fuel

Fuel Transfer Runs Smoothly For Iced-In Alaska City

by AP on January 18, 2012

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ANCHORAGE, Alaska (AP) — A Russian tanker that went on an ocean odyssey of 5,000 miles to deliver fuel to the iced-in city of Nome was offloading the gasoline and diesel in what officials say is smooth sailing so far, with one possible problem avoided. Two parallel hoses, 700 yards long each, are stretched between the tanker Renda and a pipeline that will deliver 1.3 million gallons of fuel to storage tanks near the harbor of the iced-in city. The offloading began with gasoline, and then both gasoline and diesel were being transferred separately. Jason Evans, board chairman of Sitnasuak Native Corp., the company that arranged for the fuel delivery, said Tuesday the tanker’s two hoses are pumping between 30,000 and 40,000 gallons of gasoline and diesel an hour. One section of hose had to be switched out early Tuesday morning when a suspected bubble occurred in the line, Evans said. The change-out went smoothly and there have been no spills since the pumping operation began Monday evening. This is the first time petroleum products have been delivered to a western Alaska community by sea in winter. The mayor said festivities were planned, including a Coast Guard helicopter landing on the beach so children can look inside. They also set a basketball game between residents and Coast Guard crew members, and the city invited the crew to a pizza dinner. “It is our way to show our appreciation and how grateful we are and what they did for us,” said Mayor Denise Michels. The transfer could take from 36 hours to five days. It started near sundown Monday, after crews laid the hoses along a stretch of Bering Sea ice to the pipeline that begins on a rock causeway 550 yards from the tanker, Evans said. Sitnasuak owns the local fuel company, Bonanza Fuel, and has been working closely with Vitus Marine, the supplier that arranged for the delivery of the 1.3 million gallons of fuel. State officials said the transfer had to start during daylight, but can continue in darkness. Nome has just five hours of daylight this time of year. The city of 3,500 didn’t get its last pre-winter barge fuel delivery because of a massive November storm. Without the Renda’s delivery, Nome would run out of fuel by March or April, long before the next barge delivery is possible. Alaska has had one of the most severe winters in decades. Snow has piled up 10 feet or higher against the wood-sided buildings in Nome, a former gold rush town that is the final stop on the 1,150-mile Iditarod Trail Sled Dog Race. The Renda began its journey from Russia in mid-December, picking up diesel fuel in South Korea before heading to Dutch Harbor, Alaska, where it took on unleaded gasoline. It arrived last week off Nome on Alaska’s west coast, more than 500 miles from Anchorage. A Coast Guard icebreaker cleared a path for the 370-foot tanker through hundreds of miles of a slow journey stalled by thick ice and strong ocean currents. In total, the tanker traveled an estimated 5,000 miles, said Rear Adm. Thomas Ostebo, commander of District Seventeen with the Coast Guard. “It’s just been an absolutely grand collaboration by all parties involved,” said Stacey Smith of Vitus Marine, the fuel supplier. Smith said the effort is a third of the way over with the arrival of the Renda near Nome. Pumping the fuel from the tanker will be the second part. The third part will be the exiting through ice by the two ships. Personnel will walk the entire length of hosing every 30 minutes to check for leaks, Evans said. Each segment has its own containment area, and extra absorbent boom will be on hand. The Coast Guard is monitoring the effort, working with state, federal, local and tribal representatives, Chief Petty Officer Kip Wadlow said. The fuel participants had to submit a plan to state environmental regulators on how they intended to get the fuel off the Renda, he said. “We want to make sure the fuel transfer from the Renda to the onshore storage facility is conducted in as safe a manner as possible,” he said.

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Fuel Transfer Runs Smoothly For Iced-In Alaska City

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Remote Alaska Town ‘On The 5-Yard Line’ Waiting To Reconnect With World

by AP on January 15, 2012

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ANCHORAGE, Alaska — The ice that has cut off a remote Alaska town for months will connect it to the world again when crews build a path over it to carry fuel from a Russian tanker that was moored a half-mile from the town’s harbor Sunday morning. Workers were waiting for disturbed ice to freeze again so they could create some sort of roadway across the 2,100 feet from tanker to the harbor in Nome, upon which they’ll rest a hose that will transfer 1.3 million gallons of fuel. A storm prevented Nome’s 3,500 residents from getting a fuel delivery by barge in November. Without the tanker delivery, supplies of diesel fuel, gasoline and home heating fuel Nome are expected to run out in March and April, well before a barge delivery again in late May or June. The tanker began its journey from Russia in mid-December and has slowly made its way toward Nome, stalled by thick ice, strong ocean currents and one Alaska’s snowiest winters in memory. It picked up diesel fuel in South Korea, then headed to Dutch Harbor, Alaska, where it took on unleaded gasoline. Late Thursday, the vessels stopped offshore and began planning the transfer to Nome, more than 500 miles from Anchorage on Alaska’s west coast. A Coast Guard cutter cleared a path through hundreds of miles of Bering Sea ice for the tanker. Now, residents await the journey’s final leg, which comes with its own hurdles: In addition to waiting for the ice to freeze, crews must begin the transfer in daylight, a state mandate. But Nome has just five hours of daylight this time of year. “It’s kind of like a football game. We’re on the 5- yard line and we just want to work into the goal line,” said Sitnasuak Native Corp. board chairman Jason Evans, whose hometown is Nome. Sitnasuak provides fuel and other services to the region. Despite the complicated logistics of delivering fuel by sea in winter, Sitnasuak opted for the extra delivery after determining that it would be much less costly and more practical than flying fuel to Nome. A Coast Guard spokesman didn’t know how long it will be before fuel flows as crews must wait 12 hours, or until about 5 a.m. local time Sunday (6 a.m. Pacific), to ensure that the disturbed ice has refrozen. “We were able to successfully navigate that last bit of ice,” Coast Guard spokesman Kip Wadlow said. “We were able to get it pretty much right on the money, in the position that the industry representatives wanted to start the fuel transfer process.” The crew of the 370-foot tanker Renda was working to ensure the safe transfer of the fuel through a segmented hose that will be laid on top of the ice to the harbor, located about 2,100 feet from the ship, Wadlow said in a telephone interview from Nome on Saturday night. Once crews create a suitable path for the hose to rest on, its segments will have to be bolted together and inspected before the fuel can begin to flow. Though the transfer must start during daylight, it can continue in darkness, Betty Schorr of the Alaska Department of Environmental Conservation has said. It could be finished within 36 hours if everything goes smoothly, but it could take as long as five days, she said. Earlier Saturday, Evans gave details of the transfer process. Once the hose is laid down, he said personnel will walk its entire length every 30 minutes to check it for leaks. Each segment of hose will have its own spill containment area, and extra absorbent boom will be on hand in case of a spill. Evans said he hopes the crew will begin unloading Sunday. Evans, however, cautioned that delivering the fuel is only half the mission. “The ships need to transition back through 300 miles of ice,” he said. “I say we’re not done until the ships are safely back at their home ports” in Seattle and Russia. ___ Online:

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Remote Alaska Town ‘On The 5-Yard Line’ Waiting To Reconnect With World

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Finding Coal’s Future Might Require A Look Back At The Past

December 12, 2011

WASHINGTON (Reuters / December 11) – As futuristic projects designed to capture carbon from coal-burning industries and store it underground have failed, the two largest consumers of the fuel, the United States and China, hope answers to limiting emissions blamed for global warming lie in the past. Power-generators, coal miners and policy makers had put faith in projects to capture carbon dioxide from coal-fired plants and pump it directly underground into geologic formations for permanent storage. The great hope was that the technology would prevent much of the world’s largest source of greenhouse gas emissions from reaching the atmosphere. But so-called carbon capture and storage projects have collapsed like a row of dominoes this year in West Virginia, Scotland and Germany. The stumbling blocks have been high costs for the technology and bleak prospects the world will put a high price on emitting greenhouse gases. Fortunately for those seeking to cut emissions from coal, one industry has profited for nearly four decades from socking away carbon dioxide emissions. That industry, enhanced oil recovery, is hungry for more of the gas. Companies including Denbury Resources and Kinder Morgan have piped carbon dioxide from naturally occurring sources into aging oil fields to push out crude that traditional drilling is unable to reach. As natural sources of carbon dioxide run dry, many of these companies are looking to industrial sources of the gas. Power utilities and other coal-burning companies may find it wiser to link up with this mature industry than to plunge ahead with their own versions of carbon capture and storage. Originally, enhanced oil recovery specialists thought aging oil fields could store about 100 billion metric tons of carbon dioxide, or about 5 percent of what would be needed to reduce the threat of climate change. But as researchers learn more about the storage potential of old oil zones, in both China and the United States, they say much more carbon could potentially be stored in these places. “We’ve realized if EOR is going to be a bridge to steep carbon reductions … that bridge is both wider and longer than originally realized,” said Julio Friedmann, the technical program manager at the U.S.-China Clean Energy Research Center, formed in 2009 by U.S. President Barack Obama and China’s President Hu Jintao. Experts say success with enhanced oil recovery could give new life to the entire field of carbon capture by enlarging the market for man-made carbon, helping to build out a pipeline network to move it to market, and helping the business become more efficient in shooting the gas underground. “Without commercial transactions, no one knows the price,” said Deborah Seligsohn, an energy expert based in Beijing with the research group the World Resources Institute. She said enhanced oil recovery “would cause the price discovery and all the other commercial relationships that would need to get developed.” If the world does not widely deploy carbon capture and storage by the 2020s, the cost of limiting global temperatures would rise by $1.1 trillion, the International Energy Agency said last month in its annual outlook. This would put an “extraordinary burden” on other low-carbon technologies including wind and solar power, the IEA said. Experts believe carbon dioxide used in enhanced oil recovery can be stored permanently underground because over time it is absorbed in brine and eventually mineralizes into a more stable form. But there are risks, including pushing up water that contains heavy metals and other pollutants. Still, backers say the water can be re-injected underground. An added benefit of enhanced oil recovery is the extra oil that could be produced in areas that have not traditionally been big petroleum centers such as Ohio, Indiana, and Illinois in the United States and Inner Mongolia in China. As China scours the world in search of new oil supplies, one hope is that the country’s old oilfields in the Bohai Gulf, which also happen to be near chemical plants that burn large amounts of coal, could see a second life. China currently pumps its old oilfields with water, which is scarce, or polymers, which can be expensive. After an initial investment in pipelines and other infrastructure, using carbon dioxide to push out China’s oil could be a viable option. So far, the United States leads China in enhanced oil recovery partly because small U.S. technology companies have been more nimble than China’s big oil companies. “It’s smaller guys that do this cutting edge, creative stuff, and China doesn’t have independent oil companies,” said WRI’s Seligsohn. But China’s Science and Technology Minister Wan Gang recently hosted an international conference on using emissions for coal plants, signaling the government is serious about moving into this industry. And China boasts at least one advantage that even its huge state oil companies are finding hard to ignore: Its fleet of chemical plants that run on coal provide a far purer stream of carbon dioxide than coal-fired power plants do. That type of discovery has made researchers more hopeful the United States and China can work together. “The more we’ve studied it, the better it works,” said CERC’s Friedmann. “The question is how to create a social legal regulatory framework to enable this technology.” (Reporting by Timothy Gardner; Editing by David Gregorio) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Chrysler: Improved Engines Will Help Meet New Standards, Electric Cars Over-Hyped

August 3, 2011

TRAVERSE CITY, Mich. — Carmakers will squeeze more miles out gasoline and diesel engines to meet the tougher fuel economy standards announced by the government last week, the CEO of Chrysler said Wednesday. Sergio Marchionne, also head of Italy’s Fiat SpA, said changes to the internal combustion engine, and not electric or hydrogen fuel cell technology, will be the answer to meeting the new standards. The U.S. new car fleet must reach an average of 54.5 miles per gallon by 2025, double the current standard. “You will see incredible results even out of what I consider to be absolutely plain-vanilla technology,” Marchionne told reporters at an auto industry conference in Traverse City, Mich. “Between the combination of transmissions and engines, you will find huge benefits going forward.” He also said electric vehicles have been over-hyped as the fuel economy solution by some manufacturers. Marchionne’s companies are behind General Motors, Nissan Motor Co. and others in rolling out rechargeable electric vehicles, although Fiat is planning an all-electric subcompact next year. Most auto companies agreed to the higher government standards, and executives appeared on stage alongside President Barack Obama to announce them last week. Marchionne said the three Detroit automakers ended a “bad habit of crying wolf” and opposing higher standards. That’s largely because the companies’ current chief executives came from outside the industry. The Canadian-born Marchionne came up through Fiat in Italy, while Ford Motor Co. CEO Alan Mulally was hired from aircraft maker Boeing Co. General Motors Co. CEO Dan Akerson came from telecommunications and finance. “We looked at this and said this can be done, as business people who did not grow up and did not become conditioned by traditions of Detroit,” Machionne said. As an example of mileage improvements from existing technology, Marchionne pointed to changes in the engine and transmission of a large Chrysler luxury sedan. The Chrysler 300 will get 31 mpg on the highway when equipped with a V-6 engine and a new eight-speed automatic transmission. The 300 it replaced got 27.5 mpg when equipped with a V-8. Marchionne, 59, said he plans to retire sometime around 2015 or 2016. His successor likely would come from his new 22-member management committee. He said a Chrysler initial public stock offering was not likely in 2012, with 2013 likely. Fiat and a United Auto Workers union trust fund for retiree health care are the company’s only remaining stockholders. The trust wants to sell shares to get cash to pay for health benefits. Marchionne also warned that car exports from China are among the biggest threats facing global automakers. He said that even if China exports only 10 percent of what it produces, the risks are enormous for Chrysler, Fiat and other companies. Automakers have to keep their factories competitive and efficient “because the day of reckoning is inevitably coming.” China produced 18.2 million vehicles last year, and exported about 560,000, according to J.D. Power and Associates. Through May, Chinese vehicle exports stood at 300,000, up 54 percent over the same period last year.

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WATCH: The Wood-Powered Car That Runs On Any Organic Material

July 28, 2011

We’re all aware that, if we don’t shift to more renewable sources of energy, we’ll eventually deplete the reserves of fossil fuels that power our vehicles today. If only there was a car that could run on any organic material…and took its name from an adorable semiaquatic North American mammal.

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Is 56.2 The Magic Number For Fuel Efficiency?

June 27, 2011

WASHINGTON — The Obama administration is telling American automakers that it would like cars and light trucks to average 56.2 miles per gallon by 2025 – a boost to fuel economy that would save consumers money at the pump and help with global warming but drive up the cost of automobiles. Administration officials floated the number at separate meetings last week with the Detroit Three – General Motors, Ford and Chrysler – according to people in government and industry familiar with the discussions. They spoke on condition of anonymity because they weren’t authorized to talk publicly about them. While it is just a starting point, the figure is the first hint of where the government may be headed as it works to set a 2017-2025 fuel economy standard. Last fall, the Transportation Department and the Environmental Protection Agency said they would consider a federal standard somewhere between 47 and 62 mpg. The upper end of the range would mean a massive shift in what Americans drive. A government analysis found about half the lineup of new vehicles would need to be gas-electric hybrids under the most aggressive standards. The technology needed to achieve a 56 mpg standard, according to administration estimates, would add $2,100 to $2,600 to the price of a car. But because the vehicles would need less fuel, owners would make up the difference with fewer trips to the gas station. Environmentalists are pushing for the most stringent standard, but automakers have thus far said they would be willing to work over the next eight years on vehicles that get between 42.6 and 46.7 miles per gallon. The Obama administration is hoping to find some common ground and reach a deal before it makes a formal proposal in September. Early in 2009, the White House announced a landmark agreement with automakers and states requiring cars and light trucks on average to achieve 35.5 miles per gallon by 2016 and set the first-ever standards for greenhouse gas emissions from tailpipes. The stakes are higher this time around, since legislation to curb climate change is no longer being pursued by the White House, which is looking for other ways to address global warming. High gasoline prices have also put pressure on the administration not only to find ways to boost oil supply, but also reduce demand. “We continue to work closely with a broad range of stakeholders to develop an important standard that will save families money and keep the jobs of the future here,” White House spokesman Clark Stevens said in a statement. “A final decision has not been made, and as we have made clear we plan to propose a standard in September.” The goal of 56.2 mpg is tough, but General Motors will figure out a way to reach it, said Mark Reuss, the company’s North American president. He would not say what technologies GM would use to reach the target, but he conceded that many easier, less-costly solutions already are under way or have been done such as switching to smaller engines and developing more fuel-efficient transmissions. “When you put those things in for the first time, they may be more expensive,” he said. “But this is a volume and scale industry. What was very expensive in the past is no longer very expensive.” Ford Motor Co., in a written statement, said discussions with the administration are ongoing, but that it “supports increasing fuel economy requirements with one national program that is data driven and factors in the impact … on jobs, the economy, consumers and safety.” Dan Becker, director of the Safe Climate Campaign at the Center for Auto Safety, cautioned against making too many assumptions, saying that more important than the standard is how automakers will be allowed to achieve it. “It is not just the number that matters. It’s the loopholes underneath it,” Becker said. “And automakers will look to turn whatever number it is into Swiss cheese.” Technology already is available for some cars to reach beyond the 56.2 mpg threshold. The EPA has determined that General Motors’ Chevrolet Volt electric car will get 93 mpg in combined city and highway driving. The Nissan Leaf electric car gets the equivalent of 106 mpg in city driving and 92 mpg on the highway. But electric motors and batteries aren’t quite ready to power larger vehicles such as pickup trucks, creating a challenge for Detroit automakers who get a significant portion of their profits from larger vehicles. ___ Associated Press writer Tom Krisher in Detroit contributed to this report. ___ Follow Dina Cappiello on Twitter at http://twitter.com/dinacappiello

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Masood Ahmed: Inflation in the Middle East — Looking at the Right Numbers

June 6, 2011

Across the world, surging international food prices have become a major cause for concern and topic of debate. This is especially so in the Arab world, which is home to some of the largest food importers and where rising food prices have been one of the factors in recent political unrest. In the context of ongoing political developments, governments across the region are responding to the rise in commodity prices with hikes in fuel and food subsidies, civil service wage and pension increases, additional cash transfers, tax reductions, and other spending increases. These measures will help poor households maintain their purchasing power and limit further increases in domestic food prices. How should central banks — whose task is to prevent general price increases that would further cut into peoples’ incomes — react? What inflation metric should they target? Looking beneath the headlines Economists often divide inflation numbers into headline inflation and core inflation. Headline inflation measures how the overall consumer price index is faring. This index reflects the cost of purchasing a typical basket of household items, ranging from food to clothing to rent. The headline number can be influenced by seasonal factors, e.g. food prices can ease at harvest time. And, it can also reflect changes in individual volatile items, such as food and energy prices. Core inflation , on the other hand, attempts to give an idea of underlying inflation trends by excluding products that are prone to temporary price shocks. Typically this means excluding food and fuel items from the overall consumer price index. That’s why, in any given month, core inflation can differ from headline inflation. However, over the medium term, core and headline inflation rates generally converge. Core inflation has been the yardstick by which many central banks — especially in advanced economies where the weight of food and fuel in consumption baskets is relatively small — make policy decisions. The idea is to keep the focus on longer-term trends to help avoid too-frequent changes in monetary policy and interest rates in response to temporary inflation shocks. Across the Middle East and North Africa, headline inflation has accelerated over the last year, driven mainly — as in other parts of the world — by rising international commodity prices. Food and fuel account for about half of the items included in the typical consumption baskets of the region. Moreover, food price inflation is higher, more volatile, and more persistent than nonfood inflation. Core inflation in the region has exhibited a more modest upward trend than headline inflation over the last 12 months. Getting an accurate picture So, where food and fuel comprise such a large share in the consumption basket, a focus on movements in core inflation can provide a distorted picture of overall inflation trends in an economy. This can have the undesirable effect of underestimating inflation pressures, delaying needed monetary policy responses, and thereby increasing peoples’ future inflation expectations. Indeed, there are indications that food and fuel inflation are spilling over into core inflation by raising inflation expectations and boosting workers’ demands for higher wages. For example, we calculate that in the Middle East and North Africa, about half of a shock to food inflation in any given quarter is transmitted to nonfood inflation in the following quarter of the year. The upshot? Regional central banks cannot afford to cast aside headline inflation and focus only on core inflation when setting policy rates and the overall stance of monetary policy. They will need to focus on both in order to have a good sense of inflation developments, allowing them to be ready to react and contain inflation pressures as needed. From iMFdirect blog

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High Oil Prices Hit Wallets As Consumers Are Forced To Spend More On Fuel

May 19, 2011

The price of oil eroded Americans’ spending power over the last several months, according to new post from the Commerce Department. The pain will likely continue, the department warned. As oil prices have shot up and gas prices at the pump have followed, consumers and businesses have been forced to pay more for fuel. The average household monthly motor fuel expenditure increased by more than 22 percent between October and March, the post by Commerce Department Chief Economist Mark Doms showed. Even though oil prices abruptly dropped earlier this month, crude has since pared some of its losses, and pump prices remain high, suggesting that fuel will continue to sap household finances. From the Commerce Department At this rate, the net amount of money the nation pays to other countries for oil is on track to reach about $3,000 per household in 2011, an increase of 25 percent from last year, the note said. This fuel trade deficit per household grew by two-thirds between October and March, and in the first quarter of the year, petroleum-related products made up nearly 60 percent of the total U.S. trade deficit, the note showed. From the Commerce Department Faced with higher gas prices, some Americans have reported cutting back on driving . But people need to get to work and shop for food — they can only cut back so much. Every penny increase in the cost of gasoline tears more than a billion dollars from the economy yearly, economists say. As conflict in the Middle East has stoked commodity investors’ fears of a supply disruption in recent months, oil prices have skyrocketed. Even after the price of crude dropped by 10 percent in one day earlier this month, prices are still at levels that recall the summer of 2008, when months of record-high fuel prices helped drag the economy into recession. The price of Brent crude, an international benchmark, is now more than 50 percent higher than it was this time last year. Nationwide, the average cost of a gallon of regular gasoline is now $3.91, according to the American Automobile Association . Go to the Commerce Department website for more charts.

