THE big global long-term financial threat: Asia's "flowering" welfare states

Excellent Economist piece.

Idea I've spoken about before:  Asia has been the savings center of the global economy for a while.  The West (outside the oddly still-young US) is slouching toward retirement, when traditionally a society needs capital because it's burning up its own.  Meanwhile, the South is like a young couple that needs start-up capital.  

Point is, we expect Asia to fund both - plus take care of its own continuing rise.

The good news: while China's demographic dividend shrinks from here on out, SE Asia's will be around for decades, as will that of the emerging demo-div King Kong - India.

But what happens if Asia adopts the West's cradle-to-grave welfare state model?  Or what the Economist dubs "tigers turning marsupial"?

The Economist's point:  forget Asian values.  When societies reach a certain level of wealth, people expect the same things the world over.

It seems that every country that can afford to build a welfare state will come under mounting pressure to do so. And much of Asia has hit the relevant level of prosperity (see chart 1). Indonesia is now almost as developed as America was in 1935 when it passed the landmark Social Security Act, according to figures compiled by the late Angus Maddison, an economic historian. China is already richer than Britain was in 1948, when it inaugurated the National Health Service (NHS) which, to judge by political ructions—and Olympic opening ceremonies—has become crucial to its sense of national identity.

We are expecting a lot from Asia between now and 2050 . . .. 

Yeah, right. It's Washington regulations that are screwing "clean coal."

We all see the commercials:  Washington is killing clean coal with its regulations!

Complete and utter bullshit.

The gas glut is killing coal, displacing it for up to a quarter of US electrical production across the latest full quarter.

So now you see power companies even going to the point of idling coal-fired stations (from the WSJ story):

Sammis is one of a growing number of coal-fired plants that were built to run 24 hours a day, seven days a week, but now may run only occassionally because of soft demand for electricity and competition from gas-fired plants that are cheaper to run and cleaner to operate.

Coal, says the piece, has been progressively losing out to shale gas for four years now. It's just gone super-critical over the last year.  Cheap gas now is half the cost of coal when it comes to generating electricity.

This is why America is going to be exporting our superior coal to Asia in coming years.

And that will be a good thing.

The LNG export play

Nice FT story on what Shell is saying about natural gas in the US.  Current Henry Hub price has been hanging around $2.25-2.55, which is about 3-4 times cheaper than Europe MMBTU (millions British thermal units) and bizarrely cheaper than most Asian countries are being quoted right now (more like $14-15 and moving north for the summer to almost $20 - by some predictions).

Think about that for just a second.  Natural gas in the US at something like 1/8 the price in Asia.  How long do you think that lasts?  Why should it?

To me, that's a huge LNG (liquid natural gas) market waiting to be captured by US producers.  Selling LNG ain't like moving 100,000 metric tons of diesel or jet fuel or 2 million barrels of crude in one large tanker.  Those transactions are the equivalent of one-night stands and leave your money on the dresser.  Selling LNG is more like getting married: the buyer has to have a relationship with a regasification terminal nearby.  There must be pipes that connect the end-user to that LNG terminal (only so many in the world, but plenty being built).  If no regasification terminal, then buyer needs to rent himself a regas ship ($50m a year), park it somewhere, and then connect that by pipes to the end-user.  All very complex. 

Of course, the seller must have liquefaction facilities at ports, with pipelines connecting fields.  

America is piped up like crazy and adding more pipe all the time.  We're just getting our first for-export liquefaction facility set up in Louisiana by Cheniere, which is leading the effort here to gear up for export.

All very exciting stuff, as we could be exporting - within a few years - upwards of 1/4 of our production.  Then you factor in all the coal displaced in electricity generation, and we can be exporting that high-quality stuff to Asia along with the LNG -  a win-win on trade balance and energy security.

Back to the FT piece:  the currently depressed US prices are just too low, reflecting that we're running out of storage after a mild winter and a continued production boom.  Shell's prediction?  US NG prices will double by 2015.  Expect the petrochem industries to hawk that fear like crazy, but in truth, it's a reasonable rise to just $4-6 MMBTU.

[Shell, BTW, has done a lot of exploratory drilling on NG in China and says it thinks the reserves can be developed economically.]

