and gas development, the commissioners say that “additional comprehensive scientific, technical and oil-spill response research is needed.” Summarised, the industry’s not yet ready.

Although a shocked Big Oil has moved quickly to mend its fences since Macondo and improved safety practices, for instance by pooling $1bn to fund a rapid-response team for future blow-outs, what worries the commission, environmentalists and people living on the edge of these drilling zones is that America was “entirely unprepared for an inevitable disaster”, as the report explained.

The question inevitably remains: is it prepared now? Oil and Gas UK, the industry body, points out that North Sea drilling has proved environmentally safe. “The UK industry operators under a robust and fit-for-purpose regulatory regime,” explains chief executive Malcolm Webb. “Almost 7,000 wells have been drilled successfully over the last 20 years.”

Try telling that to the inhabitants of the Gulf where Big Oil is desperate to start drilling again, complaining that the ban is unfair on the dubious grounds that governments do not ban aircraft from flying just because there has been a crash.

Cultural reigning capital

Posted on 03/25/2011 by

You only have to look at the current programmes of the world’s major galleries and museums to see how big business is clamouring to be seen to be supporting the arts – Bloomberg is currently sponsoring a Bridget Riley exhibition at London’s National Gallery, GE and Hyundai are sponsoring an abstract expressionist exhibition at New York’s Museum of Modern Art, Fundación BBVA is sponsoring an exhibition of early 20th-century European art at Bilbao’s Guggenheim museum – but why?

Many galleries and theatres would simply not be able to survive were it not for corporate funding, but it goes without saying that the motives of big business are not necessarily altruistic. Often arts funding fits in well with a company’s Corporate Social Responsibility strategy, and perhaps there is nothing wrong with a profit-driven organisation putting up the money to support the arts and make culture available to everyone, even if the ubiquity of logos and branding does somewhat taint the overall experience.

Arts sponsorship is a way for large companies to ‘give something back’, a way of saying “some things are more important than making a profit”. Arguably, it’s also a form of sleight of hand – during last years’ Gulf of Mexico oil spill, for example, BP was heavily promoting its sponsorship of a major exhibition of the Egyptian Book of the Dead at the British Museum. What does a bit of bad press about a few oily seagulls matter, you may ask yourself, when these guys have immortality on their side?

It is, then, an issue of building a brand image. It makes sense, for example, for a company like GE to sponsor an exhibition such as the one at the Guggenheim (which is itself, like the Tate in Britain and the Getty Institute in the US, a product of corporate branding on a grand scale), because by doing so it is aligning itself with certain complex attributes which any savvy marketing professional would be keen to adopt for their organisation. Abstract expressionism simultaneously suggests a pioneering spirit, a creativity touched with genius and a way of seeing the world differently. And also, because this is Art with a capital ‘A’, which has stood the test of time and been sanitised within the ornate frames of a reputable museum, it has the seal of permanence and substantiality. What once was considered shocking and dangerous is now cosy and safe, like an antique musket with its pin removed hanging above the bar of a country pub.

Of course, arts patronage is nothing new; out of necessity, artists have always had to go where the money is, whether that has meant painting the monarch of the day in a particularly flattering light or setting out the more positive attributes of a particularly wealthy noblewoman in the form of a sonnet. And the motives of those who are prepared to flash the cash are no different really, only much more subtle. The question of whether this is in art’s best interests remains – surely the point of art is to rail against the establishment, to present us with ways of seeing and feeling that go beyond the final column in a spreadsheet? Or maybe, ultimately, the artist wins and the joke is on everyone else. The next time you see a Van Gogh exhibition being sponsored by a major bank, you may not be able to hear the painter spinning in his grave, but you won’t have to listen too hard to hear a voice saying “Hey, we’re different from those guys across the street. Do business with us. Invest in us. Give us your money.”

Our men in Havana

Posted on 03/25/2011 by

Across Cuba, new farmers are tilling fertile fields abandoned for decades and city streets are abuzz with market stalls as private businesses sow the seeds of what many hope will be an economic revival.

In the biggest shake-up of the withered state-run economy since revolutionary leader Fidel Castro nationalised all private companies more than 40 years ago, the Communist-led island is laying off a million public workers and encouraging people to work idle state-owned land or set up businesses.

Since the 1960s, jobs on the Caribbean island have almost entirely been provided by the state, right down to trades like barbers and watch-menders. Many farm lands fell into disuse as Cuban agriculture stagnated under strict rules and low prices. “Six months ago I didn’t even remotely think of coming to the countryside. But in six months, the country has changed,” said Juan, a retired army officer who trained as an agronomist but only returned to farming in December.

Tens of thousands of businesses have sprung up across Cuba in just a few weeks at the bidding of Fidel Castro’s brother, President Raul Castro, with farms replanted, new restaurants opening daily and placid streets starting to buzz with trade.

A few blocks from hulking concrete government ministries decorated with portraits of former revolutionary heroes that still provide the vast majority of jobs on the island, dozens of people now line up each morning to buy pizzas, underwear and pirate DVDs from the new generation of legal street vendors.
Until recently, most sellers of private goods operated illegally and risked fines and police abuse. Now they sell in the open, contributing to social security and the public purse. “I’ve sold 20 films this morning and it’s my first day, imagine what it will be like when people know I’m here,” said Katrina, doing a brisk trade in Japanese animation, Hollywood films such as ‘Twilight’ and Michael Jackson CDs.

But hurdles remain to making farms and other ventures productive. Even those grasping the opportunity offered by more liberal rules remain increasingly wary that these new freedoms will be reversed.

For many used to state employment for life, the changes now add new uncertainties to the traditional worries about low salaries.

Havana cobbler Mario is unsure he will make more than his current government wage of $10 a month under new rules that will see him rent his store from the state, buy his materials and, crucially for the cash-strapped government, pay taxes. “This could be good news, I just don’t know yet, I won’t until I know how much I will have to spend on rent and materials,” he said, stitching a rubber sole in a dingy shop near Havana’s grand but faded oceanside promenade.

Like many Cubans, Mario augments a meagre income with work on the side, mending shoes from his apartment. He worries that work he does will now be taxed and his total income will ultimately fall. Others say they won’t let taxes undermine their overall profits.