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Jeffrey Rubin: Will Export Restrictions on Energy Echo Those on Food?

May 18, 2011

Higher prices are supposed to encourage more world supply. It’s standard textbook economics. But what happens when instead of export-oriented global firms, it’s governments that control supply. They may not respond to price signals the same way as profit maximizing companies. In fact, they may respond in the exact opposite way. Instead of soaring food and energy prices encouraging food and energy producers to export more, they may export less and divert more of their output to domestic markets. The reason is simple: to keep domestic prices from matching soaring world prices. When it is luxury consumer good prices, governments aren’t compelled to intervene. But when it is food and energy prices, the political pressures become immense. They are so immense you can toss your economics textbook out the window. During the food crisis of 2007 and 2008, record grain prices should have pulled food supplies out of world granaries like never before. Instead, no less than 29 food-exporting countries responding by banning food exports and kept their crop production for a hungry domestic market. As a result of that diversion from export markets, food price increases in those countries lagged well behind the ascent in world prices. Economists may not have approved but the populace did. Of course, the loss of supply from those countries made world food prices climb that much higher. And food-importing countries that secured supplies, quickly started to hoard them in anticipation that more food exporters would decide to keep their crops at home. Now we are starting to see the same pattern of export restrictions emerge in the energy industry. Growing fuel shortages in Russia have prompted the world’s largest oil producer to effectively ban gasoline exports, imposing a prohibitive 44% export tariff on them. Meanwhile, Beijing has suspended exports of diesel fuel indefinitely in anticipation of surging domestic fuel demand during the coming peak summer season. That means places like Singapore and Vietnam have to look elsewhere for their fuel. In April, China’s largest refiner, state-owned Sinopec, halted all exports of refined oil products. This month, China’s state planning agency, the National Development and Reform Commission, told all state oil companies to stop exporting diesel. The official reason was “to maintain social stability and promote economic development.” Apparently refinery margins aren’t part of the equation. The export restrictions in both countries are designed to prevent domestic refineries from taking advantage of much more attractive refinery spreads for gasoline and diesel elsewhere in the world. So far, these restrictions have only affected refined products such as gasoline or diesel. But it leaves you wondering where this is heading as energy supplies becomes scarcer. Will triple digit prices soon halt the free flow of crude oil the same way soaring crop prices halted the free flow of food?

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2011 College Grads Moving Home In Record Numbers, Saddled With Historic Levels Of Student Loan Debt

May 13, 2011

NEW YORK — While one’s college graduation is normally a time of jubilation, Megan Muller can more than relate to the sense of defeat that now hangs over the class of 2011. Muller, 26, graduated from Kean University in Union, N.J., yesterday with a bachelor’s degree in communication. She is the first person in her family to graduate from college. Like many graduates, she’s now faced with the larger worry of living back at home while also paying down vast amounts of debt. All along, money’s been a chronic source of anxiety. In order to finish, Muller took out more than $70,000 in student loans and has another $10,000 in credit card debt. Midway through college, after transferring and taking a few semesters off, Muller moved back in with her parents in order to save money. And until she can move out and find her own place, it’s the credit cards she must first pay down — in addition to beginning repayments on her student loans. “Trust me, you don’t want to be 26 and still living at home with your parents,” explains Muller, who, daunted by the expense of college, struggled with whether to finish at all. She currently makes about $25,000 as an assistant editor at Federal Practitioner , a peer-reviewed medical journal. Muller is hardly alone in her ongoing quest to establish an independent life. In addition to the normal job worries, the class of 2011 is saddled with a dual set of other obligations: moving home and paying back debt . A study conducted by Twentysomething Inc., a consultant firm specializing in young adults, reports that 85 percent of this year’s graduating class will be forced to move back home . Meanwhile, 2011 graduates also face historic amounts of student loan debt — or an average of $27,200 for graduates that borrowed money in order to finish school. “We tell people they need to get a college education in order to succeed, but then we put all of these roadblocks in their way by then making it practically impossible to repay what you owe,” says Michael D. Hais, who, along with Morley Winograd, coauthored the forthcoming book “Millennial Momentum: How a New Generation Is Remaking America.” The two men describe the number of 20-somethings moving home as “historically unprecedented.” Andrew Sum, a professor of economics at Northeastern University, couldn’t agree more. “This is our country and this is our future and we’re failing them,” says Sum, who reports a record number of 2011 graduates returning home to their parents’ nest. As a consequence, Sum sees young graduates not only delaying the formation of their own households, but consequently unable to achieve a desirable standard of living. Apart from the longer-term consequences associated with moving home, Sum’s data reveals another concern altogether. Namely, that young people face high amounts of debt and a lack of decent jobs. Using data from the U.S. Bureau of Labor Statistics, Sum reports that as many as 50 percent of college graduates under the age of 25 are underutilized, meaning they’re either working no job at all, working a part-time job or working a job outside of the college labor market — say, as a barista or a bartender. Mark Kantrowitz, who came up with the $27,200 figure based on the National Postsecondary Student Aid Study and publishes the financial aid sites Fastweb.com and FinAid.org , is concerned that debt at graduation is outpacing starting salaries. It’s a worry that Muller and many of her classmates also share. Going to school while working full-time required that Muller learn to survive on fewer and fewer hours of sleep. Coffee became her fuel. Name the job — whether working as a nanny, as a waitress, behind the counter at a beauty supply store or at the front desk of her local gym — and she’s done it. And while Muller realizes she’s fortunate to have a job, her paycheck is hardly enough to repay her existing debt while she saves to get her own place. Meanwhile, Muller is toying with whether to go into more debt in order to finance a graduate degree, hoping that more qualifications might lead to a bigger paycheck. “But so what if I’m $100,000 in debt and living in a smaller house and not able to afford the nicest clothes?” asks Muller, whose to-do list remains longer than her shopping list, despite yesterday’s high of finally receiving her diploma. “One day, it’s all going to pay off.”

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EasyJet first-half net loss widens on higher fuel costs

May 10, 2011

EasyJet first-half net loss widens on higher fuel costs

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William S. Becker: The Oil War at Home

April 30, 2011

Whom should we blame for high gasoline prices? The president? Oil companies? Price gougers? Protestors in the Arab Spring? People who drive Hummers? The answer to that question is one of the first serious issues of the 2011 presidential campaign. (Sorry, Trump. Sorry, Birthers.) It’s an issue that could — and perhaps should — become an oil war at home, politically speaking. The issue is heating up because gas prices affect us all, whether we’re buying fuel, food or consumer goods. Rising gas prices threaten our recovery from the recession and our ability to put Americans back to work. To anticipate how the price of oil might unfold as a campaign issue, we can look to California in 2006. One of the initiatives on California’s ballot that year was Proposition 87 to establish a new tax on petroleum extracted from the state’s oil fields. The tax would have raised $400 million annually to fund alternative energy programs, with the goal of cutting the state’s oil consumption 25 percent over 10 years. Proposition 87 contained a clear prohibition against oil companies passing the cost of the tax to consumers by raising fuel prices. The tax would have to come out of profits. In July 2006, polls indicated that 51 percent of California’s voters supported the initiative. Then in August, opponents launched an aggressive campaign of television ads supported in part by more than $30 million from Chevron. The ads claimed Proposition 87 would result in higher gasoline prices — despite the prohibition in the initiative. One of the ads featured the president of the California Chamber of Commerce warning that Proposition 87 “would impose a $4 billion tax on oil produced in California, a tax that would lawfully be passed on to the rest of us.” By October 2006, voter support for Proposition 87 had dropped from 51 percent to 41 percent. The measure was defeated in the November election. Fast forward to Washington in 2011. Republicans are warning again that a “tax increase” (actually subsidy reform) for oil companies will push gasoline prices higher. Some are blaming President Obama for expensive gasoline. To his credit on the issue of oil subsidies, the president stirred the pot with an April 26 letter to leaders in the House and Senate, urging them to “take immediate action to eliminate unwarranted tax breaks for the oil and gas industry and to use those dollars to invest in clean energy to reduce our dependence on foreign oil”. Obama included the same proposal in his last two budget submissions to Congress. A day later, 29 Democrats in the House wrote to Speaker John Boehner, asking for an up-or-down vote on oil subsidy reform. Boehner said no. His spokesman explained: “The Speaker wants to increase the supply of American energy to lower gas prices and create millions of American jobs. Raising taxes will increase gas prices and make it harder to create jobs.” In that response, Boehner’s spokesman managed to squeeze three big untruths into two short sentences. They came straight out of the dog-eared playbook the oil industry and its supporters continue using to frighten voters about jobs, taxes and energy prices. The president has proposed repealing tax breaks for oil companies, not increasing taxes for consumers. Repealing the subsidies will result in higher gasoline prices only if oil companies want to shake down consumers. Four billion dollars a year is chump change in the oil industry. It would shave very little off its profits. In the first three months of this year alone, Exxon-Mobil earned nearly $11 billion. Chevron netted more than $6 billion. When Rep. Diane DeGette asked the Energy Information Administration several years ago whether subsidy cuts would cause an increase in gasoline prices, EIA told her that oil revenues were so large that eliminating the industry’s taxpayer subsidies need not make a difference in the price at the pump. The third misstatement in Boehner’s response was that subsidy reform would discourage oil companies from drilling. So long as there’s money to be made, oil companies will drill. Again, $4 billion a year will not make a dent in their profits. In regard to the blame game, Politico reports this week that: Americans are paying more than $4 a gallon for gas, ExxonMobil announced a 69 percent boost in earnings, and President Barack Obama is struggling with the fact that he can’t do much about any of it… Political experts of all stripes say (high gas prices are not) good news for Obama. Politico cites a new Washington Post /ABC poll in which 60 percent of Independents said they “are concerned enough about gas prices to say that they definitely will not back Obama for reelection.” But if President Obama can’t do much more about gasoline prices, why should he be blamed for them? The administration has deployed the few countermeasures in its arsenal to reduce our dependence on oil and the price we pay for it. Among other things, it has instituted aggressive new efficiency standards for vehicles. The president doesn’t benefit from spikes in the price of oil. On the contrary. We can be certain he will do all he can to keep the recovery on track. If it’s not “the most powerful leader in the world”, then what really affects oil prices? As former Labor Secretary Robert Reich explains: It’s a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge. The Atlantic offers more detail : Fuel taxes make up 12 percent of the retail price of gasoline. Gas taxes averaged 48.1 cents per gallon as of last January. The federal portion is 18.4 cents per gallon; state taxes averaged 28.6 cents. The federal tax supports the Highway Trust Fund, which is used to build and maintain the interstate highway system, with smaller portions going to mass transit. It’s unlikely these revenues can be reduced without further damaging the nation’s deteriorating transportation infrastructure. The American Society of Civil Engineers estimates we are spending $110 billion too little each year to maintain the transportation system even at current levels. Meantime, the Congressional Budget Office predicts the Highway Trust Fund will run a $7 billion deficit this year and will continue to have deficits through 2020. The biggest factor by far is the price of crude oil . It accounts for 68 percent of what we pay at the pump. It also affects our trade and budget deficits. The Congressional Research Service estimates that when petroleum costs $100 a barrel — a price we’ve already exceeded — our oil imports increase the U.S. trade deficit by $100 billion. Every $10 increase in the price of oil costs our military (in other words, taxpayers) $1.2 billion a day. The balance of gasoline prices — 20 percent — goes for refining, distributing and marketing the fuel. The biggest factor in price volatility is supply and demand. Also in the mix are increases in U.S. oil consumption during the summer, speculation in oil markets, what’s happening in the Middle East and other countries from which we import petroleum, and the strength of the dollar. The least of the factors — so small that it’s overwhelmed by the others — is domestic oil production. Gasoline pricing is complex, but the politics are simple. Secretary Reich puts it this way: This gusher (of oil profits) is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we’re cutting social programs to reduce the budget deficit. It’s especially embarrassing when Americans are paying through their noses at the pump. If that doesn’t dissuade Republicans and oil-state Democrats from going to war on this issue, then we should ask some questions: o How can the members of Congress who condemn federal budget deficits support subsidies the oil industry doesn’t need? o How do oil subsidies, some of which have been in place for generations, square with conservative mantras that the federal government shouldn’t be picking winners or engaging in corporate welfare? o How can Congress justify oil subsidies when they’ve been warned repeatedly by experienced senior military experts that, “Dependence on oil undermines America’s national security on multiple fronts”? Without question, there are issues on which the interests of the oil industry and the public coincide. The obligation of our political leaders is to detect where those interests diverge and, when a choice must be made, to choose on the side of the American people. If gasoline prices become a huge issue in the 2011 elections, we will see who favors the blame game over solutions and who represents the welfare of oil companies over the welfare of the American people. I can see the first bumper sticker now: John Boehner. R-Ohio or R-Oil?

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Spain’s Unemployment Rate Hits New Eurozone Record

April 29, 2011

MADRID — Spain’s unemployment rate rose sharply to a new eurozone high of 21.3 percent in the first quarter of the year, with a record 4.9 million people out of work, the government said Friday. The rate was the highest reported by the country since 1997. Joblessness during the January-March period jumped 1 percentage point from 20.3 percent at the end of 2010, and adds pressure on Spain as it tries to recover from nearly two years of recession and convince investors that it can handle its heavy debt load. The country is struggling to shift away from dependence on the construction sector, which supported growth for years until the financial crisis popped the Spain’s real estate bubble, as well as make the economy more competitive and reduce national debt. The number of unemployed people in Spain stood at 4,910,200 at the end of March, up about 214,000 from the previous quarter, said the National Statistics Institute, or INE. In an unemployment line in a working-class Madrid neighborhood, people grimly waiting to sign up for benefit payments said they saw little hope of finding new jobs for years. Johnny Albuja, 29, was laid off from his job cleaning offices when the company he worked for lost a contract, but only expected to get unemployment benefits for three months since he worked for the company for just one year. Over the past year, his father and brother were laid off from a metal works company as demand plummeted. “The situation is really difficult right now,” Albuja said. “You can’t live well, you still have to pay the mortgage and it’s tough to get by.” The jobless rate is now at its highest since the first quarter of 1997, when it was 21.3 percent, although officials have since changed the way they measure unemployment, said an INE official who spoke on condition of anonymity in keeping with agency policy. But the overall number of people unemployed is a record, the agency said. Jobs were lost across the entire Spanish economy, with services, manufacturing, agriculture and construction all taking hits. Adding to the bad news for households, consumer prices rose sharply, INE said Friday. The consumer price inflation rate jumped to an annual 3.8 percent in April, up two-tenths of a point from March. Higher fuel prices prompted by unrest in the Middle East and North Africa have been pushing the rate up since January. Spain must hold a general election by March 2012, and polls show the governing Socialists trailing badly. Prime Minister Jose Luis Rodriguez Zapatero has stated he will not seek a third term. As much of Europe and Germany in particular recovers from the global recession, Spain is forecasting meager growth of just 1.3 percent for itself in 2011, and even the Bank of Spain says that prediction is too optimistic. The government has said it expects job-creation to improve in the second half of the year. The second and third quarters of the year traditionally boost Spain’s economy as tourists flock to the nation. Spain’s tourism sector accounts for 11 percent of the country’s gross domestic product. Friday’s report said the number of households in which everyone is unemployed rose by 58,000 to about 1.4 million. It is common for young Spaniards to live at home well into their 30s, in part because traditionally it has been so hard for them to find jobs. The numbers came out on the same day the government was expected to approve a plan to crack down on tax evasion by flushing out the country’s vibrant underground economy. Many small- and medium-sized companies have workers whom they pay fully or partially under the counter to skirt tax and social security obligations, and some estimates say the underground economy accounts for 20 percent of Spanish economic output. ___ Alan Clendenning contributed to this report.

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Jeffrey Rubin: Only A Recession Can Deliver Obama’s Energy Targets

April 6, 2011

Like many in the White House before him, President Barack Obama charted out a plan last week to reduce America’s dependence on foreign oil. And like his predecessors, his road map to cut U.S. oil imports by one-third over the next decade comes against the backdrop of sharply rising oil prices and supply disruptions from an increasingly volatile Middle East. Unfortunately, we have heard this song many times before. In 1973, President Richard Nixon unveiled “Project Independence” in response to the OPEC oil embargo that was triggered by the Arab-Israeli war. President Jimmy Carter called the need to lessen U.S. dependence on Middle Eastern oil the moral equivalent of war in response to the supply disruptions that followed the Iranian Revolution. President George Bush Jr. referred to America’s dependence on foreign oil as nothing short of an addiction. Over the past four decades, U.S. presidents have waxed eloquent about the need to reduce the country’s dependence on imported oil. Yet the U.S. economy still relies on imports for more than 50% of the 19 million barrels of oil burned every day. As a result, the U.S. remains as vulnerable to soaring oil prices as it was during the OPEC shocks in the 1970s. In many ways, Obama’s plan is reminiscent of his predecessors by supporting more government subsidies for energy alternatives such as nuclear and bio fuels. Higher fuel efficiency standards will be mandated for cars and trucks. And, of course, there will be increased reliance on offshore drilling for deep water oil and on hydraulic fracturing in pursuit of America’s new wonder fuel: shale gas. Unfortunately, these initiatives have in one way or another been tried before by previous administrations. And many look less credible than they have in the past. As the Fukushima nuclear disaster threatens Japan with a Chernobyl-like legacy, President Obama is unlikely to find much support for more nuclear power in a country that already has more nuclear plants (and more radioactive spent fuel lying around) than any other in the world. And so far the diversion of food production to energy generation, like the 12 billion gallons of corn-based ethanol that America pumps out every year, has had a far greater impact on raising food and fertilizer prices than on lowering energy prices. While greater fuel efficiency is a laudable goal, past improvements in fuel efficiency have only encouraged Americans to drive more each year — about 30% more than at the time of the OPEC oil shocks. And they haven’t been filling up their tanks with shale gas either, which has only a quarter of the energy density of either gasoline or diesel. So far, recessions have been the only surefire way America has cut back on its fuel consumption and the need for oil imports. But, of course, that is not an option any U.S. president can pursue.

