UNITED KINGDOM: Eni to Buy Burren Energy

Eni SpA, Italy's biggest oil company, agreed to buy Burren Energy Plc for 1.74 billion pounds ($3.6 billion) in cash to add production in Congo and Turkmenistan.

Eni offered 1,230 pence for each Burren share, after a previous bid was turned down, the Rome-based company said today in a statement distributed by the Regulatory News Service. Burren surged as high as 1,246 pence in London, suggesting investors expect a higher bid may emerge.

``It's a good bid, but it may not be the end of the story yet,'' Phil Corbett, a London-based analyst at ABN Amro Holding NV, said by phone. ``Bids in the range of 12.50 pounds to 13 pounds could be justified.'' Corbett said he has a ``buy'' recommendation on Burren stock.

Oil companies are stepping up the search for assets as resources in the North Sea and Alaska age and countries such as Venezuela demand a greater share of output. Buying Burren will expand Eni's stake in the M'Boundi field in the Republic of Congo and give it access to deposits in Turkmenistan.

 Eni offered 1,230 pence for each Burren share, after a previous bid was turned down, the Rome-based company said today in a statement distributed by the Regulatory News Service. Burren surged as high as 1,246 pence in London, suggesting investors expect a higher bid may emerge. The offer represents a 51 percent premium to Burren's average closing share price in the three months through Oct. 8, Eni said in the statement. The offer was accepted by all of Burren's directors and some management, Eni said.

Burren shares surged as much as 9.1 percent. They traded 100 pence higher at 1,242 pence as of 1:21 p.m. local time, valuing the London-based company at 1.75 billion pounds.

Burren Reserves
Burren produces 35,000 barrels of oil a day from fields in the Republic of Congo and Turkmenistan and had 217 million barrels of reserves at the end of 2006, according to its Web site. The company is also exploring for crude and natural gas in Egypt and Yemen.

``With high oil prices, Eni did well to buy the company for its reserves,'' said Gianluca Ferrari, who manages $370 million in assets at Banca Valsabbina in Brescia, Italy. ``It's always best to diversify and expand.''

Burren rejected Eni's initial 1,050 pence offer last month, saying it had received more than one approach.

Eni is seeking acquisitions to meet its target of boosting production by an average of 4 percent a year. Output this year will be in line with 2006's daily average of 1.77 million barrels, Eni said last month.

`Increasingly Attractive'
``The transaction will increase our production in Congo,'' Eni Chief Executive Officer Paolo Scaroni said in the statement. The Central Asian state of Turkmenistan offers an ``increasingly attractive growth potential,'' he said

This year, Eni has agreed to pay about $10 billion for oil and gas deposits in the Gulf of Mexico, Africa and Russia to make up for lost production in Nigeria and delays at the Kashagan field in Kazakhstan. Eni and partners are now in negotiations with the Kazakh government over delays at that field.

In February, Eni bought most of Establissements Maurel & Prom SA's assets in the Republic of Congo for $1.4 billion, to raise production in the African country to 100,000 barrels a day in 2010 from 67,000 barrels a day last year. Burren is a partner with Maurel & Prom in some production deposits in Africa.

Via: Bloomberg| by Anthony DiPaola

UNITED STATES: Oil price soars $4 a barrel after pipeline explosion

Oil prices soared by $4 a barrel yesterday, forcing a promise from the US government to dip into its emergency reserves after a dramatic explosion in Minnesota killed two repair workers and forced the closure of a vital pipeline from Canada that carries a fifth of American crude imports.

The price of West Texas Intermediate blend for January delivery hit $95.17 a barrel, reversing two previous days of heavy falls, and will heap more pressure on OPEC ministers meeting in Abu Dhabi next week to increase the cartel's production.

The fatal accident on the pipeline, operated by the energy transportation group Enbridge, disabled a link that carries crude oil from Saskatchewan to the Chicago area. Four separate conduits on the pipe were completely shut down for a while but two were reopened later.

The US energy department sought to reassure the oil markets by saying it had 63.5m barrels of reserves in the midwest. "Oil from the strategic petroleum reserve is available to alleviate a severe supply disruption and remains available," it said.

The repair to half of the pipeline network and the statements from the energy department soothed the market and the price of oil later fell back to $92.64. The two lines already back in operation carry 1m barrels of oil a day and analysts believe the third line, with a capacity of 450,000 barrels a day, will be back up shortly.

Lawrence Poole, an analyst with Global Insight in London, said in a research note: "Initial comments from Enbridge seem to suggest that the pipeline will not be off-line for more than a few days, and so the implications for oil supply in the US midwest should be limited."

Meanwhile, the International Energy Agency said in a report on global oil supply that although risks were rising due to growing demand, insufficient investment and a concentration of reserves, member countries should be able to cope with overall stocks of 4.1bn barrels.

Via: The Guardian| by Terry Macalister
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ALASKA: BP subsidiary pleads guilty in Alaska oil spill

The Alaska subsidiary of oil company BP pleaded guilty today to a federal environmental crime for failing to prevent a crude spill across a swath of delicate tundra in America's largest oil field.

The guilty plea by BP Exploration Alaska. is part of a settlement with the government over a 200,000-gallon pipeline spill at the Prudhoe Bay field in March 2006. It was the largest spill ever in the vast, oil-rich region of Arctic Alaska known as the North Slope.

Under the agreement, BP pleaded guilty to one violation of the Clean Water Act, a misdemeanor, and will pay $20 million in fines for allowing the pipeline to corrode. The company will also be under probation for a maximum of three years.

"We believe the sentence contained in the plea agreement is both fair and just," said James Wilk, BPXA's vice president and chief of staff, at the arraignment in U.S. District Court in Anchorage. "We have taken many actions to learn from these events and make changes to mitigate the risks of similar events in the future."

The settlement was one of three struck last month between the London-based oil and gas company and investigators in the resolution of several probes in the U.S.

BP has agreed to pay another $353 million in fines and restitution over the manipulation of energy markets in the Midwest and a refinery explosion that killed 15 people in Texas City.

The problems in Alaska came to light after the March 2006 spill prompted the FBI and the Environmental Protection Agency to open an investigation into maintenance practices at the 30-year-old field, Alaska Attorney General Nelson Cohen told the court.

They found that thick, black sludge caked along the bottom of the leaky pipe was protecting colonies of bacteria that produce a corrosive acid. The acid had eaten an almond-sized hole in the steel over the course of several years.

The presence of sludge helped the government prove that BP had neglected to run cleaning and inspection devices called "pigs" through the pipeline, creating a "wonderful environment for microbes to develop in the bottom of the pipe," Cohen said.

