Well folks, I apologize for the lack of posts for a while.  I recently received some news that has occupied almost all my attention as of late (and into the next 18 months, most likely).  It turns out that the ChinaCoalWatcher will soon also be one of the myriad Afghanistan-Terrorist-Watchers deployed in support of Operation Enduring Freedom.  I cannot provide much more detail than that for obvious prudent reasons.

At any rate, there hasn't been much China Coal news lately except for some expected (And CCW predicted!) developments regarding the drop of export subsidies and import taxes on certain energy-intensive commodities and the steady and slow (but perhaps accelerating) appreciation of the Yuan to the dollar.  China, of course, spins this as "economy normalization", but it has more to do with the financial and inflationary pressures of sustaining inefficient market manipulations.

All in all, these developments are positive insofar as they help to reduce the massive trade imbalances of the last decade and, to a certain extent, make China more reliant on both imports and exports in global trade and, perhaps, more cooperative and flexible in resolving international financial issues.

I still say, oil is the key.  As China dramatically increases imports of petroleum to feed it's swelling fleet of light and heavy vehicles, the pressure to properly value the Yuan upward can force even a potential superpower's hand.

From Bloomberg:


Meanwhile, wheat prices in Chicago rose to an all time high above $10/bushel!  And so here comes the China-driven new global economic general equilibrium.  This is the era of commodities renaissance, as the Chinese gradually get out of the agricultural export business where they are at a competitive disadvantage as their population's pent-up demand for more intensive food products (like meat) can only be met through imports.

Such a great deal of global economic change is being driven by similar phenomena as two things happen: 1. China ceases to export raw materials, grains, ore, energy, etc... and instead begins to import large quantities of these unfinished goods and exports the secondary, finished, value-added products, and 2. China's own internal domestic demand for consumption of both primary and secondary goods explodes in a way that cannot be met by internal suppliers alone.

Prediction: China's pressures on global agricultural prices drive the US to slowly pull back on it's wasteful Ethanol production goals as prices remains high enough to support putting more otherwise-fuel-destined corn on the market while maintaining farmers' profitability.  There may even be a little bit of this as a motivating strategy behind the US policy as the administration looks towards a future where US-China trade eventually comes into balance.

From the IEA's World Energy Outlook 2007 - I'm about a quarter finished reading the review, but some of the India numbers struck me at surprising.  Of course it is well known that India is a few years behind China in terms of economic development, but graphs such as the one above show just how far behind they are considering the Indians population is rapidly approaching that of China.  What India has is abundant agricultural capacity, but it needs most of it to feed its huge and rapidly growing population, and what India lacks are sufficient natural resource endowments of energy and valuable minerals.

You can see just how much sugar, rice, and wheat the Indians consume, but look at Aluminum and Nickel - tiny yet vital to building modern infrastructure.  India has no significant oil or gas deposits, and India's coal deposits are insufficient both in quantity and quality to satisfy projected demand and future economic growth - in a stark contrast the China's vast, medium-quality coal reserves.  Nevertheless, the IEA projects that India will still greatly increase its energy consumption - to nearly triple present levels - by 2030.

From TradingMarkets.com:



You might also be interested to take a look at the website for the China Coal Industry Summit.

At any rate, the annual coal consumption rate of Three Billion Tons (100 tons per second!), by 2010 seems perfectly realistic to me, is one of the only times I've seen a realistic projection, and if anything is probably too low.  I would put it a year earlier at 2009.  2010 would reflect an annual increase rate of only 5.6% which is simply not in line with any recent economic and industrial productions data coming out of China.

The "Peak of 4 Billion between 2020 and 2030", on the other hand, seems far too low, and almost absurdly so.  4 Billion is only 33% more than 3, and at current growth rates would be achieved only 3 years after the 3-billion milestone is passed.  I would estimate 4 GT happening as early as 2012 or by 2015 at the latest, and that furthermore, 5GT will occur before 2020 and that production still will not have peaked.

So, since I project a doubling of China's coal use in a decade, to a level equivalent to all global production in 2003, I should try and justify that number, and I'll do so by concentrating on electricity.  China's population is projected to reach an astonishing 1.45 Billion by 2020.  By then, to have a per-capita electricity-generation rate equal to 4 Megawatt-hours - coal-fired generation and consumption will have to at least double - that's the 5GT.

Compare 4 MWH per person per year to the the level of electricity available in 2006 these countries: Hungary - 3.6, Poland - 4.2, Venezuela - 4.5, South Africa - 5.4, Greece - 6.1, UK - 6.6, Russia 7.0, Germany 7.7, South Korea - 8.5, Japan - 9.0, France 9.3, Taiwan - 10.3, United State - 14.1, and Canada - 17.5!

