European Tribune - Community, Politics & Progress.

So should we all be scared of Turkey's energy weapon, now?

by Jerome a Paris
Fri Oct 2nd, 2009 at 05:09:28 AM EST

Yesterday, Die Zeit published an article, translated by presseurop about Turkey's supposed rise as an energy superpower, and Europe's careless lack of reaction to its apparent increasing leverage.

All these pipelines put together will swell Turkey's sway over Europe. A peripheral country? An unloved aspirant to accession? "We expect to be treated with respect," says Suat Kiniklioğlu, foreign policy spokesman for the governing AKP party. Will Turkey's growing clout also open the door to the European Union? That alone probably will not suffice, but it should cement EU ties to Turkey. So we are going to have more to do with the Turks than, say, the French would like.

To which all I can say is "bah" and "bleh."

Front-paged by afew

The article leads with a map that manages to forget the pipeline that carries the most gas today, as this US EIA map shows:

The "Russia Gas West" link through Ukraine, Romania and Bulgaria which still carries, to this day, the majority of Turkey imports from Russia.

And, as that map makes clear, Nabucco would share a significant bit of its route with it, meaning that a simple swap diverting Russian supplies aimed at Turkey towards Europe for supplies coming to Turkey by any other route on their way to Europe will be easy, always possible and structurally profitable. In other words, Turkey's role as a transit country makes little sense as long as it imports significant volumes from the West... even if that's actually Russian gas.

As usual, the Zeit article happily confuses oil & gas, and makes it sound like deliveries of gas from Iran, Iraq or Turkmenistan are just around the corner, when the obstacles to these are tremendous (starting with the lack of credibility of export commitments from these countries, which all have more attractive alternatives and/or no production to spare).

Update: see more substance on this in this comment below.

But what I found most interesting is that this represents the newest attempt at scaring Europeans with unfriendly countries apparently bent on dominating our energy supplies. Beyond the sideshow of sowing yet more French-German discord, it feels like yet another attempt at distracting fearmongering.

Because, of course, nobody asks why our gas consumption is increasing so much, and whether this is a good thing. Nooo, let's point the finger at the evil Russian or Turks who want to use our craving for gas to exercise power over us.

Sigh.

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So should we all be scared of Turkey's energy weapon, now? | 73 comments (73 topical, 0 editorial, 0 hidden)

I should write a longer post on Turkey (4.00 / 9)

and its actual role as an energy crossroads, but this is beyond my energy level tonight...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Oct 1st, 2009 at 06:23:02 PM EST

A decent article on the topic (4.00 / 2)

can be found here: Turkey at the Energy Crossroads, even if the usual nasty reference to Russia's "energy weapon" is included (but this is from a Turkish diplomat in the DC embassy, so he may not know better on these topics):

Conclusions
Energy dominates Turkish strategic thinking. While the United States enjoys a relatively peaceful neighborhood, Turkey exists in a tough and complicated region. As Turkey continues to industrialize and develop into a regional hub, its thirst for oil will only increase. This requires not only diversification but also good relations with all its neighbors, in addition to and not to the exclusion of its traditional partnerships. Turkey simply does not have the luxury to remain aloof from its neighbors, even if they are Russia and Iran.
Still, the Russian invasion of Georgia underlines the uncertainty that marks Turkey's diplomatic realignment. The future of Turkish-Russian energy relations and the north-south corridor depend largely on Moscow's vision of energy security for Europe and the world. Russian officials often point out that during the Cold War, they did not stop supplying oil to the West. While that is correct, it is equally true that the reputation of the Russian Federation as a consistent and trustworthy energy supplier is questionable. Moscow's use of energy as a trump card against Ukraine, Belarus, Latvia, Georgia, Azerbaijan, and the Czech Republic raised eyebrows. Even if Russian decision-makers perceive energy as not only an economic but also a political matter, energy bottlenecks due to political risks are always a possibility[38]--a situation that will increase the legitimacy of energy policies aimed at creating alternative supply routes.
This should make Turkey's long-term energy development important to the United States and Europe even if Washington remains upset at the short-term implications of Ankara's dealings with Tehran. Diversification of new energy supply routes remains crucial not only to Turkey's development but also for the West's energy security.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Oct 1st, 2009 at 06:28:43 PM EST
[ Parent ]

Re: A decent article on the topic (none / 1)

The Russian invasion of Georgia?

Skennah Kowa

by Crazy Horse on Fri Oct 2nd, 2009 at 05:45:12 AM EST
[ Parent ]

you know (4.00 / 4)

when I worked on the financing of the BTC pipeline, I wrote that the only risk to that pipeline was a Russian invasion to take it over and cut it.

Well, Russia invaded, and specifically did not touch the pipeline (but Georgia claimed they did, of course).

So one could say that pipeline finance is even less risky than one might worry about in the most extreme case...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 06:01:18 AM EST
[ Parent ]

Re: I should write a longer post on Turkey (none / 1)

But they're The Good Kind of Muslims^TM.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Thu Oct 1st, 2009 at 10:49:51 PM EST
[ Parent ]

Yes, a Muslim country with a ... (4.00 / 2)

... primarily secular government, just like our good friends in Baghd... oops, wait, that was the eighties.