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$24 Billion Remains Untouched In U.S. Nuclear Waste Fund

March 30, 2011

From ProPublica’s Joaquin Sapien: While the nuclear crisis in Japan has focused attention on the risks of spent fuel piling up at the U.S.’s reactors, one curious fact has gone largely unnoted: There is $24 billion sitting in a “nuclear waste fund” that can’t actually be used to pay for a safer way to store the waste at reactors. In 1982, Congress passed the Nuclear Waste Policy Act, and the federal government effectively struck a deal with the nuclear industry: Reactor operators and their customers would pay a tax on the waste they produced, and the government would use the money to create a safe place to store it for generations. The idea at the time was to build a repository inside volcanic rock on Yucca Mountain, about 100 miles northwest of Las Vegas. That plan proved to be wildly controversial and was eventually abandoned by the Obama administration in 2010. After 29 years, there are billions of dollars in the fund and no plan for the waste. To compound the problem, the 1982 law only allows the money to be spent on a permanent solution, such as Yucca, and it can’t be used for what many experts say is the best interim solution: taking spent fuel out of increasingly crowded cooling pools and encasing them in concrete and steel. So, nuclear companies have begun doing that themselves — and have been suing the government for not holding up its side of the bargain. The companies have filed dozens of lawsuits, for $6.4 billion in total claims, according to figures maintained by the Department of Justice. The government has already paid out $956 million. It’s also spent nearly $170 million simply defending itself against the claims. “Basically lawyers are getting rich and nobody is really better off, as far as I can tell. That seems to be the bottom line,” Allison MacFarlane, a professor at George Mason University, said at a February meeting of the Blue Ribbon Commission on America’s Nuclear Future , a federal advisory committee on which she sits. Department of Energy statistics show that new lawsuits and other costs could eventually push the government’s legal liability to $16.2 billion. Senate Majority Leader Harry Reid, D-Nev., who opposes storing waste at Yucca Mountain in his home state, introduced legislation in 2007 to amend the law so the fund could be used for interim waste storage. But the bill never came to the floor for a vote. Reid’s office didn’t respond to questions about whether he intends to re-introduce the bill. “The whole story is a black mark on the system,” said Jay Silberg, a Washington, D.C.-based attorney who has been representing utilities in these cases for more than a decade. “It’s bad for society, bad for taxpayers, bad for ratepayers and bad for the government.” Spent fuel is contained in zirconium-clad rods that remain highly radioactive for years after they’ve been heated inside a reactor core to produce energy. In order to cool, the rods first have to be immersed in large pools of water. There is about 70,000 tons of spent fuel stored at reactor sites around the country. Three-quarters of the material sits in cooling pools. Reactor operators have been re-racking the rods so they can fit more of them in the pools — a practice that makes the pools more radioactive and potentially more dangerous in the event of an accident. The pools in the United States have been criticized by nuclear industry watchdogs who say they are too crowded and in some cases have been known to leak low levels of radioactive water . Some reactor operators have begun building large tomb-like structures called dry casks to contain the waste after the rods have cooled for five years or more in the pools. The dry casks are considered a safer way to store the rods. But the industry has been reluctant to use dry casks on a large scale because it’s extremely expensive to transfer the radioactive rods. A 2003 study by a former Energy Department official and a team of nuclear experts concluded it would cost at least $3.5 billion to move all rods that had been in pools for over five years. Critics of the industry have urged the Nuclear Regulatory Commission to require reactor operators to begin moving all spent fuel that has cooled for five years or more into dry casks, because the pools are more vulnerable to terrorist attacks and the loss of a small amount of water could cause a radiation field to grow large enough to prevent emergency workers from mitigating a full-blown meltdown in the pool. But the NRC has argued that the safety risks of keeping the fuel in pools aren’t severe enough to warrant the amount of money it would cost to move the rods into dry storage. Follow on Twitter: @jbsapien

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Nuclear Industry Insists New Reactors Are Safe

March 28, 2011

OLKILUOTO, Finland — Halfway around the globe from Japan’s atomic emergency, engineers building a cutting-edge nuclear reactor along Finland’s icy shores insist the same crisis could never happen here. And that’s not only because Finland is seismically stable. The 1,600-megawatt European Pressurized Reactor projected to come online in 2013 in Olkiluoto, 195 miles (315 kilometers) northwest of Helsinki, is the first of its kind expected to begin operating after the Japanese disaster. It has walls thick enough to withstand an airplane crash, components designed to tolerate the extreme cold of the Nordic winter, and decades worth of new safety systems. “(We have) so many backup systems that the kind of accident like in Japan could not happen,” said project manager Jouni Silvennoinen. With the renaissance of nuclear power at stake, the atomic industry faces the challenge of persuading an increasingly skeptical public that new reactors like the EPR units being built by French company Areva in Finland, France and China are not just safer than the old ones but are virtually disaster-proof. The state-controlled company has marketed its expensive new-generation reactor technology to the United States and developing countries from India to Saudi Arabia and Brazil. Since news of Japan’s catastrophe, Areva’s shares have fallen 12.4 percent, trading at euro31.49 midday Friday. Areva CEO Anne Lauvergeon has said an EPR plant would have survived the earthquake and tsunami without radiation leaks. And French Energy Minister Eric Besson, whose country gets up to 80 percent of its electricity from nuclear power, insisted last week it was his “profound conviction that nuclear energy will stay in Europe and the world and be one of the core energies in the 21st century.” But that’s a tough message to sell, with explosions and radiation leaks at the Fukushima Dai-ichi plant in Japan eroding confidence in nuclear power. That confidence took decades to rebuild following the Soviet Chernobyl disaster in 1986 and the 1979 Three Mile Island accident in Pennsylvania. Shocked by the Japanese crisis, the European Union has called for “stress tests” for its 143 reactors. Germany – the EU’s biggest economy – has temporarily suspended plans to prolong the life of its aging nuclear plants and had already planned to abandon nuclear power altogether over the next 25 years. President Barack Obama, while expressing support for nuclear power, requested a comprehensive review of the safety of U.S. plants. Even China, which plans a massive expansion of nuclear energy, has said it will hold off on approving new nuclear plants to allow for a revision in safety standards. Suggesting that third-generation reactors like the EPR would have withstood the shock that crippled the Japanese plant is “sheer arrogance,” said Mycle Schneider, an independent researcher on France’s nuclear industry. “There’s no way we can say today that any plant in the world would have survived what happened in Japan,” he said. At the Fukushima plant, which began operating in 1971, the massive earthquake and tsunami damaged the critical cooling system, which overheated and began spewing radiation into the environment. For the first time, nuclear engineers were forced to head off a total reactor meltdown at three reactors simultaneously as well as dealing with overheating fuel rods in a damaged storage pool at a fourth reactor. So how could a modern reactor have avoided those problems? The principle of power generation is the same as in older high-pressure water reactors like the ones at Fukushima: nuclear reaction heats water to create steam that turns turbines to generate electricity. But technological advances have improved efficiency and stricter safety precautions have made the third-generation reactors more secure, industry officials say. New EPR plants have backup systems like diesel generators that are housed in separate buildings to protect them from any accident that might occur in the main reactor building. The plant must also have access to other sources of electricity, like gas turbines or the national grid, if the diesel generators fail to work. At Olkiluoto, four large diesel generators act as a backup if the first step of connecting to the national grid proves unsuccessful. If they don’t work, two smaller diesel generators kick in, and failing that, the new reactor can be connected to the joint backup systems of two older reactors at Olkiluoto. There are also new “protective barriers” shielding the environment from radioactive products used in the reactor. These include encasing the fuel rods in thick metal containers and having a double concrete cover and walls over the containment vessel that houses the reactor. Besides natural disasters, modern reactors worldwide must be able to withstand terror strikes and – since 9/11 – even a large airliner crash, Silvennoinen said. Situated just 200 yards (meters) from the frozen Baltic Sea, the Olkiluoto nuclear plant is elevated so that it can withstand storm surges of up to 11 feet (3.5 meters), which is considered a worst-case scenario. During a recent visit, dozens of workers in yellow vests clambered up and down stairs of the concrete buildings bordering the cylinder-shaped reactor as construction cranes swerved over its domed roof. Since Olkiluoto is the first EPR scheduled to become operational, it has been seen as a flagship for the latest generation of nuclear reactors. But the project has been plagued by faulty materials and planning problems since construction began in 2005, and it’s now running four years behind schedule. The nearby town of Eurajoki, population 6,000, in the middle of Finland’s sparsely populated countryside, has welcomed the project. It has created 4,000 jobs, even though 70 percent of them went to foreign workers. Teijo Jantunen, who lives near the town, 10 miles (16 kilometers) from Olkiluoto, conceded that the problems at Fukushima had made him think about the possibility of a nuclear accident. “But I’m not really very worried. I’m confident it will be a good plant,” said Jantunen, a 57-year-old construction manager. “I trust them despite everything.” Leo Mantymaki, who lives 6 miles (10 kilometers) away, doesn’t quite know what to believe. “They tell us that a Japan-like accident couldn’t happen here, but I’m not so sure,” the retired welder said, sitting on a tractor as he took a break from clearing snow. “What if they press the wrong button?” Jukka Laaksonen, director of Finland’s Radiation and Nuclear Safety Authority, stressed that safety features must be designed according to local conditions, and said a major flaw at Fukushima was that its seawall was too low. “EPR has much better safety systems than old similar plants but having a good plant is not enough,” Laaksonen said. “You also have to pay attention to the site conditions. If the EPR is not properly protected against a tsunami … then you never know what will happen.” _______ Associated Press writer Angela Charlton in Paris contributed to this report.

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US airlines increase their prices due to higher fuel costs

March 9, 2011

US airlines increase their prices due to higher fuel costs

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Mazda Recall Caused By Wandering Spiders

March 3, 2011

WASHINGTON — Mazda has some creepy crawly culprits in its new safety recall – spiders. After discovering spider webs in the vents, the Japanese automaker is recalling more than 50,000 Mazda6 cars from the 2009-2010 model years in the United States and an additional 15,000 vehicles in Canada, Mexico and Puerto Rico. The company said Thursday a spider could weave a web in a vent connected to the fuel tank system and clog up the tank’s ventilation. Pressure on the fuel tank could lead to a crack, causing fuel leakage and the risk of a fire. Mazda said it was unaware of any fires, injuries or crashes in the vehicles. Mazda spokesman Jeremy Barnes said dealers had identified 20 cases in which spider webs were found in the vents. The webs were linked to yellow sac spiders, Barnes said, but it was unclear why they were crawling into the Mazda6 rather than other vehicles. Adding to the mystery, Barnes said the arachnoid attraction to the sporty cars – which the company has marketed with its “zoom-zoom” tagline – had no specific connection to a particular region of North America. “Perhaps yellow sac spiders like to go zoom-zoom?” Barnes quipped. The recall involves vehicles with V4 engines built from April 2008 to February 2010. Owners will be notified by mid-March and told to take their vehicles to dealers for inspection and repairs. Dealers will inspect and clean up the vent line and install a spring to prevent a spider from entering the vent line. Customers can call Mazda at (800) 222-5500.

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Video: Nagel Says Consumers Can Absorb Higher Gasoline Prices

February 25, 2011

Feb. 25 (Bloomberg) — Brian Nagel, an analyst at Oppenheimer & Co., talks about U.S. consumers’ ability to absorb higher gasoline prices as costs for the fuel rise on political unrest in the Middle East and North Africa. Nagel speaks with Betty Liu, Dominic Chu and Sara Eisen on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Airfares On The Rise As Airlines Charge Passengers For Fuel

February 8, 2011

NEW YORK — The rising cost of flying comes with a familiar refrain: The airlines need help paying their fuel bills. For the first time since late 2008, U.S. airlines are adding fuel surcharges to ticket prices. They’ve already raised fares five times since December.to offset a 25 percent increase in the price of jet fuel. For those with spring and summer travel plans, it’s a one-two punch. Right now, the surcharges on U.S. routes are only between $3 and $5 each way. Back in 2008, surcharges started slightly higher, then jumped as high as $60 when oil hit $147 in the summer. Many estimates have oil moving slightly above $100 this year. Even a one-way $15 surcharge adds more than 4 percent to the average domestic ticket price of about $340. And on international flights, fuel surcharges at their peak can more than double the price of a ticket. _ Adding fuel to the fare American Airlines last week added a fuel surcharge of about $5 each way on most U.S. routes. United and Continental applied a charge of $3 each way. Others are expected to follow. JetBlue tacked on $35 to $45 for trips to the Caribbean and Puerto Rico. Besides raising fares system-wide, individual airlines are hiking fares further on popular routes. That helps boost revenue, but airlines aren’t sure it’s enough. Airlines generally expect to pay at least 15 to 25 percent more for fuel this year. Estimates vary because carriers use different financial strategies for rising fuel prices. Oil topped $92 per barrel last week, the highest level since October 2008. _ Where (and why) you’ll find them Fuel surcharges are traditionally an easier way to raise fares. An increase to a base fare isn’t always tolerated by customers. They can switch to a rival or force an airline to lower fares again to keep them. Fees are complicated and can drive passengers away, too. Airlines also believe passengers are more forgiving of price increases for specific reasons. “I think our customer understands fuel surcharges because they see their energy costs rising as well,” JetBlue Dave Barger said in an interview with The Associated Press. _ Now you see them. Surcharges are wrapped into the base fare on U.S. flights – you won’t incur a separate fee at booking. And they must appear in all promotions and advertisements. But on international flights fuel surcharges are often hidden during an initial fare search on online travel sites and the airlines’ own websites. They can exceed the ticket price. Surcharges for international flights reached $350 on a trip to Europe in 2008. They dropped, but never went away like domestic charges did in the recession. Fuel surcharges are labeled with an “F” code on your final booking statement of airfare and taxes. Peak travel day surcharges, which airlines introduced soon after domestic fuel fees disappeared, have a “Q” code. It’s unclear whether travelers will incur both fees this summer. _ More to come? Few airline executives expect costs to drop this year, so travelers should prepare for higher fuel surcharges. Southwest CEO Gary Kelly said fuel will be the airline’s biggest hurdle to staying profitable this year. Fuel is often an airline’s biggest expense next to labor. It accounts for about one-third of an airline’s total costs, on average, according to the International Air Transport Association. Rick Seaney of FareCompare.com predicts airlines will apply fuel surcharges much more slowly this year to avoid the resistance they encountered two and a half years ago. But that’s not to say airlines wouldn’t raise fuel surcharges higher than in 2008. With the economy growing and more people flying, analysts suggest that fares and fees should climb steadily this year. “They’ll keep rising until the point where the consumer says `I’m not buying a ticket anymore,’” Seaney said.

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David Isenberg: Can’t Anyone at DoD Do Oversight? Anyone at All?

December 22, 2010

The perennial issue regarding private military security contractors is the degree to which they are subject to effective oversight. In that regard there is only one item in today’s news worth looking at. That is the report issued by the House Subcommittee on National Security and Foreign Affairs, chaired by John F. Tierney (D-MA). The Majority staff report is titled, Mystery at Manas: Strategic Blind Spots in the Department of Defense’s Fuel Contracts in Kyrgyzstan . The report culminates an eight-month investigation into the Department of Defense’s multi-billion dollar aviation fuel contracts at the Manas Transit Center in Kyrgyzstan. Reminding one of the famous line by 1st Lieutenant Milo Minderbinder in Joseph Heller’s famous Catch-22 novel, “We’re gonna come out of this war rich!” the report found that to keep U.S. warplanes flying over Afghanistan, the Pentagon allowed a “secrecy obsessed” business group to supply jet fuel to a U.S. air base in Kyrgyzstan, turning a blind eye to an elaborate fraud involving fuel deliveries from Russia. The subcommittee found that the Pentagon and State Department diplomats ignored red flags raised by jet fuel contracts worth nearly $2 billion for the Manas Transit Center, a U.S. base used for in-flight refueling over Afghanistan. The fuel was supplied by a Gibraltar-registered business group comprising Mina Corp. and Red Star Enterprises. True, the report found no evidence of corrupt ties between Mina Corp. or Red Star and the families of Kyrgyz leaders. Yet it cautioned that a lack of proper oversight and a neglect of America’s broader interests in the region had often left Washington blind to “political, diplomatic and geopolitical collateral consequences.” These include the ouster of two Kyrgyz governments in popular revolts stirred in part by anger over alleged jet fuel corruption and also U.S. ties with Moscow. Since 2002, the Defense Logistics Agency-Energy has awarded Mina and its sister- company, Red Star Enterprises, four contracts worth $2 billion for fuel at Manas, and has awarded several additional contracts to Red Star for fuel supply to the United States’ Bagram Air Base in Afghanistan. The day after the 2010 contract award, an official from DLA-Energy called the Majority staff of the Subcommittee to ask who owned the companies. The Pentagon did not know. As the New York Times reported , for a number of years ending in April 2010, two Pentagon middleman companies misled the Russian authorities, by using falsified export documents, into thinking that the large quantities of jet fuel they were purchasing were for civilian use, not military, apparently with the intention of evading a tariff. But the fuel was being bought by the Pentagon for shipment to the American airbase in Manas, Kyrgyzstan, and from there on to Afghanistan, the report said. Once Russian officials discovered the true identity of the recipient, they cut off supplies, creating a major logistical headache for United States military commanders. Officials for the contractors expressed little remorse for their actions, the report shows. “We got one over on ‘em,” the report quotes one company official, Charles Squires, as telling investigators. “I’m an old cold warrior, I’m proud of it, we beat the Russians, and we did it for four or five years.” Until, that is, the Russians objected and the system unraveled. That breakdown forced a major redrawing of supply routes into Afghanistan for jet fuel, which is in chronically short supply in landlocked Afghanistan. It also touched off a major behind-the-scenes diplomatic effort by the Obama administration to rebuild the fuel lines. If this is an example of effective contract oversight I’m the Chief of Naval Operations. This fuel supply system accounted for more than half of the jet fuel used in the war, the report said. It is suggested that the Russian authorities knew all along about the falsified certificates, but did not act because the subsidiary of the Russian energy giant Gazprom which supplied the fuel was making profits on the sales. In any case, the Russian Federal Security Service and the Russian Parliament investigated in 2009, the report said, and the trainloads of jet fuel from Gazprom started to dry up, halting altogether on April 1. In a deposition with Congressional investigators, Red Star and Mina Corporation officials characterized the false certificates as necessary to circumvent Russian export restrictions on jet fuel sales to foreign militaries. In interviews, Kyrgyz officials characterized them as an effort to avoid export tariffs. While those assertions remain in dispute, there is no question that the supply disruption caused major problems. Contractors were compelled to buy far more costly fuel that had to be shipped through the Black Sea and sent overland to Kyrgyzstan and Afghanistan. It also forced the military to rely more heavily on supply routes from Pakistan into Afghanistan on vulnerable mountain roads where trucks came under repeated attack this summer. Putting aside for the moment of just how bad the oversight was the strategic question, as geopolitical types like to phrase it, was whether anyone was really interested in doing it in the first place. Here is how the report puts it: Like many of the logistics contracting agencies that support the U.S. war effort in Afghanistan, DLA-Energy has a single-minded focus on providing the warfghters with the goods they need to achieve their mission. Judged by that metric, DLA-Energy’s efforts have been remarkable. The U.S. mission in Afghanistan has required the delivery of billions of gallons of fuel to some of the most remote and hostile locations in the world. Simply stated, without this fuel, the war would come to a grinding halt. But DLA-Energy’s by-the-book focus on performance and price was inadequate for proper strategic oversight of multi-billion dollar fuel contracting in a highly graft-prone region of the world. Policy officials at the Pentagon and State Department did little to nothing to assist DLA-Energy in oversight of its massive fuel procurement contracts. As long as the flow of fuel met demand, the civilian and military officials at the Department of Defense showed little interest in fuel contracting. Te State Department, meanwhile, viewed the fuel contracts as solely a mater for the Pentagon to manage, even when fallout from the contracts badly damaged U.S.-Kyrgyz relations. In short, DLA-Energy, the Pentagon, and State Department all turned a blind eye to the fuel contracts’ serious political, diplomatic, and geopolitical collateral consequences. Evidently what we had here, as was memorably said in the classic movie Cool Hand Luke, was a failure to communicate. Returning to the oversight, or lack thereof, consider just these few paragraphs: 6. DLA-Energy conducted only superficial due diligence on Mina and Red Star, and turned a blind eye to allegations of corruption. Until recently, DLA-Energy never knew Mina and Red Star’s beneficial ownership and never had any clear visibility into their subcontracting relationships. When the interim government of Kyrgyzstan alleged that Mina and Red Star had corrupt relations with the Bakiyev family, DLA-Energy made no inquiry to determine whether the allegations might be true. 7. DLA-Energy took few steps to mitigate potential corruption and ignored red fags of anti-competitive behavior. DLA-Energy had little independent understanding of fuel supply at Manas or in Central Asia and took few steps to mitigate the high potential for corruption in a graft-prone region. When red flags of potentially corrupt or anti-competitive behavior did arise, the agency took no steps to address them. 8. The Department of Defense failed to oversee a highly sensitive fuel supply arrangement created by Mina and Red Star to disguise their fuel procurement. For most of the past five years, Mina and Red Star procured a majority of their fuel from refineries in Russia despite a perceived official Russian ban on the export of fuel for military use. Mina and Red Star constructed complex arrangements in which proxy subcontractors obtained certifications from Kyrgyz authorities stating that the fuel was being procured for domestic civil aviation. According to Mina and Red Star, the Russian refineries were aware that the U.S. military was the ultimate end-user of the fuel, and they believed that the Russian export control authorities were also aware because of the large quantity of fuel being procured. Mina and Red star told DLA-Energy and Pentagon officials about the deception; but, despite extensive memoranda and e-mails documenting the arrangements, senior DLA-Energy officials claimed that they were not aware of the scheme and asserted that there might not have been a Russian ban.

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WATCH: Bernanke Defends Bond Buys On ’60 Minutes’, Says Years Until ‘Normal’ Unemployment

December 6, 2010

WASHINGTON (Associated Press) — Federal Reserve Chairman Ben Bernanke is stepping up his defense of the Fed’s $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become “self-sustaining” without government help. In a taped interview with CBS’ “60 Minutes” that aired Sunday night, Bernanke also argued that Congress shouldn’t cut spending or boost taxes given how fragile the economy remains. The Fed chairman said he thinks another recession is unlikely. But he warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending. The interview is part of a broad counteroffensive Bernanke has been waging against critics of the bond purchase plan the Fed announced Nov. 3. The purchases are intended to lower long-term interest rates, lift stock prices and encourage more spending to boost the economy. WATCH: Critics, from Republicans in Congress to some officials within the Fed, say they fear the Fed’s intervention could spur inflation and speculative buying on Wall Street while doing little to aid the economy. On other issues in the “60 Minutes” interview, Bernanke: _ Argued that unemployment would have been far higher – “something like it was in the Depression, 25 percent” – had the Fed not provided extraordinary aid to Wall Street firms, banks and other companies to ease a credit crisis. _ Said it could take four or five more years for unemployment, now at 9.8 percent, to fall to a historically normal 5 percent or 6 percent. _ Reiterated that the Fed is prepared to buy even more than $600 billion in Treasury bonds over the next eight months, should it decide the economy needs the fuel of even lower interest rates. _ Argued that the risk of inflation is overblown. Bernanke said he’s “100 percent” confident the Fed will be able to ward off inflation, when the time is right, by raising interest rates and unwinding its stimulative programs. _ Called the risk of deflation – a prolonged drop in prices, wages and the values of homes and stocks – “pretty low.” He said the likelihood would have been greater if the Fed weren’t maintaining super-low interest rates. _ Urged Congress to improve the nation’s tax code “by closing loopholes and lowering rates” for individuals and companies. He said doing so would create greater incentives for people to invest. Critics who fear the Fed is raising the risk of inflation have complained that its bond purchases mean the Fed is, in effect, printing more money. In the interview, Bernanke called that a “myth.” He insisted the Fed isn’t printing money when it buys Treasurys and said the program won’t expand the amount of money in circulation in a “significant way.” Lou Crandall, chief economist at Wrightson ICAP, said Bernanke is right that the Fed’s purchases won’t significantly change the amount of money circulating in the economy. That’s mainly because banks aren’t lending most of the money they already hold in reserve. When the Fed buys Treasurys, it increases the reserves in the banking system. For those reserves to actually “create” money, the banks would have to lend it. Still, Crandall suggested that the bond-buying program creates the appearance of printing money, something that could put the central bank’s credibility at stake. Bernanke’s apperance Sunday night is part of a public-relations blitz he’s mounted since the Fed announced the program Nov. 3. In private and public appearances, Bernanke has sought to explain and defend the program to ordinary Americans, investors and lawmakers on Capitol Hill. His efforts have included an Op-Ed article in The Washington Post and discussions with students in Jacksonville, Fla., economists in Jekyll Island, Ga., business people in Columbus, Ohio, central bankers in Europe and members of the Senate Banking Committee. Criticism has come from both home and abroad. Officials in China, Germany, Brazil and other countries have argued that the Fed’s plan is a scheme to give U.S. exporters a competitive edge by keeping the value of the dollar weak. A weak dollar makes U.S. goods cheaper abroad and foreign goods more expensive in the U.S. It’s rare for a sitting Fed chairman to grant an interview, whether for broadcast or print. But this was Bernanke’s second appearance on “60 Minutes.” His first was in March 2009. At the time, he was facing anger over Wall Street bailouts and rising anxiety about the economy. In the interview that aired Sunday, Bernanke pointed out that the economy is growing at an annual pace of around 2.5 percent – far too slow to reduce unemployment. For a self-sustaining recovery, consumers and businesses would need to spend more, so the economy could grow faster. Bernanke has said he hopes the Fed’s bond-buying program will help lift stock prices. In part, that’s because lower yields on bonds would cause some people to shift money into stocks and also because lower corporate bond rates will spur business investment. Higher stock prices would boost the wealth and confidence of individuals and businesses. Spending would rise, lifting incomes, profits and economic growth. Bernanke has referred to this as a “virtuous cycle.” Asked whether the recovery is self-sustaining, Bernanke responded: “It may not be. It’s very close to the border.” Given the economy’s still-weak growth, he said: “We’re not very far from the level where the economy is not self-sustaining.”

