Daily Archives: April 16, 2011

World finance chiefs chastise U.S. on budget gap


By Lesley Wroughton

WASHINGTON | Sat Apr 16, 2011 12:56pm EDT

(Reuters) – World finance leaders on Saturday chastised the United States for not doing enough to shrink its massive budget deficit and warned that fiscal strains in rich nations threaten the global recovery.

Although global tensions over the possibility of currency wars and Europe’s growing debt crisis continue to simmer, finance ministers in Washington for semi-annual talks also took sharp aim at the United States’ $14 trillion debt.

While most of the criticism came from emerging market economies, some rich nations also joined the chorus.

“The fiscal situation in the advanced economies gives us great concern, and it is in this area that we see the major risks to the global economy,” Russian Finance Minister Alexei Kudrin told the International Monetary Fund‘s advisory panel.

The IMF this week noted that the U.S. budget deficit was on course to hit 10.8 percent of nation’s economic output this year, tying Ireland for the highest deficit-to-GDP ratio among advanced economies. It urged Washington to move quickly to put a credible plan in place to tighten its belt.

The Obama administration and the U.S. Congress have engaged in a big battle over how best to reduce the red ink. Republicans have sought to use the need to raise the nation’s $14.3 trillion debt limit to avoid a default as a lever to extract deep spending cuts.

The Republican-led House of Representatives on Friday approved a plan to slash spending by nearly $6 trillion over a decade and cut benefits for the elderly and poor.

President Barack Obama, who has offered a competing vision to curb deficits by $4 trillion over 12 years, said on Thursday the Republican plan would create “a nation of potholes.”

The White House has been wary about withdrawing fiscal support for the economy too quickly, and Treasury Secretary Timothy Geithner told fellow finance ministers on Saturday caution was needed.

“We are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery,” he said.

But even as Geithner said the United States recognizes the need to address its budget deficit, he was quick to say that others whose practices contribute to global imbalances must also change.

“However, others, especially those whose fundamentals call for greater exchange rate flexibility, must also contribute,” Geithner said.

The United States has repeatedly called for China to relax its limits on the yuan currency.

Dutch Finance Minister Jan Kees de Jager warned that if the United States and other advanced nations move too slowly it could undermine confidence in the global economy.

“Insufficient budgetary consolidation may spark off further escalation of debt sustainability issues, with repercussions on confidence and the still fragile financial sector,” de Jager said. “Debt dynamics in other advanced economies, including the United States, are of concern.”

Yi Gang, a deputy governor of China’s central bank, called for “more rigorous” efforts by advanced economies to tighten budgets and said the IMF needs to strengthen its monitoring of these rich nations.

Kudrin, in remarks clearly targeted at the U.S. Federal Reserve, said central banks that have purchased government debt to keep interest rates low were abetting fiscal profligacy.

The Fed is on course to complete the purchase of $600 billion in U.S. government debt by the end of June, which would take its total purchases of mortgage-related and government debt since December 2008 to near $2.3 trillion.

Echoing some Fed officials and Republican lawmakers in Washington, Kudrin said those purchases blurred the line between monetary and fiscal policy in a way that could jeopardize a central bank’s independence.

“We observe this process with some wonderment, since it amounts to the monetization of those countries’ budget deficits,” Kudrin said.

(Additional reporting by Glenn Somerville; Writing by Lesley Wroughton and Tim Ahmann; Editing by Leslie Adler)

( Original Article )


DAVID COKER: Who’ll be holding the purse strings?

While the three-ring circus to avert a federal government shutdown came to an abrupt end last weekend, the main event for the global economic community was convened in Bretton Woods at the Mount Washington Hotel.

A palatial structure nestled among the mountains and pine trees of upstate New Hampshire, it was the site of a landmark meeting of world leaders in 1944 that reordered the post-World War II global economy by establishing the World Bank, the International Monetary Fund and exchange rates among various national currencies around the world.