Never mind, nothing to see here, just move along.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Fri Oct 2nd, 2009 at 04:24:50 PM EST
[ Parent ]

Re: Yes, a Muslim country with a ... (4.00 / 3)

Give it a decade. Two, tops.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (myfriends@thisispancakes.com) on Fri Oct 2nd, 2009 at 09:07:34 PM EST
[ Parent ]

2 bits from the U.S. (4.00 / 2)

EUobserver: Pipelines alone won't reduce EU dependancy on Russia, says US

Washington continues to support the EU-backed Nabucco gas pipeline, but this project is "only a piece of the puzzle" when it comes to reducing Europe's reliance on Russian gas, US special envoy for Eurasian energy Richard Morningstar has said.
"We support Nabucco. We support the Southern Corridor. It's an important part of the puzzle, but it's only one piece," Mr Morningstar told EUobserver on Wednesday (30 September) in an interview on the margins of a Black Sea energy forum organised in Bucharest by the Atlantic Council, a Washington-based think tank...
"More interconnections between the countries in Europe, more storage facilities, terminals for liquified natural gas (LNG) - all will help reduce dependence on a sole supplier."
But at the same time, Russia will be a "major player over the coming years. That's a reality," he noted, while making clear that the US energy policy in the Caucasus and Central Asia was not 'anti-Russia.'
"We want to engage with Russia and we're hoping there will be ways to co-operate, that we don't look at things as a zero-sum game. Zero-sum games are expensive and [unappealing] in today's financial world."

by Magnifico on Thu Oct 1st, 2009 at 11:39:43 PM EST

Re: 2 bits from the U.S. (4.00 / 3)

Richard Morningstar - Wikipedia, the free encyclopedia

Morningstar started his career with the law firm of Peabody & Brown (now Nixon Peabody) in Boston, Massachusetts, where he practiced law from 1970 to 1981. He then served as CEO of Costar Corporation, and since 1990 as the Chairman of the Board.^[1]^[3] Since June 1993, Morningstar served as Senior Vice President for Policy and Investment Development at the Overseas Private Investment Corporation. In April 1995, Morningstar was posted as the Special Advisor to the President and Secretary of State on Assistance to the New Independent States of the Former Soviet Union. His rank of ambassador was confirmed by the Senate on 11 June 1996. In July 2008, he was assigned as a Special Advisor to the President and the Secretary of State for Caspian Basin Energy Diplomacy. In that capacity Morningstar was a promoter of the Baku-Tbilisi-Ceyhan pipeline. In 1999-2001, Morningstar served as the United States Ambassador to the European Union.^[3]
On 20 April 2009, Ambassador Morningstar was named to the position of the Special Envoy of the United States Secretary of State for Eurasian Energy.^[4] In that capacity Morningstar represented the United States at the signing ceremony of the intergovernmental agreement of the Nabucco pipeline.^[5]^[6] He has strongly opposed the possible participation of Iran in the Nabucco project.^[7]^[8]

I believe the Monroe Doctrine was about preventing European countries from interfering in the internal affairs of the Americas? I think I'm going to go away and think about proposing a Roemon Doctrine that says...

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 2nd, 2009 at 01:27:51 AM EST
[ Parent ]

Re: 2 bits from the U.S. (4.00 / 2)

I'll be making a presentation next week on the topic of European energy to which I know he will attend.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 05:08:49 AM EST
[ Parent ]

Re: 2 bits from the U.S. (none / 0)

This one?

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Oct 2nd, 2009 at 07:34:42 AM EST
[ Parent ]

Wasn't the Monroe Doctrine ... (4.00 / 2)

... that it was more convenient for the British to be able to just set up the material supply systems they needed in the Southern Cone if the countries were nominally politically independent?

After all, the British tacit support of the Monroe Doctrine in the mid and late 1800's has to be the primary driving force, given that the US was incapable of enforcing it on our own in the 1800's.

Utsukushikereba sore de ii

by BruceMcF (agila61 at netscape dot net) on Fri Oct 2nd, 2009 at 12:23:52 PM EST
[ Parent ]

The Canning doctrine... (none / 1)

Monroe Doctrine, 1823

For their part, the British also had a strong interest in ensuring the demise of Spanish colonialism, with all the trade restrictions mercantilism imposed. Earlier in 1823 British Foreign Minister George Canning suggested to Americans that two nations issue a joint declaration to deter any other power from intervening in Central and South America. Secretary of State John Quincy Adams, however, vigorously opposed cooperation with Great Britain, contending that a statement of bilateral nature could limit United States expansion in the future. He also argued that the British were not committed to recognizing the Latin American republics and must have had imperial motivations themselves.
The bilateral statement proposed by the British thereby became a unilateral declaration by the United States. As Monroe stated: "The American continents … are henceforth not to be considered as subjects for future colonization by any European powers." Monroe outlined two separate spheres of influence: the Americas and Europe. The independent lands of the Western Hemisphere would be solely the United States' domain. In exchange, the United States pledged to avoid involvement in the political affairs of Europe, such as the ongoing Greek struggle for independence from the Ottoman Empire, and not to interfere in the existing European colonies already in the Americas.
By the mid-1800s, Monroe's declaration, combined with ideas of Manifest Destiny, provided precedent and support for U.S. expansion on the American continent. In the late 1800s, U.S. economic and military power enabled it to enforce the Monroe Doctrine. The doctrine's greatest extension came with Theodore Roosevelt's Corollary, which inverted the original meaning of the doctrine and came to justify unilateral U.S. intervention in Latin America.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Oct 5th, 2009 at 06:26:20 AM EST
[ Parent ]

Should we all be scared of Turkey (4.00 / 5)

European Tribune - So should we all be scared of Turkey's energy weapon, now?

