As part of the research for my research paper “On the Threshold to a New Energy Age“, I conducted a survey in order to find out how “prepared” people are for the transition to a new age of energy generation and use as well as to gather opinions on current trends in energy issues.
In the coming days I will publish the results of the question-by-question analysis. The questionnaire contained 14 questions. 73 people took part in my survey. More than three quarters of participants came from the United States. I interviewed the remaining quarter in Japan, Singapore, Germany and Portugal.
All questionnaires had been distributed and returned between April 2009 and September 2009.
You can find the survey results on the Main Menu page “Energy Survey”:
The pace of globalization is increasing. And that is good for all of us. Today, we are more inter-connected than at any other date in history. More people communicate, collaborate and compete with each other than ever before.
Globalization is the driving force behind the progress of the human race. Globalization brings peace and prosperity. Globalization is spreading smart ideas at the speed of light and pushing innovations forward. Due to globalization, authoritarian regimes around the world feel pressure to abide by the rules of the international community. The most pressing issues of our time, i.e. overpopulation, resource scarcity (water, food, oil) and climate change, demand a global solution. No country in the world is powerful enough to solve any of these problems on its own. A lack of cooperation between nations in different parts of the world makes measures implemented by one country useless. A great example that demonstrates how prone to failure one-sided attempts are is the climate policy of the European Union. By forcing up prices for emitting carbon dioxide in Europe, the EU might achieve a reduction in European CO2 emissions by lowering demand for fossil fuels, but this has zero effect on global CO2 emissions. Lower demand for oil in Europe for instance achieved through artificially high prices in the EU, is decreasing the pace at which international oil prices would increase otherwise, therefore allowing the rest of the world to consume more (and emit more CO2 emissions) at a lower price. The bottom line is that European efforts to reduce carbon emissions only reduce the pressure on emerging economies to become more efficient and consume less oil. This is what German economist Hans-Werner Sinn calls the “Green Paradox”. (For more on the Green Paradox:
http://en.wikipedia.org/wiki/Green_paradox )
In his bestselling book “The World is Flat”, New York Times columnist Thomas L. Friedman – one of my favorite authors – analyzes globalization and divides it into three eras:
Given these turbulent economic times, it’s not surprising that the Southeast Asian city-state of Singapore is also suffering from a deep recession. Global demand for Singapore’s exports and services has collapsed since the financial crisis has spread to nearly every country on this planet and has emerged as a global economic crisis of unprecedented scale.
Since Singapore’s independence, it has become one of the richest nations worldwide with a modern high-tech and service industry relying on the country’s highly-skilled workforce. The combination of a capitalist society, a strong work ethic and smart government policies have proved extremely successful and have created numerous sources of income for the “Lion-city”. Despite its lack of raw materials, Singapore has become a major exporter and international financial and trade hub. Next to the pro-business and pro-export policy of the government, the excellent infrastructure has supported the country’s economic rise. The financial services and high-tech industry in addition to oil refining and re-exportation of imported and up-graded goods have been the foundation for Singapore’s economic success. However, Singapore’s strength in finance and international trade turned out to expose Singapore to the effects of the global economic crisis. (check out:
http://economatters.wordpress.com/2009/01/10/grim-outlook-for-the-container-shipping-industry/ ) Container lines are struggling with costly over-capacities and are slashing some routes resulting in a major setback for the world’s busiest port. When international trade suffers, so does Singapore’s economy.
As the Singaporean government has already admitted, the city-state is in it’s deepest recession ever. The GDP is expected to contract by 5% this year. Nevertheless, the country has an abundance of financial resources. The Finance Minister announced a $13.6 billion (20.5 billion Singapore dollars) economic stimulus package to ease the effect of the recession on the people and revive the economy. Considering the size of the stimulus, this is a bold and determined step. The money should be spent to preserve jobs by subsidizing wages, guaranteeing bank loans to help businesses and families in trouble. Employers receive help to pay part of the salaries and benefit from tax reductions in order to ensure that as many people as possible keep their jobs and incomes. To stimulate banks to lend money, the government shares the risk of bank lending and jumps in when a business fails to pay back. Huge investments in education healthcare and infrastructure are part of the package, too. The advanced subway system is to be expanded, public housing projects receive more money, more roads and parks will be built.
