Archive for December, 2011


US Shale Oil production set to take off

December 22, 2011

The same set of factors that has propelled the Bakken shale oil surge in North Dakota is set to take off in other regions of the US, the National Petroleum Council reports.  The NPC expects 3 million barrels per day by 2035, but experts in the field expect the 3 million bpd level to be reached far sooner.


Note:  This will be the last post of the week.  I will make a post or two next week, but the regular pace of posting will not pick up until after the New Year.

Happy New Year and Happy Holidays to all.



Welcome to The Shale Age

December 20, 2011

For as long as I have been writing this blog, I have been identifying the early 21st century as a new era of energy, but not as new as many others would have it.  I do not see a century of exotic, renewable energy resources, but rather a continued and increasing use of fossil fuels.  What makes this new is that technology is finally allowing us to unlock the tremendous reserves of shale based carbon resources.  The Shale Age, I have called it, will overwhelm the efforts to develop exotic alternatives because of the combination of the Three Ps that fossil fuels, especially when converted to liquids, offer us:  Potency, Price and Portability.  Coal, oil and natural gas are much more chemically dense with energy than any other viable alternative source (save uranium and other nuclear fuels); even with the rapid rise in the cost of oil in the last decade, it is still much cheaper than all viable alternatives (and, those prices will crash if an open fuel standard is mandated); and it is far easier to transport liquid fuel via tanker, truck or pipeline to point of use than by building massive electrical grids.

The big game changer is shale gas.  I have written often about the vast supplies of shale gas available in the United States – estimated to be at least 750 trillion cubic feet, enough for century or more even with greatly increased usage – and that doesn’t even count the similarly huge reserves of shale oil which are also on the cusp of becoming widely accessed.   As large as the American resources are, it is dwarfed by new estimates of China’s shale gas resource.  At 12750 trillion cubic feet, it is 70% greater than even the tremendous US reserve.  If China and the US both maximize their use of shale gas, they will completely transform the world geo-economic and geopolitical structure.  Indeed, such an occurrence might even make this blog and my chosen specialty superfluous.   I would gladly welcome being made redundant if that is the case, though I still warn that there are pitfalls ahead – not the least of which is the increasing possibility of a shale gas bubble that delays the entire enterprise.


Whither China? Chinese leaders ponder choice between 2 economic models

December 19, 2011

The European Council on Foreign Relations has produced a new China Analysis that compares two models for the Chinese economy that leaders are debating as they consider China’s future path.  The models are named after two Chinese geographical entities- the city of Chongqing in Central China, and the Southeastern coastal province of Guangdong.  The Chongqing model is largely a continuation of the current scheme – luring foreign investment and rapidly growing GDP through large exports.  The Guangdong model, on the other hand, is a move away from the export based strategy and an attempt to build a sector leading high tech economy.  The Chongqing model, I think, is nearing (and possibly has already reached) its peak; the Guangdong model, on the other hand, presents a difficult road and is far from a sure thing.    

Read the whole thing.


Short vacation hiatus

December 13, 2011

off to Sea World with the family . . . please come back for a new post on Monday.  Posting will continue to be sparse – no more than 1 per business day – for the rest of the month.  I should be back to posting multiple items in January, after the holiday season has passed.  Thanks to all visitors for their continued support.


How to lose money and waste resources on a grand scale

December 12, 2011

The green energy bonanza grew quickly, produced vastly less return than investment in fossil assets, destroyed its investor credibility and image in public opinion, and is now declining sharply.

That is Andrew McKillop on what he calls “the trillion dollar boondoggle” of green energy investing.  This is, I believe, a very important piece.  Read the whole thing, and remember it when you hear politicians rambling about the promise of the “green energy economy” in the upcoming election season:

We can ask: did a carbon trader running a “carousel” trade of buying emissions permits in a European country where VAT is not applied, and selling it another where VAT is applied – then pocketing the difference and running for it – really contribute to the sacred quest to “fight” global warming ? From 2005 to 2009 this was regular practice on those squeaky clean carbon markets of the European ETS. About 5 billion euro-per-year (around $6.5 billion/year) went down the drain, or in fact exiled itself to the Cayman Is and other “climate conscious” outposts of the neo capitalist financial community, simply from that one single rip-off. One among a long list of others. All known. All documented. All ignored by our political deciders who like to “keep the party going” with their finance sector chums.



NLRB Boeing decision has geoeconomic dimensions

December 9, 2011

The Boeing Company has been trying to open a new manufacturing facility in South Carolina for some time, but the process had been halted by a machinists union complaint before the National Labor Relations Board.    Today, however, the union dropped its complaint and has allowed the plans to go forward.  Summary from The Hill:

The labor board argued for much of the past year that Boeing decided to locate a new plant to build its new 787 Dreamliner jets in South Carolina, a right-to-work state, in retaliation for strikes by unionized workers at its existing facilities in Washington state.

So why, you may ask, is this story on a geostrategy blog?  Because it could have a profound impact on the geoeconomic component of geostrategy.  Our primary competitor for geopolitical dominance in the world is China, which has staked its rise on becoming “the world’s workhouse” based on its low manufacturing costs.  However, the right-to-work states of the US, especially in the American South, are increasingly competitive with China as low cost manufacturing locations.  A recent report by the Boston Consulting Group predicted that, with the right policy decisions, the US could experience a “manufacturing renaissance” as the low cost manufacturer of choice among developed nations.

Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world, according to a new analysis by The Boston Consulting Group (BCG).

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.

Key to that would be removing political resistance to moving manufacturing internally in the US from union heavy to right-to-work states.   The NLRB decision was a very positive move in that direction.


Isolationist vs Internationalist Republicans

December 8, 2011

The GOP has always had a foreign policy split between its isolationists and its internationalists.  This week, we got to see a preview of the future of that intra-party struggle, as two rising GOP stars took opposite sides on a key foreign policy question.  The issue was NATO membership for the Republic of Georgia.  For internationalists, Georgia is an important ally in a key strategic region, formal ties to which will give the US military flexibility in the Strategic Energy Ellipse.  For isolationists, getting too close to Georgia means tying us to a nation that has already fought a recent war against Russia and could drag the US into a deeper and more dangerous conflict in an already dangerous region.

On the internationalist side last week was freshman Florida Senator Marco Rubio, who tried to move a motion for Unanimous Consent that would have sped full NATO membership for Georgia.  Rubio was foiled, however, by fellow freshman (and fellow Tea Party favorite) Rand Paul of Kentucky.

On the one hand, I agree with Rubio that Georgia is an important friend in a vital region, and that they along with Ukraine and Azerbaijan should be seriously considered for NATO membership.  But, on the other hand, I think this is too important and nuanced an issue to be done in sub rosa manner, so I agree with Paul blocking the motion (although not with his actual motives for doing so).  In the long run, I hope that Rubio’s position prevails, but this is the sort of decision that should require a serious national conversation before we commit to it.  Already, plans are afoot by unelected bureaucrats to possibly station US troops in Georgia – a move that Russia would certainly see as provocative.   Policy positions with such portentous outcomes must be aired fully and publicly.