46 years of proved oil reserves left

In its just released must read Statistical Review of World Energy, BP has many important observations.

From the report:

"World primary energy consumption – which this year includes for the first time a time series for commercial renewable energy – grew by 5.6% in 2010, the largest increase (in percentage terms) since 1973. Consumption in OECD countries grew by 3.5%, the strongest growth rate since 1984, although the level of OECD consumption remains roughly in line with that seen 10 years ago. Non-OECD consumption grew by 7.5% and was 63% above the 2000 level. Consumption growth accelerated in 2010 for all regions, and growth was above average in all regions. Chinese energy consumption grew by 11.2%, and China surpassed the US as the world’s largest energy consumer. Oil remains the world’s leading fuel, at 33.6% of global energy consumption, but oil continued to lose market share for the 11th consecutive year." And in terms of production reserves: "World proved oil reserves in 2010 were sufficient to meet 46.2 years of global production, down slightly from the 2009 R/P ratio because of a large increase in world production; global proved reserves rose slightly last year. An increase in Venezuelan official reserve estimates drove Latin America’s R/P ratio to 93.9 years – the world’s largest, surpassing the Middle East."

There is much more in the full report, but three charts bear a simple conclusion, crude prices likely have a long way to go up unless the global economy promptly commences another 2008 mega deflationary episode (read economic crisis).

Reserves-to-production (R/P) ratios:

And Real crude Prices since the Pennsylvania Oil Boom:


World trade movements of crude:



And the full booklet:
2030 Energy Outlook Booklet

A World of Debt

I have collected few interesting graphs on the debt crisis unfolding.This New York Times graphic did an excellent job of summing everything up:

(Source - click to view larger graphic at source)

If everybody owes everybody else, then kicking the can down the road only works if there's more wealth, more growth, and sufficient economic activity down that road to service the past debts.
It means that unless recovery and substantial growth are going to manifest soon we are going one bailout after the other to plunge the economy in a vicious death spiral.

When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically.

(Source)  

Note: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution.

Of course, debt is only one component of the story; there are also liabilities to consider.  The above chart merely graphs the legally defined debts involved.  If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger:

Greece Industrial Production in free-fall

Given the daily protests on the streets of Athens and its austerity measures it is hardly surprising thatthe entire country is practically grinding to a halt with the Greek Industrial Production dropping by 11%.
Mining fell by 6.4pc, manufacturing decreased by 11.3pc, electricity production dropped 12.2pc, while the water supply declined by 6.8pc. Hard to imagine any recovery in this situation.



As for that bailout, even that is no longer certain, the indebted nation is expected to need more help in coming years, with estimates putting the sum at up to €100bn on top of an EU/IMF package granted last year worth €110bn.
Yesterday, the German business daily Handelsblatt quoted a "high-ranking European diplomatic source" who said that approval of a second rescue plan for Greece might be delayed because of resistance within the 17-nation eurozone.
We can easily expect comparable economic data out of the other PIIGS shortly.

Travel Photo: The Lakes of Killarney

The Lakes of Killarney

Castilla-La Mancha region on the edge of Bankruptcy

Interesting news from Spain, a new arrival in the larger-by-the-week club of broken states and regions. it appears the situation is deteriorating fast in Spain since one of the major regions Castilla-La Mancha is unable to pay employees and debtors starting next month.
The Regional Secretary of the PP Vicente Tirado has described the situation as one of total bankruptcy.
The Junta de Comunidad de Castilla-La Mancha has more than 2000 million euros in unpaid invoices and 7000 million euros of debt, this situation is not only causing the impossibility to pay over 70,000 employees starting from next month but it is also bringing to ruin many small and medium enterprises in the region.
They are trying to scramble an emergency package of measures including privatization of the public television.


Those who can read Spanish may wish to consider reading the following article: El PP asegura que no hay dinero para pagar nóminas en Castilla-La Mancha

G7 facing High Risk of short-term energy shortages

An interesting new research evaluates the state of worldwide energy security.
The G7 economies of France, Germany, Italy, Japan, UK and USA according to the study are at ‘high risk’ in the short-term, whilst China and countries from the oil producing MENA region are highlighted as facing increasing challenges in the future.

The Energy Security (short-term) Index has been developed by Maplecroft to identify the countries most vulnerable to shocks in energy supplies and price fluctuations in the international market on timescale of days to months. It assesses immediate risks to the availability, affordability and continuity of energy supplies in 196 countries by evaluating energy imports, diversity of supplies, import security and energy costs.

Only three countries, Sierra Leone (1), Gambia (2) and Guinea Bissau (3), are categorised as ‘extreme risk’ in the short-term index. However, a further 122 nations are rated ‘high risk,’ including the G7 economies of Italy (13), Japan (73), UK (90), Germany (104), France (107) and the USA (112).

Recent instability in the MENA region and the impact of increased crude oil prices has highlighted the dangers of an economy heavily dependent on imported fuels from a specific region. “Rising fuel prices in response to the political turmoil in the MENA region in early 2011 have shown that energy security is of paramount importance,” states Maplecroft CEO, Alyson Warhurst. “Many countries are greatly reliant on imported oil and gas from these regimes. In order to support economic growth and energy demands, they will need to diversify energy supplies by increasing import partners and expanding domestic production and renewable energy sources.”

World wealth levels

The next chart is rather self-explanatory. The richest nations, with wealth in 2010 above USD 100,000 per adult, are found in North America, Western Europe, and among the rich Asian-Pacific and Middle East countries. They are topped by Switzerland, Norway, Australia, Singapore and France, each of which records wealth per adult above USD 250,000. Average wealth in other major economies such as the USA, Japan, the United Kingdom and Canada also exceeds USD 200,000.

