Wednesday, October 26, 2011

Current Developments

1. OIL RISES NEAR $94 AS TRADERS EYE EUROPE DEBT PLAN By Alex Kennedy Associated Press 2 hrs 33 mins ago SINGAPORE - Oil prices rose to near $94 a barrel in Asia as traders bet Europe will announce a plan later Wednesday that helps solve its debt crisis. Benchmark crude for December delivery was up 52 cents at $93.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $1.90, or 2.1 percent, to settle at $93.17 in New York on Tuesday. Brent crude was up 54 cents at $111.46 a barrel on the ICE Futures Exchange in London. Crude has soared 24 percent from $75 three weeks ago on expectations Europe will be able to contain its sovereign debt crisis. Investors will be closely watching a summit of European leaders later Wednesday for details of a comprehensive plan to limit damage from a possible Greek debt default. Signs that U.S. crude demand remains sluggish weighed on oil prices. The American Petroleum Institute said late Tuesday that crude inventories rose 2.7 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 200,000 barrels.

2. OIL ADVANCES A FOURTH DAY IN NEW YORK AS CHINA CONSIDERS ECONOMIC STIMULUS By Rachel Graham and Ben Sharples Bloomberg Oct 26, 2011 Oil traded near its highest in 12 weeks in New York on speculation China's government will boost the economy of the world's second-biggest crude consumer, while European leaders prepared to tackle the region's debt crisis. Prices gained as much as 0.8 percent after settling yesterday at the highest in almost three months. Chinese Premier Wen Jiabao said economic policy will be fine-tuned as needed and the industry ministry said it is studying "stimulative policies" for smaller companies. European government heads will hold a summit today to agree on a plan to rein in a sovereign- debt crisis that threatens to curb economic growth and slow demand for commodities. "Crude oil has been extremely macro-driven lately because of the European crisis," said Filip Petersson, commodity strategist at Stockholm-based SEB AB. "The general trends have been in the same direction as equities." Crude oil for December delivery was at $93.71 a barrel, up 54 cents, in electronic trading on the New York Mercantile Exchange at 10:48 a.m. London time. The contract yesterday increased 2.1 percent to $93.17, the highest settlement since Aug. 2. Prices are up 2.5 percent this year.

Peak Oil News A Compilation of New Developments, Analysis,

and Web Postings

Tom Whipple, Editor

3. OIL RISES TO 12-WEEK HIGH AS DECLINING SUPPLIES SPUR BULL MARKET By Mark Shenk Bloomberg Oct 25, 2011 Crude oil climbed to a 12-week high in New York on declining stockpiles at a U.S. storage hub, putting the contract in a so-called bull market. Futures rose 2.1 percent, erasing the loss for the year, as supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the grade traded in New York, fell last week, a satellite survey showed. Brent oil in London traded at the lowest premium to WTI since July. Crude pared gains after a meeting of European finance ministers was canceled. "Cushing stockpiles have been coming down for a while now and everyone seems to have just noticed and begun trading on it," said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. "Brent is still over $110, so it's safe to say WTI is still underpriced and could move higher." Crude oil for December delivery increased $1.90 to $93.17 a barrel on the New York Mercantile Exchange, the highest settlement price since Aug. 2. Futures have rallied 23 percent since Oct. 4 and settled above the 2010 closing price for the first time since Aug. 3. A 20 percent gain is the common definition of a bull market. Prices dropped from the settlement as the industry-funded American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 2.71 million barrels to 340 million last week. December oil was up $1.32, or 1.5 percent, to $92.59 a barrel in electronic trading at 4:33 p.m.

4. CONCLUSIVE DEAL ON EURO ZONE CRISIS LOOKS ELUSIVE By Luke Baker 6:23am EDT BRUSSELS (Reuters) - Prospects for a comprehensive deal to resolve the euro zone debt crisis at a summit on Wednesday look dim, with deep disagreement remaining on critical aspects of the potential agreement, including how to give the region's bailout fund greater firepower. EU officials and European diplomats are lowering expectations of a breakthrough when the 17 euro zone leaders meet, despite Franco-German assurances only weeks ago that a "comprehensive solution" to more than two years of debt and economic turmoil would be found by the end of the month. While there appears to be broad consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to help it withstand a potential Greek debt default and wider financial contagion, there is little clarity on either of the other two critical parts of the plan. One element involves scaling up the region's 440 billion euro bailout fund, known as the European Financial Stability Facility, and the other is focused on reducing Greece's debt burden by deepening the losses private investors -- major banks and insurance companies -- must take on their Greek bonds. EU leaders will consider two methods for scaling up the EFSF, one by using it to offer guarantees to purchasers of new euro zone debt, and the other using part of its capacity to set up a special purpose investment vehicle that would attract money from sovereign wealth funds and other investors to buy debt. They might also agree to combine both options.

5. FEARS EURO SUMMIT COULD MISS FINAL DEAL By Peter Spiegel in Brussels, Gerrit Wiesmann in Berlin and Matt Steinglass in Amsterdam The Financial Times Eurozone leaders were struggling on Tuesday to reach agreement on a much-anticipated deal to reverse their spiralling debt crisis amid mounting signals a definitive agreement would not be reached at a key summit on Wednesday night. According to officials briefed on deliberations, talks between European government negotiators and representatives of Greek bondholders remained inconclusive, putting at risk one of the three key pillars of a deal: a final resolution on Greece's second bail-out. A draft of the summit communiqué circulated to national capitals late on Tuesday and described to the FT does not include any wording on a completed deal on Greek bondholder haircuts, and instead refers only to a second bail-out being concluded sometime in the future. No timetable is mentioned. In addition, a separate "draft terms and conditions" paper on a second key pillar in the deal - beefing up the eurozone's €440bn rescue fund - makes clear that leaders will be unable to attach a figure to how much firepower the leveraged fund will

have. "A more precise number on the extent of leverage can only be determined after contacts with potential investors," the draft states.

6. CROWDED, STRETCHED WORLD AWAITS 7 BILLIONTH BABY By Nita Bhalla Tue, Oct 25 2011 BAGHPAT, India (Reuters) - The world's 7 billionth person will be born into a population more aware than ever of the challenges of sustaining life on a crowded planet but no closer to a consensus about what to do about it. To some demographers the milestone foreshadows turbulent times ahead: nations grappling with rapid urbanization, environmental degradation and skyrocketing demand for healthcare, education, resources and jobs. To others, a shrinking population, not overpopulation, could be the longer-term challenge as fertility rates drop and a shrinking workforce is pushed to support social safety for an aging populace. "There are parts of the world where the population is shrinking and in those parts of the world, they are worried about productivity, about being able to maintain a critical mass of people," Babatunde Osotimehin, executive director of the U.N. Population Fund, told Reuters. "Then there are parts of the world where the population is growing rapidly. Many of these countries face challenges in terms of migration, poverty, food security, water management and climate change and we need to call attention to it."

7. MENA OIL EXPORTERS FACE UNCERTAINTY IN 2012 FROM GLOBAL SLUMP, UNREST: IMF Platts October 26, 2011 The economies of oil exporting countries in the Middle East and North Africa, excluding Libya, are expected to expand by 4.9% in 2011 due to higher oil prices and production but the risk of a sharp slowdown in the US and Europe could lead to slower global oil demand in 2012 and a sustained drop in oil prices, the IMF said in a regional report Wednesday. "Economic activity in the MENAP oil-exporting countries, along with their fiscal and external situations, has clearly improved, underpinned by high energy prices," the IMF said. "Real GDP growth is expected to pick up in 2011 -- to almost 5% -- then moderate to about 4% in 2012." It said that for the Gulf Cooperation Council countries -- Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain -- growth was projected at more than 7%. "Several countries (Saudi Arabia in particular) have stepped up production temporarily in response to higher oil prices and shortfalls in production from Libya," the IMF said, adding that this had given many countries fiscal space to ratchet up spending and provide support to the non-oil sector. In 2011, the oil exporters' combined current account surplus is expected to increase to $334 billion (excluding Libya) from $202 billion. The GCC countries' external account surplus is expected to rise to $279 billion from $163 billion, the report said.

8. CHINA'S INDUSTRIAL OUTPUT TO GROW BY 11 PCT THIS YEAR AND NEXT BEIJING, Oct. 26 (Xinhua) -- China's industrial value-added output will grow by 11 percent this year and next, despite uncertainties including global economic turmoil, weak outbound demand and high inflation, a senior official said Wednesday. "The country will continue its efforts to promote economic restructuring and energy-saving and emission reduction plans, which may potentially slow industrial output growth over the rest of the year," Xiao Chunquan, deputy director of the Performance Inspection and Coordination Bureau of the Ministry of Industry and Information Technology, said at a press conference. "But the country will meet its full-year target of 11-percent output growth set at the beginning of 2011," Xiao said. During the first three quarters of this year, the country's industrial value-added output increased 14.2 percent year-on-year, down 0.1 percentage point from the growth in the first half of this year, according to data from the National Bureau of Statistics (NBS). Industrial value-added output measures the final results of industrial production, which is the value of gross industrial output minus intermediate inputs, such as raw materials and labor costs.

9. CHINA THE CULPRIT OF POTENTIAL WATER WARS? BEIJING, Oct. 25 (UPI) -- Scarcity of water in Asia could become a thorny issue for the region and trigger major conflicts, an expert says. A rise in population, increased water use and the expectation that Asia will be most affected by global warming will affect the availability of water for the world's most populous continent. Of even greater concern, warns Brahma Chellaney, author of "Water: Asia's New Battleground," are disputes and competition over bodies of water that cross boundaries of Asian countries, posing a threat to peace and stability. "National reliance on oil can be reduced through other sources of energy," says Chellaney, professor of strategic studies at New Delhi's Center for Policy Research. "There is no such hope with water. Water has no substitute." To avert a water war, Chellaney says, a cooperative Asian framework among river basin states is needed, with the aim of working toward a common ownership of shared resources. But China seems to have an aversion to such a multilateral approach to water.

10. CHINA TAKES A LOSS TO GET AHEAD IN THE BUSINESS OF FRESH WATER By Michael Wines The New York Times TIANJIN, China - Towering over the Bohai Sea shoreline on this city's outskirts, the Beijiang Power and Desalination Plant is a 26-billion-renminbi technical marvel: an ultrahigh-temperature, coal-fired generator with state-of-the-art pollution controls, mated to advanced Israeli equipment that uses its leftover heat to distill seawater into fresh water. There is but one wrinkle in the $4 billion plant: The desalted water costs twice as much to produce as it sells for. Nevertheless, the owner of the complex, a government-run conglomerate called S.D.I.C., is moving to quadruple the plant's desalinating capacity, making it China's largest. "Someone has to lose money," Guo Qigang, the plant's general manager, said in a recent interview. "We're a state-owned corporation, and it's our social responsibility." In some places, this would be economic lunacy. In China, it is economic strategy. As it did with solar panels and wind turbines, the government has set its mind on becoming a force in yet another budding environment-related industry: supplying the world with fresh water.

11. GREEN RIVER SHALE OIL IN PLACE PUT AT 1.45 TRILLION BBL By OGJ editors About 1.45 trillion bbl of shale oil is estimated to be in place in the Eocene Green River formation in the Green River and Washakie basins in southwestern Wyoming, the US Geological Survey said. The shale oil resource is present in the Tipton shale member, Wilkins Peak member, and LaClede bed of the Laney member of the Green River formation. About 133 billion bbl of the resource is in strata that contain more than 15 gal/ton of rock, of which 72 billion bbl are under federal mineral ownership, USGS said.

