Charts of the day: US debt and petroleum

From Business Insider (via Zakaria's GPS site) comes the following listing of who holds US public debt.

• Hong Kong: $121.9 billion (0.9 percent)
• Caribbean banking centers: $148.3 (1 percent)
• Taiwan: $153.4 billion (1.1 percent)
• Brazil: $211.4 billion (1.5 percent)
• Oil exporting countries: $229.8 billion (1.6 percent)
• Mutual funds: $300.5 billion (2 percent)
• Commercial banks: $301.8 billion (2.1 percent)
• State, local and federal retirement funds: $320.9 billion (2.2 percent)
• Money market mutual funds: $337.7 billion (2.4 percent)
• United Kingdom: $346.5 billion (2.4 percent)
• Private pension funds: $504.7 billion (3.5 percent)
• State and local governments: $506.1 billion (3.5 percent)
• Japan: $912.4 billion (6.4 percent)
• U.S. households: $959.4 billion (6.6 percent)
• China: $1.16 trillion (8 percent)
• The U.S. Treasury: $1.63 trillion (11.3 percent)
• Social Security trust fund: $2.67 trillion (19 percent)

The Global Post's Tom Mucha writes the post as revelation: See! China doesn't own the U.S.

Okay, so China doesn't own the US anymore than we get all our energy from Saudi Arabia, but China is the single biggest foreign holder - more than 3 times the long-time historical champ UK and more than recent historical champ Japan.

And yes, we do get a picture sort of like our oil situation, where our biggest supplier remains ourself (here, in various forms, accounting for roughly 2/3rds) and other big suppliers remains long-time friends.

But what's also been clear when we've floated large amounts recently is that China is the one great foreign buyer out there who can soak up our surges, so it does play a bit of a Saudi Arabia-like role in things, and that's not to be dismissed.

Then also via Zakaria' site comes the following US Energy Information Agency chart:

The clear long-term trend here, per the North American energy export boom in the works (Wikistrat's next community simulation to begin shortly), is the declining role of petroleum imports, dropping from the high in 2005 (60%) to under half today (49%) and down to just over a third (36%) by 2035.

Things you note:

• Flatness of demand curve!
• Significant rise in production - part of the fracking revolution!

The combo yields America's resumption of its role as a net exporter of petroleum products for the first time in over six decades!

Compare that picture to China's and ask yourself if you'd switch energy challenges with them.

Of course not.

But back to the first point: China is the big saver in the system of the last two-three decades. That means it's not only our great release-valve source of money for things like our national debt. It plays that role increasingly around the globe - to wit, the recent Wikistrat sim on "China as the de facto World Bank for Africa."

My point in the pairing: excitement over our improved energy picture, yes, but realism on the future of money - especially given this fear-threat reaction embodied in Obama's strategic "pivot" to China.

WPR's The New Rules: A Foreign Policy Wish List for 2012

Last year was a tough one in terms of global economics, humanitarian disasters and political leadership among the world's great powers. But it was also the year of the glorious Arab Spring and hints of similar developments in Myanmar, Russia and Ethiopia. So while the year's "fundamentals," as the economists like to say, weren't so good, it left us with plenty to be grateful for as globalization continues to awaken the desire of individuals for freedom the world over. Keeping all that in mind, here is my foreign policy wish list for 2012.

Read the entire column at World Politics Review.

WPR's The New Rules: U.S. Clutching for Straws With Energy Independence

The United States is on the verge of an industrial renaissance, according to energy experts enthusiastic about technological advances surrounding the “fracking” of shale gas and the processing of “tight oil.” America is sitting on a century-worth of natural gas, and the Western hemisphere boasts five times the reserves in unconventional oil as the Middle East claims in the conventional category. Suddenly, all our fears of resource wars with China and never-ending quagmires in Southwest Asia seem to melt away, heralding with great certainty another American century based on the promise of energy independence. As “deus ex machina” moments go, this one arrives just in time for a nation magnificently down on its luck and itself.

Read the entire column at World Politics Review.

Time's Battleland: Why Japan won't go all Caldicott over Fukushima

No, that ain't the Kool-Aid.My favorite - and most frustrated - anti-nuke activist Helen Caldicott believes Fukushima drives Japan out of the industry and - by extension - kills the industry worldwide.