Now, how realistic is it to predict that a country, a rising global superpower, with an abundant, cheap, and indigenous source of energy, currently installing giant 500-MW Coal-fired power plants at a rate of three a week, presently adding more than the entire German electrical capacity each year, and in which that capacity has been growing at a steady rate of 15% for over five years, will, within the next 10 years, decide to settle and peak at a level of electricity availability between what was being enjoyed in the prosperous nations of Hungary and Poland a decade prior, and less than half of the prevalent conditions in neighboring Asian economies?

And that would be with the 5GT in 10 years, not the 4 predicted as a "peak" in 12-20 years.  And really, that's the whole point of China Coal Watch - to demonstrate quantitatively exactly how much more room there is to grow despite the long period of amazing growth we've already witnessed.

I have been reading my copy of the IEA's World Energy Outlook 2007 (analysis to come soon) and I'm afraid (and aghast) they make the same underestimation error that Mr. Guo Yuntao must be making above - though even the IEA predicts a doubling by 2030, more than Yuntao.  The IEA even explicitly admits in this edition that the 2007 estimates are much higher than prior WEO's because they have consistently and significantly underestimated the sustained growth rates in China. 

Despite this track record, they nevertheless retain their view that  the 2005-2030 average energy demand annual growth rate in China will be between only 3 and 4 percent.  Simply stated - and given recent history and the above electrical argument - I cannot understand how such an estimation is at all rational.  If China takes until 2020 to double their coal consumption (longer than I project) that would still be a 6% growth rate - and it is entirely reasonable to expect at least this rate.  They would have to sit still after 2020 to make the IEA's prediction come true.  Do you imagine that China will sit still in 2026 at where Poland was in 2006?

The two-week long  United Nations Climate Change Conference on the Hot and Humid Indonesian island of Bali is presently underway.  The purpose of the conference is to talk about talking - that is, to set up a timetable of a series of future negotiations within the next four years that some hope will conclude in a new international treaty to replace the Kyoto protocol of the 1992 Framework Convention on Climate Change (UNFCCC).

Kyoto set binding emissions reduction targets (with respect to the "base year" of 1990) for a handful of developed countries (listed in the famous "Annex B") that those nations are supposed to achieve between 2008 and 2012, after which the treaty expires.  Some fairly wealthy and energy-intensive nations, such as South Korea and Taiwan, are curiously not included.  This expiration provides the impetus for interested nations to negotiate a new treaty for the period after 2012.

The Kyoto conference was exactly a decade ago, but didn't come into force for seven more years after Russia ratified the treaty in February of 2005.  This was convenient for Russia, since by 2005 their carbon emissions had already fallen over 40% from the 1990 levels because of the collapse of the Soviet Union, and it would thus be almost impossible for them not to achieve their "0% growth" target by 2008, even if they really tried to!

Therefore, without having to give anything up, Russia nevertheless had the power to commit other parties to what might have been substantial sacrifice and reduction in international competitiveness.  European countries committed themselves to an 8% reduction, and Japan to 6%.  Over a hundred developing countries were encouraged, but not required to do anything, but nevertheless were also able to add their ratifications to the number required to activate the treaty.  The United States (target -7%) signed but did not ratify the treaty.

Australia under John Howard did not ratify either despite being allocated a generous emissions growth target of +8%.  The recently elected new government led by Kevin Rudd, has announced that they will now sign Kyoto despite emissions growth since 1990 of over 35% (exceeding even their generous growth allocation by 27%!).  Clearly, Australia is either in for a tremendous challenge or "signing Kyoto" doesn't quite mean what it purports to mean.

It's useful to see what Kyoto-bound countries have achieved (or failed to achieve) so far, and what other developments in the world, especially in China, have occurred since this whole process started in 1992.

First, the global CO2 emission rate is more than 33% higher today than in 1990 and still growing about 3% per year.  China's emissions - the highest in the world for two years now (about which many people are still unaware despite it being old news) are more than 150% what they were in 1990, a full fifth larger than the United States, and growing by 10% a year.  And US emissions are 20% higher than in 1990.  China openly and steadfastly refuses to consider any kind of binding commitment under any potential time-line under any potential circumstances. 

Many environmentalists know that China's position, and projected emissions growth, is essentially a deal-killer since it makes any potential agreement at Bali completely futile, even were the United States to join without Chinese participation, which the US has claimed that it will not.  Without Chinese participation, the rest of world, including other developing countries such as India, would have to reduce their emissions 50% in less than a decade to even match 1990 levels, let alone go much lower.  That is simply not going to happen under any realistic circumstances.  Still - the true believers push on with their advocacy either ignorant of or apathetic to this problem.

