Streetwise Professor

Showing its deep, deep concern for the environment, Gazprom is warning about the hazards of natural gas fracking:

But in a sign the phenomenon is in fact being taken seriously, the board of directors at the world’s biggest gas producer, state-owned OAO Gazprom, this week highlighted environmental risks and the high costs of production in Europe.

“The production of shale gas is associated with significant environmental risks, in particular the hazard of surface and underground water contamination with chemicals applied in the production process,” Gazprom said in the statement following the board meeting.

Now surely, this has absolutely nothing to do with the fact that expanded gas production, especially in Europe, would be devastating for Gazprom.  The experience in the US shows how quickly the gas market can turn.  In 2006, the consensus prediction was that the US was facing a low supply-high price gas future, and that the country would be a gas importer.  Gas prices were well north of $10/mmbtu.  A few short years later, the US supply situation was turned on its head.  Gas prices are now in the mid-$3/mmbtu range, and the play of the day is to figure out how to export gas to Europe and Asia.

LNG sourced from the Middle East or the US is already a near-to-medium term threat to Gazprom, as the ongoing disconnect between gas prices and oil prices (which determine the price of Gazprom gas under its long term contracts) indicated.   Even a modest increase in production in Europe would put even more pressure on the company.  And as the US experience shows, that increase can take place extremely rapidly (though for a variety of reasons such speed is unlikely in Europe).

Hence, it is doing what comes naturally to Sovoks: propaganda.  It is pulling out all the stops to discredit shale and fracking, not just in Europe, but elsewhere.  The next time you hear anti-fracking flacking, it’s fair to ask who’s paying for it.  No, not all the opposition is from Gazprom: some is from the well-intentioned, some from those who reflexively oppose any kind of energy production.  But knowing the way Gazprom works, no doubt some Gazprom money is funding anti-fracking lobbying, politicking, and information campaigns

But the enviro angle is really just too much.  Sorry, but lectures on environmentalism from the direct descendent of the Soviet Ministry of Gas (the USSR being history’s largest environmental catastrophe), and a company with a pretty poor environmental record to boot (witness the huge problems with leakage from Gazprom pipelines), are enough to challenge the strongest gag reflex.

But the fact that the company feels compelled to engage in such risible hypocrisy is actually encouraging news.  The more Gazprom execs squeal about shale, the more you know that it is a threat to them.

So yet again: Gazprom gripes–music to my ears.

Today the Chief of the Russian General Staff, General Nikolai Makarov, denied that the Russian Navy was sending an “aircraft carrier” to Syria:

The dispatch of a Russian Navy task force to the Mediterranean Sea is part of a scheduled exercise and is not connected to the situation in Syria, General Staff chief Nikolai Makarov said on Tuesday.

“We are not sending anything [to Syria],” he said.

He did not say when the exercise would take place.

Earlier in the day a Russian Defense Ministry source denied media reports that a group of Russian warships led by the Admiral Kuznetsov aircraft carrier would arrive at the Syrian port of Tartus in the spring of 2012.

Uh huh.  Riiiiggggghhht. I would be very interested to know what the real story is here. Was the military freelancing? Was this a trial balloon that drew a rather hostile response from the US. (Along the lines of: you might want to reconsider that, unless you want to see how a real carrier group operates, up close and personal.)

Anyways, the screeching U-turn is rather entertaining.

Take it away, Emily!

Russia’s simulacrum of an aircraft carrier will go Syria along with 2 other vessels (one of which, based on past experience, should be an ocean going tug/salvage vessel):

The vessels including the Admiral Kuznetsov, which will have eight Su-33 fighter aircraft, several new MiG-29K fighter jets and two Ka-27 naval helicopters on board, will arrive at the Mediterranean port of Tartous in the spring, the Moscow- based daily said.

In the spring?  Really?  Uhm, it’s not even winter yet.  I didn’t know the Kuznetsov was oar propelled.  But maybe this is just based on a realistic appraisal of the likelihood of breakdowns, etc.  Or perhaps instead this is a purely symbolic expression of pique that the Russians hope they don’t have to follow through on.

