There is no place on earth that has been as battered by oil, experts say, leaving residents here astonished at the nonstop attention paid to the gusher half a world away in the Gulf of Mexico. It was only a few weeks ago, they say, that a burst pipe belonging to Royal Dutch Shell in the mangroves was finally shut after flowing for two months: now nothing living moves in a black-and-brown world once teeming with shrimp and crab. Not far away, there is still black crude on Gio Creek from an April spill, and just across the state line in Akwa Ibom the fishermen curse their oil-blackened nets, doubly useless in a barren sea buffeted by a spill from an offshore Exxon Mobil pipe in May that lasted for weeks.

The oil spews from rusted and aging pipes, unchecked by what analysts say is ineffectual or collusive regulation, and abetted by deficient maintenance and sabotage. In the face of this black tide is an infrequent protest — soldiers guarding an Exxon Mobil site beat women who were demonstrating last month, according to witnesses — but mostly resentful resignation.

Small children swim in the polluted estuary here, fishermen take their skiffs out ever farther — “There’s nothing we can catch here,” said Pius Doron, perched anxiously over his boat — and market women trudge through oily streams. “There is Shell oil on my body,” said Hannah Baage, emerging from Gio Creek with a machete to cut the cassava stalks balanced on her head.

That the Gulf of Mexico disaster has transfixed a country and president they so admire is a matter of wonder for people here, living among the palm-fringed estuaries in conditions as abject as any in Nigeria, according to the United Nations. Though their region contributes nearly 80 percent of the government’s revenue, they have hardly benefited from it; life expectancy is the lowest in Nigeria.

“President Obama is worried about that one,” Claytus Kanyie, a local official, said of the gulf spill, standing among dead mangroves in the soft oily muck outside Bodo. “Nobody is worried about this one. The aquatic life of our people is dying off. There used be shrimp. There are no longer any shrimp.” In the distance, smoke rose from what Mr. Kanyie and environmental activists said was an illegal refining business run by local oil thieves and protected, they said, by Nigerian security forces. The swamp was deserted and quiet, without even bird song; before the spills, Mr. Kanyie said, women from Bodo earned a living gathering mollusks and shellfish among the mangroves.

With new estimates that as many as 2.5 million gallons of oil could be spilling into the Gulf of Mexico each day, the Niger Delta has suddenly become a cautionary tale for the United States. As many as 546 million gallons of oil spilled into the Niger Delta over the last five decades, or nearly 11 million gallons a year, a team of experts for the Nigerian government and international and local environmental groups concluded in a 2006 report. By comparison, the Exxon Valdez spill in 1989 dumped an estimated 10.8 million gallons of oil into the waters off Alaska.

So the people here cast a jaundiced, if sympathetic, eye at the spill in the gulf. “We’re sorry for them, but it’s what’s been happening to us for 50 years,” said Emman Mbong, an official in Eket. The spills here are all the more devastating because this ecologically sensitive wetlands region, the source of 10 percent of American oil imports, has most of Africa’s mangroves and, like the Louisiana coast, has fed the interior for generations with its abundance of fish, shellfish, wildlife and crops.

Local environmentalists have been denouncing the spoliation for years, with little effect. “It’s a dead environment,” said Patrick Naagbanton of the Center for Environment, Human Rights and Development in Port Harcourt, the leading city of the oil region.
Though much here has been destroyed, much remains, with large expanses of vibrant green. Environmentalists say that with intensive restoration, the Niger Delta could again be what it once was.

Nigeria produced more than two million barrels of oil a day last year, and in over 50 years thousands of miles of pipes have been laid through the swamps. Shell, the major player, has operations on thousands of square miles of territory, according to Amnesty International. Aging columns of oil-well valves, known as Christmas trees, pop up improbably in clearings among the palm trees. Oil sometimes shoots out of them, even if the wells are defunct. “The oil was just shooting up in the air, and it goes up in the sky,” said Amstel M. Gbarakpor, youth president in Kegbara Dere, recalling the spill in April at Gio Creek. “It took them three weeks to secure this well.”

