Monthly Archives: November 2011

Lost Generation(s)?

As the reality of austerity cuts and high unemployment for the foreseeable future takes hold across Southern Europe, its worth asking just what is going to happen to the millions of young people entering the labor force at this moment and in the years until the region can get back on its feet. While the numbers of unemployed across the region are dispiriting, the numbers among the young are terrifying, reaching nearly 45 percent in some corners of the Northern Mediterranean. Its difficult to see how this situation will remedy itself in the near future – even if the economies of Greece, Italy and Spain rebound quicker than predicted, labor laws in the region still tend to favor older workers, with the young and energetic left to scramble for the short-term contracts that leave them with little choice and even less stability. Making matters still worse is a region top-heavy with aged populations who will be difficult to convince that the safety nets they expected to enjoy all their professional lives are barely possible even in good times and pure fantasy in an environment when the workforce meant to pay for it can’t seem to find a job to  pay for an apartment, let alone their retirement. Its going to take some tough and unpopular choices and sacrifice all around and in the long run, its going to take a wave of leadership that can convince those with the reigns to loosen their grips and hand them over to a younger work force who can do more than just sustain.

Tagged , , ,

Understanding Why the EU Matters to You?

In a seemingly endless quest to understand the myriad links between financial and government institutions across the world that have led us so closely to the precipice over the last few years, I have started gathering the best content I could find that explain these connections and just why someone in San Francisco should care about the state of banks in Athens, or someone in Kansas City should care about the well being of the Euro. First up is BBC’s Euro Debt Web, detailing what’s owed and to who when it comes to the European Union and beyond. Second comes The New York Times, Its All Connected – a pleasant enough bubble graph if you don’t pay attention to what its all about, outlining the debt exposure for EU countries and their debtors.

Updates to follow.

 

Election Day Hangover – Spanish Resaca Pt. 2

Forty eight hours on and the narrative that’s emerging is, I am certain, not quite what the conservatives may have hoped for. Yes, the new government has officially been chosen and yes, they have the largest Parliamentary majority that anyone can remember but any hopes that a Rajoy-led transition would calm the markets and give investors some semblance of confidence as debt yields shot up to a 14 year high this morning, making Spanish debt nearly impossible to sustain should this continue. Rajoy, it seems, will have to do more than just show up to make much of a dent in the current wave of uncertainty about Spain’s ability to weather the storm and bounce back in the coming weeks. In the meantime, we get lukewarm reactions from across the globe that amount to “congratulations, welcome to the top, now do something dammnit”.

On a highly opinionated note, observing the traditional month long transition period at this particular juncture seems naive at best and deeply oblivious of the situation at worst. If there was ever a national emergency that demanded swift, unconventional action from the government, I would think this would be it.

This possible state of emergency is made all the more pressing by the announcement today that Greece has much less time than once thought to convince international creditors to hand over the next installment in their financial support program, amounting to about 8 billion euro. Once thought to have until mid-December until the coffers emptied in Athens, the new government has announced they will likely run dry in eight days.

Tagged , , ,

Buyer’s Remorse?

This is hardly the first or most original critique of the the Euro I’ve read but what leaves Paul Krugman’s wanting for me is a sneaking suspicion that the architects of the currency system did in fact anticipate some level of difficulty and obstacles along the way. The approach Krugman takes suggests that the romanticism of a unified Europe overshadowed any possible detection that it would, indeed, be difficult to bridge the gaps between the economies as disparate as those in the original and expanded European Union. Yes, mistakes were made and yes, particular countries were rushed through the integration process before they should have been but ultimately, I just find is so difficult to believe that those romantics did not anticipate a bumpy ride.

Nat Gas Giants Seek Greater Unity Against EU

Anticipating greater internal challenges to their dominance of the European natural gas market, energy actors in Russia and Algeria called for broader partnerships in the face of possible legal challenges and political resistance. Europe’s two largest providers of natural gas signaled a new wave of cooperation to defend themselves against what they saw as challenges to existing pricing and production agreements, citing cases such as Germany’s EON AG and RWE AG utilities as worrisome examples of what obstacles may lay ahead.