Read the entire post at Time's Battleland blog.

Chart of the Day: Isn't a coincidence that the two biggest energy consumers . . .

 . . . happen to own the world's two largest reserves of shale gas?

Nice timing, huh?

The trick, of course, is the environmental impact.  American companies don't want to reveal their techniques, but the public needs to know so we can judge the impact and enforce the necessary precautions.

How that works and what volumes that ultimately allows us to extract is a big variable going forward.

With China, one assumes the niceties are not observed - until the riots start.

China will spend where it can own

It's becoming clear that China won't bail out Europe, simply because it sees no political will and has no desire to buy more Western debt.  Same will apply to US as things get worse.

What China will buy is access to stuff it truly wants: resources and management talent.  So, as the cited FT story makes clear, China is ready to invest in Brazil's new offshore hydrocarbon discoveries.

And as the Center for America-China Partnership made clear in our grand strategy agreement, China is interested in buying into US companies.

But no, it's not interested in throwing hard-earned money after bad.

WPR's The New Rules: U.S. Must Not Close the Door on Nuclear Energy

Prior to the Fukushima nuclear power plant disaster in Japan, the nuclear energy industry was poised for a global expansion of unprecedented size. Proponents of nuclear energy still see a bright future in a world where electrical demand grows hand in hand with a burgeoning global middle class and everybody wants to reduce CO2 emissions. But vociferous industry opponents now claim nuclear power has been dealt a Chernobyl-like deathblow. Unsurprisingly, most pessimists are found in the advanced West -- witness Germany's decision to abandon nuclear power -- while most optimists are found in emerging economies such as China and India.

Read the entire post at World Politics Review.

Greenland: Show me the money - and what else?

FT story on Greenland's oil rush and how it's driving the independence movement toward it's next goal. Having achieved self-governance in 2009, it remains a "dependency" on Denmark. But with 52b barrels offshore, the next step seems clear: economic independence that ultimately allows for true political independence.

I wouldn't try to portray the Greenlanders as chaffing under Danish rule.  Honestly, it's hard to imagine anybody chaffing under Danish rule. It's more that the newfound wealth changes things: people want economic advance and once that happens, perceptions change.

Greenland is 85% Inuit and about 15% Danes.

Naturally, the push to access the oil is generating an enviro backlash. Greenpeace is hot on the scene, although the ship seems to be populated totally by foreigners (their effort is dubbed "Operation Foreigner"). The group sees Greenland as a chance to revive itself after some wandering years. Meanwhile, the local activists seem most concerned about creating jobs for Greenlanders.

All rather fascinating to watch as globalization comes big-time to the Arctic.

Chart of the Day: why everyone loves shale gas

From FT story.  Simply answer:  because of its weirdly even spread.  Unassociated gas, meaning gas not associated with oil, is the future.  We always just found gas alongside oil and assumed its distro geographically was similar.  It's not.  Unassociated gas is everywhere, and this chart doesn't even include methane hydrates (unassociated gas frozen solid in sea beds).

You may think that gas is only so-so exciting compared to oil, but electricity generation is crucial, and avoiding coal is crucial to reduce pollution/CO2.  You go mostly gas on electricity to crowd out coal, and then go modular nukes to supplement that (especially where infrastructure is "hostile" in its enviro layout:  remoteness is big example), and you use the modulars to make water potable and crack it for hydrogen, and that's how you make transpo happen increasingly (hybrid electricals shifting to hydrogen, with ultralights providing a lot of the energy savings along the way).  

Oil has had its time.  Gas is the next big node going down the hydrocarbon chain.

The big hold-up/uncertainty on gas remains the enviro impact of fracking.  This is why I continue to think that methane hydrates will ultimately be more the answer.  But someone please disabuse me of that assumption.

WPR's The New Rules: For U.S., Abandoning the Middle East not a Solution

America's successful assassination of Osama bin Laden, long overdue, naturally renews talk across the country about ending the nation's military involvement in Afghanistan-Pakistan. Coupled with the ongoing tumult unleashed by the Arab Spring, Washington is once again being encouraged to reconsider its strategic relationship with the troubled Middle East. The underlying current to this debate has always been the widely held perception that America's "oil addiction" tethers it to the unstable region. Achieve "energy independence," we are told, and America would free itself of this terrible burden.