How much of the spillage is due to oil thieves or to sabotage linked to the militant movement active in the Niger Delta, and how much stems from poorly maintained and aging pipes, is a matter of fierce dispute among communities, environmentalists and the oil companies. Caroline Wittgen, a spokeswoman for Shell in Lagos, said, “We don’t discuss individual spills,” but argued that the “vast majority” were caused by sabotage or theft, with only 2 percent due to equipment failure or human error.
“We do not believe that we behave irresponsibly, but we do operate in a unique environment where security and lawlessness are major problems,” Ms. Wittgen said.
Oil companies also contend that they clean up much of what is lost. A spokesman for Exxon Mobil in Lagos, Nigel A. Cookey-Gam, said that the company’s recent offshore spill leaked only about 8,400 gallons and that “this was effectively cleaned up.”

But many experts and local officials say the companies attribute too much to sabotage, to lessen their culpability. Richard Steiner, a consultant on oil spills, concluded in a 2008 report that historically “the pipeline failure rate in Nigeria is many times that found elsewhere in the world,” and he noted that even Shell acknowledged “almost every year” a spill due to a corroded pipeline.

On the beach at Ibeno, the few fishermen were glum. Far out to sea oil had spilled for weeks from the Exxon Mobil pipe. “We can’t see where to fish; oil is in the sea,” Patrick Okoni said. “We don’t have an international media to cover us, so nobody cares about it,” said Mr. Mbong, in nearby Eket. “Whatever cry we cry is not heard outside of here.”

http://www.nytimes.com/2010/06/17/world/africa/17nigeria.html?ref=science

The UN is holding final climate change talks in Spain before the big meeting in Copenhagen in a month’s time and in a sign of just how fractious the negotiations in Copenhagen could be, African countries walked out on the current talks.

A key African negotiator named Kevin Rudd, along with British Prime Minister Gordon Brown, in his criticisms, saying the greenhouse gas reduction targets set by developed nations are too low.

It is a blow to those who are hoping for an international climate change agreement in the Danish capital.

Mr Lumumba Di-Aping has questioned just how serious developed nations are in committing to a binding legal agreement and sticking to it.

He said ‘the issue about whether there is a politically binding agreement and a legally binding agreement; I do not know of anything called politically binding agreement, if there is anything that you know about politics and politically manifestos is that they’re worth very little; tell me of any politician who delivered on his political manifesto… was it Gordon Brown ? Was it Kevin Rudd?’.

According to Wong and kRudd, Australia says it will reduce emissions by at least 5 per cent and up to 25 per cent if there is a world deal, but Mr Di-Aping says it should be 40 per cent below 1990 levels by 2020, he went on to say ‘you have to live to the ambition that saves the world. In Africa’s words, it is 40 minimum’.

Australian Greens Senator Christine Milne says the African nations should be commended for taking such a strong stand. ‘The Africans are doing absolutely the right thing; the developing world is suffering, people are dying right now; they are saying it is time that we had science-based targets that give the planet a chance, that in fact give their people a chance for a start; and the G77 naming Kevin Rudd as one of the people with a manifesto that is virtually meaningless demonstrates that Australia’s targets are too weak; we have to lift our game and do the right thing and put 40 per cent on the table in Copenhagen’.

Climate Change Minister Penny Wong was at the talks and has – of course tried to put a positive spin on how things have gone, she said ‘that the talks in Barcelona were good; we obviously still have an enormous amount of work to do; this is a very tough set of negotiations and we have countries who have very different views, coming from very different places’.

There might be an enormous amount of work to do but there is not much time left.

Senator Wong says she is hopeful the Copenhagen talks will see a deal done. ‘We’ve said for some time what we need is an effective political agreement at Copenhagen; this is an opportunity we can’t let pass and that’s what the government is continuing to work towards; I think we all know that’s still something we need to work towards. Again I say there is an agreement there to be had’.

Rudd, Garrett and Wong may have the balance of power in Australia with a fawning National and LIberal Party trying its best to have some significace, but in the real world, the spin-doctoring is seen for what it is; the re-arranging of chairs on the Titanic will not be aceptable to poorer nations.

The company runs the second-largest field there, in the U.S. called Thunder Horse and operates the largest U.S. oilfield, Alaska’s Prudhoe Bay.

The Tiber discovery, which could hold more than 3 billion barrels of oil equivalent, follows another massive nearby find in the Kaskida field in 2006 and if both are developed, they could boost BP’s output in the Gulf to around 650,000 barrels of oil equivalent day during the next 15 years.

Globally, BP produced about 4.1 million barrels a day in the second quarter (2009).

In 2010, about 14% of crude oil production in the lower 48 American states will come from four deepwater Gulf of Mexico oil fields, two of which (Atlantis and Thunder Horse,) are operated by BP, says the U.S. EIA (Energy Information Administration). These discoveries will boost the relative importance of BP’s North American portfolio, which already represents about 40% of BP’s global business, which co-incidentally is also what the USA uses of the total world oil production.

BP has had a chequered past in the USA not always so triumphant in these waters. The company has taken a few hits, with the Thunder Horse field delayed by three years before starting in 2008 and Atlantis was also postponed.

A 2005 explosion at BP’s Texas City refinery killed 15 workers and the company agreed to plead guilty to criminal environmental charges related to the blast.

Then in 2006 the U.S. regulators sued BP for manipulating the propane market and later that year, BP was forced to shut down a bulk of the oil output at Prudhoe Bay following the discovery of corrosion in some pipelines.

BP’s latest discovery is one of the deepest oil fields ever drilled. The Gulf of Mexico holds its own as considering the first well out of sight of land was drilled in 1947. Bob Fryklund (a consultant with HIS), claims the Gulf – thanks to deeper areas made exploitable by new technology – is part of the offshore “Golden Triangle,” that also comprises West Africa and Brazil.

Brazilian offshore finds are the largest – Petroleo Brasileiro’s Tupi field is estimated to contain some 8 billion barrels of oil equivalent or 93 days (based on the worlds consumption of 85.7 million barrels a day) and while the Brazil government is quite stable, the continuity is not as assured as the Gulf of Mexico as they look to follow the lead of other resource-rich countries such as Russia and Venezuela by proposing new laws that put the state-owned oil company in the driver’s seat of development of newly discovered reserves.

Given the financial quagmire of the USA and the highly questionable value of the US$, it is a question of how the Americans can actually pay for their addiction on energy; with less than 5% of the worlds population but using almost 40% of the worlds oil and no real industry or agricultural exports to pay for it, sooner or later someone will turn the tap off.

Just as Kevin Rudd is weighing up borrowing more money to pump into the economy to make it look like its business as usual, so too is China wondering how much more money to pump into the American economy to buy Chinese manufactured goods.

And before China it was the Japanese and Saudis and many other punters looking for a quick $.

So what comes first, the chicken or the egg when the cost of buying all these consumer goods kept climbing, was it due to rising energy costs and competition for other resources?

An interesting and perhaps telling indicator is that Saudi Arabia was one of the biggest oil exporters and funders to the USA; however, as their oil well ability to meet demand has been slipping (at almost the same percentage rate as the North Sea supplies to the UK, which is also in financial turmoil) so too has their cash injections into the American economy.

There would be quite a few of concerned Saudi princes these days as the USA’s ability or commitment to support the regime is increasingly questionable.

Canada is the biggest supplier to the USA followed by Venezuela, and although America consumes less due to a collapsed financial system (some $9 trillion in debt), people selling to the USA must be wondering what the real dollar value is of the currency the Americans are paying with.

Based on figures posted on the U.S. Department of Energy Web site, Venezuelan exports to the U.S. fell 5.4 percent to 1.39 million barrels a day in the second quarter and jumped to second place from third, leapfrogging Saudi Arabia, which shipped 32 percent less fuel.

Venezuela continues to send the bulk of its oil exports to the U.S., five years after President Hugo Chavez started seeking to diversify his nation’s customer base away from the country he calls “the empire.”