Both countries have recently experienced resistance to their market dominance in recent years, with Russia especially coming under fire for their pricing and delivery volatility. More recent challenges to their presence in favor of alternative pipeline systems and the growth of unconventional natural gas options emerging in Europe have further threatened their role in the region. Working together, representatives suggested, would allow them to address legal challenges from customers intent on changing existing contracts. For customers in Europe, these challenges are intended to allow for greater import flexibility, reducing the dominance of Russian reserves and managing prices they deem to be too high when compared with those found in the United States. Any new partnerships with Algeria could greatly reduce the opportunity for Europe to explore natural gas alternatives, as prices among exporters become locked in place. Europe’s potential dependence on Algeria has recently become all the more important as Libya’s production and export levels remain subject to regional instability and deficits of infrastructure.

Natural Gas Unity

The call for greater collaboration came from members of Algeria’s state-backed Sonatrach and Russian Energy Minister Sergei Shmatko following meetings at the annual meeting of the Gas Exporting Countries Forum (GECF), the world’s gathering of the world’s largest natural gas exporters. The forum, consisting of Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago and Venezuela, with Kazakhstan, the Netherlands and Norway as Observer members, is an organization aimed at protecting the interests of the world’s largest natural gas providers. Member states currently control 66 percent of the world’s natural gas reserves.

Russia and Algeria’s push for greater cooperation echoed similar calls from both countries during the annual meeting in Doha earlier this week to increase collaborative efforts to boost supply and increase global prices among member states. These efforts stopped short of promoting the idea of a natural gas-OPEC, which would promote a global pricing system, but some members did suggest a solution that would strengthen link the price of natural gas to that of oil. For some regional analysts, this potential pricing correlation means only higher prices for customers of GECF member states.

“When these countries say ‘oil-linked prices’ what they really mean is ‘high prices,’” Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management, told Bloomberg News. “They wish to prevent the emergence of gas-on-gas competition and transparent market-based pricing.”

Although Russian energy actors stood as some of the loudest voices at the meeting calling for greater cooperation between member states, they shied away from demands for global pricing arrangements, which some analysts believe would pose a greater threat to their European presence than legal challenges from within the EU.

Moscow-based oil & gas analyst at Alfa Bank Maria Yegikyan told Kostis Geropoulos of New Europe, “That would make it necessary for the company to basically take away its monopoly for the pricing because currently Gazprom’s price is much higher than prices on the global market. For instance, Henry Hub and other gas benchmark prices, so I really don’t think that it would be a benefit for Gazprom to have a global price on gas.”

Algeria On Board?

Speaking at the forum in Doha, Algerian President Abdelaziz Bouteflika further supported calls for collaboration between member states, though he did not specifically address efforts with Russia alone. However, recent domestic actions on the part of the president suggest a possible new direction for the country’s energy sector. Earlier this month, the president removed the managing director of the state-backed firm Sonatrach, Noureddine Cherouati, after two years at the helm. Appointed with the support of the energy minister at the time, Cherouati was meant to guide the firm out of the controversy surrounding an expansive corruption scandal. During his time as managing director, Sonatrach reported a 284 percent increase in profits, climbing from $3.8 billion in 2009 to $9.5 billion this past year. While the move was long suspected, an actual announcement from the president’s office came only recently as Bouteflika announced the appointment of Abdelhamid Zerguine, who had previously led Sonatrach’s subsidiary in Switzerland.

While the change in leadership at Sonatrach may not specifically impact expanding joint efforts with Russia, another meeting held at the GECF forum certainly could. After months of tension related to support for the new government in Libya and the acceptance of members of the family of Muammar Gadaffi fleeing the country during the armed conflict that led to his government’s collapse, representatives from Tripoli and Algiers met at the conference, signaling greater cooperation between the two countries. While diplomatic in nature, the announcement could spell trouble for the proposed alliance as the regional natural gas producer most likely to benefit from legal challenges to Russian gas imports from EU customers and greater flexibility would be an emerging Libya.

Election Day Hang-Over – Spanish Resaca

As predicted, the markets have continued to punish Spain, pushing bond yields closer and closer to the dreaded seven percent.