But let us consider several major countries and see if they are anywhere close their "binding" commitments under Kyoto.  Hyper-efficient Japan is 18% above 1990 levels - more than 24% off its target. France, despite depending on nuclear power for most of it's electricity needs, is nevertheless 5% above it's 1990 level (13% off target). 

On the other hand Germany is officially 14% below their 1990 level (and exceeding their target by 6%!) but this is misleading because the official energy statistics pretend that Germany was a united country.  In reality, East Germany's economy and energy consumption, like Russia, completely collapsed at the break-up of the Soviet Union despite reunification.  When West Germany is considered in isolation, it's emissions are still larger than in 1990.

In fact, the only major economy to reduce emissions without undergoing an economic collapse and which is projected to actually meet its Kyoto commitments is the United Kingdom, with emissions a mere 2% below 1990 (and still 6% off target at present).  Overall, the Euro-25 area is 3% above 1990 levels and 11% off it's target for 2008-2012.  The trend seems to me more to be in line with stagnation than decline - and may be mostly related to demographic issues rather than increased efficiency or government efforts.

So given all this, I think there is enough information to pronounce a verdict.  I'm of the perspective that Kyoto has been a great failure and, if anything, far too ambitious and far too dismissive of the need to incorporate China into any agreement (and to therefore make any agreement palatable to the US).  The conferees at Bali would be rational to look at the lessons of Kyoto and significantly pare back their expectations about what the world can actually accomplish instead of fanatically pursuing pipe dream fantasies in the face of such poor results.  A proposal to freeze global emissions at 2010 levels would still, in my mind, be extremely difficult to achieve even with universal consensus and active participation of all nations.   But it is better to pick an achievable goal than set yourself up for repeated failure and frustration.  Nothing generates cynicism and despair more than claiming that the impossible is vitally necessary.

And now some raw data for you Statistics Hounds.  For both an Econometrics project and an International Economic Law and Development paper, I've consolidated Primary Energy Consumption data from the BP Statistical Review Of World Energy 2007, with Nominal GDP data from the October 2007 IMF World Economic Outlook Databse, with Population and Fertility Rate data from the US Census Bureau's International Data Base into two Excel spreadsheets covering 56 countries and the world at large.

The reason there are two spreadsheets is that the data is not entirely complete.  Energy data goes back for most countries to 1965, but ex-Soviet states present a bit of a problem before 1991.  GDP data only goes back to 1980 and fertility rates are a mess - with some countries having good data back to the 60's but others, including many European nations, not having any until the early 90's!  Even the countries with lots of fertility data often skip years.

The first file is "all data simple" where I've already divided by population and produced "per capita nominal GDP" and "per capita primary energy consumption", but which includes the incomplete lines.  The second is "all complete data simple", where I've deleted any line missing at least one data point.

So, here they are: all data simple and, all complete data simple

Update: Here are the same files with two improvements. 

all data simple real fertility and all complete data simple real fertility

First, after a lot of tedious work, I've converted all the nominal dollar data into real $US-2000 data - which should provide a more satisfactory proxy for the average citizen's purchasing power of international products.  This was actually pretty hard, since each country's real data is in local currency with widely different base-years.  I prefer Real-GDP to "purchasing power parity" because I'm focused on energy consumption, and energy sources and energy-intensive products are priced uniformly (subtracting transportation costs) in global markets.

Second, I've estimated the missing fertility data.  I have all the population data, so I assumed that the relationship between population growth (which I know) and fertility rate (which I don't) would be equal to the ratio in the nearest complete data line for that nation.  This is not a perfectly accurate assumption, but it's pretty good.

After that, all I'm really missing is the international GDP data prior to 1980, but there's plenty of data without it!  I'll have access to both STATA software and an expert Econometrician on Monday, so the analysis begins next week - stay tuned!

Update 2:  And here's the data all the way back to 1965 in International Dollars By Purchasing Power Parity from the Penn World Tables, along with the average Real Year-2000 Dollar Oil Price Per Year from the Federal Reserve Economic Data website.

All Data PPP 1965-2004

Update 3: Super Ultimo Data - From 1965-2006 for almost all countries, AND, by the US rows, data on prices and imports of Aluminum, Cement, Nitrogen (Ammonia), Copper, and Steel.

All Data PPP 1965-2006 PLUS US Energy Intensive Imports

Well, I convinced my institution's library to purchase the IEA's 2007 World Energy Outlook for me - so stay tuned for a digest of the juicy bits sometime before Thanksgiving.  You can already tell from the executive summary what the main themes are: Emerging nation energy needs = Huge, Non-coal energy prices, supplies = rising, precarious, Coal use rate = Skyrockets, Efforts to stabilize end of century atmospheric carbon concentration below 450ppm = hopeless.

