Strait of Hormuz. Washington Post

Over the weekend, Chairman of the Joint Chiefs of Staff Martin E. Dempsey commented that at this stage the U.S. did not believe Iran had decided to pursue the development of nuclear weapons per se and that it was a “rational” actor. Obviously, this assessment is based on Iran’s past behavior and I tend not to disagree. What it does not tell us is anything about Iran’s future behavior. The international community is putting more and more punitive measures in place. The annualized inflation rate hit 19.1 % (according to the latest Central Bank of Iran (CBI) release) by the end of the Persian month of Mehr (Sept. 23 – Oct. 22, 2011) and shortages in some goods and services are a daily reality. All these measures and the resulting economic hardship within Iran does not make Iran more likely than before to seek a negotiated settlement of the nuclear issue. We should actually view the rising price of oil as a direct and calculated result of Iran’s “rational” behavior.

Given the economic hardship and the need to reallocate subsidies in the domestic economy, Iran, which holds the world’s fourth-largest proven oil reserves and the world’s second-largest natural gas reserves and according to the EIA, exported 4.2 million barrels of crude oil per day in 2010. The country is still very much dependent on high oil prices. Thus, a “rational” actor in Iran’s shoes would use rhetorical saber- rattling to stir up tensions and fear in the oil market to increase its only real source of revenue. Today, crude oil futures for April 2012 delivery traded intraday at a nine-month high- up nearly 4 % to $106.24 (NYMEX). The national average price of a gallon of gasoline is continuously heading higher and may soon hit $4 and up.

Many commentators argue climbing oil prices underscore the oil market’s jitters about disruptions to Iranian supplies. Liam Denning, for example, discussed in his WSJ article that besides Iran blocking the Strait of Hormuz – a key world oil transit choke-point- other possible supply disruptions due to geopolitical risks such as South Sudan’s dispute with Sudan, the unrest in Syria, the volatile political situation in Iraq, and riots and strikes in Kazakhstan, are all eating away at daily world oil production and tightening the global oil supply further. Indeed, such volatility can lead at least to temporary higher prices.

However, this is exactly what the Iranian regime has in mind: namely, only an imaginary supply disruption to drive up prices further while still being able to export its crude oil. The Iranians are smart enough to understand that any challenge to the peaceful maritime system and free international trade in the Strait of Hormuz would be met with the naval capabilities of the United States– the guarantor of the maritime global common, thereby securing open sea lanes necessary for international trade– and it would be an unnecessary self-inflicted wound.

Only a total loss of Iran’s 4.2 million barrels per day of oil production (data from EIA, Nov. 2010) – which would be a hit to global supplies in itself– and an accompanying loss of revenue for the Iranian regime over an extended period of time would turn Iran into an “irrational” actor. As far as the EU embargo is concerned, we should expect Iran to offer its “new” free capacity to India or China, thus redirecting its oil but not removing it from the market.

In sum, if we continue playing this high-stakes game without realizing how strategic the Iranians are playing the game, the West will pay a very high price. I do not only mean the price of oil but the price we may pay economically with a possible relapse into recession given the state of the world economy and the fragile U.S. recovery. Now, some might argue that the Iranians will pay dearly too. Unfortunately, this is only half right; the Iranian population has become used to years of economic hardship. Their government made a deliberate decision to go down the nuclear path, which shows Iran’s commitment.

The United States has no interest in having its slow and fragile economic recovery derailed, especially not in an election year. The Keystone pipeline project however, might even become an interesting topic in the U.S. presidential debates later this year if gas and oil prices remain high over the summer. The solution? In general, the best “solution”, depending on what your goal is, for the Iranian problem would be a lower oil price, maybe around $70 a barrel. Lower oil prices could create more problems in many countries in terms of financing subsidies to keep their populations politically at bay given how dependent some oil-exporting countries are on their respective energy sectors for financing their budgets. Moreover, the U.S. should contemplate tapping its Strategic Petroleum Reserve with a capacity of 727-million-barrels.