“I’m not really worried about that,” said Caridad, 47, who opened a thriving restaurant on Christmas Eve on a highway to a Havana-area beach. She sells five dollar lobster. “The government has no way of tracking how much I make, so I’ll just under-report.” Permits to sell pirated goods will raise eyebrows at Western media companies but the trade makes clear sense to Katrina and hundreds like her in Havana as costs are very low.

Doubts
In other areas, the government still controls the sale of most inputs and says it cannot yet afford to sell at wholesale prices – a limit on profits and perhaps a sign officials worry tax income will not replace state earnings elsewhere. Caridad said her main concern is the reforms will ultimately stall.

As part of a ground-breaking economic opening in the 1990s to survive the collapse of Cuba’s longtime benefactor, the Soviet bloc, Fidel Castro’s government initiated an early attempt to allow private enterprise. But, citing fears of corruption and social inequality, it later backtracked and reined in those activities as soon as the economy improved.

“This process has been set up so they can slow it down at any time,” said Cuba expert Philip Peters at Washington-based think-tank the Lexington Institute. “But in 20 weeks they increased the entrepreneurial sector by 50 percent via government-led reforms, and the people have responded. You can’t scoff at that.”
Juan, who declined to give his last name, is planting corn, tomatoes and bananas on his lush farm. He raises goats and will buy pigs – all good news for Cuba, a net food importer. Large state farms fell into disrepair when the Soviet Union collapsed in 1991. Short of oil, thousands of tractors were left to rot and farmers reverted to oxen for plowing. Over the past few months, 130,000 people have been given permits to work idle land with more freedom to sell crops on the open market. Prices previously fixed at a low level are now revised every month. The price for tomatoes, for example, has now doubled at the farm gate.

“Before, people were feeding crops to the animals, because it wasn’t worth selling at the price the government paid,” said Diego Aleman, who works on Juan’s farm. Another of Raul Castro’s reforms makes it legal to hire labourers to work the land. Two tractors plowing his gently rolling fields were rebuilt from broken-down Soviet machines by one of Juan’s neighbours.

However, even the Communist Party accepts the reforms so far have not done enough to raise food production, which has been battered by hurricanes in recent years. Nearly half of all farm land is still idle. At a party conference in April, peasant farmers will raise a number of complaints, especially about the price and availability of tools and materials.

In the past, seed, tools and materials were rationed. Now, government shops sell fencing wire, machetes and other tools but charge high prices, with a roll of barbed-wire costing more than double the average monthly wage. “The fact they are just now allowing a farmer to buy a machete when he needs one, or to sell by the road, those are positive steps but show how far they have to go,” said Peters.

‘Preserving gains’
Years of socialist austerity and a US trade embargo mean Havana is an oasis of calm compared to the chaotic traffic and impromptu street markets of other Latin American cities, its dilapidated but handsome architecture unadorned with hoardings, its palm-lined boulevards not choked with market stalls.

Cuba is proud of its low crime rate, educated populace and free healthcare, all gains that differentiate it from many poor neighbours and that supporters say partially offset widely-criticised limits on economic and political freedoms. “A challenge for Cuba will be moving ahead without degrading some of its achievements,” one Asian diplomat said. Political reforms have been slow, although the government is releasing some political prisoners and Raul Castro’s criticism of government failings has fostered public debate.

At the agriculture ministry, workers streamed into a gray office tower for an 8am start. When asked, most said they support the reforms and were sure the government will find positions elsewhere for those who lose jobs. “Nobody should be left without a job because there is work to be done – in the countryside itself we need masses of labour,” said gray-haired Lazaro, a ministry official. The government has promised to offer many workers new positions elsewhere but it is still unclear how the massive layoffs will play out over time. The pain may be muted because, as the refrain goes: “They pretend to pay us and we pretend to work.”

In the meantime, others have set up profitable ventures. A line of shoppers curling past her front garden gate to buy plumbing parts, a woman named Inisil lost her job at a state bus company last year. “I’m now making 100 pesos a day, that’s much better than my old job,”. She now earns her old salary of $20 a month in a week and has enough to employ a worker – something only recently permitted.

The breath of life

Posted on 03/25/2011 by

Early detection of cancer is the key to a good prognosis. But some cancers are harder to spot than others. Lung tumours, which are the number one cause of death among cancer patients, are among the hardest to identify. A revolutionary new technology developed by researchers in Leipzig could change that.

The symptoms of a tumour-related cancer tend to resemble those of a chronic inflammatory reaction, at least in the early stages. To get a fuller diagnosis, the patient often has to undergo a bronchoscopy. This procedure, which involves irritation of the lung or removal of tissue samples, is particularly unpleasant for the patient.

Scientists in Germany have been working on a less invasive approach. Using their discoveries, the patient simply needs to exhale normally for about 20 minutes. Their breath is then condensed, evaporated and tested for special biomarkers that recognise substances such as the protein responsible for stimulating the growth of new blood cells. Analysis of these markers can suggest whether there are cancer cells in the patient’s lungs.

A team of researchers from the Fraunhofer Institute for Cell Therapy and Immunology IZI in Leipzig and the University Clinic of Leipzig discovered the right biomarkers in 2006 and have been working since then to develop a diagnostic technique.

Their method uses two new innovations. They have developed both the protein biomarkers that identify cancer cells and the antibody needed to make their new test work.

Unfortunately, the laboratory method for detecting the biomarkers in a breath sample is still too “elaborate and expensive” for normal everyday use, says Dr Jörg Lehmann, a cell engineering specialist at the Fraunhofer Institute. But that is what they are working on now.

The team’s goal is to develop a prototype diagnostic kit for doctors to use. Within just a few years, every physician investigating a suspicion of lung cancer could use the test in his or her practice to see whether there really is a tumor and quickly initiate treatment, says Lehmann. With lung cancer, speed saves lives. 

A woman’s touch

Posted on 03/25/2011 by

What can you do to encourage innovation in a business? That’s a question that managers, academics and expensive consultants have been trying to answer for years. Governments would quite like the solution too. As developed nations lose more jobs to low-cost countries, the fashionable way of maintaining growth is to encourage greater creativity – but how?

New research from Norway suggests that the answer might be refreshingly simple: employ more women at senior levels.

When companies appoint more women to their senior management boards, those organisations change in ways that promote innovation, according to a study from BI Norwegian School of Management. Women encourage their peers to think about a wider range of opinions when making decisions, the study found.