And now for the Coal Records.

First, the record deal pursued by BHP to purchase Rio Tinto to produce the world's largest coal and ore mining company deserves some attention since it reflects an extremely educated view about the profitability prospects of mining and materials in the coming years.  Take at look at this article in The Australian concerning the proposed merger.

As for exports, Business Spectator Reports:

China's October coal exports climbed 17.4 per cent from September, the second-highest level so far this year, despite bad weather disrupting loading during the month ... China has yet to release imports for October.

... The trade data came as Chinese domestic coal prices climbed to all-time highs ahead of the peak winter consuming season. The top quality coal was quoted at 530 yuan to 540 yuan ($US71-$US73) a tonne in Qinhuangdao, China's top coal export port.

... Some traders and industry officials said China might return a net exporter for the rest of the year as soaring freight rates and record international prices were limiting imports by power generators into the south from Indonesia.

Australian spot thermal coal prices rose to a record high above $US83 a tonne on Monday [See this Bloomberg article for more. -ed.], partly due to lower exports from the country facing serious port congestion that is unlikely to be solved until the second half of next year.

... During the first nine months, China's coal imports from Indonesia surged 298.7 per cent to 11.14 million tonnes, including 8.7 million tonnes of thermal coal.

Pretty impressive.  As for those shipping rates and bottlenecks, check out Euro2Day/Financial Times:

The Baltic Dry index, which measures freight rates for ships transporting dry goods on the world's main trade routes, has risen 143 per cent in 2007. Lead, this year's best performing "traditional" commodity, has managed 108 per cent.

Shipping has been subject to the same forces that have been pushing up the prices of its cargoes. China's explosive economic growth, alongside healthy economies elsewhere, has provided a double fillip for shippers. This year, bottlenecks in supply chains have added further pressure - for example, space constraints at Australian ports have left coal ships queuing idly at sea.

Shipyards are working flat out to fill orders equivalent to around half the world's existing bulk cargo capacity. However, three-quarters of those new ships are not expected before 2009. No wonder speculators are entering the freight market in greater numbers. Imarex, the shipping exchange based in Oslo in which Nymex has just bought a 15 per cent stake, reported record dry bulk derivatives volumes in October, with the number of trades almost four times the level of a year ago. Meanwhile, shipping equities have soared, with shares in China Shipping Container Lines, for example, up five-fold this year - an explosive performance, even by Chinese standards.

Hooray!  Today marks the long-anticipated release of the IEA's World Energy Outlook 2007 - China and India Insights.  Unfortunately, the paper copy with a 1-user PDF costs $270, which is just above the ChinaCoalWatcher's disposable budget for IEA publications.  I've requested that my local library purchase a copy - though who knows if they will elect to do so.  If I were in China or India, I could get it for only $54, but alas such is not the case, so in the meantime, I must rely on the mainstream media and the executive summary or my information.

From the BBC:

From the International Herald Tribune:

Ahem, now, who told you to pay attention to China Oil companies?  But now China's state oil company Petrochina (NYSE - PTR) is the world's largest publicly traded company after a flotation on the Shanghai stock exchange, with a market capitalization of over $1 TRILLION!  Then again, the world's biggest money-making operation, Saudi Aramco, would probably be worth over four times as much (or about $150,000 per citizen if evenly distributed) were it put up for sale.  Don't hold your breath for that any time soon though.

From Bloomberg:

Nov. 5 (Bloomberg) — PetroChina Co. almost tripled on its first day of trading in Shanghai, becoming the world's first company to be valued at $1 trillion, larger than the entire Russian stock market.

PetroChina shares rose to 43.96 yuan from the sale price of 16.7 yuan, giving the state-owned oil producer a greater market value than Exxon Mobil Corp. and General Electric Co. combined.

The rally makes PetroChina shares four times more expensive than those of Exxon, even though China's biggest oil producer has a quarter of the revenue. China's stock market was valued at less than $1.1 trillion before tripling this year and giving the communist nation five of the world's 10 biggest companies.

... Billionaire investor Warren Buffett's Berkshire Hathaway Inc. sold its stake in PetroChina this year, reaping an eightfold gain that contributed to a 64 percent increase in third-quarter profit for the Omaha-based company. Berkshire had 2.34 billion shares as of the end of 2006, the largest holding after state-owned China National Petroleum Corp.

... ``Production is static with limited upside for the next three to four years,'' Grace said. ``As for the downstream, the price controls and overall regulatory trend limit the company's earnings.''