A similar conference of more than 200 economists, financial experts, former elected officials and journalists dubbed Bretton Woods II was convened by the $50 million Institute for New Economic Thinking, a creation of international financier George Soros.

Soros, an outspoken billionaire who made his fortune manipulating currencies, has no less an optimistic goal in mind than “a grand bargain that rearranges the entire financial order,” establishes a global currency and removes for all time the reserve currency status of the U.S. dollar in international commodity transactions.

A mentor and huge financial supporter of President Barack Obama, Soros must not be concerned about the potential for U.S. financial insolvency and the administration forcing Congress to once again raise the federal debt limit beyond $14.3 trillion in the near future.

The conference, featuring such notables as former British Prime Minister Gordon Brown, former Federal Reserve Chairman Paul Volcker and a veritable who’s-who of leftist economists, sought to begin a dialogue that would piece together the New World Order.

Dealing with such heady topics as the “too big to fail” concept of investment banks, the European debt crisis, “the New New Trade Theory” and the escalating wage-price inflation in China, speakers shared views on a wide range of topics.

Authorized political institutions — such as the elected members of Congress who negotiated the budget deal to cut a paltry $38 billion out of the $3.7 trillion budget put forward by the Obama Administration — apparently are outdated and ineffective. Perhaps they get in the way of the smooth operation of global economics and the picking and choosing of winners and losers Soros and his associates envision.

Soros claims he currently finds the economic situation “much more baffling and less predictable than … at the height of the crisis,” but that while policymakers in the wake of the financial meltdown succeeded in averting a second Great Depression, we are now in a “delicate stage” of withdrawing “some of the emergency policy measures they have been relying upon.”

He claims “there are a number of unsustainable situations that nonetheless continue,” and that “politics has become the most important factor in determining the outcome.”

Reading reviews of the conference on various websites, it appears to me that most speakers repeated the economic gospel according to Lord John Meynard Keynes, the British economist who participated in the first Bretton Woods Conference and was an architect of the World Bank and International Monetary Fund.

Applying the Keynesian model — juiced up on steroids to the level of global currency and government has proved to be dangerous stuff. That is, unless Soros and his fellows know something we do not. Does he know something about the point at which the Chinese, the Saudis and others may refuse to continue to accommodate runaway federal spending?

Could it be their real motive is to actually see the U.S. economy fail? Then Soros and his fellows could come in and pick up the pieces, imposing a global currency on the world while they control the purse strings.

If so, there is perhaps no better reason to reverse the trend of continuing to increase the federal debt limit.

Contact David Coker at OLDCARS55@aol.com.

( Original Article )


OGX Makes Another Discovery in Campos Basin, Offshore Brazil


OGX Petróleo e Gás Participações S.A. (“OGX”) , the Brazilian oil and gas company responsible for the largest private sector exploratory campaign in Brazil, announced today that it has identified the presence of hydrocarbons in the Albian section of well 1-OGX-33-RJS, which is located in the BM-C-41 block, in the shallow waters of the Campos Basin. OGX holds a 100% working interest in this block.

An oil column of approximately 95 meters with approximately 42 meters of net pay has been identified in the carbonate reservoirs of the Albian section. The drilling of well OGX-33, also known as the Chimborazo prospect, was concluded at a final depth of 3,755 meters.

The OGX-33 well is situated 84 kilometers off the coast of Rio de Janeiro at a water depth of about 127 meters. The rig, Pride Venezuela, left the well on April 9, 2011. Drilling of the third extension well (OGX-42) of the Pipeline accumulation has been initiated.