Information Dissemination has an excellent observation regarding this deployment:

An indication that Russia continues to support the [Assad] regime, and also that any multilateral effort to conduct a no fly zone regime change would have to go through a venue other than the United Nations Security Council. Still, it’s a risky move, because if Assad falls, the new regime will likely remember the visit of the Kuznetsov for just as long as the Indians remembered the deployment of the USS Enterprise into the Bay of Bengal in 1971. You have to wonder about the decision-making procedures in the Kremlin; how much information do the Russians have about the foundations of the regime, and how much of this is generated by anti-NATO animus as opposed to an effort to engage in regional influence?

Put heavy money on option B.  Especially in light of the track record, and the nationalist Putin and Medvedev speeches at the Crooks and Thieves Convention.

Equity markets around the world are spiking on news of Le Plan du Jour/Der Plan des Tages being floated by the French and the Germans.

Basically, it is just a variant on an old theme: fiscal integration, but with teeth this time:

Angela Merkel and Nicolas Sarkozy . . . are said to be putting together a framework for a rapid move toward greater fiscal integration. Such a plan would likely entail oversight of member-state budgets—and a corresponding loss of sovereignty—with the understanding that such ties would facilitate the way toward sovereign risk-sharing, as through euro bonds. The prospect of fiscal submission to the will of the euro zone’s big powers is unlikely to appeal to peripheral countries, but many have already accepted some degree of oversight in exchange for emergency assistance, and the alternatives are likely to be far worse. To get around the need to go through a lengthy and uncertain treaty-change procedure, the plan may be drawn up along the lines of the Schengen agreement on geographic mobility. Countries may be able to sign on on a voluntary basis; it will not be an all or nothing approach. Given the scale of the current debt crisis, mutualisation of fiscal responsibilities won’t fix the mess. The main hope for the plan is clearly that a major step toward better fiscal institutions will encourage the European Central Bank to substantially step up its intervention in bond markets.

But the teeth are the problem.  Or, put differently, the lack of panzers is the problem.

The Economist piece is right to recognize that “mutualisation”–i.e., having Uncle Fritz pick up the tab–won’t work.  It won’t work because Fritz (or, more accurately, German taxpayers) aren’t willing to do it, and even if they were, it is doubtful that even Germany has the financial wherewithal.

But if Germans aren’t willing to tax themselves more to pay for what they perceive to be Greek, Italian, Portuguese, and Spanish profligacy, why should anyone expect that Greeks, Italians, Portuguese, and Spaniards are willing to tax themselves much more to pay for what they perceive to be German miserliness?  Which leads to a focus on one of the italicized sentences: any voluntary agreement requires Greek, etc., consent.  How likely is that?  And even if they consent now, are their promises credible?  Will southern Europeans agree to be bitten, and will they stand still to be bitten?  Can Germany et al really bite?  Color me extremely skeptical on each count.

Although the plans themselves have huge holes, as the rapid sequence of announcement and fading away demonstrates, the announcements and leaks (e.g., the completely unsourced story in an Italian paper that the IMF was going to finance Italy) serve a purpose.  The rumor mill will keep on grinding as long as the rumors have even a temporary market impact.  This buys time, which suits the natural proclivity of politicians to procrastinate, but which also does make some miraculous outcome possible.  Time to pressure the ECB into becoming the lender of last resort–or, more aptly, debt monetizer of last resort (because although a liquidity crisis is the current symptom of the problem, it’s much more than that); or time to pressure the Fed into becoming the European lender of last resort.

Which means that today’s market bounce will produce a bounty of new rumors and plans.

Just in time for Christmas.

The President of South Korea goes Jimmy “Sweater” Carter one better on dealing with energy shortages (h/t Renee):

President Lee Myung-bak on Monday stressed the need for public participation in the government’s drive to curb electricity use as it steps up a battle against power shortages this winter.

He urged Koreans to lower thermostat settings, switch off unneeded lights and install energy-efficient appliances in their homes and offices.

“Although the government has drawn up measures to cope with the looming electricity crunch, I’d like to make an urgent request for your participation,” Lee said during his biweekly radio address.