... The other Chinese companies that rank among the world's 10 largest by market value are China Petroleum, known as Sinopec, China Mobile Ltd., Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp.

I am amazed and shocked but, again, not surprised.  It's just incredible - 80 Gigawatts additional capacity increase in only one year!?!  That's over two 750 Megawatt projects per week!!  Assuming they run the things on full load, that's 700 Terawatthours/year, more than the entire 2006 output of Germany or all of India or the whole continent of Africa!  How on earth can Americans (or, should I say, certain Oklahoma Power Companies looking for lush profits and using politics and "useful idiots" to push their less competitive product while hiding behind a fake shell lobbying organization pretending to be "concerned Kansans") or Europeans possibly get bent out of shape about adding one or two power plants in the face of that onslaught?!  It's like worrying about a leaky faucet when you're in the path of a tsunami.

From Reuters UK:

Meanwhile, at Engineer Live:

From the BBC:

China has raised fuel prices by almost 10% in an effort to ease the country's worsening supply crisis.

Officials hope the extra revenue will make refiners increase production, easing the long queues and rationing at filling stations.

The rise is a reversal of policy. In September the government promised to keep fuel prices at current levels.

Correspondents warn that the move could add to rising inflation, which is already at record highs.

China has long had a system of price controls to prevent inflation and social unrest, according to a BBC correspondent in Beijing, Dan Griffiths.

But Beijing cannot ignore what is happening in the rest of the world, our correspondent says.

Oil prices have been sky rocketing, but Chinese refiners cannot pass those rises on to consumers and so they are losing money.Many have already cut their supplies to limit losses.

The National Development and Reform Commission, the country's main planning agency, said the government had decided to increase fuel prices to "guarantee domestic refined oil supply and promote energy conservation".

But the commission promised to shield the public from some of the increases.

"Prices of railway tickets, natural gas for civilian use and public transportation will not be raised to reduce the impact of the price hikes on the public," the commission said in a statement.

It also added that subsidies would be given to taxi drivers.

As oil prices on the spot market bid for more than $96/barrel, the ChinaCoalWatcher feels mildly vindicated and relieved from several years of being told "You're smoking something!  $100/barrel oil in our lifetime is an impossible alarmist dystopic nightmare fantasy".  I would respond "Cheap oil in an increasingly prosperous world full of billions of people who are just on the edge of being able to afford it (read: China) is the real fantasy. Buy some XOM."  But the rejoinder was unanimously "Nope.  The incentive is so high, the forces of capitalism and technology will develop practical cheaper alternatives for transport fuels long before then".

  Optimistic faith in the inevitable and rapid march of technological progress is a characteristic of our era - but I believe it is based mostly on people's experience with electronics and information technology - and not with other sciences which stagnated and came close to their theoretical limits decades ago.  Case in point - internal combustion engines have not gotten any closer to their theoretical maximum efficiency ratio of ml/sec vs horsepower (1:30) for decades. This is not for the lack of incentive, it's just that modern engines are so efficient, they are not just the best we can do at the moment, they are very close to being the best we can do period without using grossly impractical technologies like making them out of titanium. 

The whole phenomenon of the indescribable advancement in the power of electronic and information devices is largely the result of miniaturization.  After Nobel laureate (and Kansan) Jack Kilby invented the integrated circuit in 1958 while working at Texas instruments, and Intel started making the first silicon-based microprocessors in 1971, the physicists set to thinking about how small one could theoretically make such devices.  The answer was shocking. 

It seemed that one might be able to support a transistor on a surface containing less than 50 million atoms of silicon (and maybe even less!) with electrons oscillating at in the billions of cycles per second before problems of heat, leakage, and stability overwhelmed the system.  But in 1971, the best technology was using over 400 billion silicon atoms at a rate less than 5 million cycles per second. 

In theory, that meant you should be able to do at least 10 million times better one day on the same fundamental technology!  It wasn't a matter of natural limitation but of developing the skills and techniques needed to focus lasers and electron beams and etch elements on the same amount of silicon finer and yet finer.  Needless to say, they knew even then that there was almost unfathomably large amounts of room for improvement - "plenty of room at the bottom" as Richard Feynman might say - and that you could, for example, double the capability of a microprocessor every 18 months while still lowering the cost  for 40 years before you would run into the walls set by the Quantum laws of the universe. 

By the way - that may not be too many years off if one looks at recent trends in microprocessor clock cycles.  Over forty years ago, physicists also realized that the electromagnetic spectrum was capable of transmitting truly enormous amounts of data blindingly fast both at long and short range, and that it was only a matter of developing transmitters and receivers (themselves depending on developments in processors) to take advantage of an unexplored ocean of opportunity - which is the origin of the wireless revolution we are experiencing today.

