The UK Space economy: the present and exciting future

February 3rd, 2012

Read the full pdf here.  A special thanks to our brilliant Space Fellow, Jim Bennett – as well as many others – on helping me with this wide-ranging feature article in the latest quarterly publiction of the Institute of Directors. Truth to tell, if you want a positive story about the UK Economy, this is almost the only one going.

It’s fascinating as well to realise that some of the best places for Spaceports in the UK are in Scotland – which now comes with a new kind risk for investors should it become independent. It seems we are a long way from really fully understanding the costs and benefits of Scottish independence. But with my energy hat on, I for one wouldn’t bet on renewable energy subsidies and oil prices remaining high and stable into the future – which together form a big part of  the Scots Nationalists’ calculations.  Permanence, after all, is the illusion of every age.

Read the full pdf here – The UK Spaece economy: the present and exciting future.

Petrol going up, gas prices still falling . . . CNG vehicles on the way?

February 14th, 2011

Many British motorists are deeply unhappy about paying £1.30 per litre now for petrol and whatever they say, our politicians aren’t going to do anything about it. So what will be the market response?

The background to this post’s theme is that the supply of natural gas keeps increasing and the price is gently falling at a typically high demand part of the year. The decoupling of oil from gas prices, thought impossible a few years ago, has already happened in the USA and is starting to kick off here. And be under no illusion, the consequences are huge.

As gas emerges to become like oil, a globally fungible commodity, sold at the same price all over the world, new uses for natural gas are going to be found. Starting with high growth in Compressed Natural Gas (CNG) vehicles.  I don’t have the latest figures but it seems there were 7.8m CNG vehicles worldwide early in 2008 and 11.2m by the end of 2009. That’s what I call rapid growth. And Pakistan with 2.3m, Argentina with 1.8m and Iran with 1.6m vehicles are the unexpected leading adapters of this technology.

For the cash-strapped British motorist, there’s still some way to go though before we seem CNG refuelling stations like the one above and a flourishing cottage industry of CNG conversion garages. Not least in convincing policymakers that installing electric charging points for short-range electric vehicles all over the country with public money is going to be a lot more expensive.

At the end of last week, the US price per million british thermal units of natural gas was $4.22 whereas the equivalent price in Britain was $8.49.

Shock Q4 figure have a small silver lining . . .

January 25th, 2011

It’s worse than we thought guv !

Today’s revelation that the UK economy contracted -0.5% in Q4 2010 was a sobering moment. Although not entirely suprising, as I discussed some months ago here and here. Quite apart from further highlighting the ongoing utter uselessness of macroeconomic forecasting which estimated a range of growth of between +0.1 and +0.6, I can see one positive outcome.

Interest rates are not going to go up any time soon. I never bought into the big Weimar-style inflation threat. If there’s so much cheap money around, why’s my bank offering me an overdraft at 10% when the base rate is 0.5%?

The rise in our inflation is not to do with QE, but principally stems from a market-driven decline in the value of the pound (thank God we have a floating currency), the additional rising cost of internationally priced, fungible commodities and our Politicians raising VAT – of which only the first we can control with interest rates.

And once those increases in prices have fed through, where do they think the inflationary wage spiral is going to come from?

With 2.5 million unemployed and many others underemployed, there are a lot of people looking for work out there, ready to work for much less.

On balance, I’m still more worried by deflation than inflation. And inflation hawks still have a lot to prove before they win the argument for large interest rate rises.

Andrew Sentance of the MPC will be feeling a little less confident now.

The unwelcome consequences of a US-forced Chinese Yuan revaluation

October 12th, 2010

Over the summer, I really savoured reading Tom Bower’s book, OIL – Money, Politics, and Power in the 21st Century which – covering 1990-2009 – has become the unofficial sequel to Daniel Yergin’s The Prize: The Epic Quest for Oil, Money, and Power – covering the 1850s to 1990.

So if you’ll forgive the pun, I’d like to crudely summarize some of the best points from Bower’s book thus;

  1. There’s actually plenty of oil – it’s just in the wrong place, too many restrictions on its extraction, limited finance and bottlenecks in refineries
  2. The immensely diverse oil industry – downstream, upstream, traders, engineers, accountants, politicians, economists, refinery workers etc. all work in silos and don’t interact, less still understand each other
  3. So no one apart from the occasional brilliant or lucky trader has any lasting insight on the price of oil which has a massive impact on the investment horizon
  4. As for the IOCs (Independent Oil Companies)
  5. BP under Lord Browne was very go-ahead trying to boost reserves and sloppy on safety and outsourcing engineering (this before Deepwater Horizon)
  6. Shell prospered but was often beset by Anglo-Dutch internal squabbles and having rings run round it by  Oligarchs, Greenpeace etc.
  7. Exxon is a stultifyingly dull bureaucracy, obssessed with safety, has absolute faith in itself and is usually right
  8. As for the NOCs (National Oil Companies)
  9. They may have the oil, but they don’t have the technology or the finances and tend to overstate their reserves
  10. And they constantly strive to renegotiate settled deals with scant regard to reputation or the balance sheets of their partners
  11. Oil producers are ultimately far more dependent on consumers than the opposite
  12. It’s all about achieving an elusive balance between governments, regulators, markets and nature

For all that, compared to preceeding years, oil prices have now gone through a year of relatively high stability, largely in the $65-$80 range which makes me think it won’t last.

So I keep wondering about this piece in the Wall Street Journal a few days ago, The Trade and Tax Doomsday Clocks. Whilst being critical of the Currency Reform for Fair Trade Act which would mandate the US Department of Commerce to take a foreign country’s currency interventions into account in determining whether its trading practices are unfair (crazy in my view – see my earlier post) it makes a fascinating point about the impact such a policy would have on the price of oil;

…an unintended consequence is that it will make China an even more voracious competitor for oil. That’s because oil is priced in dollars, so a revaluation would make it cheaper in yuan terms. Remember, during the period from 2005 to 2008 when the yuan was revalued under similar political pressures from the U.S., the price of oil rose, not coincidentally, to $147 per barrel from $60. That could happen again—and it would be another inflationary tax on U.S. consumers.

I looked at this chart (CNY:USD 5 years)  and this seems to be true. The roughly 16% gain in the Yuan over the last 5 years against the dollar is quite well correlated to the jump in oil prices that we had over that period. So maybe we now have a clearer idea with recent history in mind of what can cause oil prices to go up again?

The bottom line is that the USA has had all the benefits of having the global currency – cheap credit, low transaction costs and enormous diplomatic leverage for too long to now turn round and demand China revalues their own which will cost the Chinese and the USA dearly if not managed gradually. And should such a dispute kick off, all sorts of unintended consequences like higher oil prices will hurt the rest of us. I really hope America’s politicians pull back from the brink on this one. Because as I wrote back in Spring 2007 for World Finance magazine, The nightmare of a Chinese economic collapse, the consequences could be very ugly.

Russia’s Grain Ban – separating the wheat from the chaff

August 9th, 2010

Russia, not known for being a hot place, has been having an extended heatwave. Typically in Moscow, average peak July and August temperatures are 22 degrees celsius but this year all records have been broken and on July 29th reached 39.2 or 100 degrees fahrenheit. This has led to droughts, tinder dry conditions and of course fires dramatically reducing the grain harvest.

Russia’s response has been an export ban on grains in order to keep the price of bread and other staples low.  Some have been worried that this may lead to a rerun of 2008 when commodities like grains exploded in price. But Ambrose Evans-Pritchard kicks that possibility into touch with these points from his article today;

. . .remember, there was a global wheat glut until six weeks ago. Stocks are at a 23-year high. Prices are barely more than half the peak in 2008. The US grain harvest is bountiful; Australia, India, Argentina look healthy. The Reuters CRB commodity index is no higher now than in April. Last week’s commodity scare looks like an anaemic version of the blow-off seen in the summer of 2008“.

And don’t rule out the increasing impact of research (briefly touched on below) that shows that grains are inimical to the human diet which could turn agricultural economics upside down.