While I agree that the PSOE deserve the lion’s share of blame for the state of things at the moment, not least for their unwillingness to recognize the crisis until it was banging on the front door – I think its unfair to put it all on them. There were a number of factors that could be traced back to the PP period (lack of economic diversification or willingness to take on terrible labor practices and antiquated contract systems) and factors that extend far beyond the borders of the country (Euro-connected inflation, growing pains of being part of the EU). That said, I think the frustration now comes not from the PSOE loss – you could have seen that coming miles away, but the unwillingness or inability for Rajoy and the PP to present any concrete details about how he plans to move things forward. There is a reason why the markets have responded so poorly this morning to the election results – Rajoy was going to win for sure. He knew that, the public knew that and the markets knew that but no one seems to have much confidence that he had a clue about how to improve things or willingness to make the specific tough calls and he has not done much to help the situation.  I think this might be at the heart of why the regional parties made the strides they did – a general disgust with both the PP and the PSOE among non-loyalists. I think its time for action on the part of all but I think in the coming months and years, both the big parties need a real period of reflection and clearing house. The party structure and old way of doing things has got to change, though I know it will not be easy. The old guard has shown themselves to be simply out of tune with the world around them, both within Spain and in a wider European setting. Zapatero should have acted earlier and with more guts and Rajoy should have responded to the torch passing with more gusto and real details and leadership instead of playing it cautious. I have not always found myself in line with the PP arguments but I can only hope Rajoy rises to the occasion.

Aftershocks of a Revolution, Part I

As the weeks pass and dust begins to seemingly settle on the political transitions across North Africa and beyond, it is becoming clear that any assumption that the long-awaited change would be swift is both wrong and naive. The after-shocks of these revolutions are clear in the return of protestors and government violence in Cairo and the slow trickling of arrests of Gadaffi loyalists as they attempt to flee Libya, possibly dressed as a camel herder as the former leader’s last free son was reported to have tried this weekend. These shocks will continue to come as newly politically active populations attempt to keep a keen eye on just how new governments are shaping up and long-buried details of misdeeds on all sides continue to emerge. It will not be pretty or easy but few transitions are.

Spanish Elections and Actual Plans for the Future?

While it will be weeks before Rajoy – the almost certain new leader of the Spanish parliament following tomorrow elections – is actually sworn into office, his influence will be immediately felt as markets breathe a sigh of relief after the exit of the beleaguered Zapatero government. Or at least that’s what people are hoping. As the head of the conservative Partido Popular, Rajoy has been cautious about lending too many details about what he and his new cabinet plan to do once the polls close, promising likely further spending cuts and rather vague job-creating measures. However, after a year of similar cuts failing to restore much confidence in Spain’s ability kick-start the economy again, a worry is beginning to surface that austerity measures will not be nearly enough to calm the waters and may even be hurting the country’s ability to perform in the future. This is hardly a new argument in Europe or the US for that matter but is starting to settle heavily in Madrid as voters look at the incoming Rajoy’s limited promises of still further cuts and wonder, is that all there is?

Of course, all of this depends on whether the PP are able to cobble together an outright majority of the vote, which looks possible but not certain. For months, protests and general polls have shown an outright frustration with both major parties in the country and anecdotally, I have found few voters willing to say they were voting for the likely victors, PP – and even fewer willing to put their support behind the outgoing PSOE. They really are toxic these days. The PSOE have left them with the conclusion that a change at the top is necessary, but the realization that the PP is their only alternative is a bitter pill to swallow. Instead, I find voters struggling to find a balance between issuing their distaste for the big two parties and actually having their vote count for something – a dilemma that seems to be a common theme in elections across the world these days.

Italy’s Uncertain Future

A shift in focus could come with the exit of Silvio Berlusconi and the arrival of a new government but right now a great deal of uncertainty surrounds Italy’s energy future

Following weeks of political upheaval and roller-coaster market instability, Italy now finds itself with new national leadership. With it comes the promise of a technical approach to governance and the introduction of new financial measures aimed at calming global worries about the country’s ability to deal with its overwhelming debt. The exit of controversial Prime Minister Silvio Berslusconi and the appointment of Mario Monti to lead the government to implement a host of new regulations promoted by the European Union (EU) and the International Monetary Fund (IMF) were welcomed by political and market leaders across the globe. But it is far from clear how this new technocratic leadership will work in practice, including how it will shape Italy’s precarious energy standing. Although the news of Bersluconi’s exit was enough to drive up oil and gas prices across the globe – further allowing local companies such as Eni the spike in profits necessary to weather current challenges – it is far less clear how his departure will affect the country’s broader energy future.

Challenges

The last 18 months have left Italy with a collection of energy challenges, including issues pertaining to its domestic operations and production as well as overseas exploration and production. The country’s most prominent energy trading partner, Libya, saw its long-standing government collapse as pro-democracy movements led to an armed conflict lasting months, resulting in a complete halt in production.