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Jay Leno’s Vintage Green Cars (VIDEO)

September 16, 2010

Think green cars are a relatively recent invention? Take a stroll through Jay Leno’s 17,000 square foot garage in Southern California (or just watch the video below) and you’ll see that drivers have been powering cars with electricity, steam, even magnets for over 100 years now. In this week’s episode of GigaOM TV’s Green Overdrive Series , Jay showed off his collection of some of the earliest versions of green cars, like the 1906 Baker electric car, the 1916 Owen Magnetic and the 1925 steam-powered Doble. Shockingly, some of these environmentally-friendly antique rides have roughly the same 100-mile range as modern-day EVs. Which, as Jay points out, is perhaps why gasoline took off as the fuel of choice and demand for electric vehicles is, after all these years, still sputtering. Here’s Leno: “Electricity is like an animal — you put it in a box and it either dies or escapes. If you put a battery on a shelf full, it comes back in two months and it’s half full. Where’d the electricity go? You put a gallon of gasoline in a jar, seal it and come back in a month — you still have a gallon of gasoline.” Watch the full video below — and check out GigaOM TV’s Green Overdrive Series :

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Jay Leno’s Vintage Green Cars (VIDEO)

September 16, 2010

Think green cars are a relatively recent invention? Take a stroll through Jay Leno’s 17,000 square foot garage in Southern California (or just watch the video below) and you’ll see that drivers have been powering cars with electricity, steam, even magnets for over 100 years now. In this week’s episode of GigaOM TV’s Green Overdrive Series , Jay showed off his collection of some of the earliest versions of green cars, like the 1906 Baker electric car, the 1916 Owen Magnetic and the 1925 steam-powered Doble. Shockingly, some of these environmentally-friendly antique rides have roughly the same 100-mile range as modern-day EVs. Which, as Jay points out, is perhaps why gasoline took off as the fuel of choice and demand for electric vehicles is, after all these years, still sputtering. Here’s Leno: “Electricity is like an animal — you put it in a box and it either dies or escapes. If you put a battery on a shelf full, it comes back in two months and it’s half full. Where’d the electricity go? You put a gallon of gasoline in a jar, seal it and come back in a month — you still have a gallon of gasoline.” Watch the full video below — and check out GigaOM TV’s Green Overdrive Series :

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Jamie Court: Mad as Hell, But Don’t Want to Join The Tea Party?

September 15, 2010

The Tea Party is on a roll with its upset Senate primary victory in Delaware. If the rest of us don’t start raising hell, the Tea Party will have us living it. Are you mad as hell but don’t want to join the Tea Party? Do you still want to get the change you voted for in 2008? That’s most Americans, but the right wing is the only wing talking about its anger. Public outrage is the most powerful force in the world if you know how to leverage it and turn it into power. That’s why I wrote The Progressive’s Guide To Raising Hell , published today by Chelsea Green, to show average Americans how their common anger can be turned into power using the force of public opinion online and offline. Award-winning filmmaker Robert Greenwald made this short video about Raising Hel l and its battle-proven, step-by-step tactics that artfully sums up the book’s essence. I have spent two decades fighting and winning campaigns against insurance companies, Big Oil, utilities, banks, and corrupt politicians. The tactics of turning anger into change are the same regardless of whether you are trying to win a Senate primary, pass a ballot measure or get an insurer to pay a claim. Change is no simple matter in America politics, as Americans have recently learned so well. Elections rarely produce the change they promise because too often ballot victories leave intact the ways power is exercised, and on whose behalf. The special interests that fund and curry favor with our legislators may rebalance their party allegiances, but not their self-interest. Anger, not hope, is the fuel of political and economic change. As things grow worse and worse, public rage grows more intense–and so does the energy for making things better. And in 2010 in America, anger rules, but it needs to be vectored and focused if it is to succeed in fueling the type of change that the majority of Americans believe in. If progressives walk away, rather than engage, the Tea Party and GOP will capture the popular anger and turn it against government, rather than focus it rightly back on the targets of the 2008 election: Wall Street, health insurers, polluters, the military industrial complex, and the politicians they buy. If we want progress, the kind that polls show 60 percent of Americans believe in, we need to do more than vote every two to four years or wait for Obama to learn the tactics of confrontation. We need to make demands. We need to raise some hell. The alternative is giving up the reins of government to a flash mob that wants to do nothing but destroy it. _______________________ Jamie Court is author of T he Progressive’s Guide To Raising Hell: How To Win Grassroots Campaigns, Pass Ballot Box Laws And Get The Change You Voted For (Chelsea Green) and President of Consumer Watchdog .

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Grand Cherokee Gas Tank Fires Under Federal Investigation

August 24, 2010

WASHINGTON — U.S. safety officials are investigating whether gas tanks on Jeep Grand Cherokees can cause fires in rear end crashes or rollovers. The preliminary investigation, begun Monday by the National Highway Safety Traffic Administration, is the first step in determining whether a recall of the popular Chrysler SUV is necessary. The investigation covers three million Grand Cherokees from model years 1993 to 2004. Advocacy group Center for Auto Safety has asked NHTSA to review whether the gas tank’s position below the rear bumper and behind the rear axle could cause fuel to spill if the SUV were struck from behind. In rollovers, a lack of proper shielding for the plastic tank could cause it to puncture, the group said. The neck of the fuel tank could also tear off. “This is a terrible design,” said Clarence Ditlow, head of the Center for Auto Safety. Ditlow said he planned to ask Chrysler to issue a voluntary recall of the Grand Cherokee. While the agency has not reached any conclusions, an initial review of crash data submitted by auto manufacturers showed that the Grand Cherokee did not have significantly more fires after crashes than other vehicles, NHTSA said. Chrysler spokesman Michael Palese said the company is cooperating with the government investigation and that the Grand Cherokee has an excellent safety record. The automaker moved the tank’s position after the 2004 model. Chrysler has sold just under 3.6 million Grand Cherokees since the midsize SUV was introduced in 1992, according to Ward’s AutoInfoBank. The company started selling a redesigned 2011 model recently. NHTSA has found 44 Grand Cherokee crashes and 55 deaths since 1992 where fire was listed as the most harmful factor. Of those figures, 10 crashes and 13 deaths were most likely associated with rear end crashes, the federal safety agency reported. __ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Grand Cherokee Gas Tank Fires Under Federal Investigation

August 24, 2010

WASHINGTON — U.S. safety officials are investigating whether gas tanks on Jeep Grand Cherokees can cause fires in rear end crashes or rollovers. The preliminary investigation, begun Monday by the National Highway Safety Traffic Administration, is the first step in determining whether a recall of the popular Chrysler SUV is necessary. The investigation covers three million Grand Cherokees from model years 1993 to 2004. Advocacy group Center for Auto Safety has asked NHTSA to review whether the gas tank’s position below the rear bumper and behind the rear axle could cause fuel to spill if the SUV were struck from behind. In rollovers, a lack of proper shielding for the plastic tank could cause it to puncture, the group said. The neck of the fuel tank could also tear off. “This is a terrible design,” said Clarence Ditlow, head of the Center for Auto Safety. Ditlow said he planned to ask Chrysler to issue a voluntary recall of the Grand Cherokee. While the agency has not reached any conclusions, an initial review of crash data submitted by auto manufacturers showed that the Grand Cherokee did not have significantly more fires after crashes than other vehicles, NHTSA said. Chrysler spokesman Michael Palese said the company is cooperating with the government investigation and that the Grand Cherokee has an excellent safety record. The automaker moved the tank’s position after the 2004 model. Chrysler has sold just under 3.6 million Grand Cherokees since the midsize SUV was introduced in 1992, according to Ward’s AutoInfoBank. The company started selling a redesigned 2011 model recently. NHTSA has found 44 Grand Cherokee crashes and 55 deaths since 1992 where fire was listed as the most harmful factor. Of those figures, 10 crashes and 13 deaths were most likely associated with rear end crashes, the federal safety agency reported. __ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Susan Buchanan: State’s Oyster Growers Weigh Options in Claims Process

August 10, 2010

This article was published in “The Louisiana Weekly” in the Aug. 9, 2010 edition. Oyster growers seeking compensation for losses after the spill worry that payments will hinge on whether damages were from fresh-water flows ordered by Governor Bobby Jindal or the presence of oil. For troubled producers, it may take years for beds to recover from too little salinity in some areas and tar and other spill byproducts elsewhere. Growers have at least two compensation options, said Mike Voisin, seventh-generation owner of Motivatit Seafoods, Inc. in Houma. “Damage claims will be submitted to BP and the Feinberg fund first. If claims are rejected there, they can be presented to the Coast Guard for compensation under the Oil Spill Liability Trust Fund — set up under the Oil Pollution Act.” The spill trust fund originally provided up to $1 billion for oil removal and other damages, but is now capped at $2.7 billion. About 30%-40% of the state’s oyster areas can be harvested after recent reopenings, but the number of usable oysters there is lower than before the spill, Voisin said. Motivatit harvests 10,000 acres of oysters in central and western Louisiana, and has suffered moderate damage from oil in some spots. The company’s sales are down by 50% or more from last year. Rusty Gaude, LSU AgCenter fisheries agent for Plaquemines, St. Bernard and Orleans parishes, said “it’s well documented that oysters require certain conditions, including the right amount of salinity in the water, for survival,” He said seven conduits, built for varied reasons before the spill, were opened in early May “to push water out and theoretically keep oil from the inland estuaries.” In reefs east and west of the Mississippi, salinity levels dropped below a range of 5-15 parts salt per thousand parts water needed for oysters to survive, according to scientists. “Independent lease holders are doing their own damage assessments now,” Gaude said. Louisiana oyster reefs are worked mostly under private leases. And the state’s Dept. of Wildlife and Fisheries plans to start conducting a damage survey soon. Gaude said that before-and-after documentation on the beds will probably be needed for the BP and Feinberg claims processes. “For lease holders, efforts to get claims payments could be settled quickly or they could drag on for years.” After Governor Jindal ordered the diversion of fresh water from the Mississippi River into nearby salt marshes, gates were open at the following conduits in May and remain ajar: Davis Pond Diversion in St. Charles Parish; Caernarvon Diversion and Violet Siphon in St. Bernard Parish; and Bayou Lamoque Diversion,West Pointe A la Hache, Naomi Siphon and Whites Ditch Siphon in Plaquemines. Louisiana oysters normally thrive in estuaries that have all the comforts of home, but if something goes wrong, they won’t develop or reproduce. A good habitat has the right amount of salinity, temperatures of 50-79 degrees, firm bottoms and continuous water circulation to bring in food and oxygen. When asked if BP has a policy for oyster growers seeking damages from fresh water, BP spokesman Mark Proegler responded “as BP has said from the beginning, we will pay all legitimate claims. We are in transition to Mr. Feinberg, a process that should be completed in August. While the transition continues, we will be and are paying claims.” Last week, BP had paid $303 million in claims to date. In an August 3 announcement, BP gave examples of businesses included in its claims process. On the list were “fisherman, shrimpers, oyster harvesters, etc., and charter boat operators who have been affected by the oil.” The word “oil” is worrying some oyster growers, who fear that fresh-water damage might keep them from being compensated by BP or the $20 billion, Feinberg fund. Independent administrator Ken Feinberg is expected to take over the BP claims process in the third week of August. Meanwhile, for anyone considering suing the state for opening fresh-water conduits, Voisin’s view is “the state did the right thing. It kept the oil out of the beds on the east side of the Mississippi.” Johnny Smith, owner of Captain Johnny Smith Oyster Packing Plant in New Orleans, said 40% to 50% of oysters produced in Louisiana are from east of the Mississippi River, and many of them were damaged by the fresh water diversion. “Another 30% of the beds are just west of the Mississippi, and a lot them had tar and oil. About 20% of beds in the state are further west, heading toward Lake Charles, and they might be all right if we don’t have a hurricane pushing tar and oil in there.” His plant has been temporarily closed since June 25 because oysters are so scarce. Smith said “dispersant-treated oil that feels like peanut-butter goo may be contaminating some of the beds west of the Mississippi.” Beds with oil-contaminated shells can’t reproduce and could be lost for many years. He said “in my opinion, beds affected by the fresh-water diversion could recover in 3 to 5 years, and probably faster than the beds that were contaminated by oil and tar.” From April to October, Louisiana oyster farmers move closer inland to the beds they own on land leased from the state, Smith said. Managing an oyster business requires that farmers plant oysters on various sites, hoping weather, salinity and tides will cooperate in at least some of those spots. Growers build reefs on their leased grounds by dropping old shells and limestone to provide habitat for the oysters’ reproductive cycle. Private-lease oysters, caught between April and October, supply Louisiana with half the year’s production, he said. Louisiana also holds thousands of acres of wild, public reefs, where anyone with required, commercial fishing licenses can harvest oysters. The public season roughly runs from October to April. This summer, wholesalers and retailers scaled back operations as supplies dwindled. “We’ve been able to deliver oysters in the shell to all our long-time, oyster-bar customers since the spill, though not always as many as they need,” said Al Sunseri, president and co-owner of P&J Oyster Co. in New Orleans. “An old family friend is shucking oysters from East Plaquemines Parish for us. Our business is in a state of transition because the farms west of the Mississippi–that we get 95% of our oyster to shuck from–have been closed for two months.” P&J has laid off more than half its staff recently. “Our skeleton crew of two drivers and two processing personnel are working much shorter hours, while my brother, my son and I come in about two hours later than usual,” Sunseri said. At one time, he started his day at 2:30 in the morning. The company, which dates back to 1876, has been a fixture on Toulouse St. in the French Quarter since 1921. Sunseri offers some reasons for oyster shortages. “Beds in Area 1 in Lake Borgne have been open, but they were heavily harvested in May and June,” he said. “Area 6 is currently open for harvest but has experienced large mortalities due to the opening of the Caernarvon freshwater river diversion. Areas 1,4,6,7 and parts of 9 and 10 are open now.” To the southeast of Port Sulphur, west of the Mississippi, beds in Bay Batiste and Wilkinson Bay both had oil, he noted. C.J. Gerdes, co-owner of Casamento’s Restaurant in New Orleans, said “we expect to open for the season on Sept. 8, our usual time after being closed for the summer. We’re taking a wait and see as to whether we’ll have Louisiana oysters, which we usually get from P&J and Louisiana Seafood Exchange. We may start with big sacks of oysters from Louisiana Seafood Exchange that come from Apalachicola, Florida, which for an out-of-state product is about as close you can get to Louisiana oysters.” The restaurant tried oysters from Oregon, California and Virginia but they didn’t taste like local varieties. Gerdes, like others, said that while more fishing areas are open now, oysters in some of those locations, especially in Barataria Bay, were hurt by fresh water. And he said “four or five oyster areas were open a month ago but the oyster men were working for BP, cleaning up oil, so you couldn’t get much from those places. It was a Catch-22.” Tommy Cvitanovich, owner of Drago’s Seafood, said prices he pays for oysters have escalated and business is down since the oil spill. “We’ve absorbed the price increase and haven’t passed it on to our customers” at the firm’s two restaurants, located in Metairie and downtown New Orleans. He plans to submit a loss claim to BP for the difference. In the New Orleans office of Atlanta-based Inland Seafood, sales manager Robby Hare said “we haven’t had any Gulf oyster gallons to sell for five weeks. In this same week a year ago, our office sold 106 gallons worth $4,000. Our oysters in gallons are from Mississippi and Louisiana and are shucked at plants near the docks.” Inland Seafood sells to restaurants, institutions and supermarkets. “We are able to get Gold Band pasteurized oysters from Motivatit Seafood,” Hare said.”We can also buy oysters from Apalachicola, Florida. We tried selling Pacific oysters, but they had a different taste and consistency and weren’t as desirable here.” Because of the drop in oyster availability, prices per sack charged by boat owners to processors have risen about 45% since late April, Smith said. Oysters in open areas aren’t necessarily usable, he said. “In many places, growers are having to hunt for them, making their day less productive. They can’t catch enough usable stuff to pay for the fuel and labor to make the trip.” The state plans to conduct an impact study in addition to its routine research. “We take oyster samples every month, all year long, to assess condition in the beds,” said Randy Pausina, New Orleans-based head of fisheries for the Louisiana Dept. of Wildlife and Fisheries. “At this time of year, for example, oysters can be subject to high temperatures, heavy rainfall and tropical storms. We’re working on a longer term, post-spill oyster study under NRDA,” or Natural Resource Damage Assessment conducted by National Oceanic and Atmospheric Administration. That study will consider ways to return natural resources to pre-spill conditions and to replace lost resources, he said. Randy Lanctot, executive director of the Louisiana Wildlife Federation, said “I think there will be benefits to the coast of keeping river diversions wide open for the past three months. But they will not be known for sure until after the water has fallen. Then we’ll be able to see how much land was created.” Whether large discharges of fresh water and sediment stimulated marsh growth won’t be know until next spring, he said. The Louisiana Wildlife Federation advocates “no, net loss of oyster-growing capacity” for state waters, and supports meshing that policy with the state’s plan for coastal protection and restoration, Lanctot said. Some growers may have to move their harvests from places that have been productive for them, however, Lanctot said. “For oyster leaseholders, who have built productive beds over many years, that can be troublesome.” He said the state should provide reasonable assistance to fishing-community members who will need help making transitions.

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Jeffrey Rubin: Boone Pickens’s Plan Full of Hot Air

August 10, 2010

Boone Pickens ‘s plans to save the United States from its energy dependence on so-called hostile petro-powers is, simply put, full of hot air. The abundance of shale gas in the US will no more free the country’s motorists from dependence on foreign oil than have either the American production of over ten billion gallons of corn-based ethanol or the rollout of GM’s electric-powered Volt . There’s a reason for the fact that, for a given amount of energy, natural gas prices today trade at a fraction of the price of oil. If people could just switch from using one fuel to the other, that price gap would quickly be arbitraged away. But they can’t–at least not where it counts the most. Not that there hasn’t been scope for substitution. Few households in North America still burn oil to heat their homes–most switched to much cheaper domestically produced natural gas after the OPEC oil shocks of the 1970s. Even fewer North Americans rely on burning oil to generate power for their homes. And most petrochemical producers can switch from oil to a natural gas feedstock. But unfortunately, the majority of oil consumed in the United States–and indeed in the rest of the world–is used as a transport fuel. On average it’s about 60 per cent of all the oil consumed, and as much as 90 per cent of each new barrel that comes out of the ground. And that’s exactly where prices for oil and natural gas disconnect. Planes fly on jet fuel made from oil, ships run on bunker fuel made from oil, and, most importantly, motor vehicles run on gasoline or diesel made from oil. And with good reason: oil packs about four times the energy density of natural gas. And it carries about 20 times the energy density of the lithium-ion battery found in an electric car. That’s a key reason why neither electric- nor natural gas-powered cars have made any sizeable inroads into the North American vehicle market. The 110,000 or so natural gas-powered vehicles in the US, most of them urban buses, remain an insignificant fragment of a 250 million-vehicle market. And the story isn’t any different with electric powered cars: GM doesn’t expect to sell more than 10,000 of its heralded Volt next year. Another reason is the absence of a fuel distribution system. Outside of urban centers, there are few gas stations that supply natural gas, which means that, at best, the fuel can only be used for urban commutes. To build a national distribution system for the fuel would require subsidies that far exceed anything already squandered on encouraging home-grown ethanol production. Switching to natural gas is no more attractive an alternative for most American motorists right now than switching to corn-based ethanol or electric power. And until it is, expect natural gas and oil prices to stay disconnected, leaving the American economy as dependent as ever on foreign oil suppliers.