Interesting to see how Mexico, Brasil and Chile are rapidly growing and how India despite his stellar growth is still showing wealth levels comparable to Central Africa.

Fukushima new radioactive alert at reactor 1

The latest news from Japan are clearly confirming that this crisis regardless of the cover up of the media, TEPCO and Japanese government is very far from over.

From  The Japan Times:

Tepco said today (Saturday the 4th) it has detected radiation of up to 4,000 millisieverts per hour at the building housing the No. 1 reactor at the Fukushima No. 1 nuclear plant.
The radiation reading, which was taken when Tokyo Electric Power Co. sent a robot into the No. 1 reactor building on Friday, is believed to be the largest detected in the air at the plant so far.
On Friday, Tepco found that steam was spewing from the reactor floor. Nationally televised news Saturday showed blurry video of steady smoke curling up from an opening in the floor.
Tepco has said radioactive water could start overflowing from temporary storage areas on June 20, or possibly sooner if there is heavy rainfall.
Two of the 370 tanks were due to arrive Saturday from a manufacturer in nearby Tochigi Prefecture, Tepco said. Two hundred of them can store 100 tons, and 170 can store 120 tons.
The tanks will continue arriving through August and will store a total of 40,000 tons of radioactive water, according to Tepco.
Nuclear fuel rods are believed to have melted almost completely and sunk to the bottom of three reactors' containers, although falling short of a complete meltdown, in which case the fuel would have melted entirely through the container bottoms.
Tepco has promised to bring the plant under control by January, but doubts are growing whether this projection is overly optimistic. The plan calls for a reprocessing system for the radioactive water by June 15, with hopes of reusing the water as coolant in the reactors.

The New Great Depression

Recently more and more important voices are ringing the alarm bell of a new recession coming although this time some of them do not hesitate to call it a new Depression.
No doubt that recent quantitative easings and government interventions are having the only purpouse of earning some time to avoid a sharp collapse, practically they are trying to drive us down a rolling hill instead of falling down a cliff. If this earned time would have been spent to seriously reform the economy, ban the derivatives and go back to a productive system would have been a wise decision, instead it has been used to reinflate myriad of bubbles while going on living like there is no tomorrow and not addressing any of the systemic risks that are growing by the day.

The most interesting graph that I have been checking constantly since 2008 and that give a clear picture of what is going on is the following:

Job losses have mounted faster and sharper than ever before while job recovery is non-existent; we are on a plateau and unfortunately in the following months we could slide down even more.
It is no wonder that many are starting to talk openly of Great Depression.
The news that frequent CNBC guest Peter Yastrow of Yastrow Origer (and formerly with DT Trading) told CNBC that "We’re on the verge of a great, great depression. The [Federal Reserve] knows it" went viral.
Although this is hardly any news since in the last 2 years the following experts have said that the economic crisis could be worse than the Great Depression:

• Fed Chairman Ben Bernanke

• Former Fed Chairman Alan Greenspan (and see this and this)

• Former Fed Chairman Paul Volcker

• Economics scholar and former Federal Reserve Governor Frederic Mishkin

• The head of the Bank of England Mervyn King

• Nobel prize winning economist Joseph Stiglitz

• Nobel prize winning economist Paul Krugman

• Former Goldman Sachs chairman John Whitehead

• Economics professors Barry Eichengreen and and Kevin H. O'Rourke (updated here)

• Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb

• Well-known PhD economist Marc Faber

• Morgan Stanley’s UK equity strategist Graham Secker

• Former chief credit officer at Fannie Mae Edward J. Pinto

• Billionaire investor George Soros

• Senior British minister Ed Balls

In the meanwhile a new report from Moody's has just confirmed that as in regards to banks we are already far worse than during the Great Depression:

The most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

States and cities all over United States are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven't been this bad for state and local governments since the 30s and for common people will be even worst when soon normal services including food stamps in US will be terminated due to lack of funds. If everything goes according to tradition we could see a new crisis exploding in September before the US presidential election, last time in 2008 it changed the race to the White House in favour of Obama, this time it could sign his demise.

Moody's downgrade Greece to junk level

It seems Greece is willing to begin criminal proceedings against Moody's after the latest downgrade to junk status.


Moody's downgrades Greece to Caa1 from B1, negative outlook. Moody's Investors Service has downgraded Greece's local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings. The rating action concludes the review for possible downgrade that the rating agency initiated on 9 May 2011.

The main triggers for today's downgrade are as follows:

1. The increased risk that Greece will fail to stabilise its debt position, without a debt restructuring, in light of (1) the ever-increasing scale of the implementation challenges facing the government, (2) the country's highly uncertain growth prospects and (3) a track record of underperformance against budget consolidation targets.

2. The increased likelihood that Greece's supporters (the IMF, ECB and the EU Commission, together known as the "Troika") will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support.

Taken together, these risks imply at least an even chance of default over the rating horizon. Moody's points out that, over five-year investment horizons, around 50% of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt service requirements on a timely basis, while around 50% have defaulted.

Greece's Caa1 rating incorporates Moody's assumption that current negotiations between the Greek government and the Troika will result in further official support for the Greek government and the announcement of additional austerity and structural reform measures.

The expectation of a repeated failure to meet targets carries two implications. First, Greece is unlikely to return to the credit markets in 2012 for funding, and will require additional financial assistance from the Troika in order to avoid a default. The quid pro quo for such assistance will inevitably be further fiscal austerity and economic reform measures that will be necessary to address the shortcomings of the programme to date. Second, Moody's believes that raising the austerity bar still higher will further increase implementation risk for the Greek programme.