Time's Battleland: NATIONAL SECURITY Death to “Resource Wars”!

Nice Washington Post piece on Saturday about how the “center of gravity” in global oil exploration and production is shifting to the Western hemisphere.  No, the bulk of global conventional oil reserves still sits in the Persian Gulf, but the larger point is worth exploring: we no longer project global futures where East and West logically fight over Middle East energy reserves.  Those expected long-term dynamics are collapsing right now before our eyes.

Read the entire post at Time's Battleland blog.

Romney's fundamental opportunity

Peggy Noonan interview in the WSJ today:

Before rallies and town meetings, Mr. Romeny always tries to have private, off-the-record meetings with voters.  "I sit down with five or six couples or individuals and just go around the table, and I ask them to tell me abou their life.  And the stories I hear suggest a degree of anxiety which is not reflected in the statistics."

More than anything else right now, what I sense when I travel the country giving speeches (Dallas two days ago) is that people don't think their kids will have better lives than they have had, and that is a fundamental shift in US thinking.

Subjective, yes?  But subjective matters in elections.

Here comes Chinese FDI in a very public way

This NYT story today really jumped out at me, and the Chinese just bought, in a signature Foreign Direct Investment move, the second-biggest movie chain in the US:  

The Wanda Group, a Chinese conglomerate with extensive interests in the entertainment business, has agreed to acquire AMC Entertainment, North America’s second-largest movie theater owner, in a deal that is valued at $2.6 billion, including roughly $2 billion in assumed debt, the companies said Sunday.

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David Gray/Reuters

Gerardo I. Lopez, AMC’s chief executive, left, exchanged documents with Zhang Lin, vice president of the Wanda Group, during a ceremony in Beijing on Monday.

The acquisition creates the world’s largest theater group, the companies said. It also represents a significant expansion of Chinese influence in the American film industry. The industry has been looking to China for a vast new reservoir of ticket buyers for Hollywood movies, while joining Chinese investors to produce films like the planned “Iron Man 3” and teaming up to build studio facilities and a new Disney theme park in China.

The usual motives apply:  Chinese firm looking for know-how in an industry that's booming across China but isn't being as monetized as it could be - by Western standards.  For the US company, a crucial sub-plot emerges a few paras down the story:

In addition to the $2.6 billion value assigned to AMC’s debt and equity in the deal, Wanda is expected to invest $500 million for what the companies called “strategic and operating initiatives.” Mr. Wang said that the money would generally be used for renovation and other needs, but that specifics were up to Mr. Lopez and his team. Mr. Lopez said there was no plan in place for the money. But, he said, it might be used to retire debt, acquire new theaters or fix up old ones.

To me, this is a very positive development, and it's one we're going to read about countless times over the next decade. And yes, it will look and feel like Japanese money "buying up everything!" across America in the late 1980s/early 1990s.

But, of course, America has "suffered" these invading waves of FDI throughout our long history as a multinational economic union.  Chinese money will be just as good and useful as those of the other countries that preceeded it, and the further intertwinning of our economies will mitigate the craziness out of the Beltway crowd as they pine for a "near peer" competitor to justify the dropping floor of the defense budget.

You know, the Chinese were going to be the featured villain in the remake of "Red Dawn," but then Hollywood realized they'd be shutting themselves out of the Chinese box office, so they subbed in the North Koreans, which - of course - makes the film a complete and utter fantasy.  But it just goes to show you what all this financial connectivity leads too - cooler heads prevailing everywhere save among those fiercely dedicated fear-mongers in DC.

The LNG export play

Nice FT story on what Shell is saying about natural gas in the US.  Current Henry Hub price has been hanging around $2.25-2.55, which is about 3-4 times cheaper than Europe MMBTU (millions British thermal units) and bizarrely cheaper than most Asian countries are being quoted right now (more like $14-15 and moving north for the summer to almost $20 - by some predictions).

Think about that for just a second.  Natural gas in the US at something like 1/8 the price in Asia.  How long do you think that lasts?  Why should it?

To me, that's a huge LNG (liquid natural gas) market waiting to be captured by US producers.  Selling LNG ain't like moving 100,000 metric tons of diesel or jet fuel or 2 million barrels of crude in one large tanker.  Those transactions are the equivalent of one-night stands and leave your money on the dresser.  Selling LNG is more like getting married: the buyer has to have a relationship with a regasification terminal nearby.  There must be pipes that connect the end-user to that LNG terminal (only so many in the world, but plenty being built).  If no regasification terminal, then buyer needs to rent himself a regas ship ($50m a year), park it somewhere, and then connect that by pipes to the end-user.  All very complex. 

Of course, the seller must have liquefaction facilities at ports, with pipelines connecting fields.  

America is piped up like crazy and adding more pipe all the time.  We're just getting our first for-export liquefaction facility set up in Louisiana by Cheniere, which is leading the effort here to gear up for export.

All very exciting stuff, as we could be exporting - within a few years - upwards of 1/4 of our production.  Then you factor in all the coal displaced in electricity generation, and we can be exporting that high-quality stuff to Asia along with the LNG -  a win-win on trade balance and energy security.

Back to the FT piece:  the currently depressed US prices are just too low, reflecting that we're running out of storage after a mild winter and a continued production boom.  Shell's prediction?  US NG prices will double by 2015.  Expect the petrochem industries to hawk that fear like crazy, but in truth, it's a reasonable rise to just $4-6 MMBTU.

[Shell, BTW, has done a lot of exploratory drilling on NG in China and says it thinks the reserves can be developed economically.]

Shell is also "examining plans to liquefy US gas for export - which would allow it to attract higher prices, particularly in Asia - transform it into clean-burning transport fuel through gas-to-liquids technology, and use it as a feedstock for petrochemicals."  That's a quick rundown of the range of economic opportunities - in addition to displacing coal in electricity.

All good stuff and an integral part of America's coming industrial renaissance.

The race card cannot work on Obama, or really any national candidate going forward

WAPO story on Romney rightfully steering clear of those within GOP who, in their desperation, consider racially motivated election attacks against Obama.

The problem with this approach is that it is magnificently self-defeating - that's how America has evolved in its racial make-up.

Obama is carrying Blacks, Hispanics and Asians - plus the "minority-majority" that are women (historically far less welcoming of racially tinged messages than men, to include white women versus white men).

All three of those major minority groups tilt decisively toward Dems, and racially-tinged political messages simply reinforce that reality and perhaps lock it in for the longer term.  Simply put, as a polity, America is past all that nonsense.

And the fact that the Republicans are considering it - even among just their fringe hardcore elements - signals just how bereft of ideas and leadership and vision they really are.

And that is a very sad day for this republic, because, quite frankly, Obama does not deserve a second term and it won't be any better than the first.

But I do take comfort in this reality, being the father of one Asian female and two future African-American women.

Red Dawn! Chinese state banks to enter US market

You just want to summon your inner Yakov Smirnov:

In America, banks loan you money.

In China, you loan banks money!

WSj front-page lead on "Chinese banks get nod in U.S."  The Fed Reserve okayed 3 state-run banks to enter and apparently didn't stop the first ever acquisition of a U.S. retail bank by one of them.

The goal of Chinese banks?  Initially, to service Chinese companies operating overseas and those foreign investors looking for "exposure" to the renminbi.

Exposure is the key word here - in both directions.  But, in general, I heartily approve.

China is the biggest saver in the system these past couple decades.  So yeah, access is crucial for an economy with shakey finances.

Of course, China's financial system has its own dangers, but - again - in general I greatly approve of even more financial interdependence.  

It'll help keep the China crazies inside the Pentagon on a leash.

Chart of the day: Why GM and SAIC naturally decided to pair up

Pretty obvious, actually. 

Far short of merger, but the same logic holds:  you are weak where I am strong and vice versa.  Why not ally and crush all opposition on global basis.

This would-be globally integrated enterprise as a preview of globalization's coming attractions.

From an Economist story on Chinese carmakers.

To what extent China can copycat the fracking revolution in US

Big FT piece.

China, we are told, has enough shale gas to cover its needs for 200 years.  It currently has no commercial production but wants to reach 60B cubic meters by 2020. A number of big Chinese and foreign energy firms are currently exploring China, with Sinopec running the big Tarim basin that is routinely described as the biggest in the world.

Dozens of exploratory wells have, so far, yielded mixed results.  The geology is just not the same as the US - more complex, so serious additional innovation will be required.  China's reserves are deeply buried and feature more clay, which is far harder to break up to release the gas.

China also lacks the US's existing pipeline network and trained personnel.

To overcome the stiffness of its three primary national energy companies, China has allowed foreign companies in and plans to liberalize prices on oil so its own companies will invest more.

Then there's the Chinese investment in US firms over here, a development that's been met with far less resistance than when CNOOC tried to buy Unocal seven years ago.  CNOOC plopped a solid $2b into Chesapeake Energy to access some of this technology.

This will be one follow-on to the US fracking revolution worth watching closely.

How fast King Coal gets fracked

Fascinating to watch all the "they're trying to kill clean coal" commercials on TV that target some politician, the Obama administration or so on (evil regulators).  In truth, what's killing King Coal right now is the uber-cheap price of gas in the US.  

Citing a WSJ story, the millions BTU price of natural gas in the US is about half of what it was just a year ago, and that previous price was at least half of the average global price - which is rising in most places given the lack of LNG and the difficulty in buying it for most emerging market players.

So, amidst that crazy glut in the US, made all the more worse by the mild winter that did not much draw down US natural gas stocks, and we're seeing stunning drops in the US use of coal to generate electricity. It fell by almost one-fifth (!) in the fourth quarter of last year, and we're expecting first quarter news any day now.

But as I've noted before, the answer for coal is exports.  The energy value of our coal is significantly higher than that found just about anywhere else, so if new market export relationships can be built, we can displace a lot of less-valuable coal from other sources.

My prediction is that America becomes a huge and important coal source for both India and China.  Just give it enough market change.

What got me tuned in on all this?  Wikistrat's recent simulation on the "North American Energy Export Boom."

Chart of the day: remittance "corridors"

From the Economist.

I just love global maps indicating flows - naturally.

What do we see here?

Per my vernacular, in sheer volumen we see New Core being fed remittances by expats living in Old Core.  But when it comes to countries relying heavily on remittances as percentage of GDP, it tends to be mostly Old/some New Core and it all pretty much goes to Gap countries.

Per my flow concept:  whatever the resource, it flows from regions where it is plentiful (here, earning opportunities) to where it is less so.  Yes, we think of India, China, Mexico as New Core and thus "made," but all share the reality of significant numbers of rural poor.  In truth, in most New Core countries, there is massive internal remittances flows.

What I love about this:  this is the best foreign aid there is, because people use it as they see fit.  

You may say to yourself:  What a drain on Core - especially US!

Studies have shown, however, that expats living in new countries spend something like 90% of their earnings in-country, sending about 1/10th home.  It's just that those flows still number in the billions, swamping anything we do on official developmental aid.

Final column at World Politics Review

The New Rules: Globalization's Future Depends on Stable U.S.-China-India Order

BY THOMAS P.M. BARNETT | 30 APR 2012
COLUMN

Editor's note: This will be the final appearance of Thomas P.M. Barnett's "The New Rules" column at World Politics Review. We'd like to take this opportunity to thank Tom for the insightful, compelling analysis he has offered WPR readers each week for the past three years, as well as for the support he has shown for WPR over that time. We wish him continued success.  

Amid all our current fears regarding the global economy’s potential “double dip” back into deep recession, a longer-term question stands out: How can a supposedly declining America protect the golden goose that is globalization while managing the rise of twin economic superpowers in the East -- namely, China and India? History says that three is a crowd when it comes to system stability. Invariably, some conflict will arise to trigger a two-against-one dynamic that must yield to either the stable stand-off of bipolarity, as during the Cold War, or the emergence through decisive conflict of an acknowledged unipolar hegemon, as in the early post-Cold War period.

Read the entire column at World Politics Review.

Chart of the day: You can import the milk cows. The water is another story

Fascinating WSJ piece on China importing cows like crazy to build up its dairy stock.