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Dean Baker: Economists Tell the Masses: "It Could Have Been Worse"

August 2, 2010

It is amazing that angry mobs have not risen up and chased all the economists out of the country. While the greed of the Wall Street gang provided the fuel for the bubble, the economists played an essential role as enablers. This was most directly true for economists in policymaking positions, like Alan Greenspan at the Fed. It was Greenspan’s job to stop the housing bubble. A competent and honest Fed chair would have recognized the bubble by 2002 and taken whatever steps were necessary to rein it in. And we should be 100 percent clear, in spite of all the song and dance about how the financial reform bill will prevent another bailout, the Fed absolutely had all the tools needed to stop this disaster. They just lacked either the competence or the integrity, or both. But the economists in policymaking positions are just the beginning. There are thousands of macroeconomists across the country, in government, academia and private industry who track the economy as a full-time job. It is actually a well-paid job, with many drawing six-figure salaries and big name types getting close to $1 million a year. Given the high pay for this profession, it was reasonable to expect that they would be able to see something like the $8 trillion housing bubble that eventually wrecked the economy when it collapsed. But you can count on your fingers the number of economists who raised warnings about the housing bubble. The rest either did not see it, or didn’t think it worth mentioning. Remarkably, no economists seem to have lost their jobs for this failing. Unlike dishwashers and custodians, economists are not held accountable for the quality of their work. Now, the economists are back telling us that we should be thankful that Congress and the Fed enacted the TARP and the other programs that saved Goldman Sachs, Citigroup, and the rest from bankruptcy. A new study by Princeton University Professor Alan Blinder and Mark Zandi, the chief economist at Moody’s Analytics, examined the impact of the TARP and the related Fed and FDIC bailout programs. The study found that without the bailout, GDP would have declined by another 6.5 percent and the economy would have lost another 8.5 million jobs. In other words, things might be bad now, but if we didn’t shovel trillions in loans and loan guarantees to Goldman Sachs and the rest of the Wall Street gang, they would be even worse. Before we start thanking Goldman for taking our money, it is worth taking a closer look at the study. The big story here is the counterfactual. What does the study assume the Fed and Treasury would have done if we had not passed the TARP and the Fed had not come through with its vast array of emergency loan and loan guarantee programs? The answer is that the study assumes that they would have done nothing. In other words, the question asked by the study is “what would the world look like if the federal government had done absolutely nothing to counter the economic and financial downturn resulting from collapse of the housing bubble?” This counterfactual seems more than a bit unrealistic. Suppose we had let the market work its magic and put Goldman, Citigroup, Bank of America, and Morgan Stanley into bankruptcy. Suppose that once these firms were in receivership and their bank units were in the hands of the FDIC, the Fed flooded the system with liquidity. How would this situation compare with the situation where trillions of taxpayer dollars were put at the discretion of Goldman and the rest through TARP and the Fed’s special facilities? The Blinder-Zandi study tells us absolutely nothing about this scenario. In other words, Blinder and Zandi have constructed an absurdly unrealistic counterfactual and told us that the TARP was much better than this absurd scenario. This is like saying that people who don’t eat chicken will starve to death. Under the counterfactual that people who don’t chicken don’t eat anything else either, they certainly will starve to death. But that is not a serious analysis of the benefits of eating chicken, and Blinder and Zandi have not given us a serious analysis of the benefits of the TARP. This “it could have been worse” line should be flushed down the toilet. The reality is that greed and incompetence created an entirely unnecessary disaster. Tens of millions of people are still suffering from its consequences. And the Wall Street boys and the economists who are responsible for the disaster are all doing just fine. People should be really angry about this and a silly study that might be used to tell them otherwise should just make them angrier.

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Charles H. Green: CNBC Panel on Improving Business Confidence Doesn’t

July 27, 2010

(co-authored with Rich Sternhell) On July 22, the Gallup organization released their 2010 poll on US Confidence in Institutions. As Gallup headlined it, Congress scored an all time low (for all 16 institutions ranked, not just for Congress). Barely beating Congress for lowest confidence ratings were, in order, HMOs (15th out of 16), Big Business (14th), organized labor (13th), and television news (12th). The Presidency, which also shows declines, still ranks 7th out of 16. So it was fitting that CNBC (that would be in the 12th out of 16 group) put together a three part special panel discussion on “Restoring Trust in Business” (that would be in the 14th out of 16 group). The panelists included Gordon Bethune , Bill George and Myrtle Potter (representing the 14th out of 16 group), and Christie Todd Whitman (there wasn’t a category for ex-State Governors and Bush cabinet secretaries, but I’d hazard a wild guess she generally fit in). Interestingly, there was consensus on the panel about how to restore trust in business. Answer: It’s the government’s fault. How Good Shows Go Bad Given our blogpost of yesterday about the hazards of relying on those-who-summarize (including me), here are links directly to the show so you can make up your own mind. The show–originally advertised (we recall) as “Restoring Trust in Business,” ended up after broadcast on CNBC’s website in three different sequences: ” Leadership in Government, ” ” Leadership in Corporate America ,” and ” Leadership and Trust .” As CNBC’s John Harwood points out at the outset, the declining trends are long-term–since the 1970s, and particularly since 1994–and they apply across nearly all institutions. (See Gallup’s historical data, here.) The four leaders invited have some fine credentials. Bethune was a revered CEO in the airline industry, where it’s very hard to be revered by anyone. George was a successful CEO, and writes on leadership. Potter was a COO at Genentech, and Whitman ran the State of NJ and the EPA. Good choices to opine about how business can regain confidence. Give CNBC credit. Not only did they tee it up right, but nearly half the questions they asked more or less rhymed with, “how has business lost confidence?” or “how can business and the markets regain confidence,” or “what must be done for Americans to regain confidence in business?” We would expect that the first thing we’d hear from any one of these leaders on the subject of restoring confidence in their institutions would be a straightforward acknowledgment of what was lost, and a statement of responsibility for having lost it. Is that not unreasonable to expect of distinguished leaders? And indeed, every leader did get off at least one direct acknowledgment that business might have to improve itself–but having done the curtsey toward the question, the bulk of their comments were reserved for tax policy, government regulatory foibles, and flawed federal government policy. Instead, here’s what we got (we’re paraphrasing: go ahead, check our interpretation here .) Q. If you look at the data Hartman reviewed before for us, the congressional approval rating is low. Yet contrast that with the issues that got accomplished this year; various reforms–what is it that isn’t connecting here? Whitman: You’ve seen a move in government away from policy to politics; everything’s partisan now. (She then proceeds to attack Nancy Pelosi). Q. What do you think needs to be done to restore trust in business? Potter: Business needs to take responsibility for stewardship and its own governance. We can think of examples where that didn’t happen. We also have to think carefully about how we’re paying so we can drive innovation. Innovation used to drive the world from the US, but not now. Q. I’m interested in your view, Mr. George; you say the crisis wasn’t caused by subprime or derivatives. Wasn’t it caused by flawed leadership putting its own interests before its clients or its people? George: No question about that; we saw flawed leadership in Enron and all the companies that blew up back in 2003, we saw it on Wall Street. Most of those leaders and their companies have gone away. But it is about leadership in government. We need to emphasize policy not bickering; we need a jobs policy. I’d like to see the President step up to a rebuild America program. Q. In terms of business’s relationships to government, why doesn’t it seem to be working? Potter : Well everyone’s feeling the crunch, but what stands out is jobs. Jobs are so critical to America feeling more confident about the country, and yet this chasm has to be closed between government and business. Q. What is your best advice to the administration on what can be done to restore trust and confidence in business and in Wall Street? Whitman : Clearly we need a rigorous regulatory policy, but we need to stop this gotcha attitude of blame-throwing in congress. The BP disaster turned into a criminal investigations instead of focusing on how to fix things. Clearly there was a problem on the regulatory side as well. We need to show respect for each other. Bethune: You have to demonstrate some performance, not talk. No one in our government ever ran a business. The administration shouldn’t have focused on health care or regulatory reform, but on jobs…business doesn’t like uncertainty. Q. Most people don’t expect as good a world for their kids as they had. Whitman: The main thing is we’ve got to do is get deficit spending under control. Q. One reason people don’t have trust in business is that, at the height of the crisis, big financial companies took big bonuses and were bailed out: what’s your take on that, Mr. George? George: Goldman didn’t pay any bonuses last year. Trust is the fuel that enables society to run….but we need policies from government that create incentives. Goldman, JPMorganChase and are rethinking compensation to have pay for performance….investing in America….lower capital gains tax. But that won’t solve this jobs crisis. We’ve got to get back to investing in America. Q. What is your one piece of advice that would reassure people that the future is going to be better for them? Bethune: Tax policy; articulate it, make it pro growth, pro business, put cash to work, make the future clear in order to get confidence. You be the judge, but let us suggest a simple headline. When the institution that ranks 14th out of 16 shows up to talk about restoring confidence in their institution–given a decades-long decline–we ought to expect something more than a short-term political bashing of the 7th- and 16th-ranked institutions, a la the Sunday morning political interview shows. Business, heal thyself. This post co-authored with Rich Sternhell. Sternhell retired from Towers Watson as a Managing Principal after a career of more than 30 years and is now an independent consultant.

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New Home Construction Falls To Lowest Level Since October

July 20, 2010

WASHINGTON — Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted. But driving the June decline was a more than 20 percent drop in condominium and apartment construction, which makes up a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was down slightly. It dropped 0.7 percent. Overall, construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday. May’s figure was revised downward to 578,000. One bright area of the report was an increase in building permit applications, which are a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000, however this was also driven by apartment construction. A slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April. “The housing market remains the Achilles heel of the recovery,” said M. Cary Leahey, a senior economist at Decision Economics. “It is hard to imagine confidence recovering to healthy levels until the housing market experiences much less distress.” The lackluster housing report contributed to an early sell-off on Wall Street. The Dow Jones industrial average fell 120 points in morning trading. In a typical economic recovery, the construction sector provides much of the fuel. Not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts. Builders may be turning their attention away from new projects to complete those already in progress. Housing completions rose 26.2 percent in June, noted John Ryding and Conrad DeQuadros, economists at RDQ Economics. That could be a positive sign for future activity. “Our best guess is that housing construction activity continues to bottom out at low levels and that we will see some very modest growth in the second half of the year in new housing construction,” they said in a note to clients. Still, builders have been feeling increasingly pessimistic of late. The National Association of Home Builders said Monday that its monthly reading of builders’ sentiment about the housing market sank to 14 – the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the builders’ trade group. The impact appears in multiple industries, from makers of faucets and kitchen appliances to lumber yards. The rate of home building is still up about 15 percent from the bottom in April 2009, though it’s down 76 percent from the last decade’s peak in January 2006. New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30. .

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Ethanol Subsidies In Jeopardy: Tax Credits Worth $6 Billion Per Year

July 16, 2010

WASHINGTON — The once-popular ethanol industry is scrambling to hold onto billions of dollars in government subsidies, fighting an increasing public skepticism of the corn-based fuel and wariness from lawmakers who may divert the money to other priorities. The industry itself can’t agree on how to persuade Congress to keep the subsidies, which now come in the form of tax credits worth about $6 billion annually. One industry group, Growth Energy, made the bold move Thursday of calling for the tax credits to be phased out completely in favor of spending the money on more flex-fuel cars and gasoline pumps that support ethanol. A rival group, the Renewable Fuels Association, said it’s too late in the year to make such proposals – the tax credits expire at the end of the year, and legislative days are numbered. As the industry bickers over what to do, Congress is signaling it’s growing tired of paying for ethanol. The House Ways and Means Committee is considering slashing the tax credit by 9 cents a gallon, from 45 cents to 36 cents, when it looks at a wide range of energy tax credits as early as next week. That would be the second cut in the credit in as many years. A key senator also expressed skepticism this week. Sen. Jeff Bingaman of New Mexico, Democratic chairman of the Senate Energy and Natural Resources Committee and a longtime supporter of renewable fuels, said Congress should “weigh all factors, including the credit’s very high cost to taxpayers,” when looking to extend the credit. Bingaman noted that the ethanol industry is protected by congressional mandates for its use. Some supporters say they see the writing on the wall. “The longer we have this support structure in place for ethanol, the more people begin to question it,” said Roger Johnson, president of the National Farmers Union, which supports Growth Energy’s plan. He says a new approach is needed as the public becomes more skeptical. Rep. Earl Pomeroy, D-N.D., a member of the Ways and Means Committee, is leading the fight in the House to keep the tax credits. He says that the 9-cent cut is a good starting point and that he feels optimistic after discussing the issue with fellow committee members and members of the ethanol industry this week. Pomeroy acknowledges that the legislative environment is challenging and says that a simple extension of the credit makes the most sense in the House. “Late in the legislative session, simpler is easier,” he said. Ethanol producers say expiration of the tax credits, which are paid to oil companies as an incentive to blend gasoline with ethanol, could mean the loss of almost 40 percent of its plants and tougher times for a domestic fuel that is good for national security. Critics say the industry should stand on its own after receiving subsidies for 30 years and argue the tax credits are a waste of taxpayer dollars. A diverse coalition of groups has argued over the past few years that the increase in production of corn and its diversion for ethanol is making animal feed more expensive, raising prices at the grocery store and tearing up the land. Craig Cox of the Environmental Working Group, one of the organizations opposing the fuel, says he thinks the industry “hit a wall” in Congress as concern over budget deficits have increased. “Status quo support for ethanol is definitely not going to continue,” he said. Growth Energy, a group formed in 2008 as some ethanol companies grew worried that their political clout was waning, said it is proposing the phase-out as a way to think more creatively about boosting the industry and the fuel. The group says ethanol helps reduce the nation’s dependence on foreign oil, pointing to the Gulf oil spill as a reason to turn to the corn-based alternative. “We are confident that in a fair and open market, ethanol can and will compete successfully against oil,” said Tom Buis, the group’s CEO. The industry was also frustrated last month by a delay by the Environmental Protection Agency in deciding whether U.S. car engines can handle higher concentrations of ethanol in gasoline. But the increase in the maximum blend is expected to be approved later this year. As critics pile on, industry leaders are on the defensive. Bob Dineen, president of the Renewable Fuels Association, said it would be hard to find an energy source around the world that isn’t getting some sort of government incentives. “We’re now 10 percent of the nation’s motor fuel – that’s a great story,” he said. “Does it come at a cost? Yes.”

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Video: Leung Says China Gas Targeting Industrial Customers: Video

July 8, 2010

July 9 (Bloomberg) — China Gas Holdings Ltd. Chief Financial Officer Eric Leung talks with Bloomberg’s Rishaad Salamat about the company’s business strategy. China Gas, the energy supplier to homes and business on the mainland, plans to almost double sales of natural gas in the next two years as the government encourages the use of the fuel. China Gas’s net income in the year ended March rose more than sevenfold to HK$875.6 million ($112.4 million) on higher sales. (Source: Bloomberg)

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Quiet Hybrids: Are They More Dangerous?

July 5, 2010

WASHINGTON — The age of the silent hybrid may be coming to an end. Gas-electric hybrids, propelled by electric motors at low speeds, are well-known for their quiet ride and great mileage. But their silence isn’t always golden. Some researchers and safety groups say that quiet operation – “hybrid creep” – can pose risks for unsuspecting pedestrians and the blind, who use sound cues. Advocates for the blind have sought the addition of artificial noises in hybrids for several years, concerned that the expected sales growth of hybrids could lead to more pedestrian fatalities and injuries. Hybrids account for about 2 percent of new car sales each year but auto companies are expected to boost production in advance of tougher fuel efficiency standards this decade. “This is an example of too much of a good thing,” said John Pare, executive director for strategic initiatives with the National Federation of the Blind. “Cars got quieter, that was good. Suddenly they got to be so quiet that it added an element of danger.” The government’s auto safety agency said in a research report last year that hybrid vehicles are twice as likely to be involved in pedestrian crashes at low speeds compared with cars with conventional engines. The study by the National Highway Traffic Safety Administration examined circumstances in which the vehicles were slowing down or coming to a stop, backing up or entering or departing a parking space. More than 4,300 pedestrians were killed in 2008, according to the most recent data available. The government has been researching the safety risks that hybrids and electrics could pose for pedestrians, particularly the blind, along with the elderly and children, for vehicles traveling at 20 mph or less. When a car is going faster, the friction between the tire and the road’s surface makes the vehicle louder. The quiet hybrid phenomenon already has its place in pop culture. In an episode of NBC’s “The Office,” paper salesman Andy Bernard uses his stealthy blue Toyota Prius to sneak up on Dwight Schrute and pin his bitter rival against a hedge. One concerned co-worker, watching the unfolding drama, says “the Prius is silent if he keeps it under 5 miles per hour.” Congress is heeding the warnings, adding sound performance requirements for hybrids and electric cars to an auto safety bill being considered after the massive Toyota recalls. Lawmakers could consider the changes this summer and car companies most likely would have to have the sounds ready to go three years after the release of new government rules. Automakers helped develop the proposal in Congress and are moving forward with new artificial sounds that will be emitted from electric cars and future hybrid models. Nissan Motor Corp. has produced distinct sounds for the Leaf, the electric car expected to go on sale this year, when the vehicle accelerates or moves in reverse. When the Leaf speeds up to 20 mph, it automatically will use a soft whirring sound that changes pitch as the car accelerates. When the Leaf backs up, an intermittent bell will ring to warn those nearby. The Japanese automaker consulted with acoustic psychologists and Hollywood sound designers to find a tone that addresses drivers, pedestrians and the community. “It was kind of like peeling back an onion. The more we worked on it, the more issues came up, the more of a balancing act it became,” said Andy Christensen, a manager with Nissan’s North American Technical Center near Detroit. Nissan plans to use the sounds on the Infiniti M35 hybrid to be released in 2012. General Motors Co. wanted a more subtle chirp on its Chevrolet Volt, so it chose an alert horn that lets the driver warn an unknowing bystander. “We didn’t want to blast the horn at them and figuratively smack the people in the nose,” said Doug Moore, a vehicle performance engineer for the Volt project. “We just wanted to tap them on the shoulder and say, ‘Hey I’m here.’” Other automakers are hard at work, too. Toyota Motor Corp., which makes the top-selling Prius hybrid, is studying artificial sounds for hybrids when the vehicle is propelled by its electric motor at low speeds. Ford Motor Co. is working to bring external sounds to future hybrids and electrics, including its Focus electric car, expected in 2011, and a next-generation hybrid and plug-in hybrid vehicle planned for 2012. Nancy Gioia, Ford’s director of global electrification, said car companies should consider standardizing tones from future hybrids and electrics to avoid a cacophony of confusion on the streets. “It can’t be like cell phones where we all select our own sound and we tune out everybody else’s but our own,” Gioia said. Some green car advocates have questioned the need for the extra tones and noted that the requirement could add more noise to neighborhoods. Paul Scott, vice president of Plug In America, said the sounds could help under certain circumstances, but drivers should have the right to activate the tones. “After hearing how innocuous the Nissan Leaf sound is, maybe it’ll be a minor irritant for us, but I suspect people will tire of it eventually and seek ways to disable the noise,” Scott said in an e-mail from Japan, where he was test-driving the car. Les Blomberg, who is the founder of the Noise Pollution Clearinghouse, said reducing noise from the loudest vehicles, such as trucks, buses and motorcycles, would increase the ability of pedestrians to detect sound. Adding sounds to hybrids, however, would simply enhance noise pollution and make it more difficult to hear an individual vehicle in traffic. ___ Online: National Federation of the Blind: http://quietcars.nfb.org National Highway Traffic Safety Administration report: http://tinyurl.com/y8vwe37 Plug In America: http://www.pluginamerica.org Nissan Leaf: http://tinyurl.com/y5ckpck Chevy Volt: http://tinyurl.com/y5ckpck Toyota Prius: http://www.toyota.com/prius-hybrid Noise Pollution Clearinghouse: http://nonoise.org/

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Stocks in U.S. Retreat as Treasuries, Dollar Gain on Housing Starts Report

June 16, 2010

By Nick Baker June 16 (Bloomberg) — U.S. stocks fell, Treasuries gained and the dollar strengthened against the euro after reports showed American housing starts declined the most in 14 months and FedEx Corp.’s profit forecast trailed estimates. Oil rose to a six-week high. The Standard & Poor’s 500 Index slipped 0.1 percent to 1,114.61 at 4 p.m. in New York as about three stocks slumped for every two that rallied on U.S. exchanges. The measure had fallen as much as 0.7 percent earlier. Yields on 10-year Treasuries lost 4 basis points to 3.26 percent. The U.S. currency climbed 0.2 percent to $1.2312. Crude oil futures rose 0.9 percent to $77.67 a barrel. Retailers, manufacturers, transportation companies and commodity producers dropped in U.S. stock trading as FedEx’s full-year profit outlook and the biggest drop in housing starts since March 2009 overshadowed better-than-estimated growth in industrial production. BP Plc’s 1.4 percent gain in New York equity trading following an agreement to pay $20 billion to victims of the Gulf of Mexico oil spill wasn’t enough to turn the S&P 500 around. “The recovery is not accelerating, it’s decelerating, and there’s reasons for investors to take a step back and evaluate,” said David Kovacs , head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $19 billion. FedEx “is a barometer of economic activity, and the fact that they missed relative to estimates indicates there are some clouds on the horizon.” ‘Moderate’ Recovery FedEx, the world’s largest air-cargo carrier, declined 6 percent in U.S. stock trading for the biggest drop since December. The company forecast annual profit that trailed the average analyst estimate as labor costs climb in a “moderate” economic recovery. Indexes of consumer stocks in the S&P 500 lost more than 0.5 percent. Fannie Mae and Freddie Mac, the mortgage firms 80 percent owned by U.S. taxpayers, plunged after regulators told them to delist their common and preferred shares from the New York Stock Exchange. Fannie Mae dropped 39 percent and Freddie Mac slumped 38 percent. Speculation that BP would put the $20 billion into an escrow account helped its shares as well as the S&P 500 recover from losses. BP maintained gains even after canceling its $10- billion-a-year dividend for the first three quarters of 2010. Credit investors are pricing in a 36 percent chance BP Plc will default within five years as it tangles with the Obama administration over cleanup costs and claims for the biggest oil spill in U.S. history. BP Swaps The default risk implied by credit-default swaps is up from 7 percent a month ago, according to CMA DataVision prices using a standard model used to value the derivatives. BP swaps climbed 70.5 basis points to 576.5. BP debt due next year traded today at distressed levels, with investors demanding as much as 1,251 basis points in yield more than Treasuries. Oil rose to a six-week high after gasoline surged on a report that U.S. refineries cut operating rates and supplies of the motor fuel fell. Refineries operated at 87.9 percent of capacity, down 1.2 percentage points from the week before. Gasoline supplies fell 636,000 barrels to 218.3 million, the Energy Department said. Analysts surveyed by Bloomberg News were split over whether stockpiles of the fuel would rise or fall. Three erroneous orders in Washington Post Co. shares briefly caused the stock to double, making it the first U.S. company to be halted by circuit breakers imposed following the May 6 crash that erased $862 billion from equities in 20 minutes. Canceled Trades The trades totaling 766 shares at $919.18 or $929.18 crossed on NYSE Euronext’s NYSE Arca electronic platform, according to data compiled by Bloomberg. That compared with a price of $462.84 before the jump. The transactions were later canceled, the data show. The Securities and Exchange Commission trading curbs started going into effect on June 11. The program, which is being tested through December, pauses Standard & Poor’s 500 Index stocks for five minutes when they rise or fall 10 percent in five minutes or less. Washington Post jumped 103 percent to $929.18 before the halt, then traded at $458.19 as of 4 p.m. in New York after the trading ban stopped. To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net .