But the larger point is one about alternative sources of energy.  What if energy production is more like internal combustion engines than microprocessors or wireless receivers?  This blog's thesis is that, for the medium term and for at least a generation - it is.

More Coal-To-Liquids News as the world's leader in CTL, Sasol, looks to China.  The woman to the right is Faye Cranmer, Managing Director of Sasol Petroleum and one of the world's most powerful women.

The idea is the same as it's been for years.  Oil (and natural gas) is increasingly scarce and expensive and nearly all estimates of future production indicate that it simply will not be able to supply the globe's demand for transport fuel at an affordable price.  Coal is cheap and abundant, and with some intensive and costly chemical manipulation can be made into the special group of hydrocarbon chemicals required to run the world's billion internal and turbine combustion engines.

So, as of today, how much cheaper is coal in China?  For scale, a car getting about 25mpg uses 8000 BTU to go a single mile.  Also, a dollar presently trades for 7.5 Yuan.

Oil quotes for a record high of 5,000 Yuan per metric ton, which comes to 8,000 BTU/Yuan.  Natural Gas does a lot better at nearly 18,000 BTU/Yuan.  But Coal, according to Forbes, even if the most expensive area of Guangzhou, crushes all by delivering 34,000 BTU per Yuan, and about 50,000 at the mine.  If that doesn't make China's interest (and the rest of the world's interest too!) in CTL obvious, I don't know what would.

Mining Weekly Reports:

One of the the arguments used by the opponents of a 21st Century expansion in the use of nuclear power is concern about the release of radioactive compounds into the environment.  A legitimate worry, of course, except that when a Uranium rod in a nuclear reactor has served it's thermal purpose and is removed for either retirement or reprocessing - all the radioactive materials are in one place and can be disposed of in a safe, contained manner.  Nuclear opponents seem not to be willing to believe this fact, but the track record for the past fifty years of managing reactor waste material has been extremely safe and impressive.

As an alternative to nuclear fission power, however, the world has built over a thousand major coal plant projects in the last five decades.  Coal, like all fossil fuels, and indeed like all life from which those fuels are derived, contains extremely tiny concentrations of heavy metals, including some radioactive ones like Radium and Uranium.  Burning coal, especially burning the dirtiest coal in the dirtiest plants - actually releases this radioactive material into the general atmosphere in the form of microscopic particles of ash that can take years to settle to the surface within the seas and upon the landscape. 

Everything I have read on the subject to date indicates that, while tiny and insignificant from an environmental-harm and human-health perspective, the change in the radioactivity in the atmosphere resulting from compounds released into the atmosphere from coal burning is many orders of magnitude greater than any contribution resulting from the totality of nuclear activities including release incidents.  So, if one has to choose between coal and nuclear for one's electricity, then one might think about choosing nuclear to avoid radioactivity general exposure problems!

But aside from concerns about health and environment, someone extremely clever got to thinking that since even unrefined Uranium-Oxide is highly valuable (From 70 to 150 dollars per pound), it might be possible to refine enough of the stuff out of the fly ash to pay for the tremendous effort of doing so.

World Nuclear News Reports:


Sounds like an investment opportunity to me!

Someone reading the last post, who had lived through the shock of 1979, asked me in person whether the fact that oil prices were nearing the all-time high real price of that era was as damaging a phenomenon as it was then.  Essentially, this person believes that somehow the same real price then, in the effects it had on the overall economy, was worst then than it is now.

Well, they have a point and it's worth explaining why things were worse then.  First of all, the change in prevailing economic conditions took almost everyone by complete surprise and the substantial economic adjustments that had to take place in a very short time were extremely painful.  The price went from $15 to $40 (1979 dollars) in little more than a year at almost 8% a month - practically overnight in the oil world, and no one was sure where it would stop.  Our adjustment was undoubtedly more expected and gradual.

But another good way to analyze the question is to ask how much of our economy depends on oil.  Assuming the US will continue to consume an amount of petroleum product similar to present levels at prices around $90/barrel, we would spend about $675 Billion on oil.  If our GDP is about $13.75 Trillion, that comes to about 4.9% of our economy - double what it was only 8 years ago!

In January of 1979, prices were $15/barrel, consumption was 20.5Mbpd and the GDP was $2.46 Trillion and so oil constituted 12.5% of the economy.  By January 1983, when prices had stabilized at around $31/barrel and consumption hovered about 35% lower at around 15Mbpd, petroleum product expenditures were over $450 Billion out of a GDP of "only" $3.38 Trillion or about 14% of the economy - in the same ballpark.