Source: CIA World Factbook

Iran seems to have found a new and valuable angle to outmaneuver the world community’s – predominantly the West – latest attempt to ‘deal’ with Iran’s gradually progressing nuclear weapons program.

The playbook is as follows: If your back is against the wall, it is time to get creative! So, how about targeting the weakest link in the chain holding your opponent together? Due to the fact that we deal with nation states here, it is not surprising that they all pursue diverging national interests and tend to have different priorities. The only worldwide common denominator is probably that longer-term higher oil prices are in nobody’s interest – for various reasons. Now, even the West is not a homogeneous group and this is where the imposition of an EU oil embargo, due to come into effect on July 1, becomes a valuable bargaining chip for Iran trying to create a rift between the United States and the European Union, effectively moving the ‘crisis-solving’ lever back to the European-style ‘crisis-managing’ lever.

According to Iran’s official Islamic Republic News Agency – as reported by the New York Times – a warning was issued to its six largest European buyers on Wednesday that it might cut them off from Iranian oil before July 1. In this context, it is interesting that it would primarily hit Greece, Spain, Portugal, and maybe to a lesser extent Italy, which according to the EIA gets significant supplies from Libya (28% of Libyan oil exports (data until Nov. 2010)) compared to supplies from Iran (10% of Iranian exports (data from 2010)). Each of these countries are in weak fiscal positions, to say the least, and in some cases might be compared to an astronomical financial “black hole”. Most of them cannot afford to reach out to alternative suppliers at likely higher prices. Serious consequences for the aforementioned economies are obvious. However, what might be overlooked is that this could also increase the bailout costs for core European countries like Germany and France. This is also not very helpful in election years and in a slowing near-recession economic environment.

In sum, Iran is now ready to exploit the weakest link within the West and use the EU debt crisis as a bargaining chip for renewed negotiations. In this respect, the New York Times writes that the Islamic Republic News agency paraphrased Dr. Saeed Jalili (head of Iran’s Supreme National Security Council), in a letter to Catherine Ashton (High Representative of the European Union for Foreign Affairs and Security Policy), saying that “returning to the negotiation table would be the best means to broaden cooperation between the two sides.”

Well, we should not be surprised if the parties start talking again. In general, talking to each other is not a bad thing. However, talking does not make any sense if the positions on the nuclear issue are still hardened, with prior talks having resulted in nothing substantial. It only gives time to the party that obviously needs some more time to increase its leverage, while oil prices are likely to increase seemingly justified by geopolitical risk factors.

Thus, if EU officials are willing to talk again, it has more to do with the EU debt crisis than the underlying nuclear issue at hand. The United States, however, should keep the lever in ‘crisis-solving’ mode and not go back to ‘crisis-managing’ mode. The progress in Iran’s nuclear weapons program will not magically disappear, even if you wait long enough.

CFO of Gazprom, Andrei Kruglov, admitted yesterday that the fault lay not with Ukraine but rather with his company’s export capacity. “Gazprom at the moment cannot supply the extra volumes our West European partners are asking for,” he told President Putin according to Reuters. Moreover, the cold in Russia has increased demand there. So, for a few days, Russia reduced the amount of gas it was putting into the pipeline in the first place.

The good news here is that many of Gazprom’s customers have increased with stockpiles, and so the 10% decrease many experienced did not cause any enduring hardship. With gas from the pipeline selling at record prices (more than US$400 per 1,000 cubic meters), alternatives are coming on line, which will help diversify supply, including liquefied natural gas. And Russia is not the only source of natgas. For example, Norway is maintaining its reputation as a reliable supplier to the UK. Because of the cold, UK demand was just shy of 378 million cubic metres (mcm) on Saturday, about 63.5 mcm higher that usual. Still, flows from Norway continued at 380 mcm.