12. NEBRASKA TO REVIEW KEYSTONE XL OPTIONS LINCOLN, Neb., Oct. 25 (UPI) -- Nebraska's governor announced he was calling legislators in for a special session to review options for the controversial Keystone XL oil pipeline. Canadian pipeline company TransCanada aims to build the Keystone XL pipeline, which would carry oil from tar sands projects in Alberta province to refineries along the southern U.S. coast. The pipeline, if built, would cross part of the Nebraska Sandhills and run through the Oqallala Aquifer, a key drinking water reserve. Nebraska Gov. Dave Heineman, who has stated opposition to the pipeline, said Nebraskans deserve an assessment of alternatives. "Therefore, I will be calling a special session of the Nebraska Legislature to have a thoughtful and thorough public discussion about alternative solutions that could impact the route of the pipeline in a legal and constitutional manner," he said in a statement. Critics of Keystone XL complain pipelines carrying heavy crude from Alberta are prone to corrosion, noting Alberta crude lingers in the environment longer than conventional crude. Supporters point to the economic benefits and the boost to regional energy security. TransCanada notes an extension of the existing Keystone pipeline from Steel City, Neb., to oil facilities in Cushing, Okla., has been in service since February.

13. RUSSIA: EU ENERGY TALKS AT IMPASSE MOSCOW, Oct. 26 (UPI) -- Talks with Moscow over the European Union's newly enacted energy market reform package have reached a stalemate, Russian Energy Minister Sergei Shmatko says. Shmatko told RIA Novosti at a Moscow energy conference Monday that efforts to work out a compromise over the EU Third Energy Package's push to "unbundle" natural gas production, transportation and pricing haven't been realized. The measures, which went into effect in March, force the state-owned gas monopoly Gazprom to sell its product through third-party transit operators -- something it says makes supplies unreliable. "Unfortunately, I must say that our talks with the European Commission on how Russian interests could be respected within the current European legislation, the Third Energy Package, have reached an impasse," he said. The energy minister asserted the European Commission had rejected all of Russia's suggested compromises. "We're seeing a basis for confrontation being formed," he said. "We have issues that are hard to compromise. A modernized infrastructure, long-term contracts that would ensure steady payments and clear price formulas, all these things are sacred cows in a way. It will be difficult for us to abandon them."

14. THICK SHALE GAS PLAY EMERGING IN SPAIN'S BASQUE AREA Oil & Gas Journal Analysis of drilling and test data from 14 wells drilled since the 1950s has indicated the presence of a world class shale gas play in the Basque Country of northern Spain. Of 14 wells that penetrated the Cretaceous shale, 10 tested gas and only three penetrated the entire section. A group led by the Basque national oil company will drill its first two appraisal wells in 2012. The 14 earlier penetrations collectively led to an independently estimated midrange resource of about 200 tcf of free gas and adsorbed gas in place. The Basque Countryâ€(tm)s Soc. de Hidrocarburos de Euskadi SA (Shesa) has 44% interest in four blocks 180 miles north of Madrid. Private independents HEYCO Energy Group, Dallas, and Cambria Europe Inc., Casper, Wyo., a True Oil affiliate, have 36% and 20%, respectively. The firms are talking with other companies about participating in the appraisal program. Spain, with five liquefied natural gas terminals, is the worldâ€(tm)s third largest importer of LNG. Basque officials, including the country president, toured Barnett shale field sites in the Fort Worth basin earlier this month and visited with Texas regulatory representatives to learn about the operation and regulation of unconventional plays. They have dubbed the Basque Country play as Gran Enara.

Discussion and Analysis 15. THE UNITED STATES’ 65-YEAR DEBT BUBBLE By Gail Tverberg Our Finite World When I write about high oil prices having an adverse impact on the economy, quite a few readers respond by saying, “No, most (or all) of the problem is a debt bubble.” They seem to think that poor underwriting of mortgages a few years ago allowed a debt bubble. Once this bubble is past, or some similar bubble, our problems will be over. I decided to see when the debt bubble really started. The answer surprised me–it appears that we have been building a debt bubble since at least 1945 (Figure 1 – based on Federal Reserve data).

Figure 1. US Non-Governmental Debt, Divided by Nominal GDP Furthermore, it appears that this 65-year bubble is beginning to deflate. I believe that this is occurring because high oil prices are putting a cap on economic growth. If I am right, it seems to me that the drop in non-governmental debt shown in Figure 1 can be expected expect to continue, possibly eventually dropping all the way back to the 1965 debt level–that is, about 15% of today’s debt level.

16. THE ETHICAL DIMENSION OF TACKLING CLIMATE CHANGE By Steven Gardiner Yale Environment 360 The global challenge of climate change poses a perfect moral storm - by failing to take action to rein in carbon emissions, the current generation is spreading the costs of its behavior far into the future. Why should people in the future pay to clean up our mess? Sometimes the best way to make progress on a problem is to get clearer on what that problem is. Arguably, the biggest issue facing humanity at the moment is the looming global environmental crisis. Here, the problem is not that we are unaware that trouble is coming. After all, the basic science is both well known and continually being reiterated in major national and international reports. Rather, the core problem is that thus far effective action seems beyond us. We seem at best paralyzed, and at worst indifferent. Put starkly, there seems little place within our grand institutions and busy lives for what may turn out to be the defining issue of our generation. Why? In my view, at the heart of the matter is the fact that humanity is in the grip of a profound ethical challenge that our current institutions and theories are ill-equipped to meet.

17. ASPO-USA : DOE OIL & GAS FORECASTS ARE DANGEROUSLY MISLEADING The Energy Bulletin A group of distinguished energy experts representing academia, industry, think tanks, and non-profit organizations will meet Wednesday, October 26, 2011 at 10:30 am in front of the U.S. Department of Energy (DOE) to call for "Truth in Energy"regarding the possibility of a near-term oil crisis and long-term oil shortages. Following the news conference, the group will deliver a letter to DOE Secretary Steven Chu calling for urgent action to address this potentially critical threat to America's economy and national security. The Association for the Study of Peak Oil & Gas USA (ASPO-USA,www.aspousa.org) organized the news conference. Projections of future oil and gas supply from the DOE's Energy Information Administration (EIA) are misleading, overly optimistic, and foster a dangerous complacency about the nation's energy challenges, according to the group. Such rosy forecasts are typical of industry sources. For example, a recent draft study conducted by the National Petroleum Council (NPC), in cooperation with DOE, claims that development of controversial "shale plays" could make the United States self-

sufficient in oil and gas. Petroleum companies with direct interests in shale gas development have played lead roles in the study. ---------------------------------

1. OIL RISES NEAR $94 AS TRADERS EYE EUROPE DEBT PLAN By Alex Kennedy Associated Press 2 hrs 33 mins ago SINGAPORE - Oil prices rose to near $94 a barrel in Asia as traders bet Europe will announce a plan later Wednesday that helps solve its debt crisis. Benchmark crude for December delivery was up 52 cents at $93.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $1.90, or 2.1 percent, to settle at $93.17 in New York on Tuesday. Brent crude was up 54 cents at $111.46 a barrel on the ICE Futures Exchange in London. Crude has soared 24 percent from $75 three weeks ago on expectations Europe will be able to contain its sovereign debt crisis. Investors will be closely watching a summit of European leaders later Wednesday for details of a comprehensive plan to limit damage from a possible Greek debt default. Signs that U.S. crude demand remains sluggish weighed on oil prices. The American Petroleum Institute said late Tuesday that crude inventories rose 2.7 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 200,000 barrels. Inventories of gasoline added 153,000 barrels last week while distillates dropped 1.8 million barrels, the API said. The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday. Growing investor optimism the U.S. economy will avoid a recession this year has helped crude surge this month. However, the Conference Board said Tuesday that consumer confidence plunged in October to the lowest level since March 2009. "The consumer's psyche is at its lowest point since the depths of the Great Recession" of 2008-2009, energy trader and consultant The Schork Group said in a report. "Given that consumer spending accounts for more than two-thirds of U.S. economic growth, that is worrisome." In other Nymex trading, heating oil rose 1.4 cents to $3.07 per gallon and gasoline futures gained 1.1 cents at $2.68 per gallon. Natural gas advanced 2.9 cents at $3.69 per 1,000 cubic feet. ---------------------------------

2. OIL ADVANCES A FOURTH DAY IN NEW YORK AS CHINA CONSIDERS ECONOMIC STIMULUS By Rachel Graham and Ben Sharples Bloomberg Oct 26, 2011 Oil traded near its highest in 12 weeks in New York on speculation China's government will boost the economy of the world's second-biggest crude consumer, while European leaders prepared to tackle the region's debt crisis.

Prices gained as much as 0.8 percent after settling yesterday at the highest in almost three months. Chinese Premier Wen Jiabao said economic policy will be fine-tuned as needed and the industry ministry said it is studying "stimulative policies" for smaller companies. European government heads will hold a summit today to agree on a plan to rein in a sovereign- debt crisis that threatens to curb economic growth and slow demand for commodities. "Crude oil has been extremely macro-driven lately because of the European crisis," said Filip Petersson, commodity strategist at Stockholm-based SEB AB. "The general trends have been in the same direction as equities." Crude oil for December delivery was at $93.71 a barrel, up 54 cents, in electronic trading on the New York Mercantile Exchange at 10:48 a.m. London time. The contract yesterday increased 2.1 percent to $93.17, the highest settlement since Aug. 2. Prices are up 2.5 percent this year. December futures were at a 16-cent premium to January, compared with 24 cents at yesterday's close. The front-month contract settled higher than the next month Oct. 24 for the first time since Nov. 20, 2008. The so-called backwardation typically signals an increase in demand or decline in supply in the near term. Brent Spread Brent oil for December settlement was down 7 cents, or 0.1 percent, at $110.85 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $17.15 to New York crude, compared with a record settlement of $27.88 on Oct. 14. "At the moment, it is all to do with spreads," Amrita Sen, a London-based analyst at Barclays Plc wrote in an e-mail. "All crudes should be in backwardation. Demand-supply mismatches are growing and inventories are falling fast." U.S. crude supplies in Cushing, Oklahoma, fell on Oct. 21 to the lowest level in a year, according to measurement of tanks using satellite photographs. Total U.S. inventories dropped to the lowest level in 20 months in the week ended Oct. 14, the Energy Department said last week. The country is the world's biggest crude-consuming nation. China Stimulus Chinese officials will make policy adjustments at a "suitable time and by an appropriate degree," Wen said in a statement published late yesterday. The Ministry of Industry and Information Technology and other government agencies will work to help small businesses facing difficulties, it said separately in a statement today. European leaders are in Brussels today for their 14th crisis summit in 21 months. A meeting of finance ministers scheduled to precede it was canceled, with officials now set to gather at an as-yet undetermined time to complete the rescue plan's main elements. Oil in New York earlier declined as much as 0.9 percent after the American Petroleum Institute reported that inventories rebounded 2.71 million barrels last week. An Energy Department report today may show supplies increased 1.48 million barrels. The industry-funded API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. Hurricane Rina may become a major storm "at any time" on a track toward Mexico's Yucatan Peninsula resorts and away from the major oil regions of the Gulf of Mexico, the U.S. National Hurricane Center said in an advisory at 11 p.m. New York time. Mexican crude output may be curbed by the storm.

