Energy in focus: China-US talk energy cooperation, while US House of Rep pushes national renewable energy plan and Bush moves to end offshore oil ban

Two developments in the energy sector warrant attention, and two which are unfolding in parallel with one another.

I apologize for a slowdown in updates as of recent, took a bit of a mental break yesterday and was dragged into the Eurocup 2008 when I should have been working.

First, headlines from most major media have reported Chinese and US leaders are meeting in Annapolis, Maryland to discuss energy cooperation. A positive move in the right direction, as described by the attendees, it is about the time to two largest net importers of energy discuss ways to better manage energy supplies and cooperation around the world for the general good of the global economy.

Visiting Chinese Vice Premier Wang Qishan (front L) shakes hands with U.S. Treasury Secretary Henry Paulson (front R) at the opening ceremony of the 4th round of China-U.S. Strategic Economic Dialogue in Annapolis, Maryland, the United States of America, June 17, 2008. China and the United States on Tuesday started here their 4th round of Strategic Economic Dialogue. (Xinhua/Yao Dawei) <-- click here for full story from Xinhua Media.



There is also talk in the House of Representatives for renewing a bill which promotes the development of more sources of renewable energy. As reported by C-SPAN

"Despite federal initiatives going back to the 1970's, renewable electricity makes up less than 3% of the generation mix in the U.S. Sen. Jeff Bingaman (D-NM) chairs a Senate Energy & Natural Resources Committee hearing to discuss the challenges and regional solutions to developing transmission for renewable-electricity resources."

Third, this morning good old President G. Bush made headlines saying he wants to lift the currently in place bans on offshore oil drilling. (See Reuters Article here)

In Washington, the White House press secretary, Dana Perino, said Mr. Bush would urge Congress to “pass legislation lifting the Congressional ban on safe, environmentally friendly offshore oil drilling,” adding, “The president believes Congress shouldn’t waste any more time.”

For a full report check out the article published by today's New York Times. You can view the complete article written by reporter Sheryl Stoleberg by clicking on this link.

My reaction from all these developments, is simply that every side is reacting irrationally to the fact we're paying 4+ / gallon at the pumps. Action does need to be taken, but as many steps forward in one direction, usually following the policy / plan of one side of the political spectrum (either Republican or Democrat), the other side has a tendency to denounce the other sides plans almost immediately. I am far from an expert on the US energy sector, so whether the democrats of republicans have a better plan to help the US with its energy demands, I truly do not know. However, it will definitely be better than Bush's promises that gas prices would go down after the war in Iraq... hehe

As soon as Bush made this proposal, of course Nancy Polosi immediately responded in kind, telling reporters "The president’s proposal sounds like another page from the administration’s energy policy that was literally written by the oil industry: give away more public resources to the very same oil companies that are sitting on 68 million acres of federal lands they’ve already leased.”

Wealthy donors + Rice + Interactive Vocab Game -- beginning the day with a new tool to help the global poor cope with rising fuel costs

I decided to mix a bit of humanitarianism spirit and food aid along with the afternoon analysis today which today, concentrates on rising food prices.

Basic staples of nourishment (food), ranging from wheat, rice, corn, soy to chicken and beef are on the rise around the world. Commodity prices are in a bull market, few can argue that. Combining the factors of rising demand for everything from food, energy and base metals in emerging markets AND sky rocketing energy prices resulting from a variety of factors such as overall economic uncertainty, instability in the Middle East, and supply disruptions in the North Sea or Nigeria, have simply established an environment in which natural resources have proportionately speaking, become scarcer than ever before while demand and necessity for them remains strong.

Many will feel the affects of rising prices and inflation, in particular, the poor of the world. The global poor in large rely on basic staples like rice for a large portion of their diets. In terms of energy, most developing countries, unless they have substantial price controls in place, already pay higher prices per barrel of petrol than Americans in the US. A rise in the cost of gas for a taxi driver in Lima, Peru or in Cape Town, South Africa of 10-15% will be much far more painful for a Peruvian or South African than it is for American's filling their tanks this summer.

