Thursday, December 27, 2007

Picking Up the Torch

I went to an Obama whistle stop event today, and I knew I'd felt something that stirred in me some feelings I'd plumb forgotten about for a long time-and it's been a long time since we had one such as he is.
I guess it's about steadfastness and maybe a matter of conviction and plain speaking and being the man of the hour in an important time in our history as a people. I think it's also the place for midwestern practicality and plain speaking. Although Mr. Obama is an adopted midwesterner, as I am, he has filled the role quite well.

Warning to Working Stiffs: Do You Like Working At Burger King?

The Democratic Leadership Council and Bill Clinton rammed free trade down the throats of the people who'd elected him. Do you fancy another eight years of the same treatment at the hands of another Clinton administration? Then sit right down with the Friends of Hillary and have a long swig of free trade Kool Aid.

Here's an article written by Ralph Nader back in 2003 about the DLC. At the risk of pissing off Dissident Voice, I figure they'd be OK with me getting out the word any way they can.

Take it away, Ralph.

Al From, the founder and soul of the soulless Democratic Leadership Council(DLC), assembled his flock in Philadelphia recently and warned his comrades about a takeover of the Democratic Party by "the far left." Launched in 1985, the "far right" DLC grew to have a controlling interest in the Party through the efforts of then-Governor Bill Clinton, Senator John Breaux, Senator Al Gore and Senator Joseph Lieberman.

If there were a superlative to the word "hubris," it would come close to describing Al From and his DLC cohorts. With unseemly regularity, they take credit for all Democratic victories as having been rooted in their philosophy of turn-your-back-on-organized labor and open-your-pockets-to-corporations (who fund the DLC, incidentally). All Democratic defeats are explained as owing to losing candidates being too "left" or too "populist."

The DLC brags about one of their own-- Bill Clinton-- developing the message that brought the Democrats the White House in 1992, after the disastrous failed and supposedly ultra-liberal candidacies of Walter Mondale in 1984 and Michael Dukakis in 1988. Clinton insiders will tell you that Ross Perot (and his 19 million voters) was more responsible for beating President George H. W. Bush than the DLC strategy.

So what is the explanation when two of their very own, Gore and Lieberman, lost what should have been a landslide election in 2000? Soon after the election was stolen by the Bushites and the Supreme Court, From's group gathered to post-mortem the reasons why Gore lost (though he won) and concluded it was because he chanted populism ("I will represent the people, not the powerful"). A few months later, Lieberman agreed with From, saying he would not have campaigned with words that criticized industries like the oil, insurance, drug and HMO barons. (To his credit, From has not blamed the Greens.)

But Gore won the election-- both the popular and, as subsequent reviews documented, the electoral vote in Florida as well. (See Jeffrey Toobin's book "Too Close to Call.") Instead of going after the still-operating perpetrators of this theft in Florida and pushing for national electoral reform that not only accurately counts all the votes but eliminates the disenfranchisement of citizens from the voting rolls, the DLC continues its ideological tautologies.

Observers are still waiting for the DLC to explain how, with Democratic candidates espousing its protective imitation of Republicanism, the Party could lose more governorships, more state legislatures and both the U.S. House and Senate. Overall, it has been downhill since the DLC drove the Party into groveling haplessness beneath corporate lobbies and their corrupting campaign contributions.

As the New Republic, a fan of the DLC, reported, the Party deliberately chose conservative Democratic challengers to win back the House in 1998 and 2000 only to have them go down in defeat. DLC-type Democratic Senate incumbents went down to defeat in 2002, plaintively expressing their support for George W. Bush's war mongering and pro-super wealthy tax policies.

To the DLC mind, Democrats are catering to "special interests" when they stand up for trade unions, regulatory consumer-investor protections, a pre-emptive peace policy overseas, pruning the bloated military budget now devouring fully half of the federal government's entire discretionary expenditures, defending Social Security from Wall Street schemes, and pressing for universal health care coverage.

So right-wing is the DLC, mounted imperiously on their sagging Party, that even opposing Bush's tax cuts for the wealthy, that cause huge federal deficits and program cuts in necessities such as health, education, environmental protection and children well-being, is considered ultra-liberal and contrary to winning campaigns.

"Special interests" to the DLC means defending the rights of African-Americans, Hispanics, blue-collar workers, and securing the full day in court for wrongfully injured Americans. Being serious about consumer justice and environmental protection also raises DLC's eyebrows.

It is hard to discern how much is left for the Democratic Party's raison d'etre when these activities are excluded.

In 1995, Al From emerged from a closed-door meeting with Silicon Valley executives and announced his support for their restrictive legislation, which passed and made it harder for defrauded investors to hold the responsible outfits accountable. Al From was on another mission that day- raising money from these same computer industry moguls.

Small wonder that the DLC is not exactly hard on the ensuing corporate crime wave that has looted or drained trillions of dollars from millions of investors and pensions.

So far right is the corporatist DLC that it believes that the Party can move toward Republican positions and still maintain its voting base among labor and minorities because they have nowhere else to go. Maybe that is one reason so many of these voters are staying home.

Liberal Republican Senators in the Seventies, such as Jacob Javits (New York) and Chuck Percy (Illinois), would now be considered on the left wing of the DLC-dominated Democratic Party.

Besides, what does the Democratic Party win if it loses its historic principles as the Party of working people and the downtrodden? Nothing more than the right to take marching orders from its corporate paymasters.

On Air Travel and Why It's...Well, Crappy

I’ve got a trip scheduled to San Antonio in about three weeks, as my son is graduating from army medic school.

One of my pals has told me about an incident of an adult behaving badly in airplanes that's reinforced further what you read here. You can read all about crapmeister Gerald Finneran here.

That’s about 1,500 miles from here. I’ve just told the rest of the world why there is not a chance in hell that I’m spending any of that time on an airplane, even if it means that I spend two days more or less in my pickup.

As a matter of fact, I went to Rochester New York by way of Canada a couple years ago in my pickup, a two day trip, in my truck, with the cell phone and the radio turned off, and nothing but me, my gear, my camera, my wireless laptop for the occasional email when I stopped at a hot spot, a thermos full of coffee and a bag of Twizzlers.

I’d go when I wanted, stop when I wanted or when something looked interesting enough, sack out for an hour or so in perfect calm and quiet, and in all respects I had a dignified and civilized experience.

I mean, don’t get me wrong-I like airplanes, and airplanes in general put a lot of meals on the table at the Dougloid Towers and a lot of checks in the hands of the ex wife.

But what has been sketched out is the kind of experience I had on my last commercial flight back in the summer of 2001, squared.

There weren’t nearly as many people equipped with cell phones, blackberries, kids with cretinous video games, screaming infants and smelly diaper bags and so on all the while those not otherwise occupied are frying their brains with iPods…imagine, a little screen displaying more inane videos at mind numbing volumes that of course leak out all over the cabin.

In fact, the next time that moronic broad Leslie Feist comes on the tube promoting iPods, I might just be like Gerry there only it’ll be my television that gets the treatment.

On second thought the smartest thing that the average air traveler of reasonable intelligence and prudence could do when faced with an imminent commercial flight these days would be to invest in dark glasses, a few packs of those yellow roll up ear plugs that are sold at shooting ranges, and maybe knock back the odd oxycontin before boarding.

Of course, none of this applies to small aircraft. I had the occasion of riding the right seat in a Beech Bonanza from here to Fargo and back a couple years ago, and it was an eminently civilized mode of travel with a witty and urbane companion-an Austrian fellow as a matter of fact-and not a smelly diaper bag or an iPod in sight, either-just me, my briefcase and my sling, having recently crashed my bicycle and broken my shoulderblade, but that's a story for another time.

My pal commutes back and forth between here and San Francisco in his Bonanza and I know the invite’s always on. Perhaps I shall take him up on it soon. I could use a change of scene.

Tuesday, December 25, 2007

Squeezing Blood Out Of The Foreclosure Turnip: Life At The Casino

One of my correspondents from the great nation of Australia wonders out loud what the likely effect of the mortgage credit crisis in the states will be on the people who own pieces of foreign banks that bought and swigged mortgage backed security Kool Aid.

Here's my answer to him.

I think that's quite obvious, my friend, and that is because the financial 'product' that these folks 'bought' could no more be traced to individual mortgages than a Big Mac can be traced to an individual cow-or kangaroo, come to think of it.
The entire shebang was, in fact, casino capitalism writ large.

What happened was that the 'mortgages' (and I use that term advisedly) were loans that objectively had no reasonable possibility of pencilling out, unless and until property values continued to inflate 15-20 per cent per year.
Flip This House Nation, as it appears, was unsustainable.

The loans were generated by mortgage brokers who then sold them the same day to financial institutions and thus on up the food chain to people who had a new wrinkle. Many of these 'mortgage brokers' generated loans that had no objective likelihood of ever becoming paying propositions but that didn't stop the banks from sucking them up like free beer. A lot of those loans were originated with very low initial interest rates and little or no money down....the kicker was that they immediately went upside down, and the interest rates were set to jump in a few years.

A lot of borrowers from Flip This House Nation figured the property would appreciate enough to cover all this. A lot of people also took second and third mortgages under the same sort of rubric, and used the money to buy Harleys and bass boats. People had, as it happens, become a nation of speculators.