So, that's the difference - the ratio of oil expenditure to the overall economy.  Thirty years ago, the oil sector constituted nearly a sixth of the entire economy and continued to do so even after the shock.  The elasticity of oil demand was about -0.13.  Pretty inelastic but movable.  By January of 1999 the share of the pie had fallen to one fortieth - only 2.5%, and the elasticity was indistinguishable from zero! That's a profoundly less oil sensitive economy which is more able to absorb a six-fold increase in oil price, and a doubling in oil-intensity, without any apparent effect on consumption.

So the obvious question is how high would oil have to go up to return us to "an elastic domain" where consumers start responding to (instead of merely complaining about) changes in prices?  If the early 80's are any indication, I would wager a guess that oil would have to constitute at least a tenth of the economy to have that kind of effect, which would allow for $200/barrel oil ($6/gallon gas) and an additional increase of 125% over today's high prices.

I'll step out on a limb here and suggest that the oil pundits will start to claim $150 or $200 barrel oil as "the new alarmism".  But if the globe has sustained a six-fold rise in price in eight years without the slightest indication that it is demanding a drop less oil, why in the world would one not suspect that there if plenty more inflation yet to come?

Hi folks.  Sorry for the long hiatus, but life's been quite busy as of late.

Anyway, lots of oil news of late, not necessarily China related but still important:

Some links from

Energy Watch

and

The Guardian

Crude surpassed $90/barrel (US nominal) for the first time ever.  That's an increase of more than 6-fold from where prices were only 9 years ago at their cyclical low in 1998.  Once upon a time, less than 5 years ago, the prospect of $100/barrel oil was openly and universally mocked as alarmist nonsense.  Today, it's only another 11% increase - which is what has happened every six month for the last nine years!  Besides the psychological effect  of entering the realm of triple digits and an all time high real price that surpasses that experienced during the oil shocks of the 1970's, the prospect of $100 oil is no longer shocking or unexpected.

Of course, OPEC blames everybody else, but also of course, they always have legitimate, if incomplete, arguments.  First, there's this big problem with Turkey and PKK "insurgents" reportedly based in Kurdish Northern Iraq.  Turkey's parliament, well-aware that it controls the well-to-market pipelines, has approved authority for an open invasion of that oil-rich territory. 

Speculators are either "spooked" or "gouging" or "allocating premiums for self-insurance" depending on your point-of-view.  OPEC always blames almost everything on "speculators", but students of the economics of the free market know that argument to be fallacious if the prices are sustained for an extended period - as they have been.

But then there's this whole issue of declining non-OPEC production.  Here's where OPEC has a better point.  For decades, peak-oilers have warned of the day when increasing global production rates would no longer be possible and, they predict, will decline precipitately.  Many of the old production regions, like the coterminous US, have experienced just this phenomenon as all the low-hanging fruit has already been picked.  Non-OPEC production pumps 60% of world crude, but it appears to have peaked and OPEC will be expected to make up the shortfall.

But the $3 TRILLION/year question is, if OPEC is trying to manage oil prices in a way that prevents volatile cycles of price fluctuation following scarcity and surplus, how can they let prices rise so much so fast knowing the increasing risk of unleashing a 1970's style recession on the global economy?  One answer is that they actually know that they cannot expand production but are terrified of what would happen to global markets were that to become generally known.

OPEC says that the world economy seems to be accommodating higher prices just fine, and that it's a fair price given the explosion in demand in developing countries.  They have a point.

They also say that higher prices also provide incentives for improved efficiency, the development of alternatives, conservation of a precious exhaustible resource and help provide the funds needed to "stabilize" the economies and societies in the prickliest parts of the world.

Not much evidence of that last one, but the others are true.  Then again, it's worth asking what happens when the stuff runs out which it inevitably will - probably before 2050.  Oil has allowed the populations of inhospitable deserts to rapidly expand far beyond the hydrological and agricultural carrying capacity of their territories through trade.  In 1950, Saudi Arabia had only around 3 million people.  By 2050, at present growth rates, it is projected to top 60 million.  Yemen goes from 4 to 100 million.   Egypt and Iran from 20 to 120.  Kuwait from 150 thousand to over 4 million!

How do you feed and water that many people in the desert without oil to trade or energy to desalinate the oceans?  Could Saudi Arabia be thinking of saving so much money that the dividends alone are sufficient to support its exploding population?  If not, then, well, it's a scary and Malthusian thought.

If you think pent-up demand for commodities in China is high today, imagine if there were 30% more people, or almost double today's Chinese under 30!  Whatever you think about China's policy, if there's going to be population control their strategy is probably superior to how it was possibly done in ancient Greece.

