Opinion

The Great Debate

Why energy exploration in North America has its own political risks

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Leading non-integrated oil and gas producer Apache Corporation found itself in the spotlight in recent weeks, as the latest company to grapple with the question of how big a commitment to make to North America’s shale gas and tight oil revolution. Jana Partners LLC, a leading investor in Apache, published a letter to investors July 21 urging the company to exit its international investments and focus on exploring US shale formations such as the Permian Basin in Texas and New Mexico. Just last Friday, Apache announced plans reflecting this advice, as they intend to divest completely from two liquefied natural gas (LNG) projects in Western Australia and Canada in an effort to reduce international assets.

Jana’s letter highlights a recent trend — driven by the technological innovations that have reversed decades-long declines in U.S. oil and gas production – in which traditionally globally-oriented oil and gas producers are “onshoring” back to their roots in North America.

Investors should be cautious of this trend, which trades one form of political risk for another. Instead of fears of sanctions, armed conflicts, or forced nationalization of the oil and gas industry, oil and gas producers may face opposition from local communities and others on environmental grounds. They’ll also have to contend with a growing risk of saturated domestic markets for light oil and natural gas, and the need to receive politically-sensitive regulatory approval in order to export overseas. While North America is safer for workers, and companies can launch public policy campaigns to address these challenges, investors should not underestimate the complexity of doing business in the region.

Since 2009, top oil and gas producers like Hess, Devon Energy, EnCana, ConocoPhillips, Husky Energy, Occidental and EOG Resources have increased the proportion of their exploration and production budget that they devote to North American interests. While EOG Resources and Hess devoted less than half their exploration and production budget to the region in 2009, in 2013 they devoted 94 percent and 62 percent, respectively. Following a similar strategy, Pioneer Natural Resources sold off its last international operation in 2012.

As the Jana letter suggests, one apparent benefit of this North America-centric approach is the ability to shift away from the challenges — political and otherwise — of working in energy-rich developing markets. Anyone looking at headlines from the Middle East or Russia can see the potential appeal of such an approach.

Why Nixon matters

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Forty years ago, on August 8, Richard M. Nixon made unprecedented constitutional history when he resigned the presidency amid the disgrace and scandal of Watergate. He cannot escape that legacy — for he left an indelible record of his deeds in a treasure trove of tapes and papers that continue to fascinate us with revelations.

Alas! Watergate is Nixon’s spot that will not out. The break-in, the ensuing revelation of what Nixon’s attorney general, John Mitchell, called the “White House Horrors,” the congressional and prosecutorial investigations that considered those travesties and Nixon’s eventual resignation laid bare unprecedented instances of presidential abuses of power and yes, criminality.

Watergate was a major constitutional crisis; the promiscuous use of the suffix “gate” only trivializes it. Alexander Butterfield, who revealed the existence of the White House taping system, described Nixon as a man always conscious, if not obsessed, with history and his role in it. How ironic then that he left rich historical documentation, a self-inflicted wound as it were, that has so sullied his record and reputation.

from John Lloyd:

The less well Muslims and Jews actually know each other, the more hatred grows

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In the small town of San Dona di Piave near Venice last Friday, an imam, Raoudi Albdelbar, asked Allah to, "Kill them all (the Jews), down to the last one; make poison of their food; transform the air that they breath into flames, and put terror in their hearts.” The imam was so proud of his sermon that he made a video of it and posted it on his Facebook page -- from where it went viral. Earlier this week, Italian antiterrorist police showed up and arrested the imam on charges of inciting violence, and began the process of expelling him to his native Morocco.

There's a doleful, five-century-old parallel to the iman’s prayer. In his “Trials of the Diaspora,” Antony Julius, a polymath British lawyer, has taken Shylock’s trial in the Merchant of Venice as the ur-trial of diaspora Jews, seeing in it a subtle re-imagining of the old blood libel. In Shylock's pitiless pursuit of a pound of flesh cut from the merchant Antonio's body, Julius detects another instance of Jews seeking Christian blood.

