October 26, 2010

Houston Chronon China’s Energy Strategy, “The Chinese get it. We hope the [Obama] administration does, too.” Houston Chronicle (10/26)editorializes, “It’s an accident of the calendar that word of China’s purchaseof an interest in 600,000 acres of oil and gas leases in South Texas camewithin days of the Obama administration’s announcement that the moratorium ondeep-water drilling in the Gulf of Mexico would be ending. We take the word ofthose in the oil and gas industry who say lifting of the ban is mostly symbolicbecause it hasn’t been followed up by approvals for new deep-water wells. Thatis what matters most now, both in deep-water and shallow-water sections of theGulf, where the permitting process also has been sclerotic. It still needs tobe stepped up. This country relies on offshore Gulf resources to supply 30percent of our national demand. Which brings us, perhaps improbably, to therecent Chinese entry into a lively oil and gas play in Texas shale. China’sstate-owned offshore oil and gas company has purchased a one-third interest inacreage between San Antonio and Laredo that could one day yield 400,000 to500,000 barrels per day of oil equivalent. The lease is controlled by ChesapeakeEnergy. China’s aggressive move into Texas builds on that country’s strategy tocontrol ever more natural resources globally. Some say it’s also a convenientway for Beijing to liquidate some of its share of U.S. debt paper. We’ll leavethat speculation to others more knowledgeable. What we do know is that thisgambit sends a signal the Obama administration must not miss: Even as theChinese make much-lauded strides in the renewable energy area, they clearlygrasp the importance of oil and gas in powering the world economy for years tocome. The administration should take a lesson. The Chinese get it. We hope theadministration does, too.

World’sLargest Solar Facility Coming to California; Cost to Taxpayers? Glad you asked,$900 Million to German Company.Wall Street Journal (10/26) reports, “A proposal to build theworld’s biggest solar-thermal power plant in the Southern California desert gotthe go-ahead Monday from the Obama administration, which used the announcementto bolster its message that renewable energy creates jobs. The $6 billionproject is being developed by Solar Trust of America, a joint venture betweenGermany’s Solar Millennium AG and privately held Ferrostaal AG on 7,025 acresof federally owned land near Blythe, Calif. The approval clears the way for thedevelopers to seek federal grants and loan guarantees. The project is the sixthsolar-energy installation approved for public lands. The Interior Departmentsaid in total the projects could generate as much as 2,800 megawatts ofelectricity, enough to power two million homes. California regulators haveapproved or plan to approve a total of nine solar-thermal power plants for thestate. The federal approval allows Solar Trust to start construction on theplant this year and take advantage of government incentives that would reducethe cost of the project. In order to receive cash grants in exchange for unusedtax credits, a popular but expiring program, companies must break ground onprojects or spend 5% of construction costs by year end. The estimated cost ofthe first two units of the Blythe plant is $3 billion. The company could beeligible for a $900 million cash grant for the first two units from the U.S.Energy Department and the U.S. Treasury Department in lieu of a tax credit.”

Speakingof Foreign Investment, China on Pace to Invest $30 Billion in Brazil this YearAlone; 2/3 of Which Going Toward Offshore Oil Exploration.AFP(10/25) reports, “Chinese investment in Brazil is expected to reach 30 billiondollars this year, according to observers — a sum aimed at securing access tothe Latin American nation’s oil and other resources. "Up to the end oflast year, the amount of Chinese investment in Brazil was tiny, less than 400million dollars. Over the first half of 2010, it’s gone over 20 billion dollars– and it should hit 30 billion dollars this year," Charles Tang, head ofthe Brazil-China Chamber of Commerce and Industry in Sao Paulo, told AFP.Two-thirds of the total coming into Brazil this year will be invested in theoil sector, to which China has privileged access after extending a10-billion-dollar credit line to Brazil’s state-owned Petrobras, and afterChina’s Sinopec bought the Brazilian subsidiary of Spain’s Repsol for sevenbillion dollars. "China is investing everywhere in the world to ensure itgets the strategic resources it needs. And Brazil, obviously, isimportant," Tang said. In return, Brazil gets "capital for its growthand job-creation," he explained. "China needs the mineral resources,oil and land that Brazil has in abundance," Tang added before predictingthat the relationship between the two BRIC economies "has only justbegun." In 2009, China became Brazil’s top trading partner, overtaking theUnited States. Bilateral exchanges topped 36 billion dollars last year. This year,they will amount to even more, based on Brazilian central bank figures showingtrade reached 35 billion dollars in just the first eight months of this year.