OGX Petróleo e Gás SA is focused on oil and natural gas exploration and production and is conducting the largest private sector exploratory campaign in Brazil. OGX has a diversified, high-potential portfolio, comprised of 29 exploratory blocks in the Campos, Santos, Espírito Santo, Pará-Maranhão and Parnaíba Basins, in Brazil, and 5 exploratory blocks in Colombia, in Middle Magdalena Valley, in Lower Magdalena Valley and in Cesar-Ranchería basins. The total extension area is of approximately 7,000 km² in sea and approximately 34,000 km² in land, with 21,500 km² in Brazil and 12,500 km² in Colombia. OGX relies on an experienced management team and holds a solid cash position, with approximately US$2.9 billion in cash (as of December, 2010) to fund its E&P investments and new opportunities. In June 2008, the company went public raising R$6.7 billion, the largest amount ever raised in a Brazilian primary IPO at that moment. OGX is a member of the EBX Group, an industrial group founded and under the leadership of Brazilian entrepreneur Eike F. Batista, who has a proven track record in developing new ventures in the natural resources and infrastructure sectors.

( Original Article )


Will Dodd-Frank cause flight to EU, Asian markets? Even CFTC’s Gensler has fears

By Brian Scheid

In terms of revelations, it wasn’t exactly on the level of a former FBI official’s deathbed confession that he was the Watergate conspiracy‘s Deep Throat or even Pete Rose admitting he bet on baseball.

But Commodity Futures Trading Commission Chairman Gary Gensler‘s admission this week that he is concerned that position limits and other financial reform rules could compel US market participants to flee for overseas markets was kind of a big deal for an agency head who has long painted regulatory arbitrage fears as nothing more than industry paranoia.

Industry insiders, from exchange executives to oil and natural gas lobbyists, have been claiming that US market participants were set to bolt for EU and Asian markets due to the mountain of new regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act, even before President Obama signed the legislation into law this summer.

But those fears have never been taken seriously by US financial regulators or most congressional leaders, according to Terry Duffy, executive chairman of CME Group, the parent company of NYMEX.

“I think that people really don’t believe that business will move,” Duffy said in a brief interview Wednesday. “I don’t know how seriously they’re taking it.”

The problem, Duffy said, is that this regulatory arbitrage began when US regulators simply started talking about position limits on energy commodity contracts and can already be seen in the growth of the London-traded Brent crude contract.

“In the old days [regulatory arbitrage] was kind of an idle threat, it wasn’t going to go away, everyone was afraid to leave the US, but they’re not afraid anymore,” Duffy said. “I don’t think they’re taking it into account and when you lose those products you definitely will lose jobs associated with them.”

During a Senate Banking Committee hearing on Tuesday, Gensler was asked if he feared that the new position limits regime the CFTC was considering, but the EU seems to have abandoned, could drive business overseas.

While he initially dodged the question, when Senator Pat Toomey, a Pennsylvania Republican, pressed him on it, Gensler admitted that “yes,” he was concerned about this, but said he had this fear on all the new regulations and said it just showed the need for international harmonization.

That sounds good, but Duffy pointed out that Gensler may be referring to a harmonization effort that may not be taking place.

Europe “hasn’t passed a thing,” Duffy said and Asian regulators have not done anything substantial either.

“We passed Dodd-Frank and they didn’t do anything,” Duffy said.

Foreign regulators “are telling our regulators whatever they want to hear, but they are not going to act until we implement a law that they think they can take advantage of,” Duffy said. “I strongly believe that other jurisdictions around the world are watching the US to see what kind of mistakes they’re going to make and then they’re going to capitalize on that and hurt our financial services industry.”

( Original Article )


Oil Without Apologies

John Watson, Chevron’s CEO, says Americans must stop taking affordable energy for granted. That means more ‘oil, gas and coal.


San Ramon, Calif.

It’s the day after President Obama delivered his most recent vision of America’s energy future, and I’m sitting in the sunny corporate offices of Chevron, the country’s second-largest oil company. Let’s just say John Watson has a different view.

The Chevron CEO is a rare breed these days: an unapologetic oil man. For decades—going back to Jimmy Carter—politicians have been peddling an America free of fossil fuels. Mr. Obama has taken that to an unprecedented level, closing off more acreage to drilling, pouring money into green energy, pushing new oil company taxes, instituting anticarbon regulations. America is going backward on affordable energy, even as oil hits $110 a barrel.