So, if you need to sell your oil to an *‘enemy’ to keep a constant income stream to support your social policies to prevent local unrest, what do you – that is Canada, *Venezuela, Saudi Arabia – do when the value of the payment is no longer there … can you afford to dig for, extract and refine a product that eventually you will never effectively be paid for ?

Nobody seem to be willing to admit the emperor has no clothes and the cost of finding oil (all the major oil finds are long gone) is going up while the public can only afford to pay so much.

Peak Oil has arrived and this concentrated energy source is no longer abundant and tighten belts we must.

Since the agricultural environment is in long term decline we have definitely exceeded our long term carrying capacity – yet our politicians at the behest of corporations AKA corporate government – are adding over 300,000 people a year to our population.

By: Eric_deCarbonnel

February 10, 2009 “Market  Oracle” — After reading about the droughts in two major agricultural countries, China and Argentina, I decided to research the extent other food producing nations were also experiencing droughts. This project ended up taking a lot longer than I thought. 2009 looks to be a humanitarian disaster around much of the world

To understand the depth of the food Catastrophe that faces the world this year, consider the graphic below depicting countries by USD value of their agricultural output, as of 2006.

Now, consider the same graphic with the countries experiencing droughts highlighted.

The countries that make up two thirds of the world’s agricultural output are experiencing drought conditions. Whether you watch a video of the drought in China, Australia, Africa, South America, or the US , the scene will be the same: misery, ruined crop, and dying cattle.

China

The drought in Northern China, the worst in 50 years, is worsening, and summer harvest is now threatened. The area of affected crops has expanded to 161 million mu (was 141 million last week), and 4.37 million people and 2.1 million livestock are facing drinking water shortage. The scarcity of rain in some parts of the north and central provinces is the worst in recorded history.

The drought which started in November threatens over half the wheat crop in eight provinces – Hebei, Shanxi, Anhui, Jiangsu, Henan, Shandong, Shaanxi and Gansu.

Henan
China’s largest crop producing province, Henan, has issued the highest-level drought warning. Henan has received an average rainfall of 10.5 millimetres since November 2008, almost 80 percent less than in the same period in the previous years. The Henan drought, which began in November, is the most severe since 1951.

Anhui
Anhui Province issued a red drought alert, with more than 60 percent of the crops north of the Huaihe River plagued by a major drought.

Shanxi
Shanxi Province was put on orange drought alert on Jan. 21, with one million people and 160,000 heads of livestock are facing water shortage.

Jiangsu
Jiangsu province has already lost over one fifth of the wheat crops affected by drought. Local agricultural departments are diverting water from nearby rivers in an emergency effort to save the rest.

Hebei
Over 100 million cubic meters of water has been channelled in from outside the province to fight Hebei’s drought.

Shaanxi
1.34 million acres of crops across the bone-dry Shanxi province are affected by the worsening drought.

Shandong
Since last November, Shandong province has experienced 73 percent less rain than the same period in previous years, with little rainfall forecast for the future.

Relief efforts are under way. The Chinese government has allocated 86.7 billion yuan (about $12.69 billion) to drought-hit areas. Authorities have also resorted to cloud-seeding, and some areas received a sprinkling of rain after clouds were hit with 2,392 rockets and 409 cannon shells loaded with chemicals. However, there is a limit to what can be done in the face of such widespread water shortage.

As I have previously written, China is facing hyperinflation , and this record drought will make things worse. China produces 18% of the world’s grain each year.

Australia

Australia has been experiencing an unrelenting drought since 2004, and 41 percent of Australia’s agriculture continues to suffer from the worst drought in 117 years of record-keeping. The drought has been so severe that rivers stopped flowing, lakes turned toxic, and farmers abandoned their land in frustration:

A) The Murray River stopped flowing at its terminal point, and its mouth has closed up.
B) Australia’s lower lakes are evaporating, and they are now a meter (3.2 feet) below sea level. If these lakes evaporate any further, the soil and the mud system below the water is going to be exposed to the air. The mud will then acidify, releasing sulphuric acid and a whole range of heavy metals. After this occurs, those lower lake systems will essentially become a toxic swamp which will never be able to be recovered. The Australian government’s only options to prevent this are to allow salt water in, creating a dead sea, or to pray for rain.