In an effort to help the poor of the developing world Poverty.com, has launched a sister website www.freerice.com where people can play a very addicting vocabulary game, where you simply choose the definition of a word displayed on the screen, if you choose correctly, the financial backers and advertisers of the site will donate rice to poor countries in exchange for your time. Defined on freerice.com as follows

FreeRice has two goals:

1. Provide English vocabulary to everyone for free.
2. Help end world hunger by providing rice to hungry people for free.

This is made possible by the sponsors who advertise on this site.

Whether you are CEO of a large corporation or a street child in a poor country, improving your vocabulary can improve your life. It is a great investment in yourself.

Perhaps even greater is the investment your donated rice makes in hungry human beings, enabling them to function and be productive. Somewhere in the world, a person is eating rice that you helped provide. Thank you.

The site in my opinion exploits the short attention span of the millions of people who spend way too many hours in front of a computer screen and are constantly searching for ways to distract themselves (myself included hehe).

Food prices have been on the rise in practically every corner of the world. Whether you’re a mother/father shopping for a family of 6 in the United States, and more importantly if you’re a mother/father providing for a family of 6 in the “global south,” which includes most the developing countries of the world.

Jimmy Rogers Commodity Index (RICI), was created in the 90’s to track the growth of commodity prices by Jim Rogers and has since become one of most well respected benchmarks / index for observing and tracking commodity price movements. It’s also a great index for investors who have used it as a means to identify investments in the commodity market. Growing (YTD) in 2008 by 25.86% while the S&P 500 Composite index is down -8.75% this year, the Nasdaq down -9.35%, the Dow Jones Comp down -8.47% (data gathered and accessed on June 13, 2008 from http://www.rogersrawmaterials.com/).

The Rogers Raw Materials Page describes the composition of the index in greater detail. Below is copy a excerpt of how the index is compiled, provided to give readers a general idea

“Rogers International Commodity Index® (RICI)® is based on monthly closing prices of a fixed-weight portfolio of the nearby futures and forwards contract month of international commodity markets. The selection and weighting of the portfolio is reviewed annually and weights assigned in the December preceding the start of a new year.”

This index is a great measure of rising costs. By rising costs, I mean the rising price of practically all goods in the global economy. The global economy is now beginning to show signs; or rather finally express signs that inflation is a potential threat to global growth and needs to be handled with care to ensure continued growth. Sadly, central bankers and countries around the world do not work together all too well yet, multi-lateral organizations lack the influence to organize a global effort—so countries around the world are raising interest rates in order to re-enforce their currencies strength, institutional investors are buying energy and gold to hedge their investments against the possibility of inflation, and even the US, EU, and UK have expressed signs there will be little possibility of further rate cuts, leaning instead towards increasing interest rates.

Although in economic theory this should do the trick, the problem is more complicated than many are capable of realizing. Yes… easy money for years has contributed to inflation, but more than anything it’s the fact capacity for production is no longer what it was when you consider the growth of countries such as China and India.

Food related commodities included on the Rogers index and their respective weights: Wheat (7%), corn (4.75%), Live Cattle (2%), Coffee (2%), Rice (0.5%), soybean oil (2%), lean hogs (1%), Sugar (2%), azuki beans (0.25%), Canola (0.67%) Orange Juice (0.66%), soybean meal (0.75%), and barley (0.27%). Personally I feel the only under-represented staple would be rice which deserves far more weight within the index considering how many billions of people in the world eat it on a daily basis. Together food related commodities comprise 21.72% of the index. Energy, metals and wood related commodities comprise the rest.

The world is in a correction phase in which consumers, producers and governments are going to have to adjust and adapt to a new global environment—where wasteful consumption is no longer an option. People must adjust to higher prices as other people in emerging markets demand the same things people in wealthier societies have enjoyed for quite some time.

Reflecting in brief upon my own dissertation on China’s growing interest in South America, observe China’s rising demand for soy and meat, only 2 of the commodities mentioned above and only 1 of the major developing markets in the world. Yes many argue China proportionately holds the most influence as the fastest growing and biggest emerging market, China is by no means the only large growing market.