Their presence also led to boards being better prepared for their work, more involved in their responsibilities and more productive.

Researchers used a set of questions to gauge how disposed a business was to innovation and analysed the answers in relation to how many women the business employed. “The results show there is a significant and positive correlation between the percentage of women and the degree of organisational innovation in the enterprise,” says Professor Morten Huse, a leader of the project.

A greater number of well-prepared, enthusiastic women on the board had a positive effect on other board members, who had to raise their game to show they were equally on the ball. “This creates a positive cycle where preparations and involvement in board meetings increase in general,” says Huse. “Men’s behaviour appears to change considerably when women join the board.”

Companies around the world have been recruiting more women to senior positions in recent years. But Norway is among a handful of nations to force change through positive action. In 2006 the country passed laws requiring companies to include more women in the boardroom.

Other countries are passing disclosure rules that require companies to say what they are doing to get more women into senior roles. The idea is inspired by the need for equality and to encourage companies to dip into a wider pool of talent. But the Norwegian study suggests there is a strong business case for such moves too: women can bring that much needed dash of creative flair.

Air power takes off

Posted on 03/25/2011 by

Apply the brakes in your car, and you generate friction energy. At the minute, there’s no easy way that a regular vehicle can save that energy, so that it can be used to power the motor when you want to go forward again. Most electric hybrid cars use braking energy to recharge their batteries. But the process is expensive and not very efficient. Researchers in Sweden are working on an alternative idea that would harness the energy more effectively and make it available to any vehicle.

Their plan is to store the braking energy in the form of compressed air. The air is kept in tanks onboard the vehicle and released to give the engine a boost when it is time to accelerate again, or to keep the motor ticking over when the car is at a standstill.

There are no air-hybrid engines in production yet, but they would be much cheaper to build than electric-hybrid motors, says Per Tunestål, a researcher in combustion engines at Lund University in Sweden. “The technology is fully realistic,” he says.

Air-hybrid engines would be particularly suited to the kind of stop-start and slow driving that plagues urban road users and sucks up fuel, says Tunestål. A doctoral student at the university, Sasa Trajkovic, has run simulations that show buses in cities could reduce their fuel consumption by 60 percent if their engines had air hybrid support. About half of the energy from braking could be stored in a small air tank for later reuse, Trajkovic estimates.

The engine would not require any expensive materials so would be cheap to manufacture. It would take up much less space than an electric hybrid engine and could be combined with petrol, natural gas and diesel motors.

Ford started experimenting with air hybrid engines in the 1990s, but shelved its plans when it hit technological barriers. The researchers in Lund hope to convert their research results from a single cylinder to a complete, functioning, multi-cylinder engine. They would then be able to move this intriguing concept one step closer to a real vehicle. “The research so far has only been theoretical,” says Trajkovic, “This is the first time anyone has done experiments in an actual engine.”

Pompeii collapses spark worry and outrage

Posted on 01/11/2011 by

“The city is suffering and losing its pieces,” said D’Alessio as he stood near the Via dell’ Abbondanza, the main street leading from the columns of the Forum in the ancient city that is a UNESCO World Heritage Site.

D’Alessio is worried not only because he loves culture. He knows that the economy of his modern city of 25,000 people relies heavily on tourists who come from all over the world to see the famed archaeological site.

In November the “House of the Gladiator” and a long retaining wall in the garden of the “House of the Moralist” collapsed.

The collapses sparked charges of official neglect by Prime Minister Silvio Berlusconi’s centre-right government and calls for the resignation of Culture Minister Sandro Bondi, who has imposed cuts to arts spending as part of austerity measures.

“We don’t have the luxury of waiting. We can’t wait for other collapses. We need an immediate intervention to heal years of delays and neglect,” D’Alessio said.

Like many other cultural heritage sites in Italy, ancient Pompeii is an engine of local economic growth that supports hotels, restaurants, guides, transportation and travel agencies.

Minister under fire
Pompeii advocates have accused Bondi of being ultimately responsible for the decline of the sprawling site, which remained buried and undiscovered for almost 1700 years under ash until excavations began in 1748.

“In the last two years, the decisions regarding Pompeii have been made by politicians and not by experts,” said Tsao Cevoli, president of the national association of archaeologists.

Cevoli and other critics say that under Bondi’s administration, the culture ministry has concentrated on spectacular events rather than regular maintenance.

For example, money was invested in a hologram tour where the image of Julius Polybius, a nobleman of ancient Pompeii, guides visitors around a 3-D virtual version of his sumptuous villa.

“We must invest in regular maintenance. This does not attract attention but is very necessary,” said Cevoli, adding that removing weeds from roofs and walls is not as enticing as light shows and holograms but it does stop water infiltration.

Cevoli says there have been seven collapses in a year but not all of them have received the publicity they deserved.

“The fact that there have been so many collapses in such a short period means that something serious is happening. These are very dangerous signs,” he said at the site.

He said some €80m were spent in the last two years for what he called “spectacular but not indispensible restorations” of single structures such as the second-century-BC Great Theatre.

“The minister is responsible for having chosen a management style at Pompeii that favoured appearance over substance. No expert would have done this. Technicians, restorers and archaeologists were denied any say in the matter,” Cevoli said.

Pompeii, then home to about 13,000 people, was buried under ash, pumice pebbles and dust by the force of an eruption equivalent to some 40 of today’s atomic bombs. Two-thirds of the 66-hectare (165-acre) town has been uncovered.

Frozen in time
What makes Pompeii rare, if not unique, is that it was frozen in time, offering a total picture of the ancient world.

Pliny the Younger witnessed the cataclysm 1,931 years ago from Misenum (today’s Miseno) on the northern shore of the Bay of Naples. He wrote: “A dense black cloud was coming up behind us, spreading over the earth like a flood.”

Some have said the only solution to saving Pompeii is to privatise it.

“Precisely because it belongs to all humanity, its management should be taken away from a state that has shown itself incapable of protecting it,” Italy’s leading business newspaper, Il Sole 24 Ore, said in a scathing editorial.

But privatisation of culture is still a politically loaded subject in Italy, so most observers see a mix of state ownership and some private sponsorship as the best solution.

Judith Harris, author of the 2007 book “Pompeii Awakened”, said it would be important that sponsors let archaeologists do what they feel is necessary.

