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Watch as sparks fly between a Ukrainian military APC, possibly the same one we revealed earlier, as it gets into some blazingly close encounters with the Kiev protesters. It is unclear who won however it is quite clear that at this point the proxy war in Ukraine between
Russia/Gazprom and the European Union/US State Dept/Saudi/Qatar can be upgraded to “hot.”
And the death and injury toll, which is rising by the hour:
- 6 policemen dead
- 6 protestors dead
- Police HQ in Ternopli on fire
- Police HQ in Lviv occupied
- More than 150 injuries
- KLITSCHKO ARRIVES AT YANUKOVYCH’S OFFICE FOR TALKS: REUTERS
In short: things have spiraled out of control, and the only possible outcome is another new all time high in the Spoos overnight.
Posted by Jeff Rubin on January 27th, 2014
Judging by pump prices, Canadian drivers might think oil companies were rolling in profits that only move higher. Lately, though, the big boys in the global oil industry are finding that earning a buck isn’t as easy as it used to be.
Royal Dutch Shell, for instance, just announced that fourth quarter earnings would fall woefully short of expectations. The Anglo-Dutch energy giant warned its quarterly profits will be down 70 percent from a year earlier. Full year earnings, meanwhile, are expected to be a little more than half of what they were the previous year.
The news hasn’t been much cheerier for Shell’s fellow Big Oil stalwarts. Exxon, the world’s largest publicly traded oil company, saw profits fall by more than 50 percent in the second quarter to their lowest level in more than three years. Chevron and Total, likewise, are warning the market to expect lower earnings when fourth quarter results are released.
What makes such poor performance especially disconcerting to investors is that it’s taking place within the context of historically high oil prices. The price of Brent crude has been trading in the triple digit range for three years running, while WTI hasn’t been far off. But even with the aid of high oil prices, the supermajors haven’t offered investors any returns to write home about. Since 2009, the share prices of the world’s top five publicly traded oil and gas companies have posted less than a fifth of the gains of the Dow Jones Industrial Average.
The reason for such stagnant market performance comes down to the cost of both discovering new oil reserves and getting it out of the ground. According to the International Energy Agency’s 2013 World Energy Outlook, global exploration spending has increased by 180 percent since 2000, while global oil supplies have risen by only 14 percent. That’s a pretty low batting average.
Shell’s quest for new reserves has seen it pump billions into money-devouring plays such as its Athabasca Oil Sands Project in northern Alberta and the Kashagan oilfield, a deeply troubled project in Kazakhstan. It’s even tried deep water drilling in the high Arctic. That attempt ended when the stormy waters of the Chukchi Sea crippled its Kulluk drilling platform, forcing the company to pull up stakes.
Investors can’t simply count on ever rising oil prices to justify Shell’s lavish spending on quixotic drilling adventures around the world. Prices are no longer soaring ahead like they were prior to the last recession, when heady global economic growth was pushing energy prices to record highs.
Costs, however, are another matter. As exploration spending spirals higher, investors are seeing more reasons to lighten up on oil stocks. Wherever oil producers go in the world these days, they’re running into costs that are reaching all-time highs. Shell’s costs to find and develop oil fields, for instance, have tripled since 2003. What’s worse, when the company does notch a significant discovery, such as Kashagan, production seems to be delayed, whether due to the tricky nature of the geology, politics, or both.
Shell ramped up capital spending last year by 50 percent to a staggering $44 billion. Oil analysts are basically unanimous now in saying the company needs to rein in spending if it hopes to provide better returns to shareholders.
Big Oil is discovering that blindly chasing production growth through developing ever more costly reserves isn’t contributing to the bottom line. Maybe that’s a message Canada’s oil sands producers need to be listening to as well.
Scrolling through the website of the World Economic Forum – convening this week in Davos, Switzerland – one might confuse the premier platform for global capital with a savvy and hip think tank, or perhaps a philanthropic aid and development charity. The content is carefully curated to sedate and comfort. The right buzzwords are there: “impact investing”, “embracing democracy”, “our oceans”, and “sustainability.” In the Issues section, one finds Environmental Sustainability, Health for All, and Social Development. An article by Nobel laureate economist Joseph Stiglitz (a critic of globalization) is featured front and center, as if to proclaim, ‘challenging the stodgy status quo through edgy, unorthodox economic thinking – that’s what we do here.’