Shell is also "examining plans to liquefy US gas for export - which would allow it to attract higher prices, particularly in Asia - transform it into clean-burning transport fuel through gas-to-liquids technology, and use it as a feedstock for petrochemicals."  That's a quick rundown of the range of economic opportunities - in addition to displacing coal in electricity.

All good stuff and an integral part of America's coming industrial renaissance.

Chart of the day: You can import the milk cows. The water is another story

Fascinating WSJ piece on China importing cows like crazy to build up its dairy stock.

Since 2009, China has become the world's most important buyer of dairy cows, driving up prices for calves world-wide and putting pressure on other markets such as alfalfa and bull semen. China has imported nearly 250,000 live heifers, or cows that haven't yet reproduced, since 2009, according to data tracker Global Trade Information Services. Last year it spent more than $250 million on 100,000 foreign heifers, about 25 ships worth.

China old cows were European and it has a cattle ban on North America since the mad-cow disease scare in 2003, so it's buying up stock in Australia, New Zeland - even as far as Uruguay.

Story describes the setting-up of modern American-style dairy farms (our cows outproduce the world on a per-head basis), but the trick is the amount of fresh water they require.  All the places they import these cows from are relatively water rich (more global freshwater share than population share), whereas China is 22% of the world pop with 7% of the water.

Tricky business, that.

But clearly, the attempt shows how intent China is on continuing to try and remain food self-sufficient. China won't succeed, but it'll try like all get out.

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

1. China 36.1 trillion cubic meters
2. US 24.4
3. Argentina 21.9
4. Mexico 19.3
5. South Africa (didn't write down because not in Pac)
6. Australia 11.2
7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

1. China 1,275 tcf
2. Argentina 774
3. Mexico 681
4. South Africa 485
5. US 482
6. Australia 396
7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

Canada looks east, as US market complications pile up

Per the recent Wikistrat simulation (North America's Export Energy Boom), Canada grows weary of the complications of exporting energy to the US market (see Keystone XL) and starts to spot easier venues going West to Asia:

Kinder Morgan Energy Partners LP KMP +0.40% said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched. 

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude.

Our dysfunctional politics not only scares off the Canadians, it creates the same weird glut dynamic amidst our fabulous boom in natural gas production.  While Asian markets scream for LNG and can't get nearly enough, we refuse to export. An objective look at that would suggest some dumbass mercantilist logic having gripped some immature rising economy, but - of course - those who seek to deny LNG exports have all sorts of economic illogic at their disposal.

Meanwhile, we demonize China over similar bouts of stupidity, but at least there you can spot some legitimate developmental logic (all those rural interior poor still to be delivered).

We are living through some very bad political leadership and have for years now. I think history will judge the Boomer generation as among the worst political leadership cohorts ever suffered by America.

Wikistrat post @ CNN-GPS: Myanmar's Opening

First op-ed by a Wiksitrat analyst at CNN's GPS site.

Editor’s Note: Teresita Cruz-del Rosario is Visiting Associate Professor at the Lee Kuan Yew School of Public Policy in Singapore and a Senior Analyst at the geopolitical consultancy Wikistrat.

Boothie is a photojournalist for The Myanmar Times, the only English newspaper in Burma.   Boothie used to be cautious when taking pictures to avoid being hauled in for questioning or arrest for projecting images of Myanmar’s “dark side” - a broad enough charge to cover anything.

These days however, Boothie travels openly with his camera.  No longer hidden beneath the folds of his longyi as he surreptitiously shoots photos of a country that until very recently preferred to remain invisible.  He brandishes his Canon camera much like Clint Eastwood flaunted his Magnum 44.

Read the entire column at CNN's GPS blog.

The case for exporting natural gas

WAPO reports that America surpasses Russia as world's biggest natural gas producer, but the WSJ notes that domestic prices have gotten so low with the NG glut that drillers are cutting back and local govs are seeing tax revenue shrink.

All that would change, of course, the minute we start exporting gas out of Louisiana and that new LNG export terminal there, but some in Congress, backed by certain industries and enviros, seek to block that. There is actually a proposed bill to block LNG exports until 2025.

This is why gas in the US is oftentimes 1/4 the price of LNG in Asia, and buyers there are crying out for gas.