“There is no glamour in pigeon control and weed removal but but they are necessary,” she said.

Prestigious ‘Arabic Booker’ plagued by criticisms

Posted on 01/11/2011 by

Two Moroccans, two Egyptians, a Saudi and a Sudanese rounded out the list of authors in contention for the $50,000 International Prize for Arabic Fiction, with its guarantee of lucrative translations into English and other languages. The winner is announced in March.

The award, now in its fourth year, is one of many in the region but its association with the Booker Prize Foundation has given it an edge over others which are clearly associated with Arab governments, such as the UAE’s Al-Owais Award and Saudi Arabia’s Arab Thought Foundation awards.

The Al-Owais prize was infamously withdrawn from Iraqi poet Saadi Youssef in 2004 after he criticised Sheikh Zayed bin al-Nahayan, the founder of the United Arab Emirates, a Western-allied federation of dynastic monarchies in the Gulf.

The Arabic Booker has an elaborate structure of judges and board of trustees to ensure fairness, including Arabs of different nationalities based in the region and abroad as well as non-Arab literary experts and publishing figures. However, it remains financed by Abu Dhabi’s Emirates Foundation.

“This prize is yet another indication of the corruption of Arab cultural life and the extent to which Arab oil money insists on dominating all aspects of life,” said As’ad AbuKhalil, a Lebanese politics professor at California State University in the United States.

“This award has been criticised by many Arab writers and yet it continues with Arab oil money to award prestige to the UAE and its ruling families,” he said.

Gulf rulers have stepped up efforts in recent years to patronise the arts and transform a region with a traditionally limited output in terms of cinema, theatre, writing and other forms of expression into cultural centres.

Some efforts are globally accessible – Abu Dhabi is setting up branches of the Louvre and New York’s Guggenheim museums – and some are regionally focused: Recently, Qatar opened a museum of contemporary Arab art, to add to its Islamic Museum.

Sensitive subjects
Saudi novelist Abdo Khal’s Arabic Booker win in 2010 for “Spewing Sparks as Big as Castles” – which critiqued Saudi social distortions created by the oil boom of the past decade – suggested the award would not shy from sensitive material in Gulf countries, at least when it is presented as allegory.

It also reflected the rise of the novel as a popular art form in Saudi Arabia and the Gulf where political, social and religious oppression has for long limited literary output.

Some novelists complained in the Arabic press about Egyptians winning in the first two years, while an Egyptian critic resigned from last year’s jury saying her colleagues had stitched up the shortlist in a secretive manner.

The wide geographical distribution of this year’s shortlist suggests a certain political correctness is playing in the minds of judges, who this year comprise four Arabs and an Italian.

“They do not decide according to literary merit only. They divide the choices (on the shortlist) around the Arab world. This has to be criticised,” said Egyptian poet and journalist Usama El-Ghazouly.

With the works of many writers effectively banned in their own countries, the English translation can be the key to fame and riches and critics often say writers tailor their material accordingly. Naguib Mahfouz is the only novelist in Arabic to win the Nobel Prize for Literature.

Ghazouly pointed to some of the themes in the first award-winning book, Egyptian novelist Bahaa Taher’s “Sunset Oasis” as an example. It features lesbian relations and a character who questions Egypt’s right to control the Siwa oasis – “post-modern tastes”, in his words, that are set to play well abroad.

In this year’s shortlist, a former Moroccan culture minister, Mohammed Achaari, was nominated for “The Arch and the Butterfly”, in which a father receives a letter from al Qaeda informing him that a son who he thought was in Paris has died fighting Western forces in Afghanistan.

Bensalem Himmich, Morocco’s incumbent minister of culture, imagines an innocent man’s experience of extraordinary rendition and torture in a US prison in “My Tormentor”.

And Saudi novelist Raja Alem explores what the organisers term the “sordid underbelly” of life in the Islamic holy city of Mecca in “The Dove’s Necklace”, including prostitution, abuse of foreign workers and religious fundamentalism.

The sexy pitch
Publishers are scrambling to submit books such as these for consideration that lend themselves to the “sexy pitch” for the reading public outside of the Arab world, critics say.

“The publishers’ influence is more dangerous than the political one,” said Palestinian writer Elias Nasrallah. “At the moment the fight between the publishers and their lobbies is the most dangerous thing for this prestigious prize.”

M. Lynx Qualey, a Cairo-based writer who runs a blog called ArabLit (www.arablit.wordpress.com), said women authors had had trouble in getting onto the long and shortlists at first.

“Gender was an issue in the first couple of years, when publishers weren’t submitting books written by women, and thus women weren’t showing up on the lists,” she said. But many still see value in the prize, despite the criticisms.

“I do think it’s a worthwhile venture. It’s a very young prize,” Lynx Qualey said. “It’s also a different prize for the region in that it’s a single-book award (with) a longlist, a shortlist, and finally a winner, so that people can see very clearly which books and novelists are in play.”

Ghazouly said Gulf Arab initiatives such as the Arabic Booker were ultimately doing the Arab world a favour after the traditional centres of pan-Arab culture such as Egypt, Lebanon and Iraq were hit by various political crises since the 1970s that have damaged their cultural output.

“They are not trying to control culture; they are filling a certain vacuum. They have come to save us by using their money to the benefit of the Arabic-speaking nations,” he said.

Afghan government plans extravagant wedding ban

Posted on 01/11/2011 by

Since US-backed Afghan forces ousted the strict Islamist Taliban in 2001, Afghans have revived the tradition of holding big weddings, costing thousands of dollars, in a country where the average annual income is less than $400.

Afghan weddings are celebrated by hundreds of guests in luxurious wedding halls with the groom and his family expected to foot the bill and agree to every request of the bride and her family.

“Wedding ceremonies among people are like a competition, no one wants to come last, people like to show off their wealth by feeding hundreds of guests in costly wedding halls,” said Justice Minister Habibullah Ghaleb.

“Families are the victim of such a wrong tradition and have to accept these heavy burdens,” he said.

Details of the planned ban on expensive weddings were still being worked out, said Justice Ministry spokesman Farid Ahmad Najibi, and he acknowledged it could be difficult to enforce because lavish weddings were so ingrained in Afghan culture.

State institutions were shattered during decades of conflict, with regional, ethnic and tribal differences also making it difficult to enforce laws. Violence is at its worst since the Taliban were ousted, making security a priority even while authorities try to rebuild the aid-reliant economy.

Rafi Kazimi, 24, and his family spent about $10,000 when he married Farima, 20, in October. The couple had 600 guests at their wedding in Kabul. Taxi driver Kazimi and his family are now repaying at least $6,000 in bank loans.

But Kazimi recently lost his job and his family — his wife, mother, father, grandmother, two sisters, three brothers and one of their wives — are surviving on his older brother’s salary of $410 a month, $300 of which is used to repay the loans.

“It was too much,” Kazimi said of the money spent on his marriage to his first cousin. “I was so worried about how to find this money. Her parents didn’t care if I had the money or not, they just said we must have a big wedding.”

While Kazimi thought a ban on expensive weddings was a good idea, he doubted if it would be accepted. Along with the wedding celebrations, a groom and his family are also expected to pay for ornate outfits for the bride and groom.

“A huge burden”
The government’s bid to regulate weddings follows similar moves by some tribal elders and provincial officials.

Late last month, elders from several villages in northern Jawzjan province banned expensive weddings and dowries in a bid to encourage young people to marry instead of postponing their nuptials because they could not afford it.

Under the rules, the cost of a wedding must be in line with the economic status of the groom, and if someone violates the ban then they will not be invited to any other weddings in the village.

“Marriage is everyone’s right and it must not be presented as a huge burden for the bride and groom,” said Azaad Khwa, an elder from Jawzjan. “Making the groom’s family pay for everything and feed hundreds is a big sin.”

Many elaborate wedding halls have sprung up around Kabul over the past nine years, compared with just a few that operated while the Taliban were in power from 1996 to 2001.

Guests attending weddings at City Star Hall in Kabul’s Wazir Abad neighbourhood drive through a lit-up moon to the entrance and a large silver star adorns the roof. It opened three months ago at a cost of $5 million, said manager Zabi Mujeeb.

It has four wedding halls and hosts about 70 weddings a month, with an average of 800 to 1,000 guests, Mujeeb said. Prices per guest range from $12 to $23 for the food. Music, a cake, decorations and a photographer are all extra.

“The people living in the city, they don’t like to have a lot of guests,” said Mujeeb. “But the people living in provinces, they like to have a lot of guests.”

In the largest of City Star Hall’s venues, staff were putting the finishing touches on decorations for the wedding of a couple from nearby Parwan province. There will be 1,600 guests at a cost of $16,000.

The opulence makes one’s head spin.

The bride and groom were to walk over a bridge above a fountain in front of mountain landscape mural. They descend onto an illuminated walkway under arches of fake flowers to a stage where they will be seated on silver-coloured thrones.

“The grooms find the money,” said Mujeeb.

An energy policy for main street America

Posted on 01/07/2011 by

The political landscape in America following the November 2010 mid-term elections appears to make it virtually impossible for President Obama to act on his promise to make sweeping energy reform the cornerstone of his legislative programme for 2011. The launching of an energy-cum-climate-change campaign would appear tantamount to political suicide for the President.

An Administration grappling with a trillion dollar deficit, an anaemic-jobless recovery, a hostile House of Representatives, and a Senate suffering from the worst form of sclerosis – and most of all an Administration desperately needing to reconnect with middle-American voters before the 2012 election – could not possibly afford to shoot the moon on behalf of energy policy reform in America.

What could he possibly say that would garner the attention, much less the votes of the likes of Republican Joe Barton (R-Texas) and his rabble-rousing colleagues in the House who are busy planning hearings to curtail the regulatory power of the EPA or possibly even to launch a major inquiry on the “sham” science of global warming?

But imagine for a minute if he were serious, and President Obama were to declare that for 2011 and 2012, he is going to make energy his number one domestic priority.

President Obama: “I am proposing that both Houses of the Congress put their priority focus on collaborating with me in finalising and passing one comprehensive, bipartisan piece of legislation, ‘The Economic Revitalisation and Long-Term Energy Security Act of 2011.’ As I promised late last year, this is my legislative priority for the next two years, and it is the primary achievement that I intend to leave behind as the historical legacy of my Presidency.”

First, we are going to take a serious bite out of current and future budget deficits by eliminating government subsidies and tax credits on production of all primary sources of energy on a step-down basis over the next three years. These energy subsidies – for all kinds of different fuels and energy sources – are the sordid legacy of more than 50 years of politics as usual in Washington. They are bleeding our national treasury, and they result, essentially, in government intervening with an overwhelmingly heavy “hidden hand” to undermine the working of the free market when it comes to energy choices for Americans.

We have abundant, inexpensive energy sources in this country, particularly clean burning natural gas, and it should be the policy of the Federal government to allow the lowest-cost producers, not the best lobbyists, to meet consumer demand for energy. The proper role for government is to use taxation and regulatory policies to ensure that the full costs of all energy sources are reflected in the market, not to subsidise different energy sources at different rates in an incoherent fashion.

Second, in order to protect national security and to reduce the national balance of payments deficit, the Act calls for a 25 percent excise tax on gasoline, diesel, and other liquid or gaseous motor fuels made from petroleum and downstream feedstock chemicals. The tax will kick in at the pump on a month-by-month basis, over the coming year – far slower than the spike in gasoline prices we have experienced when the OPEC cartel has been able to gauge the American people periodically over the years. This tax is one that has been strongly advocated by the US Chamber of Commerce, and Chamber President Tom Donahue said it best in 2009 when he told Congress to “Just damn do it!” This step is critical for our national security.

Every red-blooded American knows – in his or her heart – that were it not for our nation’s addiction to petroleum, we would have avoided much of the heartbreak and pain of the past decade as we have engaged in wars and conflicts around the globe in regions that are unimportant to America except for their links to our energy supply. It is time an American President told the truth, and took steps to defend this country from massive economic disruption of petroleum supplies before terrorists and the governments who harbour them take matters into their own hands. The Lord only knows how close we have come to Armageddon due to our petroleum addiction in recent years.

Third, to reduce the impact of the first two actions on wage earners, senior citizens and other low-income people, the Act immediately and permanently eliminates all payroll taxes on the first $30,000 of income and eliminates the current ceiling of $106,000 for Social Security taxes. It is time for Congress to address the fact that payroll taxes, and especially the capped Social Security taxes, are among the most regressive of all taxes on ordinary, working Americans. I recognise that, to some extent, by taxing gasoline, we are proposing to shift the burden to the transportation budget of working-class Americans, but people have a choice, especially over time, as to how they use their transportation budget, whereas the payroll tax is finite and fixed. The only way working people can reduce their payroll taxes is to work less.