Enter the tall, bespectacled Mr. Watson, who a little more than a year ago stepped into the shoes of longtime CEO David O’Reilly. An economist by training, soft-spoken by nature, the 53-year-old Mr. Watson is hardly some swaggering wildcatter. Yet in a year of speeches, he has emerged as one of the industry’s foremost energy realists. No “Beyond Petroleum” (BP) for him. On energy, he says, America “has a lot to learn.”

Starting with the argument—so popular among greens and Democrats—that we are running out of oil. “Peak oil”—the theory that global oil production will soon hit maximum levels and begin to decline—is a favorite among this crowd, and it is one basis for their call for more biofuels and solar power. Mr. Watson doesn’t dismiss the idea but explains why it remains largely irrelevant.

In theory, he says, “we’ve been running out of oil and gas for a long time,” yet technology creates new opportunities. Mr. Watson cites a Chevron field long in decline down the road in Bakersfield—to the point that for every 100 barrels of oil “in place,” the company was extracting only 10 or 20. But thanks to a new technology called steam flooding, Chevron is now getting 70 to 80 barrels. “Price creates incentive, and energy will be developed if there’s demand for it at the price you can develop it,” Mr. Watson says. In that sense, “oil and gas are plentiful.”

Don’t believe it? Over the past 30 years, even as “peak oil” was a trendy theme, the world’s proven reserves of oil and natural gas increased 130%, to 2.5 trillion barrels.


Terry Shoffner

Or consider America’s latest energy innovation: hydrofracking for abundant and cheap natural gas. This advance, says Mr. Watson, took even the industry “by surprise”—as evidenced by the many U.S. ports to import liquid natural gas that are now “sitting idle.” Chevron last year paid $3.2 billion to buy natural-gas producer Atlas Energy as its foray into this new market.

Mr. Watson has little time for the Beltway fiction that America will soon be able to do without, or nearly without, fossil fuels. Yes, “we need all forms of energy.” But the world consumes 250 million barrels of energy equivalent today, only a “tiny fraction of which” is wind and solar—and even those “are not affordable at scale,” he says.

As for biofuels, “we would need to consume land the size of states” to hit the country’s current ethanol targets. Chevron is investigating biofuels, but Mr. Watson says the “economics aren’t there” yet. Unlike many CEOs, Mr. Watson insists on products that can prosper without federal subsidies, which he believes are costly and lacking in transparency when “consumer pockets are tight, government pockets are tight.”

Bottom line: “We’re going to need oil and gas and coal for a long time if America wants to keep the lights on.”

He seems to mean it, too: Chevron recently announced the largest capital and exploratory budget in its history, $26 billion to drill in Australia, Western Africa and the Gulf of Thailand, among other places. Some of that cash will go to the Gulf of Mexico, though Mr. Watson wishes there were more U.S. opportunities.

“Most of the well-developed world—Australia, Western Europe—they develop their resources base, they inventory it, they develop it, and they view it as a good source of jobs and revenue,” he says. The U.S.? “We are a country” that for too long has taken “affordable energy for granted.”

The Chevron exec was “pleased” to see Mr. Obama acknowledge that “oil and gas were fuels of the future—because I hadn’t heard that before. That’s a significant step.” Looking to reassure Americans about rising gas prices, the president nonetheless resorted to the old standby of calling for a one-third reduction in U.S. oil imports by 2025. Mr. Watson thinks that’s a fine goal, but he points to the enormous disconnect between what the president is proposing and existing policies.

The only conceivable way to meet that goal is by dramatically increasing U.S. oil production—immediately. The White House recently bragged that last year American oil production hit its highest levels since 2003. What it failed to mention is that it takes years for leases to start producing, so credit for last year’s surge goes to the Bush administration.

But what about the BP Gulf spill? Mr. Watson blames the “cultural aspects and behavioral aspects” of the particular drilling rig that exploded. He roundly disagrees with the finding of Mr. Obama’s spill commission that the “root causes” of the spill were “systemic” to the industry.