Russia sees that it must improve its ability to service customers, Reuters has reported, “Gazprom increased its gas supplies to Europe to 150 billion cubic metres (bcm) from around 138.6 bcm in 2010. It is aiming to ramp up those volumes to around 164 bcm this year thanks partly to the underwater Nord Stream pipeline commissioned last November. Nord Stream’s initial capacity stands at 27.5 billion cubic metres a year, which may be doubled by the fourth quarter. Russia is also pushing for a South Stream pipeline to rival the EU-backed Nabucco and other supply lines. Moscow plans to ship over 60 bcm of gas to Europe via South Stream starting from 2015.”

However, you have to wonder if this is going to be sufficient given that some countries in Western Europe (e.g., Germany) have decided to end their nuclear power generation. While the ideal replacements are renewables, it’s so very easy to buy gas from Russia and elsewhere that the additional capacity envisioned may not be good enough.

Carlos Garcia Rawlins/REUTERS

The International Energy Agency has reduced its forecast for growth in oil demand in 2012 to 1.1 million barrels per day from 1.3 million bpd. The lower demand will stem from the weak economic conditions in the OECD nations, off-set in part by continued heavy demand from Asian consumers. As a result, global demand for oil will be roughly 90 million bpd.

Noting that European consumption in November fell by 4.6%, the IEA stated, “Against a backdrop of weakening economic performance, regional oil demand looks particularly sluggish in Europe.” Meanwhile, non-OECD countries “will continue to dominate growth looking forward”, with their demand climbing 3.2%, rising by roughly 1.4 million bpd. Yet “this is 130,000 bpd less than assumed in last month’s report, following a modest downward adjustment for growth prospects in China,”

Looking at the supply side of the equation, non-OPEC supply declined by 140,000 bpd to 53.2 million bpd, stemming from Middle East unrest and other unplanned outages. The IEA expects a rebound to 340,000 bpd growth in first quarter 2012 and 1.0 million bpd for 2012 as a whole.

At the same time, OPEC oil output in December rose by 240,000 bpd to 30.89 million bpd. This is the highest output by OPEC in more than three years and slightly above the 30 million bpd target the cartel has set for its members. Saudi and UAE increases are partially responsible for this rise, but much is due to Libyan oil returning to the global system.

The organization noted that geopolitical risks remain in Nigeria, Iraq, and “most pressingly, Iran.”

Afghanistan's Ghazni Province is believed to contain large deposits of lithium

Any suspicions that the US went into Afghanistan to secure access to resources went out the window last week. On Wednesday, Tom A. Peter over at the Christian Science Monitor reported, “China’s National Petroleum Corporation became the first foreign company to tap into Afghanistan’s oil and gas reserves. Chinese officials have estimated that the deal could be worth at least $700 million, but some say China could earn up to 10 times that.”

That foreign companies would exploit Afghanistan’s natural resources was inevitable. After 30 years of war, local firms just don’t have the ability in terms of talent or money to do the job themselves. Abdul Rahim Hashami, CEO of the New Afghan Petroleum Company told Mr. Peter, “I don’t think any Afghan companies have the business background or experience related to this…. The only thing that I can hope, is that Afghans are in some way a part of it, as partners or used in one way or another so Afghans can be a part of the project.” I am old enough to remember when that was called “neo-colonialism.”

However, when your country’s GDP (excluding the opium trade, of course) is 97% foreign aid, neo-colonialism may not look that bad. Foreign aid is helpful, but a local mining industry that generates jobs and that may retain some of the profits is much better. The China National Petroleum Company has agreed to pay as much as 70% of the profits to the Kabul government, in addition to a 15% royalty on oil production as well as paying a corporate tax of 20%.

Much has been written about the $1 trillion worth of natural resources in Afghanistan, not just oil but also iron, copper and so on. Missing from this has been a discussion of extraction costs, and they render the exploitation of a lot of the nation’s underground wealth uneconomic. Energy, in the form of oil and natural gas, is a big exception to this equation. Given its proximity and its thirst for oil, China is a logical partner for the Afghans. And for America, not being first is a boost to its reputation.