“There are various ways to save electricity in daily life. Recently, I started wearing underwear myself after lowering the room temperature. Though it felt a bit bulky at first, now I feel very warm and comfortable.”

Yeah, I’m sure it’s a translation issue, but I couldn’t resist.

Update.  Renee asks whether President Lee was formerly referred to as “Commando in Chief”.

Gazprom’s oil-linked pricing mechanism is under further pressure, as GDF Suez is also trying to renegotiate gas contracts with the Russian company:

France’s GDF Suez has joined other major European utilities in entering talks with Russia’s Gazprom to renegotiate the price of oil-indexed gas supply contracts, the head of economic research at its trading arm said.

“We are negotiating like the other major utilities in Europe,” said Evariste Nyouki at an energy trading conference.

He added the utility had not started an arbitration process, unlike Germany’s E.ON, which kick started legal procedures to resolve the dispute in August.

One picture (courtesy Mark Perry at the excellent Carpe Diem blog) tells it all:

The gap between US gas prices and world oil prices is approximately 75 percent of the oil price.  Differentials between oil equivalent and European spot gas prices are far narrower, but they are wide enough.  As US gas export infrastructure–which depend crucially on US government approvals (a scary thought given this administration’s energy policies)–comes on-line, however, European and world gas prices will come under heavy pressure, and the already obsolete oil-linked pricing mechanism will become completely untenable.

So expect even more ludicrous Gazprom attempts to rationalize the irrational in the months and years to come.  These will be entertaining, in a perverse sort of way, but ultimately futile.  Economics will out.

The word “hysterical” has multiple meanings.  In the past couple of days, Dmitri Medvedev has personified a couple of them.  “Hysterical” as in “hysterically funny”: the folk dancing display.  “Hysterical” as in “unmanageable emotional excesses”: his shrieking about US missile defense plans.  To wit:

President Dmitry Medvedev said Russia was prepared to deploy Iskander missiles, which officials said have a range of up to 500 kilometers (310 miles), in the Kaliningrad exclave that borders EU members Poland and Lithuania.

Using rhetoric reminiscent of the Cold War, he said the weapons systemsmight also be deployed in the south – close to Russia’s foe Georgia and NATO member Turkey – and be used to eliminate the missile defense systems.

. . . .

If the West pressed ahead with the plans, “the Russian Federation will deploy in the west and the south of the country modern weapons systems that could be used to destroy the European component of the U.S. missile defense.”

“One of these steps could be the deployment of the Iskander missile systems in Kaliningrad,” Medvedev said in a televised address.

Medvedev ordered the Russian defence ministry to “immediately” put radar systems in Kaliningrad that warn of incoming missile attacks on a state of combat readiness.

He said that Russia’s ballistic missiles would be given the capacity to overcome missile defense systems, as well as “new highly effective warheads.”

. . . .

“If the situation does not develop well, then Russia reserves the right to halt further steps in disarmament and the corresponding weapons controls,” he said.

He also said the problem could lead to Russia quitting the Strategic Arms Reduction Treaty (START) for nuclear arms cuts with the U.S. that Medvedev signed with President Barack Obama in April 2010.

This is actually just the latest in Medvedev’s hysterical outbursts: he gave pretty much the same speech several years ago, right down to the last jot and tittle.  Iskander yadda yadda Kaliningrad yadda yadda new warheads that can evade defenses blah blah.

Medvedev reflects Russian beliefs that the ABM systems to be deployed in eastern Europe (with a radar in Turkey) is aimed at Russia.  He claims international support for this view:

Appearing stern [LOL–Medvedev is well, hysterical, when he tries to act all butch and stuff] before a Russian flag on state-run television, Mr. Medvedev said Russia has long objected to the plans, declaring that officials in some countries openly say that “the whole system is against Russia.”

Some countries?  Like who?  Syria?  North Korea? South Ossetia?

Look.  US defense spending is sometimes wastefully stupid, but if the real objective of US ABM systems was to neuter Russia’s nuclear deterrent, this would be the most colossally stupid waste in history.  Interceptors based in Europe (including SM-3 systems aboard Aegis cruisers) would be not only woefully inadequate in terms of numbers, but completely misplaced to deal with a Russian nuclear strike.  They would be in a tail chase for missiles launched on a polar trajectory.  Far beyond their capability.  They would be useless against SLBMs, which is a focus of Putin’s fantastical profligacy in defense spending.