Read the entire column at World Politics Review.

Chart of the day: The heartbeat of the global economy

Instability in the Middle East tracks very tightly to global oil price shocks (displayed here as percentage changes over the years), and the "past five global recessions have all followed sharp jumps in the oil price," according to the FT, from whence this chart comes.

It almost looks like a heartbeat, does it not (?), the odd thing being how it always seems to settle back into a stable pattern of relatively small price changes.

But I think that ends with the sustained demand growth in the East.  I think the upward pressure only grows and we thus get a new normal of consistently rising prices once this current instability settles out.

Truth of the situation:  The world pays one way or the other.  It either pays by intervening or it sits back and pays because the instability plays out longer.  But the world pays.

[Apologies for the sloppy wording in the first draft (pointed out by a commenter who needs to offer up a better fake name if he wants to be posted).  I am working monster hours right now and so I tend to shortchange the blog a bit, dashing through posts. But, with 8 mouths to feed, I am happy to be working so much.]

Alt Fuels not necessarily the way forward for military, says RAND

Can't say I'm surprised by the report.  I've always felt the whole argument about what-it-takes-to-bring-a-gallon-of-gas-to-the-battlefield-somehow-being-obviated-by-alternative-fuels promised too much, in part because you still needed to bring whatever was necessary for the on-the-spot brewing of fuel, plus you now just have a different sort of depot to guard.  But yeah, you will cut down on the sheer volume to be moved over the long haul. On the electricity generation, I could get that.  Go solar and you're not humping the additional fuel-case closed. I just didn't see why the military should lead any efforts there.  Better to simply take what the private sector had and adapt.  I've also sort of understood the aircraft fuel argument, although there you're often talking sites not that hard to supply (e.g., a big base may be within flying range of the theater but not actually in it).  

Anyway, the whole argument just seemed like it was being driven a bit too much by the isolation-of-Afghanistan notion and all of a sudden here we're talking about the Pentagon's budget becoming this leading force for energy innovation in the economy (the old Internet argument, noted here).

There has been that tendency in the post-Cold War era:  you can't get your pet gov-sponsored R&D bit anywhere in the Feb budget, so you declare it a national security issue and stuff it in there. And you had to feel that some of that was going on.

In the NYT piece, the Navy does complain that their programs weren't adequately surveyed, and you have to pause there, because you think of past Navy efforts with small nuclear power plants.   Plus, that's a need that's global and rather unchanging, so if a cheaper, better alternative is to be had, then definitely the Navy should go for it.

I don't think the report will be enough for all these programs to be discontinued, but it probably will stop some additional piling on of new ones, which is probably good.

The military is such a microcosm of so many other problems in our economy/society, with spiraling health costs, a hard-to-sustain pension plan, energy costs too much and so on, and with the military's huge budget and reputation for innovation, there's the temptation to think answers can always be had from within. The problem is, of course, that the more non-combat stuff that gets stuffed into the budget, the less it's about the actual fighting and operations and the more it becomes this giant venture capital pool.

So it's good to see some skepticism from the think tanks.

This week in globalization

Clearing out my files for the week:

• Martin Wolf on why the US is going to win the global currency battle:  "To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US."  We win because we have infinite ammo.  But better that we come, per my Monday column, to some agreement at the G-20. 

• Sebastian Mallaby, also in FT, says that, despite the current currency struggles, the "genie of global finance is out of the bottle" and not to be stuffed back in.  Wolf had noted $800B capital inflows to emerging markets 2010-2011, which is gargantuan, thus the crazy struggle of some places to keep their currencies low.  As for America stopping China from buying US bonds in retaliation for our not being able to buy Chinese assets?  China holds only about one-third of the US T-bonds abroad ($3T total), so it can buy all its wants from others in the system.  There is no turning back, he says.