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U.K. Inflation Slows for First Time in Three Months as Food, Travel Ease

June 15, 2010

By Jennifer Ryan June 15 (Bloomberg) — U.K. inflation slowed in May for the first time in three months as lower costs of items from food to transport eased price pressures in the economy. Consumer prices rose 3.4 percent from a year earlier, compared with 3.7 percent in April, the Office for National Statistics said today in London. Economists predicted 3.5 percent, according to the median of 30 forecasts in a Bloomberg News survey. Inflation has now exceeded the government’s 3 percent upper limit for three months. The Bank of England last week kept up its emergency stimulus for the economy to counter the drag on prices from the aftermath of the recession. Tesco Plc , the U.K.’s largest supermarket chain, said today that domestic revenue barely grew in the first quarter as it encountered “very low food inflation” and shoppers balked at the prospect of higher taxes. “Inflation has probably peaked and will come down over the course of the year,” Philip Shaw , chief economist at Investec Securities in London, said in a telephone interview before the report. “Growth remains relatively subdued, and there’s a degree of spare capacity which should help to mitigate some upward cost pressures.” The pound fell 0.2 percent against the dollar after the report, and traded 0.3 percent lower on the day at $1.4696 as of 9:35 a.m. in London. The benchmark two-year gilt fell 3 basis points today at 0.85 percent. On the month, consumer prices climbed 0.2 percent, compared with the median prediction for an 0.4 percent increase according to 24 economists’ forecasts in a Bloomberg News survey. Transport, Alcohol Lower prices of food, transport, alcohol, tobacco and recreation offset higher fuel costs in May. Gasoline prices rose to 120.5 pence ($1.78) per liter in the month, the highest since records began in 1996, the statistics office said. “Higher fuel costs have meant that customers have had to shift some of their spending to petrol at the expense of their normal shopping,” Tesco said in a statement today. “This, combined with very low food inflation — resulting from unusually high levels in the same period last year –constrained our ex-petrol like-for-like-sales growth.” Core inflation, which excludes the cost of food, tobacco, alcohol and energy prices, slowed to 2.9 percent from 3.1 percent the previous month, the statistics office said. The inflation rate has now held above the bank’s 2 percent target for a sixth month. Consumers’ expectations for price increases in the coming year rose to the highest since 2008 in May, a quarterly Bank of England survey showed. Britons predicted inflation of 3.3 percent in the next 12 months, up from 2.5 percent in February. Inflation ‘Resilience’ Policy maker Andrew Sentance said June 13 that inflation has shown “resilience” and “upward pressure” on price expectations will present central bank officials with “interesting debates” in the second half of the year as they consider how long to maintain emergency stimulus. Still, “the increase in inflation largely reflects temporary effects and is likely to moderate as those effects wane,” Chief Economist Spencer Dale said yesterday in the Bank of England’s quarterly bulletin. “This spare capacity should pull down on inflation.” The central bank last week kept its bond-purchase plan at 200 billion pounds ($295 billion) and the benchmark interest rate at a record low of 0.5 percent. Retail price inflation, a measure of living costs used in wage negotiations, slowed to 5.1 percent in May from 5.3 percent the previous month, the statistics office said. Excluding mortgage-interest payments it was also 5.1 percent, down from 5.4 percent. To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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Asian Stocks Rise a Fourth Day on Signs of Economic Recovery Oil Rebounds

June 14, 2010

By Linus Chua and Masaki Kondo June 15 (Bloomberg) — Asia stocks rose for a fourth day, reversing an earlier decline, on signs the European debt crisis hasn’t hampered growth in China and as Japan extends loans to companies to strengthen its economy. Oil rebounded. The MSCI Asia Pacific Index climbed 0.3 percent to 114.55 at 1:55 p.m. in Tokyo, the highest since May 19. Crude oil traded near $75 a barrel, reversing losses after Greece’s credit rating was lowered by Moody’s Investors Service to junk. Standard & Poor’s 500 Index futures advanced 0.3 percent. A leading indicator for the Chinese economy, the world’s third biggest, rose 1.7 percent in April on a jump in new construction work, The Conference Board said. The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in a new credit program that will extend loans to companies for as long as four years to support the country’s recovery. “The market has mostly priced in the effects of the European debt problems, though issues remain for the long-term prospects,” said Yoshinori Nagano , a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $94 billion. Japan’s Nikkei 225 Stock Average and South Korea’s Kospi index increased 0.3 percent, while Hong Kong’s Hang Seng Index climbed 0.4 percent. China’s domestic markets are closed for a holiday. Nissan, Hynix Nissan Motor Co. , Japan’s second-largest automaker, rose 3.9 percent after it was raised to “outperform” from “neutral” at Macquarie Group Ltd. Nomura Holdings Inc. jumped 2.8 percent after Japan’s biggest brokerage was raised at Credit Suisse Group. Hynix Semiconductor Inc. rose 4.2 percent in Seoul after Taurus Investment & Securities Co. raised its share-price estimate for the world’s second-largest memory chipmaker. Oil recovered on speculation of higher fuel demand as a report is expected to show U.S. industrial production increased in May for the 10th time in 11 months, according to a Bloomberg survey of economists. Crude stockpiles in the U.S. probably fell for a third week, showed estimates from analysts, as refiners ramp up motor fuel output for summer. “Oil is really a growth proxy commodity,” said Mark Pervan , a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “The U.S. refiners are showing stronger demand. The numbers tomorrow should be supportive. This time of year we normally see healthy declines in stock levels.” Crude oil for July delivery was at $75.15 a barrel, up 3 cents, on the New York Mercantile Exchange. Asian currencies declined, led by Malaysia’s ringgit, after Greece’s downgrade spurred some concerns investors will shun higher-yielding assets for the relative safety of the dollar. The ringgit and the Singapore dollar slid for the first time in five days. To contact the reporter on this story: Linus Chua at lchua@bloomberg.net ; Ian Sayson in Manila at isayson@bloomberg.net

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Asian Stocks Rise a Fourth Day on Signs of Economic Recovery Oil Rebounds

June 14, 2010

By Linus Chua and Masaki Kondo June 15 (Bloomberg) — Asia stocks rose for a fourth day, reversing an earlier decline, on signs the European debt crisis hasn’t hampered growth in China and as Japan extends loans to companies to strengthen its economy. Oil rebounded. The MSCI Asia Pacific Index climbed 0.3 percent to 114.55 at 1:55 p.m. in Tokyo, the highest since May 19. Crude oil traded near $75 a barrel, reversing losses after Greece’s credit rating was lowered by Moody’s Investors Service to junk. Standard & Poor’s 500 Index futures advanced 0.3 percent. A leading indicator for the Chinese economy, the world’s third biggest, rose 1.7 percent in April on a jump in new construction work, The Conference Board said. The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in a new credit program that will extend loans to companies for as long as four years to support the country’s recovery. “The market has mostly priced in the effects of the European debt problems, though issues remain for the long-term prospects,” said Yoshinori Nagano , a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $94 billion. Japan’s Nikkei 225 Stock Average and South Korea’s Kospi index increased 0.3 percent, while Hong Kong’s Hang Seng Index climbed 0.4 percent. China’s domestic markets are closed for a holiday. Nissan, Hynix Nissan Motor Co. , Japan’s second-largest automaker, rose 3.9 percent after it was raised to “outperform” from “neutral” at Macquarie Group Ltd. Nomura Holdings Inc. jumped 2.8 percent after Japan’s biggest brokerage was raised at Credit Suisse Group. Hynix Semiconductor Inc. rose 4.2 percent in Seoul after Taurus Investment & Securities Co. raised its share-price estimate for the world’s second-largest memory chipmaker. Oil recovered on speculation of higher fuel demand as a report is expected to show U.S. industrial production increased in May for the 10th time in 11 months, according to a Bloomberg survey of economists. Crude stockpiles in the U.S. probably fell for a third week, showed estimates from analysts, as refiners ramp up motor fuel output for summer. “Oil is really a growth proxy commodity,” said Mark Pervan , a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “The U.S. refiners are showing stronger demand. The numbers tomorrow should be supportive. This time of year we normally see healthy declines in stock levels.” Crude oil for July delivery was at $75.15 a barrel, up 3 cents, on the New York Mercantile Exchange. Asian currencies declined, led by Malaysia’s ringgit, after Greece’s downgrade spurred some concerns investors will shun higher-yielding assets for the relative safety of the dollar. The ringgit and the Singapore dollar slid for the first time in five days. To contact the reporter on this story: Linus Chua at lchua@bloomberg.net ; Ian Sayson in Manila at isayson@bloomberg.net

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Iran to Consider Limiting Ties With UN Nuclear Agency After Sanctions Vote

June 10, 2010

By Ali Sheikholeslami and Bill Varner June 10 (Bloomberg) — Iran said it will consider downgrading relations with the United Nations nuclear agency after the UN Security Council passed a fourth round of sanctions against the Persian Gulf nation over its atomic development. Parliament on June 13 will discuss revising Iran’s ties with the International Atomic Energy Agency as a result of the sanctions, a senior lawmaker, Esmaeil Kosari, was cited as saying today by the state-run Fars news agency. “We are studying this and will comment when it’s done,” Foreign Ministry spokesman Ramin Mehmanparast said by phone from Tehran. The Security Council , with backing from Russia and China, yesterday approved new sanctions including restrictions on financial transactions, a tighter arms embargo and authority to seize cargo suspected of being used for Iranian nuclear or missile programs. With further U.S. and European Union sanctions likely, Iran may take “provocative” steps over the next few months, Cliff Kupchan , a senior analyst at Eurasia Group, a New York political-risk consulting firm, said in an e-mailed commentary. Iran’s representative at the IAEA downplayed the possibility his country would end its cooperation with the agency, which monitors compliance with the international treaty on nuclear weapons. “The parliamentarians are very upset,” Ambassador Aliasghar Soltanieh told reporters today at the IAEA’s offices in Vienna. “As of now, there is no intention to withdraw from the nuclear Non-Proliferation Treaty or to stop our cooperation in accordance with IAEA safeguards.” ‘Trash Bin’ Iran denounced the sanctions, which President Mahmoud Ahmadinejad said should be “thrown into the trash bin like a used tissue.” The 15-nation council voted 12 to 2, with one abstention, to approve a resolution that also freezes the assets of 40 companies, banks and government agencies, and bars the foreign travel of Javad Rahiqi, head of a branch of the Atomic Energy Organization of Iran. Turkey and Brazil voted against the measure, and Lebanon abstained. China said today the sanctions don’t close off continued diplomacy. A solution to the nuclear standoff should be resolved through dialogue and diplomatic means, spokesman Qin Gang said in comments posted on the Foreign Ministry’s website after the vote. “We will ensure that these sanctions are vigorously enforced,” President Barack Obama said at the White House. “A nuclear arms race in the Middle East is in nobody’s interest.” Energy Production The new penalties, the fourth set of sanctions imposed on Iran by the council since 2006, aim to block Iran’s ability to develop nuclear weapons and pressure the country to join international talks on the issue. Iran maintains that its nuclear development is needed for energy production. Brazil and Turkey, which have temporary seats on the Security Council, both criticized the sanctions. The two countries brokered a proposed agreement with Iran under which half of its low-enriched uranium would be swapped for a more concentrated supply in a form that can only be used in a medical-research reactor in Tehran that will run out of fuel. They say the exchange would build confidence and keep talks with Iran open. The U.S. and its allies say Iran has rebuffed diplomacy. Iran has refused Security Council demands to suspend the production of enriched uranium, which can fuel a reactor or form the core of a bomb. The IAEA has criticized Iran for failing to cooperate with its inspectors. Inspectors’ Access Cutting IAEA access in Iran would be a blow to inspectors, who last month negotiated enhanced access to a uranium enrichment site in Natanz. The agency said May 31 that it won the right to add more cameras, increase atomic-material accounting and conduct surprise inspections at the site, where Iran has produced 5.7 kilograms (12.6 pounds) of 20 percent enriched uranium. While most nuclear weapons contain 90 percent enriched uranium, concentrations as low as 20 percent can start the atomic fission seen in nuclear weapons. Russia and China, which had resisted further UN sanctions to avoid damaging their commercial ties with Iran, agreed to the measures after amendments to the text. Russia is building Iran’s first nuclear power plant and will supply the fuel for it. Iran expressed disappointment with China’s vote for sanctions. “It will slowly lose its respectable position in the Muslim world and will wake up when it’s too late,” said Ali Akbar Salehi , vice president and head of the Atomic Energy Organization of Iran, said according to the Iranian Students News Agency. Lebanon Vote Lebanon said it abstained because its Cabinet couldn’t reach a decision on the resolution. The UN measure bars Iran from investing in uranium mining or the construction of new enrichment facilities. It bans sales to Iran of tanks, armored combat vehicles, artillery, fighter jets, attack helicopters, warships or missiles. Russia will freeze a contract to deliver its S-300 air- defense systems to Iran, Interfax reported today, citing an unidentified Russian defense-industry official. Iran’s financial transactions, including those related to insurance and re-insurance, would be barred if they might have a nuclear purpose. Air, Sea Cargo The sanctions text “calls upon” nations to intercept and inspect any cargo by air or sea suspected of containing banned materials that would contribute to Iran’s nuclear or missile programs. Three annexes to the resolution’s main text cite 15 entities “owned, controlled or acting on behalf” of the Revolutionary Guard Corps, an arm of the Iranian military with extensive business interests. Also cited are three companies the resolution says are related to the Islamic Republic of Iran Shipping Lines, and 22 companies it says are involved in nuclear and ballistic missile activities. “If Iran would meet and engage on their nuclear program, there was receptivity,” Secretary of State Hillary Clinton said in Colombia. “We know that Iran did not and would not. At the end of the day, it was clear Iran was not willing to abide by the expectations of the international community.” The UN action is “long overdue but doesn’t go far enough,” Representative John Boehner of Ohio, the Republican leader in the U.S. House, said in a statement. Boehner said Obama’s 16-month “engagement strategy” on this issue has simply given the Iranians 16 more months to work on acquiring nuclear capability. “At the request of the administration, Congress has repeatedly delayed mandatory bilateral sanctions legislation,” he said. “Any justification for delay is now at an end, and the Congress must act immediately.” To contact the reporters on this story: Ali Sheikholeslami in London at alis2@bloomberg.net ; Bill Varner at the United Nations at wvarner@bloomberg.net .

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Iran to Consider Limiting Ties With UN Nuclear Agency After Sanction Vote

June 10, 2010

By Ali Sheikholeslami and Bill Varner June 10 (Bloomberg) — Iran said it will consider downgrading relations with the United Nations nuclear agency after the UN Security Council passed a fourth round of sanctions against the Persian Gulf nation over its atomic development. Parliament on June 13 will discuss revising Iran’s ties with the International Atomic Energy Agency as a result of the sanctions, a senior lawmaker, Esmaeil Kosari, was cited as saying today by the state-run Fars news agency. “We are studying this and will comment when it’s done,” Foreign Ministry spokesman Ramin Mehmanparast said by phone from Tehran. The Security Council , with backing from Russia and China, yesterday approved new sanctions including restrictions on financial transactions, a tighter arms embargo and authority to seize cargo suspected of being used for Iranian nuclear or missile programs. With further U.S. and European Union sanctions likely, Iran may take “provocative” steps over the next few months, Cliff Kupchan , a senior analyst at Eurasia Group, a New York political-risk consulting firm, said in an e-mailed commentary. Iran’s representative at the IAEA downplayed the possibility his country would end its cooperation with the agency, which monitors compliance with the international treaty on nuclear weapons. “The parliamentarians are very upset,” Ambassador Aliasghar Soltanieh told reporters today at the IAEA’s offices in Vienna. “As of now, there is no intention to withdraw from the nuclear Non-Proliferation Treaty or to stop our cooperation in accordance with IAEA safeguards.” ‘Trash Bin’ Iran denounced the sanctions, which President Mahmoud Ahmadinejad said should be “thrown into the trash bin like a used tissue.” The 15-nation council voted 12 to 2, with one abstention, to approve a resolution that also freezes the assets of 40 companies, banks and government agencies, and bars the foreign travel of Javad Rahiqi, head of a branch of the Atomic Energy Organization of Iran. Turkey and Brazil voted against the measure, and Lebanon abstained. China said today the sanctions don’t close off continued diplomacy. A solution to the nuclear standoff should be resolved through dialogue and diplomatic means, spokesman Qin Gang said in comments posted on the Foreign Ministry’s website after the vote. “We will ensure that these sanctions are vigorously enforced,” President Barack Obama said at the White House. “A nuclear arms race in the Middle East is in nobody’s interest.” Energy Production The new penalties, the fourth set of sanctions imposed on Iran by the council since 2006, aim to block Iran’s ability to develop nuclear weapons and pressure the country to join international talks on the issue. Iran maintains that its nuclear development is needed for energy production. Brazil and Turkey, which have temporary seats on the Security Council, both criticized the sanctions. The two countries brokered a proposed agreement with Iran under which half of its low-enriched uranium would be swapped for a more concentrated supply in a form that can only be used in a medical-research reactor in Tehran that will run out of fuel. They say the exchange would build confidence and keep talks with Iran open. The U.S. and its allies say Iran has rebuffed diplomacy. Iran has refused Security Council demands to suspend the production of enriched uranium, which can fuel a reactor or form the core of a bomb. The IAEA has criticized Iran for failing to cooperate with its inspectors. Inspectors’ Access Cutting IAEA access in Iran would be a blow to inspectors, who last month negotiated enhanced access to a uranium enrichment site in Natanz. The agency said May 31 that it won the right to add more cameras, increase atomic-material accounting and conduct surprise inspections at the site, where Iran has produced 5.7 kilograms (12.6 pounds) of 20 percent enriched uranium. While most nuclear weapons contain 90 percent enriched uranium, concentrations as low as 20 percent can start the atomic fission seen in nuclear weapons. Russia and China, which had resisted further UN sanctions to avoid damaging their commercial ties with Iran, agreed to the measures after amendments to the text. Russia is building Iran’s first nuclear power plant and will supply the fuel for it. Iran expressed disappointment with China’s vote for sanctions. “It will slowly lose its respectable position in the Muslim world and will wake up when it’s too late,” said Ali Akbar Salehi , vice president and head of the Atomic Energy Organization of Iran, said according to the Iranian Students News Agency. Lebanon Vote Lebanon said it abstained because its Cabinet couldn’t reach a decision on the resolution. The UN measure bars Iran from investing in uranium mining or the construction of new enrichment facilities. It bans sales to Iran of tanks, armored combat vehicles, artillery, fighter jets, attack helicopters, warships or missiles. Russia will freeze a contract to deliver its S-300 air- defense systems to Iran, Interfax reported today, citing an unidentified Russian defense-industry official. Iran’s financial transactions, including those related to insurance and re-insurance, would be barred if they might have a nuclear purpose. Air, Sea Cargo The sanctions text “calls upon” nations to intercept and inspect any cargo by air or sea suspected of containing banned materials that would contribute to Iran’s nuclear or missile programs. Three annexes to the resolution’s main text cite 15 entities “owned, controlled or acting on behalf” of the Revolutionary Guard Corps, an arm of the Iranian military with extensive business interests. Also cited are three companies the resolution says are related to the Islamic Republic of Iran Shipping Lines, and 22 companies it says are involved in nuclear and ballistic missile activities. “If Iran would meet and engage on their nuclear program, there was receptivity,” Secretary of State Hillary Clinton said in Colombia. “We know that Iran did not and would not. At the end of the day, it was clear Iran was not willing to abide by the expectations of the international community.” The UN action is “long overdue but doesn’t go far enough,” Representative John Boehner of Ohio, the Republican leader in the U.S. House, said in a statement. Boehner said Obama’s 16-month “engagement strategy” on this issue has simply given the Iranians 16 more months to work on acquiring nuclear capability. “At the request of the administration, Congress has repeatedly delayed mandatory bilateral sanctions legislation,” he said. “Any justification for delay is now at an end, and the Congress must act immediately.” To contact the reporters on this story: Ali Sheikholeslami in London at alis2@bloomberg.net ; Bill Varner at the United Nations at wvarner@bloomberg.net .