For some reason, the debate over climate change is essentially over in Australia.

The United States

California
California is facing its worst drought in recorded history . The drought is predicted to be the most severe in modern times, worse than those in 1977 and 1991. Thousands of acres of row crops already have been fallowed, with more to follow. The snow pack in the Northern Sierra, home to some of the state’s most important reservoirs, proved to be just 49 percent of average. Water agencies throughout the state are scrambling to adopt conservation mandates.

Texas
The Texan drought is reaching historic proportion . Dry conditions near Austin and San Antonio have been exceeded only once before the drought of 1917-18. 88 percent of Texas is experiencing abnormally dry conditions, and 18 percent of the state is in either extreme or exceptional drought conditions. The drought areas have been expanding almost every month. Conditions in Texas are so bad cattle are keeling over in parched pastures and dying. Lack of rainfall has left pastures barren, and cattle producers have resorted to feeding animals hay. Irreversible damage has been done to winter wheat crops in Texas. Both short and long-term forecasts don’t call for much rain at all, which means the Texas drought is set to get worse.

Augusta Region (Georgia, South Carolina, North Carolina)
The Augusta region has been suffering from a worsening two year drought. Augusta’s rainfall deficit is already approaching 2 inches so far in 2009, with January being the driest since 1989.

Florida
Florida has been hard hit by winter drought, damaging crops, and half of state is in some level of a drought.

La Niña likely to make matters worse
Enough water a couple of degrees cooler than normal has accumulated in the eastern part of the Pacific to create a La Niña, a weather pattern expected to linger until at least the spring. La Niña generally means dry weather for Southern states, which is exactly what the US doesn’t need right now.

South America

Argentina
The worst drought in half a century has turned Argentina’s once-fertile soil to dust and pushed the country into a state of emergency. Cow carcasses litter the prairie fields, and sun-scorched soy plants wither under the South American summer sun. Argentina’s food production is set to go down a minimum of 50 percent, maybe more. The country’s wheat yield for 2009 will be 8.7 million metric tons, down from 16.3 million in 2008. Concern with domestic shortages (domestic wheat consumption being approximately 6.7 million metric ton), Argentina has granted no new export applications since mid January .

Brazil
Brazil has cut its outlook for the crops and will do so again after assessing damage to plants from desiccation in drought-stricken regions. Brazil is the world’s second-biggest exporter of soybeans and third-largest for corn.

Brazil’s numbers for corn harvesting:

Harvested in 2008: 58.7 million tons
January 8 forecast: 52.3 million tons
February 6 forecast: 50.3 metric tons (optimistic)
Harvested in 2009: ???

Paraguay
Severe drought affecting Paraguay’s economy has pushed the government to declare agricultural emergency. Crops that have direct impact on cattle food are ruined, and the soy plantations have been almost totally lost in some areas.

Uruguay
Uruguay declared an “agriculture emergency” last month, due to the worst drought in decades which is threatening crops, livestock and the provision of fresh produce.
The a worsening drought is pushing up food and beverage costs causing Uruguay’s consumer prices to rise at the fastest annual pace in more than four years in January.

Bolivia
There hasn’t been a drop of rain in Bolivia in nearly a year. Cattle dying, crops ruined, etc…

Chile
The severe drought affecting Chile has caused an agricultural emergency in 50 rural districts, and large sectors of the economy are concerned about possible electricity rationing in March. The countries woes stem from the “La Niña” climate phenomenon which has over half of Chile dangling by a thread: persistently cold water in the Pacific ocean along with high atmospheric pressure are preventing rain-bearing fronts from entering central and southern areas of the country. As a result, the water levels at hydroelectric dams and other reservoirs are at all-time lows.

Horn of Africa

Africa faces food shortages and famine . Food production across the Horn of Africa has suffered because of the lack of rainfall. Also, half the agricultural soil has lost nutrients necessary to grow plant, and the declining soil fertility across Africa is exacerbating drought related crop losses.