Fourth, monies from the petroleum fuels excise tax will be allocated equally to an expanded Highway and Transportation Infrastructure Trust Fund and to a National Fund for Energy Research and Development. In the short term, we desperately need to rebuild the transportation infrastructure of this country, and the pain of trying repeatedly to convince Congress to authorise new monies for the Fund is far too great. The current process makes a mockery of good governance practices by inviting every legislator in Congress to earmark monies for his or her special pet projects rather than enabling the country to invest wisely and rationally into the infrastructure it needs to
keep the economy strong in the future. For the long run, we also need, once and for all, to embark on a 30-year programme to develop, perfect and prepare for commercialisation of the energy technologies that will propel forward and make competitive the American economy from 2050 onward.

Voila. In the short term, economic stimulus, budget deficit reduction, tax relief for those who need it most. Importantly, a big step to assert national security before the next terrorist event or political crisis disrupts global petroleum supplies.

For the long term, a level playing field for American energy policy that is likely to lead to more affordable, cleaner energy supplies in the future – a continuing push to natural gas as a primary energy source, and the gradual electrification (or re-electrification) of the American transportation system. That is an energy supply chain that can be subtly taxed, regulated and made more efficient through American technological ingenuity in coming decades to target President Obama’s admirable goal, articulated in 2009, to reduce CO2 emissions by 83 percent below 2005 levels by 2050.

President Obama’s speech would also open up a national debate about the hodge podge of energy subsidies, pork-barrel projects, and “white-elephant” governmental boondoggles that constitute our national energy policy – all in the name of energy independence, or under the banner of “cheap abundant energy supplies for America.” What have we as a nation accomplished in the four decades since Richard Nixon proclaimed in November 1973: “Let
us set as our national goal, in the spirit of Apollo, with the determination of the Manhattan Project, that by the end of this decade we will have developed the potential to meet our own energy needs without depending on any foreign energy source.”

The fact is that America is stuck with a staggering labyrinth of energy-related policies and regulations, the sum total of which has resulted in very detrimental consequences for the best interests of our country. It is bad enough that America is further from energy independence than when President Nixon spoke. It is even worse that our national energy policies since then have basically undermined national security, exacerbated the national debt, corrupted a huge slice of the American economy under a system of “crony” capitalism that is far from the American ideal of free enterprise, and contributed to serious environmental degradation and the build-up of greenhouse gases in the earth’s atmosphere.

So, let’s be clear. There is no question that the Act as President Obama proposes it would bring disruptive change across the entire landscape of the “business as usual energy lobbies” in Washington. Oil producers would actually live with the tax, but suffer the most from the elimination of the hidden and deeply embedded subsidies. The renewable energy interests, newly nurtured on the mother’s milk of Washington’s breast, need the subsidies in their current incarnation. Nuclear energy advocates and ethanol producers – the recipients of the lions’ share of “new energy” subsidies awarded in recent years, and poised to receive hundreds of billions of new subsidies in coming years, would see their so-called private funding sources shrivel overnight. But, the real question to ask is, would this Act constitute good long-term energy policy for America?

In a Rolling Stone interview, Mr Obama made a sweeping statement about why energy policy, and specifically ending the dependence on oil, is so critical to the nation’s future, saying “…it is good for our economy, it’s good for our national security, and, ultimately, it’s good for our environment.” If he believes this, he needs to make the case, not to the Democrats or Republicans on the icy shores the Potomac River, or even to the Tea Party members scattered across the hinterlands, but rather to Main Street America. They will get it. Hey, Mr Obama, aren’t those the folks who got you elected in the first place?

A mighty wind blows

Posted on 01/06/2011 by

Most people are agreed – save for the vested interests – on the efficacy of promoting clean energy as an alternative solution. Factor in growing evidence the planet is undergoing profound climatic change and it would appear to
be a no brainer.

Most promising of the available technologies – in the nearer term at least – is wind power. Irrespective of technology however the key economic metric is grid parity – i.e. the point at which alternative means of generating electricity is equal in cost, or cheaper, than grid power.

As Tim Buckley, portfolio manager at Sydney-based Arkx Investment Management puts it: “Wind is probably three or four years ahead of solar and geothermal, and wave maybe five years behind solar.”

A case in point is the European Commission’s September 2010 ‘EU Energy Trends to 2030’ report. Compiled by the National Technical University of Athens, it forecasts 333GW of new electricity generating capacity to be installed in the EU between 2011 and 2020 alone, with wind accounting for 136GW, or 41 percent of all new installations. Currently, there is 80GW of wind energy capacity across the EU. The report added that it expects 64 percent of new capacity to be renewable energy, 17 percent gas, 12 percent coal, four percent nuclear and three percent oil.
Breaking the numbers down, wind energy is forecast to account for 14 percent of EU electricity by 2020, against five percent now. Renewables as a whole will make up 36.1 percent of total electricity generation in 2030.

Industry body the EWEA (European Wind Energy Association), which is projecting 400GW of wind power capacity by 2030, has already dismissed the EU forecast of 280GW as too conservative and has taken issue in particular with the report’s claims that the increase in wind power capacity will slow from an annual average of 13.6GW in the decade up to 2020 to 5.8GW in the decade to 2030.

Irrespective of how the targets pan out the drive towards renewables is part of a grander scheme encapsulated in EU Directive 2009/28/EC. Collectively known as the 20-20-20 targets, these include a reduction in EU greenhouse gas emissions of at least 20 percent below 1990 levels, 20 percent of EU energy consumption to come from renewable resources and a 20 percent reduction in primary energy use compared with projected levels – all of these to be achieved by 2020 through energy efficiency improvements. For Tim Buckley meanwhile, Arkx Investment Management draws little distinction between the available technologies from an investment standpoint – companies targeted being ‘technology driven with proven track records demonstrating repeat sales of size’.

“We avoid investing in the multitude of ‘very exciting’ cleantech start-ups where ever-optimistic founders talk about what their companies are going to do (if only the market would give them the cash to prove it). We are looking at market opportunities that are real and current, not blue sky potential.”