But what I found most interesting is that this represents the newest attempt at scaring Europeans with unfriendly countries apparently bent on dominating our energy supplies.

Well, given that we don't have much gas any longer, if this scaremongering is what it takes to move our politicians to conservation or alternative energy... The argument will be picked up by both the Nuclear and Wind lobbies, though I can imagine a push for a strenghtened LNG infrastructure.

But where is the LNG going to come from anyway? Unfriendly countries?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 04:35:42 AM EST

But that's the crazy thing (4.00 / 6)

there's no discussion whatsoever to reduce our gas use - only talsk about finding new supplies: new pipelines, new LNG chains, new suppliers.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 05:15:51 AM EST
[ Parent ]

Re: But that's the crazy thing (4.00 / 2)

The only way to achieve that IMHO is through a disintermediated gas market architecture; the unitisation/ monetisation of gas; suitable pricing; and global agreement upon sharing and investing proceeds.

Not much to ask is it?

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 05:21:33 AM EST
[ Parent ]

Nope (4.00 / 6)

the very simple way to achieve this is by

making financing of energy infrastructure a responsibility of the public sector, which will lower the discount rate and ensure that investment-heavy, low marginal cost sources are privileged over low investment, high marginal cost kind, ie wind and nukes over the fossil-fuel burning kind;
recreate monopolies and centralised planning of infrastructure, with explicit public policies on what kind of supplies we want. Ideally this should be done at the European level, but all known experience shows that even if done at the national level only, it works better than the market alternatives (except in the UK, but that's a UK problem, not a public sector problem).

The most important thing is to get the parasites (bankers, traders, consultants) out of the energy business.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 05:44:12 AM EST
[ Parent ]

Re: Nope (none / 0)

Correct with current structure, certainly and to me obviously...

but i believe Chris is talking about this as a piece of a very long-term strategy of changing the nature of finance...

Skennah Kowa

by Crazy Horse on Fri Oct 2nd, 2009 at 05:49:37 AM EST
[ Parent ]

Re: Nope (none / 1)

No, no, no, you don't understand. Probably because you aren't Serious. We will never run out of oil, not in ten million years. If copper ever becomes important, we will synthesise it from other metals. New gas fields can be made if you just pour enough money into it. And markets are magic, so if you just leave it to the private sector, it will pour precisely the right amount of money into it.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 2nd, 2009 at 06:19:26 AM EST
[ Parent ]

Re: Nope (none / 0)

Jerome, you are a dirigiste/elitist - and I do not use those terms pejoratively - with a much more positive and view of a benevolent State than I have.

God preserve us from European institutions, monopolies (whether State or private) and hierarchies. I see the future in a neutral and networked Public/Private enterprise model for utilities within a partnership framework, and I have outlined this exhaustively here and elsewhere.

As for discount rates, current methodology is only relevant if you insist upon using deficit-based fiat money for financing, rather than monetising energy.

Deficit-based financing is the problem, not the solution, but that is something you do not see, probably because it is an existential issue for a banker.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 06:27:30 AM EST
[ Parent ]

I do agree (4.00 / 2)

with your distinction between my dirigiste leanings and your networked/partnership preferences, and accept that neither is pejorative.

But I still fail to see your existential objection to project finance, where you finance a well identified asset, and get repaid only from the income of that asset over a known period of time. It's self contained and pays for itself - no money is created over the full cycle - at least not more than is permitted by the value created by the project, in the form of interest for the lenders and income/dividends for the investors.

You do need a discount rate to compare projects that have different capital investment and running cost profiles, whether you express that in monetary terms or energy units. How do you compare an energy unit today to an energy unit tomorrow?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 07:44:51 AM EST
[ Parent ]

Re: I do agree (none / 1)

Jerome a Paris:

But I still fail to see your existential objection to project finance, where you finance a well identified asset, and get repaid only from the income of that asset over a known period of time. It's self contained and pays for itself - no money is created over the full cycle - at least not more than is permitted by the value created by the project, in the form of interest for the lenders and income/dividends for the investors.

It's not project finance I object to at all. I have a very high regard for the work that you do. It's deficit-based money-as-debt which I see as the problem, and I just think you are being let down by the raw material you use.

The flow of energy which derives from (say) a wind turbine has an intrinsic "use value" in exchange for which investors are prepared to pay value now.

Energy investment eg Exchange Traded Funds (ETFs and ETCs) are a massive asset-class, and can only get bigger. But there are huge problems with the current participation of these funds in conventional futures and OTC contract markets. I am proposing what are essentially ETF/ETC Units redeemable in payment for energy supplied. These are also identical in effect to a futures contract which is undated, and 100% margined.

ie a Unit holder has no right to delivery, but he has a right use a Unit as settlement for energy consumed.

When an "Energy Pool" flow is merely an expected flow from a future turbine then the certainty of achieving that flow is a lot less than when the asset is complete and producing.

As you know better than anyone.

So the value of a Unit (issued by the would-be producing entity) redeemable in (say) 1 Mega Watt Hour of production will be much lower at the development stage than it will be once the turbine is up and running. The difference is the reward for the development risk taken on by the investor.