Apart from these countermeasures, Singapore might also weaken its currency to tackle the recession. This should strengthen the city-state’s export sector. Besides, this measure could halt the fall in consumer prices and reduce deflation risks. A large share of the consumer goods sold in Singapore are previously imported. Therefore, a possible devaluation of the Singapore dollar would stop the price fall by making imports more expensive.
Despite the grim outlook for the this year, Singapore’s future is bright. The government has invested billions of dollars into biotech and chemicals as well as telecommunications which should ensure the continuation of the economic success story. Singapore will overcome this crisis as it managed the Asian crisis in the 1990s and the outbreak of SARS. Pfizer and Lanxess are just two examples of foreign companies that have invested hundreds of millions into new research & development facilities. Pharmaceuticals already contribute decisively to Singapore’s GDP. However, the fast-growing biotech sector is still in its infancy and requires massive investments. In the medium term, especially biotech could become a big money-spinner. Singapore attracts many bright-minds from abroad. Scientists from foreign countries are fascinated by the vast research opportunities. The country’s innovative high-tech industry is making strides towards surpassing other Asian high-tech centers in Japan, Taiwan and South Korea.
The bottom line is that Singapore was hit by the crisis at the wrong point in time since it proved to be still too dependent on the financial sector while prospective sunrise industries are not yet ready to fill the gap.
If you’re interested in how Singapore manages this crisis and prepares for the future, you will be able to get first-hand information right here. In April, I’ll travel to Singapore and report daily about this intriguing global city at the tip of the Malay Peninsula.
The long-lasting boom in the container shipping industry ended abruptly last year when first high freight rates caused by record-high oil prices lowered demand and prompted companies to relocate production capacities closer to big consumer markets and towards the end of 2008, demand for consumer goods from recession-torn countries plummeted resulting in costly overcapacities. On the one hand, container lines could breath a sigh of relief since they don’t have to pay a fortune to fill up the tanks of their cargo vessels – at least not at this moment – but they’re strugglingto fill the decks of their ships with containers generatingenough revenue to cover operatingcosts. The surplus of cargo capacities is especially significant on the Europe-Asia routes as well as on the routes linkingNorth America to Asia. As shipyards continue workingoff the numerous orders from previous years, cargo capacities will continue climbing until 2012 unless orders are postponed and older ships put out of service in large numbers.
A wave of acquisitions and mergers appears inevitable. The consolidation process will let smaller freight lines disappear. The focus of the more dominant shippers is expected to shift to the routes to South America and the still growing economies of China and India which are permanently consuming more raw materials.
In the medium and long term, the outlook is not so bleak as global trade volumes will continue to grow as soon as consumer confidence recovers and postponed investments are due to be made. Therefore, the shipping industry just needs to find a solution to bridge the current trough. The bigger companies are likely to expand their control of the market and take over slots and terminals from smaller competitors which is to increase future profits. Port operators might also benefit in the l0ng term from acquiring smaller rivals.
Despite the current uncertainties and helplessness of the container shipping industry, the French container line CMA CGMappears to be willing to launch yet another new Europe-Asia route. The new service could be launched in summer while competitors are suspending services. According to the company, this step is aimed at securing”a leadership position in the Asian shipping market.”
The global economic downturn in addition to the crisis in the shipping industry hits the South-East Asian city-state of Singapore especially hard. The port of Singapore is the world’s busiest container port serving as a hub for South-East Asia. Next to the port, a large share of Singapore’s earnings comes from the financial industry which is obviously in the worst shape in decades. The country’s exports have also fallen and cash-strapped tourists from Western countries also tend to stay at home. Consequently, it’s not surprising that Singapore’s economy was contracting 12.5% in the fourth quarter. Nevertheless, Singapore’s government has control of an abundance of cash and currency reserves. Measures have already been taken to stimulate the economy, create new jobs and soften the effect on the people. In April, I’ll travel to Singapore to take a closer look at the economic situation there and give you insights on how this country, that has been extremely successful for decades works. I’m especially interested in how Singapore prepares for the future. In April, you can get first-hand information right here.