• Meanwhile, the Pentagon makes plans to turn back the clock on the globalization of defense manufacturing.  A new spending bill provision--inserted at DoD's request--includes the power to exclude foreign parts suppliers (read China). Just about every US-based defense firm uses offshore suppliers, so this is going to get very expensive very fast.  It'll be a lot harder to find that $100B in savings over five years. This is almost a fifth generation warfare version of shooting yourself in the foot--first, before the other guy can.  China does nothing here, that frankly we shouldn't be able to handle, but we move down a path that instantly adds a significant tax to everything we buy in the growing-by-leaps-and-bounds IT realm.  One hopes there's a half-billion for that American rare earths mining co. that's looking for a new investor.  Interesting how China's becoming vulnerable to, and dependent on, so many unstable parts of the world for resources, and we're going to cut off the tip of our IT nose to spite our face.  I can imagine a cheaper way, but that would be so naive in comparison to spending all this extra money.

• China continues to buy low, as a ruthless capitalist should. Giving us a taste of what it could be like if we don't get too protectionist, it's buying up Greece's "toxic government bonds."--and plenty more in Europe. All of the EU is getting a taste, says Newsweek, as Chinese investors are snapping up bankrupt enterprises and--apparently--putting people back to work.  China also, like a ruthless capitalist, seeks to make bilats reduce the chance of EU-wide restrictions on its trade. Old American trick.

• Another sign of globalization on the march:  emerging economies buying up food and beverage companies in the West that would otherwise naturally be targeting them for future expansion. Bankers expect the trend to continue.  Gotta feed and water that global middle class that keeps emerging at 70-75m a year.  Emerging economies are buying up the companies from equity firms that had previously bought them during down times.

• Great FT story on how Turkey has the Iranian middle class in its sights.  Long history of smuggling inTurkey dips a toe in, would like to drink entire tub eastern Turkey.  Sanctions hold up what could be a major trade, so the black-marketing local Turks mostly smuggle gasoline--and a certain amount of heroin.  But the official goal is clear enough:  be ready to take advantage whenever Iran opens up.  A local Turkish chamber of commerce official floats the notion of a free trade zone at the border. Those 70m underserved Iranian consumers beckon.

• Bloomberg Businessweek stories on how China's working aggressively to get western technology and cooperation to allow it to work its significant coal-bed and shale gas reserves.  Russia's exporting nuclear reactors like nobody's business, and Mongolia's beginning a long boom as "one of the last places on earth with huge, untapped metal ore resources" (guess who's showing up in numbers--with cash).

• India's airline industry can't keep up with demand generated by itsGet me planes and pilots--now! booming middle class. Boeing says Indian airlines will buy over 1,000 jets in the next two decades. Already they're forced to have one-in-five pilots be foreigners.

• Fascinating WSJ story on how China's car economy is going wild, with ordinary Chinese exploring the freedom of the road.  Drive-in service is taking off, weekend jaunts mean hotel business, etc. In past visits I saw a lot of this coming down the pike.  Just like when America's car culture went crazy after WWII, this is a serious social revolution.

Don't forget your meal of eternal happiness!

• "Brazil and China banks join list of world's top credit card issuers."  And so it begins.

• Funny thing about all this South China Sea hubbub: "Corporate ties linking China and Japan have never been stronger," says the WSJ.  Serious driver?  Japan is exporting its mania for golf to China--the fastest growing market for the sport.  It's what middle-class guys do.

Coming soon: the "golf wars"

• WSJ story on Vietnam creating its own Facebook to keep a closer eye on its netizens.  Defeat the anti-capitalist insurgents!What caught my attention: "The team has added online English tests and several state-approved video games, including a violent multi-player contest featuring a band of militants bent on stopping the spread of global capitalism."  I would say we finally won the Vietnam War.

Iran's oil exports not choked, but redirected eastward

Our sanctions are described as "choking" Iran's exports.  But what I see is an export level dropping in concert with production, where the sanctions may be having significant impact, but probably not as much as claimed. 

Clearly, what the sanctions etc. has done is redirect Iranian oil exports from Europe & Japan to "rising" Asia. Eventually, the investment profile will change to reflect that, meaning the energy investments Iran attracts will likewise be shifted from West to East.  It just takes longer.  

Naturally, the Obama administration wants to shut down that possibility as well, but I suspect it'll be far less successful simply because rising Asia needs oil and gas from EVERYBODY, and can't afford our WMD qualms.

And frankly, why should they when we shield our best-boy in the region on the same subject?

Scary, I know, but eventually Iran's nukes gets Israel the strategic security it needs.  Frightening journey, yes, but I've yet to see an alternative pathway of any serious plausibility.