“There is no evidence to support that. I don’t know how that conclusion was reached. I know the industry has drilled 14,000 deep water wells without having this sort of problem.” As for the moratorium, “I can understand taking a pause. I can’t understand shutting down a whole industry for a better part of a year.”

Chevron has three deep water rigs in the Gulf, so the ban cost it millions of dollars in idle rigs and lost jobs. For the country, says Mr. Watson, it means “less oil.” Offshore drilling takes years of lead time. Mr. Watson cites Chevron’s Gulf “Tahiti” project, which started producing about 18 months ago. It has taken “the better part of a decade to do the seismic work, drill the exploratory wells, evaluate those wells, drill other development wells, to delineate it, to build the facilities and to place the oil wells online,” he explains.

The endless moratorium has already meant that “if you go out to the middle of the decade, there are already 200,000 to 300,000 barrels a day of oil that aren’t going to be produced that year. . . . That won’t be retrieved.” And the lost production number is getting larger, since the new Bureau of Ocean and Energy Management is still dallying on permits—and those primarily for backlogged projects, not new leases.

Democrats are now arguing, as Mr. Obama did in his speech, that the oil industry already “holds tens of millions of acres of leases where it’s not producing a drop.” Some are advocating “use it or lose it,” calling for the government to strip oil companies of their leases if they don’t immediately start producing.

Mr. Watson explains why this is bogus. Only one-third of Chevron’s offshore leases are classified as “producing” oil and gas today. The other two-thirds either are “unsuccessful” (they don’t hold viable oil or gas) or “are in varying stages of development—seismic work, drilling wells, constructing facilities.” Mr. Watson says companies would be crazy to sit on productive lands, since leases require costly bonus payments and annual rental payments to the government.

If Washington institutes Mr. Obama’s “use it or lose it” policy, Mr. Watson says, it will mean less U.S. oil production. And how does this help Mr. Obama with his goal of reducing imported oil?

As for soaring oil prices, Mr. Watson blames growing demand, tighter supply, Mideast uncertainty and inflation. He doesn’t predict future price trends, though during a recent analyst call he warned that the drilling moratorium would only make them higher. Lost production in the Gulf is “going to represent a sizable chunk of the spare capacity that the industry expects to see. And that will impact prices, and that will retard economic growth.”

The economy is also why Mr. Watson won’t pay the usual energy CEO lip service to new carbon regulations. The cap-and-trade bill the House passed in 2009 was “poorly conceived and it collapsed under its own weight for good reason,” he notes.

The EPA move to regulate carbon is no better: “It’s not why the Clean Air Act was put in place, and it doesn’t seem to be the right way to attack concerns about greenhouse gas emissions,” he says. The EPA is “placing huge new regulatory burdens on industries that are import sensitive.” The regulations will place burdens on refineries, putting “their competitiveness at risk, and ultimately we’ll produce less gasoline here and end up importing it from refineries that are less energy efficient overseas.”

Mr. Watson says Americans can accomplish a great deal with “affordable conservation.” And “a wealthy economy,” he adds, “is better able to deal with the costs of greenhouse gas abatement than a poor economy.” Since “large numbers” of countries are “unlikely to take aggressive action on greenhouse gas emissions,” the “U.S. is going to have to decide, just as California is going to have to decide, if they want to go it alone. . . . Are they willing to place the burden on our economy and our consumers, at the expense of jobs?”

That pretty much sums up the broader choice America faces on energy policy. It can listen to the Washington siren song on alternative energy, pouring scarce dollars into green subsidies, driving up the cost of energy, and driving out U.S. manufacturing and jobs. Or it can embrace our own fossil fuel resources, which are cheap and plentiful.

“What I see are people who want affordable energy,” says Mr. Watson. “They want strong environmental standards—they want a lot of things—but first and foremost they want affordable energy. And if you want affordable energy, you want oil, gas and coal.”

Ms. Strassel writes the Journal’s Potomac Watch column.