Jerome a Paris:

How do you compare an energy unit today to an energy unit tomorrow?

That question is answered every second in the energy futures market. It is a question of investors' view of the price of energy at a future point in time, and its relationship with fiat monetary units, particularly dollars.

The beauty of unitising/monetising energy for renewables and energy savings is that it enables value to be received now in exchange for Units which will cost nothing to redeem in the future. The redeemability of a Unit allows the physical market and the market in Units to converge, while otherwise detaching the financial market from the physical market.

End of market manipulation, although there is a need for monetary discipline, due diligencem, risk management and all the skills you would bring to the table as a service provider rather than as an intermediary.

I believe that it is possible to "unitise" existing production, and thereby to release a massive pool of development credit for reinvestment in new production.

The process requires the skills you have,and the architecture I have developed, and it is capable of financing the transition from carbon-based fuels to renewable energy and energy savings (Nega Watts). it means that the only capital your bank needs is that necessary to cover operating costs.

The proposed market in carbon credits and CO2 are both based upon monetising something intrinsically worthless, and it is not surprising therefore that this is the method of choice of those who brought us the credit crunch. These mechanisms are neither sustainable nor necessary

I touched upon this in my last post at Labour List
Gasline Allies or Gasoline Alleys

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 09:25:42 AM EST
[ Parent ]

discount rate (4.00 / 3)

It is a question of investors' view of the price of energy at a future point in time, and its relationship with fiat monetary units, particularly dollars.

You thus accept a private investor driven discount rate determination, ie a market rate, which will always be higher than a public sector driven rate.

By this simple innocuous decision, you've just switched the market from building wind to building gas-fired power plants.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 12:38:33 PM EST
[ Parent ]

Nope - you're missing the crucial point..... (none / 1)

...that a Unit is redeemable for energy.

There's a big difference between a consumer/investor and an investor purely for profit.

A speculator/rentier Investor in Units who wishes to sell may find there is no Investor wishing to buy at a "For profit" market price. But the redeemability of a Unit means that if the price drops below the physical market price then Consumers will buy either for immediate consumption or possibly for future consumption and this fact competely changes the game.

A Consumer buyer is hedging consumption and energy price inflation. His motive is not profit maximisation but loss minimisation.

The motive of rentiers to maximise profit denominated in fiat money is, on the other hand, one of the principal causes of inflation - by definition.

The same point - of energy price risk versus fiat money price risk - lies behind the misunderstanding by US politicians and regulators concerning the role of ETF's in commodity markets.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 02:22:48 PM EST
[ Parent ]

we're talking about different things (none / 1)

you talk about how the instrument is traded. I day that the fact it is traded means that one has to worry about the time horizon of the investors, and their creditworthiness, meaning that one has to have a different evaluation of the value of time applying to your certificates.

Whether it is redeemable in energy or not does not change the fact that 1kWh today is worth more than 1kWh tomorrow, even if in a perfectly tradeable or liquid or usable instrument. By how much IS influenced by the very fact that it's a tradeable instrument.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 03:26:09 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Creditworthiness of Investors does not come into it because there is no credit risk to the Unit Issuer. Investors are handing over value now - in fiat money (or maybe "money's worth") in exchange for the redeemable Units a producer issues.

An Investor's time horizon does not come into it either, but the Issuer's does, because he will need to ensure that he is in a position to redeem Units against energy he has delivered and still have enough fiat money left for his costs.

That will mean that he buys Units himself from the Pool to amortise the depreciation of his energy producing asset, or as a sinking fund for re-powering etc etc

Jerome a Paris:

By how much IS influenced by the very fact that it's a tradeable instrument.

The tradability of a Unit in an Energy Pool does not affect the physical market price of electricity, today or in the future, any more than if I were to bet you that the price would rise or fall.

A Unit is a store of value - a unit of currency based upon the use value of energy. The physical market price affects the Unit price - but not vice versa.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 04:09:57 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Creditworthiness of Investors does not come into it because there is no credit risk to the Unit Issuer.

But the creditworthiness of the Unit Issuer does come into it. Namely, the ability of all the units to be redeemed on demand at a time of the Unit holder's choice.

Suppose 10 units are produced per month, and 120 units are issued at the start of the year. Suppose that 20 different investors buy 6 units each and all of them want to redeem one unit at the end of January. What happens?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 04:16:21 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

They can only redeem against supply they receive. They have the choice of paying for supply in fiat money or unit redemption.

It is the capability of the Issuer to deliver that is in question. There's nothing new in performance risk. I spent six years managing IPE Gas Oil contract deliveries where sellers were only too happy to wriggle out of contracts in a rising market if they could.

The Pool would require a "framework of trust" (ie the mutual guarantee agreement I call a Guarantee Society) and this could be backed by provisions made into the Pool.

Liquidity is an issue of course, but the bigger the Pool, the greater the liquidity.

The Pool would also require a development/management service provider consortium. Which includes a role for providers of financial services like Jerome and your good self, of course.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 04:37:28 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

So if the twenty people all want to redeem one unit at the end of January, how do you decide who can redeem their units? Draw lots? First-come-first-served? Auction? Devaluation of the units?

All but the auction are an invitation to speculators to start playing games. If you draw lots or redeem on a first-come-first-served basis, you're inviting a second-hand market, which would work just like the forwards market does today, except with even less oversight.