Chart of the Day: Year(s) of the (energy) pig

Pretty easy to hit high growth numbers if you're tossing everything into the boiler.  This is extensive growth defined:  anything that burns is considered fuel.

The environmental cost of natural gas fraccing

Solid NYT piece that shows we're just beginning the Erin Brockovitch-style fights over the environmental impact of natural gas fracturing methods.  

I expect the news will get worse before it gets better, but that it'll be a good process of discovery that forces more careful extraction techniques and technologies.

So, bring on the lawyers, say I.

Russians to fuel Iranian reactor: out-of-the-blue shock at 11!

WSJ front-pager.

Russia saying it's going to help start up the Bushehr reactor, a stance the US now supports as quid pro quo for gaining Moscow's agreement to the recent--and fourth--round of UN sanctions.

And so the Obama admin spins positively on the development, even as many experts do the exact opposite. The White House hopes and prays the sanctions work new wonders, but this train continues to roll . . ..

Big Oil plans its Big Spill Force

D’oh!  Big Oil didn’t have a rapid-response force for deepwater disasters before Deepwater Horizon!?!?!

Well, they do now, so their industry was perturbed enough to create a rule-set where previously none was thought worthy enough to exist.

Exxon, Chevron, ConocoPhillips and Shell all pitch in a quarter billion to make it happen. Goal is capacity to capture and contain up to 100k bpd at 10k feet below the surface.  Deepwater’s numbers were 60k bpd at 5k depth.

New system will feature several oil-collection ships and other subsurface gear will, coincidentally enough, resemble the ad hoc package that BP was forced to invent on the spot, thanks to Deepwater.

You can just slap my forehead and utter your favorite interjection.

BP perturbed, oil industry not so much

FT story on how the oil industry has resigned itself to tougher drilling rules from the US.  So while BP mournfully proclaims that the Deepwater Horizon disaster will change the industry forever, most companies are saying only that the US’s looser rule set is now being tightened up to global standards, and that none of the changes will particularly prevent future accidents.

How so?  BP simply ignored a bunch of industry best practices on Deepwater, so a wake-up call for them but not for others, who refuse to take such risks. 

And yeah, outside the US, most national regulators are buying that story from the oil industry, so no great copycat stampede globally for moratoriums on drilling.  Instead, the big rule-set reset is mostly limited to US-based drilling, “where the industry had for decades resisted tougher rules”—apparently with great success.

So, as far as System Perturbations goes, this one seems limited—for now—to the politically entity in question.

Heavy will lay the crown of world’s biggest energy consumer

Series of WSJ and FT stories on the International Energy Agency declaring China the world’s energy demand center, an old slide of mine that goes back to the year 2000.

Humble China disputes the charge!  The IEA counters that China’s official figures have been so bad in the past that they’ve led lots of energy trackers to issue projections that are routinely ratcheted up or down with great statistical violence over the years.  I can attest to this:  when I put out the Asian Energy Futures report a decade ago, I was forced, within a year, to amend the report because the new Dept. of Energy figures so altered its projections on China in just one year’s time that it rendered the report stunning obsolete in some of its assumptions. 

The latest IEA numbers put China at 2.52T metric tones of oil equivalent, about 4% higher than the US, which was the world’s largest consumer of energy for the vast majority of the 20^th century—as in, since it rose to economic prominence in the earliest years of the century.

China is claiming this happened only because the US was in recession and the IEA botched its numbers on China’s actual use, but this is a nonsense reply in terms of clear trends.  China is simply on a rocketing course, so arguing about which month it actually overtakes the US is silly.  Look at it this way, in 2000, the US consumed twice the energy of China and just a decade later China consumes slightly more than America.  Our annual efficiency improvement now stands at 2.5%, while China’s is 1.7%.

And understand that China uses coal to a stunning degree (well over half its energy), while the US share is dropping from its historical range of 40%, thanks to increased use of gas.

Now, at first blush, everyone on both sides will take this as a matter of ego, as in, “check out how powerful China has become!”

But over time the reality will set in:  China is now the most vulnerable economy in the world, and it doesn’t have a military that matches that immense dependency.

Then all we have to do is sit back and see how China likes that new burden, because all the world’s antiglobalization forces, both “soft” and deterministically kinetic, will catch on to this new reality soon enough.