( Original Article )


100 tons of readiness

Centerpiece of $1 billion spill containment system awaits the call to action



If BP’s Macondo well blowout happened today, oil companies say they would be far better prepared to respond than they were a year ago. One reason sits in an out-of-the-way fabrication yard in northwest Houston.

Here, nearly nine months after the idea was hatched, the Marine Well Containment Co.’s $1 billion oil spill-containment system is ready to go — and, with any luck, will never have to be used.

On Friday, the company allowed reporters for the first time to get an up-close look at the centerpiece of the system, a giant well-capping stack with the capacity to collect 60,000 barrels a day of oil from a leaking well in 8,000 feet of water.

Standing 30 feet tall and weighing 100 tons, the capping stack is designed to be lowered on top of a runaway well. The goal is shutting it in or, if that can’t be done safely, collecting and routing the oil to ships above.

In that way, it is very similar to the piece of equipment that ultimately halted oil gushing from Macondo – in mile-deep waters 40 miles off the coast of Louisiana – but not before it bled more than 4.9 million barrels of oil into the Gulf of Mexico over 87 days.

Marty Massey, CEO of the Marine Well Containment Co., or MWCC, said by contrast its new system can be trucked from Houston and on location at a well site in the Gulf of Mexico “in a matter of days.”

“The bottom line in all of this is the Marine Well Containment Co. is prepared and ready to go,” Massey told reporters in a briefing at a Trendsetter Engineering yard, where the capping stack was developed and will be stored.

The Interior Department now requires oil companies to prove they have access to spill-containment equipment, able to withstand even worst-case blowout scenarios, as a condition of winning a permit to drill in the deep-water Gulf of Mexico.

Two systems

So far, two systems have emerged that pass the test, the one by MWCC and another by Helix Energy Solutions. Both companies are based in Houston.

“The most significant thing that’s happened in the last year is the confirmation in the ability to cap and contain a well if something was to go wrong,” said Marvin Odum, head of U.S. operations for Shell, one of the largest leaseholders in the Gulf, in an interview.

Of the 10 deep-water drilling permits regulators have approved since the spill, four rely on the MWCC system to meet spill-fighting requirements and the others Helix.

The Helix system, also to operate in 8,000 feet of water and collect 55,000 barrels of oil per day, incorporates equipment used in plugging the Macondo well.

Helix CEO Owen Kratz said last week his company’s system could be able to contain a Macondo-like well in 10 to 17 days, versus the time needed to stop Macondo.

“We’re working on getting that done,” Kratz said. “That’s a matter not of technology but of refining the communications and procedures to make it happen a little more smoothly. We’re being a little conservative at the 10 to 17 days.”

Nonprofit company

The MWCC is a nonprofit company formed in July by Exxon Mobil Corp., Chevron Corp., Shell and ConocoPhillips, each of which pledged $250 million to develop a system for the Gulf. Since then, six more oil companies have joined as members: BP, Apache Corp., Statoil, BHP Billiton, Hess Corp. and Anadarko Petroleum Corp.

Massey said all 10 members hold an equal stake and are dividing the initial $1 billion outlay to build the system. But non-member companies may also pay a fee to use the system.

“We’re open to all Gulf of Mexico operators,” Massey said.

Both MWCC and Helix are also developing higher-capacity systems that can operate in deeper water depths.

The MWCC capping stack took more than two months to build and drew heavily on lessons from the frenzied Macondo well-plugging effort, Massey said.

It is flexible enough to be installed atop a well’s blowout preventer – the towering stack of shut-off valves that sits on a well head on the sea floor – or directly on a well head if the blowout preventer stack is damaged and needs to be removed.

Once in place, robot submarines slowly close well-sealing rams in the capping stack. Four other outlet points are closed off, two at a time, as crews above monitor well pressures to avoid risk of rupture. At that point, the well could either be considered shut in and temporarily secure or the operator may decide it is safer to produce oil from the well through the outlet points. Once the well is deemed secure, crews would then work to permanently seal the well.


( Original Article )


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