The key issue with renewables as Buckley sees it is that they’re still a high cost source of energy. However, the real cost of fossil fuel-based energy will rise materially when the full cost of carbon pollution is added in, significantly narrowing the cost gap to renewables. In addition, renewables can significantly reduce a country’s energy security risks and trade imbalances from importing fossil fuels – a key motive for China, the US & Germany. Finally, the technology and scale gains are driving down the cost of renewables each year – whereas fossil fuel costs are rising as ever more expensive sources (deep sea drilling, Canadian oil tar sands) are tapped.

Noteworthy is US-listed Chinese solar wafer and module manufacturer Renesola. With a market cap of $840m, based on a stock price of $9.73, it has been the best performing (large) solar energy stock in the last year with a 73 percent return. Much of the 20 percent gain post reporting its Q2 numbers in August came on the back of a forecast 26 percent increase in cost per unit efficiency, with manufacturing capacity set to rise 50 percent in 2010 and a further 50 percent in 2011.

To demonstrate its seriousness the company, which barely existed four years ago, invested $570m in total in calendar years 2008-2009, with a further $130-140m pa set for 2010 and 2011. Total wafer manufacturing capacity is forecast at 1,800 MW p.a. by Q2 2011.

Wafer costs meanwhile have fallen from $1.10/W in Q1 2009 to $0.62 in Q1 2010 (-44 percent), and further to $0.56 in Q2 2010. Renesola forecasts wafer costs to fall to $0.54 in Q4 2010 (-26 percent) and $0.46-0.48 (-13 percent) by end 2011.

Elsewhere, First Solar US has reported a Q2 2010 module cost of $0.76/w with a 2014 target of $0.52-0.63/w.

First Solar’s global capacity will rise from 716 MW to 2.24 GW by 2012. The company’s realised per watt costs have fallen from $1.59/w in 2005 to $0.76/w in Q2 2010 (a 14 percent pa compound reduction in manufacturing costs).

“The Rensola and First Solar stories mirror those of all the major solar firms,” says Buckley, “adding massive capacity annually in anticipation of the coming solar boom with producers passing on cost savings in the form of lower prices.” Buckley adds that solar will probably not reach grid parity in Australia until 2015, despite the introduction of a carbon tax locally and rising electricity prices.

If grid parity Down Under is unlikely before 2015, in Germany it may come as early as 2013 – proof positive that wind power isn’t necessarily the only game in town. Indeed, Germany consolidated its position in H1 2010 as the world’s largest photovoltaic (PV) market – system installations there amounting to an estimated three GWp. Last year, it accounted for approximately one of every two newly installed modules worldwide, with total installations amounting to 3.8 GWp, according to Germany Trade & Invest.

However, a recently announced reduction in feed-in tariff (FiT) rates has marked what for many claim amounts to a partial retreat in government policy. Against this backdrop the Merkel government also confirmed the nation’s four nuclear operators (RWE, E.ON, EnBW and Vattenfall Europe) will be allowed to extend the lifespans of their plants by an average of 12 years. FiTs were first established in Germany 10 years ago under the 2000 RES Act and designed to run for 20 years. As of 2009 they were in operation in more than 60 jurisdictions globally. A FiT is a policy mechanism designed to encourage the adoption of renewable energy sources and to help accelerate the move toward grid parity.

Under a FiT regional or national electric grid utilities are required to buy renewable electricity (electricity generated from renewable sources, such as solar, wind, tidal and geothermal power, as well as biomass and hydropower) from all eligible participants. In the case of Germany greater emphasis is now being placed on people with rooftop systems of less than 500kWp who intend using the energy they generate.

Effective July 1st, however, FiT rates were reduced by 13 percent for rooftop installations and eliminated entirely for cropland field installations. From October 1st rates were reduced by a further three percent. Despite this, tariff rates remain relatively attractive.

In China – despite an exponential increase in wind and hydropower production – expectations are that solar and wind power will meet just two percent of the nation’s energy needs in 2020 – coal making up 58.5 percent, with oil/natural gas 26.5 percent to name two, according to Liu Zhenya, chairman and CEO of China’s largest grid operator, State Grid Corp. of China, at the World Energy Congress in Montreal in September.

Despite the numbers the replacement of fossil fuels by clean energy as a whole will reduce carbon emissions by 1.6bn tons a year. Much of the impetus for this saving is expected to come from the nation’s ‘Golden Sun’ programme. Launched in 2009, it offers a 50 percent subsidy for investment in solar power projects as well as relevant power transmission/distribution systems connecting to grid networks.

For independent photovoltaic power generating systems in remote regions with no power supply, the subsidy will rise to 70 percent. Grid companies are required to buy all surplus electricity output from solar power projects that generate primarily for the developers’ own needs, at similar rates to benchmark on-grid tariffs set for coal-fired power generators. To qualify for the subsidy, in addition to other requirements, each project must have a generating capacity of at least 300KW peak, while construction will have to be completed in one year and operations will have to last for at least 20 years.

The government plans to install more than 500 megawatts of solar power pilot projects in the next two to three years. Total generating capacity in such pilot projects in each province should, in principle, not exceed 20 megawatts.

In the US, meanwhile, the Obama-Biden New Energy for America plan envisages the creation of five million new jobs over the next 10 years by strategically investing $150bn ‘to catalyse private efforts to build a clean energy future’.The plan aims to save, within 10 years, more oil than the US currently imports from the Middle East and Venezuela combined.

Another objective is 10 percent of energy production coming from renewable sources by 2012 (25 percent by 2025), as well as implementation of an economy-wide cap and trade programme to reduce greenhouse gas emissions 80 percent by 2050. Although The Department of Energy (DOE) projects electricity demand to increase by 1.1 percent p.a. over the next few decades the Obama-Biden plan is looking to cut demand 15 percent from the DOE’s projected levels by 2020., saving consumers – it is claimed – $130bn.

A portion of this goal would be met by setting annual demand reduction targets that utilities would need to meet. The rest would come from more stringent building and appliance standards. In the investing sphere, Silicon Valley-based Firsthand Alternative Energy Fund, run by SiVest Group Inc, has already hit the ground running – its investment philosophy based on targeting companies/technologies deemed to be helping to ‘accelerate the adoption of alternative energy production and energy efficiency’.