If you continuously revalue and devalue the units, you're rewarding people based on how well their use pattern tallies with production patterns and how poorly it tallies with predicted aggregate use patterns. Which may not be a bad idea, but needs to be considered.

If you auction the right to redeem units without revaluing and devaluing units, then you've just re-created the current forward market.

From where I'm sitting, it would make a lot more sense to simply ban anybody who doesn't have the capability to make or take delivery from operating in the forwards and future markets. Those markets are there to serve as a gathering place for people who want to buy and sell stuff - people who wish to gamble can avail themselves of our perfectly good casinos, which are there for precisely this purpose.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 2nd, 2009 at 05:22:37 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

JakeS:

So if the twenty people all want to redeem one unit at the end of January, how do you decide who can redeem their units?

I already answered this in response to migeru. Units can only be redeemed against consumption as an alternative to making payment using fiat money.

Price formation in the physical market - now that's a different issue, and I think that periodic auctions along the lines of the London Bullion Fix have a lot to commend them.

There was a thread covering that subject a while ago.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 07:07:17 PM EST
[ Parent ]

Re: we're talking about different things (4.00 / 2)

It's all well and fine to say that one can only redeem units by purchasing stuff. But that doesn't answer the question: How does it work? What is the actual transaction that happens when I go to the exchange. Suppose that I have an apple unit that I bought a while ago, and I want to get my apple now. What do I do?

Break it down for me, using small words.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 2nd, 2009 at 07:25:47 PM EST
[ Parent ]

Re: we're talking about different things (none / 0)

The point is that, if each of the prospective buyers has cash, they can have an auction and whoever is willing to pay more for it gets the unit of product, assuming they bid high enough to at least exceed the price at which the supplier offers the unit.

If all you have is a redeemable scrip with a face value of 1 unit, you can't have an auction.

I don't know whether you can even have an auction if there is some redeemable unit-valued scrip left outstanding because if I hold the unit I can always outbid everyone else (if you bid €10 I can bid €11 and then pay with one unit of scrip rather than cash) but if there are two units of scrip outstanding there can be no winning bid.

I guess you can always do it pro-rata. You specify that any scrip presented on the third friday of the month before close of business will be redeemed pro-rata at auction before any cash bids. You also specify that you'll be putting up for auction no less than a set amount of units of production (in my example, 10 per month).

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 07:38:00 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

There is no auction in relation to the redemption, but there may perhaps be a continuous or semi-continuous auction which establishes the physical market price of electricity.

If the Unit market price is above the physical market price then a consumer will not buy Units to redeem them, since fiat money is cheaper to use.

He will buy as many Units at the exact physical market price as he can use in the spot period. He may buy more Units if the price is below the market price and he has a future use for Units, but the price he pays will reflect both fiat money interest rates to the expected date of redemption, and expected energy price inflation.

Scrip is presented bilaterally to your supplier if that is in your interest. There is no need for an auction. You cannot redeem more Units than you have had energy in supply.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 09:50:01 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

And this differs from ordinary forward contracts in what way, again?

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 3rd, 2009 at 04:33:22 AM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Units are undated. Forwards are dated.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Mon Oct 5th, 2009 at 04:14:07 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

Yup.

A banknote is undated, too: it's just that it is redeemable for....errrr....another banknote.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 06:41:40 AM EST
[ Parent ]

Re: we're talking about different things (4.00 / 2)

Unless it's used by someone to pay a debt to the Central Bank, at which point it could be taken out of circulation.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Mon Oct 5th, 2009 at 06:57:34 AM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Technically - or not so technically, in reality - it's redeemable as a promise, and the faith that someone else will honour the promise.

Money is just a ritualised IOU.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 5th, 2009 at 07:57:16 AM EST
[ Parent ]

Re: we're talking about different things (4.00 / 2)

ThatBritGuy:

Money is just a ritualised IOU.

Money is whatever the government will accept/demand in payment of taxes. You could make cow dung valuable if you decreed you would collect taxes by weight of manure.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Mon Oct 5th, 2009 at 08:51:43 AM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Migeru:

collect taxes by weight of manure.

Best description of a market economy ever.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Oct 5th, 2009 at 11:29:48 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

You don't go the exchange, because there is no exchange.

Say you have a Unit redeemable for 10 Kilo Watt Hours in electricity. That will be accepted in settlement of electricity supplied by any supplier member of the Pool.

If they didn't issue it themselves they will present it to whoever did and be credited with 10 Kilo Watt Hours, or be paid in cash at the physical market price.

JakeS:

Suppose that I have an apple unit that I bought a while ago, and I want to get my apple now. What do I do?

This Unit does not entitle you to delivery of the apple, but is prepayment for an apple.

You buy the apple from the supplier, if he has any, and present your Unit in payment, if you wish.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 09:29:18 PM EST
[ Parent ]

Re: we're talking about different things (4.00 / 4)

So if there's an apple shortage and you've already paid for an apple, thinking it would guarantee you an apple ahead of the rush, you don't necessarily get an apple?

Or if you've bought an energy unit, you could still be sitting in the dark?

How is this a benefit?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Oct 2nd, 2009 at 10:55:07 PM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Securing supply and securing price are two different things.

Having a Zimbabwean Pound today can only buy you an apple if there are apples available.

Tomorrow the apples will probably still be available but now it may take ten Zims to buy one.