Photo Credit: Tyler Hicks/The New York Times

Fukushima Reactor — March 2011, BBC

With the arrival of December, it’s time to check the rear-view mirror to see where we have been in order to have some clue as to where we are going. In the energy realm, 2011 was the Year of the Three Fs: Fukushima, Fracking and Finance.

Japan is used to earthquakes, and the odd tsunami leaves the people there down but never out. When these events caused the back-up generators at the Fukushima nuclear power plant to fail, the result was the worst nuclear accident since Chernobyl – and by some measures, it was worse.

The disaster has returned to the energy debate a very important fact: nuclear accidents are extremely rare, but they are also extremely costly when they do occur. Reuters has cited a Nikkei report putting the cost at around $257 billion. This is almost certainly not the right number as it is still quite early days, but the order of magnitude is probably on target. By way of comparison, it’s in the same ballpark as the amount in the European Financial Stabilization Facility, three times what China spends on the People’s Liberation Army every year, or the entire debt servicing costs of the US national debt for 2010.

Some countries have decided to give up on nuclear power, notably Germany. Others have put their plans into mothballs until the political situation cools off, e.g., China. There is no getting away from nuclear power, though. There are over 400 operating plants in the world right now, and we are not about to turn them all off. A great many are coming to the end of their planned lifetime – America’s were built to last about 40 years. The Nuclear Energy Institute observes that America’s newest plant, Watts Bar 1 in Tennessee, was built in 1996, and the oldest is in Oyster Creek, New Jersey, with an operating license dating from 1969. It takes years to build a new plant, and most countries that use nuclear power need to start planning new plants or replacement technologies – indeed for some, this work should have happened years ago.

New designs will make nuclear power safer. The new AP-1000 is one of a new generation of reactors with passive safety features that keep working even when the power goes out. Bill Gates and the Chinese state nuclear authority are cooperating on a “traveling wave reactor,” which could run for decades on depleted uranium and produce significantly smaller amounts of nuclear waste than conventional reactors.

But we have to remember that uranium-235 is not easy to clean up, has proliferation issues, and despite what an entire generation thought it knew, is not green. Plutonium reactors have the same problems to an ever greater degree. In the end, just how much risk are we willing to run? That’s a question that has yet to be answered.

And that brings us to the second F, fracking. Short for “hydraulic fracturing,” fracking is a method of unlocking natural gas trapped in rock formations. By pumping water and chemicals into the ground, engineers have discovered a way to breakup the rocks and release the molecules of gas trapped inside – much like you squeeze the water out of a sponge. Natural gas burns cleaner than oil or coal, America has more natgas than it knows what to do with, and it is cheaper than conventional alternatives.

Fracking, however, is suspected of causing damage to the local water supplies. A recent documentary by Josh Fox called Gasland investigated this, and while the industry claims it to be mere propaganda, the scene of a man lighting his tap water on fire does stick in the mind.

Fracking is also has been blamed for minor earthquakes. This has brought the development of natural gas in many countries to a slowdown if not a halt. Lancashire, England, is not noted for earthquakes, but Cuadrilla Resources admitted that its fracking activities have caused quakes – below 3.0 on the Richter scale. These aren’t enough to get a Californian out of bed, but they are noticeable and can effect building foundations even if fracking isn’t hurting the local water supply.

France became the first nation to ban fracking this summer (note that about 80% of its electricity is nuclear in origin), and Australia is in the midst of a debate on it. China is simply moving ahead with fracking. This issue is going to increase in prominence in 2012, and beyond. Again, the question is how muck risk are we willing to take.