The spill went undetected for several days, despite repeated warnings from a leak detection alarm. The crude eventually spread across a large patch of tundra and onto one of the thousands of frozen lakes and ponds characteristic of northern Alaska

A second pipeline started leaking in August 2006 for the same reason, prompting BP to halve production at Prudhoe Bay to 200,000 gallons a day for several weeks. The company is not being charged for the resulting 1,000-gallon spill because of its willingness to cooperate with the investigation, Cohen said.

For years, the company denied allegations that a culture of cost-cutting was hurting the quality of maintenance on the network of steel pipes at Prudhoe Bay.

But millions of company documents and interviews with scores of North Slope employees told a different story, prosecutors said.

They discovered a "failure to allocate sufficient resources to ensure safe and environmentally protective operation of the pipelines that leaked," according to court documents.

Prosecutors estimate BP saved $9.6 million by choosing not to regularly clean and inspect the two pipelines over the course of eight years, Cohen said. The estimated savings represented less than half of 1 percent of BP's adjusted net profit of $22 billion in 2006.

Judge Ralph Beistline called the crime "serious" and exhorted the company to pay more attention to environmental protection and less to the bottom line.

"I think we need to put a particular emphasis on the need to give high priority to maintenance and maybe a little less priority to profits," Beistline said. "In this particular case, the need to protect the environment should be our ultimate priority."

The company has spent $260 million to replace the two damaged pipelines and add new leak detection systems. The pipelines carry crude oil from production centers into the 800-mile trans-Alaska oil pipeline, said spokesman Steve Rinehart.

BP had already been convicted for an environmental felony in 2000 after failing to report a subcontractor, Doyon Drilling, for dumping hazardous waste on the North Slope over a three-year period, according to court documents.

The company is still negotiating with the federal government and state of Alaska in an unknown number of civil cases, according to BP spokesman Ronnie Chappell. He would not comment further.

BP will pay $12 million in federal fines. The remaining $8 million will be split evenly between the state of Alaska and the National Fish and Wildlife Foundation for Arctic environmental research.

"BPXA and all of its employees who are responsible for the company's operations in Alaska regret having failed to recognize the risks of corrosion," Wilk said.

BP manages the Prudhoe Bay field on behalf of its Texas-based production partners, Exxon Mobil Corp. and ConocoPhillips.

Share prices for BP dropped 17 cents on Thursday to $72.32.

Via: The Chron | by Jeannette J. Lee
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RUSSIA: Lessons of disaster in the Kerch Strait

On November 11 of this year, a fierce storm sank five vessels in the Kerch Strait, leaking about two thousand tons of fuel oil into the water. This disaster has raised many questions.

The first victim - the Volgoneft-139 river tanker - belonged to the Volgotanker shipping company. Who sent this Soviet-built river tanker filled with fuel to the open sea during a heavy storm, which it obviously could not withstand? Who is to blame for the wreck - the traffic controllers, the owner of the ship or the charter party? How accidental was this disaster, which has had such a negative effect on the recreational image of the northern Black Sea coast? The investigators are studying the tragedy but some conclusions suggest themselves.

Every year, up to 50 million tons of oil is spilled into the world oceans because of accidents. Being the world's second largest oil producer, Russia is seeking its niche in the international oil shipment market. We are mostly exporting our oil products via Black Sea ports. Every year, tankers carry about 60 million tons of oil from Novorossiysk; about 30 million tons from Tuapse; and three million tons from the port of Kavkas (close to the site of the disaster). All in all, tankers with more than 138 million tons of oil and oil products pass through the Black Sea ports of Russia and Georgia.

The Black Sea became the main route for the Russian oil exports in 2003, when the Caspian pipeline consortium commissioned its oil pipeline with a capacity of 68 million tons per year and a terminal in Yuzhnaya Ozereyevka between Novorossiysk and Anapa. The threat of environmental disaster in this region has been hanging in the air.

The Portnews agency reports that 23% of Russian oil, 74% of Kazakh oil and 65% of Azerbaijani oil is exported via the Black Sea. Soaring oil prices will be pushing these exports up.

However, there are factors curbing growing oil exports in the region. Oil tankers are delayed for a long time (up to 20 days) in the Bosporus and Dardanelles straits because of Turkey's tougher environmental regulations. Turkey has long questioned the validity of the 1936 Montreux Convention, which provides unrestricted and duty-free passage for commercial traffic through both straits at all times except for countries at war with it.

There is one more serious reason for concern about oil exports through the Black Sea. Anna Panovka, an expert of the Petromarket study group, believes that the situation with oil transshipment in Russian ports is very tense - they are all working at the limit of their capacities (as distinct from semi-idle Georgian ports Supsa and Batumi and Ukrainian Odessa).

River tankers carry oil via the Volga-Don channel and it is then transshipped to sea-going vessels in the port of Kavkaz, which is of major trade and strategic importance. The disaster was not accidental - the port had no right to accept river tankers for oil transshipment but this did not stop oil exporters that had chartered the river vessels.

There is no guarantee that accidents will not cause more oil spills in the Black Sea. Oil exports will continue going up. On May 12, 2005 Minister of Transport Igor Levitin endorsed the national transportation strategy, which provides for further development of oil export capacities on the Black Sea coast to increase oil transshipment in the port of Novorossiysk and the construction of a new port in Cape Zhelezny Rog by 2010.

The document provides for the construction of the Baltmax and Bosphormax large-tonnage tankers to increase oil shipments via Black Sea and Baltic straits. The Black Sea is likely to change from a vacation spot into an oil transshipment site.

After the disaster with the oil tanker Prestige in 2002, the European Commission banned the use of obsolete single-hull tankers off European shores. The black list includes about 300 tankers, which, according to Lloyd Register, were built in Japan (including the tanker Prestige). Many tankers of this class carry Russian oil because oligarchs prefer to charter the cheapest vessels, which are traveling the waters under the convenient Liberian flag. There is every reason to expect that the majority of these obsolete and most dangerous tankers, which amount to 60% of the world's tanker fleet will come to Russian waters (if they are not there yet). Under the circumstances, Russia is not likely to acquire a modern, safe and competitive fleet.

Russia's ambitious plans to increase its oil exports several times over - from the current 350 million tons to 550 million tons - are bound to cause environmental concern. Oil film already covers 13% of the world oceans. One drop of oil on the water surface creates a spot with an area of 0.25 square meters; the relevant figure for one ton of spilled oil is about five square kilometers.

It is very difficult to clean spilled oil from the sea surface. Researchers have not yet found a radical cleaning method. In the meantime, the oil film prevents sun rays from penetrating into the sea and slows down oxygen formation in it. This prevents the reproduction of phytoplankton that absorbs greenhouse gas emissions. Because of this, oil spills in the world's oceans are becoming a major factor in global climate change.

Via: Russian News and Information Agency
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Infrastructure 2008: Security for Critical Energy

3rd Global Summit
31st January - 1st February 2008 · The Café Royal, London, UK

Protect your assets, infrastructure and personnel through enhanced prediction, effective prevention and efficient response strategies.

With the current reduced flexibility of the oil market, the only way to restore market equilibrium in a case of supply interruption, would be a sharp rise of the oil price.

The Security for Critical Energy Infrastructure Global Summit is the only event that gives a comprehensive overview of the strategies you need to protect your assets and a forum at which regional experts gather to assess new threats and means of cooperation to mitigate these.

Don’t miss this exceptional opportunity!

This event will provide you with the unique opportunity to raise your burning questions regarding your security strategy. If you have any questions to the panel please write in to me now at: stella.ilel@iqpc.co.uk.

MIDDLE EAST: Europeans Love Iran

“Iran LNG Company” Managing Director Ali Kheir-Andish yesterday said four European companies had voiced their readiness to participate in Iran’s LNG project and to purchase the commodity.

European states would need 100 million cubic meters of gas per day by 2010, said Kheir-Andish, adding four international companies from Germany, Spain, and Austria had expressed their preparedness to help implement LNG project and to buy liquefied natural gas from Iran.

“They are eager to make investments in gas producing projects in an attempt to meet their energy need,” said the official.

According to the plan, the LNG output would double every 3.5 years, said the managing director, adding the country would produce some 22 million tons of natural liquefied gas in 2015, 44 million tons in 2018, and about 88 million tons in 2022.

Kheir-Andish predicted that the first LNG package would be injected into market in 2010.

He said negotiations on the finding a financier for the “Iran LNG” project would continue until Dec. of the current year, adding some Asian and European groups had expressed their willingness to finance the project.

Iran has already signed a $585-million contract with an engineering consortium comprising of two Iranian companies and an Italian company to build a treatment or gas sweetening plant for the Iran LNG project.

APS Engineering, a small, private Italian engineering company that has worked for a variety of clients including Eni, the Italian oil and gas multinational, told the Financial Times it was the Italian company in the consortium.

This contract was awarded just days after the design plans for the plant were submitted to Iranian officials by another consortium, made up of a German company, Linde, Hyundai of South Korea, and Snamprogetti, an Eni subsidiary. The design contract was initially agreed as far back as 2002.

Royal Dutch Shell, French giant Total, and Spain’s Repsol have stakes in Iran’s other two main LNG projects, as well.

Oil Minister Gholamhossein Nozari said U.S. sanctions against Iran would have no impact on the country’s crude oil and natural gas production plans.

He added the signing of e-LNG contract conveyed the important message that the country was determined to carry out projects by domestic contractors.

Addressing French President Nicolas Sarkozy, the official warned if the contract of Pars LNG project were not finalized with France’s Total, Iran would implement the project.

He said the Pars LNG contract had not been yet finalized as Iran had not accepted Total’s final investment decision (FID), adding the French company had not voiced its unwillingness to make investment in the project.

“Total, in its proposed FID, has announced that it will invest some 11.2 billion dollars in Phase 11 of South Pars gas field and Iran has dismissed the amount as unacceptable,” said the top official.

He ruled out the news that Total had reached an impasse in Iran’s Pars LNG project.

“Total is keen to implement the project,” said the minister, adding Iran had proposed the French giant to divide the project into smaller packages in a bid to slash costs.

Pointing to huge oil and gas reserves of Iran, the ranking official said the world was in dire need of energy and no company could ignore Iran.

Manager of Total Christophe de Margerie said the giant energy group would press on with talks on Pars LNG, Iran’s first liquefied natural gas export terminal, a project which requires a $15 billion investment, adding Total would look at the political situation only once a deal is ready.

Paulo Scaroni, Eni’s chief executive, told the Financial Times that Eni had ‘no intention’ of pulling out of Iran.

Other companies are, however, taking a bolder stance when it comes to Iran LNG. Union Fenosa, the Spanish energy company, says its subsidiary, Socoin, was awarded a 32.5-million-euro engineering contract for Iran LNG in August.

OMV, the Austrian oil and gas company, in April signed a preliminary agreement with Tehran for a stake in Iran LNG, but this is yet to be finalized.

“Our interest in the Iran LNG project lies on the table,” it said.

E.ON, the world’s largest utility, seeks to buy liquefied natural gas from Nigeria, an E.ON manager told Westdeutsche Allgemeine Zeitung in a story published last Friday.

Dietrich Gerstein, head of E.ON’s LNG purchasing unit, said E.ON was interested in natural gas from Iran.

LNG policies

Kheir-Andish said the LNG output in the years to come would depend on Petroleum Ministry’s policies.

Packages 2 and 3 of “Iran LNG” project were signed last Feb., recalled the official, adding a contractor was to be hired for the first package, but the attempt failed and Package 1 was divided into four smaller packages.

He expressed hope that LNG export would be a suitable replacement for oil export through the implementation of “Iran LNG” project.

Kheir-Andish said Package 1 comprised four sections and Iran Power Plant Projects Management Co. (MAPNA) took the responsibility of power plant and electro compressor sections after several sessions and negotiations.

He added e-LNG section constituted 30 percent of “Iran LNG” project and “Iran LNG” project made a 50 percent progress after the signing of contract with MAPNA and the related operations’ progress would soar to some 70 percent when the contract on gas sweetening was inked.

He expressed hope that “Iran LNG” project, due to support from Petroleum Ministry, contractors, and advisors, would become operational by the end of 2010 and the first LNG carrier would ship the first liquefied natural gas cargo at that time.

Given the recent contracts signed for the “Iran LNG” project, the country would export 12 billion dollars worth of LNG per annum and the figure would reduce to 5 or 6 billion dollars in case next contracts were not desirable.

Kheir-Andish said “Iran LNG” project needed a four billion dollar fund and its turnover would amount to six billion dollars.

According to him, e-LNG project was comprised of a combined cycle power plant with a 840 megawatt capacity, subsidiary installations, and six 70MW electro compressors.

LNG carriers

National Iranian Tanker Co. (NITC) managing director said the country would produce over 80 million tons of liquefied natural gas per annum in the upcoming years and 40 LNG carriers would be required to transport some of the product.

Mohammad Suri told PIN that Iran would sign a trilateral contract on the building of LNG vessels and exports.

“Concurrent with the signing of the contract on gas production, LNG plant, and export docks, the contract on the building of LNG carriers should be inked and the issue demands the finalization of LNG contracts,” said the NITC head.

According to Suri, the first cargo of Iran’s LNG would be shipped in 2011 and a 150 thousand cubic meter LNG carrier is needed to transport one million tons of liquefied natural gas.

Given the plan on production of more than 80 million tons of LNG annually, we have to build at least 40 vessels to carry 50 percent of the product,” reiterated the official.

He added South Korea, Japan, and China were the builders of 90 percent of LNG carriers in the world and Spain and France constructed a limited number of the vessels.

Via: Islamic Republic News Agency
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The International Energy Agency's World Energy Outlook 2007 paints an alarming picture of the future of global warming and energy security, reporting that the world's energy needs will increase by over 50% by 2030.

Energy demand, imports, coal use and greenhouse gas emissions have all increased since last year's accounting.

Fossil fuels will continue to dominate the fuel mix, accounting for 84% of the projected overall demand increase from 2005 to 2030. The agency expects the following developments in the global market:

--Energy-related carbon dioxide emissions will rise.
--Oil demand will reach 116 million barrels per day by 2030, up 32 million from 2006.
--Coal will see the largest usage increase in absolute terms, rising 73% in the 25-year period, with its share of total energy demand growing from 25% to 28%.
--Electricity use will double, with its share of final energy consumption rising from 17% to 22%.

To accommodate this expansion, about $22 trillion in investment is needed to expand the necessary supply infrastructure.

Developing economies by 2030 will account for over half the global energy market. Of the increase in global primary energy demand, 74% will come from developing countries. India and China will account for 45%, the countries of the Organization for Economic Cooperation and Development, 20%, and transition economies, 6%.

To meet growing energy needs, consuming countries will import more. This will increase their reliance on Russia and the Middle East, and heighten energy security concerns:

  • OPEC's share of world oil supply is expected to reach 52% by 2030, up from 42% today.
  • Non-OPEC production, including non-conventional sources, is expected to level off at 47 million barrels per day around 2015.
  • This assumes the crude oil import price declines to 60 dollars per barrel (in 2006 dollars), then rises slowly to 62 dollars (108 dollar nominal price) by 2030.

The resurgence of coal use is a "marked departure" from past World Energy Outlooks:

  • The coal outlook depends on government policy, clean coal technology and relative fuel prices.
  • High oil and gas prices may spur development of renewables, energy efficiency and substitution.
  • However, high prices make coal competitive as a fuel source, being the cheapest and most secure energy substitute.
  • The agency projects that China and India will account for 80% of increased coal use through 2030.

The alternative scenario assumes all governmental energy policies being considered today are implemented. Energy demand in 2030 would be 19% lower than in the reference scenario:

  • Global primary energy demand would grow 1.3% per annum rather than 1.8%.
  • Oil demand would increase globally to 102 million barrels per day, from 84 million in 2006.
  • Coal use would decline from present levels.
  • Energy-related carbon dioxide emissions would stabilize within 20 years.

Growth assumptions for reference and alternative scenarios are relatively conservative. A high-growth outlook assumes expansion of the Chinese and Indian economies on average 1.5% faster than the reference scenario, leading to an additional 6% increase in global energy demand. Rapid increase in demand in China and India will make mitigating emissions a critical issue.

Via: Oxford Analytica
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RUSSIA: Soaring oil prices on global markets will not affect Russian gas prices

Russian First Deputy Prime Minister and Chairman of Board at Gazprom Dmitry Medvedev gave an exclusive interview to Interfax.

Soaring oil prices on world markets will not lead to unexpected gas and energy prices on Russia's domestic market, Russian First Deputy Prime Minister and Chairman of Board at Gazprom Dmitry Medvedev has said.

"There are clear directives, the government has decided on how to handle the gas and energy price policy for the next few years. There will be no surprises and all parameters we have agreed upon. The parameters that would establish domestic prices as profitable as export prices will be met," Medvedev told Interfax on Friday.

"In other words, I am certain that we will not destroy the balance that exists in the domestic market for businesses, utilities and individuals," he said.

"As for foreign markets, certainly, growing oil prices are a key factor of economic development which should not be underestimated. For Russia this factor is particularly important. At the moment, Russia's economy rather benefits from such growth of oil prices, because most of our plans focus on developing the oil and gas industries. But we should not delude ourselves," Medvedev said.

"We should not build all our investment plans, especially social programs, only on rapidly growing oil prices. On the contrary, we must consider negative scenarios related to the reduction of oil and gas prices in order to be able to respond to all challenges of today's economy, so that our economic and investment plans are not jeopardized and our social programs are stable regardless of the situation in the oil market," the first deputy prime minister said.

"Not only must the oil and gas industries be developed but other ones as well," Medvedev said.

"We must return to those areas where we have always held key positions. We have marvelous production facilities, excellent specialists in the field of outer space and aircraft technology, communications, and we have a very potent industry which has been long waiting for adequate investment and careful attention," he said.

"We must look at agriculture, a third of the country's population lives in rural areas. Agriculture makes up a significant portion of GDP. We must develop new areas such as information technologies. We have already made a good start, we do have what is called "national creativity" - this is our strength. If we do not develop these areas, we will definitely end up on the margin of world civilization," Medvedev said.

"This is why the growth of oil and gas prices and the achievements of the Russian oil and gas segments must be offset by growth in other industries," he said.

Funding and implementation of priority national projects has not contributed to the growth of inflation in Russia, Dmitry Medvedev has said.

"I think that national projects have not affected inflation in the least," Medvedev said in an exclusive interview with Interfax.

"The fact is that this is a lot of money [funding of national projects], yet these funds are not too great in terms of the national budget to affect inflation, even if we take these figures into consideration," Medvedev said.

The national project in the agricultural sector "cannot make any additions, even hypothetical ones, to inflation," he said. On the contrary, Medvedev said. These projects are extra jobs in rural areas, additional investments in stock-raising, improving the social conditions of villages, he said. "There are no factors pushing up inflation here," Medvedev said.

The same is true for construction of accessible housing, Medvedev said.

"Therefore I think, there has been no contribution [from national projects to inflation]," Medvedev said.

Medvedev, who is also board chairman of Gazprom (RTS: GAZP), listed several causes for the rise of inflation indicators in Russia. "The first cause is the increase of food prices on the world market. This factor has added about 2% to inflation compared to the indices on which we used to predict 8% inflation this year," Medvedev said.

Yet another factor contributing to the increase in inflation was a "massive capital inflow," he said.

"It naturally includes a positive feature because it increases investment possibilities within the country. But it also includes some inflationary components," Medvedev said.
"So these two factors served as a basis for increasing inflation rate against the figures that had been forecast for the current year," Medvedev said.

The government "will and shall take every needed measure to curb this rate and prevent inflation growth, and reach the parameters that we have planned," Medvedev said.

Gazprom (RTS: GAZP) could grow into the world's largest company in terms of capitalization, Dmitry Medvedev has said he believes.

"Gazprom's growing capitalization pushes the whole stock market, and vice versa some problems in the company could result in problems on the market in general. That is why the Gazprom board and management closely follow all processes concerning company's capitalization," Medvedev said in an exclusive interview with Interfax on Friday.

"Now, given the recent growth of stock indices, company's capitalization totals roughly $300 billion. This is a very high figure, but we think that this is not the end," Medvedev said.

"Why do we think so? Just because Gazprom is the world largest gas company in terms of reserves, and we can improve its work the way that stock indices and the international business community give relevant ratings to such improvements," Medvedev said.

"Various spheres in which Gazprom works should be developed: we should invest in the development of new fields and transportation in various directions, we should diversify the routes, and, deliver [gas] to traditional markets, such as Europe, and we should think about the Far East, Asia, and America," he said.

"It is natural that such measures directly influence Gazprom ratings. We should not only think about deliveries to other markets, but we should also structure the company's work in the country. We should all be involved in making its [Gazprom's] internal structure more rational. We are now engaged in business activities in the energy sector and have strengthened our positions in the oil market," Medvedev said.

Medvedev paid particular attention to issues related to the corporate management and company's transparency during the interview. "A company is judged by the extent to which it is open for analysis. Gazprom has done a good job in this area over the past eight years. In 2000, there was an impression that the company worked as a Soviet ministry, on the basis of which Gazprom evolved. Now Gazprom is a full-fledged joint stock company, which the international auditing community audits, which is improving its corporate management, and is involved in budgeting activities," Medvedev said.

These things contribute to company's capitalization, he said. "If these areas continue to develop successfully, Gazprom will have a good chance to continue increasing its capitalization up to a level which can be compared to the highest figures in the world. There are prospects to evolve into the world's number one company. In my opinion, there are several subjective and objective preconditions for this," Medvedev said.

Rumors of a possible reshuffle in the top company management of Gazprom (RTS: GAZP) have been denied by First Deputy Prime Minister and Board Chairman Dmitry Medvedev.

"Rumors always circulate, life continues. One should pay no attention to them because rumors are always rumors," Medvedev said in an exclusive interview with Interfax.

"The managing staff of Gazprom is stable and everyone is on the job," he said.

Asked whether there may be frictions between Gazprom and states neighboring Russia over gas deliveries ahead of the New Year and whether journalists covering the subject will be able to see in the New Year with their families, Medvedev said, "I hope that both Gazprom staff members and journalists will be able to raise their glasses of champagne at home. To this end Gazprom staff members are now working quite hard thrashing out several issues with our partners."

"Our counterparts are quite difficult. It is true that from time to time they get their own ideas about possible ways of structuring their further economic relations with Gazprom. And these ideas contradict modern tendencies of regulating the oil and gas market, they contradict the processes that are unfolding throughout the CIS and in this country. I mean the transition to a market economy," Medvedev said.

"We have made these decisions for ourselves, painful decisions. And we would want our partners to understand too that they should be buying gas at market prices without insisting on any exclusive conditions. If this understanding prevails - and there are certain prerequisites for that, we have very high chances of seeing in the New Year with our families," he said.

Russia will begin delivering natural gas to China in the nearest future, Medvedev has said.

"We hope to come up with a practical cooperation model in gas deliveries in the next few years. We are now coordinating the parameters of prices and routes. I think this is a matter of the nearest future, and comrades from China are showing the greatest interest on this matter," he said in an exclusive interview with Interfax on Friday.

"We are speaking about several possible routes to ship Russian gas. Calculations are being made for different options," he said.

The question of Russian oil deliveries to China has entered a practical stage, with Rosneft (RTS: ROSN) and Chinese entities implementing relevant contracts, he said.
"The energy sector is an absolutely key aspect in Russian-Chinese economic interaction, because Russia is a leading energy power in the world and China is the biggest nation on the planet with a robustly growing economy that has reached an unprecedented pace of growth," Medvedev said.

"However, oil and gas are not all the Russian Federation has, of course. Clearly, interaction in transportation and communications is also crucial to us: that is, everywhere we can cooperate, where we have very good opportunities for interaction," he said.
"There are also other sectors in which we also cooperate quite actively, nuclear power engineering in particular," he said.

"Recently, we launched the first stage of the Tianwan NPP project and we are now saying that the second stage will be built in the next few years and commissioned," Medvedev said. "So far, beginning with September everything has been alright and I hope that cooperation in nuclear power engineering will continue to develop according to plan in the future. This is a very important segment of our interaction," Medvedev said.

Asked whether Russia intends to learn from China in preparing for the 2014 Olympic games in Sochi he said: "Our Chinese colleagues are practically ready to host the Olympiad and undoubtedly it will be an unprecedented event given China's scale, interest in the Olympiad and the complexity of the tasks they are facing."

"In this sense I am sure that our delegation that will go to China next year will find a chance to talk to our Chinese colleagues and discuss what problems they had and what recommendations they could give so that our Olympiad in Sochi would be held at a level not lower than the Olympiad in Beijing," Medvedev said.

Medvedev said that there are also more practical elements of cooperation, because China has accumulated experience in building various sports facilities. "Here we also have things to discuss," Medvedev concluded.

The results of the national Year of Russia in China, and the Year of China in Russia are unprecedented in the history of bilateral relations, Medvedev has said.

"The results are really outstanding, and there has been nothing of the kind between our countries for decades, at least," Medvedev said in an exclusive interview with Interfax.

Moreover, such events were rare even in the period of good Soviet-Chinese relations, Medvedev said. "There has been nothing of the kind for the whole history of Russian-Chinese and even Soviet-Chinese relations, I think," Medvedev said.

Some 200 or 250 events have been held during the Year of Russia in China, and the Year of China in Russia, Medvedev said. "And these have not been small meetings or talks on the sidelines. These have been large events: national exhibitions, business forums, a Russian Language Week, openings of various festivals," he said.

Such events have also been accompanied by results in economic cooperation, Medvedev said. During the March visit of Chinese President Hu Jintao to Russia, "more than 20 agreements were signed for $4 billion," Medvedev said.

"These are quite practical results of our Year in China and the Year of our friends in the Russian Federation. And $500 million of these agreements are agreements for supplies of equipment and machinery from Russia to China, and this is most urgent for us," Medvedev said.

"I think that national years stimulated the whole socioeconomic interaction between Russia and China. We began to have more contacts, we began to socialize better, and this communication has taken some tangible forms," he said.

The main result of the events held in terms of national years is that "we have come to better understand the Chinese, and the Chinese have come to better understand us," Medvedev said.

"We have a historic cooperation running for many centuries, and even given this fact, in order to understand such a large and important strategic neighbor and partner as China, it is necessary for communication to pass from the governmental level to the level of human and humanitarian interaction," Medvedev said.

Via: Interfax |exclusive interview for Interfax

CLIMATE CHANGE: United Nations May Change Emission Rules to Lure U.S.

The United Nations, manager of the world's second-biggest emissions-trading system, may change its rules from 2013 to encourage the U.S. to join an effort to stem climate change, an official who heads the program said.

New technology, such as equipment to capture carbon dioxide from power stations and store it underground, may be deemed worthy of generating emission credits automatically, Halldor Thorgeirsson, head of emissions trading at the UN Framework Convention on Climate Change, said in an interview.

That may help reduce U.S. skepticism of UN-generated emissions credits and make investments in new technology more profitable, eliminating barriers for the U.S. to join international emissions-trading to slow global warming.

Granting certain ``benchmarked'' technology some credits would ``allow for significant scaling up'' of emission trading, Thorgeirsson said. ``In the tool box of the future, you will need different tools.''

Delegates to a UN-sponsored conference in Bali, Indonesia, in December will aim to convince the U.S. to join a new accord that will start after 2012, when the Kyoto emissions treaty ends. At stake is convincing China and the U.S., the top greenhouse-gas emitters, to join an international regime of curbing CO2 and trading permits among polluters to put a cost on global warming.

Protection Bill
U.S. lawmakers are wary of greenhouse-gas credits approved by the UN because they may not ``be real,'' an adviser to U.S. Senator Joe Lieberman said Nov. 15. Because of that, a climate- protection bill introduced by Lieberman, an Independent from Connecticut, and Virginia Republican Senator John Warner, wouldn't permit the use of credits from foreign projects approved by the UN, the adviser, David McIntosh, said at the time.

Lieberman and Warner are concerned trading under the UN- managed Clean Development Mechanism, part of the 1997 Kyoto Protocol, would allow U.S. companies to ``contract with Chinese chemical manufacturers or landfills, and those credits would not be real,'' McIntosh said. In other words, companies might contract for emissions cuts that would have been made anyway, he said.

Under Kyoto, projects in developing countries such as windfarms can only generate credits, for sale in advanced economies, if they show the enterprise wouldn't have gone ahead without the revenue from selling the credits.

It was unclear which technologies might receive backing by the UN, Thorgeirsson said. Carbon capture and storage ``might be a candidate'' to quickly boost investment in that technology, he said.

`Steeper Reductions'
``As we move into steeper emission reductions, the demand will only grow,'' the official said. Carbon dioxide can be piped to underground aquifers and oil fields instead of being vented into the atmosphere.

United Nations May Change Emission Rules to Lure U.S.

Industrialized nations need to curb emissions by 25 to 40 percent by 2020 from 1990 levels to stabilize the climate, the UN's Ad Hoc Working Group on Further Commitments concluded at a conference in August. More ambition ``is at the disposal'' of the richer nations through emissions trading under a potential deal to start in 2013, it said, without being more specific.

`Hard Sell'
A perception exists among U.S. lawmakers that emissions trading might transfer too much wealth to developing nations from industrialized nations, said Kate Hampton, head of policy at Climate Change Capital, an investment bank with $1.5 billion of funds under management. ``That makes CDM a hard sell,'' she said last week in an interview in the bank's headquarters in London.

So-called CDM credits, from the UN Clean Development Mechanism, are acceptable for use in the European Union carbon dioxide system, the world's largest greenhouse-gas trading program.

Some U.S. lawmakers are concerned about subsidizing China's compliance with a climate treaty, so ``there is a lot of reluctance to engage with CDM in the same way as the Europeans,'' Hampton said. ``CDM now is not what CDM will be post 2012.''

The UN also needs to do more to demonstrate the rigor behind the present system of credit approval, Thorgeirsson said. ``More could be done to convey a better understanding of the way the CDM works.''

Get Approval
The UN will publish a validation and verification manual, which will help project managers get approval in the shortest possible time and protect the market's credibility, the official said.

The manual will help the regulator balance the need to be rigorous with the need to generate sufficient quantities of credits to allow a market work properly, he said. That will ``help project developers increase the likelihood of fast-track approval.''

The UNFCCC is getting criticized both for being too rigorous and not rigorous enough, Thorgeirsson said. ``This is a very open and transparent process'' that's trying to balance both points of view, he said. Details of all projects are published on the UNFCCC Web site.

CLEAN ENERGY: carbon-neutral hydrogen on the horizon

Hydrogen as an everyday, environmentally friendly fuel source may be closer than we think, according to Penn State researchers.

"The energy focus is currently on
ethanol as a fuel, but economical ethanol from cellulose is 10 years down the road," says Bruce E. Logan, the Kappe professor of environmental engineering. "First you need to break cellulose down to sugars and then bacteria can convert them to ethanol."

Logan and Shaoan Cheng, research associate, suggest a method based on microbial fuel cells to convert cellulose and other biodegradable organic materials directly into hydrogen in today's (Nov. 12) issue of the Proceedings of the National Academy of Sciences online.

The researchers used naturally occurring bacteria in a microbial electrolysis cell with acetic acid – the acid found in vinegar. Acetic acid is also the predominant acid produced by fermentation of glucose or cellulose. The anode was granulated graphite, the cathode was carbon with a platinum catalyst, and they used an off-the-shelf anion exchange membrane. The bacteria consume the acetic acid and release electrons and protons creating up to 0.3 volts. When more than 0.2 volts are added from an outside source, hydrogen gas bubbles up from the liquid.

"This process produces 288 percent more energy in hydrogen than the electrical energy that is added to the process," says Logan.

Water hydrolysis, a standard method for producing hydrogen, is only 50 to 70 percent efficient. Even if the microbial electrolysis cell process is set up to bleed off some of the hydrogen to produce the added energy boost needed to sustain hydrogen production, the process still creates 144 percent more available energy than the electrical energy used to produce it.

For those who think that a hydrogen economy is far in the future, Logan suggests that hydrogen produced from cellulose and other renewable organic materials could be blended with natural gas for use in natural gas vehicles.This illustration shows how the new electrolysis cell functions. Credit: Zina Deretsky, National Science Foundation

For those who think that a hydrogen economy is far in the future, Logan suggests that hydrogen produced from cellulose and other renewable organic materials could be blended with natural gas for use in natural gas vehicles.

"We drive a lot of vehicles on natural gas already. Natural gas is essentially methane," says Logan. "Methane burns fairly cleanly, but if we add hydrogen, it burns even more cleanly and works fine in existing natural gas combustion vehicles."

The range of efficiencies of hydrogen production based on electrical energy and energy in a variety of organic substances is between 63 and 82 percent. Both lactic acid and acetic acid achieve 82 percent, while unpretreated cellulose is 63 percent efficient. Glucose is 64 percent efficient.

Another potential use for microbial-electrolysis-cell produced hydrogen is in fertilizer manufacture. Currently fertilizer is produced in large factories and trucked to farms. With microbial electrolysis cells, very large farms or farm cooperatives could produce hydrogen from wood chips and then through a common process, use the nitrogen in the air to produce ammonia or nitric acid. Both of these are used directly as fertilizer or the ammonia could be used to make ammonium nitrate, sulfate or phosphate.

Via: Penn State

ASIA: Turkmens Aim for 30% Gas Price Hike

Turkmenistan is hoping to hike the price of gas it sells to Gazprom by at least 30 percent next year, Gazprom chief executive Alexei Miller said Friday, raising the possibility that the higher costs would be passed on to foreign customers.

During a visit to Ashgabat, Miller met with Turkmen officials, "who raised the question of the necessity to increase the purchase gas price by at least 30 percent, as early as 2008," Miller said in a statement.

Turkmen officials made the move following criticism by U.S. and EU officials, who argued that the price the country was offering Gazprom was too low compared with European standards, Miller said. Negotiations would continue next week, he added.

The price, which would rise to at least $130 per 1,000 cubic meters from $100, could be passed on to Gazprom's customers in Ukraine, Miller said.

Gazprom and Ukraine have yet to agree to a price for 2008, but it is set to rise from the current $130 per 1,000 cubic meters, paving the way for a slow transition to European pricing levels. European countries currently pay an average of $250.

Gazprom has been criticized for its handling of price hikes for its ex-Soviet neighbors after shutting the valves to Ukraine during a tense pricing dispute two years ago. Turkmen gas is key to keeping Ukrainian supplies cheap. Russia sells Ukraine, via trader RosUkrEnergo, a mix of its own gas with cheaper gas from Turkmenistan and other Central Asian producers.

The expected price hike comes amid a wider rise in natural gas prices, prompted by a skyrocketing oil price, which is nearing $100 per barrel.

Miller said in the statement that Gazprom estimates that the price for gas to Europe will rise to an average of $354 per 1,000 cubic meters.

Prices could also rise to the Baltic countries. A Gazprom official said in an interview published Friday that the price of gas to Latvia could rise by up to 50 percent next year to reach average European levels.

"Taking the current situation into account, the price could rise by from 40 percent to 50 percent," Alexander Miheyev, Gazprom's first deputy head for oil and gas marketing, told Latvia's Dienas Bizness newspaper, Reuters reported.

To boost its supplies as production at existing fields lags and new fields await development, Gazprom buys 50 billion cubic meters of Turkmen gas per year. The volume and price were sealed in an agreement signed last year, which runs through 2009.

Analysts said the price hike was expected and did not link the rise to a stalled pipeline deal between Russia and Turkmenistan.

A preliminary agreement on the pipeline, due to carry Turkmen gas around the Caspian and through Russia, was struck in May. But confirmation of the deal has stalled as Turkmenistan continues to consider other options, including a U.S.-backed Trans-Caspian pipeline that would bypass Russia.Miller accompanied Prime Minister Viktor Zubkov on his visit to Ashgabat, where Zubkov said he expected an agreement on the pipeline to be signed soon, after meeting with President Gurbanguly Berdymukhammedov.

A preliminary agreement on the pipeline, due to carry Turkmen gas around the Caspian and through Russia, was struck in May. But confirmation of the deal has stalled as Turkmenistan continues to consider other options, including a U.S.-backed Trans-Caspian pipeline that would bypass Russia.

"The Turkmens have much more leverage right now," said Gairat Salimov, top Central Asia analyst at Renaissance Capital. "It's not just European gas demand that's growing, but also Russian demand -- to a point where they really need this gas."

The country is estimated to hold 2.9 trillion cubic meters of gas, according to the 2007 BP Statistical Review, but claims to have much more.

Via: The Moscow Times|

MIDDLE EAST: Saudi cuts key rate to ease dollar pressure

Saudi Arabia cut some borrowing costs yesterday to relieve pressure on its dollar-pegged currency that has mounted on growing bets Riyadh will allow the riyal to appreciate, bankers said.

The Saudi Arabian Monetary Agency (SAMA), the central bank, reduced the reverse repurchase rate by 50 basis points to 4.25 per cent, three bankers in Saudi Arabia and the UAE said.

Investors have piled into the riyal in the last week since a source familiar with Saudi policy said the country could consider revaluing its currency for the first time since 1986, when it pegged the riyal to the dollar at 3.75.

The reverse repo rate is used by banks to set deposit rates, so cutting the rate would make bets on exchange-rate appreciation less attractive, bankers said.

The central bank kept its benchmark repurchase rate, which banks use to determine lending rates, unchanged at 5.5pc.

"They are doing this to calm down the market and prevent speculation on the local currency," said HSBC Saudi affiliate SABB's chief economist John Sfakianakis. "Investors will find it less attractive to hold deposits in riyal," he said.

The Saudi riyal hit a 21-year high on Thursday of 3.70 and investors are betting on an appreciation of as much as 3.2pc appreciation in the riyal in a year, according to forward rates yesterday.

Saudi Arabia's move follows similar rate cuts in the UAE on Thursday, when the central bank cut its six- to 18-month certificate of deposit rates by as much as 20 basis points to make holding dirhams less attractive.

UAE Central Bank governor Sultan Nasser al-Suweidi said on November 15 that he was under mounting social and economic pressure to drop the dirham's peg to contain inflation, which hit a 19-year high of 9.3pc last year.

Forward rates yesterday showed investors betting on a 2.9pc appreciation in the UAE dirham, down from more than 3pc before the Thursday rate cut.

"The Saudi and UAE moves are not surprising given the amount of pressure on the currencies," said Jason Goff, head of group treasury and market sales at Emirates Bank Internationa.

Saudi Arabia has reduced its reverse repo rate two times this month but has declined to lower lending costs following two US Federal Reserve rate cuts in September and last month. Saudi inflation hit a decade high of 4.89pc in September. Rate cuts in the Saudi Arabia and the UAE may not have a dampening affect on speculation that the two states, as well as Qatar, Bahrain and Oman, will be forced to either give up their dollar pegs or allow currencies to appreciate, analysts said.

Via: Gulf Daily News
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SUSTAINABLE: Food versus Fuel

The world's poor spend twice what they did on food just seven years ago, yet still starve in greater numbers. An eight-year-long drought in Australia, the lengthiest in 200 years, has helped keep global supplies of wheat and corn tight. Concern about climate change has led to biofuels subsidies that pit hungry mouths and empty gas tanks against each other.

A rising middle class in Asia is developing a taste for meat, so crops that might go to feed people are being diverted to cows and chickens. Within the next year, China will become a net wheat importer, driving food prices up just as it's driven up other commodity prices this decade.

For the poor, this booming commodities market means more famines the United Nations and the World Bank simply can't afford to alleviate.

Yet investors might find some opportunity amidst the misery. Two years ago, Deutsche Bank tarted work on a global agribusiness strategy that debuted in September 2006. It's managed by 37-year-old Ralf Oberbannsheidt, who has $2.6 billion in portfolios available to investors in Japan and Europe. He's up 48% so far, buying stocks like Monsanto, Archer Daniels Midland and Bunge Limited. He also invests in fertilizer companies and some shipping concerns. The boom in this sector is akin to the boom in oil, but more sustainable.

Food Funds

 As a slowing U.S. economy threatens to bring down oil prices, but wheat and corn prices probably won't drop because of scarce supply. In fact, the U.N.'s Food and Agriculture Organization warns that wheat production is falling and could be off 10% to 142.6 million metric tons in 2008. And in the U.S., an increasing amount of corn is being diverted from the food chain to be processed into ethanol, for reasons frankly more political than environmental.  The implications for the world are grim. If the U.N. is right, the global population will reach 9 billion people by 2050. Meanwhile, the Earth is running out of farmland because of population growth and sprawling cities. Fifty years ago, there was an acre of arable farmland per person--there's half that now. That's why Oberbannsheidt is interested in aquaculture. Before he became a securities analyst and portfolio manager, Oberbannsheidt worked for a freshwater shrimp farm in Northern California, and he remains fascinated by how well the critters can be manipulated for flavor and durable shipping.

As a slowing U.S. economy threatens to bring down oil prices, but wheat and corn prices probably won't drop because of scarce supply. In fact, the U.N.'s Food and Agriculture Organization warns that wheat production is falling and could be off 10% to 142.6 million metric tons in 2008. And in the U.S., an increasing amount of corn is being diverted from the food chain to be processed into ethanol, for reasons frankly more political than environmental.

The implications for the world are grim. If the U.N. is right, the global population will reach 9 billion people by 2050. Meanwhile, the Earth is running out of farmland because of population growth and sprawling cities. Fifty years ago, there was an acre of arable farmland per person--there's half that now. That's why Oberbannsheidt is interested in aquaculture. Before he became a securities analyst and portfolio manager, Oberbannsheidt worked for a freshwater shrimp farm in Northern California, and he remains fascinated by how well the critters can be manipulated for flavor and durable shipping.

"You take away land so that people can live in the city," Oberbannsheidt says. "When you live in the city, you have a greater life expectancy and your income is probably higher."

When incomes reach between $3,000 and $5,000, as they're approaching in India and China, people tend to give up rice and cereal in favor of meat, poultry and fish, generally in that order. Protein intake rises 15 grams a day. "If people would only eat wheat and corn the [potential food shortage] problem would be solved," he says. "But I'm not a vegetarian, don't get me wrong." Half of the wheat and corn crops produced every year go to cattle. He does see opportunity in fish, though, since it's generally a cheaper source of protein than beast and fowl.

Two years ago, when Oberbannsheidt started looking seriously at agribusiness, nobody on Wall Street had even factored biofuels into the equation. Now governments have to make a choice between feeding people and fighting global warming. "The first job of government is to feed its people," Oberbannsheidt says, but in the European Union, where mass starvation isn't a looming problem, politicians can--and are--meddling.

The E.U. is hurting from high wheat prices, which are threatening to cause inflation on the continent. But the E.U.'s own subsidies for biofuel are contributing to the rising prices. The E.U. could have both enough food and enough biofuel if it allowed genetically modified crops to be used for biofuels. Or even better, says Oberbannsheidt, the E.U. could lower trade barriers against importing biofuels from Brazil, which is about the only place on Earth where biofuels make economic sense, anyway. But neither option seems politically viable in the near term, so Oberbannsheidt expects European commodity food prices to remain high.

One thing the world obviously needs is greater productivity from its existing farmland. Oberbannsheidt believes it's possible through fertilizers, particularly potash and phosphate--but don't expect miracles. He recently went to Montegrosso, Brazil, because he thought that companies with Brazilian land holdings would be worth buying. Brazil is a kind of El Dorado for agricultural commodities investors, because its climate allows for three growing seasons rather than just two. Farmers there can quickly capitalize on global demand by switching from wheat to corn to soybeans more quickly than farmers in the rest of the world.

The world's poor spend twice what they did on food just seven years ago, yet still starve in greater numbers. An eight-year-long drought in Australia, the lengthiest in 200 years, has helped keep global supplies of wheat and corn tight. Concern about climate change has led to biofuels subsidies that pit hungry mouths and empty gas tanks against each other.  Oberbannsheidt returned disappointed. The soil quality wasn't that good, he said. Even if it had been, there's only one rail line that can be used for shipping to ports. There's no point in increasing yields if the product can't get to market. He found the same problem in Vietnam, where rice yields have been increasing 10-15% a year, but the infrastructure for shipping it can't keep up.

Everything would be fine, he says, if the world's governments would "solve the infrastructure bottleneck, invest in research, allow for GM in biofuels, and build better water and irrigation systems." That's exactly what Oberbannsheidt doesn't see happening. Instead, he sees a "biofuels versus feeding the world" scenario. That's a frightening prospect for the world's poor, and potentially, for everyone. But it should keep Oberbannsheidt's portfolio humming along.

Via: Forbes|by Michael Maiello
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