So WAPO's editorial makes the case for exporting, attacking the notion that slighly higher electricity prices are worth all the benefits that can accrue:

But the benefits of expanded exports must be weighed against these predicted costs — which are neither inevitable nor dramatic. Among them would be a potentially significant reduction in the U.S. trade deficit, which would mean less need for the United States to borrow from its Asian trading partners. Foreign demand gives U.S. companies an incentive to produce more, which creates jobs; if they don’t expand production, then, over time, supply will dwindle, and domestic prices will creep up anyway. Don’t forget that taxes and other fees on gas production help state and local governments balance their books. Already, low prices, and the resulting reduction in drilling, have cost many communities revenue.

The silly chimera of "energy independence" looms in some of this anti-export thinking, but the real push is to keep gas incredibly cheap here relative to industrial and manufacturing competitors.  Problem is, the Nat Gas industry will not go along with being beggared, thus drilling slows down and the price will inevitably rise.

That's what happens when you go for win-lose instead of a win-win. 

Going on NPR's All Things Considered today

As Chief Analyst, Wikistrat, to talk about the recent deal/decision to put 2,500 US troops in Australia.

I have no landline, and NPR no fan of skype for whatever reason. We talk drive to WFYI downtown, but I don't have a car (son and wife own those rights on our two vehicles), so I couldn't manage studio effort (and frankly would have turned them down at this point).

Enter an iPhone app. NPR, discovering I have an iPhone, says download "Report IT Enterprise Edition." I need to be on wifi (got that at home office) and in airplane mode. You log onto these NPR servers and voila - the desired connection.

Bravo NPR!

Now if we can finish the taping before my son opens the garage door beneath me . . . 

POSTSCRIPT: It happened, but culprit was wife with kids.  Neat thing about taping with NPR, it's no problem. Just stop taping for a bit, and then I abandon office for my master bath (the sanctuary where I do most interviews).

The interview was okay-to-good with Guy Raz, who's always very nice.  I always feel like I underperform while I'm doing it, but then later, when I hear it, I feel much better. You just never get past that initial instinct at self-criticism.

But then the truly interesting techno part: once done taping, I must disconnect via the app from NPR servers. Then I am asked to name the file my iPhone just made locally, recording only my half of the interview. The app does that so you avoid having yourself taped over the wire, so to speak, and instead you get this much higher quality capture that is then uploaded to their servers as a file for their editing.

Clever as hell, huh?

Score again for Steve Jobs and Apple. I get studio quality sound on NPR and I don't have to drive all the way into downtown Indy to do it.

As a result, I head out now to throw some football with son Jerry, who, after years of never understanding football, despite my taking him every year to Lambeau, is suddenly a total leatherhead thanks to Madden 2011. Now we watch games and he bitches about blown coverages, infrequent blitzs and why the Pack doesn't kick onsides more often!

We're going to the Bucs-Pack game on Sunday and then the Pack-Lions game in Detroit on Turkey Day.

Chart of the Day: South-south trade defines Africa's rise

WSJ story on US companies seeking to "catch up" in Africa.  As the chart indicates, US trade with the region has remained steady in the high teens (percentage), while it's Europe that has lost ground to emerging south-south trade (emerging and developing markets trading with each other).  That share was about one-third at Cold War's end, but now it's up to more than half.

Old Core demand for African commodities has long been an up and down affair (boom and bust according to its business cycle), but with rising New Core economies creating plenty more demand, Africa enters into a supercycle of demand that floods the local economies with money and cheap consumer goods in reply.  In combination, Old and New Core demand create a lift-off moment for the continent, the likes of which it has never seen before.

Many good things will come of this, but so will a host of painful transitions, the trick being that the primary integrating agent right now on the continent is the one country famous for not caring about its local impact whatsoever.  This is touted as a virtue by many (Beijing consensus), but it comes with a price - this indifference.

Chart of the Day: Asia and Africa's near-perfect asymmetry on trade

From FT.

Africa has raw materials to sell and needs manufactured goods, one would assume.  Asia is just the opposite. The asymmetry is acceptable so long as both growth as a result of the trade - like now.  But over time, everybody wants things to even out some.

And yet, with climate change, that logic may go out the window.  Africa will suffer, but it's got about half the unused or underused arable land in the system, whereas Africa is a major grain importer already.

North America will face similar asymmetrical pressures in its trade with Asia, begging the question, Will we be happy enough being - once again - the land of the plenty?

Why Mauritius highlighted on ease of doing business?  It's an Indian Ocean banking center (island) that aspires to be the main conduit of finance from Asia into Africa - the Singapore of this equation.