Shakespeare gave Shylock a speech that seemed to challenge the dehumanization at the heart of anti-Semitism – “Hath not a Jew eyes. ... If you prick us, do we not bleed?” -- even as the play drove inexorably to the ghastly humiliation of the Jew. But Shakespeare did not know any Jews; they had been expelled from England in 1290 after centuries of oppression and were not readmitted till the 1650s. Shylock was a composite, born of the normal anti-Semitism of a Christian Englishman but softened by the sympathetic insight of one who recognised common humanity even as he assumed uncommon Jewish malignancy.

from Breakingviews:

Ushering Eric Cantor to revolving door

By Rob Cox

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The following is a fictional letter that could be circulated in the corridors of K Street, the canyons of Wall Street and the hedgerows of the Hamptons this summer:

From the desk of Rick Rooter, Executive Placement Specialist

Dear Sirs and Madams:

I am writing to you as the exclusive agent for a former high-ranking member of the House of Representatives who will soon be eligible for employment by your organization. My client has asked to remain anonymous until he has cleared all remaining business with the current Congress, though the following will provide you with sufficient information based on his voting record, extensive legislative experience and public statements to assist with your consideration of his candidacy as a senior adviser to your business, both in counseling executives on important public policy matters and engaging with your clients on the same.

Are too-big-to-fail banks being cut down to size?

Financial institution representatives are sworn in before testifying at the Financial Crisis Inquiry Commission hearing on Capitol Hill in Washington

The massive $16-billion mortgage fraud settlement agreement just reached by Bank of America and federal authorities — only the latest in a string of such settlements — makes it easy to lose sight of what good shape banks are in.

Banks are now far better capitalized, with tighter credit processes and better risk accounting. The bigger Wall Street houses have also jettisoned many of their most volatile trading operations. Yet most have still managed to turn in decent earnings. That is a tribute to the steady and generally thoughtful imposition of the new Dodd-Frank and Basel III regulations, the rules on “stress-testing” balance sheets and the controversial Volcker Rule that limits speculative proprietary trading operations.

And the feds are keeping on the pressure, as demonstrated by their rejection of almost all the “living will” plans submitted by the major banks, which are supposed to prevent the kind of disorderly collapse that Lehman Brothers went through in 2008.  These living will impositions are designed either to reduce the riskiness of bank holdings or to make the financial institutions post more capital and reserves to cushion against reverses.

Putin’s Ukraine invasion threat is more than a bluff — but not his preference

A Ukrainian serviceman uses a pair of binoculars as he guards a checkpoint near the eastern Ukrainian town of Debaltseve

Ukrainian troops have made huge headway routing the separatists in the east. They are in the process of choking off the cities of Luhansk and Donetsk, to which many of the separatists have retreated. The Ukrainian military appears primed to besiege the cities. As Ukraine has gained, Putin has prepared Russia for invasion: as of Monday, Ukraine says there are 45,000 combat-ready troops are amassed at the border. The chance that Russia invades is certainly going up.

But it’s still Russian President Vladimir Putin’s Plan B. Here’s why that’s the case … and what could change his mind.

At all costs, Vladimir Putin wants to keep Ukraine in Russia’s orbit. That requires two guarantees: 1) that Russian influence over southeast Ukraine will remain intact, and 2) that Russia has a de facto veto over Ukrainian NATO membership. The way he gets these guarantees is through deep federalization, where Ukraine’s eastern regions can set their own foreign economic policy and veto approaches to NATO. Of course, Ukrainian President Petro Poroshenko is completely unwilling and unable to concede this. So Putin can get it the hard way (intervention), or the harder way (invasion).

from Edward Hadas:

Why the global recovery is so slow

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The International Monetary Fund recently engaged in what has become an annual ritual. For the fourth year in a row, it reduced its forecast for world GDP growth. The 0.7 percentage point average decline from the earlier estimate to the new 3.4 percent growth projection is not huge, but the persistent disappointments make many economists uneasy.

Larry Summers has an explanation for the problem in rich countries, which he calls secular stagnation. The former U.S. treasury secretary’s argument has several strands, but his main thesis is that investment has been too low for almost two decades because prevailing interest rates have been too high and because politicians have not permitted sufficiently large government deficits. Controversially, he suggests that growth has been painfully slow whenever financial bubbles are lacking, as in the years since the 2008 crisis.