Since 2009, China has become the world's most important buyer of dairy cows, driving up prices for calves world-wide and putting pressure on other markets such as alfalfa and bull semen. China has imported nearly 250,000 live heifers, or cows that haven't yet reproduced, since 2009, according to data tracker Global Trade Information Services. Last year it spent more than $250 million on 100,000 foreign heifers, about 25 ships worth.

China old cows were European and it has a cattle ban on North America since the mad-cow disease scare in 2003, so it's buying up stock in Australia, New Zeland - even as far as Uruguay.

Story describes the setting-up of modern American-style dairy farms (our cows outproduce the world on a per-head basis), but the trick is the amount of fresh water they require.  All the places they import these cows from are relatively water rich (more global freshwater share than population share), whereas China is 22% of the world pop with 7% of the water.

Tricky business, that.

But clearly, the attempt shows how intent China is on continuing to try and remain food self-sufficient. China won't succeed, but it'll try like all get out.

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

1. China 36.1 trillion cubic meters
2. US 24.4
3. Argentina 21.9
4. Mexico 19.3
5. South Africa (didn't write down because not in Pac)
6. Australia 11.2
7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

1. China 1,275 tcf
2. Argentina 774
3. Mexico 681
4. South Africa 485
5. US 482
6. Australia 396
7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

The coming American industrial renaissance

WSJ piece on Dow Chemical building . . .

. . .  a multi-billion-dollar plant to convert natural gas into the building blocks of plastic in this coastal city [Freeport TX, just south of Houston], becoming thelatest chemical maker to capitalize on abundant gas supplies that are helping spur a renaissance in U.S. manufacturing.

This is all wonderful news, but it doesn't stop up from still exporting a significant portion of our now severely glutted natural gas supplies to improve our trade deficit and empower our extractive industry further to take its revolutionary fracking techniques global.

Natural-gas futures closed Wednesday at $1.95 per million British thermal units, down 55% from a year ago and the lowest price in 10 years.

This is killing futher exploration and production in the U.S.

Why do we allow this glut to remain bottled up in the U.S.?  This crazy-ass notion of "energy independence."

GM casts its global lot with Shanghai Automotive

Favorite subject of mine, that I highlight in the current brief: the creation of what fmr IMB CEO Sam Palmisano calls "globally integrated enterprises."

GM links itself up with Shanghai Automotive Industry Corp to create a GIE that looks to take on Honda, Tata, VW, etc on a global basis while cementing GM's participation in China's booming domestic car market.

GM's tie-up with SAIC is considered one of the region's most successful. GM and its partners in China have a 14% share of the auto market, the world's largest. The company's sales volumes have grown 41% since 2009.

GM chief exec: "SAIC is the principal relationship that we have around the globe now [italics mine] and we expect that to be the case in the future."

GM and SAIC are now jointly eyeing exports to LATAM and eventual production there.

Amazing stuff, as GM impresses with its bold global vision and execution.

Canada looks east, as US market complications pile up

Per the recent Wikistrat simulation (North America's Export Energy Boom), Canada grows weary of the complications of exporting energy to the US market (see Keystone XL) and starts to spot easier venues going West to Asia:

Kinder Morgan Energy Partners LP KMP +0.40% said Thursday it will begin a $5 billion expansion of its Trans Mountain pipeline, nearly tripling the capacity of crude oil it can ship to Canada's west coast—the latest project aimed at moving the country's rising oil production to markets outside the U.S.

Currently, almost all Canadian crude exports travel to the U.S. While Canadian oil output has been climbing fast, pipeline capacity to move it from the country's biggest oil patch in landlocked Alberta to U.S. refining markets is stretched. 

The resulting glut, and rising oil production in the U.S. itself, has depressed prices for Canadian crude.

Our dysfunctional politics not only scares off the Canadians, it creates the same weird glut dynamic amidst our fabulous boom in natural gas production.  While Asian markets scream for LNG and can't get nearly enough, we refuse to export. An objective look at that would suggest some dumbass mercantilist logic having gripped some immature rising economy, but - of course - those who seek to deny LNG exports have all sorts of economic illogic at their disposal.