The third and final F is finance, and what we have seen in the last while is the use of energy commodities as speculative vehicles, driving up the costs of all forms of energy and distorting the market. Simply put, investors have been buying oil and other energy sources and holding them as a speculative play the same way they traditionally bought stocks and bonds. Demand has been up as a result, and Goldman Sachs put out a research note in March that said for every million barrels of oil speculators (not users of oil like refiners or auto owners) there was an 8-10 cent increase in the price of a barrel. “Using Goldman’s 8- to 10-cent estimates and data on speculators’ positions from the U.S. Commodity Futures Trading Commission, Reuters calculated that as of last Tuesday [7 April 2011], the total speculative premium in U.S. crude oil was between $21.40 and $26.75 a barrel, or about a fifth of last Tuesday’s price.” In other words, since they didn’t like the stock market, and didn’t trust the bond market, speculators tacked a 20% tax onto oil.

Of course, this can be stopped by banning all speculation in oil and other energy products, but that is hardly plausible nor really desirable. Speculators do provide liquidity to markets under certain conditions and are useful to an extent because of that. The heightening of demand by speculators can make marginal sources of energy more economically viable, encouraging long-term alternatives. Nothing would bring solar power, wind, tidal and geothermal on line faster than West Texas Intermediate crude hitting $250 a barrel.

This is an issue that isn’t going away in 2012 – not with the eurozone’s issues still not resolved, not with America’s budget impasse in Washington, not with tens of millions of Chinese, Indians and others wanted to enter their countries’ middle class. Short-term price distortions are likely in a variety of energy subsectors as hedge fund money flows around the world.

In 2012, we are likely to see more of the same. The clash between energy needs and environmental protections will continue; the drive to development in the BRICs and other rising powers will increase demand for energy; the ability of petro-dictatorships to stifle freedom will likely track the price of oil; and the problem of proliferation will follow nuclear energy wherever it goes.

Yet, I don’t think it appropriate to end on a negative note. There is enough energy for all 7 billion of us to live well – if we are smart enough, careful enough, and visionary enough.

A memorandum of understanding was inked in September 2008, but some lawmakers demanded parliament OK the arrangement, and in Basra, officials thought their province got short changed. Back-room bargaining seems to have solved the problems. Most of the gas will be burned to generate electricity locally; despite the billions spent on the electrical grid in Iraq, the country still suffers from power shortages.

Iraq’s Oil Minister, Abdul-Karim Elaibi called the deal a “historic turn in Iraq’s oil industry.” Shell CEO Peter Voser told the press Iraq has become a “…substantial part of Royal Dutch Shell’s portfolio in the Middle East.”

To get an idea of how much this is, we can convert it to its oil equivalent. Natural gas is converted to barrels of oil equivalent using a ratio of 5,487 cubic feet of natural gas per one barrel of crude oil. So, 1 million cubic feet of natural gas amounts to 172.3 barrels of crude oil equivalent. Multiply that by 700 and the result is 120,610 barrels of crude oil equivalent daily or 44,022,650 crude oil equivalent per year.

Sinan Salaheddin of the Associated Press wrote recently, “Iraq burns off almost half of the 1.5 billion cubic feet per day of gas that it produces. The deal will help the country capture more than 700 million cubic feet per day of gas from three fields. They are the 17.8 billion-barrel Rumaila field being developed by a BP-CNPC consortium, the 4.1 billion barrel Zubair field, handled by an Eni-led consortium and partners Occidental Petroleum Corp. and KOGAS, as well as the 8.6 billion barrel West Qurna Stage 1, which is being developed by ExxonMobil-Shell consortium.”

The deal is Shell’s third in Iraq since the 2003 US-led invasion, and it will bolster the company’s presence in a country which sits atop 143.1 billion barrels of crude oil and 126.7 trillion cubic feet of gas reserves. It lacks the infrastructure, however, to exploit this as it might.

Australia has refused to sell India uranium because the Asian giant has declined to sign the Non-Proliferation Treaty. However, in 2008, the 45-member Nuclear Suppliers Group signed a deal with India that allows uranium sales without India having to accede to the treaty; the NSG includes the US, Russia and France.

As a result, the Australian ban has been rather pointless. It did not deny India uranium, and at the same time, it harmed Australia’s mining industry. By allowing the trade with India to develop, Australia will be removing a barrier to closer ties to one of Asia’s most vibrant economies.

