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Wednesday, January 26, 2011

[roeoz] sleepwalking into an oil price trap

Posted by AccGURU

Australia is sleepwalking into an oil price trap


Dr Michelle Zeibots, Institute for Sustainable Futures, University of Technology, Sydney, writes:


It's happening again. Petrol prices are rising and the question on everyone's mind is how high will they go this time?

Memories of the brief period in mid-2008, when Singapore Tapis hit $US150 a barrel and Sydney petrol prices soared to $1.60 a litre, still make most people nervous.

Australia sources its oil imports from South-East Asia where prices are measured by Singapore Tapis. Most news outlets quote the West Texas Indicator (WTI), which applies to the US domestic oil market and doesn't always reflect Australian prices. The WTI is usually lower than Tapis by a few dollars. But when global supply becomes tight and struggles to keep up with demand, the difference widens to about $US10 a barrel. This happened just before the 2008 price spike. The gap is now at $US11.

Fear of another price hike is entirely reasonable. All the easy, cheap and quick-to-get-at oil is gone and we're not discovering new reserves at a rate fast enough to replace consumption. Geology is catching up with us.

Canberra has been quiet. It's just business as usual, with no evident plan to meet the gathering crisis. While the inaction continues, we're sleepwalking into a trap -- a vicious cycle of price spikes that damage the parts of the economy unable to adapt, followed by the collapse of its weakest links so that prices fall. As parts of the economy recover, the whole nasty cycle begins again. For big inefficient consumers, the cycle leads to a process economists call demand destruction, which should be avoided by well-planned transition strategies.

In the short-term, how high Australian petrol prices will climb depends on two things -- the strength of the Chinese economy and whether the US continues to recover or is pushed back into recession by rising oil prices.

The fundamental dynamics work like this: our petrol prices depend on the strength of the Aussie dollar against other currencies and for that we depend on the strength of the Chinese economy. China's growth provides a hungry market for Australian coal, gas and mineral exports, providing us with a steady income that keeps our dollar strong. This holds down pump prices by comparison with other countries.

Our petrol prices are also affected by what happens to the American economy. As the US attempts to claw its way out of recession, its demand for oil will increase, driving up global prices. The US is dependent on imports for about 60% of its domestic consumption. If the US economy recovers and grows, there'll be more competition for oil on the open markets of South-East Asia that we rely on for the 40% we currently import to make up the rapidly growing shortfall between domestic production and consumption.

So if the US recovers, we could see 2008 prices return. Alternately, if the US economy stumbles, global prices won't increase by so much. They may even fall like they did by the close of 2008 when the Tapis dropped to $US50 a barrel. Back then, demand collapsed as thousands of American households defaulted on their mortgages because of higher food and fuel prices. Cash flows were interrupted, industries went under and unemployment rose. If this happens again, domestic petrol prices in Australia will be more affordable. But relying on the economic demise of others to keep petrol prices low at home isn't really good news.

The long-term outlook is less clear because the potential for volatility is so great. Within five years we'll be importing about 60% of domestic oil consumption making us more vulnerable.

What we can be certain of is the less oil we use, the less vulnerable we'll be. About 72% of crude oil products consumed in Australia are eaten up by transport, 62% of which is for private cars.

A sound transition strategy for the next decade would see us using more gas in the short term and far more electrified transport in the longer term. While our oil reserves are starting to run low, gas is in better shape. But like oil, gas is a finite resource. Electricity can come from many sources, including renewables, but it's likely to cost more in the future so we have to find demand-side efficiencies, pointing to a bigger role for electrified public transport, walking and cycling.

We also need to be more discriminating about where we deploy investment capital. Urban motorway and tollway development needs to be dumped in exchange for all those public transport projects the community has been calling for.


Tuesday, January 25, 2011

Iran not working on bomb: Israel intelligence head

Posted by AccGURU


Iran not working on bomb: Israel intelligence head

"The question is not when Iran will acquire the bomb, but how long until the leader decides to begin enriching (uranium) at 90 percent," Brigadier General Aviv Kochavi told parliament's foreign affairs and defence committee in his first briefing since taking up the role in November.