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Asia Stocks Rise on Japan GDP, Australia Jobs Kiwi Gains on Rate Increase

June 9, 2010

By Linus Chua and Anna Kitanaka June 10 (Bloomberg) — Asian stocks rose, led by energy producers, and U.S. index futures rebounded after economic reports from Japan to Australia showed accelerating growth. The New Zealand dollar rose after the central bank raised interest rates and the Korean won fell. The MSCI Asia Pacific Index climbed 0.8 percent to 110.71 as of 1:23 p.m. in Tokyo, boosted by a 1.2 percent rally in the S&P/ASX 200 Index and a 0.5 percent increase in the Nikkei 225. Standard & Poor’s 500 index futures gained 0.3 percent. The New Zealand dollar strengthened against all 16 of its most-traded counterparts, including a 2.7 percent advance versus the won. Japan’s economy grew at an annualized 5 percent rate in the three months ended March 3, Australian employers added workers for a third straight month and the Federal Reserve’s Beige Book survey said the U.S. economy expanded in all 12 Fed districts for the first time in more than two years at a “modest” pace. “Macro data has been good and the signs of a modest recovery are on track,” said Nader Naeimi , a Sydney-based strategist at AMP Capital Investors, which holds $90 billion “Macro economic data hasn’t really suffered. Volatility has been settling down a bit compared to what it was.” Advances beat decliners two to one on the MSCI Asia benchmark. A gauge of energy stocks in the index jumped 1.3 percent. The S&P/ASX 200 Index climbed after Australia’s jobless rate fell to 5.2 percent from 5.4 percent. The number of people employed gained 26,900 from April, the statistics bureau said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for an increase of 20,000. New Zealand’s dollar climbed after central bank Governor Alan Bollard raised the benchmark interest rate to 2.75 percent, the first increase in three years as the nation’s economy recovers from recession. He also said borrowing costs were raised as “underlying inflationary pressures are expected to increase.” South Korea’s won slumped 1.5 percent to 1,267.85 per dollar after Vice Finance Minister Yim Jong Yong said the government will “soon” announce plans to reduce volatility in capital flows. The Maeil Business Newspaper said today the regulations will limit banks’ currency-forward transactions, raising concern they may reduce foreign-exchange borrowings used to hedge such trades and take the proceeds out of the country. Crude oil reversed earlier losses in New York on expectations of higher fuel demand as China’s exports surged and as the falling dollar spurred investors to buy commodities. Oil for July delivery was at $74.36 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange. The contract earlier dropped as much as 66 cents, or 0.9 percent, to $73.72 a barrel. Yesterday, it rose $2.39, the biggest advance since May 27, to settle at $74.38. Futures have fallen 6.6 percent this year. To contact the reporters for this story: Linus Chua at lchua@bloomberg.net ; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

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Gulf Oil Spill: Massive Underwater Plumes Spell Disaster, Scientists Say

May 31, 2010

NEW ORLEANS — Independent scientists and government officials say there’s a disaster we can’t see in the Gulf of Mexico’s mysterious depths, the ruin of a world inhabited by enormous sperm whales and tiny, invisible plankton. Researchers have said they have found at least two massive underwater plumes of what appears to be oil, each hundreds of feet deep and stretching for miles. Yet the chief executive of BP PLC – which has for weeks downplayed everything from the amount of oil spewing into the Gulf to the environmental impact – said there is “no evidence” that huge amounts of oil are suspended undersea. BP CEO Tony Hayward said the oil naturally gravitates to the surface – and any oil below was just making its way up. However, researchers say the disaster in waters where light doesn’t shine through could ripple across the food chain. “Every fish and invertebrate contacting the oil is probably dying. I have no doubt about that,” said Prosanta Chakrabarty, a Louisiana State University fish biologist. On the surface, a 24-hour camera fixed on the spewing, blown-out well and the images of dead, oil-soaked birds have been evidence of the calamity. At least 20 million gallons of oil and possibly 43 million gallons have spilled since the Deepwater Horizon drilling rig exploded and sank in April. That has far eclipsed the 11 million gallons released during the Exxon Valdez spill off Alaska’s coast in 1989. But there is no camera to capture what happens in the rest of the vast Gulf, which sprawls across 600,000 square miles and reaches more than 14,000 feet at its deepest point. Every night, the denizens of the deep make forays to shallower depths to eat – and be eaten by – other fish, according to marine scientists who describe it as the largest migration on earth. In turn, several species closest to the surface – including red snapper, shrimp and menhaden – help drive the Gulf Coast fishing industry. Others such as marlin, cobia and yellowfin tuna sit atop the food chain and are chased by the Gulf’s charter fishing fleet. Many of those species are now in their annual spawning seasons. Eggs exposed to oil would quickly perish. Those that survived to hatch could starve if the plankton at the base of the food chain suffer. Larger fish are more resilient, but not immune to the toxic effects of oil. The Gulf’s largest spill was in 1979, when the Ixtoc I platform off Mexico’s Yucatan peninsula blew up and released 140 million gallons of oil. But that was in relatively shallow waters – about 160 feet deep – and much of the oil stayed on the surface where it broke down and became less toxic by the time it reached the Texas coast. But last week, a team from the University of South Florida reported a plume was headed toward the continental shelf off the Alabama coastline, waters thick with fish and other marine life. The researchers said oil in the plumes had dissolved into the water, possibly a result of chemical dispersants used to break up the spill. That makes it more dangerous to fish larvae and creatures that are filter feeders. Responding to Hayward’s assertion, one researcher noted that scientists from several different universities have come to similar conclusions about the plumes after doing separate testing. No major fish kills have been reported, but federal officials said the impacts could take years to unfold. “This is just a giant experiment going on and we’re trying to understand scientifically what this means,” said Roger Helm, a senior official with the U.S. Fish and Wildlife Service. In 2009, LSU’s Chakrabarty discovered two new species of bottom-dwelling pancake batfish about 30 miles off the Louisiana coastline – right in line with the pathway of the spill caused when the Deepwater Horizon burned and sank April 24. By the time an article in the Journal of Fish Biology detailing the discovery appears in the August edition, Chakrabarty said, the two species – which pull themselves along the seafloor with feet-like fins – could be gone or in serious decline. “There are species out there that haven’t been described, and they’re going to disappear,” he said. Recent discoveries of endangered sea turtles soaked in oil and 22 dolphins found dead in the spill zone only hint at the scope of a potential calamity that could last years and unravel the Gulf’s food web. Concerns about damage to the fishery already is turning away potential customers for charter boat captains such as Troy Wetzel of Venice. To get to waters unaffected by the spill, Wetzel said he would have to take his boat 100 miles or more into the Gulf – jacking up his fuel costs to where only the wealthiest clients could afford to go fishing. Significant amounts of crude oil seep naturally from thousands of small rifts in the Gulf’s floor – as much as two Exxon Valdez spills every year, according to a 2000 report from government and academic researchers. Microbes that live in the water break down the oil. The number of microbes that grow in response to the more concentrated BP spill could tip that system out of balance, LSU oceanographer Mark Benfield said. Too many microbes in the sea could suck oxygen from the water, creating an uninhabitable hypoxic area, or “dead zone.” Preliminary evidence of increased hypoxia in the Gulf was seen during an early May cruise aboard the R/V Pelican, carrying researchers from the University of Georgia, the University of Mississippi and the University of Southern Mississippi. An estimated 910,000 gallons of dispersants – enough to fill more than 100 tanker trucks – are contributing a new toxin to the mix. Containing petroleum distillates and propylene glycol, the dispersants’ effects on marine life are still unknown. What is known is that by breaking down oil into smaller droplets, dispersants reduce the oil’s buoyancy, slowing or stalling the crude’s rise to the surface and making it harder to track the spill. Dispersing the oil lower into the water column protects beaches, but also keeps it in cooler waters where oil does not break down as fast. That could prolong the oil’s potential to poison fish, said Larry McKinney, director of the Harte Research Institute at Texas A&M University-Corpus Christi. “There’s a school of thought that says we’ve made it worse because of the dispersants,” he said. ___ Associated Press writer Jason Dearen contributed to this report from San Francisco.

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Gulf Oil Spill: Massive Underwater Plumes Spell Disaster, Scientists Say

May 31, 2010

NEW ORLEANS — Independent scientists and government officials say there’s a disaster we can’t see in the Gulf of Mexico’s mysterious depths, the ruin of a world inhabited by enormous sperm whales and tiny, invisible plankton. Researchers have said they have found at least two massive underwater plumes of what appears to be oil, each hundreds of feet deep and stretching for miles. Yet the chief executive of BP PLC – which has for weeks downplayed everything from the amount of oil spewing into the Gulf to the environmental impact – said there is “no evidence” that huge amounts of oil are suspended undersea. BP CEO Tony Hayward said the oil naturally gravitates to the surface – and any oil below was just making its way up. However, researchers say the disaster in waters where light doesn’t shine through could ripple across the food chain. “Every fish and invertebrate contacting the oil is probably dying. I have no doubt about that,” said Prosanta Chakrabarty, a Louisiana State University fish biologist. On the surface, a 24-hour camera fixed on the spewing, blown-out well and the images of dead, oil-soaked birds have been evidence of the calamity. At least 20 million gallons of oil and possibly 43 million gallons have spilled since the Deepwater Horizon drilling rig exploded and sank in April. That has far eclipsed the 11 million gallons released during the Exxon Valdez spill off Alaska’s coast in 1989. But there is no camera to capture what happens in the rest of the vast Gulf, which sprawls across 600,000 square miles and reaches more than 14,000 feet at its deepest point. Every night, the denizens of the deep make forays to shallower depths to eat – and be eaten by – other fish, according to marine scientists who describe it as the largest migration on earth. In turn, several species closest to the surface – including red snapper, shrimp and menhaden – help drive the Gulf Coast fishing industry. Others such as marlin, cobia and yellowfin tuna sit atop the food chain and are chased by the Gulf’s charter fishing fleet. Many of those species are now in their annual spawning seasons. Eggs exposed to oil would quickly perish. Those that survived to hatch could starve if the plankton at the base of the food chain suffer. Larger fish are more resilient, but not immune to the toxic effects of oil. The Gulf’s largest spill was in 1979, when the Ixtoc I platform off Mexico’s Yucatan peninsula blew up and released 140 million gallons of oil. But that was in relatively shallow waters – about 160 feet deep – and much of the oil stayed on the surface where it broke down and became less toxic by the time it reached the Texas coast. But last week, a team from the University of South Florida reported a plume was headed toward the continental shelf off the Alabama coastline, waters thick with fish and other marine life. The researchers said oil in the plumes had dissolved into the water, possibly a result of chemical dispersants used to break up the spill. That makes it more dangerous to fish larvae and creatures that are filter feeders. Responding to Hayward’s assertion, one researcher noted that scientists from several different universities have come to similar conclusions about the plumes after doing separate testing. No major fish kills have been reported, but federal officials said the impacts could take years to unfold. “This is just a giant experiment going on and we’re trying to understand scientifically what this means,” said Roger Helm, a senior official with the U.S. Fish and Wildlife Service. In 2009, LSU’s Chakrabarty discovered two new species of bottom-dwelling pancake batfish about 30 miles off the Louisiana coastline – right in line with the pathway of the spill caused when the Deepwater Horizon burned and sank April 24. By the time an article in the Journal of Fish Biology detailing the discovery appears in the August edition, Chakrabarty said, the two species – which pull themselves along the seafloor with feet-like fins – could be gone or in serious decline. “There are species out there that haven’t been described, and they’re going to disappear,” he said. Recent discoveries of endangered sea turtles soaked in oil and 22 dolphins found dead in the spill zone only hint at the scope of a potential calamity that could last years and unravel the Gulf’s food web. Concerns about damage to the fishery already is turning away potential customers for charter boat captains such as Troy Wetzel of Venice. To get to waters unaffected by the spill, Wetzel said he would have to take his boat 100 miles or more into the Gulf – jacking up his fuel costs to where only the wealthiest clients could afford to go fishing. Significant amounts of crude oil seep naturally from thousands of small rifts in the Gulf’s floor – as much as two Exxon Valdez spills every year, according to a 2000 report from government and academic researchers. Microbes that live in the water break down the oil. The number of microbes that grow in response to the more concentrated BP spill could tip that system out of balance, LSU oceanographer Mark Benfield said. Too many microbes in the sea could suck oxygen from the water, creating an uninhabitable hypoxic area, or “dead zone.” Preliminary evidence of increased hypoxia in the Gulf was seen during an early May cruise aboard the R/V Pelican, carrying researchers from the University of Georgia, the University of Mississippi and the University of Southern Mississippi. An estimated 910,000 gallons of dispersants – enough to fill more than 100 tanker trucks – are contributing a new toxin to the mix. Containing petroleum distillates and propylene glycol, the dispersants’ effects on marine life are still unknown. What is known is that by breaking down oil into smaller droplets, dispersants reduce the oil’s buoyancy, slowing or stalling the crude’s rise to the surface and making it harder to track the spill. Dispersing the oil lower into the water column protects beaches, but also keeps it in cooler waters where oil does not break down as fast. That could prolong the oil’s potential to poison fish, said Larry McKinney, director of the Harte Research Institute at Texas A&M University-Corpus Christi. “There’s a school of thought that says we’ve made it worse because of the dispersants,” he said. ___ Associated Press writer Jason Dearen contributed to this report from San Francisco.

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Shell Will Acquire East Resources Units for $4.7 Billion to Gain Shale Gas

May 28, 2010

By Fred Pals May 28 (Bloomberg) — Royal Dutch Shell Plc , Europe’s largest energy producer, agreed to buy most of closely-held East Resources Inc. for $4.7 billion in cash, expanding its holdings of U.S. shale gas deposits. As part of the deal, Shell will obtain new positions in “high potential” U.S. shale gas acreage, in the Marcellus and Eagle Ford plays, according to a statement today. Shell is catching up with Exxon Mobil Corp. and BP Plc in snapping up unconventional gas reserves in anticipation prices for the cleaner-burning fuel will recover as governments curb carbon dioxide emissions. The Marcellus Shale, which stretches into New York, may hold 262 trillion cubic feet of recoverable gas, making it the biggest known deposit of the heating and power-plant fuel, the U.S. Energy Department estimates. “They’ve seen others take material positions in U.S. gas, and this is one way they can also play a part in that business,” said Jason Kenney , head of oil and gas research at ING Commercial Banking in Edinburgh. The acquisition is the second-biggest oil and gas deal this year, after BP’s acquisition of deepwater assets from Devon Energy Corp. for $7 billion in March, according to Bloomberg data. Shell said it was buying subsidiaries that own most of East Resources from the company itself, as well as KKR & Co. and its advisors Jefferies & Co. Unconventional Gas Unconventional gas is the industry term to describe the fuel trapped in shale formations, coal beds and impermeable sandstone rock. BP Chief Executive Officer Tony Hayward has described shale gas as a “game changer” that allowed the U.S. to overtake Russia in terms of overall gas production last year. Today’s acquisition brings Shell’s total tight gas acreage in the U.S. to about 3.6 million acres. It follows Shell’s joint acquisition of Australia’s Arrow Energy Ltd. in March for A$3.5 billion ($3 billion) with PetroChina Co. The Hague-based company expects its share of gas in total output to rise to 52 percent in 2012. “We are enhancing our world-wide upstream portfolio for profitable growth, through exploration and focused acquisitions, and through divestment of non-core positions,” Chief Executive Officer Peter Voser said in today’s statement. Drilling Programs East Resources owns and operates more than 2,500 producing oil and gas wells in New York, Pennsylvania, West Virginia, and Colorado and is actively exploring drilling programs in Wyoming, according to the website of the Pennsylvania-based company. It has been operating in the Marcellus Shale Area for 25 years. Exxon Mobil blazed the trail into gas with its $30 billion acquisition of XTO Energy Inc. in December. Total SA in January accelerated its expansion into gas with the $2.25 billion purchase of U.S. assets from Chesapeake Energy Corp. There should be a “substantial increase” in gas from unconventional sources such as shale rock and coal beds, the U.S. Energy Information Administration said May 25. Unconventional sources should account for 26 percent of gas production in the U.S. by 2035, 63 percent in Canada and 56 percent in China, the EIA said. To contact the reporter on this story: Fred Pals in Amsterdam at fpals@bloomberg.net

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Vekselberg to Revive Soviet Oil Plant as Russia Pushes Rich to Save Towns

May 26, 2010

By Ilya Khrennikov and Anna Shiryaevskaya May 26 (Bloomberg) — Russian billionaire Viktor Vekselberg plans to renovate a money-losing, Soviet-era synthetic oil plant as President Dmitry Medvedev demands the rich invest in towns left impoverished by dying industries. Vekselberg’s Renova Group is set to bid for the state’s stake in the factory at Slantsy near Prime Minister Vladimir Putin ’s hometown of St. Petersburg, said Yakov Tesis, the holding company’s director for the project. Russia’s 16th richest man would spend $40 million immediately to get the plant producing oil again, Tesis said. Russia’s billionaires doubled in number last year, while unemployment rose as high as 9.4 percent and the economy shrank the most since 1991. Political leaders are pushing the wealthy to invest in what are known as “mono-cities” from the Stalin- era, where a single company would provide most of the jobs and housing and fund schools. Such struggling towns are home to about 12 percent of Russia’s 142 million people, according to the Independent Institute for Social Policy. “Today this asset is loss-making, there are thousands of people there, and entering this project, you take on serious social responsibilities,” Tesis said in an interview. “You can’t just get out of it.” The government’s offer of state assets to private industry will be “hard to refuse” politically, said Natalya Zubarevich, head of regional studies at the Moscow-based institute. State Sale Renova owns 40 percent of the Zavod Slantsy plant, which was built to produce a petroleum-like fuel from shale rock containing oil. Renova has mines near St. Petersburg that contain oil shale and plans to buy the state’s 56 percent stake in the factory. The government will auction its share on May 31, according to the Federal Property Agency’s website . Putin publicly berated Oleg Deripaska and other business owners in Pikalyovo, a town of 23,000 near St. Petersburg, in June last year for “lack of professionalism and perhaps simply greed” after idled factories and wage arrears sparked protests. Russia will spend 27 billion rubles ($878 million) this year to support single-company towns, Putin said at a government meeting in Moscow on May 20. While the Zavod Slantsy plant is the only hope for the town’s economy, the potential for “innovation and efficiency” sparked Vekselberg’s interest, Tesis said. Renova aims to upgrade the plant and produce synthetic fuel that can compete with petroleum, he said. About 35,000 people live in the town. Vekselberg, 53, said in April he will step down as executive director of BP Plc’s Russian venture after Medvedev asked him to lead a new technology center near Moscow. Fuel-oil Alternative Shale oil is a cheaper alternative to fuel oil, at about 8,000 rubles a metric ton, freezes at lower temperatures and contains less sulfur, Tesis said. By 2012, Renova plans to produce 1 million tons of shale a year and process that into 140,000 tons of shale oil at Slantsy, where production has been suspended since 2004. OAO Inter RAO UES spokesman Anton Nazarov said the state- run power utility is interested in shale projects. The press office at OAO Rosneft, another potential bidder, declined to comment. Renova, which bought into Slantsy in 2007, resumed mining that had been shut in for three years at Leningradskoye, Russia’s largest shale mine. The deposit holds reserves of as much as 1 billion tons. Unlike U.S. shale projects, Leningradskoye holds no natural gas reserves, Tesis said. The country has 37 billion metric tons of shale reserves while Russia’s total shale gas reserves were never counted, he said citing data from 1981. Buyer Interest OAO Lukoil , Russia’s biggest non-state oil producer, and Polish, Finnish and Estonian companies have expressed interest in buying the fuel, Tesis said. Lukoil spokesman Dmitry Dolgov declined to comment. Estonia, the only country that now uses oil shale as a primary energy source, stopped buying Russian shale in 2005, Tesis said. The Nazi army used Estonian shale oil to fuel battle tanks and air bombers during World War II. During the Soviet era, as much as 9 million tons of shale a year was extracted at Leningradskoye and turned into fuel for ships and boiler houses. Renova sees the sale of the state’s stake in the plant as the first step to reviving the local economy, Tesis said. “Without a private investor in the plant, the town will die, there is nothing else there.” For Related News and Information: Top stories from eastern Europe: EEUT Credit crunch page: WWCC Emerging market view: EMMV

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Billionaire Ambani Brothers Agree to Seek `Harmony,’ Deal on Gas Supplies