Bob Brown, leader of the Green Party told the Australian Broadcasting Corporation, “It’s going to be pretty horrifying for many Australians. It’s specious to think sending Australian uranium to India is not going to bolster its ability to put uranium into nuclear weapons.” Mr. Brown is right, of course, but when it comes to India having a sizable nuclear arsenal, well, that ship sailed years ago.

The World Nuclear Association notes, “India has 20 reactors in operation, and four under construction (two expected to be completed in 2011). This includes two large Russian reactors and a large prototype fast breeder reactor as part of its strategy to develop a fuel cycle which can utilise thorium. Twenty further units are planned. 17 further units are planned, and proposals for more – including western and Russian designs – are taking shape following the lifting of trade restrictions.”

Australia’s ban only deprives its mining sector of a customer and impedes ties with India; it does nothing about nuclear proliferation. Ms. Gillard has made the right call.

Those in favor of the extension note that it will bring construction jobs the the Great Plains; the investment will amount to around $7 billion. Moreover, the oil from Canada is far more secure than oil from the Middle East, and Canada is a far more palatable business partner than many places that supply the US.

Those opposed point out that the 1,700 mile pipeline’s proposed path takes the oil through the habitat of imperiled wildlife and over the Ogallala Aquifer, which is a major source of drinking water for Nebraska and a few other states. Moreover, the environmental lobby is not pleased about the development of the oil sands in the first place.

The State Department had promised to give TransCanada an up or down decision by year-end. The review of the proposal has already gone on for three-plus years. The Washington Post reported this morning, “Kerri-Ann Jones, assistant secretary in the Bureau of Oceans and International Environmental and Scientific Affairs, told reporters that choosing a new route for the Nebraska portion of the pipeline will require a new environmental assessment, which will probably take at least 15 months.” The presidential election is in 12 months. The White House denies that there was any political consideration involved in the decision not to decide.

Meanwhile, the Canadian government has been working to get a spotlight focused on the issue by visits of various high-level officials to the US and by holding informational meetings. Just this week, it arranged for US journalists and energy analysts to visit Alberta, talk to leading politicians and spend a day at Ft. McMurray, the oil sands hub.

At a Foreign Policy Association meeting earlier this year (see my post of May 22, 2011), Alberta’s Energy Minister Ron Liepert said that building a pipeline that goes south is his preferred option, but he also stated that, to do right by his province, a pipeline that takes the oil west toward Asian consumers would work, too.

With the decision put off, the story is likely to fade from the headlines. However, the back-room wheeling and dealing is likely to intensify. Stay tuned.

EPA/Waltraud Grubitzsch

On October 19, seven American solar manufacturing companies asked the government to slap 100% tariffs on Chinese solar imports alleging unfair trading practices. The Coalition for American Solar Manufacturing’s President Gordon Brinser said, “Chinese producers have used – and continue to use – continuous increases in production capacity and output, fueled by unprecedented levels of subsidization, to push enormous quantities of dumped and illegally subsidized PV cells and panels into the US market at artificially low prices. This drive is undercutting fair market value and threatening to decimate US solar manufacturing employers.”

He added, “We have joined together as an industry because the level of illegal subsidies and dumping that the Chinese government has mounted is simply intolerable. American solar manufacturers can compete with any Chinese manufacturers, but not with the entire government of China.”

The Chinese government, not surprisingly, disagrees. Reuters reported that an unnamed official said in a statement posted on the Chinese Commerce Ministry’s website (www.mofcom.gov.cn), “If the US government files a case, adopts duties and sends an inappropriate protectionist signal, it would cast a shadow over world economic recovery. The Chinese government hopes the United States will scrupulously abide by its promise to oppose trade protectionism, avoid adopting protectionist measures on Chinese solar cell products, jointly protect a free, open and fair international trade environment, and adopt more rational means of handling trade frictions.”