Once such a decision is made, it would take "a year or two" to produce a nuclear warhead, he said, adding that Iran would then need more time to develop an effective missile delivery system for it.

Kochavi said it was unlikely that Iran, which currently enriches uranium to 20 percent, would start enriching it to the 90 percent level needed for a bomb, because it would be in open breach of the nuclear Non-Proliferation Treaty exposing it to harsher sanctions or even a US or Israeli military strike.

He said Iran was reluctant to do this at a time when the country was going through a period of "instability" and "religious tension."

"At the moment, it's not in Iran's interest to move their programme ahead," he told the committee.

Recently, several senior Israeli officials, including the former head of the Mossad overseas intelligence agency, Meir Dagan, have said that Iran is unlikely to acquire nuclear weapons before 2015.

The comments have come amid reports that Israel was involved in a plot to sabotage Iran's nuclear programme through a destructive computer worm called Stuxnet.

Israel, which has the Middle East's sole if undeclared nuclear arsenal, regards Iran as its principal threat, after repeated predictions by its hardline President Mahmoud Ahmadinejad of the Jewish state's demise.

Along with many Western governments, Israel suspects Iran of trying to develop atomic weapons under cover of a civilian nuclear programme -- a charge Tehran denies.

Israel has backed the US policy of leading efforts at the Security Council for tougher UN sanctions against Iran while remaining open to dialogue.

But it has refused to rule out a resort to military action to stop Iran developing a weapons capability.



Clinton warns Hezbollah-backed government may alter U.S. ties with Lebanon

White House accuses Hezbollah of using 'coercion, intimidation, threats of violence' to achieve its political goals, after its candidate was tapped as Lebanon's new PM-designate.

U.S. Secretary of State Hillary Clinton said on Tuesday that a Hezbollah-dominated government in Lebanon would affect the country's relations with the United States, which regards Hezbollah as a terrorist group.

Hezbollah is on the official U.S. blacklist of terrorist groups, a designation that carries various financial and travel restrictions.

"A Hezbollah-controlled government would clearly have an impact on our bilateral relationship with Lebanon," Clinton told reporters in an appearance with Spain's visiting foreign minister.

"Our bottom lines remain as they always have been," Clinton said. "We believe that justice must be pursued and impunity for murder ended. We believe in Lebanon's sovereignty and an end to outside interference."

The White House on Tuesday accused the Shi'ite Muslim group of using "coercion, intimidation and threats of violence" to achieve its political goals and said the country's new government must abide by the Lebanese constitution and renounce violence.

Clinton said Washington was monitoring moves to form a new government in Lebanon, where Hezbollah-backed politician Najib Mikati has been named prime minister in a move that shifts the balance of power in the country toward Iran and Syria.

"As we see what this new government does, we will judge it accordingly," Clinton said.

Hezbollah's enhanced political strength appears likely to alarm Israel, Washington's chief ally in the region, which in 2006 fought a five-week war in a failed effort to destroy the Iran-backed movement's formidable military capacity.

U.S. officials said earlier this month that Lebanon's political turmoil would not trigger an immediate cut in U.S. aid to the Lebanese Armed Forces, but suggested that the ties would come under speedy review.

Clinton has accused Hezbollah, whose decision to pull out of a coalition toppled the government of former Prime Minister Saad Hariri, with attempting to subvert justice before expected indictments against the group over the February 2005 killing of his father, Rafik.

U.S. officials have also accused the movement of seeking to advance the interests of Iran.

"It is hard to imagine any government that is truly representative of all of Lebanon would abandon the effort to end the era of impunity for assassinations in the country. In the meantime, we call on all parties to maintain calm," White House spokesman Tommy Vietor said in a statement.

The United States ramped up assistance to Lebanon's military after the 2006 war with Israel and has given the Lebanese Armed Forces an estimated e650 million to pay for such things as helicopter maintenance, weapons and ammunition, night-vision goggles and anti-tank missiles.

In a country with a long history of sectarian militias, the United States also hoped to help professionalize the army, reinforce the concept of civilian control of the military and, diminish the influence of Hezbollah's forces -- all goals that look harder to achieve following the latest political crisis.

Republicans, who following November elections have taken control of the House of Representatives, have already pledged to examine U.S. aid for Lebanon more closely.