”We take a slightly different approach to investment selection than some other alternative energy funds, driven in part by our background as technology professionals.” says company spokesman, Phil Mosakowski.

“The difference is we tend to focus our investments in companies developing, not deploying, new technology. This is, in part, based on our experience in investing in technology companies and also reflects our belief that there are often better margins in providing underlying technologies than in providing finished products or services, such as power generation.”

The fund, launched in October 2007, has targeted three major areas to date: solar photovoltaics, wind and energy efficiency. While some limited investments have been made in other areas, such as battery technologies and geothermal, the three core areas are deemed to have the most profit potential for now.

In terms of specific investments, positions have been taken in firms at all points along the solar industry supply chain, including cell and module manufacturers (JA Solar, Suntech, SolarFun), manufacturing equipment providers (GT Solar, Meyer Burger), and materials suppliers (MEMC, Praxair).

Over the 12 months through June 2010, the fund was down 6.85 percent, against a 16.73 percent decline for the WilderHill Clean Energy Index and 14.43 percent gain for the S&P 500 Index. Corresponding figures since inception were -16.79 percent; -34.66 percent and -11.96 percent. On a smaller scale, meanwhile, is the New Earth Solutions Recycling Facilities Investment Sub-Fund, managed and promoted by The Premier Group (Isle of Man) Limited. It focuses on waste management by investing directly in New Earth Solutions Group Ltd, the sustainable waste treatment and renewable energy business founded in 2002 by former landfill entrepreneur, Bill Riddle. By August 2010 its share price had increased 24.3 percent since its inception in July 2008.

Fund director David Whitaker says: “When we launched the fund we were aiming to provide investors with the opportunity to obtain long-term capital growth by investing in New Earth Solutions – proven, effective and efficient waste management technologies.

“This remit has since been expanded to include sister company New Earth Energy, which is committed to developing and delivering innovative advanced thermal technologies to support the use of waste-derived feedstock for ‘green energy’ power plants and direct heating supply schemes for both public and private customers.”

The fund helps to finance New Earth’s roll-out of waste and waste to energy facilities across the UK and provides investors with an opportunity to participate in a market not normally available to the individual investor. On the other hand, the Osmosis Climate Solutions ETF (launched in February 2010 by London-based asset management boutique, Osmosis Investment Management) has a wider global reach.

Focusing on products and services supporting the transition to a low carbon environment, the fund currently has a geographical spread of Asia 41 percent, Europe 23 percent, North America 33 percent, Others (mainly EM) three percent.

However, June Aitken, partner at Osmosis Investment Management, is quick to point out that geographic diversity isn’t an objective of the fund. Indeed, breadth of exposure is simply being achieved as a result of the diversity of the technology, products and services the managers believe will form part of the transition to a lower emission environment.

For example, renewable energy production companies tend to be in Europe (early feed-in tariff policies) or Asia (low-cost solar products), whilst pure play smart grid infrastructure companies are often US-based. Exposure to specific companies is based on a number of filters such as market capitalisation, trading volume, and ensuring the majority of the company’s revenues are derived from the products, services and technologies used in a lower emission economy.

Irrespective of the available investment funds on offer there is little doubt that the drive towards renewables is an irreversible one. Whether the targets set by Governments globally are achieved or not is, in many ways moot, given the industrial landscape is likely to be profoundly different in 20 years than it is now.

Wind in their sails

Posted on 01/06/2011 by

In a powerful symbol of such shifts in the world economy, the manager of the euro zone’s financial rescue fund reckons he could quickly raise money to bail out Ireland – by turning to Asia. “We are confident that we can raise the necessary funds from institutional investors, central banks and sovereign funds, in Asia in particular,” said Klaus Regling, chief executive of the European Financial Stability Facility.

So is it game over for the Old World?
Not so quick, argues George Magnus, senior economic adviser at UBS Investment Bank in London. In Uprising, Will Emerging Markets Shape or Shake the World Economy?, Magnus cautions against writing off the West, especially the United States. Given America’s proven capacity to reinvent itself, the epitaph RIP being prepared for it should perhaps stand for Renewal in Progress instead of Rest in Peace, he says. And Japan’s precipitous decline since the end of the 1980s, when the land under the Imperial Palace in Tokyo was worth as much as the whole of California, is reason alone to question the “Sino-euphoria” generated by China’s seeming inexorable rise.

Magnus’s overarching argument is that China still lacks the organisations and institutions that accept – indeed welcome – the risk-taking that holds the key to technological innovation. For it is technology that will be a major determinant of the fortunes and failure of developing countries over the next decades. It’s one thing to manufacture an iPad. It’s another to invent, design, brand and commercialise it. On this score, the United States and parts of Europe are likely to retain pole position for a long time, Magnus believes. “China has proved itself quite adept at being able to introduce economic reforms, but I wonder whether it has the legal and political and social institutions to be able to encourage and tolerate disruptive change,” he said in a telephone interview.

In raising questions about the durability of the rise of emerging markets, Magnus is swimming against a strong tide. The Organisation for Economic Co-operation and Development, a club of 33 industrial democracies, forecasts in a new report that by 2030 non-OECD economies will account for 57 percent of global GDP, up from just 40 percent in 2000. According to a recent book by World Bank economists who examined the post-crisis policy outlook, developing countries could overtake their developed peers collectively in size as soon as 2015. “The countries of East Asia are leading the world out of its economic and financial crisis and may well become the new engine of global growth,” co-editors Otaviano Canuto and Marcelo Giugale write.

Magnus agrees that, unless their governments make profound policy errors, emerging markets will probably continue the process of catching up with the developed world. And China should remain the dominant Asian power. But nothing is pre-ordained.

While the ruling Communist Party is making the right noises about rebalancing China’s economy away from exports, Magnus says the present pace of change is too gradual for an impatient US government dogged by slow growth and high unemployment.

“I’m not saying at all that China’s leaders don’t ‘get it’. But I have serious reservations as to whether the scale of change required from a global perspective is something the leadership is willing to embrace,” he said in the interview. Futurologists, he says, must ask whether an autocratic China with weak legal institutions can avoid a clash between accelerating economic development and rising demands for commercial and political freedoms. “It could be that nothing less than this will determine whether, in the longer run, China will continue to develop as an economic power or succumb to mediocrity,” Magnus writes.