May 23, 2010

By Rakteem Katakey May 23 (Bloomberg) — India’s estranged billionaire Ambani brothers, who split the family empire in 2005, today agreed to compete against each other for the first time, easing a dispute that stalled a power generation project and a telecoms merger. Mukesh Ambani and Anil Ambani , the world’s richest siblings, scrapped all existing non-competition agreements between their business groups, and said they hoped “very soon” to negotiate a deal for supplies of gas from India’s largest field. India’s Supreme Court this month ordered the brothers to rework a gas-supply agreement that Anil Ambani said entitled his company buy the fuel below a government-set price. Negotiations will “eliminate any room for further disputes between the two groups,” according to the statements today. Reliance Industries Ltd. , run by Mukesh, and the Anil Dhirubhai Ambani Group Ltd., led by his younger brother, said in statements they will not compete in gas-based power generation. Reliance Industries won a lawsuit against Reliance Natural Resources Ltd. , an Anil Ambani group company, this month over the sale of natural gas from the KG-D6 field in the Bay of Bengal. In the years since the two brothers split their father’s company, their feud has halted plans for a major north Indian power plant and led to a court battle and a scuttled merger between Anil Ambani’s Reliance Communications Ltd. and South Africa’s MTN Group Ltd. ‘Hopeful and Confident’ The brothers’ companies said in statements they “are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups.” Boards of both groups have agreed to scrap the 2006 agreements that barred competition between them, the company statements said. Under the 2005 pact to split the Reliance group, Mukesh kept the petrochemicals, oil and gas units along with the flagship company, Reliance Industries. Anil got newer businesses such as power, telecommunications, financial services and entertainment. Both retained rights to the Reliance name. In October 2007, Anil’s side of the business complained to the Indian markets regulator that Reliance Industries was trying to stall the initial public offering of the younger brother’s Reliance Power Ltd. Nine months later, Anil’s mobile phone services company, Reliance Communications, called off merger talks with MTN Group after Reliance Industries threatened to block the sale if it wasn’t given the first option to buy shares in Reliance Communications. To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

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London Cabbies, Accountants Look to Chip-Fat Fuel, Twitter to Save Costs

May 19, 2010

By Howard Mustoe May 19 (Bloomberg) — Drivers of London’s iconic black cabs may soon find themselves competing with accountants to obtain an unusual commodity: chip fat. Cabbies in the U.K. capital city, who spend almost 440,000 pounds ($634,000) a day on diesel, are starting to switch to biodiesel, a fuel derived from vegetable oil, to cut costs. Accounting firm PricewaterhouseCoopers is also looking at using biodiesel to power its new London office , due to open next year. PwC is seeking local sources for 45,000 liters of biodiesel to meet one quarter of its monthly office fuel needs, said Jon Barnes, head of building and facilities services at the firm. “I’m trying to locally source used chip fat from restaurants,” he said. “It’s a pretty pointless exercise of using biofuel if it’s been all round the world on a ship.” The European Union will limit all new buildings’ use of fossil fuels to “nearly zero” by 2020, expanding the fight against climate change after the European Parliament voted to add a clean-energy provision to the building codes of EU countries. Having a renewable source for some of PwC’s office’s energy needs could help the company sell its services to clients wanting to do the same. “They’re giving advice to clients on sustainability, so this is huge because they can practice what they preach,” said Steve Runicles, a director at BDP, a U.K. design company, which is responsible for planning how PwC’s new building will save energy, including choice of generators and solar panels on the office’s roof. Cost Benefits Uptown Oil Ltd ., which started out delivering ice, has been refining biodiesel from waste oil supplied by 750 restaurants, pubs and companies across London since 2007. It sells the fuel at 105 pence ($1.53) per liter, while the average price of diesel in the U.K. is 121.6 pence per liter, according to the Automobile Association Ltd. “If I had to choose, hand on heart, why people buy it, it’s the cost,” said Jason Askey-Wood, a director of Uptown, in an interview at the company’s factory in south London. Uptown collects waste rapeseed, soya, and sunflower oil from companies including Young & Co.’s Brewery Plc and Corney & Barrow Wine Bars Ltd., which is filtered and distilled, with the oil being siphoned off and added to methanol, a process that produces biodiesel and glycerol, with the biodiesel being filtered again and heated to remove excess methanol. ‘Grime’ The benefits for the 500 or so cab drivers who buy their fuel from Uptown are also environmental, with reduced smoke fumes, Askey-Wood said. “One cab driver said he was sick of seeing all the grime come out of the back of his cab,” he said. “The biodiesel produces far less.” Barnes said he’s is in talks with Uptown to see if the company can provide enough recycled fuel to meet the accountant’s needs. Other sources for the fuel could be Thames Water or Anglian Water, which skim off the waste oil as part of the treatment process, he said. Would-be users of the fuel should check the product can be used in their autos by asking the manufacturer, said Vanessa Guyll, a technical specialist at the AA . “If it’s made properly and it’s cleaned properly, then it’s good,” she said. “It’s quite a lot of work to get it clean and to a suitable standard.” London has about 22,000 black cabs, according to Bob Oddy, general secretary of the Licensed Taxi Drivers Association . Each cabbie drives an average 90 to 100 miles per day while working and a cab will, on average, drive about 22 miles per gallon of diesel, he said. That’s about 5.8 miles per litre and means, at 121.6 pence per litre over 95 miles, London black cab drivers spend about 438,240 pounds per day on fuel. Twitter Service Biodiesel from recycled cooking oil isn’t the only innovation cabbies are using. Twitter service tweetalondoncab , which began in July, is also being used by some drivers of Hackney Carriages, named after their horse drawn forebears, to find customers and avoid the fees of a so-called cab circuit. Tweetalondoncab’s 40 cab drivers use their phones to post information of where fares can be found, such as recently finished concerts or exhibitions and receive requests from potential customers. Organizer Richard Cudlip, 42, a driver of four years whose fares have included Mr. Bean actor Rowan Atkinson and television presenter Michael Palin , said cricket commentator Jonathan Agnew follows the service on Twitter. “You can have that quick personal communication,” he said. “We can say yes or no within time to suit the customer, people like that personal touch they get.” To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net .

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Gulf Spill Boosts BP, Transocean Debt Costs Amid Cleanup: Credit Markets

May 12, 2010

By John Glover May 13 (Bloomberg) — Energy companies’ borrowing costs are rising at the fastest pace in 17 months after an oil rig leased by BP Plc exploded, killing 11 people, spewing crude into the Gulf of Mexico and prompting a moratorium on new drilling. The extra yield investors demand to hold energy company bonds instead of benchmark government securities jumped 32 basis points since April 28, the biggest two-week increase since the period ended Dec. 4, 2008, according to Bank of America Merrill Lynch’s U.S. Corporates, Energy index. The notes are the worst performing industrial debt this month except for basic industries, losing 0.96 percent, the data show. Borrowing costs are rising as estimates of the cleanup reach $12.5 billion, with BP, Europe’s largest oil and gas company, on the hook for $8 billion, according to analysts at Sanford C. Bernstein. The London-based company’s bonds are suffering along with the debt of other firms involved including Transocean Ltd. and the U.S.’s Halliburton Co. Moody’s Investors Service and Standard & Poor’s say they may cut their ratings of BP’s debt. “This whole thing is a monster that’s going to take years to resolve,” said David Kotok , chairman and chief investment officer of Cumberland Advisors in Sarasota, Florida. “As we saw with the financial crisis, at the start estimates are small and they rise as more information is obtained.” The extra yield investors demand to own BP’s bonds instead of government debt has almost tripled to 115 basis points, or 1.15 percentage point since April 28, when BP increased its estimate of how much oil the damaged well was leaking. BP is rated Aa1 by Moody’s, its second-highest grade, and one level lower at AA by S&P. Rollover Costs BP would have to pay $182 million a year extra in interest to refinance its $24 billion of bonds were they to roll over at current rates. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point yesterday to 169 basis points, after soaring 28 basis points last week, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Moody’s cut ratings on 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies and left the notes under review for further downgrades, as the country adopts austerity measures to qualify for European aid. Less Creditworthy The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said in a statement. The bonds appear less creditworthy considering “Greece’s austerity package and the resulting impact on the Greek economy,” with higher taxes also likely to hurt underlying borrowers’ ability to keep paying, Moody’s said yesterday. Apollo Management LP won consent for a debt-for-equity swap in U.K. casino operator Gala Coral Group Ltd. giving it and other junior lenders full ownership of the company’s shares. The plan got 97 percent approval from senior lenders and unanimous consent from mezzanine investors, according to two people familiar with the situation. Leon Black ’s Apollo is leading a group of investors, including Goldman Sachs Group Inc., Cerberus Capital Management LP and Park Square Capital LLP, that plans to take over the Nottingham, England-based bingo chain in June, the people said. Gala said on March 13 that key lenders agreed to write down debt to 1.85 billion pounds ($2.8 billion) from 2.6 billion pounds and invest 200 million pounds. A spokesman for Gala and Kelly Nugent , a New York-based spokeswoman for Apollo, declined to comment. Bond Sales New issuance in the U.S. picked up, led by Citigroup Inc.’s $1.5 billion offering and Mylan Inc.’s $1.25 billion sale. Cigna Corp., the fifth-biggest U.S. health insurer by enrollment, sold $300 million of 10-year notes, according to data compiled by Bloomberg. The senior unsecured debt yields 5.192 percent, or 162.5 basis points more than similar-maturity Treasuries. The Philadelphia-based company last sold debt in May 2009, when it issued $350 million of 10-year notes at a spread of 537.5 basis points, the data show. “We’re always looking to improve our interest rates,” Chief Financial Officer Annmarie Hagan said yesterday at a conference in New York. Cigna has $222 million of debt maturing in January, Bloomberg data show. Emerging-Market Bonds The extra yield investors demand to own emerging-market bonds fell 14 basis points yesterday to 2.77 percentage points, the lowest since May 3, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina gave institutional investors more time to turn over defaulted bonds in a $20 billion restructuring offer and said the government may scrap plans to sell new debt after borrowing costs surged. The country extended the deadline for swapping securities to May 14 from yesterday and said further extensions are possible, according to a government statement distributed by Barclays Capital, which is managing the offer. Economy Minister Amado Boudou said May 11 Argentina may scrap a $1 billion bond sale that formed part of the restructuring after yields rose to a two-month high on concern the Greek crisis was spreading. Delays in advancing the exchange over the past two years are costing President Cristina Fernandez de Kirchner , who could have sold new bonds at a yield of 7 percent in 2008, said Alberto Bernal , head of fixed-income research at Bulltick Capital Markets in Miami. Argentina’s dollar bonds yielded an average 11.06 percent at yesterday’s close, according to JPMorgan’s EMBI+ index. Move Against Drilling The spill from the BP well may curb offshore oil production and boost opposition to President Barack Obama ’s plan to open coastal waters to drilling, the International Energy Agency said. In addition to a temporary moratorium on new drilling permits, the spill has already resulted in the suspension of hearings on offshore development in Virginia, the Paris-based agency said yesterday in a report. “Operational and estimated environmental clean-up costs, which could exceed $3 billion, constitute the immediate financial risk to the companies’ credit profile,” S&P said yesterday in a report. “Costs and damages will continue to mount until the spill is controlled. However, potential non- environmental liabilities could pose longer-term risks to the credit profiles of the companies involved.” Transocean ’s largest investor as of Dec. 31, Marsico Capital Management LLC, liquidated its entire holding in the world’s biggest oil driller partly because of the fatal rig blast that triggered the Gulf of Mexico spill. ‘Accelerated’ Sales Marsico began selling some of its 20.96 million shares earlier this year as a glut of North American natural gas diminished demand for rigs built to extract the fuel from shallow coastal waters, Chief Executive Officer Thomas F. Marsico said in a Bloomberg Television interview. He said he “accelerated” the sales after the Geneva-based company’s Deepwater Horizon rig exploded April 20. “We were in the process of selling the position when the incident happened,” said Marsico, whose 6.25 percent stake in Transocean was worth $1.74 billion at the end of 2009. Bonds sold by Transocean, the owner of the rig that sank off the coast of Louisiana, have lost money this month, underperforming government bond benchmarks by 7.19 percentage points, the most among the 50 biggest companies in the Bank of America Merrill Lynch index. Halliburton Bonds Debt of Anadarko Petroleum Corp. , owner of 25 percent of the damaged well, lost 6.07 percent compared with government securities. So-called excess returns on bonds of Houston-based Halliburton, which provided cementing services to the well, are negative 4.27 percent below benchmarks, the index data show. The cost of insuring against a default on the companies’ bonds has surged. Credit-default swaps on BP’s debt jumped to 81 basis points from 46 basis points on April 28, according to CMA DataVision prices. An increase in the contracts, used to bet on a company’s creditworthiness, indicates a deterioration of investor perceptions of credit quality. The default-swap prices imply a rating for BP of Aa2, one level lower than the current grade, according to Moody’s Capital Market Research Group, a unit of the ratings company. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Contracts on Transocean climbed to 185 basis points from 76 on April 28, while swaps tied to Halliburton’s debt advanced to 96.5 basis points from 58, according to CMA prices. ‘Significant Uncertainty’ Moody’s lowered its outlook on BP’s rating to “negative” on May 5. The ratings company said it’s “impossible at this stage to assess the full extent of the costs and business impact of this accident on BP’s results.” New York-based S&P followed suit two days later, citing “significant uncertainty over costs” of the calamity. Energy companies’ securities are falling faster than the debt of other borrowers. Energy bonds pay spreads 28 basis points higher than debt issued by the typical industrial company, the biggest difference since Nov. 20, Bank of America Merrill Lynch index data show. That compares with a gap of 12 basis points on April 19, the day before the offshore drilling rig exploded. The yield premium on BP’s $2 billion of 3.875 percent bonds due 2015 over government debt rose to 113 basis points, the biggest spread since May 28, up from 32 basis points on April 22, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Transocean’s $500 million of 5.25 percent bonds due 2013 also plunged, with the extra yield increasing to 206 basis points from about 82 basis points on April 28. The spread on Halliburton’s $400 million of 5.9 percent notes due 2018 was 131 basis points, up from 77 on April 28, according to Trace. Yields move inversely to bond prices. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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Gulf Spill Boosts BP, Transocean Debts Costs Amid Cleanup: Credit Markets

May 12, 2010

By John Glover May 13 (Bloomberg) — Energy companies’ borrowing costs are rising at the fastest pace in 17 months after an oil rig leased by BP Plc exploded, killing 11 people, spewing crude into the Gulf of Mexico and prompting a moratorium on new drilling. The extra yield investors demand to hold energy company bonds instead of benchmark government securities jumped 32 basis points since April 28, the biggest two-week increase since the period ended Dec. 4, 2008, according to Bank of America Merrill Lynch’s U.S. Corporates, Energy index. The notes are the worst performing industrial debt this month except for basic industries, losing 0.96 percent, the data show. Borrowing costs are rising as estimates of the cleanup reach $12.5 billion, with BP, Europe’s largest oil and gas company, on the hook for $8 billion, according to analysts at Sanford C. Bernstein. The London-based company’s bonds are suffering along with the debt of other firms involved including Transocean Ltd. and the U.S.’s Halliburton Co. Moody’s Investors Service and Standard & Poor’s say they may cut their ratings of BP’s debt. “This whole thing is a monster that’s going to take years to resolve,” said David Kotok , chairman and chief investment officer of Cumberland Advisors in Sarasota, Florida. “As we saw with the financial crisis, at the start estimates are small and they rise as more information is obtained.” The extra yield investors demand to own BP’s bonds instead of government debt has almost tripled to 115 basis points, or 1.15 percentage point since April 28, when BP increased its estimate of how much oil the damaged well was leaking. BP is rated Aa1 by Moody’s, its second-highest grade, and one level lower at AA by S&P. Rollover Costs BP would have to pay $182 million a year extra in interest to refinance its $24 billion of bonds were they to roll over at current rates. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point yesterday to 169 basis points, after soaring 28 basis points last week, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Moody’s cut ratings on 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies and left the notes under review for further downgrades, as the country adopts austerity measures to qualify for European aid. Less Creditworthy The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said in a statement. The bonds appear less creditworthy considering “Greece’s austerity package and the resulting impact on the Greek economy,” with higher taxes also likely to hurt underlying borrowers’ ability to keep paying, Moody’s said yesterday. Apollo Management LP won consent for a debt-for-equity swap in U.K. casino operator Gala Coral Group Ltd. giving it and other junior lenders full ownership of the company’s shares. The plan got 97 percent approval from senior lenders and unanimous consent from mezzanine investors, according to two people familiar with the situation. Leon Black ’s Apollo is leading a group of investors, including Goldman Sachs Group Inc., Cerberus Capital Management LP and Park Square Capital LLP, that plans to take over the Nottingham, England-based bingo chain in June, the people said. Gala said on March 13 that key lenders agreed to write down debt to 1.85 billion pounds ($2.8 billion) from 2.6 billion pounds and invest 200 million pounds. A spokesman for Gala and Kelly Nugent , a New York-based spokeswoman for Apollo, declined to comment. Bond Sales New issuance in the U.S. picked up, led by Citigroup Inc.’s $1.5 billion offering and Mylan Inc.’s $1.25 billion sale. Cigna Corp., the fifth-biggest U.S. health insurer by enrollment, sold $300 million of 10-year notes, according to data compiled by Bloomberg. The senior unsecured debt yields 5.192 percent, or 162.5 basis points more than similar-maturity Treasuries. The Philadelphia-based company last sold debt in May 2009, when it issued $350 million of 10-year notes at a spread of 537.5 basis points, the data show. “We’re always looking to improve our interest rates,” Chief Financial Officer Annmarie Hagan said yesterday at a conference in New York. Cigna has $222 million of debt maturing in January, Bloomberg data show. Emerging-Market Bonds The extra yield investors demand to own emerging-market bonds fell 14 basis points yesterday to 2.77 percentage points, the lowest since May 3, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentina gave institutional investors more time to turn over defaulted bonds in a $20 billion restructuring offer and said the government may scrap plans to sell new debt after borrowing costs surged. The country extended the deadline for swapping securities to May 14 from yesterday and said further extensions are possible, according to a government statement distributed by Barclays Capital, which is managing the offer. Economy Minister Amado Boudou said May 11 Argentina may scrap a $1 billion bond sale that formed part of the restructuring after yields rose to a two-month high on concern the Greek crisis was spreading. Delays in advancing the exchange over the past two years are costing President Cristina Fernandez de Kirchner , who could have sold new bonds at a yield of 7 percent in 2008, said Alberto Bernal , head of fixed-income research at Bulltick Capital Markets in Miami. Argentina’s dollar bonds yielded an average 11.06 percent at yesterday’s close, according to JPMorgan’s EMBI+ index. Move Against Drilling The spill from the BP well may curb offshore oil production and boost opposition to President Barack Obama ’s plan to open coastal waters to drilling, the International Energy Agency said. In addition to a temporary moratorium on new drilling permits, the spill has already resulted in the suspension of hearings on offshore development in Virginia, the Paris-based agency said yesterday in a report. “Operational and estimated environmental clean-up costs, which could exceed $3 billion, constitute the immediate financial risk to the companies’ credit profile,” S&P said yesterday in a report. “Costs and damages will continue to mount until the spill is controlled. However, potential non- environmental liabilities could pose longer-term risks to the credit profiles of the companies involved.” Transocean ’s largest investor as of Dec. 31, Marsico Capital Management LLC, liquidated its entire holding in the world’s biggest oil driller partly because of the fatal rig blast that triggered the Gulf of Mexico spill. ‘Accelerated’ Sales Marsico began selling some of its 20.96 million shares earlier this year as a glut of North American natural gas diminished demand for rigs built to extract the fuel from shallow coastal waters, Chief Executive Officer Thomas F. Marsico said in a Bloomberg Television interview. He said he “accelerated” the sales after the Geneva-based company’s Deepwater Horizon rig exploded April 20. “We were in the process of selling the position when the incident happened,” said Marsico, whose 6.25 percent stake in Transocean was worth $1.74 billion at the end of 2009. Bonds sold by Transocean, the owner of the rig that sank off the coast of Louisiana, have lost money this month, underperforming government bond benchmarks by 7.19 percentage points, the most among the 50 biggest companies in the Bank of America Merrill Lynch index. Halliburton Bonds Debt of Anadarko Petroleum Corp. , owner of 25 percent of the damaged well, lost 6.07 percent compared with government securities. So-called excess returns on bonds of Houston-based Halliburton, which provided cementing services to the well, are negative 4.27 percent below benchmarks, the index data show. The cost of insuring against a default on the companies’ bonds has surged. Credit-default swaps on BP’s debt jumped to 81 basis points from 46 basis points on April 28, according to CMA DataVision prices. An increase in the contracts, used to bet on a company’s creditworthiness, indicates a deterioration of investor perceptions of credit quality. The default-swap prices imply a rating for BP of Aa2, one level lower than the current grade, according to Moody’s Capital Market Research Group, a unit of the ratings company. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Contracts on Transocean climbed to 185 basis points from 76 on April 28, while swaps tied to Halliburton’s debt advanced to 96.5 basis points from 58, according to CMA prices. ‘Significant Uncertainty’ Moody’s lowered its outlook on BP’s rating to “negative” on May 5. The ratings company said it’s “impossible at this stage to assess the full extent of the costs and business impact of this accident on BP’s results.” New York-based S&P followed suit two days later, citing “significant uncertainty over costs” of the calamity. Energy companies’ securities are falling faster than the debt of other borrowers. Energy bonds pay spreads 28 basis points higher than debt issued by the typical industrial company, the biggest difference since Nov. 20, Bank of America Merrill Lynch index data show. That compares with a gap of 12 basis points on April 19, the day before the offshore drilling rig exploded. The yield premium on BP’s $2 billion of 3.875 percent bonds due 2015 over government debt rose to 113 basis points, the biggest spread since May 28, up from 32 basis points on April 22, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Transocean’s $500 million of 5.25 percent bonds due 2013 also plunged, with the extra yield increasing to 206 basis points from about 82 basis points on April 28. The spread on Halliburton’s $400 million of 5.9 percent notes due 2018 was 131 basis points, up from 77 on April 28, according to Trace. Yields move inversely to bond prices. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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