PoorDenise. Big Wind All Wound Up Over Campaign Ads Targeting Taxpayer Handouts toForeign Wind Companies; Writes Letter Asking That Ads be Taken Down. Greenwire/NYT(10/25) reports, “The wind industry’s biggest trade group in a letter had askednational campaign committees to cease running ads that the industry argues makefalse statements about the program. The spots, appearing in several states,make inaccurate criticisms about the stimulus law’s section 1603 program, saidDenise Bode, president and CEO of American Wind Energy Association. The effortgives grants in place of tax credits that businesses otherwise would get foralternative energy projects. "Statements that the 1603 program sent jobsto China when all projects receiving tax credits under the program were builtin the U.S. is clearly false," Bode said. "This program is a greatexample of ‘insourcing’ jobs to the United States by leveraging both foreignand domestic investment. It is the opposite of outsourcing." The stimulusbill program has stirred controversy. The political ads target the fact thatmany of the companies that received grants are subsidiaries of foreigncorporations. While the wind farms and other renewable projects were built inthe United States, many used parts that had been made abroad. A study by theLawrence Berkeley National Laboratory found that as many as 40 percent of thewind farms built in the first year of the program installed turbines and otherequipment manufactured overseas. In addition, a Greenwire investigation foundthat 64 percent of the 50 largest projects — representing $2.7 billion –started construction before the stimulus bill became law.”

Sorry,Markey. Outgoing Chairman of Global Warming Committee Looks for One LastHearing with Oil CEO Before He Moves Offices; Not Gonna Happen According toBP’s Dudley. The Hill (10/25) reports, “New BP CEO Robert Dudley has declined totestify — again — before a 
key Houseenergy subcommittee, citing other commitments. “As I am sure you can imagine, I have an enormous amount ofwork to do
 transitioninginto this role and am very focused on ensuring the right decisions are made forthe future of the company and the safety of ourworkforce,”Dudley wrote Rep. Edward Markey(D-Mass.), chairman of the HouseEnergy andCommerce Energy and Environment subpanel, in a Friday letter. “Therefore, Iregret that I must decline your invitation at this time, but I look forward tosharing our progress with you on these important changes once they have been further developed andimplemented.”Markey asked Dudley in an Oct. 1 letter to appear before the subcommittee inNovember or December, offering possible dates in those two months. Dudleyalready had turned down an initial request to testify before Markey’s panelbefore he officially assumed the role as head of BP this month. Markey quicklyslammed Dudley’s second refusal to appear. “The American people deserve answersfrom BP, but when it comes to appearing before Congress, one thing BP certainlydoes not stand for is ‘being present,’ " Markey said. “If BP is trulycommitted to repairing their image and standing with the American people and governmentofficials, Mr. Dudley can start by appearing before Congress.”

More Foreign Investment, In NotSo Friendly Places. Iran Set to Announce $5Billion Deal to Develop Offshore GasField. Reuters (10/25) reports, “Iranwill soon sign a $5 billion contract with a foreign company to develop itsoffshore Farzad-B gas field, the Oil Ministry’s website SHANA said on Monday.The report did not name the company, but India’s state-run Oil and Natural GasCorpration Limited (ONGC.BO: Quote) (ONGC) heads a consortium which hasexclusive exploration rights for the offshore Farsi block of which the Farzad-Bgas field is part. "Currently negotiation for the investment anddevelopment of this oil field in the Persian Gulf is at its final stage,"Mahmoud Zirakchianzadeh, head of the Offshore Oil Co of Iran, was quoted assaying by SHANA. Zirakchianzadeh said an initial agreement on developing thegas field on a buyback basis had already been signed with the foreign companywhich has already secured all the necessary permits. The announcement comesafter many Western energy companies have turned away from Iran due to sanctionsimposed to pressure Tehran over its nuclear programme. Iran has often said ithas no shortage of willing international partners outside Europe and the UnitedStates which have imposed the toughest sanctions.”

We’ve Been Talking About aLame-Duck Energy Deal for Months; Chesser Takes to Pages of the WashTimes, LaysOut in Detail Why Such a Plan Must Fail.Paul Chesser (10/25) writes for the Washington Times, “The word on the Web-o-sphere is that alame-duck Congress could enact a wind- and solar-subsidizing renewableelectricity mandate between November and January. That’s in addition to thebillions of dollars in taxpayer "stimulus" that were dedicated to thecreation of an alternative energy economy, which the Obama administrationtouted as a creator of "green" jobs. But like every otherbig-spending initiative in which Washington tries to centrally plan theeconomy, a renewables mandate will fail, just like the stimulus. The experiencein Pennsylvania is instructive. When President Obama took office in January2009, the state’s unemployment rate was 7 percent – up 2.3 percentage pointsfrom a year earlier. Today it stands at more than 9 percent. So similar to whatPresident Obama has prescribed with the stimulus, the failure hasn’t been thepolicy; it’s been that the government hasn’t intervened enough! And fitting anenvironmentalist economist’s logic perfectly, PennFuture cites New Jersey (a22.5 percent renewable energy mandate by 2021; 9.6 percent unemployment) andCalifornia (a 33 percent renewable energy mandate by 2020; 12.4 percentunemployment) as examples to be followed. What other pains do alternativeenergy mandates inflict? According to Pennsylvania’s Public UtilitiesCommission, the annual cost of ownership for solar energy per kilowatt-hour isover 700 percent more than the cost of coal, and wind energy is almost 23percent more expensive than coal. Meanwhile, state government provides morethan $20 million annually for grants to alternative energy projects, and in2008, Gov. Edward G. Rendell, a Democrat, signed into law another mandate foran additional $650 million to be given to "green" schemes.”