There’s nothing to indicate that this is, in fact, a platform for multinational corporations, among them human rights abusers, political racketeers, property thieves and international environmental criminals. But then, that wouldn’t exactly make for a very inviting homepage.
Here, for example, is the WEF mission statement:
The World Economic Forum encourages businesses, governments and civil society to commit together to improving the state of the world. Our Strategic and Industry Partners are instrumental in helping stakeholders meet key challenges such as building sustained economic growth, mitigating global risks, promoting health for all, improving social welfare and fostering environmental sustainability.
Rather than getting bogged down in a detailed evaluation of WEF’s high-minded claims and eco-populist rhetoric, it may be more efficient to consider the behavior of those corporations and banks that comprise the Forum’s list of Industry Partners – described as “select Member companies of the World Economic Forum that are actively involved in the Forum’s mission.”
Among them are Shell, Nike, Syngenta, Nestlé, and SNC Lavalin – companies you’ll also find on Global Exchange’s list of the Top 10 Corporate Criminals of 2013, based on offenses like unlivable working conditions, corporate seizures of indigenous lands, contaminating the environment, and similar transgressions. At least seven other companies “actively involved in the Forum’s mission” are recentalumni of the Corporate Criminal list.
Or consider Corporate Accountability International’s Corporate Hall of Shame, comprised of “corporations that corrupt the political process and abuse human rights, the environment and our public health.” Seven of the ten – Walmart, ExxonMobil, Bank of America, Coca-Cola, DuPont, Monsanto, and Nestlé (which has the dubious distinction of making both lists) are WEF Industry Partners.
How about climate change? This is now an issue that regularly features ominously in the WEF’s “Global Risks” annual report. Curious, then, that in addition to Shell and ExxonMobil, the Forum’s Industry Partners include most of the largest oil and gas companies in the world, from BP and Chevron to Gazprom and Saudi Aramco.“Carbon Majors” a peer-reviewed study in the scientific journal Climatic Change, lists the 90 entities most responsible for extracting the fossil fuels burned over the past 150 years. The top six are WEF Industry Partners.
Despite the carefully crafted words of concern for the poor and hungry, the WEF’s many food corporations – from Unilever and Pepsico to Cargill and General Mills – have actually parleyed the misery of the food crisis into further control over the food system, as well as spectacular profits. During the 2008 food crisis, the organization GRAIN released a report revealing that “nearly every corporate player in the global food chain is making a killing from the food crisis …. Such record profits … are a reflection of the extreme power that these middlemen have accrued through the globalisation of the food system. Intimately involved with the shaping of the trade rules that govern today’s food system and tightly in control of markets and the ever more complex financial systems through which global trade operates, these companies are in perfect position to turn food scarcity into immense profits.” (1)
Global banks also played a pivotal role in precipitating – and making a killing off – this food crisis. According to an investigative report by Frederick Kaufman, Goldman Sachs instigated a “global speculative frenzy” on food which “sparked riots in more than thirty countries and drove the number of the world’s “food insecure” to more than a billion …. The ranks of the hungry had increased by 250 million in a single year, the most abysmal increase in all of human history.” (2) Needless to say, scroll down to “G” in the Industry Partners list, and Goldman Sachs is there.
The fact is, digging into any of the crises we face will reveal the complicity of the very corporations that the World Economic Forum represents. A study conducted for the UN, for example, estimated the combined environmental externalities of the world’s 3,000 biggest companies to be $2.2 trillion in 2008, “a figure bigger than the national economies of all but seven countries in the world that year.” (3)
These are just a few of innumerable possible examples. The corporations represented by the World Economic Forum are the agents principally responsible for destroying the planet, ravaging livelihoods, and literally starving people, all while aggrandizing unprecedented profits into the hands of an ever-tinier super elite. Seen in this light, all the burnished social and environmental concern-speak of the WEF is so much vacuous corporate swagger, the crudest sort of greenwash. Even though these companies actually spend huge amounts of capital and energy fighting environmental regulation and the citizen’s groups who are suffering their abuses, they simultaneously pursue a strategic embrace of environmental discourse and narratives; they accept the existence of the problems while promoting privatized, technocratic strategies for addressing them. These strategies pivot between those that assign responsibility for causing and fixing the problems to individual consumers, and those that position the corporations themselves as crucial players in the common cause of “improving”/”cleaning” the environment – the same one, incidentally, that they destroyed.
The absurdity of this schizophrenia reaches extreme limits: the WEF is solemnly concerned about global warming because – get ready for it – it represents one of the biggest threats ever to global trade and corporate capitalism! The primary perpetrator of global warming is now portraying itself as a victim. In WEF-land, global warming is like a mysterious, autonomous, alien force invading from afar, without cause or explanation. It “affects us all”, so we must all roll up our sleeves and unite – fossil fuel corporations included – in the battle against a common external foe.
There is, however, one part of the WEF’s mission that is being genuinely fulfilled: “building sustained economic growth”, code for increasing the power and wealth of its corporate partners. That this is the first of the “challenges” described in the WEF mission statement is no accident. Economic growth might seem an odd mismatch to the other issues, like social welfare and environmental sustainability, but the WEF has clearly embraced the notion that endless growth is not only compatible with environmental sustainability, it is actually necessary for it. That this myth has been thoroughly debunked seems to have conveniently escaped the WEF’s notice. (4)
This farce would be laughable but for the immense power and enormous control commanded by the corporations and banks the World Economic Forum represents. When the WEF promises to address agriculture, food security, environmental sustainability, and the like, we should be very worried for exactly those things. Peel away the eco-charity veneer and the WEF’s actual mission stands naked: advance the power, growth, and wealth of the corporate rulers of the world.
In no way should The World Economic Forum be allowed to insert itself as a legitimate voice on the resolution of the very issues that its agenda – the perpetual growth of its partners – precipitates. On the contrary, it should be fiercely resisted – precisely what the alternative World Social Forum, Occupy WEF, and other anti-globalization groups were created to do. (5)
Alex Jensen is Project Coordinator at the International Society for Ecology and Culture (ISEC). Alex has worked in the US and India, where he coordinated ISEC’s Ladakh Project from 2004 to 2009. He has collaborated on the content of ISEC’s Roots of Change curriculum and the Economics of Happiness discussion guide. He holds an MA in Globalization and International Development from University of East Anglia. He has worked with cultural affirmation and agro-biodiversity projects in campesino communities in a number of countries and is active in environmental health/anti-toxics work.
(1) GRAIN (2008) ‘Making a Killing from Hunger’, 28 April,http://www.grain.org/article/entries/178-making-a-killing-from-hunger, and
(2) Kaufman, F. (2010) ‘The Food Bubble: How Wall Street Starved Millions and Got Away With It’, Harper’s Magazine, July,http://frederickkaufman.typepad.com/files/the-food-bubble-pdf.pdf
(3) Jowit, J. (2010) “World”s top firms cause $2.2tn of environmental damage, report estimates”, The Guardian, 18 February, 2010.
(4) see, e.g.: Jorgenson, A. and Clark, B. (2012) ‘Are the Economy and the Environment Decoupling?: A Comparative International Study, 1960–2005,’ American Journal of Sociology 118(1),1–44; Jorgenson, A. and Clark, B. (2011) ‘Societies Consuming Nature: A Panel Study of the Ecological Footprints of Nations, 1960-2003’, Social Science Research 40:226-244; Stern, D. (2004) ‘The Rise and Fall of the Environmental Kuznets Curve’, World Development, 32(8):1419–1439; Hornborg, A. (2003) ‘Cornucopia or Zero-Sum Game? The Epistemology of Sustainability’, Journal of World-Systems Research IX(2): 205-216.
Amazingly, tens of thousands of Ukrainians are still braving the winter cold to protest what they consider to be the sale of their country’s future to Russia.
A big part of the deal in dispute was what Russian President Vladimir Putin described as a “fraternal” 33 percent discount on the price that Ukraine pays for natural gas imports. So why aren’t Ukrainians more grateful to their bigger brother? Maybe they have done the math — which shows it really isn’t such a bargain after all.