Kenya
Kenya is the worst hit nation in the region, having been without rainfall for 18 months. Kenya needs to import food to bridge a shortfall and keep 10 million of its people from starvation. Kenya’s drought suffering neighbours will be of little help.

Tanzania
A poor harvest due to drought has prompted Tanzania to stop issuing food export permits. Tanzania has also intensified security at the border posts to monitor and prevent the export of food. There are 240,000 people in need of immediate relief food in Tanzania.

Burundi
Crops in the north of Burundi have withered, leaving the tiny East African country facing a severe food shortage

Uganda
Severe drought in north-eastern Uganda’s Karamoja region has the left the country on the brink of a humanitarian catastrophe. The dry conditions and acute food shortages, which have left Karamoja near starvation, are unlikely to improve before October when the next harvest is due.

South Africa
South Africa faces a potential crop shortage after wheat farmers in the eastern part of the Free State grain belt said they were likely to produce their lowest crop in 30 years this year. South Africans are “extremely angry” that food prices continue to rise.

Other African nations suffering from drought in 2009 are: Malawi, Zambia, Swaziland, Somalia, Zimbabwe, Mozambique, Tunisia, Angola, and Ethiopia.

Middle East and Central Asia

The Middle East and Central Asia are suffering from the worst droughts in recent history , and food grain production has dropped to some of the lowest levels in decades. Total wheat production in the wider drought-affected region is currently estimated to have declined by at least 22 percent in 2009. Owing to the drought’s severity and region-wide scope, irrigation supplies from reservoirs, rivers, and groundwater have been critically reduced. Major reservoirs in Turkey, Iran, Iraq, and Syria are all at low levels requiring restrictions on usage. Given the severity of crop losses in the region, a major shortage of planting seed for the 2010 crop is expected.

Iraq
In Iraq during the winter grain growing period, there was essentially no measurable rainfall in many regions, and large swaths of rain-fed fields across northern Iraq simply went unplanted. These primarily rain-fed regions in northern Iraq are described as an agricultural disaster area this year, with wheat production falling 80-98 percent from normal levels. The USDA estimates total wheat production in Iraq in 2009 at 1.3 million tons, down 45 percent from last year.

Syria
Syria is experienced its worst drought in the past 18 years, and the USDA estimates total wheat production in Syria in 2009 at 2.0 million tons, down 50 percent from last year. Last summer, the taps ran dry in many neighbourhoods of Damascus and residents of the capital city were forced to buy water on the black market. The severe lack of rain this winter has exacerbated the problem.

Afghanistan
Lack of rainfall has led Afghanistan to the worst drought conditions in the past 10 years. The USDA estimates 2008/09 wheat production in Afghanistan at 1.5 million tons, down 2.3 million or 60 percent from last year. Afghanistan normally produces 3.5-4.0 million tons of wheat annually.

Jordan
Jordan’s persistent drought has grown worse, with almost no rain falling on the kingdom this year. The Jordanian government has stopped pumping water to farms to preserve the water for drinking purposes.

Other Middle Eastern and Central Asian nations suffering from drought in 2009 are: The Palestinian Territories, Lebanon, Israel, Bangladesh, Myanmar, India, Tajikistan, Turkmenistan, Thailand, Nepal, Pakistan, Turkey, Kyrgyzstan, Uzbekistan, Cyprus, and Iran.

Lack of credit will worsen food shortage

A lack of credit for farmers curbed their ability to buy seeds and fertilizers in 2008/2009 and will limit production around the world. The effects of droughts worldwide will also be amplified by the smaller amount of seeds and fertilizers used to grow crops.

Low commodity prices will worsen food shortage

The low prices at the end of 2008 discouraged the planting of new crops in 2009. In Kansas for example, farmers seeded nine million acres, the smallest planting for half a century. Wheat plantings this year are down about 4 million acres across the US and about 1.1 million acres in Canada. So even discounting drought related losses, the US, Canada, and other food producing nations are facing lower agricultural output in 2009.

Europe will not make up for the food shortfall

Europe, the only big agricultural region relatively unaffected by drought, is set for a big drop in food production. Due to the combination of a late plantings, poorer soil conditions, reduced inputs, and light rainfall, Europe’s agricultural output is likely to fall by 10 to 15 percent.

Stocks of foodstuff are dangerously low

Low stocks of foodstuff make the world’s falling agriculture output particularly worrisome. The combined averaged of the ending stock levels of the major trading countries of Australia, Canada, United States, and the European Union have been declining steadily in the last few years:

2002-2005: 47.4 million tons
2007: 37.6 million tons
2008: 27.4 million tons

These inventory numbers are dangerously low, especially considering the horrifying possibility that China’s 60 million tons of grain reserves doesn’t actually exists .

Global food Catastrophe

The world is heading for a drop in agricultural production of 20 to 40 percent, depending on the severity and length of the current global droughts. Food producing nations are imposing food export restrictions. Food prices will soar, and, in poor countries with food deficits, millions will starve.

The deflation debate should end now

The droughts plaguing the world’s biggest agricultural regions should end the debate about deflation in 2009. The demand for agricultural commodities is relatively immune to developments in the business cycles (at least compared to that of energy or base metals), and, with a 20 to 40 percent decline in world production, already rising food prices are headed significantly higher.

In fact, agricultural commodities NEED to head higher and soon, to prevent even greater food shortages and famine. The price of wheat, corn, soybeans, etc must rise to a level which encourages the planting of every available acre with the best possible fertilizers. Otherwise, if food prices stay at their current levels, production will continue to fall, sentencing millions more to starvation.

Competitive currency appreciation

Some observers are anticipating “competitive currency devaluations” in addition to deflation for 2009 (nations devalue their currencies to help their export sector). The coming global food shortage makes this highly unlikely. Depreciating their currency in the current environment will produce the unwanted consequence of boosting exports of food. Even with export restrictions like those in China, currency depreciation would cause the outflow of significant quantities of grain via the black market.

Instead of “competitive currency devaluations”, spiking food prices will likely cause competitive currency appreciation in 2009. Foreign exchange reserves exist for just this type of emergency . Central banks around the world will lower domestic food prices by either directly selling off their reserves to appreciate their currencies or by using them to purchase grain on the world market.

Appreciating a currency is the fastest way to control food inflation. A more valuable currency allows a nation to monopolize more global resources (i.e.: the overvalued dollar allows the US to consume 25% of the world’s oil despite having only 4% of the world’s population). If China were to sell off its US reserves, its enormous population would start sucking up the world’s food supply like the US has been doing with oil.

On the flip side, when a nation appreciates its currency and starts consuming more of the world’s resources, it leaves less for everyone else. So when china appreciates the yuan, food shortages worldwide will increase and prices everywhere else will jump upwards. As there is nothing that breeds social unrest like soaring food prices, nations around the world, from Russia, to the EU, to Saudi Arabia, to India, will sell off their foreign reserves to appreciate their currencies and reduce the cost of food imports. In response to this, China will sell even more of its reserves and so on. That is competitive currency appreciation.

When faced with competitive currency appreciation, you do NOT want to be the world’s reserve currency. The dollar is likely to do very poorly as central banks liquidate trillions in US holdings to buy food and appreciate their currencies.

By Eric deCarbonnel
http://www.marketskeptics.com

Eric is the Editor of Market Sceptics

© 2009 Copyright Eric deCarbonnel – All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

“In the last 15 years, more than three million jobs have been directly and indirectly lost in Kano with the closure of more than two-thirds of our industries — due mainly to power shortages,” said Ahmed Rabiu, vice-president of the city’s Chamber of Commerce.”There were 500 industries in Kano in the mid-1990s, but more than 400 have since closed down and the workers left without a means of earning a living,” he told AFP on Monday.

Nigeria has been grappling with a power crisis for almost two decades with its generating plants described as a shambles amid corruption and mismanagement within its sole national power generating company PHCN.