In support of its position, the Beijing government noted that the US solar industry has a $1.9 billion surplus in its trade with China. The statement also claimed “The US has no reason to criticize other countries’ efforts to improve the world’s environment, and should instead strengthen cooperation with other countries in the solar energy sphere to jointly respond to climate and environmental challenges.”

The coalition answered this in a press release on Friday that pointed out “Beyond this one case, China’s solar-industry’s significant abuse of China’s environmental landscape has been well-documented since at least early 2008. If the government of China and its state-sponsored solar industry are concerned about the environment, they should develop a solar market in their own country, stiffen their environmental rules to match western standards and produce solar products using the same high environmental standards followed in the United States.”

The essence of the problem is the neo-liberal approach to trade that America has pursued since the Reagan administration. Free trade with other liberal developed democracies is perfectly reasonable and will follow what we all learned in Econ 101 – that comparative advantage will enrich the nations involved. However, China is not a free-market capitalist nation but rather a state capitalist, nominally communist society, one that still has labor camps and political prisoners. Expecting trade between the US and China to follow the usual laws of economics is folly.

By all means, let America and China trade, but China is not Canada. This dispute needs to go to the WTO, and the Obama administration needs to fight for it tooth and nail. If not, the US solar manufacturing industry will go the way of the US TV and electronics industry.

That is important because, during the next decade, Dr. Birol says that 90% of the production growth will come from that region. He stated, “If we don’t find that money, then the production won’t grow as much as it needs to grow, and as a result of that, one can see much higher prices than we have now today.”

The most obvious nation of concern is Libya. Before the civil war, the nation pumped 1.6 million barrels a day, and Libya’s oil is very high quality, so-called light and sweet. Dr. Birol doesn’t expect the pre-war levels to be achieved until 2013.

On the positive side, Italian energy firm Eni’s Chief Executive Paolo Scaroni told the IEA’s ministerial delegates, “Libya is an exception, rather than the rule.” So far, anyway. The biggest reason for his optimism is Iraqi supply coming back on line – although whether the country can produce the targeted 12 million barrels a day next year is hard to say.

Overall, the IEA predicts that oil demand is going to grow by 1.3 million barrels a day next year. IEA top man David Fyfe said, “If we are heading towards a double dip in the OECD demand growth will be wiped out next year.” Growth being wiped out is far different, though, from seeing demand decline. In other words, demand is stuck at current levels in the event of a downturn, and it will rise if there is not. The need for great investment to keep supply growing is clear.

Nord Stream is a joint project of Gazprom (51%), BASF/Wintershall (20%), E.ON Ruhrgas (20%) and Gasunie (9%).The first of two gas lines was completed on 3 September, and “technical gas” (needed to build up pressure to start moving the gas through the pipeline) flowed when Putin pressed the button. The transmission capacity of each pipeline will be around 27.5 billion cubic metres. The second line is planned to be put in operation in 2012. Total investment in the offshore pipeline is projected at EUR 7.4 billion.

Strategically, this is what Joe Biden would call a big ****ing deal. At present, 80% of Russia’s gas exports to the EU flow through pipelines across Ukrainian soil. Back in March 2005, this lead to a serious dispute, with Moscow accusing Kiev of diverting gas intended for western European customers. On 1 January 2006, Russia halted all gas exports via Ukraine. A deal was reached a few days later, but arguments over the debt lingered.

Nord Stream is one of three pipeline systems under construction that will send natgas from ex-Soviet fields to European consumers. South Stream will run from Beregovaya under the Black Sea to Bulgaria and eventually deliver 63 million cubic metres of gas annual to south and central Europe. Another called Nabucco will start in the Caucasus mountain region and wend its way across Turkey to Bulgaria, Romania, Hungary and Austria providing 31 million cubic metres of gas from the Caspian Sea region.

The deal resembles one that BP almost secured earlier this year. The BP arrangement, though, offered Rosneft a stock swap. Exxon’s arrangement trades assets to Rosneft – including some deepwater sites in the Gulf of Mexico and some land assets in Texas.