There are two major elements to the agreement: a $15 billion loan pledge and a reduction in the price of natural gas imports from about $400 per 1,000 cubic meters (tcm) to $268.50. The average price that Gazprom charges to European Union countries for long-term contracts is $370 to $380. So it sounds as though Ukraine will now get a big discount — plus a generous bailout. Not quite.
The gas has to cross Ukraine to get to EU markets, and the $370-$380 that Gazprom charges countries such as Germany includes the cost of that transit. Ukraine charges about $3 per 1000 cubic meters per 100 kilometers. The distance from the Ukrainian border with Russia to the big European hub at Baumgarten, Austria, is about 1800 kilometers. So subtract about $50 from the European gas price to get closer to a true equivalent. Then consider that the EU now has a hub, or spot market price for gas that’s often lower than Gazprom’s. “What I find interesting is that $268.50 isn’t so far off the European hub price, once you deduct transit costs,” says Simon Pirani, a senior research fellow at the Oxford Institute for Energy Studies, who specializes on the gas trade in the ex-Soviet Union.
When Ukraine struck its gas contract price with Russia in 2009, it was under threat of another cutoff of its gas supply, as had occurred in 2009, 2008 and 2006. The thinking behind the new price was that Ukraine should start paying the European price for gas, in exchange for independence. Think of Ukraine as a natural gas junkie, addicted to cheap Russian fuel. Before 2006, this relatively poor country — which has a population of 46 million and an economy 19 times smaller than Germany’s — had been consuming almost 80 billion cubic meters of gas annually. Germany was consuming just under 100 bcm. Ukraine had been paying just $50 per 100 cubic meters for Russian gas imports. So something had to change.
The formula reached in 2009 was index-linked to the price of oil. Three things then happened: The price of oil rose; the EU started to link up its natural gas grids to create a spot market at the gas hubs, independent of Gazprom’s long-term contracts; and demand for gas within the EU fell. Indeed, without a renegotiation in 2010 (Russia got extended naval basing rights in exchange), Ukraine would now be paying $500 per 100 cubic meters of gas.
The reduced price Ukraine pays to Gazprom is still so out of kilter that it is about $30 cheaper to buy gas the EU has imported and transport it back across the border. This re-importing had started to happen on a very small scale from Poland and Hungary. And on Dec. 9, Slovakia’s gas transit company Eustream agreed on terms to reverse the flow in one of its big transit pipes.
With the necessary Slovak capacity, Ukraine might have been able to fulfill the deal it has to buy 10 bcm of gas annually from Germany’s RWE AG. That would represent about a third of Ukraine’s current imports from Russia, which had already fallen substantially because of Ukraine’s declining gas consumption, due to a collapsing economy, coal substitution and efficiency improvements, according to Pirani.
Faced by competition from EU re-suppliers, Gazprom would in any case have had to choose: risk losing as much as another one third of its gas sales to Ukraine and associated political leverage, or else reduce its price by a third to make EU re-imports uncompetitive.
In sum, it’s clear that the $268.50 discount offered to Yanukovych wasn’t as generous as it sounds. Putin in essence agreed to stop extorting money from Ukraine and charge the market price.
So how about the $15 billion loan? Russia bought the first $3 billion of Ukrainian eurobonds as promised just before Christmas, at a coupon rate of 5 percent. Ukraine had an alternative source for a $15 billion bailout loan, from the International Monetary Fund. The interest rate payable to the IMF probably would have been cheaper by 2 percentage points or more.
The difference between the two loans is, again, best looked at in terms of an addict and supplier. The IMF was offering rehab, a painful treatment that would have involved: devaluing the currency; reducing energy subsidies worth about 7.5 percent of gross domestic product; making other budget cuts in areas such as pensions, which account for as much as 18 percent of GDP; and structural reforms.
Russia’s loan was free of known strings, except those that bind a hopeless debtor to his creditor. What the Russian money does better is fund Yanukovych’s 2015 election campaign. Prime Minister Mykola Azarov immediately started announcing how the money will be spent, including increases to the minimum wage, child benefits and public sector pay raises — everything the IMF would oppose.
The IMF loan terms would have been better for Ukraine. The Putin deal is better for Yanukovych. No wonder some Ukrainians plan to take to the streets again to call for his resignation on New Year’s Day, even if their cause appears to be lost.