2008 just ended and will be remembered as the year when the financial crisis rooted in risky mortgage lending turned into a global economic crisis. In today’s globalized world, the crisis spread from the U.S. housing market to almost all parts of the world. The global financial system went crazy, banks were collapsing, governments around the world injected hundreds of billions of dollars into financial markets and shabby banks. Things went from bad to worse on September 15th, when the U.S. investment bank Lehman Brothers filed for bankruptcy protection - it was the largest bankruptcy in U.S. history. The fall of Lehman sparked anxiety in the financial industry as the U.S. government didn’t intervene to prevent a collapse. Following the liquidation of Lehman Brothers, a global panic sellingof bank shares set in which also contributed to the failure of other financial institutions. Hypo Real Estate, a German property lender, suffered from the consequences of the Lehman failure as inter-bank lending dried up and the Munich-based company needed to be bailed out. Just days after Lehman had declared bankruptcy, the insurance giant AIG was nationalized. Less than two weeks earlier, the U.S. government had bailed out the mortgage giants Fannie Mae and Freddie Mac. They were taken into public ownership.
Apart from the financial sector, the car industry is among those hit hardest by the international crisis. After record-high gasoline prices had hammered car sales in the first two thirds of 2008, sales plunged further due to the lack of confidence among consumers and tight credit in the last third. The Big Three car makers from Detroit – GM, Ford and Chrysler – are in the worst situation in their history. Whether these companies survive depends pretty much on the decisions the next administration is going to take. The American auto industry is largely responsible for its demise as they missed the market trend and continued producing poor-quality gas-guzzlers at high labor costs. In the last decade, the management failed completely. Detroit’s car makers were outflanked and outsold by more innovative competitors from Japan, Korea and Germany that had better engineering and more long-term concepts for success. (more on this: How to save the American auto industry? No time for baby steps) However, even the new #1 car maker Toyota, which successfully build up a green image over the last few years, was hit hardly by the crisis in the auto market. Actually, this is not surprisingng. Though Toyota has sold more than one million units of its Prius hybrid car since it went on sale more than a decade ago, the majority of the slightly below ten million cars sold in 2008 has a less impressive fuel economy. (Check out Dec. 24th’s post)
All industrialized countries as well as many emerging nations will be in recession in 2009. Consumer spending is falling rapidly as economic uncertainty spreads, unemployment rises as companies slash their workforce to respond to lower demand, unavailability of credit and a bleak outlook for the next quarters.
The drop in oil prices since July 2008 represents best the worsening of the world economy. Since the United States is by far the world’s largest oil consumer (a quarter of total global consumption), demand has been falling which caused oil prices to lose ground. Global oil demand is contracting for the first time in more than 25 years! The day when Lehman Brothers collapsed, oil fell below the $100 a barrel mark, when the U.S. reported the loss of half a million jobs on December 5th, oil slid below $40. On the one hand, lower energy prices benefit large parts of the population at the moment. Gasoline prices are at a four-year low in many parts of the world. (take a look at my overview of gasoline prices worldwide) On the other hand, currently low oil prices delay urgently needed investments into oil fields and the oil infrastructure which will cause an unprecedented price-hike once the economy does better. Even the $ 330 billion investment that OPEC countries want to make until 2011 which was announced earlier this year were not even enough to maintain the current production capacity in the medium term. In fact, more than one trillion dollars were needed to be spent every single year to maintain the current global oil output until 2030. (see my article on the World Energy Outlook 2008)
The turbulent times might still continue for several months. Though there is hope that towards the end of this year, the economy might begin to recover. 2009 should be seen as chance for a fresh start. On January 20th, Obama will take office as the 44th president of the United States. He’ll also be the first African-American president. This is undoubtedly a historic year. People in every corner of the globe and especially in the U.S. are full of expectations. Obama stands for change and hope. Great leadership will be necessary to rebuild the nation and steer it out of the economic crisis. Pessimists predict a “lost decade” for the U.S. as Japan has experienced, others forecast the beginning of the recovery in fall. Barack Obama is likely to put all of his energy into solving the financial and economic problems the U.S. is facing right now. As soon as the economy allows him to focus on foreign policy, he is expected to work towards a new multilateralism.
Despite the calamity of the moment, the day will come when the economy thrives again. This is the time to push forward some necessary, fundamental and painful changes which will be the foundation for future growth. Given that Obama will be in power soon and that the U.S. has always been known for the flexibility of its economy, there’s plenty of reason to believe in a prosperous future. If the right action is taken, every crisis can be seen as a big chance. Especially at this point in history, where we are about to experience major changes in our daily lives due to the inevitable transition that is to take place in the energy sector over the next decade, there have seldom been more opportunities.
OPEC once again proved unable to stabilize oil prices. The Organization of Petroleum Exporting Countries could not prevent oil prices from skyrocketing in the first half of 2008, nor can it stop them from falling sharply to a level where almost all oil exporters struggle to balance off their budgets.
Even after OPEC announced an additional gigantic production cut last week, oil prices even fell below $35 per barrel to a four-year-low. Though oil prices recovered a bit and returned to slightly above 40 dollars due to OPEC’s desperate confirmation of the intention to boost oil prices at all costs as well as the dollar’s decline against the euro, oil is far from where OPEC wants it to be. Saudi Arabia considers $75 a barrel a “fair price”. It’d be interesting to know whether Saudi Arabia also thinks that the $147 we had in summer were unfair!
Officially, OPEC’s members are willing to scale back their output decisively. Russia, which is not a member, also announced plans to slash its output in solidarity. But it remains to be seen whether their oil production is reduced by 2.2 million barrels a day. As it’s always been the case, some OPEC members are cheating on their quotas. That’s why the real oil output is much higher than the official quota set by OPEC. After all, a production cut means at first less money flowing in from abroad. Therefore, some countries could feel the need to compensate for the income loss by exporting more.
Of course, the production cut should help bring prices back again to at least $80 a barrel if everything works out for OPEC, but stockpiles e.g at the “Pipeline Crossroads of the World” in Cushing, Oklahoma are at a 19-month high. Cushing holds about 10% of U.S. crude stockpiles which means it has a decisive impact on oil prices.
The global financial crisis continues, so does the auto crisis. After Congress rejected the $14 billion bailout for General Motors, Chrysler and Ford, which originally demanded a $34 billion rescue plan, the future of the U.S. auto industry is uncertain. Especially GM and Chrysler are in a precarious financial situation. Without government intervention, they will run out of cash around New Year’s Day.
The consequences of a GM bankruptcy would be dire: Large numbers of GM employees would lose their jobs, suppliers and dealerships would have to shut down. The massive jobs losses would also spread to GM subsidiaries on other continents. General Motors has about 55,000 employees in Europe, most of them in Germany and Sweden. GM’s Opel brand asked the German government for a loan guarantee, Sweden agreed to a multi-billion dollar bailout for Volvo and Saab. Canada also announced an auto industry aid plan worth about 3 billion USD. Detroit’s car makers also have assembly plants and suppliers in neighboring Ontario. Though Ford is still in better shape than Chrysler and GM, Ford could find itself on the verge of collapse shortly after a bankruptcy of a competitor. Ford employs about 70.000 workers in Europe where demand for new cars has also fallen decisively. Therefore, European car makers like BMW and Mercedes-Benz are cutting part-time jobs and cutting their production. GM also takes further action. The company is going to slash its production by 250,000 cars. Besides, the Hummer, Saab and Saturn brands are to be sold. But I cannot imagine who could want to buy any of these brands given the current situation?
Now it’s up to President Bush. The White House is considering to tap funds from the Troubled Assets Relief Program in order to prevent a collapse. The decision is to be announced as early as this weekend or early next week. But even if a last-minute credit extension could enable GM and Chrysler to continue their operations for a couple of months more, it would most likely be “a bridge to nowhere”. Bankruptcy would give General Motors and Chrysler the possibility to reorganize and restructure their business plan which is absolutely necessary. A delayed bankruptcy wouldn’t help a lot to heal the economy, nor could it save a single worker’s job. You can read what I think must be done to make sure that the American auto industry will recover and grow again in ”How to save the American auto industry? No time for baby steps!” from November 3oth.
As Dieter Zetsche, CEO of Daimler, the parent company of Mercedes-Benz admitted, auto makers must reinvent the automobile, not only because of the financial crisis and the recession in 21 of the 30 OECD countries.
As oil prices have nosedived since July, gasoline prices have also come down considerably. In the matter of months, the situation has changed dramatically. In July, oil reached the record level of $147 per barrel. This week, oil prices slid below $40. As you can read in my post “Crude oil prices dropped below $50 per barrel hitting a three-year low” , almost all oil exporting countries need oil prices far above $50 a barrel to be able to pay their bills. Venezuela and Iran even depend on $95 per barrel to balance their budgets. But their latest output cut could not stop the oil price slump. Now, an energy analyst from Merrill Lynch even predicts that oil might temporarily drop below $25 in 2009 given the bad shape of the global economy. The analyst expects this scenario if the recession spread to China. Though I doubt that China’s economy will contract, Chinese growth rates have fallen sharply in recent months. If oil prices really came down to $25 a barrel, gasoline prices would be below $1 per gallon.
Today, I don’t want to make any short-term predictions about how oil prices might develop over the next few months. Actually, I think it is unprofessional to make short-term predictions at this moment given all the uncertainty of these days. Things are likely to turn out contrary to what we expect today. Anything could happen between now and spring.
Nevertheless, I’d like to know your thoughts on this. I’d appreciate it if you shared your views:
So, let’s come back to gasoline prices. As I announced last week, I spend hours on Internet research to give you an overview of gasoline prices in some of the most important countries. I converted all prices into USD/gallon:
gasoline prices worldwide
This is an overview of the gasoline price development in the United States by the Energy Information Administration:
As you can see, gasoline prices in the U.S. and around the world have fallen even steeper than stock markets. While drivers in America have to pay less than 50% of July’s prices, the price fall in other countries is less impressive either due to extremely high taxes or b/c the government dictates the price at the gas station. Countries subsidizing gasoline like China and India can reduce their spending on gasoline subsidies now.
On the one hand, falling gasoline and heating oil prices benefit hundreds of millions of consumers around the world. Inflationary pressure has also eased off giving central banks space to cut interest rates. However, on the other hand, this extreme price plunge is as damaging as the spike earlier this year. Necessary investments into new production capacities are being delayed, renewable energy projects appear to be uneconomic. This is a dangerous situation as a supply shortage will be the inevitable consequence once the economy rebounds. In all likelihood, we gonna see demand outstrip supply in about 18 months from now. An even more spectacular price hike will be the consequence. As OPEC proves to be unable to stop the price decline as markets are driven by fear and some OPEC members cheat on their quotas, OPEC will struggle to raise oil production when the supply side crunch is coming. Since the end of World War II, oil price spikes preceded most recessions. Our dependence on the black gold is the root of all evil.
If you’re interested in how we can become independent of OPEC oil, check out some of my posts. Though I cannot predict where oil prices will be in March, I can assure you that oil will rise above $150 per barrel within the next 5 years, depending on the severity of the current recession. After all, the United States’ oil consumption is down by more than 1.2 million barrels a day. (now 19.3 million barrels a day from last year’s 20.5 million barrels per day) The challenge is to prevent oil consumption from rising again when the economy does better. In order to reduce dependence on OPEC oil and to counteract global warming, we need to invest billions into the energy technology sector, increase efficiency and save energy.