Despite international pressure, Italy had spent the last decade cultivating trade and diplomatic relations with Libya’s former leader, Muammar Ghadaffi, through heavy investment in aid and development, establishing Libya as one of its three main providers of oil and natural gas alongside Algeria and Russia. The armed conflict saw Italy’s energy imports under threat, as companies such as Eni were forced to remove expatriate staff from the North African country.

Meanwhile at home, Italy has seen two domestic efforts to step up energy independence curtailed by local protest movements. Offshore drilling projects were restricted after the Deepwater Horizon spill in the Gulf of Mexico inspired calls for new project rules in the Mediterranean, leading to a ban on efforts within 5 nautical miles (9.3 km) of the Italian coastline. While the new regulations have mostly hindered smaller operators, such as Mediterranean Oil and Gas, new proposals from the EU on offshore drilling could have a further impact on projects in the region. Finally, the government’s push to revive Italy’s long-dormant nuclear power programme after the events surrounding the tsunami in Japan this year and its impact on nuclear plants sparked a wave of protest from EU and local political leaders. After being set aside until political pressure had subsided, the campaign has now lost its strongest proponent in Berlusconi, causing further uncertainty about a nuclear future in Italy.

Foreign relations

These events have left Italy and the country’s largest energy firms increasingly isolated when it comes to their immediate opportunities not only for growth but also for the country’s immediate oil and gas needs. This situation may be further exacerbated by the absence of Bersluconi, who demonstrated a willingness to seek out energy partnerships beyond and sometimes against wider regional sentiment.

This approach – leading to close working and diplomatic relationships with Ghadaffi and Russia’s Prime Minister Vladimir Putin, will not likely be continued under the stewardship of Monti, a much stronger proponent of EU market integration and member state partnerships. Having announced his campaign to return to Russia’s highest office, Putin echoed this sentiment in a speech last week where he derided EU energy policies while praising the outgoing Berlusconi as a friend and “one of the last of the Mohicans of European politics”, according to the Wall Street Journal.

All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

Although Putin is favoured to return to office, the change in leadership in Libya may offer Italy some relief, as Eni has returned to production efforts in the country after embracing the Libyan Transitional National Government (TNG) despite earlier reservations. Eni has revived production efforts in Libya, including its work in the Elephant field south of Tripoli, but levels remain modest. Fully supported by the EU, the TNG will provide a greater opportunity for Italy to expand its presence in North Africa in the months ahead, though infrastructure deficiencies and lingering worries concerning regional stability have slowed a return to pre-conflict production levels.

Elsewhere in North Africa, Italy has sought more exposure to the region’s energy potential, recently moving forward on a long-delayed pipeline project linking Algeria, one of its largest energy providers, with the island of Sicily. The move would increase imports into Italy, as well as side-step potentially unstable transport systems in the transitional political environments of Tunisia and Libya. However, faced with likely spending cuts and a significant tightening of the belt, Italy may not be willing or able to pursue such costly infrastructure projects in the coming year.

For now, the country’s energy future remains vague, with little allotted for traditional or novel approaches to meeting domestic energy needs or expanding its hydrocarbon presence abroad. Having announced that it has little to contribute to Europe’s expanding shale extraction marketplace and that it has done little to build a government support system for renewables, the country again is looking to its traditional providers for an energy answer.

 

Originally Published in Newsbase, EuroOil Monitor. November 15, 2011.

All Rights Reserved.

The Consequences of a “Bankers Government”

While its certainly too soon to make much of what the appointed bodies in Greece and Italy are proposing to reign in spending and rebuild some semblance of confidence in the ability to withstand the financial pressure of these next few weeks, the people seem to have spoken in the streets of Rome and Athens today – some of them at least. Granted, it was the Greek holiday celebrating the beginning of the student protests that helped bring down the country’s dictatorship in 1973, but there is no denying that there are some substantial hurdles for Mario Monti and Lucas Papademos to overcome as they introduce a new wave of cuts to citizenry already weighed down by months of pessimism and slashes to services they’ve come to simply expect.

There is nothing yet to demonstrate that the two have successfully distanced themselves from their reputation among detractors as appointed members of a “banker’s government” – one time employees of the same Goldman Sachs that helped consult the Greek government into a position where they could hide the debt they were so eager to continue borrowing on. However, upcoming parliamentary votes of confidence should give some indication about just how hard their path to passing the painful cuts will – off the streets at least.