From the first in a series of programs about China's One Child Policy, by the BBC:

China's family planning policy has prevented 400 million births, officials say.

... And it looks likely that, nearly 30 years after the policy was first introduced, it will not be relaxed to allow couples to have more children.

... "Because China has worked hard over the last 30 years, we have 400 million fewer people," said Zhang Weiqing, minister in charge of the National Population and Family Planning Commission.

... Chinese officials say the current fertility rate is between 1.7 and 1.8 births per woman, well below the 2.1 births needed to keep the population at a stable level.

Overseas experts dispute this figure; they say the fertility rate is even lower and stands at 1.5.

This will result in an increasing proportion of older people, a smaller workforce to look after them and a disproportionate number of boys to girls.

China's decision to implement its One Child (Or Planned Birth) Policy of 1979 was driven by several considerations.  There was the memory of the Great Chinese Famines of 1958-1961, in which perhaps 15 million people starved to death and after which Mao's first birth control program was initiated (though the causes of that famine were likely caused more by the disastrous Stalinist/Maoist argricultural-collectivist policy than by an "out of control population growth rate").

When economically-minded Deng Xiaoping took power in 1978, his observations of and experiences with the government's problems in "keeping-up" and serving an ever-growing population led him to believe that large numbers of new children endangered the government's ability to achieve economic progress and development.

But "keeping-up" with a growing population in order to achieve increased living standards does indeed have a basis in modern Economic theory, best demonstrated by exogenous growth models such as the famous Solow Growth Model.  If you'd like to learn a little more about the theory, and why the one child policy is probably a significant contributor to China's rise, (and likewise a significant burden on other, more prolific, societies) keep on reading.

The basic idea is simple - living standards depend on an average's workers real productivity. The real productivity of a worker depends on technology and having the capital to equip each worker with the optimal amount of that technology to maximize production.  The investment capital to equip workers with technology to maximize production comes from savings.  The whole system tends to reach some kind of equilibrium, with a change in any of the main factors tending to alter that equilibrium.

The main factors are savings rate, depreciation, technology, and population growth.  The great hope is that savings and technological improvements, are enough to overcome depreciation and population in order to give the next generation of workers a higher initial endowment of capital, whereby they will be more productive and enjoy better standards of living.  This is often given as a compelling explanation for how economic growth is achieved and, at any rate, makes a certain amount of intuitive sense.

Most of the implications are obvious, but one gives people trouble.  Everyone knows that improvements in technology makes workers more productive so long as they don't use their internet connection to watch You-Tube all day.  Everybody accepts that the rate at which the roads and bridges fall apart determines how much money is tied up in replacing them (and, essentially, spending money just keeping things as they are) vs. being available for alternative consumption.  Or, as another kind of "depreciation", if war or natural disasters destroy infrastructure that a large amount of money would have to be diverted to the cost of replacement.  And everybody knows that the more you save today, the more that will be available for your kids tomorrow.

But while everyone seems to understand the problems of the poor family with lots of children having "too many mouths to feed", or the impropriety of the farmer who could barely feed his family on a small plot, then splitting up the farm into even smaller plots as inheritance to his many kids, few people are willing to draw the same conclusion with economies at large. Yet the situation is identical. 

The more children couples have in any economy, the harder it is to endow all those new workers with the human (education) and technological capital they need to be more productive than their predecesors.  All else being equal, more kids means a lower standard of living than less kids.  The political implications of this idea disturb many people who vehemently regard the decision of how many children to have as a fundamental human right of which no government should have authority to regulate.  Perhaps this is why some resist the population-growth-rate conclusions of the Solow model.

Unfortunately, national policies and economic positions are so different that it is difficult to assess the influence of the one-child policy on China's economic growth vs other emerging economies.  Still, the dominance of their performance vs. other similarly situated but more quickly populating states, and the remarkable correlation between population growth and poverty argues lightly for the predictions of the theory. 

I say "similarly situated" because there are a few exceptional categories to that list.  Oil-exporting Arab nations are both wealthy and large-family-prefering and include the UEA, Kuwait, Saudi Arabia, Qatar, Bahrain.  The only non-oil "rich" countries on the list above the world average include Israel, Ireland, and Luxembourg which both have somewhat unique tax and immigration circumstances.  At the very bottom of the list one finds the shrinking but poor nations of the ex-Soviet Union.

China, the fastest growing of the world's major economies, finds its population growth rate in the region shared by Spain, Norway, France, and UK. If the policy continues, and there's enough commodities to go around, China just may achieve their goal of a quadrupling of living standards in 20 years.