Andrew Kramer writing in the New York Times reports, “Under the new agreement, the state-owned Rosneft could become a part-owner of drilling operations in the United States. Those operations could include two of the industry’s most contentious oil extraction methods — drilling for oil in the deep waters of the Gulf of Mexico and using the so-called hydraulic fracturing, or fracking, technique on land. The Russians want to learn about both types of drilling for use at home.”

Up until now, Exxon has confined its activities in Russia to a production sharing deal covering the Sakhalin Islands. An American firm securing this contract is a feather in the Obama’ administration’s cap. However, Rosneft’s activities in the US may lead to objections from rivals and the environmental lobby. Exxon’s future in the Arctic will be affected by any such impediments.

Indeed, the current Russian business climate suggests that no deal is ever final. Royal Dutch Shell’s experience with Gazprom back in 2006, when the former was forced to sell its 50% stake in a Sakhalin offshore development to the latter, remains a cautionary tale for western investors and businesses.

The political dimension here will loom large for a long time.

Nuclear had been the favored source of electricity in the train operators plans, but the decision by he German government to close its nuclear plants after the Fukushima meltdown has forced a change of plan.

So now, Germany’s 5,700 train stations will sport photo-voltaic panels. In the case of the rather impressive station in Berlin, the Hauptbahnhof, those panels produce 160,000 kilowatt hours of electricity each year, about 2% of the station’s needs. Overall, the systems requires 12 terawatt hours (recalling that mega is million, giga is billion, and tera is trillion). It’s about as much as the city of Berlin uses for the needs and wants of its 3.2 million citizens.

Train aficionados and train-spotting anoraks will tell you that trains are vastly greener than planes or cars. The New York Times reports, “Even high-speed trains, which zip across the country at as much as 300 kilometers, or 185 miles, per hour, have carbon emissions of 46 grams per passenger per kilometer, or about 2.6 ounces per passenger per mile, compared with an average of 140 grams for cars and 180 for planes.” By greening up its electrical consumption, those 46 grams will decline farther.

One of the big problems in getting renewable energy off the ground has been economics. In order for various new technologies to become economically competitive with dirtier traditional sources of power, you need economies of scale. Deutsche Bahn is a big enough actor on the transportation stage that some serious economies can be realized in fulfilling its orders – much as the US military’s interest in non-fossil fuels has grown.

The Telegraph wrote “The Nuclear Decommissioning Authority, which took the plant over from British Nuclear Fuels in 2005, said ‘potential delays following the earthquake in Japan’ means the plant must close ‘in order to ensure that the UK taxpayer does not carry a future financial burden’.”

The UK is currently sitting on 6,600 tons of used fuel from Advanced-Gas Reactors and 100 tons of “civil plutonium” (leave it to the Brits to worry whether the plutonium is civil or uncivil – perhaps it didn’t attend Eton or Winchester?). Without Japanese customers for the Mox fuel, though, doing anything with it is problematic. The civil plutonium is currently classified by the government as a “zero value asset.”

However, the Sellafield plant has never lived up to expectations. It was designed to crank out 120 tons of Mox per year. Operational difficulties meant that figure was downrated to 40 tons annually. In the 9 years it operated, it produces a grand total of 15 tons. It probably won’t be missed except by the employees.

However, the Cameron government may actually commission a new processing plant at Sellafield. One that works, presumably. However, the main problem would still remain; without the Japanese demand for Mox, just who is going to buy it?

As an aside, Sellafield is located near Seascale, a lovely part of Britain, by the Lake District. Look at a map and you’ll find it about halfway between Liverpool and Glasgow on the Irish Sea. The fire there in October of 1957 was the worst nuclear accident until Three Mile Island in 1979. For PR reasons, the facilities now go by the name of Sellafield – Mrs. Thatcher changed the name from Windscale, in an effort to decontaminate the brand.