The new wrinkle I referred to was that all these individual mortgages would be pooled and homogenized and blended, and bits of the whole would be sold off as 'securities'-which is really no different than what happens when people buy into mutual funds, only the fact that the 'securities' were built on a foundation of sand.

So these loans (with what we now know are dim prospects) went upstream, got merged and repackaged and sold to folks like Deutsche Bank (now leading the foreclosure parade here in Iowa if court filings are any guide), while the individual mortgages were serviced by companies that do just that. They service mortgages, and they're trained to respond in only one way when a borrower gets in trouble. They litigate, even if that's the worst possible thing they can do under the circumstances, because they've got marching orders that haven't been updated in a few years.

Part of what's driving the foreclosure machine is the relative inability to arrange for lender and borrower to sit down together and generate a workout plan. That's because of the inability to determine who is the real party in interest with respect to any individual mortgage.

We had a similar situation here in Iowa in the late seventies which was the so-called 'farm crisis' described herein by Jason Manning.

There was a property bubble, it collapsed, the foreclosure machine got spooled up and the legislature stepped in.

What we ended up with was mandatory farmer creditor mediation. A farm foreclosure can't proceed until the matter's been mediated to see if there's a workout. Part of that was a financial analysis to determine if the farm operation made economic sense and could make the payments on the debt without foreclosure. Part of the underlying consideration was that the lender often stood to lose more money in a foreclosure of a viable farm operation than they would gain over time under a workout agreement.
It compelled people to sit down and have a conversation about what's in their mutual interest, and that's what's lacking at the present time in the residential housing market.

It worked pretty well, in cases where the underlying farm operation was financially sound. But the negotiation was actually between the people who owned the loan, and the person who borrowed the money.

We don't have that connection in the present situation.Our legislature here in Iowa goes into session in January, and I would be very surprised if such a process was not enacted into law for residential mortgages here, because we've got a good model to use and mediators in place. And things are predicted to get worse.

Something needs to be done to staunch the bleeding, and the creditor community is, in my experience, fundamentally unable to act in their best interest when the bloodletting goes outside normal manageable parameters. Part of that may be the ideology of people on the creditor side of things, who have problems functioning when all that moral outrage they're hardwired with runs smack dab up against people who, for whatever reasons, just can't pay.

Mother always said you can't get blood out of a turnip, and a lot of the borrowers in trouble are, unfortunately, turnips right about now. Moral outrage loses its utility as a normative force when you're confronted with a debtor with no assets and no resources.

Ultimately people (banks, institutional and individual investors) who bought those 'mortgage backed bonds' or whatever they were called are going to lose a lot of money, and their depositors who have unprotected assets will see the value of their holdings decline and their liquidity deteriorate. That's inevitable in the collapse of any bubble.

The value of the housing pool will also decline as it becomes rationalized, a lot of loans that were not viable are going to purged, and as you say there will be red ink enough for everyone.

One of our local commentators has observed that there are a lot of people who've been hanging on this winter, trying to get a price that would permit them to avoid a large deficiency that would be the outcome of a distress sale. He says they're going to be in worse shape next year then they are now, because the market's just not going to recover any time soon and the interest rates are going to jump.

On the other hand, people who are creditworthy and can actually point to real assets and steady income should have no trouble obtaining credit as they always have, and they're likely to pick up a lot of bargains selling at distress prices in the process.

Monday, December 24, 2007

No Sense of Humor?

We've been saying all along that certain people have no sense of humor, and it seems as if their minions are staking out space in other places as well. Ask me about that some other time.

This was a post that got removed from a discussion on the subject of the Spirit Aerostructures contretemps and why it wasn't going to happen.

Nothing ever dies, folks. Nothing.

Ahhh, yes, and it was all ze fault of zees dev'lish Americains, zere steenking dollair and zere lapdogs in perfidious Albion....Speeeereeete, your mater is a hamster and your fazer smells of elderberries! I fart in your general direction. Signed, Tom and Louis.

Lotta mileage in that, huh?

Sunday, December 23, 2007

Three Card Monte, Airbus Style

CNN informs us this day that MT Aerospace, the folks who are the designated heirs slated to "purchase" three Airbus sites in Germany (Varel, Nordenham, and Augsburg) in conjunction with Airbus' plan to "downsize" itself out of trouble figure they can do all this with no staff cuts.

Interestingly enough, the IHT tells us that the German government has offered to front the money to MT for this 'acquisition'.

We also learned that GKN is getting a helluva deal on Filton as one of our correspondents deduced a few days ago from a little strategic reading. It's been announced that there will be no 'compulsory redundancies' (layoffs to you) at Filton, and there are rumors afoot of incentives there.

No word as yet from France, but Europe being what it is, the story's likely to be somewhat similar.

The Trib also tell us that the number of people affected all by these 'transfers' of plants is 9,400 workers-right about what Power8 staff reduction numbers suggest they should be.

Putting these things together, the picture's clear.
The worker bees are being transferred to other employers, who will be captive suppliers responsible to direction from Toulouse, they're off the Airbus payroll thus giving Power8 the gloss of 'meeting its objectives', Airbus will get some seed money to get the A350XWB off paper and into development and the governments in question are going to foot the bill for the entire project, WTO be damned.

Three card monte, anyone?

For the information of our patrons, Three Card Monte is a con game disguised as a game of chance that is played on the street.

The dealer holds three face cards, one of which is the queen of hearts. The dealer shuffles the cards and places them face down. The gullible rube, or mark, thinks he knows where the red queen is placed and bets his roll, but he invariably loses because the game is rigged and the dealer is a master of legerdemain. Nothing is as it seems, and the other players and bystanders are part of the choreographed illusion of chance. On the rare occasions that the rube wins the play, it is because that was the intended outcome. If by some chance a particularly knowledgeable rube guesses the play, it is quite likely that a "bystander" will cover his bet or "inadvertently" knock the table over.
Unaccountably, the rube walked away from the table with his roll intact.
Image property of the fine folks at Disney.

Saturday, December 22, 2007

Here's Dr. Fine

Editor's note: I'm not usually one to just go and grab stuff and lard up this blog here with things from other places, but this one's so significant that it deserves its own place.

Dr. Fine is a Research Associate at Massachusetts Institute of Technology, which mean's he's a serious person with important things to say about unconventional resources, and we should be listening to him.

Doc, take it away.

I'm pleased to be invited to The Heritage Foundation and to develop with Heritage and in Washington what might be called the "shale story," which currently is almost silent with regard to national policy and world petroleum. Earlier on, I edited a book on the resource war in the Reagan Administration. It was based upon how to understand, how to conceptualize strategic resources: oil, gas, and hard-rock minerals. I'm currently based both on the East Coast and in New Mexico, participating in the New Mexico energy model for the country and maybe the world.
The New Mexico model is based on a diversity of fuels. It is not exclusive; in fact, the language of "alternative," "conventional," "bio," "geo" is almost disappearing. The concern statewide is: What is fuel? Where is the supply of energy going to come from? And the model is diversification, which in New Mexico means solar; the energy technology of national laboratories; the fourth largest producer of natural gas (California depends on New Mexico for 30 percent of its gas and electricity); the potential for hydrogen; the utilization export of CO2; and, finally, oil.
That's an effective energy production model for the country to follow. In one portfolio, all the energy assets are recognized systemically rather than competitively in terms of production of energy and fuels. Robert Gallagher, who served in Washington in the Clinton Administration Department of Energy (DOE) and is now president of the New Mexico Oil and Gas Association, has made the New Mexico model an operational success.

Shale is a very big part of American history. First of all, shale is not "yesterday" in the sense of the current crisis of energy security. It goes back to 1913, to Winston Churchill, to the British establishing a state company entering Persia to secure the access to petroleum for the Navy, and, in a parallel action, the United States establishing the Office of Naval Petroleum and Oil Shale Reserves (its current designation in the Department of Energy). From 1913 on, government and industry have been watching these oil shale reserves.

Oil shale has an episodic history that relentlessly provokes frustration. Why is it not developed? It even produced histories and congressional hearings in the 1960s and 1970s of almost novel-like proportions. The most interesting point is that the pioneers, with covered wagons, knew about shale. They found it going west in the 19th century and used it for axle grease in their wagon wheels. So the petroleum-like end-use of shale oil took place before the country was unified coast to coast.

While the government established this office, geologists of the time established that in the Rocky Mountain region, in three petroleum basins—the Piceance Basin is one—there was an enormous oil reserve which was locked into shale rock in the form of what is called kerogen. Kerogen is an obscure pre-petroleum organic sediment. It is what nature did not complete by heat and combustion, the process that developed petroleum. There was insufficient heat to transform the molecules in this material into petroleum, so it remains in the pores of enormous shale rock formations in northwest Colorado, Wyoming, and some in Utah, all far from the Persian Gulf.

This oil shale set Congress on its heels. The Mineral Leasing Act of 1920 was changed to promote oil shale development in the United States, because 1920 was a scarce period. We were running out of oil, very similar to some scenarios of the last two years. And then nothing happened; the potential of oil shale went silent. Under President Herbert Hoover, the decision was made to abandon leasing of oil shale. Fifty-four years passed without one lease going into shale.

The Second World War stimulated official interest. The U.S. Bureau of Mines, since abolished, began research on oil shale.
Stewart Udall, who was a founder within the Democratic Party of the environmental movement, was pro-shale. As Secretary of the Interior, he mobilized in the 1960s to move shale forward, to lease it, to make it commercial, but this effort failed again. The debate over oil shale in the 1960s concluded that the very low price of conventional petroleum ruled out shale. Required oil shale investment could not compete against imported, low-cost petroleum as American companies went worldwide in the '60s. At that point, the economics were not favorable.

In the 1970s, with the OPEC embargo and the price escalation, shale once again attracted attention, and the first leases went forward. American oil companies applied for leases and paid $41,000 per acre in Colorado. Seventy-five percent of the shale is federal; 25 percent is patented private.
How large is this resource? In the Piceance Basin, an area of 1,100 square miles, the oil shale is over 1 million barrels per acre, or roughly 750 billion barrels of recoverable oil. If you extend outward to Wyoming and to Utah, it is 1.3 trillion. This is why you hear shale next to trillions, not billions or millions, of barrels. The Air Force in the 1970s looked at shale, tested it, and found that it was a superior liquid for jet fuel. Roughly 65 percent of the oil shale is liquid, which could go into jet fuel. The J-8 engine can take shale oil as premium jet fuel.
These are the dynamics now. From the 1970s, in which the Iranian hostage events and consequent escalation in price led to the 1980s Synfuels Corporation and its abandonment, a good deal of government incentive and private initiative advanced oil shale technology and pilot scale production. Why did it fail in 1982? Look at the price charts. Saudi Arabian exported production expanded, and new supplies, non-OPEC and OPEC, came on the market. The market was saturated with conventional oil from the Middle East, and prices fell rather radically to about $15 a barrel, which was less than break-even for Texas oil in 1986. So the market again changed the dynamic against shale oil.
Apart from supply and demand, there is the technology variable. The oil shale technology of the 1970s is not the technology of 2007. The technology of the 1970s had imposed a surface disturbance footprint which today would be unacceptable in the United States. The process to recover kerogen and upgrade it was essentially mining; that is, to take the shale itself, ton by ton, to the surface and to crush it with great volumes of water and retort it, creating spent shale or tailings for disposal. Then there were extraordinary water requirements: over three barrels of water for one barrel of shale.
What has changed since the 1980s are the dynamics of supply, demand, security, and technology. Two years ago, a major superstorm struck the Gulf of Mexico, which supplies 30 percent of our oil and 25 percent of our natural gas. We are increasingly concentrated in the Gulf of Mexico. Congress was unable under the Republican majority to pass Outer Continental Shelf legislation, which would have expanded access to oil and gas offshore. With one minor concession in the Gulf, nothing was done. We are still dependent on a Gulf-centered domestic supply.
Second, what happened with Katrina was that it triggered thinking about natural disaster and its relation to climate change, because the climate change movement saw the storm as the function of superheated oceans, which would cause more superstorms. This caused another development in the market itself. All of the oil and gas, heating oil, and related products' prices are determined in futures markets on a 24-hour basis from Singapore to New York. Both investors and speculators began to see that there was a new vulnerability to oil supply, not only caused by the war in Iraq and the geopolitics of the Middle East, but also from natural disaster linked to global warming. They began unprecedented speculation in oil, driving the price up to the historic high of late last summer.
The interesting part of that was the belief of speculators in the forecasts of climatologists, who study climate change, that there would be seven superstorms last summer of the Katrina class. But none occurred, and gradually the prices of oil fell from the high of $78 per barrel to the low of $50, and now we're in the middle range. This shows some uncertainty and unpredictability about those climate change scenarios.
Shale oil is not responsible for price or technology; the resource is simply in place. Resource recovery is feasible. Around it is a technology change, and around that is always price. Why that Colorado shale hasn't been on the market, and where we would be today if it had been, is a function outside the resource itself and the technology used to make it into oil. It is a function of policy and price.
There is a silence about this that I want to call your attention to. Those of you who are familiar with the Energy Policy Act of 2005 can turn to Section 369, which calls upon the Administration, the DOE, to produce a report to make policy recommendations to commercialize oil shale in the United States and to recognize it as a strategic fuel. That report was mandated by Congress, but it has not yet been released and sent to Congress. It contains incentives that are needed still to develop the shale in Colorado. Those incentives are quite obvious.
There is a market risk in shale, as I pointed out, because of the oil price volatility over the last 87 years and the episodic way shale has been handled by the world market and government. Market risk reduction is among the DOE recommendations, and that translates into production tax credits and possibly one other item which I'm going to mention: streamlining the permitting process. Go to the Energy Policy Act; you'll see in Section 369 what was mandated about shale and perhaps why it is has not been released.

The Energy Policy Act of 2005 created a partnership with Alberta in tar sands development. Alberta is the world's largest producer of tar sands or bitumen, another unconventional fuel source, which could reach 4 million barrels of oil per day by 2012. Alberta's fuel exports to the United States are greater than Saudi Arabia's. It has been a success story. The conversion of tar sands through natural gas and steam injection has produced oil, and those reserves in Alberta are now classified officially as reserves, not resources. That exists in U.S. legislation, in law, to form those partnerships.

So as President Bush leaves Washington this afternoon to go to Brazil to sign a well-publicized agreement on Brazil's sugar conversion to ethanol, why not add to that an agreement under Section 369 of the Energy Policy Act 2005: an agreement with the Brazilians to co-develop, share technology and information on, Brazilian oil shale? The United States has 1.3 trillion barrels of reserves, followed by Brazil with 90 billion barrels. With 90 billion barrels of new oil reserves in Brazil, the geopolitics of Latin America oil will surely change.
Why am I optimistic about shale in 2007? It's been 25 years since the world petroleum price shut down development in Colorado. What is now available in terms of technology that changes the perspective of shale? Why should we not call shale an official strategic fuel in the United States, and why not commercially develop it in a most aggressive way?
The technology issue is moving significantly in terms of progress. For example, one major development is the Shell Oil project in Colorado. Shell has established some leadership; it has been in Colorado for 30 years. It has invested, in terms of research and development, a significant amount of its own revenues and is moving toward commercialization.
Shell has Bureau of Land Management research and development leases and is moving stage by stage to prove up and resolve all the issues around extraction of shale through a proprietary process called the in-situ conversion process. Understanding ICP requires a visualization that eliminates the surface retort heating and disposal of shale rock as a mining-industrial process. Shell is going underground. The refinery of shale will be underground, with almost no surface impact. This is a breakthrough change in technological capability, and it makes shale accessible. Shell is confident that it can recover shale oil with the price of West Texas intermediate oil at around $25 a barrel.
Older studies have always argued—again, using the 1970s know-how and data—that surface processing would create prohibitive costs extending to intractable problems of reclamation; and water use in the older studies, as I said, was projected at three barrels of water to one barrel of oil shale oil. However, Shell is going underground into the shale formation with electrical heaters. The heaters will provide high-temperature radiant heat, which will then do what nature did not do for organic matter when it was transformed into conventional petroleum. The shale rock under very hot conditions and combustion will yield kerogen, which will flow to the surface through production wells.
There is silence about shale in Washington, but not among the bloggers. I read the bloggers, and many of them have discovered shale. Many of the bloggers out in the West have a nightly debate about this.
What you see here is a potential for an environmentally friendly extraction of shale for the first time: no surface problems, nothing on the surface, an underground refinery. That is a change not available in 1981. But it has to be done by way of creating from Shell's conception, under today's social and environmental standards, protection of water. So Shell is developing the technology of an ice wall around the action of heating the shale, and the ice wall that they're going to put up—they're doing it experimentally now—must contain liquids from going into groundwater and protect the thermal process from water intrusion.
Los Alamosjoined the shale development technology just three months ago and signed an agreement with Chevron. Chevron is going to use another unique technology; it is going to approach the rock itself, rubbleize it by explosives, and then flush the kerogen out with a critical liquid, which is CO2. CO2 is utilized as another method to reduce greenhouse gases or global warming.
The bottom line here is that the approach to shale extraction and converting it into oil in the United States will be a technology that will contain carbon. There will be a carbon footprint that will be established to diminish the carbon emission from the process of production by way of sequestering carbon, storing it underground, putting it into saline aquifers, and so on. Is there any basis for the claim that the conflict between shale oil and the environmental or climate change crisis is irreconcilable? Nothing will move forward without a carbon footprint integrated in the technology of recovery.
The resource, again, is in the trillions of barrels of oil, and if you compare, Saudi Arabia's official reserves are about 289 billion barrels. The New York Times said last week that it had discovered what is called essentially unconventional fuel, which is the topic today, and the petroleum industry is looking at how to get more oil out of existing fields. The Saudi response to that was, "We too can do that; we can potentially double our reserves, albeit with extraordinary investment."
If the Saudis upgraded their own recovery technology, which would take billions to do, they would still have one-half of the reserves in oil shale discovered in Colorado. We're talking still about 1.2 trillion, 1.3 trillion barrels of oil; the Rocky Mountain region is the Saudi Arabia of oil shale. The United States has 75 percent of the world resource, which is about 1.8 trillion barrels. Brazil is next.
As the size of the resource grows, you can see the geopolitical configuration follows. China has announced government incentives for shale development in the last six weeks, while Washington is silent on Section 369. Then there is a series of interesting countries in the Middle East without conventional oil: Morocco, Israel, and Jordan are the next shale reserve holders in the world. This is a configuration of potential shale producers that might have an international organization, an OPEC of shale one day, and transfer of the technology. I should add Estonia, which develops much of its energy from oil shale.
Where are we with regard to the market today and investment? The price of oil will continue as the uncertain variable, and that's why the recommendations are still to look at shale and market risk reduction.
Secondly, there is the permitting process. Shale was once seen in the United States as so valuable that anti-monopoly issues dominated government shale policy. The government decided at one point that it wanted competition in shale and limited the acreage to 5,000 acres per company. We changed that in 2005 to 25,000 in five different locations; but if you look at the acreage per resource, 1 million barrels of oil from oil shale per acre, you'll get the idea of what acreage does. Do your computation: Bureau of Land Management R&D leases are 160 acres each. Underneath an R&D lease, there are roughly around 250 million barrels of oil, or over five months of Saudi Arabian spare capacity needed to stabilize the world market.
How long can oil shale last? There is enough shale to sustain United States consumption of crude oil easily through 2120. One of the arguments in the energy security debate has been foreign oil import dependence. Some elements of the national security community in Washington have joined the alternative fuels community, the biofuels community, under the notion that we are dependent upon potentially hostile supply sources after 9/11, which could be disrupted or politically manipulated.
The national security argument, or the energy security argument, centers on foreign oil import dependency. If shale is commercialized by 2012, we can, under production from Colorado alone, eliminate dependency on Middle East oil by 2020. The President wants to lower it by 20 percent by 2017.
Shale production will eliminate it altogether, and that dependence is roughly 2.3 million barrels a day. The projection is that when it is commercialized, with the ramp-up that will occur, and with everything favorable—that is, world price—we would be at 2 million barrels a day, or the objective of the Department of Energy in the shale process. Currently, we're getting 2.2 million barrels a day from the entire Middle East: 19 percent of our total imports.
Our major sources of imports are Canada and Mexico—that is, North America—and oil shale would expand a North American domestic energy source, which minimizes and reduces foreign oil dependency with GDP benefits to the American people. Some of the projections are that when shale is commercialized in the next three to five years, the market price will decrease at least $5 a barrel. That's conservative, but that depends on supply and demand worldwide and the growth of economies worldwide.
There's been a great deal of excitement about biofuels, and as you know, in Mexico and New Mexico and Arizona, the prime base for a staple tortilla is white corn. Because of the biofuels investment, U.S. farmers are beginning to turn their crops from food to fuel, and white corn has almost disappeared from the market. Even though Mexico has a NAFTA quota of 460,000 tons a year, Mexico is not getting it, so the price of tortilla corn in Mexico has had people demonstrating in the street and has caused low-income families difficulties in buying daily bread. I introduce that in contrast to the notion that we have a resource that has no impact whatsoever on food supply.
I'll conclude with a point about the history of this. When you leave here, the question is, Why is there silence today, in this Administration, on shale? There is a strategic task force that for two years has been meeting with five governors, and they have recommendations. There are two major companies with leases moving through R&D incrementally. A week ago, Shell had community discussions to bring in 600 employees into the shale area in the Rocky Mountain slopes.
That's big news; that's jobs and so forth. The perception is that something is going to happen, and something rather big. But there is a gap between the technology, the availability of the resource, the commercialization that is coming, and Washington policy.
Probably the most effective signal, apart from releasing the DOE report, derives from the President's proposal in the State of the Union to add 750 million barrels of oil to the Strategic Petroleum Reserve by the year 2020. I would propose a long-term contract with shale oil producers, that all of the production from 2013 in shale oil from Colorado and the Rocky Mountains to 2020 be dedicated to the SPR. Under existing law—again, the Energy Policy Act of 2005—the U.S. government can enter into long-term purchase agreements and buy oil from shale for the SPR. That would be an internal oil supply; it eliminates the national security risk of foreign oil import beneficiaries.
This would be a powerful incentive for the oil shale industry. It would itself reduce market risk without subsidies to a phenomenally low level, and it would put the U.S. government in the forefront of assuring energy security. The Department of Defense could also be a buyer of jet fuel, along with the SPR, and this would accelerate rapid commercialization.
So if the intention is to add to the Strategic Petroleum Reserve to improve energy security, then buy into strategic, unconventional fuel produced in the United States. That would mitigate historic market risk a century after discovery.
There are some who say that 1.3 trillion barrels, under market and positive circumstances, could eventually be ramped up to 10 million barrels a day. With a resource like that, at 10 million barrels a day, we are moving back to the 1960s, close to a position where our import dependence on petroleum is becoming marginal. Using that number—and that is a remote number, far off, but absolutely doable under the resource that exists and the technology—that would give us the following composition: We would be 80 percent North American at that point, with Mexico, Canada, Colorado, the oil shale, and conventional Texas, Alaska, all factored in, and maybe 20 percent oil dependent.Questions & Answers
Question:Ed Borcherd, Borcherd & Company. I'm currently working in Alberta with the Canadians on the water problem. The water problem is one of the biggest problems because it takes anywhere from two gallons to four gallons to produce one gallon of petroleum. It has a terrible effect on the natural environment, and many problems are coming from that. Do you have any comments on that particular problem?
Dr. Fine:It's quite true. The retort that I talked about, building your processing and wetting the shale—that was where the water went—was about three to one. This is also cited in the RAND report, which was mildly negative on oil shale. But it is a dimension of the problem that existed in 1979. The two processes that I've mentioned, the injection of the supercritical fluid, which flushes the kerogen out of the rock and so on, is CO2, and that is recycled. That becomes the problem today: the carbon footprint, how to get that manageable.
Neither the Chevron nor the Shell process is going to be water-excessive; and they have to be sensitive to the Colorado River Basin, because that is the source of the water, and share the water under 21st century standards. So I believe that the water problem is less under technology change than it was. What has changed is the fact that you've got a carbon-based material, and you have to capture the carbon to CO2, use it, inject it, store it, and that's what's going forward under the Bureau of Land Management leases today. So it's no surprise that the carbon footprint is integrated in shale development; it's not hostile to it.
Question:I'm Kirk Couchman with Sunoco. If you look at a map of where the pipelines that run crude oil in the U.S. are and where the refineries in the U.S. are, middle-American refineries—that is, Ohio, Texas, Oklahoma—the middle part of the country has access to crude pipelines running pretty much from anywhere to anywhere. If you look at the coasts, California and the East Coast—particularly the Philadelphia region—they don't have crude pipelines that run to them.
So when this oil shale is developed to the point where it's very commercially available, getting it to a significant portion of domestic refining capacity is going to be a bit of a problem. Are there any policies that you would recommend to change the current ability to site crude pipelines to overcome state and local opposition, which currently handle the regulations?
Dr. Fine:There are current pipelines in the Piceance Basin, Rio Blanco County, running to Salt Lake; Salt Lake is pipeline connected. The infrastructure was put in place and refining and upgrading again in Salt Lake. It has a regional component.
What I would do is look at a very interesting development. The Canadians face a pipeline problem as well, and a refining problem with their tar sands in Alberta. So a leading Canadian company and ConocoPhillips decided to reinvest, or invest in each other. Conoco Phillips will make its refineries in the lower 48 open to tar sands product, bitumen, coming through. That's the twin of kerogen coming out of the tar sands. So the tar sands from Alberta will go to two or three mid-U.S. refineries. This is the adaptability on the refinery issue to get both tar sands and oil shale to market, to refine and get it into the system as well.
It has not become a problem in terms of development; the obstruction to development is not transportation at this point. Utah has some tar sands and some shale, and they will have to connect Utah into the pipeline infrastructure. It might be a little different. Utah has about 12 billion barrels of oil shale against the Colorado, and Wyoming is another player in that.
If you want a measurement, per ton of rock in Colorado, 35 gallons of oil, roughly, and then it declines in Wyoming to 20, 25 gallons; so Wyoming is less economic than Colorado. So visualize a ton of rock, because this is unorthodox in terms of petroleum, and what the rock will yield in terms of gallons. It is economic at 25 for one ton; that is now economic at $20 to $25 cost.
You all know the geopolitical issues in a world where the national oil companies are changing contracts, expropriating—Caracas, Venezuela—and diminishing the exploration space for the same companies who are in Colorado: Shell, Chevron, and so forth. It becomes almost an irrational resource question: Why is a resource in the United States not developed, and why is there so much silence around it?
Question:What would you say is your answer to that? Why, in your opinion, is there so much silence, and why is the resource so underdeveloped?
Dr. Fine:The reason for this is historic, in a way: uncertainty over price. That's why I recommend the SPR as the market-maker or initial buyer. Since the President declared, "We're going to buy the oil," the next step is where are we going to buy it? If it is purchased from oil shale in the Rocky Mountains, this is an indirect way to assist an oil shale industry.
The second reason is the episodic way shale is handled. When The Heritage Foundation said, "What is the best way to present this lecture?" I answered "Back to the Future," because generations of geologists and petroleum engineers, as students in mining schools in the West, were exposed to a pyramid. At the top was conventional oil, petroleum, from Texas. At the base of the pyramid was the hard-to-get stuff. Shale was almost at the bottom, and underneath shale were gas hydrates, which are even more difficult to get.
This was the American perspective from 1913 onward. My point is the expectation that the hydrocarbon cycle could be deferred even in the current crisis of energy security by a third element, apart from economics and technology: namely, public policy distorted by the public and the media reacting to agendas of security and fear—and, of course, by climate change.
The issue on climate change is simple. The Congress debated it for 18 months, and I watched all the debates from one side and the other. A speaker from one faction or the other would say, "We've got to reduce our dependence on foreign oil." The next speaker would say merely "oil." Do we mean dependence on foreign oil or imported oil, or dependence on oil itself?
If you look at it that way, there are two camps. Oil itself is available and abundant: 3.7 trillion barrels in unconventional oil in the world. There is the peak oil thesis, but the peaking out means that your oil-finding level is lower than it has been. You're not replacing as much as you did, in conventional oil only. But "peak oil" simply means that the old pyramid comes into play; you move down the pyramid, and the peak is rolled forward. You're on plateau, and then you're into unconventional hydrocarbons oil.
Those who say the issue is oil itself make themselves very clear: They want to move away from oil and all forms of carbon. They want a carbon-free world, and that is their position. But let's not confuse import dependency with that issue. Imported oil does not equate with oil itself.
Question:I'm Bob Hershey. I'm a consulting engineer. What do we have to learn from the oil shale experience of Estonia?
Dr. Fine:Estonia has derived and continues to develop oil shale for electrical power. It burns the shale. It can make a fuel as well, but shale is around for production into utility—in other words, electric power, burning it. Estonia is a world leader in that respect.
Estoniajust entered into an agreement with Jordan to develop Jordanian oil shale and so on. That's why I introduced the question of signing an agreement with Brazil, getting President Bush to enter into two agreements, one for sugar and one for shale, and then staking out, under existing law, technology sharing and agreements and co-development in Brazil. But we have much to learn from Estonia and the tar sands issues and others. There are many co-products.
One co-product, by the way, from Colorado shale is trona—soda ash—which was called nahcolite. The mineral byproduct is very valuable in terms of fertilizer and other products. There is an enormous co-product. It was interesting: The Bureau of Land Management looked at the Exxon application. Exxon wanted a lease, and Exxon did not put down its data, did not surrender data or interest in the co-product, and they didn't get the lease. So there is a valuable co-product in it: soda ash, nahcolite.
Question:My name is Richard Ranger. I'm with the American Petroleum Institute. How do you respond to the contention that the main reason shale has not been developed has been because of economics, because of price, because of the cyclicality of crude oil prices, which at a couple of points, perhaps, reached points where companies were induced to invest in shale technologies as they understood them and then backed away, given downward price cycles. I think part of the response is your proposal to purchase shale oil production, or kerogen production, as you outlined in your talk, but it seems like you're describing history in a more complicated manner; if this had been economic to produce, it would have been produced.
Dr. Fine:You introduce the whole history, really, in the question. In the 1960s, Stewart Udall called for shale leases. There was no interest from industry; American industry was not interested at that point, because crude oil was $3 per barrel. So the industry itself, looking at its assets and opportunities on a world scale by the 1960s, had to compare its rate of return from other opportunities against shale.
Why did shale fail in 1982? Why did Exxon close down its operation in Colorado? The slope of supply, the Saudi output up through the 1980s, again took the price down where it was not economic against other opportunities. What's interesting about that is what was economic in shale then and what is economic today. There are some studies still around, dated in the 1970s, which say that shale needs $70 a barrel to be economic and compete against conventional oil. But in testimony in the House Resource Committee in 2005, Shell said it could do business at $25 per barrel.
So we're in a period when the industry has to essentially take some risk. What's the risk of price? How do you evaluate forward prices against risk at this point? The shale story that I see in all cases that I presented today is that it will return industry a minimum of 15 percent return on investment, ROI. That will be indeed possible at prices, we'll say, over $40. And if you see oil going down to $40, as some analysts do, it is economic.
One of the things that the shale oil industry will look at will be a floor price to reduce market risk after years of price volatility. That will be interesting to see, but I think, at this point, the consensus is that the price of oil has reached a plateau. Are we going to go back to the days of $20 oil? If you see that, then you don't invest in shale. But if you see oil at $40 plus, then I think the industry has a real candidate in oil shale.

Note: This material was reproduced under the aegis of the Heritage Foundation's generous redistribution policy. It's certainly not commercial as there are no ads here and I make no money from this li'l ole blog. It's unchanged except for cleaning up the tabs, and it is the work of Dr. Fine.

Straws In The Wind?

This has been a most interesting week, news wise.

The world (well, the part of the world that thinks about this stuff) watched from the bleachers as Airbus, disguised as the crooked faro dealer in a spaghetti western, unaccountably allowed Spirit, the rube who'd just arrived on the train from Kansas, walk away from the table with his grubstake intact.

Smart con men never let the mark go until the last buck is shaken loose from his wallet, and they don't ever let their accomplices outbid the sucker.

So you have to think something strange was going on here that has yet to reveal its significance, because as flimflam schemes go, Power8 seriously backfired this week.

One of the more interesting news items arrived unheralded from an obscure source. As I am a fan of analogies I'd liken this one to the unnoticed arrival of a gonorrheal spirochete in what should have been a moment of coital bliss.

The Hindu Business Line (bes' li'l ole scandal sheet on the Indian subcontinent, doncha know, because it's got mojo, cantcha see?) reported that the UB Group, Dr. V. J. Malya's adult beverage/aviation/fertilizer powerhouse is considering selling some of its order slots for aircraft back to Airbus-at a tidy profit, too.

The report says that after analyzing excess capacity, Deccan and Kingfisher plan to lease aircraft, defer their introduction or cancel their orders. Deccan has 30 aircraft to be delivered and Kingfisher has another 26 on order.

If orders are cancelled the production slots will be sold back to Airbus at about $5 million each.

Everything Dr. Malya touches seems to turn to money-lots of money. But if the report holds up, it would confirm my suspicions that there is a serious overcapacity overhang building that will lead to the next aerospace implosion like we haven't seen in a while-and this one's likely to be a doozy.

Another interesting and very hopeful item I stumbled onto was a lecture given by Dr. Daniel Fine back in April to the Heritage Foundation on the subject of unconventional and alternative fuels, primarily oil shale. Dr. Fine posits that in Colorado, Wyoming and Utah there are 1.3 trillion recoverable barrels of oil trapped in shale, a resource that is four times larger than Saudi Arabia's reserves of crude oil. The cost of extraction and the technologies are starting to look a lot better in these days of $90 a barrel crude.

It seems that reports of the lights going out all over America may well be premature, and that may give the lie to some of our European colleagues who enjoy nothing better than yet another "they're bankrupt wastrels! We knew this would happen!" exercise in the sort of envious schadenfreude they're hopelessly addicted to.

Thursday, December 20, 2007

Dumping the Ballast or Hiding It In The Shed?

One of my correspondents makes an interesting point in this whole Power8 plant disposal project that I do not think too many folks have noticed. As is typical with him, he focuses on finances as a construction project manager of some experience with such things.

As he notes, Russell Hotten of The Telegraph states that GKN is believed to have offered 200 million euros to buy the Filton facility outright-about $290 million at today's exchange rate. So far, so good.

However, in the 2006 balance sheet for EADS, its UK factories are valued at some 3.2 billion euros-almost $4.6 billion USD at current rates.

Helluva deal, right? He likens it to selling the seed corn and speculates that it has a connection with whatever GKN had to agree to in the way of job guarantees at Filton.

Der Spiegel calls this process "dumping the ballast". The disinterested observer might say it's more like hiding it underneath pretty wrapping paper in the Airbus cargo hold.

Sale Of The Century

Live auctions are pretty much a common event here on the prairie, and they often represent a good occasion for socializing, pie, coffee, humor and the occasional good deal.

I've accumulated a small collection of Thor industrial tools at mesne auctions over the last couple of years, which are hands down the best damn power tools ever made, and that comes from a guy who had to make his living with hand tools. So yes, there are good deals to be had, and the only real problem is where you put all the cool stuff you acquire. Running out of room is always a problem.

Every auctioneer I've ever met has been a natural born raconteur, compulsive entertainer, preacher, and something of a comedian at times. It's all part of the good humored leavening of redistributing physical things that could be seriously depressing if one was to think about the actual circumstances-a farm widow died with no family around, a small business folds along with the dreams of financial security of the proprietor, a young man's motorcycle is sold in the welter of medical bills, bankruptcy and repossession. All of this points to the fact that stuff is always around, and only people come and go.

A good auctioneer works the crowd, exhorting, pointing out the virtues and condition of this or that, all in an effort to get the best price, without wheedling or complaining-because that is the sign of an auctioneer who's lost control of the crowd.

Auctions are not a new thing, as the National Auctioneer's Association tells us .

The famous (and lascivious) diarist Samuel Pepys was, among other things, a clerk to the Admiralty and officiated at what was known in those days as a 'sale to an inch of candle'. In the age before Britain had a standing peacetime navy, ships of the line were promptly idled at the conclusion of one of Britain's incessant wars, and all the necessaries to run a navy were sold at public auction at Portsmouth and other places.

The lots of surplus naval stores-casks of overage salt beef, timber and cordage, superannuated canvas and rope for the oakum trade, and so on-were put out, and a one inch candle stub was lit. The highest bidder when the candle burned out took the lot of goods.

As it happens, Pepys relates the tale of one bidder who seemed to do better than everyone else at these events. The fellow told Pepys he had a secret. He'd watch the flame carefully-it would flicker and emit a small puff in the split second before it guttered out and that's when he'd throw his bid down.

Yesterday and today, all the things you'd need to make washers and dryers are on sale at the former Maytag plant in Newton, Iowa. Maytag closed this year after over 100 years of manufacturing farm equipment, home appliances and other things in Newton. The company had fallen on hard times as a series of lackluster managers presided over the creeping arteriosclerosis that ended in an acquisition by rival Whirlpool. That history makes this something of a larger sale than usual in these parts. It's a rough commentary on my schedule that I'm stuck here working while all this is going on.

Whirlpool, for reasons known unto itself selected the Ashman people to officiate, and they've produced a nice brochure that describes the material in detail. There are punch presses and forming presses, sheet metal brakes, plastic injection molding machinery, a fleet of forklifts, trucks, trailers, and enough other things to satisfy nearly any junk collector or vest pocket industrialist.

Ashman expects the take will be on the order of a couple million dollars, give or take, and the history's on the house.

Wednesday, December 19, 2007

Just When You Thought Things Couldn't Get Worse

PC World tells us this day that Microsoft will be releasing a beta version of Internet Explorer 8 in the not too distant future.

I'm astounded....after what I went through this weekend?!

Scroll down about two entries for the whole gory tale.

Tuesday, December 18, 2007

Spirit Aerosystems Inside Track at Airbus? UPDATE 3 and 4

UPDATE 4: Canada Says "Thank you Sir. May I have another?"

It seems that Spirit Aerosystems is owned by Canadian private equity firm Onyx saith Scott Deveau of the National Post.

The plot thickens, people. That makes two Airbus deals with Canadian firms that have gotten impaled in the briar patch of European politics. The first was the Pratt & Whitney engine program for the A400M.

That suggests that it really WAS all about the money, and maybe it was Spirit who left Airbus waiting at the altar....Jeff Turner of Spirit said "We put key resources into due diligence for the Airbus UK and German sites . . . In the end we just couldn't close a business case that met both our customer requirements and our shareholder requirements."

UPDATE 3: It's All About The Money, Stupid.

Forbes reports this afternoon that the German government owned KfW Bankengruppe is going to grant credits worth 3-400 million euros to OHB's MT Aerospace unit for the German part of the Great Airbus Power8 Selloff That Ain't.

UPDATE 2: As it happens, my instincts were pretty good on this subject. Bloomberg has this from the Great Satan himself:

``This is a major step backwards,'' said Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based consulting company.

``Airbus is about crossing borders, not erecting them for national solutions. In rejecting Spirit, they're rejecting the technology and risk-sharing tasks needed to bring products to market, especially the A350.''

Spirit has more technology and financial resources than any of the buyers chosen, Aboulafia said. Latecoere and GKN have ``good reputations, but they've never done projects of this scale. MT was the biggest German company they could find to do the job, but that says very little.''

UPDATE 1: The BBC is calling the tape this morning as an all European sweep-GKN, Latecoere and MT Aerospace as preferred bidders for the Airbus spinoffs at Filton, Meaulte, Ste. Nazaire Ville, Nordenham, Varel and Augsburg.

The consensus of reports this morning suggests that that is the case, rather than Spirit Aerosystems being an important part of the process as previously reported.

It thus demonstrates that folks in the dollar zone are not going to be building Airbus structure anytime soon.

It raises some interesting questions.

What was the "leak" about Spirit Aerosystems in the German press all about, and the media reports that Filton would immediately lose 1,000 jobs if Spirit got the nod?

And were they ever in the hunt at all, or were Spirit a foil just as Pratt & Whitney Canada was, when the A400M engine program was being shopped?

If I had to hazard a guess it may well be, if I am to be permitted a small pun, a composite of things.

Perhaps what the European labor unions were demanding of Airbus was not doable for Spirit Aerosystems, and there was thus no opportunity to make the needed changes that would have assured long term profitability.

One could also surmise that the price the plants were offered at wasn't good enough to offset the cost of operating them within the limitations that were to be demanded.

And maybe that means that what Airbus is selling really isn't a very good deal.

At this juncture, it seems likely that all Airbus wants to do is transfer the ownership and the problems associated with their facilities without transferring the power to make important decisions about how the plants are run and what they make, as well as where they make it

That suggests that Power8 is, indeed, a paper tiger, and that the dollar-euro split is more of a sound bite and a talking point than a real issue.

It also suggests that Airbus does not have the stomach for implementing the hard measures that are needed if they're really in the business to make money. If I still had it, I'd reprint the term paper I wrote in 1993 wherein I made the point that Airbus is a pan European jobs and technology development program that was never intended to make money

I believe this is a press release from EADS, reproduced from JEC Composites

EADS and Airbus have selected Latécoère in France, GKN in the UK, and MT Aerospace in Germany as preferred bidders for the sites of Méaulte and Saint Nazaire Ville in France, the Filton wing component and sub-assembly manufacturing facility in the UK, and Nordenham, Varel and Augsburg in Germany.

The EADS Board of Directors has authorized the management of EADS and Airbus to enter into negotiations with the preferred bidders on remaining issues and the required final due diligence, with the target to achieve a final agreement as soon as possible.

Substantial progress on the share purchase agreement is expected in the first quarter of 2008. The EADS Board sees this decision as a clear commitment of the management to the Power8 targets.

The partner selection for Filton will allow for an outright sale of the manufacturing part of the site to GKN. For the French and German sites, the agreement with Latécoère and MT Aerospace will take the form of joint ventures, in which Airbus will retain a substantial minority shareholding. Airbus has the option to withdraw completely after three years.

The merit of the joint venture structure is to empower Airbus to closely monitor the transition during the period of A350 XWB development and convergence of definition, while reducing substantially EADS’ cash outlays.

Under the joint venture agreements, Airbus does not intend to interfere in the majority shareholder’s management of each plant. The Airbus plants targeted for divestment employ a total of 7,400 employees, and represents € 1.4 billion of Airbus’ cost base in 2007. EADS Defence & Security's plant in Augsburg employs 2,000 employees and represents around € 450 million of its cost base in 2007.

About 70 percent of the Augsburg plant's revenues come from Airbus. "The ongoing divestment of sites and the building of a network of partners for Airbus allows EADS to focus its resources on core activities. It is a way to optimise Airbus' industrial set-up in the frame of the extended enterprise.

At the same time, it helps EADS to reduce financing needs in a period strained by conjunction of costly programmes and weak dollar uncertainty," said EADS CEO, Louis Gallois. “This decision is an important milestone for Airbus' new strategy and Power 8 programme. We will work to progress and conclude the negotiations as swiftly as possible. At the same time, we can now begin to establish long-term partnerships with three first tier suppliers for the A350 XWB, who will share workload, investment, risk and future benefits with us. The bidders will now be invited to the A350 XWB development plateau," said Airbus President and CEO Tom Enders. “This process will generate strong tier one partners for Airbus, and will allow the sites to further develop and acquire the required technologies to remain competitive in the future.”

The transactions are expected to be closed in summer 2008, when the sites are effectively transferred to the new owners. Meanwhile, these sites will continue to produce their parts for the existing Airbus products (A320 Family, A330/A340 Family, and A380) for which Airbus has an order book of some 3,000 aircraft.

The finalisation of transactions is subject to agreements on terms and conditions (such as governance issues, exit mechanisms, etc.), and the demonstration of satisfactory financing structures and backing by the buyers.

The Power 8 programme is a comprehensive improvement programme designed to reinforce Airbus' competitiveness in the face of the weakening dollar. It will enable Airbus to become more efficient and productive through a complete turn-around of the company. This involves becoming more integrated, with simpler processes, implementing lean manufacturing, shortening development times and reducing the number of suppliers.

A350 XWB work packages will now be allocated to the future tier one partners in Filton, Meaulte and St Nazaire, as well as Nordenham, Varel and Augsburg. The pace and schedule of final negotiations with the preferred bidders at this stage is consistent with the ongoing A350 XWB development timeline. The site divestment process for Laupheim continues in parallel.

The original story I posted last night:

Rumors are swirling ahead of the announcement soon to be made concerning disposition of Airbus' plants that are part of the Power8 restructuring platform that's still to show any significant results.....where was I? Oh I remember.

The Economic Times of India is calling this one for Spirit Aerosystems of Kansas based on an article in Handelsblat, a German business daily.

Deutsche Welle is also saying pretty much the same thing, saying that four plants will go to Spirit, one of which is at Filton in the UK-thus breaking the British monopoly on Airbus wings.

Spirit's got a long lead in large scale CFRP composite technology, and they've also got a low cost structure in the dollar zone which makes supplying subcomponents to Airbus an eminently sensible idea. I wonder whether Louis Gallois will continue to say "No A350 structure built in the States! No sirree! Not on your life, this is a European aircraft!"

Where this all gets interesting is the opposition to the sale coming from the Airbus union members who are on record uniformly opposing the plan.

While my sympathies are always with the tin bashers and rivet pounders and tank rats who do all the work I can tell them from hard experience in just such a position back in 1992 that there are things they need to be doing. The worker with a functioning sense of self preservation will skip the vacations in the Canary Islands, forget the big screen teevee, and put a set of rings and a valve job in the Renault instead of buying a new ride.

That person will also work all the overtime they can get and bank every euro that comes their way and start thinking about what life after Airbus will look like-because it's coming, boys, sure as a heart attack.

We have an acronym in the aerospace industry here in the states that should be of interest to soon to be former Airbus worker bees, and I commend it to their use and enjoyment.

It is BOHICA, which stands for Bend Over, Here It Comes Again.

Don't Ask Me About My Day: UPDATE

You may remember that I was in printer hell the other day and I hadn't really solved the problem of why my printer sounded like a strangled cat every time I tried to use it.

After some more disassembly it turns out that it was a small motor in the laser scanner asembly with a dry bearing. That's number 4 in the picture. The tipoff was when the noise would continue after the motor and geartrain would stopp running.
A shot of WD40 pushed into the bearing with some desktop compressed air did the job.

The File iertutil.dll Cannot Be Located: Have A Nice Day

I've just finished a Windows stripout and reinstall and I've a couple of points that should be of interest to people who are using the Windows platform and IE.

Yes, I know, I know, Firefox is better, Mac is better, Linux is better, blah blah blah. The love-in's down the hall.

Now. For the rest of you.

The problems that led to this began with some quirkiness in IE 6 that led me to try using IE7. The problem wasn't really managed so I reverted to IE6 and that's where the problems really got underway. What I would come up with was an error message that said that iertutil.dll could not be located and IE had to shut down, sorry about that.

I tried several online fixes, and things got progressively worse. I was able to do a system restore in Windows safe mode and get my desktop back and SAVE MY FILES, but I still had the ie 'missing file' problem even though the file was right where it was supposed to be.

The critical point here is that I learned that this happens an awful lot if you try IE7 and decide you don't like it and get rid of'll keep getting that error message and when you get it IE closes down.

So don't try IE7 unless you're going to keep it or strip out and reload Windows as I did. It can't be fixed or worked around.And don't let Microsoft slip it to you as a "windows update". It's like a date rape drug-you'll wake up with a sore spot between your legs and you won't remember how you got it.

Well, brother Klaus made a believer in backup out of me the other day after I had done reading a very interesting article on hard drive failure rates, and I went and sprung for a 320 gb Western Digital USB hard drive. Street price is about a C-note at Office Despot.

Even though Comp USA is closing its stores and selling out to the four walls they're still more money.

It came with a free trial application that automates the backup tasks and ended up catching a few folders I'd missed. It does a nice job of automating all the stuff including snagging a copy of the IE favorites file and the OE mail file-even though I'd done the mail I plumb forgot about the favorites.So I'm back in business, the IE problem is gone, all my files were saved (about three years worth of work) and the backup application is running in the background.

It's cheap insurance, people.

Saturday, December 15, 2007

Register Endorses Clinton; Dougloid Not Impressed

We've recently learned that after long and careful study our own Des Moines Register has endorsed Mrs. Clinton's presidential bid.

Well. Folks in other places have labored mightily and brought forth gnats before this. One needs only refer to the photo of President Truman to get the measure of the Register's error. Had they sniffed they'd have smelled the odor of decomposition hanging over the Clinton campaign like a miasma.
Fact is, Hilary Clinton is part of the past, a past that's better consigned to the trashbin of history because it was a disaster for the working people of this country.
Back in the day when Bill was teaching at the University of Arkansas-Fayetteville, exercising the law professor's prerogative of jus primae noctis, Hilary Clinton recognized that whatever his personal failings, the man had charisma in the large economy size container and that would carry the two of them a long way from dreary midwest-Southern Fayetteville and a teaching slot at a second rate law school. The future president's forays among the slave cabins of the law students were, it appears, of little consequence.
Later on, Bill's antics as attorney general and later governor of Arkansas had their own affaires, although the world seems to be eager enough to discard the likes of Paula Corbin Jones and Gennifer Flowers when it comes time to trumpet the Clinton hagiography-something we're not about to do here.
And let's not forget Monica Lewinsky and perjury, shall we? Where in hell was the moral outrage along with the divorce papers from Hilary?
Bill went on to adopt the policies and programs of the Democratic Leadership Council, and Mr. Nader writes eloquently of the damage that was done by these galvanized Republicans to the traditional alliance between government policy wonks, labor, minorities, and the lower middle class that won the second world war and did the heavy lifting in the civil rights and antiwar struggles of the sixties.
Be it remembered that the Clinton administration and the D.L.C. rammed NAFTA down the throats of working Americans and in the process fundamentally damaged our relations with Canada and Mexico.
Mrs. Clinton says she's got a lot of experience, but from here it looks like the experience of a carpetbagger and an opportunist with an eye for the main chance. A vote for her is a vote for eight more years of the Billary, eight more years of NAFTA and the WTO, and eight more years of exporting working class jobs to places half a world away. Bill sold out the working people of this country and there's not one single reason I can see that makes me think she's any different. He was a prick with a nice smile.
I just cannot accept that we'd do this again as inevitable.
The young folks of this country have a knack for seeing through this sort of thing, and I think that the rest of us ought to have the sense to say that they're better at this than the rest of us were. They're going to have to live with the mess they inherit long after we are gone, and that's a sound reason to think that they should choose the future-not us.
They're standing for Senator Obama. And so am I. Every time I hear him speak I'm reminded of Robert Kennedy and the hopes he raised in my generation-hopes that were dashed that awful day.
Let the young people have their hopes for this great land.

Wednesday, December 12, 2007

It's Not Nice To Say Bad Things About People On The Internet

Kono v. Meeker, no. 06-1554 (Iowa Ct. App. Dec. 12, 2007)

I know, I know, you're thinking "What in heaven's name does this have to do with an aviation blog?!" and you're right. But this is interesting. And, parenthetically it has to do with chisels and why some people are called chiselers.

Kono is an Iowa resident and the Meekers are California antiques dealers. Kono and the Meekers agreed that Kono would trade a surveying transit for seven chisels, presumably of an antique nature.

Kono phoned Meeker to ask whether the transit had proved satisfactory, and that's where the stories diverge. Meeker says he was dissatisfied with the transit, and Kono said Meeker said it was fine. Meeker took it on himself to ship the transit back to Kono, who declined delivery because of the condition of the package.

Kono called Meeker 'arrogant and inconsiderate', and Meeker for his part responded with a series of profane and threatening emails and hostile phone calls.

Meeker then posted a "Dana Kono Watch Page" on his website that called Kono an admitted liar and a thief, and a "slimy weasel".

Kono sued for defamation, false light, invasion of privacy and emotional distress. Meeker counterclaimed for fraudulent misrepresentation. The jury entered a verdict in favor of Kono in the amount of $500,000 on all claims. Meeker appealed.

Meeker alleges that his statements on the website were protected speech, hyperbole, that Kono's attorney calling Meeker's actions a "jihad" was improper, and so on and so forth.

The court disregarded these arguments since they hadn't been advanced at trial.

The court of appeals found that the substance of Meeker's watch page explicitly accused Kono of being a disreputable person who deals while under the influence of alcohol and a liar and thief, and that the jury could have reasonably concluded that this was libel. On the issue of compensatory damages, Kono produced evidence that his reputation had been damaged. The court of appeals further affirmed the award of punitive damages, stating that it reflected the offensive conduct and damage caused by the Meekers.

Monday, December 10, 2007

Commentary from Down Under

Once again, we're calling this as material from a confidential source because the source hasn't replied to my request which means he's gotten involved in some serious stuff. Bit it's worth study as it comes from a construction project manager.

Schopenhauer had this to say on the general subject of truth:

All truth passes through three stages.

First, it is ridiculed.

Second, it is violently opposed.

Third, it is accepted as being self-evident.

Our author shall remain cloaked in anonymity until he gives me the thumbs up.

What strategy should Airbus follow?

I don't think that there IS a strategy that Airbus can follow - or, rather, that they will be ALLOWED by the two governments that are in virtual control of them to follow - that will do anything constructive about the problems they face.

First of all, the problem is not so much a falling dollar as it is a rising Euro.

The Euro has appreciated roughly twice as fast against the $US as any other major currency.

This is no accident, it is fundamental EU strategy. A high Euro means lower import costs, and therefore lower inflation within the EU, which in turn means political popularity in the short term.

(parenthetically, it also means that you can pay off your debts at a low cost and as we've noted here before, Europe is the home of ridiculously high government debt to GNP ratios-ed.)

Unfortunately it ALSO means uncompetitive export industries in the medium term.

But how much that worries Europoliticians - particularly French ones - is amply shown by these classic quotes from a Eurocrat (who also happens to be the current head of the World Trade Organisation):

PARIS, Dec 5 (Reuters) - Firms such as Airbus-maker EADS should look beyond the short term when taking decisions about whether to move production abroad to cope with the strength of the euro, WTO chief Pascal Lamy said on Wednesday.

The head of the World Trade Organisation told France's i-Tele television that competitiveness was the key to job creation in the globalised economy and noted that German firms had managed to adapt to the euro, which recently hit record highs of about $1.4965.

His comments come two days after EADS boss Louis Gallois said the firm would have to move production outside the euro zone if it were to survive the dollar's weakness.

Gallois is not only one to issue such warnings. Dassault Aviation's chief said in a weekend interview that his company could move some production abroad to shield the French jet maker from the dollar's sharp fall against the euro.

"I don't think that these are things that one can decide on in the short-term," Lamy, a Frenchman, told iTele. "Today, compared to five years ago, the euro is a lot stronger and the dollar a lot weaker, but it will come back.""The euro hit record lows of $0.8225 in 2000."If I take the case of EADS and Dassault (Aviation) ... my feeling is that they also have a lot of costs in dollars. So I don't think these are issues that can be looked at in the short term," Lamy said."

Furthermore, not content with telling Airbus that they must somehow magically find a way of becoming competitive regardless of the Euro's uncontrolled appreciation, the two governments that effectively run EADs (French and German) continue to prevent the company from doing anything constructive.

The original strategy, first put forward by Streiff (at the cost of his job) and further promoted by Enders and Gallois, was to reduce the workforce by at least 10,000 and sell off a number of plants to raise cash.

So far EADS employment figures have gone UP, not down - and it is becoming perfectly clear that government-supported guarantees to the unions have meant that EADS can only sell factories to people who will undertake to maintain the full existing labour force after purchase.

Not surprisingly, this means that there are very few takers for the offered plants; and those that there are are not offering much money for them.

For this reason EADS is STILL not sure if any sell-off deals will actually be finalised: and there remain doubts as to whether some of the plants earmarked for sale will ever actually be sold off.

PARIS, Dec. 5, 2007 (Thomson Financial delivered by Newstex) -- EADS is rethinking its plans to sell subsidiary Airbus's plant in Augsburg, Financial Times Deutschland reported, citing industry sources.

Although the plant is still officially up for sale, EADS now prefers to keep the site while selling the Varel and Nordenham plants to US investor Spirit Aerosystems Holdings Inc (NYSE:SPR) , the paper added.

A separate tender process is running for the site in Laupheim.'There are no new developments,' a company spokesman told Thomson Financial News. 'We are currently in talks with all bidders and we intend to reach a solution until the end of the year.'

I would submit that the only solutions to EADS/Airbus' developing longterm problems are (as they have always been)

1. The EU should 'manage' the value of the Euro in the same way that all other nations do - seeking a balance between short-term internal prosperity and long-term external competitiveness.

2. The company should be freed from day-to-day political influence, and allowed to concentrate on doing whatever it takes to produce competitive products and return to profitability.

3. The best managers should be appointed to run the whole show - regardless of nationality or political 'acceptability.'

Wednesday, December 05, 2007

Why Is This Man Smiling?

Why is the man on the right smiling?
Because he knows where he is and where he's going. And that makes him a rare person.

Monday, December 03, 2007

More Adventures in Journalism

This is the second time I've gotten some photos from an unnamed, confidential source. This is getting interesting. Keep 'em coming, folks. This is a flight back on November 17.
So much for the myth of fan containment.

Don't Ask Me About My Day

Last night my H-P 1200 printer started making strange noises that sounded like it had a chicken bone caught in its throat.
So I roared into action this morning, figured out how to get the side cover off and I figured Mr. Air Compressor would work his magic, everything'd be quiet and I could move forward.
As soon as I toggled the air nozzle this miserable piece of crap fan blew apart and cut me pretty fairly in the process. Ten in the a.m. on Monday and I've already been wounded.
So I figure, "OK. Looks like an ordinary fan, I've got one on a processor I can grab."
Wrong. It's 24 volt.
So I decide to order one from H-P. Nice website, illustrated, with part numbers. I fill in all the blanks, the order's accepted, I get the confirmation and it says
"Please print this for your records."
Duh. If I didn't have a dead printer I certainly wouldn't be buying printer parts at all.

Saturday, December 01, 2007

Reports of My Death Have Been Greatly Exaggerated. Signed, The Dollar

Sometimes, you see something that just sounds so well thought out and logical that you just have to tip your hat to the author.

So it was after I'd finished reading an article in the Times our of the UK called "The Friendless Dollar" wherein the schadenfreude was so thick you could cut it with a knife-and not a very sharp one, a common butter knife would have done.

(Parenthetically, just to save you the misery, the story was that because Jay Zee the rapper seems to have an affinity for euros and there's a story that was unconfirmed that a Brazilian model whose name escapes me wants to be paid in euros and the admission booth at the Taj Mahal now makes foreign tourists pay in rupees where they used to take dollars, all this signals the crash of Festung Amerika)

Well...that got me looking for good news and I didn't have to go far today.

There was this from the International Herald Tribune

And this from Reuters

And this from the Daily Times of Pakistan, for heaven's sake.

I remember having this discussion with a young colleague from Canada who opined that the USD now inhabited, as he called it, a 'turd filled toilet'. I reminded him that the Canadian and US economies were so intertwined that if the toilet overflowed, he'd likely have a good part of the mess all over his apartment floor in Toronto. The history of the dollar vs the loonie is all over the map in the last fifty years.

Comparing currency values these days in the popular press seems to be more "Looka here! My schlong's bigger than your schlong!" than it is about facts.

Currencies rise and fall, but as Professor Cowen notes, that is not necessarily connected to lack of economic vitality or, as some impute, an indicator of moral laxity.

There's an op ed piece in today's New York Times that hit the spot. Here it is with some strategic emphasis for people who are too lazy to read the entire thing.

At the risk of incurring the wrath of the Times, I'm reprinting it here because there are people who need to read this who probably won't read the New York Times.

And it's important.

The Dollar Is Falling, and That’s Good News

Published: December 2, 2007

ANXIETY about the dollar continues to spread. The falling greenback is often seen as a sign of an impending recession or the fall of the United States from global leadership. A low dollar simply looks bad. We are, after all, used to judging ourselves against others — comparing our salaries with the earnings of our peers, and our homes with those of our neighbors. We’re used to thinking it is a big advantage to stand at the top of a numerical list.

But when it comes to currencies, a higher value neither brings national success nor predicts future prosperity. The measure of a nation’s wealth is the goods and services it produces, not the relative standing of its currency. Take a look at 1985-88, when the dollar lost more ground than in the last few years. Those were good times, and the next decade was largely prosperous as well.

Today’s lower value for the dollar reflects the success of other regions. Europe has shown it can make the European Union and its unified currency work, and thus the euro has become stronger. The Canadian union appears increasingly stable, and that means a higher value for the Canadian dollar.

Over all, these geopolitical developments are good for America even if the dollar becomes weaker in relative terms.

Many observers have an exaggerated sensitivity to the dollar’s fall because they spend more time in relatively expensive countries. A shopping trip to London will give an American tourist the feeling that all prices have doubled or even worse. A weekend vacation or conference in nearby Toronto or Montreal may no longer feel like a bargain.

But from a broader perspective, the value of the dollar hasn’t fallen quite as much as it might seem. Since President Bush started his second term in January 2001, to Nov. 20 of this year, the dollar has dropped 19.8 percent — if we weight the dollar by how much America trades with individual countries. That is a noticeable decline, but it is hardly a radical economic event. There are still many bargains, travel and otherwise, in Asia and Latin America for people paying in dollars.

A falling dollar does mean price inflation in the United States. Just as it costs more for an American to buy a fancy meal in Paris, so do French wines and German cars have a higher markup when they are sold in New York. But imports are only 16 percent of the American economy, and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. Furthermore many price increases from Europe come on luxury goods and thus they fall on wealthy American buyers, who can afford it most easily.

Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia, where currency values have remained weaker against the dollar.

Of course the lower value of the dollar also makes American exports more competitive. Much of Middle America is booming because of its ability to sell tractors, food stuffs and other products abroad at favorable prices. Even after a serious real estate decline, the American economy is continuing to expand, and this is largely because of the strength of our export sector, as encouraged by a low value for the dollar.

Another worry is that a falling dollar puts the United States at the mercy of China. Dr. Brad Setser, a currency analyst at RGE Monitor, estimates that the Chinese hold about $1.2 trillion in dollar-denominated assets. China is likely to slowly diversify into other currencies, but Chinese leaders have no interest in encouraging a run on the dollar or a fire sale of dollar-denominated assets. China is in a more vulnerable position than the United States, if only because China is a poorer country and has underdeveloped capital markets.

Still, it would be naïve to argue that a weak or falling dollar can never hurt the United States. Extreme volatility can increase general anxiety and discourage economic commitments. If the dollar went into a true free fall, it would damage the reputation of the United States as a desirable place for foreigners to invest. That would hurt; but on the other hand a low dollar would mean bargains for foreigners, thereby attracting investment and limiting the potential negative fallout from a dollar collapse.

SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. This isn’t because of neglect or lack of interest; trillions of dollars worth of currency are traded every day, so policy makers have only a limited ability to push around long-term exchange rates, even if they wanted to do so.

When it comes to market prices, people can always find reason to be unhappy. In the eurozone, for example, it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services.

In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

Tyler Cowen is a professor of economics at George Mason University.