Meanwhile, we demonize China over similar bouts of stupidity, but at least there you can spot some legitimate developmental logic (all those rural interior poor still to be delivered).

We are living through some very bad political leadership and have for years now. I think history will judge the Boomer generation as among the worst political leadership cohorts ever suffered by America.

The future of American agriculture has arrived

Been briefing and writing about this one going back to about . . . I wanna say 2006.  I remember the slide I had my old slidemaster Bradd Hayes generate for what was still the Blueprint for Action brief.

Here is the reality as captured in the piece: US demand flattening, China's skyrocketing - especially for dairy (it's a growing middle class, mind you).

The head of California Dairies: "We're in an evolution. No question."

Markets "once treated as an afterthought" are now "reshaping the relationship between rural America and the rest of the world."

What are you really exporting when you export milk - even milk powder?  Water.  Whether or not you take it out for packanging, a whole lot of water goes into milk - directly and indirectly.

That's why the Kiwis have been in the lead.

It wasn't just the geographic proximity but the excess of water on a per capita basis (New Zealand has about 5 times the water it needs).

California ag exports to China and HK are up 85% since 2008: "All of a sudden, milk powder has become this valuable commodity." The sent this year's Miss California to China to hawk pistachios.

Amber waves of grain, my friends, in a back-to-the-future development that marks the resurgence of the economy - with ag and energy in the lead.

And yeah, both are plenty high-tech.

Hollywood gets itself some Chinese

Old Jack Welch bit: you can't succeed in global economy without succeeding in China.

My addendum: you can't succeed in China unless you're Chinese.

Solution: Get yourself some Chinese.

Hollywood has seen overseas B.O. rise from a tiny share to well over half in recent years. More specifically, while the US market is flat, burgeoning middle class China's is booming.

WSJ sees two different markets, but I already see a Chinese market that, with incredible restrictions on the number of US imports, is already half-synched to our blockbuster mode.

You know about Spielberg already turning toward China for future financing.  This piece talks about Disney doing the same.  Co-productions will become the norm, connecting talent with bucks (literally).  Yes, nothing will change the flops-v-tentpoles ratio. Indeed, it is likely to rise in the short-run, but Hollywood is very adept at figuring these things out, much like Japan does in its very clever global marketing of anime.

In the meantime, we be treated to the glorious hysterics of the "Red Dawn" remake. [The Chinese dodged a movie bullet there, as the original script had them invading, but now we get the fantastically implausible depiction of North Korea doing the same - much like a recent (pretty good) video game "Homefront."  The kicker: MGM rebooted the script so as to not lose out on the growing Chinese box office.] But, over time, this will be a good collaboration and a bilateral image reshaper that benefits the planet.

WPR's The New Rules: Globalization in a Post-Hegemonic World

My third-to-last column at WPR:

International relations experts are pretty much down on everything nowadays. America, we are told, is incapable of global leadership: too discredited overseas, too few resources back home, too little will -- period. For a brief moment there, while China held up the global economy during the recent financial crisis, much credence was given to the notion that we were on the verge of a Chinese century. But that popular vision has also waned surprisingly quickly, and now the conventional wisdom centers on China’s great weaknesses, challenges and overall brittleness. Amazingly, where we spoke of a U.S.-China “G-2” arrangement just a few short years ago, now there is a sense that no one is in charge.

Read the entire column at World Politics Review.

States and localities fighting over hydrofracturing drilling

WSJ story about states pushing for fracking while localities fight them over noise and infrastructure that comes with it (want to police it more vigorously).  State lawmakers are enacting laws that restrict the rights of cities and counties to regulate these things and that's creating some genuine local resistance.  The states are seeing dollar signs in terms of tax revenue and are running a bit roughshod.

So we're starting - as usual - to see this fought out in courts (ex: seven PA towns suing the state over desire to use local zoning laws to regulate things; drilling company in NY appealing state court rulings that say towns can use zoning laws to ban fracking).  All sides naturally cite the "special interests" of their opponents.

Point being, the court fights are just beginning, introducing a certain regulatory uncertainty to the whole package. This was a prominent feature of one of the more negative scenarios we explored in Wikistrat's recent "North American Energy Export Boom" simulation.