A review of the sector issued last week by a special presidential committee said 85 billion dollars (54 billion euros) would be needed for the country of 140 million people to enjoy a “stable power” supply. Nigeria poured 16 billion dollars into its epileptic power sector under former President Olusegun Obasanjo over the past eight years, but manufacturers say power has become even less reliable.

Twice in recent days, the country was thrown into total darkness with the collapse of the power generation system at its only source of electricity at Shiroro hydro station in central Niger state.

Despite nine new thermal stations being slated for completion, Nigeria remains drastically under-supplied — with the head of the Nigerian Electricity Regulatory Commission (NERC), Ransom Owan, telling AFP last May that demand stood at 20,000 megawatts but that generation capacity was only 3,000 megawatts.

In Kano alone, the daily power requirement stands at 250 megawatts but PHCN’s supply does not exceed 80 megawatts, according to PHCN officials. There are now less than 100 factories operating, under strain, because none of them is producing at half of capacity due to high production costs as a result of lack of power,” said Ali Madugu, head of the Manufacturers Association of Nigeria (MAN) in Kano.

Increased production costs are attributed to the price of diesel, needed to power machinery. Kano once had flourishing textile, plastic, food and beverage industries, as well as foundries and tanneries. But a visit to the city’s three industrial estates of Sharada, Challawa and Bompai shows them desolate with the bulk of the factories now closed.

President Umaru Yar’Adua promised to declare a state of emergency in the power sector by the end of June, but has yet to do so as he fights corruption and unrest in his stated bid to use the country’s vast oil wealth potential to propel its economy into the world’s top 20.

Saidu Dattijo Adhama, a garment manufacturer who closed down his factory and laid-off 314 workers, cited the lack of power as his major reason.  “High interest on bank loans and stiff competition from cheaply produced Asian goods kill local industries, but these pale in significance compared to the lethal blow lack of power inflicts on industries,” Adhama said.

Kano state government has for the past five years been promising to set up an independent power plant, but negotiations with Canadian and Indonesian firms have yet to result in concrete proposals.

And China

A worsening coal shortage means that China faces the prospect this summer of the most extensive power cuts it has seen in four years. Despite encouragement to keep the current flowing, with new approval to raise electricity prices, power generators are struggling to find enough fuel, in part due to China’s clampdown on illegal coal mines.

This, coupled with robust demand for electricity, explains why the National Development and Reform Commission recently said the power shortfall this summer could be as high as 10 gigawatts, with 60% of the disparity in Guangdong province, a manufacturing hub.  But analysts say the shortfall may well be larger than the government economic-planning agency’s forecast.

Cuts are already causing major problems, and the situation may well get worse, not least due to inadequate connections, which hinder regions with surpluses from filling gaps elsewhere. Electricity rationing has been imposed in several provinces, and many power plants are struggling with shrinking coal stocks.

On July 6, inventories at 541 coal-fired power plants connected to the state grid averaged 34.64 million metric tons — the equivalent of 11 to 12 days of stock, below the normal level of 15 days — according to domestic media reports. Stocks at 64 plants were below three days’ supply, while an additional 181 had stocks of less than seven days.

On Tuesday, shares in Aluminum Corp. of China Ltd., China’s largest alumina producer by output, slumped in Hong Kong after the company said two of its smelters in Shanxi province were forced to cut production because of a power shortage.

The Chinese government has been stepping up efforts to close down illegal mines since 2005. Output from small coal mines, which account for nearly one-third of China’s total production, is now stagnant at best, and large state-owned mines haven’t bridged the gap, said Wang Shuai, an analyst with Shanghai-based Orient Securities. At the same time, demand has been growing robustly in the past year, with a slew of new coal-fired electricity capacity coming online.

Yang Tao, an analyst with KGI Securities, estimates that the coal shortage is likely to reach 10 million to 20 million tons this year. Though that volume is a fraction of China’s total coal output — around 2.5 billion tons in 2007 — it is still significant, because more than 80% of China’s electricity is produced by coal-fired power plants.