Petroleos Mexicanos, Latin America's largest oil producer, said port and offshore operations are normal, according to an e- mail sent to Bloomberg News. Kinetic Analysis Corp., which assesses the potential impact of hazards, estimated the storm may shut in 6.51 million barrels a day of oil produced by Pemex. ---------------------------------

3. OIL RISES TO 12-WEEK HIGH AS DECLINING SUPPLIES SPUR BULL MARKET By Mark Shenk Bloomberg Oct 25, 2011 Crude oil climbed to a 12-week high in New York on declining stockpiles at a U.S. storage hub, putting the contract in a so-called bull market. Futures rose 2.1 percent, erasing the loss for the year, as supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the grade traded in New York, fell last week, a satellite survey showed. Brent oil in London traded at the lowest premium to WTI since July. Crude pared gains after a meeting of European finance ministers was canceled. "Cushing stockpiles have been coming down for a while now and everyone seems to have just noticed and begun trading on it," said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. "Brent is still over $110, so it's safe to say WTI is still underpriced and could move higher." Crude oil for December delivery increased $1.90 to $93.17 a barrel on the New York Mercantile Exchange, the highest settlement price since Aug. 2. Futures have rallied 23 percent since Oct. 4 and settled above the 2010 closing price for the first time since Aug. 3. A 20 percent gain is the common definition of a bull market. Prices dropped from the settlement as the industry-funded American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 2.71 million barrels to 340 million last week. December oil was up $1.32, or 1.5 percent, to $92.59 a barrel in electronic trading at 4:33 p.m. December futures ended the session at a 24-cent premium to January. The front-month contract yesterday settled higher than the next month for the first time since Nov. 20, 2008. This so- called backwardation typically signals a decline in supply or an increase in demand in the near term. 'Violent Change' "The spreads in curve usually shift gradually," said Addison Armstrong, director of market research at Tradition Energy in Stamford,Connecticut. "We're in the midst of a violent change in the shape of the curve, which has a lot of people rushing for protection." Brent oil for December settlement declined 53 cents, or 0.5 percent, to end the session at $110.92 a barrel on the London- based ICE Futures Europe exchange. The spread between West Texas Intermediate oil traded on the Nymex and Brent narrowed to $17.75, the smallest since July 6. The spread was at a record high of $27.88 on Oct. 14. Oil in New York may extend gains if it climbs past the 200- day moving average, Armstrong said. Futures last closed above the technical signal on July 29. Moving Average "We're just below the 200-day moving average and could easily exceed it for the first time since the end of July," Armstrong said. The average is $94.75.

Oil prices in New York may surge to $105 after the shift into backwardation, Bank of America Corp. said in a report. Brent crude may rally toward $115, it said. "It's like someone is stuck on the wrong side of the market and getting beaten up," said Stephen Schork, president of the Villanova, Pennsylvania-based Schork Group Inc. "We've had negative economic headlines but WTI continues to rise. It's disconnected from the fundamentals and there's no telling how high it will go." U.S. consumer confidence unexpectedly slumped in October to the lowest level since March 2009, a report showed today. The Conference Board's sentiment index decreased to 39.8 from a revised 46.4 reading in September. Economists projected the October gauge would rise to 46, according to a Bloomberg survey. Crude inventories at Cushing dropped 760,000 barrels to 28.1 million from Oct. 18 to Oct. 21, according to satellite images taken by Longmont, Colorado-based DigitalGlobe Inc. U.S. Stockpiles Oil supplies nationwide probably climbed 1.48 million barrels, according to the median 12 analyst projections in a Bloomberg News survey before an Energy Department report tomorrow. Supplies in the prior week tumbled to the lowest level since February 2010. "It looks like we're looking at a belated catch-up to all the inventory draws of the last few months," said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. "It was time for the spread between WTI and Brent to come in. It's turned out that it's more about WTI surging than Brent coming down." Summits of the 27 European Union leaders and 17 leaders of the euro area will take place tomorrow in Brussels as scheduled, EU PresidentHerman Van Rompuy's office said. The EU-27 summit starts at 6 p.m. tomorrow, followed by the euro meeting at 7:15 p.m. A separate meeting of EU finance ministers was canceled. German Vote German Chancellor Angela Merkel is set to win majority support for a planned increase in the size of the euro rescue fund in a legislative vote tomorrow, lawmakers said. Merkel is due to address the lower house of parliament tomorrow at about noon before the vote. At stake are plans to leverage the 440 billion-euro ($613 billion) European Financial Stability Facility as part of a package of measures to fight the crisis that will be discussed the same day in Brussels. Oil volume in electronic trading on the Nymex was 999,363 contracts as of 3:33 p.m. in New York. Volume totaled 1.14 million contracts yesterday, the most since Feb. 24 and 68 percent above the three-month average. Open interest was 1.38 million contracts. ---------------------------------

4. CONCLUSIVE DEAL ON EURO ZONE CRISIS LOOKS ELUSIVE By Luke Baker 6:23am EDT BRUSSELS (Reuters) - Prospects for a comprehensive deal to resolve the euro zone debt crisis at a summit on Wednesday look dim, with deep disagreement remaining on critical aspects of the potential agreement, including how to give the region's bailout fund greater firepower. EU officials and European diplomats are lowering expectations of a breakthrough when the 17 euro zone leaders meet, despite Franco-German assurances only weeks ago that a "comprehensive solution" to more than two years of debt and economic turmoil would be found by the end of the month.

While there appears to be broad consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to help it withstand a potential Greek debt default and wider financial contagion, there is little clarity on either of the other two critical parts of the plan. One element involves scaling up the region's 440 billion euro bailout fund, known as the European Financial Stability Facility, and the other is focused on reducing Greece's debt burden by deepening the losses private investors -- major banks and insurance companies -- must take on their Greek bonds. EU leaders will consider two methods for scaling up the EFSF, one by using it to offer guarantees to purchasers of new euro zone debt, and the other using part of its capacity to set up a special purpose investment vehicle that would attract money from sovereign wealth funds and other investors to buy debt. They might also agree to combine both options. NO CONCRETE NUMBERS EXPECTED Whereas financial markets have been hoping for weeks that Wednesday's summit, scheduled to start at 11:00 a.m. EDT with a gathering of all 27 EU leaders, followed at 1730 GMT by the meeting of the euro zone heads of state, will produce detailed figures on how to combat the debt crisis, there is now little likelihood of concrete numbers, sources say. "The numbers are not yet finalized -- you have to have all parameters in place and see what is needed and what the leverage factor would be. It needs a lot of technical work to come up with a number," one EU official said, adding that discussions would continue on Wednesday to forge a pre-summit consensus. "The leaders will agree on the options tomorrow, but whether it will be an agreement with all details remains to be seen. I think it will be challenging -- it will be very difficult to agree on everything." Instead, it looks likely that it won't be until November 7-8, when EU and eurozone finance ministers are next scheduled to meet, that the details of whatever euro zone leaders agree on during Wednesday's summit will be completely finalized. Financial markets are likely to find that extremely disappointing, having been told on multiple occasions by EU leaders that a resolution to the crisis was near, only to find the EU and its institutions unable to deliver. That has in turn morphed a banking and debt crisis into a wider economic and political crisis that threatens to undermine the euro single currency and the European Union project. Further complicating Wednesday's talks -- which will be preceded by a meeting of the Eurogroup Working Group, an elite collection of senior finance officials and central bankers who will have a last attempt to hammer out a meaningful agreement -- is intense market pressure on Italy and a dispute in Germany. Italy's inability to deliver a substantive plan for reforming its pensions system has raised doubts about Prime Minister Silvio Berlusconi's seriousness in tackling a crisis that threatens the euro zone's third largest economy. Italy has the euro zone's largest sovereign bond market, with a public debt of 1.8 trillion euros, 120 percent of GDP. EU leaders fear that failure to make its debts more sustainable will mean it goes the same way as Greece, Ireland and Portugal, which have had to accept EU/IMF financial aid programs. The problem is, there is not enough money to bail out Italy. ECB ROLE IN DISPUTE There is also a stand-off over how much the European Central Bank, the ultimate defender of the euro, should be involved in trying to resolve the crisis, with France wanting deep and direct ECB involvement and Germany staunchly against it.

Chancellor Angela Merkel, fighting to secure parliamentary backing for the euro zone rescue measures, particularly the scaling up of the EFSF, said Germany opposed a phrase in the summit's draft conclusions urging the ECB to go on buying troubled states' bonds -- a key backstop against deeper turmoil. Many analysts believe the ECB is the only authority at this stage that can deliver the financial firepower that convinces nervous and skeptical markets that the crisis can be contained. Locking the ECB out could prove another negative therefore. At the same time there is intense disagreement about how to make Greece's debt situation sustainable. Euro zone governments are demanding that the private sector accept a 60 percent "haircut" as part of a second rescue package to make Athens' debt mountain, set to reach 160 percent of economic output this year, more sustainable. Bank negotiators have offered a 40 percent write-down and warned that forcing them into deeper losses would amount to a forced default, with what banks say will be devastating consequences for the European financial system. EU diplomats said the outcome was uncertain, but some forecast a last-minute deal on a 50 percent write-down -- an outcome backed by Jean-Claude Juncker, the chairman of euro zone finance ministers. Greek Prime Minister George Papandreou said: "I hope that tomorrow we will come to decisions, this is our partners' will. "Tomorrow we want to put an end, turn a page, in order for the country to move forward." They were hopeful words, but the prospect looks slight. ---------------------------------

5. FEARS EURO SUMMIT COULD MISS FINAL DEAL By Peter Spiegel in Brussels, Gerrit Wiesmann in Berlin and Matt Steinglass in Amsterdam The Financial Times Eurozone leaders were struggling on Tuesday to reach agreement on a much-anticipated deal to reverse their spiralling debt crisis amid mounting signals a definitive agreement would not be reached at a key summit on Wednesday night. According to officials briefed on deliberations, talks between European government negotiators and representatives of Greek bondholders remained inconclusive, putting at risk one of the three key pillars of a deal: a final resolution on Greece's second bail-out. A draft of the summit communiqué circulated to national capitals late on Tuesday and described to the FT does not include any wording on a completed deal on Greek bondholder haircuts, and instead refers only to a second bail-out being concluded sometime in the future. No timetable is mentioned. In addition, a separate "draft terms and conditions" paper on a second key pillar in the deal - beefing up the eurozone's €440bn rescue fund - makes clear that leaders will be unable to attach a figure to how much firepower the leveraged fund will have. "A more precise number on the extent of leverage can only be determined after contacts with potential investors," the draft states. The draft communiqué suggests final details of the overhauled €440bn fund, formally known as the European financial stability facility, may not be concluded until eurozone finance ministers meet again. Their next scheduled meeting is not until November 7. European leaders could still complete details in the 24 hours ahead of the summit, which has already delayed a decision twice because of continued disagreements. The draft communiqué, for instance, contains gaps that are frequently filled in the hours before such summits.

But officials described mounting concerns that the summit will fall well short of market expectations. The extent of nervousness over a potential failure of eurozone leaders to reach a deal was made clear on Tuesday after European markets briefly fell sharply after European Union officials announced they had cancelled Wednesday's scheduled meeting of all 27 EU finance ministers, which was to have laid the groundwork for the evening summit. A person involved in the decision said it was simply a matter of ''good housekeeping" since heads of government of all 27 countries will now be meeting Wednesday night, which had not been anticipated. But a letter written to EU leaders by Polish finance minister Jacek Rostowski, who chairs gatherings of his counterparts, said he understood "the full package may not be ready" by Wednesday, citing it as a reason to postpone the finance ministers' meeting. The political costs of falling short were made clear Tuesday in the Netherlands, where the main opposition party threatened to block any agreement to emerge from Wednesday's summit unless it had sufficient scope to solve the eurozone crisis once and for all. The shift reflects the Dutch opposition's frustration at being forced to support endless half-measures that have failed to stem the crisis. Ronald Plasterk, Labour party spokesperson for financial affairs, said a deal would have to include a haircut on Greek debt of 50 per cent "at the very least" and include "convincing and effective" measures to strengthen the EFSF if it were to gain his party's support - on which the Dutch government relies to overcome the anti-Europe stance of the far-right PVV. ---------------------------------

6. CROWDED, STRETCHED WORLD AWAITS 7 BILLIONTH BABY By Nita Bhalla Tue, Oct 25 2011 BAGHPAT, India (Reuters) - The world's 7 billionth person will be born into a population more aware than ever of the challenges of sustaining life on a crowded planet but no closer to a consensus about what to do about it. To some demographers the milestone foreshadows turbulent times ahead: nations grappling with rapid urbanization, environmental degradation and skyrocketing demand for healthcare, education, resources and jobs. To others, a shrinking population, not overpopulation, could be the longer-term challenge as fertility rates drop and a shrinking workforce is pushed to support social safety for an aging populace. "There are parts of the world where the population is shrinking and in those parts of the world, they are worried about productivity, about being able to maintain a critical mass of people," Babatunde Osotimehin, executive director of the U.N. Population Fund, told Reuters. "Then there are parts of the world where the population is growing rapidly. Many of these countries face challenges in terms of migration, poverty, food security, water management and climate change and we need to call attention to it." The United Nations says the world's seven billionth baby will be born on October 31. No-one knows what circumstances the baby will be born into, but India's Uttar Pradesh -- a sugarcane-producing state with a population that combines that of Britain, France and Germany, in a country expected to overtake China as the world's most populous by 2030 -- provides a snapshot of the challenges it could face.

Pinky Pawar, 25, is due to give birth in Uttar Pradesh at the end of the month and is hoping her firstborn will not join the estimated 3 billion people living on less than $2 a day, with little hope of an education or a job. "I want my child to be successful in life, so I must do my best to make this possible," she said, her hands over her swollen belly as she sat outside her mud and brick home in Sunhaida village. In Sunhaida, poverty, illiteracy and social prejudice mark a life dominated by the struggle for survival that mirrors millions of others across the world. RESOURCE CRUNCH With the number of people on earth more than doubling over the last half-century, resources are under more strain than ever before. First among the short-term worries is how to provide basic necessities for the additional 2-3 billion people expected to be added in the next 50 years. Water usage is set to increase by 50 percent between 2007 and 2025 in developing nations and 18 percent in developed ones, with much of the increased use in the poorest countries as rising rural populations move to towns and cities. "The problem is that 97.5 percent of it (water) is salty and ... of the 2.5 percent that's fresh, two-thirds of that is frozen," says Rob Renner, executive director of the Colorado-based Water Research Foundation. "So there's not a lot of fresh water to deal with in the world." Nutritious food is in short supply in many parts of the globe. The World Bank says 925 million people are hungry today, partly due to rising food prices since 1995, a succession of economic crises and the lack of access to modern farming techniques and products for poor farmers. To feed the two billion more mouths predicted by 2050, food production will have to increase by 70 percent, the U.N.'s Food and Agriculture Organization says. But just as research, development and expansion of agricultural programs are critical, the public dollars pledged to this effort remain a pittance of what is needed, and are in fact in danger of sharp decline, experts say. "We have to raise productivity," Robert Thompson, who serves on the International Food & Agricultural Trade Policy Council and is former director of rural development for the World Bank. "I think we can do it all if we invest enough in research. But at the moment we aren't." Climate change could be the greatest impediment to meeting the food target as rising temperatures and droughts dry out farmlands which are then inundated by intense floods and storms. The way climate change has been handled offers a window on how tricky it is to tackle global, long-term problems, however. While it's clear what needs to be done, U.N. climate talks have largely stalled. "There is a reason why these negotiations are relatively slow," said Wendel Trio, director of Climate Action Network Europe, referring to the economic downturn and arguments between rich and poor nations over carbon cuts. "But if you compare it to the urgency and the fact that many governments clearly understand the urgency, it is a failure of governments that they can't move forward." CITIES BURSTING AT SEAMS

Experts say demographic imbalances will also place serious strains on towns and cities across the world as mostly middle-class blue-collar migrants move from poorer rural areas to richer urban centers. China's capital Beijing -- with its almost 20 million inhabitants -- is now the world's 13th most populous city, its population almost doubling over the last decade, reflecting a trend mirrored worldwide, particularly in developing nations. Cities in Africa, Asia and South America are bursting at the seams from migrants seeking better jobs or as farmers flee droughts, floods and other environmental disasters. In 1950, about 730 million people lived in cities. By 2009, it was nearly 3.5 billion and in four decades it will be 6.3 billion, the U.N. Department of Economic and Social Affairs said in a March 2010 report. That explosive growth stretches limited resources and infrastructure and places megacities on a collision course with a predicted increase in extreme flooding, storms and rising sea levels from climate change, U.N. Habitat says. Experts say the lack of coordinated planning is exacerbating the problem. "Any kind of plan for decentralizing the population requires a series of policies that work together," said Wang Jianguo, a senior project officer on urbanization at the Asian Development Bank's Beijing office. "If you only have a population policy without an employment policy, without an industry development policy, education, medical policy, it won't work." DEMOGRAPHIC ANOMALY One important policy tool to manage a growing population is to give women access to family planning, experts say, adding that 215 million women worldwide want it but do not get it. Access to education is also important as it motivates women to reduce their fertility and improve their children's health. A lack of such education has meant that while the overall populations continue to rise in countries such as China and India, the number of women is falling because of a preference for boys leading to deliberate abortions of female babies. The world is also seeing a demographic anomaly: a declining population in some richer countries has led to an imbalance between the working population and retirees who need expensive social safety nets. The global fertility rate -- the number of children born per couple -- is around 2.5, but in richer countries this number has already nosedived. And while exact predictions vary, most suggest the global population will peak at around 9 billion around 2070 and then start to fall, perhaps very fast. "We thought that overpopulation was going to force humanity to expand outward to the stars," says Jack Goldstone, professor of social science and a leading demographics expert at Washington's George Mason University. "That doesn't look like the problem at all. And the policy framework isn't set up at all to handle these longer-term issues." ---------------------------------

7. MENA OIL EXPORTERS FACE UNCERTAINTY IN 2012 FROM GLOBAL SLUMP, UNREST: IMF

Platts October 26, 2011 The economies of oil exporting countries in the Middle East and North Africa, excluding Libya, are expected to expand by 4.9% in 2011 due to higher oil prices and production but the risk of a sharp slowdown in the US and Europe could lead to slower global oil demand in 2012 and a sustained drop in oil prices, the IMF said in a regional report Wednesday. "Economic activity in the MENAP oil-exporting countries, along with their fiscal and external situations, has clearly improved, underpinned by high energy prices," the IMF said. "Real GDP growth is expected to pick up in 2011 -- to almost 5% -- then moderate to about 4% in 2012." It said that for the Gulf Cooperation Council countries -- Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain -- growth was projected at more than 7%. "Several countries (Saudi Arabia in particular) have stepped up production temporarily in response to higher oil prices and shortfalls in production from Libya," the IMF said, adding that this had given many countries fiscal space to ratchet up spending and provide support to the non-oil sector. In 2011, the oil exporters' combined current account surplus is expected to increase to $334 billion (excluding Libya) from $202 billion. The GCC countries' external account surplus is expected to rise to $279 billion from $163 billion, the report said. "At the same time, palpable risks cloud the outlook, most notably a possible sharp downturn in global economic activity resulting from advanced economies' difficulties in effectively addressing their debt and fiscal challenges," it said. "If these risks materialize and global economic growth deteriorates sharply, activity in the MENAP oil exporters would be adversely affected, most likely through a fall in international energy prices," the IMF said, adding that other risks could come from further regional unrest and an economic downturn in key trading partners such as India and China. Higher oil revenues in 2011 have created additional room for government spending in the GCC, with several countries announcing a spending program early in the year covering a wide spectrum of measures such as subsidies, wages and capital expenditure. "Fiscal vulnerability has increased as a consequence of substantial spending packages that have been implemented over the past three years. In particular, fiscal break-even oil prices -- the price levels that ensure that fiscal accounts are in balance at the given level of spending -- have been trending upward in most countries and are gradually approaching the actual spot market price," the IMF said. An accompanying chart shows Iraq, Bahrain and Algeria would need a break-even price of close to $100/barrel to meet budgetary commitments while Iran and the UAE would need an oil price above $80/b. For Saudi Arabia, OPEC's biggest oil exporter, the break-even price is seen at $80/b, still well short of current oil prices. Both Kuwait and Qatar require lower break-even prices -- just above $40/b for Kuwait and around $40/b for leading LNG exporter Qatar. "Looking forward, the widening of non-oil fiscal deficits makes many countries more vulnerable to swings in oil prices, at a time when the world economy is facing heightened risks," said Masood Ahmed, director of the IMF's Middle East and Central Asia department, at the launch of the report in Dubai. While the Middle East is by far the largest oil-exporting region in the world, accounting for 30% of the world's oil in 2010, its share of global oil consumption amount to just 9%. But strong economic growth has led to higher consumption, which could in turn bite into export supply in the future, the report said. "Nonetheless, the Middle East's share in global oil consumption has been increasing rapidly over the past decade, to a large extent as a consequence of the region's economic growth, but also likely supported by low oil prices in many countries in the region. Particularly striking has been the region's oil

consumption over the past two years: oil consumption growth in the Middle East easily outpaced that of other regions in 2009 and was basically at par with Asia's consumption growth," it said. Global oil production capacity is expected to grow by 6.8 million b/d by 2016, an annual average growth of around 1.2% with some 40% of the growth to come from non-OPEC countries led by expansions of production mainly from Brazil, Canada and the US, the report said. The remainder of the capacity expansion is expected from OPEC producers with the largest share coming from Iraq. "Notwithstanding this relatively high increase in production capacity, OPEC's spare capacity as a share of global oil demand is expected to decline over the medium term, as oil demand growth outpaces the growth in non-OPEC supply." While current projections suggest that oil supply will tighten in the medium term, there are indications that some relief may occur in the longer term. Oil reserves remain significant, indicating that new discoveries and technology have continued to evolve at a rapid pace. Despite this fast growth in oil demand over the past decade, the ratio or proven reserves to oil consumption has actually increased, the IMF said. The prospect of high oil prices is inducing oil companies to invest in upstream activities, which should lead to increases in capacity in the long term, the IMF said, adding that it expected a 10-20% increase in the upstream activities of oil companies in 2011 relative to 2010, with 2010 having already seen about 10% growth. ---------------------------------

8. CHINA'S INDUSTRIAL OUTPUT TO GROW BY 11 PCT THIS YEAR AND NEXT BEIJING, Oct. 26 (Xinhua) -- China's industrial value-added output will grow by 11 percent this year and next, despite uncertainties including global economic turmoil, weak outbound demand and high inflation, a senior official said Wednesday. "The country will continue its efforts to promote economic restructuring and energy-saving and emission reduction plans, which may potentially slow industrial output growth over the rest of the year," Xiao Chunquan, deputy director of the Performance Inspection and Coordination Bureau of the Ministry of Industry and Information Technology, said at a press conference. "But the country will meet its full-year target of 11-percent output growth set at the beginning of 2011," Xiao said. During the first three quarters of this year, the country's industrial value-added output increased 14.2 percent year-on-year, down 0.1 percentage point from the growth in the first half of this year, according to data from the National Bureau of Statistics (NBS). Industrial value-added output measures the final results of industrial production, which is the value of gross industrial output minus intermediate inputs, such as raw materials and labor costs. SMALL FIRMS Some small and medium-sized enterprises (SMEs), especially micro-sized companies, have faced difficulties such as limited access to bank lending, excessive increases in raw-material prices, rising labor costs and heavy tax burdens, said Zheng Xin, deputy director of the ministry's SMEs division, at the same press conference. The country has introduced a string of measures to tide SMEs over current difficulties, including tax breaks and stronger financial support. ---------------------------------

9. CHINA THE CULPRIT OF POTENTIAL WATER WARS? BEIJING, Oct. 25 (UPI) -- Scarcity of water in Asia could become a thorny issue for the region and trigger major conflicts, an expert says. A rise in population, increased water use and the expectation that Asia will be most affected by global warming will affect the availability of water for the world's most populous continent. Of even greater concern, warns Brahma Chellaney, author of "Water: Asia's New Battleground," are disputes and competition over bodies of water that cross boundaries of Asian countries, posing a threat to peace and stability. "National reliance on oil can be reduced through other sources of energy," says Chellaney, professor of strategic studies at New Delhi's Center for Policy Research. "There is no such hope with water. Water has no substitute." To avert a water war, Chellaney says, a cooperative Asian framework among river basin states is needed, with the aim of working toward a common ownership of shared resources. But China seems to have an aversion to such a multilateral approach to water. In an editorial published recently in The Japan Times, Chellaney pointed to "China's rise as a hydro-hegemon." While China is the source of cross-border water flows to the largest number of countries in the world, Beijing "rejects the very notion of water sharing or institutionalized cooperation with down-river countries," Chellaney says. On a global level, Chinese companies and Chinese banks are the biggest builders and financiers of dam building, involved in constructing some 251dams in 68 countries, especially in Southeast Asia and Africa, says environmental group International Rivers. More locally, China is rapidly "accumulating leverage against its neighbors" through its massive hydro-engineering projects on transnational rivers, Chellaney wrote. India, for example, is concerned about China's plans for a 38,000-megawat dam on the Brahmaputra River at Metog, near the disputed border between the countries. The proposed Metog dam will be twice as large as China's 18,300-megawatt Three Gorges, now the world's largest dam, the construction of which uprooted some 1.7 million people in China. China has also identified another spot on the Brahmaputra for a mega-dam at Daduqia. Although China is building a series dams on Southeast Asia's Mekong River, it refuses to become a member of the Mekong River Commission, an inter-governmental agency whose members include Cambodia, Laos, Thailand and Vietnam. But at a meeting in Cambodia last week focusing on Mekong River development and China's dam-building ambitions, a Chinese government official maintained that Beijing was "eager to participate" in regional cooperation mechanisms for water resources, The Phnom Penh Post reported. ---------------------------------

10. CHINA TAKES A LOSS TO GET AHEAD IN THE BUSINESS OF FRESH WATER By Michael Wines The New York Times

TIANJIN, China - Towering over the Bohai Sea shoreline on this city's outskirts, the Beijiang Power and Desalination Plant is a 26-billion-renminbi technical marvel: an ultrahigh-temperature, coal-fired generator with state-of-the-art pollution controls, mated to advanced Israeli equipment that uses its leftover heat to distill seawater into fresh water. There is but one wrinkle in the $4 billion plant: The desalted water costs twice as much to produce as it sells for. Nevertheless, the owner of the complex, a government-run conglomerate called S.D.I.C., is moving to quadruple the plant's desalinating capacity, making it China's largest. "Someone has to lose money," Guo Qigang, the plant's general manager, said in a recent interview. "We're a state-owned corporation, and it's our social responsibility." In some places, this would be economic lunacy. In China, it is economic strategy. As it did with solar panels and wind turbines, the government has set its mind on becoming a force in yet another budding environment-related industry: supplying the world with fresh water. The Beijiang project, southeast of Beijing, will strengthen Chinese expertise in desalination, fine-tune the economics, help build an industrial base and, along the way, lessen a chronic water shortage in Tianjin. That money also leaks away like water - at least for now - is not a prime concern. "The policy drivers are more important than the economic drivers," said Olivia Jensen, an expert on Chinese water policy and a director at Infrastructure Economics, a Singapore-based consultancy. "If the central government says desalination is going to be a focus area and money should go into desalination technology, then it will." The government has, and it is. At the government's order, China is rapidly becoming one of the world's biggest growth markets for desalted water. The latest goal is to quadruple production by 2020, from the current 680,000 cubic meters, or 180 million gallons, a day to as many as three million cubic meters, about 800 million gallons, equivalent to nearly a dozen more 200,000-ton-a-day plants like the one being expanded in Beijiang. China's latest five-year plan for the sector is expected to order the establishment of a national desalination industry, according to Guo Yozhi, who heads the China Desalination Association. Institutes in at least six Chinese cities are researching developments in membranes, the technology at the core of the most sophisticated and cost-effective desalination techniques. The National Development and Reform Commission, China's top-level state planning agency, is drafting plans to give preferential treatment to domestic companies that build desalting equipment or patent desalting technologies. There is talk of tax breaks and low-interest loans to encourage domestic production. In an interview, Mr. Guo called the government role in desalination "symbolic," saying that direct government investment in seawater projects does not exceed 10 percent of their cost. By comparison, he said, big water ventures like the massive South-North Water Diversion Project, which will divert water from the Yangtze River in the south to the thirsty north, are completely government-financed. Still, the government's plans could mean an investment of as much as 200 billion renminbi, or about $31 billion, by state-owned companies, government agencies and private partners. Beijiang's desalination complex, built by S.D.I.C. at the behest of the Development and Reform Commission as a concept project, was almost wholly made in Israel, shipped to Tianjin and bolted together. Nationally, less than 60 percent of desalination equipment and technology is domestic. China's goal is to raise that to 90 percent by 2020, said Jennie Peng, an analyst and water industry specialist at the Beijing office of Frost & Sullivan, a consulting company based in San Antonio.

There are plenty of reasons for China to want a homegrown desalination industry, not the least of which is homegrown fresh water. Demand for water here is expected to grow 63 percent by 2030 - gallon for gallon, more than anywhere else on earth, according to the Asia Water Project, a business information organization. Northern China has long been short of water, and fast-expanding cities like Beijing and Tianjin already have turned to extensive recycling and conservation programs to meet the need. In Tianjin, deemed a model city for water conservation, 90 percent of water used in industry is recycled; 60 percent of farm irrigation systems use water-saving technologies; 148 miles of water-recycling pipes snake beneath the city. Apartments in one 10-square-mile area of town feature two taps, one for drinking water and one for recycled water suitable for other uses. The Beijiang plant, one of two, supplies an expanding suburb with 10,000 tons of desalted water daily, with plans to someday pump 180,000 tons. A second 100,000-ton facility supplies a vast ethylene production plant outside of town. The Beijiang plant has faced some hiccups. The mineral-free distilled water scrubs rust from city pipes en route to taps, turning the water brown. Some residents are suspicious of the water, saying its purity means it lacks nutrients. The plant is addressing both complaints by adding minerals to the water. But some say slaking China's thirst may be a beneficial sideline to larger aims. The global market for desalination technology will more than quadruple by 2020 to about $50 billion a year, the research firm SBI Energy predicted last month, and growing water shortages worldwide appear to ensure further growth. Beyond that, the increasingly sophisticated membrane technologies that filter salt from seawater can be applied to sewage treatment, pollution control and a legion of other cutting-edge uses. Far outpaced now by foreign membrane producers, which command at least 85 percent of the market, China is set on developing its own advanced technologies. Some experts say that is where the government's interest mostly lies. "What this is about is developing China's membrane industry, more than it is local use," said Ms. Jensen, the Singapore analyst. "This is an export industry fundamentally, not one to make a green China." Whatever the motivation, China is already racing toward meeting its targets. Just as foreign companies rushed to China to secure a place in its budding wind-energy market, the list of foreign companies that have plunged into China's desalination industry is long: Hyflux of Singapore, Toray of Japan, Befesa of Spain, Brack of Israel and ERI of the United States, among others. And just as foreigners shifted solar-energy research and production to China, desalination companies are leaving their home bases as well. The Norwegian company Aqualyng is a partner with the Beijing city government on a desalination plant in Tangshan, a coastal city about 135 miles east of Beijing, and is studying moving its manufacturing facilities from Europe to China. ERI, which is based in San Francisco and claims to have the desalination industry's most advanced technology, is moving research facilities to China and is considering moving manufacturing as well at some later date. Most of the foreign companies have partnered with state-owned corporations, for help in securing business and for political protection in a country where the rule of law and protection of intellectual property are in a state of flux. And although some foreign investors in technology-laden projects like wind energy and high-speed rail later claimed their Chinese partners appropriated their technologies, the heads of ERI and Aqualyng say they can become researchers and manufacturers in China without losing control of their products.

The chairman of Aqualyng's board, Bernt Osthus, said in an interview that the company's partnership with the Beijing government had been "close to an ideal partner," with the Norwegians controlling the technology and the Chinese providing money and local know-how. He added, however, that the company was considering a joint research venture with a Chinese partner. "By reducing our ownership in our equipment and taking on a state-owned Chinese partner and moving production from Europe to China, the technology effectively becomes Chinese," he said. "I'm still the owner. I'm still owning my piece of the pie. I'm just increasing the size of the pie." And a big pie it is. "There are large-scale desalination projects centralized all up and down the east coast of China," ERI's chief executive officer, Thomas S. Rooney Jr., said in an interview. "Our company has the most advanced technology in the entire desalination industry. And one of the beautiful things about China is that they like to adopt the most advanced technologies." "You can either fight them or join them, and our philosophy is that China likely is going to be the next big desalination market," he added. "I would rather develop technology for China in China and take a more open approach than play the secrets game." ---------------------------------

11. GREEN RIVER SHALE OIL IN PLACE PUT AT 1.45 TRILLION BBL By OGJ editors About 1.45 trillion bbl of shale oil is estimated to be in place in the Eocene Green River formation in the Green River and Washakie basins in southwestern Wyoming, the US Geological Survey said. The shale oil resource is present in the Tipton shale member, Wilkins Peak member, and LaClede bed of the Laney member of the Green River formation. About 133 billion bbl of the resource is in strata that contain more than 15 gal/ton of rock, of which 72 billion bbl are under federal mineral ownership, USGS said. ---------------------------------

12. NEBRASKA TO REVIEW KEYSTONE XL OPTIONS LINCOLN, Neb., Oct. 25 (UPI) -- Nebraska's governor announced he was calling legislators in for a special session to review options for the controversial Keystone XL oil pipeline. Canadian pipeline company TransCanada aims to build the Keystone XL pipeline, which would carry oil from tar sands projects in Alberta province to refineries along the southern U.S. coast. The pipeline, if built, would cross part of the Nebraska Sandhills and run through the Oqallala Aquifer, a key drinking water reserve. Nebraska Gov. Dave Heineman, who has stated opposition to the pipeline, said Nebraskans deserve an assessment of alternatives. "Therefore, I will be calling a special session of the Nebraska Legislature to have a thoughtful and thorough public discussion about alternative solutions that could impact the route of the pipeline in a legal and constitutional manner," he said in a statement.

Critics of Keystone XL complain pipelines carrying heavy crude from Alberta are prone to corrosion, noting Alberta crude lingers in the environment longer than conventional crude. Supporters point to the economic benefits and the boost to regional energy security. TransCanada notes an extension of the existing Keystone pipeline from Steel City, Neb., to oil facilities in Cushing, Okla., has been in service since February. The special Nebraska session is scheduled for Nov. 1. ---------------------------------

13. RUSSIA: EU ENERGY TALKS AT IMPASSE MOSCOW, Oct. 26 (UPI) -- Talks with Moscow over the European Union's newly enacted energy market reform package have reached a stalemate, Russian Energy Minister Sergei Shmatko says. Shmatko told RIA Novosti at a Moscow energy conference Monday that efforts to work out a compromise over the EU Third Energy Package's push to "unbundle" natural gas production, transportation and pricing haven't been realized. The measures, which went into effect in March, force the state-owned gas monopoly Gazprom to sell its product through third-party transit operators -- something it says makes supplies unreliable. "Unfortunately, I must say that our talks with the European Commission on how Russian interests could be respected within the current European legislation, the Third Energy Package, have reached an impasse," he said. The energy minister asserted the European Commission had rejected all of Russia's suggested compromises. "We're seeing a basis for confrontation being formed," he said. "We have issues that are hard to compromise. A modernized infrastructure, long-term contracts that would ensure steady payments and clear price formulas, all these things are sacred cows in a way. It will be difficult for us to abandon them." The "clear price formula" favored by Moscow is the one in effect now, which ties Gazprom's natural gas prices to the price of oil in long-term contracts. German customers such as E.ON and RWE, however, are seeking to establish a spot price mechanism to obtain cheaper gas, the Russian news agency reported. They could be hoping to emulate Italy's Edison S.p.A, which filed a lawsuit against Gazprom this summer in a successful bid to introduce a spot element into its price formula. Shmatko warned "speculative" new players in the European market could result in unexpectedly high gas prices for residents -- making them more appreciative of the current long-term pricing continuity. Shmatko also said Gazprom's troubles with the EU have prompted Moscow to look harder at the Far East for new natural gas consumers. "We've already decided to change our energy policy and are now reviewing its development strategy," he said. "We have to define its eastern trend." The new emphasis on Asian markets comes as Russia and China appear to be close to wrapping up a long-sought $1 trillion natural gas deal. Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao said this month the gas agreement is "very close" after negotiations over Gazprom's prices had dragged on for more than a year, CNN reported.

Under the deal, Russia would supply 68 billion cubic meters of gas every year to China's growing industrial sector, which is largely dependent on liquefied natural gas and pipelines from Turkmenistan. "We're discussing opening new energy transportation routes," added Putin, referring to planned new oil and gas pipelines that would stretch between the two countries. A major oil pipeline opened in January running from Daqing in northeastern China to Skovorodino in eastern Russia -- a 621-mile route that will carry 15 million metric tons of oil annually to China, the U.S. broadcaster said. ---------------------------------

14. THICK SHALE GAS PLAY EMERGING IN SPAIN'S BASQUE AREA Oil & Gas Journal Analysis of drilling and test data from 14 wells drilled since the 1950s has indicated the presence of a world class shale gas play in the Basque Country of northern Spain. Of 14 wells that penetrated the Cretaceous shale, 10 tested gas and only three penetrated the entire section. A group led by the Basque national oil company will drill its first two appraisal wells in 2012. The 14 earlier penetrations collectively led to an independently estimated midrange resource of about 200 tcf of free gas and adsorbed gas in place. The Basque Countryâ€(tm)s Soc. de Hidrocarburos de Euskadi SA (Shesa) has 44% interest in four blocks 180 miles north of Madrid. Private independents HEYCO Energy Group, Dallas, and Cambria Europe Inc., Casper, Wyo., a True Oil affiliate, have 36% and 20%, respectively. The firms are talking with other companies about participating in the appraisal program. Spain, with five liquefied natural gas terminals, is the worldâ€(tm)s third largest importer of LNG. Basque officials, including the country president, toured Barnett shale field sites in the Fort Worth basin earlier this month and visited with Texas regulatory representatives to learn about the operation and regulation of unconventional plays. They have dubbed the Basque Country play as Gran Enara. Thick Cretaceous shale The two vertical appraisal wells will go to 15,000-17,000 ft, and as much as two thirds of each wellbore will penetrate the objective formation, said George Yates, president, HEYCO Energy. The overpressured Cretaceous Valmaseda formation is about 60% shale interbedded with 40% tight sands and should be easy to frac, Yates said. The two appraisal wells will be tested into gas pipelines. The Valmaseda formation has neither been horizontally drilled nor hydraulically fractured, Yates said. Drilling in Spain averages five wells/year. Rigs capable of drilling the appraisal wells are available in Europe and North Africa. Halliburton and Schlumberger have frac kits elsewhere in Europe capable of the services the group needs in Spain, he said. The Valmaseda gas is almost pure methane with no liquids and no impurities, Yates said. The Valmaseda formation underlies 60% of the combined 738,143 acres of the four permits, and each of the four permits contains prospective Valmaseda. Valmaseda underlies Alava and Burgos provinces, and the four permits underlie parts of Alava, Burgos, Navarra, and Vizcaya provinces. The four permits contain the entire Valmaseda play.

The groupâ€(tm)s four blocks lie east and northeast of the 150,000-acre Urraca concession held by BNK Petroleum Inc. subsidiary Trofagas Hidrocarburos SL that primarily targets a slightly shallower shale of Jurassic age farther west in the Cantabrian basin (OGJ Online, Sept. 21, 2011). Realm Energy International Corp., Vancouver, BC, soon to merge with San Leon Energy PLC, has been awarded two shale permits in the basin. Several other concessions are in force in the general area, and still more are pending. Natural gas prices in Spain are in the neighborhood of $8/Mcf. Historic well results The 13 wells on the Shesa groupâ€(tm)s acreage are “separated enough to give us an idea of the lateral consistency of this reservoir,― Yates said. Only a few of the 14 wells were drilled with the Valmaseda sands, and several early wells targeted what the operators thought would be the Ultrillas as primary or secondary targets. None was drilled with the shale as a target. Of the 10 wells that flowed gas on tests, DSTs averaged less than 1 MMcfd. Seven DSTs exceeded 1 MMcfd, and one test rate reached 9.9 MMcfd. Final shut-in pressure was much lower than initial shut-in pressure, indicating low matrix permeability. Three of the wells were completed, and two of them were probably commercial, Yates said. Cumulative production is 1.03 bcf at Castillo-1, while Castillo-2 was completed to sales but abandoned prematurely for a mechanical problem (OGJ, July 2, 1990, p. 70). Another well hit a fracture 160 m into the Valmaceda while drilling underbalanced and flowed at an observed rate estimated at 30 MMcfd before being brought under control. It produced 560 MMcf and was abandoned at fairly high pressures, Yates said. If the play works, it will result in substantial development, employment, and economic advantage to the Basque region. ---------------------------------

15. THE UNITED STATES’ 65-YEAR DEBT BUBBLE By Gail Tverberg Our Finite World When I write about high oil prices having an adverse impact on the economy, quite a few readers respond by saying, “No, most (or all) of the problem is a debt bubble.” They seem to think that poor underwriting of mortgages a few years ago allowed a debt bubble. Once this bubble is past, or some similar bubble, our problems will be over. I decided to see when the debt bubble really started. The answer surprised me–it appears that we have been building a debt bubble since at least 1945 (Figure 1 – based on Federal Reserve data).

Figure 1. US Non-Governmental Debt, Divided by Nominal GDP Furthermore, it appears that this 65-year bubble is beginning to deflate. I believe that this is occurring because high oil prices are putting a cap on economic growth. If I am right, it seems to me that the drop in non-governmental debt shown in Figure 1 can be expected expect to continue, possibly eventually dropping all the way back to the 1965 debt level–that is, about 15% of today’s debt level. There is a close link between growing debt and growing GDP. GDP growth is a gross measure; it does not take into account the amount of debt required to finance this growth. The increasing level of debt since 1945 has enabled economic growth to be higher than it otherwise would be, and has allowed the US to buy goods and services from abroad that we could not otherwise afford. If high oil prices cause economic contraction, as I believe is the case, we may see the situation reverse itself. Instead of rising debt leading to growing GDP and growing imports, we may instead see shrinking debt leading to declining GDP and declining imports. Such a situation would be bad from many perspectives–stock market prices, bond defaults, and ability to purchase needed goods from abroad. Commodity prices may drop as well, because many people are likely to be out of work. Two Views of Debt It seems to me that there are two basic views of debt: Modern View. If the economy is expected to keep growing indefinitely, debt is viewed ashelpful–something that will allow consumers to buy goods, and pay for them over the life of the goods and will allow businesses to build new facilities, and pay for them over the lives of the facilities. The existence of debt products also facilitates pension plans, since bonds are often used to fund pension plan. The Modern View also permits governments to offer “Social Security” plans to citizens, since the expectation is that the future will be at least as good as it is today. Traditional View. If people believe that life is a roller coaster, with some good years, and some bad years, but no clear upward trend, then debt plays a more limited role. The expectation is that citizens will set aside funds in the good years, so that they will be able to take care of themselves in the bad years. If new businesses are formed, accumulated savings rather than debt will tend to be the major source of funding. Debt will still be used to a limited extent, for example, by governments to finance wars; by businesses to cover goods in transit; and by families who truly hit hard times. But citizens and businesses will generally be wary of debt, because of the frequency of debt defaults.

Admittedly, this summary is somewhat subjective, but it is tied to an observation I have made many times before: it is much easier to pay back debt with interest in times of economic growth than it is in times of economic contraction, as illustrated in Figure 2.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy. The Modern View of debt has gradually developed, as the world has expanded its use of fossil fuels, and as a result seemed to be on a never-ending growth path. Economists, actuaries, and financial planners have all built models assuming that growth will continue, and as a result, debt, and perhaps even growing debt, is possible. But back in 1945, many people in the United States still held the Traditional View of debt. Because of this, the level of debt was much lower than today, as illustrated in Figure 1. What Happened after World War II At the end of World War II, the US government found itself in the uncomfortable position of no longer needing as many workers, once the war effort was over. At the same time, it needed to repay the debt it used to finance the war. If no change were made in people’s spending habits, the result would have been a high unemployment rate (because of the layoffs) and a high tax rate (because of the need to repay the debt, with many unemployed).

Figure 3. US Governmental Debt (Including state and local debt) divided by nominal GDP, based on Federal Reserve and Bureau of Economic Analysis Data. Excludes internal governmental debt, such as Social Security Debt. There was an obvious way to “fix” this problem: encourage citizens to borrow more. If people could be encouraged to borrow money to buy a new refrigerator or a new car or even a new home, then many more of these goods could be manufactured and sold. Businesses could also borrow to set up new manufacturing facilities. Little by little, what I have described as the Modern View of debt took over, and the ratio of non-governmental debt to GDP soared. GDP measures the cost of the new “stuff” sold, not whether the goods were bought on credit, so this approach greatly ramped up GDP.

Figure 4. Average annual increase in real GDP, for 10 year periods, based on Bureau of Economic Analysis data. This approach of getting people to borrow more so as to ramp up economic growth worked very well in the early years, but less well recently, as can be seen from Figure 4. Part of the problem was that US oil supply started to decline in 1970, so that the US had to import more oil. The US also cut back on the kinds of goods it manufactured, with much of the heavy industry moving to other countries, necessitating more imports of such goods.

Figure 5. US imports and exports divided by GDP, based on BEA data.

The existence of all of the debt, and the fact that buyers in other countries would take government bonds in payment for goods and services, allowed Americans to continue to buy more goods and services imported from abroad, even though we did not have enough to trade in exchange. A person might think our trading partners would have objected, but because US debt was considered a good investment, the system continued. For each year since 2001, the percentage growth in real GDP has been greater than the gap between exports and imports as a percentage of GDP–a hint that perhaps the situation was not really sustainable. We saw in Figure 4, above, that over time, growth in real GDP decreased. At the same time, the amount of debt required to create each increment in GDP increased, as shown in Figure 6, below.

Figure 6. Increase in US Debt (all types including governmental) divided by increase GDP, for 10 year periods, based on Federal Reserve and BEA data. Part of what happened was that a limit was being reached on how much debt reasonably could be carried. Almost everyone who could afford a house already had one. Businesses had expanded as much as they felt was prudent. Other kinds of debt that were added, but the new kinds of debt weren’t as efficient in providing funds to for citizens to actually buy things–securitization of mortgages, for example, and the interest rate “carry trade. ” In the early 2000s, some of the debt that was added was really ill-advised–allowing people with inadequate incomes to purchase homes, for example. I don’t have figures for other parts of the world, but my impression is that many other countries followed a similar pattern of rising debt levels, as the Modern View of debt became the norm in economies around the world. Where Do We Go From Here? One popular view is that all we have to do is unwind some of the badly made loans, and the financial system can go on as before. Or perhaps we have raised the amount of debt too high, and the interest payments are now a drag on the economy. In this view, if we keep interest rates low, and bring the debt level down to that of a few years ago, maybe the economic system will work as before. It seems to me that the real issue is that we live in a finite world. The idea that debt can continue to expand is simply false. The world economy will hit limits of many kinds–for example, the amount of low-cost oil that can be extracted; the amount of fresh water than can be obtained, without resorting to high-priced desalination; the amount of pollution that we can deal with, without huge health problems; the amount of CO2 that the atmosphere can absorb, without huge climate and ocean difficulties.

Because of these issues, the Modern View of debt is simply false. It is based on a temporary phenomenon. Debt can only expand for a while, in a finite world. Once we start hitting limits, debt expansion at first does less and less, and ultimately falls apart under its own weight. It seems to me that the limit we hit first is that of adequate low-priced oil. There is plenty of oil theoretically available–but it is high-priced oil, that puts the economy into recession, as more resources need to be devoted to oil extraction, and fewer resources to other endeavors. Saudi Arabia and rest of OPEC claim the ability to provide more oil quickly, but when oil prices rise, they don’t really come through (Figure 7).

Figure 7. World and OPEC crude oil production, and Brent spot oil price, based on EIA data. High-priced oil has caused financial difficulties for many governments around the world, because when oil prices rise, food prices tend to rise as well. Citizens cut back on discretionary goods when food and oil prices rise, causing recession. During recession, governments collect less taxes at the same time they are spending more on unemployment benefits and stimulus funds. As a result, governments are increasingly prone to debt defaults, such as those now being discussed for Greece and other European countries. What I expect to see next is one country after another defaulting on its debt. Each default will set off a chain reaction of under-capitalized banks needing bail outs, and, as a result, more governments getting into financial difficulty. The IMF will try to fix the problems, but eventually the level of difficulty will be more than it can handle. Where will the deleveraging stop? This is the big question. More debt helps keep demand for goods and services up, and helps keep GDP growing. But the economy needs to be expanding, in order for it to make sense for debt levels to rise. If the economy is shrinking (or even flat), businesses don’t see a need to expand, so have no reason to borrow more money. Homeowners are worried about their jobs, so are not interested in buying more expensive homes. If high oil prices are part of the equation, higher prices for oil products and food cut back on the funds people have to pay for discretionary goods of all types. It seems to me that there is a significant chance that we will find ourselves transitioning back from a Modern View of debt to a Traditional View of debt. If this happens, we are at risk of the ratio of debt to GDP dropping way back–not to 2005 levels, or 2000 levels, but to 1945 levels, or even lower. A big part of this slide downward might come through debt defaults. Such a change would greatly reduce this country’s ability to buy imported goods, and could result in huge economic dislocations. I have not said much about governmental debt. The US Federal Government uses “cash-basis” accounting, rather than accrual accounting, so I don’t see its supposed debt level as being all that helpful

in understanding its financial position. The US Federal Government’s liabilities are much higher than its stated debt level would suggest, since it makes many promises which it does not set up reserves to handle. For example, it guarantees bank deposits and pension plan payments, up to prescribed limits, but these guarantees are not reflected in its financial statements. The US government can theoretically issue more debt to meet its obligations, but there is no guarantee that Congress will continue to approve ever-rising debt levels, or that willing external buyers can be found for the debt. I expect that the world will need to develop an entirely new financial system to fix the 65-year debt bubble. Our current debt-based approach simply is not workable without long-term growth. But making such a transition will very difficult–perhaps impossible. Individual countries can perhaps each set up their own system, but trying to integrate them would seem to be very difficult. It is possible that at some point we may find ourselves without an operating international financial system. This is why I see the near-term outlook for the world financial system as very ominous. We have a seriously broken system, but no good way of fixing it. ---------------------------------

16. THE ETHICAL DIMENSION OF TACKLING CLIMATE CHANGE By Steven Gardiner Yale Environment 360 The global challenge of climate change poses a perfect moral storm - by failing to take action to rein in carbon emissions, the current generation is spreading the costs of its behavior far into the future. Why should people in the future pay to clean up our mess? Sometimes the best way to make progress on a problem is to get clearer on what that problem is. Arguably, the biggest issue facing humanity at the moment is the looming global environmental crisis. Here, the problem is not that we are unaware that trouble is coming. After all, the basic science is both well known and continually being reiterated in major national and international reports. Rather, the core problem is that thus far effective action seems beyond us. We seem at best paralyzed, and at worst indifferent. Put starkly, there seems little place within our grand institutions and busy lives for what may turn out to be the defining issue of our generation. Why? In my view, at the heart of the matter is the fact that humanity is in the grip of a profound ethical challenge that our current institutions and theories are ill-equipped to meet. Sebastian Junger's book The Perfect Storm tells the story of a fishing boat caught at sea during the rare convergence of three independently powerful storms. Similarly, the global crisis of climate change brings together three major challenges to ethical action - and in a mutually reinforcing way. It is genuinely global, profoundly intergenerational, and occurs in a setting where we lack robust theory and institutions to guide us. Neglect of this perfect moral storm leads us to underestimate the climate problem and fail to appreciate the wider implications in predictable ways. Conventional wisdom identifies climate change as primarily a global problem. Wherever they originate, emissions of the main greenhouse gas (carbon dioxide) quickly become mixed in the atmosphere, affecting climate everywhere. According to the standard analysis, this makes climate change a traditional "tragedy of the commons," played out between nation states that represent the interests of their citizens in perpetuity. In Garrett Hardin's tragedy, each herdsman prefers the collective outcome where none over-consume - so that the commons is not overburdened. Nevertheless, when acting individually each prefers to over-consume himself, no matter what the others do - with ruinous results for all. In climate change, we are often told, states reason in the same way. Each prefers the collective outcome where none over-consume with carbon emissions - so that dangerous climate change is avoided. Yet, when acting individually, each prefers to over-consume, no matter what the others do - so overconsumption is rife. In both cases, then, we are led to an outcome that no one wants, and which is severe enough to seem tragic.

Unfortunately, this traditional model is at best dangerously incomplete. To begin with, it ignores one central spatial aspect of the climate problem. Those least responsible for past emissions are likely to suffer the most serious impacts (at least in the short- to medium-term). This is partly because the poorer nations are disproportionately located in more climate-sensitive regions, but it is also because, being poor, they lack the resources available to the rich to address negative impacts. Since it ignores this basic problem of fairness, the traditional model underestimates the nature of the relevant "tragedy." Even more importantly, the traditional model obscures the temporal aspect of the perfect moral storm. Once emitted, a substantial proportion of climate emissions typically remain in the atmosphere for hundreds of years, and some persist for tens - even hundreds - of thousands. This means that the current generation takes benefits now, but spreads the costs of its behavior far into the future. Worse, many of these benefits are comparatively modest (e.g., those of bigger and more powerful vehicles), and many of the projected costs are severe, even catastrophic (e.g., severe flooding and famine). Worse still, the problem is iterated: The same temptation to take modest benefits now even in the face of severe costs to the future is repeated for subsequent generations as they come to hold the reins of power. Hence, there are cumulative impacts further in the future. Worst of all, such impacts may eventually provoke the equivalent of an intergenerational arms race. Perhaps some future generations will face such appalling environmental conditions that they are entitled to emit more in self-defense, even foreseeing that this behavior makes matters even worse for their successors. And so it goes on. The third storm exacerbates the situation. Climate change brings together many areas in which our best theories are far from robust, such as intergenerational ethics, global justice, scientific uncertainty, and humanity's relationship to nature. The problem here is not that we do not have any guidance at all. For example, the idea that imposing catastrophe on the future for the sake of our own modest benefits is not a defensible way to behave is a relatively secure basic ethical intuition. Rather, the problem is that it is difficult to move beyond those basic intuitions to deal with the details, and we are too easily distracted by counterarguments, especially from theories that have merits in other contexts, but fail to take the future seriously enough. For example, some influential economists claim the current generation is justified in moving slowly on climate change because future people will be richer due to economic growth, and so should pay more. But are we entitled to assume that the future will be richer even in a climate catastrophe? And even if they are, why should they pay to clean up our mess? This worry about distraction leads to a further important result. The intersection of the global, intergenerational and theoretical storms threatens to undermine public discourse. We in the current generation - and especially the more affluent - are in a position to continue taking modest benefits for ourselves, while passing nasty costs onto the poor, future generations, and nature. However, pointing this out is morally uncomfortable. Better, then, to cover it up with clever but shallow arguments that distort public discussion, and solutions that do little to get at the core problems. After all, most of the victims are poorly placed to hold us to account - being very poor, not yet born, or nonhuman. Unfortunately, there is ample evidence for such shenanigans in the climate arena. If existing institutions are good at representing only the interests of their current members - or, worse, of the current generation of political and economic leaders - then we would expect agreements that reflect this. In particular, we might expect a succession of "shadow solutions" to the climate problem: processes, proposals, and agreements that pay lip service to wider ideals but ultimately deliver very little in the way of substance. Sadly, this seems all too plausible a reading of the sorry history of international climate policy. The road from Rio to Kyoto to Bali to Copenhagen to Cancun is littered with procrastination, obfuscation, and empty promises. For example, all major countries including the United States agreed to the United Nations Framework Convention on Climate Change, which took effect in 1994, and so committed themselves to "protect the climate system for present and future generations." However, global emissions are now up more than 40 percent since 1990, and more than 17 percent in the United States. Similarly, in 2009 in Copenhagen, the global community publicly committed itself to limiting global temperature rise to 2 degrees Celsius. However, it left the hard question of who should do what to a subsequent national pledge system that does not get close to that target, and few have any confidence such a system will

actually be implemented. (Witness, for example, the U.S. pledge of a 17-percent reduction on 2005 levels by 2020, which rests on legislation that has since been abandoned.) Most recently, we see headlines such as "Cancún deal leaves hard climate tasks to Durban summit in 2011" (in the Guardian on Dec. 14, 2010), followed by "Durban Climate Deal Impossible Say US and EU Envoys" (in the same publication on April 18, 2011). Alas, given the temptations of the global and intergenerational storms, such dithering is all too predictable, and highly convenient. As bad as this news is, there may be worse to come. We should not expect a buck-passing strategy to limit itself to inaction and distraction, but rather to evolve over time. Given this, as the overall situation worsens, we might predict that the current generation will begin to press for a quick technological fix to hold off the worst impacts, at least until after they have exited the scene. In doing so they might even strive to seize the ethical high ground by declaring such a fix a "necessary" and "lesser" evil to prevent climate catastrophe. (Implausible? Welcome to the emerging debate about geoengineering.) This is a grim state of affairs. However, recognizing the shape of the perfect moral storm can help us to make progress. We face a profound global and intergenerational challenge that current institutions and theories were not designed to meet. Given this, we need to move beyond the short-term economic and geopolitical framings that dominate current public discussion. We must acknowledge the global and intergenerational power that we yield and take responsibility for it, rather than taking solace in comfortable distraction. No one will stop us from exploiting that power but us. This is why ethics is at the heart of the matter. ---------------------------------

17. ASPO-USA : DOE OIL & GAS FORECASTS ARE DANGEROUSLY MISLEADING The Energy Bulletin A group of distinguished energy experts representing academia, industry, think tanks, and non-profit organizations will meet Wednesday, October 26, 2011 at 10:30 am in front of the U.S. Department of Energy (DOE) to call for "Truth in Energy"regarding the possibility of a near-term oil crisis and long-term oil shortages. Following the news conference, the group will deliver a letter to DOE Secretary Steven Chu calling for urgent action to address this potentially critical threat to America's economy and national security. The Association for the Study of Peak Oil & Gas USA (ASPO-USA,www.aspousa.org) organized the news conference. Projections of future oil and gas supply from the DOE's Energy Information Administration (EIA) are misleading, overly optimistic, and foster a dangerous complacency about the nation's energy challenges, according to the group. Such rosy forecasts are typical of industry sources. For example, a recent draft study conducted by the National Petroleum Council (NPC), in cooperation with DOE, claims that development of controversial "shale plays" could make the United States self-sufficient in oil and gas. Petroleum companies with direct interests in shale gas development have played lead roles in the study. EIA, however, is a taxpayer-funded government agency with a mandate to provide "independent and unbiased... information." Speakers will charge that EIA has failed to fulfill that mission in its oil and gas projections and needs to provide more transparency and explicit explanations about how their forecasts are developed. The group will ask Secretary Chu to answer seven specific questions concerning issues that EIA has failed to critically examine. The potential for oil shortages, now or in the near future, is rarely if ever mentioned in DOE or EIA's public statements, despite the fact that many other prominent sources warn of the possibility. The International Energy Agency (IEA), of which the United States is a cooperating member, indicates that global conventional oil production may have reached its peak, and has been on a steady plateau since 2005. The U.S. Department of Defense, in its bi-annual JOE report, has identified constrained world oil supply as a major challenge for U.S. military planning. The Government Accountability Office (GAO) also

conducted a study in 2007 that highlighted the issue and recommended concrete actions that DOE should take to respond. Tad Patzek, professor and chair of the Department of Petroleum and Geosystems Engineering at the University of Texas, and a signatory of the letter to Chu, says that EIA is a valuable source of information on past oil and gas production; their forecasts of future supplies, however, need much improvement. "Their own historical data shows that world oil production has remained essentially flat since 2005, despite a large increase in oil prices, yet they see no problem." EIA predicts that unconventional sources of oil, such as Canadian tar sands, will offset depleting conventional supplies. According to Patzek, however, comparing alternative to conventional sources is "like comparing apples and oranges; there is great uncertainty about the rate and costs at which these sources can be produced on a global scale." In addition to more transparent and reliable information, ASPO-USA is calling for DOE to develop a National Oil Emergency Response Plan which would engage government agencies, industry, outside experts, and concerned citizens to assess the consequences of and responses to supply disruptions. The group will request a meeting with Secretary Chu to address their concerns and discuss how such a plan can be developed. "America is wholly unprepared for a near-term oil crisis or persistent oil shortages," says Jan Mueller, ASPO-USA's Executive Director, "we need reliable information and a plan for how we will adapt to the end of cheap, abundant oil." Jim Baldauf, President and Co-Founder of ASPO-USA, adds, "The risk/benefit ratio is out of balance. If these exuberant predictions are wrong, the consequences could be catastrophic. We need to be conservative and prudent in planning for the future. We can't bet America's economy and national security on Pollyanna predictions. Exuberance about cheap energy may serve the short-term interests of Wall Street, but it threatens the future of our country." ASPO-USA --------------------------------- KUWAIT SETS BIGGEST GULF RENEWABLE-ENERGY GOAL TO FREE CRUDE FOR EXPORT By Fiona MacDonald Bloomberg Oct 26, 2011 Sun-drenched Kuwait, a desert nation with no solar-power plants and electricity demand that's growing about 8 percent a year, has set the most ambitious target for using renewable energy in the Gulf region. OPEC's fifth-biggest oil producer, whose air conditioners run cheaply off state-subsidized oil-fired power plants, aims to generate 10 percent of its electricity from sustainable sources by 2020, said Eyad Ali al-Falah, assistant undersecretary for technical services at the Ministry of Electricity and Water. Kuwait is trying to free up oil for export and expand its generation capacity to support increased tourism, manufacturing and home building in a $112 billion development program. To meet its clean-energy target, which exceeds the 7 percent goal set by Abu Dhabi in the United Arab Emirates, Kuwait next must gather data on sunshine and wind speeds, al-Falah said. "Renewable energy is a new subject for Kuwait," al-Falah, who coordinates alternative energy for the ministry, said in an interview at its headquarters outside Kuwait City. "That's why there's a lack of information regarding the suitability of renewables for our weather." While analysts are skeptical Kuwait will meet its target, they don´t question the economic case that underpins it. The Arab country consumed 413,000 barrels a day of oil in 2010, about 16 percent of production, according to the BP Statistical Review of World Energy for 2011. That's 66 percent more than in 2000, while production increased about 14 percent.

Summer Heat Waves In a nation where summer temperatures can top 50 degrees Celsius (122 Fahrenheit), domestic consumption has more than doubled in the last 10 years. Gulf oil producers need to generate more electricity to meet demand that's growing an average of 10 percent a year, Jarmo Kotilaine, chief economist at National Commercial Bank in Jeddah, Saudi Arabia, said in March. "We definitely see solar potential in Kuwait," said Rajit Nanda, chief financial officer for ACWA Power International, a Saudi Arabia-based company that develops electricity and water projects. While Kuwait hasn't kick-started renewable energy projects, "there's a lot of peak demand when solar resources are at their best." Kuwait could then export more fuel and generate higher revenue instead of pumping it into electricity plants, Nanda said. Oil contributed 95 percent of the 11.89 billion dinars ($43 billion) in revenue the country recorded for the five months through Aug. 31. Beginning in 2014 The Ministry of Electricity and Water is "firmly" behind Kuwait's renewable-energy plans, according to al-Falah. "It's a long process but I'm expecting 2014 or 2015 may witness the inception of these solar projects, and the wind turbines. I think of solar as fuel saving, not as an alternative." The 10 percent renewable-energy goal by 2020 may be too optimistic, according to analysts. "Kuwait is not going to come anywhere close to meeting that target," said Robin Mills, head of consulting at Manaar Energy in Dubai. "The U.A.E. will come closer but will still miss its goal. Kuwait is taking its time deciding which technologies to use, and thereby delaying implementation." Kuwait subsidizes electricity for more than 1 million Kuwaiti citizens and about 2.5 million expatriates. They pay 2 fils (7 U.S. cents) a kilowatt-hour compared with more than 35 fils a kilowatt-hour for production, according to al-Falah. Tenders for Construction The country issued a tender in March to build the Al-Zour North power plant, one of Kuwait's biggest projects to boost supplies, which could cost an estimated 750 million dinars. The country imports liquefied natural gas to supply its power stations when demand peaks in the summer months. Kuwait is also planning to build a new oil refinery at a cost of at least 4 billion dinars to help meet domestic demand. Less than 1 percent of the power supply is from renewable sources. Jutting 16 meters high (53 feet) along one of Kuwait's busiest highways, the country's only wind turbine generates five kilowatts of electricity to power lights in the garden of Mohammed al-Naki, a former engineer in the Kuwaiti army and an environmental activist. "At least if I fix something in my house, it helps," al- Naki said in an interview at his home. "If I can do it, you can do it, and pressure would ease on the government's production of electricity by 10 percent." Though a more common site in other Middle East and North African countries, a wind turbine in the holder of the world's sixth-largest oil reserves is novel. Capacity Limit The Kuwait Institute for Scientific Research is studying building wind turbines capable of adding 10 megawatts to the main electricity grid and which may be started this year, al- Falah said. Electricity consumption in the summer months of 2010 reached 99 percent of capacity.

Another project in Abdaliyah, southwest of Kuwait City, is planned to build a combined-cycle gas power plant, with a capacity of 220 megawatts, enhanced with solar radiation generating another 60 megawatts. There is also a proposal to build a 50-megawatt power plant using photovoltaic panels, which convert sunlight directly to electricity, al-Falah said. Other countries in the region already have their own plans for renewable energy and are turning them into action. Masdar, a $22 billion renewables company owned by Abu Dhabi, has solar plants already and started building a low carbon-emitting city. Dubai, the second-largest sheikhdom in the U.A.E., said last month it will soon announce plans for the emirate's first utility-scale solar plant. Qatar and the U.A.E. are among the first oil producers in the Middle East to seek United Nations credits for alternative- energy projects. Al-Naki, the former army engineer, said aside from a wind turbine, he uses a rooftop solar panel to heat water used in three bathrooms in his house in Salwa, 16 kilometers south of Kuwait City. "It's also fun," he said. "A culture for a new generation, and why not?" --------------------------------- NISSAN SAYS ELECTRIC CAR CAN POWER FAMILY HOME (AFP) Aug 2, 2011 TOKYO - Nissan's Leaf electric car can feed power from its battery back into a family home and run appliances for up to two days under a new project the Japanese car-maker unveiled Tuesday. Using the "Leaf to Home" system, the lithium-ion batteries of the zero tailpipe emission Leaf can be used as an emergency power backup for the home during a natural disaster or a power blackout, Nissan said. Nissan, 44 percent owned by Renault of France, said it aims to commercialize the technology in Japan by March 2012. The system works by linking the car via a quick charging port to the house's electricity distribution panel. Power can also be fed the other way if the house generates its own electricity with rooftop solar panels. The Leaf batteries have a capacity of 24 kilowatt hours when fully charged, equivalent to the electricity used by the average Japanese household in two days, said the company. The output from the vehicle comes to six kilowatts, enough to power electricity-guzzling appliances such as a refrigerator, air conditioner and washing machine at the same time, the company said. Nissan says as well as its potential use in blackouts, the car can be charged during night time off-peak hours and the electricity used by households during high-demand periods. FAIR USE NOTICE: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this newsletter is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this newsletter for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.