Two views of Iron Dome’s success in Israel

A column by weapons analyst David Axe was published by Reuters Opinion on July 25, 2014, (Israel’s Iron Dome is more like an iron sieve). Physicist Theodore Postol of the Massachusetts Institute of Technology was one of the experts quoted in Axe’s column. He opposes the construction of missile defense systems largely on the ground that they cannot be made to work under nearly any circumstances. Based on his research, Postol believes that fewer than 10 percent of Iron Dome’s intercepts are successful.

Uzi Rubin vehemently disagrees with Axe’s findings. An Israeli expert on missile defense, he has worked on the Iron Dome system and embraces the Israeli government’s position that Iron Dome’s success rate is around 90 percent. Rubin disputes Postol’s research findings.RELATED COLUMNS David Axe: Iron Dome is more like an iron sieve Uzi Rubin: Iron Dome is an ironclad successNeither the views of Postol or of Rubin have been independently verified by Reuters.

Here is Postol’s response to Rubin’s critique (presented here in italics).

The way Postol is gathering his evidence, through video clips, isn’t sufficient to tell whether Iron Dome is working successfully.

Violence or vaccines: Which path for U.S. in Africa?

A U.S. Special Forces trainer conducts a military assault drill for a unit within the Sudan People's Liberation Army (SPLA) during an exercise in Nzara on the outskirts of Yambio

Africa is the new frontier for the U.S. Defense Department. The Pentagon has applied counterterrorism tactics throughout the Middle East and, to a lesser extent, Central and South Asia. Now it is monitoring the African continent for counterterrorism initiatives. It staged more than 546 military exercises on the continent last year, a 217 percent increase since 2008, and is now involved in nearly 50 African countries.

  RELATED COLUMNS Michael Elliott: Africa’s about more than Ebola, it’s about optimism, too

U.S. military and police aid to all Africa this year totaled nearly $1.8 billion, with additional arms sales surpassing $800 million. In terms of ensuring Africa’s safety and security, however, the return on this investment is questionable.

To match feature LEONE-MALARIA/What if, for example, that money was instead spent eradicating pervasive viruses that are undermining Africa’s future? Yellow fever vaccination doses cost less than $1.00 and Hepatitis B vaccination doses cost 25 cents or less. These viruses, and their deadly bedfellows like Ebola, are the real threats terrorizing African communities — and more deserving of U.S. defense dollars.

Israel’s Iron Dome missile-defense system is an ironclad success

An interception of a rocket by the Iron Dome anti-missile system is seen above Sderot

While the troops of Israel’s Air Defense Command are blasting Grad and Fajr rockets shot from Gaza out of the sky with success, there are an obsessive few who try to blast Iron Dome’s evident achievements into oblivion. They insist on trivializing the missile-defense system’s rock-solid record because the facts don’t fit their theory that no missile defense system can ever work.RELATED COLUMNS David Axe: Israel's Iron Dome is more like an iron sieve EDITOR: Two views of Iron Dome's success in IsraelThe chief Iron Dome scold is Ted Postol of Massachusetts Institute of Technology, a professor with academic standing but no experience in designing or managing the development of modern missile systems. He postulates that missile defense is innately belligerent and as quixotic as “the idea that a nuclear war can be won” but admits that the public would not  readily agree with his views. He casts missile defense as irretrievably faulty and wasteful, with Iron Dome — the product Israeli technical savvy and U.S. defense funds — squarely in his sights.

Judging from grainy YouTube downloads of Iron Dome interceptions that show mostly indistinct windswept smoke trails and blast clouds, Postol infers that the majority of the interceptors over Israel have missed their targets. But none of the images show the targeted rocket. He relies on his own calculations on how Iron Dome ought to work.

Ironically, Postol’s fellow critic, Richard Lloyd of Tesla Laboratories, has said he believes Iron Dome’s success rate to be almost eightfold higher than that calculated by Postol — 30 percent to 40 percent — though they both viewed the same footage. When two critics working so closely together disagree so dramatically in their conclusions, one may wonder at the scientific rigor of their analyses.

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