An apple Unit on the other hand, would still be redeemable for the apple, but maybe not that much else.

I suspect that a Unit issued by a credible operator and redeemable in 10 Kilo Watt Hours, or maybe a Unit redeemable for an hour of Zimtel talk time; or a Unit redeemable in Zim land rental value, would remain fairly constant against apples too, even though the fiat Zim is fucked.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 08:48:40 AM EST
[ Parent ]

Re: we're talking about different things (none / 1)

Im not so certain about Zim Land rental value. Tomorrow there could be drought, or civil unrest, making land rental value extremely unstable. If its unstable then you introduce a secondary insurance market to offset risk, and we all know where that can end up leading people.

If you're not part of the solution, you're part of the precipitate.

by ceebs (ceebs (at) eurotrib (dot) com) on Mon Oct 5th, 2009 at 08:53:36 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

Land rental value would be the least likely candidate, Day One, I agree.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 09:09:29 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

You could argue similarly about phone credit

If you're not part of the solution, you're part of the precipitate.

by ceebs (ceebs (at) eurotrib (dot) com) on Mon Oct 5th, 2009 at 09:18:09 AM EST
[ Parent ]

Re: we're talking about different things (4.00 / 2)

I think phone credit holds its value pretty well, actually.

Someone I knew who was in the top team at Orange a few years ago told me that the Egyptian Central Bank forced their local operation to cease issuing their highest value phone cards because they were being increasingly used as currency, since they held their value better than the official currency at the time.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 09:50:29 AM EST
[ Parent ]

Re: we're talking about different things (4.00 / 4)

I specifically didn't talk about electricity, because electricity isn't a market. You don't decide to buy so-and-so-many kWh of electricity at such-and-such date. You plug in something, and electricity comes out of the wall. Then at some later date, you get a bill.

Electricity is an infrastructure business.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Oct 3rd, 2009 at 04:36:52 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

It's an infrastructure business with the usual dysfunctional enterprise model.

There's still no reason why Unitisation could not be used as a complementary funding mechanism to conventional debt and equity.

Indeed, as a "one time" conversion, unitisation within a partnership framework could release enormous value.

And the result would be an enterprise model that works, and keeps on working, for the benefit of all stakeholders, and not distorted for the benefit of unproductive rentiers.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 09:06:47 AM EST
[ Parent ]

Re: we're talking about different things (none / 0)

Or you could just have the government run it, like they do in France and used to do in Germany.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 5th, 2009 at 12:15:46 PM EST
[ Parent ]

err (none / 1)

You do know that "a good" and "a good at some point in the future, if and when available" are not quite the same thing and the two certainly do not carry the same price.

And this is especially the case with electricity kWh, which can almost not be stored, and whose timeliness value is extremely high?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Oct 3rd, 2009 at 05:50:29 AM EST
[ Parent ]

Re: err (none / 0)

The market price of physical electricity is one thing, and the market price of a Unit redeemable in electricity is another.

I believe that this redeemability connects the physical and the financial in a way that allows a new approach to investment, and indeed, offers a basis for a regional and even global reserve currency. Units redeemable in carbon energy could be a transitional - globally fungible - currency.

It is only through basing exchanges on an energy standard, (ie energy accounting), I think, that we can make the transition to renewables.

An economy founded on money-as-debt and with value extracting intermediaries operating "For profit" is the cause of the problem, not the solution.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 09:00:43 AM EST
[ Parent ]

but no (none / 1)

My point is that the substantial difference between a physical kWh and a unit of kWh makes it impossible to use one as a substitute for the other, nor to base your trade on anything that can be assimilated to an energy unit.

The value difference between the two is so volatile as to completely negate the usefulness of the units. They would become pure speculative plays on the immediate balance of the electricity grid, and that function will pollute any other that you might want it to play.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Oct 5th, 2009 at 12:12:36 PM EST
[ Parent ]

but yes (none / 0)

I've always said (for almost ten years) that a rational P2P physical market structure is needed too, not the completely dysfunctional intermediated bollocks we have now. This existing wholesale market is not going to change very rapidly, I admit.

So the plan is to create local energy pools at the micro level (private wire obviously as with Woking), and I have a twin turbine municipal scheme on the stocks, with almost all the permissions done.

At the macro level, an Energy Pool could work for (say) the North Sea (where a cross border legal framework exists) or the Caspian Sea, where it does not, as far as I know.

Retail customer prices do not in fact change much - and Units are primarily a retail product on the one hand, but when aggregated become wholesale financing on the other.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 02:37:45 PM EST
[ Parent ]

Re: but yes (none / 0)

"Disintermediating" electricity is physically impossible, for the same reason that "disintermediating" natural gas, railways, canals and the internet is physically impossible: The "intermediaries" are the service.

The current European electricity network carries alternating current over distances that are measured in the order of a thousand km. And a future European supergrid will carry direct current even farther. While at the same time load-balancing continuously. In other words, the electric grid is not local, and electricity is not storeable. Oil exchanges, which is where I believe you have most of your experience, deals with a commodity that is both local and storeable.

This is not hair-splitting. Even if your scheme works for oil, apples or grain, there is no way, short of direct divine intervention, that a distribution scheme adapted to local, storeable goods will perform satisfactorily for non-local, non-storeable goods.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 5th, 2009 at 02:52:57 PM EST
[ Parent ]

Re: but yes (none / 0)

In the case of Private utilities owned "For Profit" the intermediary is the rentier shareholder: in the case of Public utilities it is the State.

It is the profit motive that leads to the negative outcome in the former case, and the nature of the State as an organisation, combined with the defects of representative democracy, in the latter.

IMHO the optimal enterprise model for an infrastructure utility is neither Public = State, nor Private = For rentier Profit but a networked cooperative of cooperatives. ie a partnership framework for Peer to Peer interaction between producer and consumer.

I set out my conclusions here in 2001 and a blueprint for a Market 3.0

This analysis is now being picked up by influential thinkers such as Michel Bauwens, and others. If you can refute it, I would be interested to read your critique, and your alternative view of the next generation of markets.

I identified and developed in 1998/9 - through a Dot Com I founded - what was essentially a new utility function. ie generic transaction registration. It took years to realise that the problem was that there was no adequate enterprise model for such a utility, or indeed, for any utility.

Many years, and much analysis and development later, I believe that not only could a partnership-based utility model be created but it is, I submit, in the interests of States and Shareholders alike for public and private utilities to use such a model.

And btw, Jake, I spent years working on the emerging electricity and gas markets while at IPE, and remember discussing clearing in Oslo with Nordpool when they were still recording transactions on a white board.

I think I know what works, what doesn't work, and more to the point I now have a pretty shrewd idea WHY it doesn't work, market by market.

And if you require a rationale for unitising electricity you might try reading someone who has essentially done it just to show that it's possible.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon Oct 5th, 2009 at 04:15:21 PM EST
[ Parent ]

no (none / 1)

the physical nature of the market is fundamentally different. what may work for oil likely cannot work for gas and certainly not for electricity.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Oct 6th, 2009 at 06:09:25 PM EST
[ Parent ]

Red Herring (none / 0)

I am perfectly well aware of the differences between the physical markets, which are irrelevant.

Units redeemable in underlying value do not concern securing supply. They secure price, and have no effect on supply.

They are a means of payment complementary to fiat currency - and a genuine store of value, which is why they will be hugely successful in a way that commodity ETFs (ETCs) can never be.

Unitisation is pretty trivial - supermarkets and airlines which issue reward points and air miles are issuing Units.

It's not Rocket Science.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue Oct 6th, 2009 at 06:55:43 PM EST
[ Parent ]

Re: Red Herring (none / 0)

The problem with energy units is that they are not fungible - in a pinch, they are only redeemable for energy, from the issuer.

Money is redeemable for anything, from anyone.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Oct 7th, 2009 at 04:19:09 AM EST
[ Parent ]

Re: Red Herring (none / 0)

Money is either acceptable (I wouldn't say redeemable) or not in accordance with the particular legal framework which applies eg legal tender.

I would propose as a starting point membership by energy users and consumers alike of an International Energy Trade Association (defined by use of a transaction registry) and then to build an Energy Pool, Guarantee Society upon that foundation, and apply unitisation within the resulting framework.

I think that you would be hard pressed to find people not prepared to accept a Unit redeemable in energy if such a framework of trust existed.

Note that I see Units redeemable in energy as a global reserve currency. Units redeemable in land rental value would probably comprise most of the value circulating locally.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Wed Oct 7th, 2009 at 09:34:55 AM EST
[ Parent ]

Re: but yes (none / 0)

As long as the system of services is stable I think it can be used for creating a currency, even though the currency would come crashing down faster (then if based on something storable) if the system of services become erratic. But then again so do all systems of currency.

And a market structure that works for storable goods can work for un-storable services, though it does not have to.

I think I will have to make a diary of how I understand Chris so far. My present position is that there is something very appealing with decentralising credit creation, though I do not really see how Chris system would work on a larger scale. Then again the steam engines were quite a mystery scientifically until thermodynamics, and the theories surrounding them where inconsistent and had severe problems. But that did not stop the engines from working.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Oct 6th, 2009 at 05:29:17 AM EST
[ Parent ]

Re: we're talking about different things (4.00 / 3)

If your project does not produce the Units it owes to its buyers (for operational reasons), then you have a counter-party problem, which is solved only if the owners of the production facility are financially strong enough.

As long as the owner is not the State, or guaranteed by the State, that risk is in there. If that risk is assessed by market instruments, you end up with a higher discount rate.

There's no market trick around it. A production facility presents risks, if not absorbed in a wider entity. They have a price.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 04:27:01 PM EST
[ Parent ]

To come back to Turkey (none / 1)

you will not evaluate a gas supply contract to deliver gas to you on the Austrian border if the counterparty is Turkey or if it is BP's Azerbaijan subsidiary, or if it is BP itself, even if it's the same gas, and the same pipeline to transport it from Shah-Deniz to Austria via Turkey and Nabucco.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 04:29:57 PM EST
[ Parent ]

Re: we're talking about different things (none / 0)

All true.

But I am proposing an alternative method of risk sharing without involving the single points of failure represented by risk intermediaries.

As for States, you only need to look at what happened in the tin market.

Put Not Your Trust In Princes.....

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 04:44:10 PM EST
[ Parent ]

Re: But that's the crazy thing (none / 0)

I have two words for you: peak gas.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 08:52:16 AM EST
[ Parent ]

Re: But that's the crazy thing (none / 1)

And how do you imagine we can make the best use of this finite gas resource unless we have a mechanism for adequately valuing it?

Copenhagen is currently an argument between cripples fighting over a crutch ie between developed and developing energy user nations.

Little is being said about the catastrophic wastefulness of energy producer nations. That is the low-hanging fruit, and as I said here, I think it is through the unitisation/monetisation of energy that we may achieve an optimal outcome.

Natural gas is homogeneous in the way that other fuels are not; does not have the same established marketplace, and vested interests; and would take relatively few nations (Russia, Qatar, Iran, China, maybe Japan) to kick-start a global market.

Units redeemable in gas have a use as long as the underlying gas exists. But don't forget (say) biomethane, and don't forget the potential use of synthetic gas as an energy vector, as is proposed for ammonia by strandedwind.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 09:38:43 AM EST
[ Parent ]

there's no such thing as a gas market (4.00 / 3)

the only thing that can be sold is gas delivered somewhere - which means that gas is fundamentally an infrastructure business, not a commodity business (it can be one when the infrastructure is in place, but as you say, there is no such thing for gas, globally).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 12:29:17 PM EST
[ Parent ]

Re: there's no such thing as a gas market (none / 0)

is this also problematic because gas shipping terminals are very expensive and difficult to make safe, as well as being a terror dream target?

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Fri Oct 2nd, 2009 at 12:59:50 PM EST
[ Parent ]

Re: there's no such thing as a gas market (4.00 / 2)

I don't think they are more expensive or difficult to make safe than a large chemical plant.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 02:37:52 PM EST
[ Parent ]

Re: there's no such thing as a gas market (none / 0)

Like Bhopal, you mean?
iirc, the ships themselves are very vulnerable too.

"Two wrongs don't make a right, but three lefts do." Jim Hightower

by melo (melometa4(at)gmail.com) on Fri Oct 2nd, 2009 at 04:56:17 PM EST
[ Parent ]

Re: there's no such thing as a gas market (none / 1)

Not every chemical plant is like Bhopal. And not every industrial accident goes (shoud go?) unrepaired.

I'm sure you can find examples of disaster caused by organic farming (a humanure spill upriver of a drinkable water uptake? :-)

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Oct 2nd, 2009 at 07:37:27 PM EST
[ Parent ]

Re: there's no such thing as a gas market (none / 1)

A Unit redeemable for gas in a Gas Pool needs the participation of the producers and consumers in the market - by subscribing to the market user agreement - to be effective.

Transparency of the Units in issue, as is a "framework of trust" and the need for due diligence in ensuring suppliers' capability to supply.

The proposal creates virtual financial markets in gas Units which are linked to, but which do not affect, the underlying physical market. The physical market price formation for gas, and the price at which producers sell Units into a "Gas Pool" are an interesting subject.

Infrastructure such as terminals, pipelines and shipping could gradually be assimilated into a global monopoly in common ownership, and operated by a networked consortium of service providers receiving an agreed proportion of gas sale revenues.

I don't know exactly how the market would develop globally in practice, but I am quite sure that the commercial logic for consumers and producers alike is compelling.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Fri Oct 2nd, 2009 at 02:50:34 PM EST
[ Parent ]

More substance (4.00 / 6)

On oil, Turkey has two priorities: the Bosphorus transit issue, and Ceyhan's role as an export hub:

re Bosphorus, the goal is to get Russia to reduce the number of oil tankers that cross the straits and go right through the city of Istambul. The Montreux Convention protets Russia's right to use the straits, and it's cheaper than building alternative routes (mainly land-based pipelines that bypass the straits, either by going just around them (within the European bit of Turkey, or via Bulgaria and Greece), or by going across Turkey to the Mediteranean). So imposing alternative rules requires a voluntary commitment by Russian exporters to use the new routes (and pay for it, in order to fund construction), is a trade-off agaisnt somethign else of interest to Russia;
re Ceyhan, its role is now well established, given its position as the end point of the BTC pipeline from Azerbaijan, filled right now by the (BP-run) ACG field near Baku, and later by some or all the oil from Kashagan. It also gets oil from Iraq and might get more. It makes sense to use it, as it can berth much larger tankers than the Black Sea ports, and is close to the large Southern Europe market.

On gas, Turkey needs to find supplies for its fast growing domestic demand (fuelled by its power sector), and would like, indeed, to act as a transit hub for gas from Russia, Azerbaijan, Iran and, later, Iraq or Turkmenistan, if a way is ever found to make these happen:

its demand is growing fast (although not as fast as some optimistic predictions), and Russia has largely won the race to supply that market when it built Blue Stream in addition to the existing Balkan route: Russia has the capacity to supply more than all the local demand and will easily build up the capacity to do more (doubling Blue Stream, for instance);
its hub role bumps against the desire of customers to buy gas directly from suppliers, and not from Turkey - but being a transit country, while having strategic value, is much less profitable than beign a hub, whereby one buys from various suppliers and then becoems a seller of its own.
as noted, it gets large chunks of its supply from the West, so any East to West pipeline will bump against the natural swap that can be done, which would imply more Russian gas going to Europe and other sources going to Turkey, no exactly what's being mooted...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Oct 2nd, 2009 at 05:57:55 AM EST

So should we all be scared of Turkey's energy weapon, now? | 73 comments (73 topical, 0 editorial, 0 hidden)

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