No, a less wasteful plan intended to defeat Russian ICBMs would focus on CONUS-based systems, and continuing to develop the Aegis/SM-3 systems, not on systems in eastern Europe.

Given that this is just a repeat hysterical outburst, one wonders about the timing.  The most straightforward explanation is that this is boobushka bait for the upcoming Duma elections, and the presidential “election” to follow.  Or that Putin wants a pre-text and rationalization for his desired military spend-a-palooza, and his sock puppet is delivering the message.  Coming from Barry’s burger buddy Dmitri, it is a clearer signal that this the more confrontational stance is uniformly endorsed by the entire elite.

It could also reflect a Russian calculation that US budgetary woes will constrain its military spending, and that some pressure applied at this time could lead to American retrenchment on an issue that obsesses Russia, and another American abandonment of eastern European countries that stuck their necks out for the US.  Especially at a time when the US has signaled that it’s military focus is shifting to Asia, and specifically China.

So, how’s that Reset working, BHO? Syria?  Iran?  And the Conventional Forces in Europe thing?:

The U.S. will no longer share data with Russia on conventional weapons, in what the State Department said was an expression of frustration over Russia’s refusal to comply with the data sharing and inspection provisions in the Conventional Armed Forces in Europe Treaty.

“The U.S. will not accept Russian inspections of our bases under the CFE and we will also not notify Russia of the annual data called for under the CFE and it’s our understanding that a number of NATO allies will do the same thing,” State Department spokesman Victoria Nuland said today.

The move comes after the failure of talks meant to revive the treaty that governs the placement and number of troops and conventional weapons. Russia stopped adhering to the CFE in 2007, refusing to accept inspections or provide information to the other 29 countries that are party to the treaty.

But of course, on the other side of the ledger there’s  . . . .  And, uh, . . . .  And what about, er.

Give me a minute.  I’m sure I’ll think of something.

Anybody want to participate in a pool as to when Putin next appears in military uniform?  He is definitely of the bad attention is better than no attention school of thought, and will no doubt attempt to exploit the chaotic world situation to attract as much attention as possible from his bête noire.

In War & Peace, aristocratic Natasha Rostov enters a peasant hut, and channels her Russianness by performing a traditional peasant dance.

Apparently Dmitri Medvedev had the same idea in mind on a campaign swing, in which he performed a Russian folk dance, presumably not to the tune of “American Boy.” I imagine Natasha did better.

Happy Thanksgiving to all SWP readers. I am thankful for many things, but one of them is all of you who visit and read regularly. I am also thankful for those of you who take the time to comment (the comment section being unusually active recently). Even those who go by one initial 😛

I hope everyone has an enjoyable and restful holiday.

SWP.

Two headlines in today’s WSJ.  German Bond Auction Flops.  Pressure on Merkel Intensifies:

The German chancellor faces calls to soften her resistance to euro-zone bonds that would increase investor appeal but also make euro nations liable for each others’ debts.

The connection between the two stories is clear, though the stories don’t make it: nor have any of the other stories I’ve read about the auction debacle.  All the down-at-the-heels Euronephews are looking desperately at rich Uncle Fritz to bail them out.  The more likely that becomes, the weaker the German fiscal position becomes.

And let’s face it.  Fritz is pretty wealthy, but not nearly wealthy enough to pay for Europe’s past profligacy.  The failed auction is a harbinger of things to come.

This will make the amputate-or-gangrene decision all the more pressing for Germany.

There’s an old blues song, Goin’ Down Slow.  That’s not what’s going to happen in Europe: they’re going down, but the descent is accelerating.

The lyrics of the song, though, do resonate:

I did not say I was a millionaire…
But I said I have spent more money than a millionaire!
Cause if I had kept all my money that I’d already spent,
I would’ve been a millionaire a looong time ago…

The money’s already been spent, and there ain’t no mo’.

Hit it, Wolf: