Category Archives: geoeconomics

The Geopolitics of Enriched Uranium: controlling Urenco

Image from URENCO.

The Japanese government has entered into negotiations to acquire U.K.-based Urenco, a major European producer of enriched uranium, in a deal that is expected to be worth several billions of dollars.  The state-owned Japan Bank for International Cooperation is expected to make an offer together with U.S. nuclear energy company Centrus Energy [formely known as United States Enrichment Corporation].  The not-so-ulterior motive is to block companies from Russia and China — two countries that are increasing their influence in the global nuclear power market — from taking control of the company.

The Japanese government is holding talks with major shareholders of Urenco, sources close to the matter said. Ownership of Urenco is evenly split by three parties — the governments of the U.K. and the Netherlands as well as German electric utilities including RWE.The German side is exploring a sale as the government plans to phase out nuclear power. The U.K. government, working on fiscal consolidation, is also looking for a buyer.  Urenco is engaged in turning natural uranium into enriched uranium, which is critical in generating nuclear power [and nuclear weapons]. The company ranks second in the world after Tenex — a unit of Russian nuclear concern Rosatom — in terms of capacity to produce enriched uranium, holding a global share of around 30%…

According to the Japan Atomic Industrial Forum, China had 35 nuclear reactors in operation as of January 2017, while Russia had 30. Including reactors in the planning stage, however, the numbers grow to 82 in China and 55 in Russia, surpassing Japan’s 53.

Excerpts from Japan in talks over bid for UK uranium powerhouse, NIkkei Asian Review, Jan. 19, 2018

The Right to Drinkable Water and Uranium Mining in the USA

image from http://postcardy.blogspot.com/2015/02/map-southern-utah-and-northern-arizona.html

[T]he uranium mining industry in the United States is renewing a push into the areas adjacent to Navajo Nation, Utah: the Grand Canyon watershed to the west, where a new uranium mine is preparing to open, and the Bears Ears National Monument to the north.

The Trump administration is set to shrink Bears Ears National Monument by 85 percent in February 2018, potentially opening more than a million acres to mining, drilling and other industrial activity….[T]here were more than 300 uranium mining claims inside the monument, according to data from Utah’s Bureau of Land Management (B.L.M.) office that was reviewed by The New York Times.  The vast majority of those claims fall neatly outside the new boundaries of Bears Ears set by the [Trump] administration. And an examination of local B.L.M. records, including those not yet entered into the agency’s land and mineral use authorizations database, shows that about a third of the claims are linked to Energy Fuels, a Canadian uranium producer. Energy Fuels also owns the Grand Canyon mine, where groundwater has already flooded the main shaft.

Energy Fuels, together with other mining groups, lobbied extensively for a reduction of Bears Ears, preparing maps that marked the areas it wanted removed from the monument and distributing them during a visit to the monument by Mr. Zinke, Energy Secretary,  in May 2017.

The Uranium Producers of America, an industry group, is pushing the Environmental Protection Agency to withdraw regulations proposed by the Obama administration to strengthen groundwater protections at uranium mines. Mining groups have also waged a six-year legal battle against a moratorium on new uranium mining on more than a million acres of land adjacent to the Grand Canyon…

Supporters of the mining say that a revival of domestic uranium production, which has declined by 90 percent since 1980 amid slumping prices and foreign competition, will make the United States a larger player in the global uranium market.  It would expand the country’s energy independence, they say, and give a lift to nuclear power, still a pillar of carbon-free power generation. Canada, Kazakhstan, Australia, Russia and a few other countries now supply most of America’s nuclear fuel.

The dwindling domestic market was thrust into the spotlight by the contentious 2010 decision under the Obama administrationthat allowed Russia’s nuclear agency to buy Uranium One, a company that has amassed production facilities in the United States. The Justice Department is examining allegations that donations to the Clinton Foundation were tied to that decision.

“If we consider nuclear a clean energy, if people are serious about that, domestic uranium has to be in the equation,” said Jon J. Indall, a lawyer for Uranium Producers of America. “But the proposed regulations would have had a devastating impact on our industry.” “Countries like Kazakhstan, they’re not under the same environmental standards. We want a level playing field.”…

In Sanders, Arizona, hundreds of people were exposed to potentially dangerous levels of uranium in their drinking water for years, until testing by a doctoral researcher at Northern Arizona University named Tommy Rock exposed the contamination.  “I was shocked,” Mr. Rock said. “I wasn’t expecting that reading at all.”

Mr. Rock and other scientists say they suspect a link to the 1979 breach of a wastewater pond at a uranium mill in Church Rock, N.M., now a Superfund site. That accident is considered the single largest release of radioactive material in American history, surpassing the crisis at Three Mile Island.

It wasn’t until 2003, however, that testing by state regulators picked up uranium levels in Sanders’s tap water. Still, the community was not told. Erin Jordan, a spokeswoman for the Arizona Department of Environmental Quality, said the department had urged the now-defunct local water company for years to address the contamination, but it had been up to that company to notify its customers….The town’s school district, whose wells were also contaminated with uranium, received little state or federal assistance. It shut off its water fountains and handed out bottled water to its 800 elementary and middle-school students.  “I still don’t trust the water,” said Shanon Sangster, who still sends her 10-year-old daughter, Shania, to school with bottled water. “It’s like we are all scarred by it, by the uranium.”

Excerpts from HIROKO TABUCHIJAN,  Uranium Miners Pushed Hard for a Comeback. They Got Their Wish,  NY Times, Jan. 13, 2018

Top Dogs: controlling submarine cables

September 21, 2017: the completion of another trans-Atlantic cable…dubbed Marea, Spanish for “tide”, the 6,600km bundle of eight fibre-optic threads, roughly the size of a garden hose, is the highest-capacity connection across the ocean. Stretching from Virginia Beach, Virginia, to Bilbao, Spain, it is capable of transferring 160 terabits of data every second, the equivalent of more than 5,000 high-resolution movies. Facebook and Microsoft each own 25% of Marea, and the rest is owned by Telxius, a telecom infrastructure firm that is controlled by Spain’s Telefónica….

Such ultra-fast fibre networks are needed to keep up with the torrent of data flowing around the world. In 2016 traffic reached 3,544 terabits per second, roughly double the figure in 2014, according to TeleGeography, a market-research firm. And demand for international bandwidth is growing by 45% annually. Much traffic still comes from internet users, but a large and growing share is generated by big internet and cloud-computing companies syncing data across their networks of data centres around the world.

These firms used to lease all of their bandwidth from carriers such as BT and Level 3. But now they need so much network capacity that it makes more sense to lay their own dedicated pipes, particularly on long routes between their data centres. The Submarine Telecoms Forum, an industry body, reckons that 100,000km of submarine cable was laid in 2016, up from just 16,000km in 2015. TeleGeography predicts that a total of $9.2bn will be spent on such cable projects between 2016 and 2018, five times as much as in the previous three years.

Owning a private subsea fibre-optic network has several advantages, including more bandwidth, lower costs, and reduced delay, or “latency”. Having access to multiple cables on different routes also provides redundancy. If a cable is severed—by fishing nets, sharks, or an earthquake, among other things—traffic can be rerouted to another line. Most important, however, owning cables gives companies greater say over how their data traffic is managed and how equipment is upgraded. “The motivation is not so much saving money. It’s more about control,” says Julian Rawle, a submarine cable-industry expert…

“Within the next 20 years,” predicts Mr Rawle, “the whole concept of the telecom carrier as the provider of the network is going to disappear.”

Excerpts from Internet Infrastructure: Pipe Dreams, Economist, Oct. 7, 2017

The Power Plays in Africa

As the overthrow of despot Robert Mugabe entered a stalemate on November 17,  2017, eyes turned to China — Zimbabwe’s largest foreign investor and a key ally — amid speculation over its role in the military coup.Source in Harare believe the Zimbabwean conflict within the ruling party Zanu PF is involving two rival camps has direct links to China and Russia with both countries trying to control and protect their own economic interests.

The army chief General Constantino Chiwenga, visited Beijing l — just days before tanks rolled into the streets of Harare. President Mugabe has been been hostile to the Chinese in recent years accusing them of plundering the countries diamonds worth $15 billion.  On October 2017 First Lady Grace Mugabe was in Russia where she represented her 93-year-old husband at a function where he was honoured with some accolade in Russia at the World Federation of Democratic Youth (WFDY) in Moscow.

“It is a BRICS internal rivalry with both Russia and South Africa on one side trying to protect their economic interests and China on the other side,” a regional think-tank in London said on November 17, 2017… Russia has been investing in several projects in southern African nations, for example, the ALROSA group of diamond mining companies is engaged in several projects in Zimbabwe, while mining and steelmaking company Evraz and Severstal steel and steel-related mining company conduct their business in South Africa.

Russia and South Africa, which together control about 80% of the world’s reserves of platinum group metals, have created a trading bloc similar to OPEC to control the flow of exports according to Bloomberg.

Zimbabwe, Canada, and the U.S. are among other major platinum group metals producers.

Russian and South African officials signed a memorandum of understanding today to cooperate in the industry.South Africa mines about 70 percent of the world’s platinum, while Russia leads in palladium, a platinum group metal used in autocatalysts, with about 40% of output, according to a 2012 report by Johnson Matthey Plc.

According to the Chamber of Mines of Zimbabwe (CMZ) and geologists, Zimbabwe has far bigger platinum reserves than Russia. The country currently has the second known largest platinum reserves after South Africa. Experts say underfunding and limited exploration has over the years stifled growth of the mining sector.

The Zimbabwe chamber is on record saying it seeks to increase production to the targeted 500 000 ounces per annum requires the setting up of base and precious metal smelters and refineries, investment of $2,8 billion in mines, $2 billion in processing plants and between $200 and $500 million to ensure adequate power supply. Already, the country’s major platinum miners – Zimplats, Unki and Mimosa who are currently processing the metal in neighbouring South Africa – have undertaken to construct the refinery….

Miles Blessing Tendi, a lecturer in African history and politics at the University of Oxford, says there is no way to be certain if China knew about Mugabe’s fate but believes China’s respect for sovereignty would make their involvement uncharacteristic.

Excerpt, It gets ugly as Russia and South Africa gang-up against China over Zimbabwe coup, http://www.thezimbabwemail.com/, November 17, 2017

From Pariah to Responsible: Sudan

Sudan Airways regularly ranks among the worst airlines in the world. The national carrier has only one working plane..The troubled airline, or rather, airplane, epitomizes some of the effects that two decades of American sanctions have had on Sudan…Most Western countries have shunned Sudan, making it hard for companies like Sudan Airways to procure parts or buy new planes from Boeing or Airbus. The airline’s general manager once described the sanctions as “hell.”The country’s economic isolation is about to end.

The Trump administration announced on October 6, 2017 that it would formally lift a host of sanctions, including a trade embargo, saying the Sudanese government had made progress on a number of issues, like cooperating on counterterrorism efforts and making modest improvements…

The United States is still keeping Sudan on its list of terrorism sponsors, which means it will not be granted debt relief, a major drag on the economy.

The Trump administration decision has provoked a backlash from some human rights groups…Amnesty International accused Sudanese government forces of using chemical weapons against civilians in Darfur in 2016, and there are ongoing skirmishes in the region. President Omar Hassan al-Bashir, who came to power 27 years ago, is sought by the International Criminal Court for crimes against humanity and war crimes committed in Darfur…

Sudan is now expected to become at least moderately more attractive to Western investors, particularly companies eager to enter a region where countries like China, Malaysia and India are already present.

State Department officials say the removal of sanctions would unfreeze government assets and benefit aviation and energy businesses.  Sudan’s economy is mired in debt — foreign creditors are owed $51 billion, or 60 percent of its gross domestic product — and it suffers from high inflation and low productivity. The economy was dealt a severe blow after the oil-rich south tore itself away.

The sanctions placed restrictions on international financial transactions, making it difficult to acquire technology and equipment. Hundreds of factories were shut down because of a lack of parts and trade barriers.Remittances from abroad will be transferred more easily, which will help lift domestic consumption and the economy.

Excerpts from In Long-Isolated Sudan, ‘Lot of Excitement’ as U.S. Sanctions End, NY Times, Oct. 7, 2017

Staying in Svalbard

Abandoned aerial tramway previously used for transporting coal. Image from wikipedia

Svalbard has an unusual status that makes it a flashpoint of an escalating face-off in the Arctic between Russia and the West.  Norway, a member of the North Atlantic Treaty Organization, and Russia subsidize unprofitable mines to keep a strategic footprint on an icy group of islands where Oslo and Moscow have been the main players since a 1920 treaty among multiple nations recognized Norwegian sovereignty but allowed other nations to develop some commercial interests. (pdf).

 Russia has upgraded its northern fleet, conducted large military exercises in the region, and opened a revamped military base on the archipelago closest to Svalbard….  NATO has described its lack of maritime resources in the region as a weakness.  “Svalbard is part of Norway and therefore it’s part of NATO,” Secretary-General Jens Stoltenberg. “So, of course, all the NATO security guarantees apply to Svalbard. When it comes to the question of coal mining, that’s for the Norwegian authorities to decide.”…

Oslo is planning to buy new submarines and has increased the number of troops on its border with Russia.  But Norway, one of the world’s richest countries on a per capita basis, is debating whether to keep financing coal mining on Svalbard. A renewed commitment to mining would be controversial, not just for the cost but also because of Norwegians’ vision of themselves as champions of environmental causes…

“It’s a question of how much are we going to spend doing something irrational versus how great do we feel the need to counter Russian Arctic activity,” said Indra Overland, head of energy at the Norwegian Institute of International Affairs, a think tank that is partially funded by the state…

Some 800 miles from the North Pole, the islands are barren, with temperatures that dip to minus-20 degrees Celsius (minus-4 degrees Fahrenheit) in winter months when the sun doesn’t rise.  Miners on both sides are attracted by relatively high salaries. Barentsburg’s 400 inhabitants are also provided with health care, a school and low-cost housing.Russia, which started mining here in the 1930s, focused on Barentsburg and another settlement called Pyramiden. The towns housed swimming pools, 24-hour canteens and food products that were then largely unavailable elsewhere in the Soviet Union…

Russia’s government has ordered coal production to slow to stretch reserves out until 2032, and will then face a decision similar to Norway’s on whether to invest in a new mine…

Both countries are turning to tourism.  In Russia’s settlements, visitor numbers have doubled in the past four years, and income from tourism stood at $2.4 million last year, more than from mining. Arktikugol received $8 million in government subsidies in 2016….Norway has opened a university, and one closed coal mine has become a museum and film archive. Old miners’ cabins have been renovated for holiday accommodation and a warehouse is now a restaurant.

But Norwegian politicians and academics admit that without a coal mine, their country’s presence will diminish, in part because tourism is so seasonal.  “To put it bluntly, the purpose of the Norwegian settlements is to assert Norwegian sovereignty over Svalbard,” said Torbjørn Pedersen, a political scientist at Nord University in Bodø, Norway

Excerpts from A New Cold War Grip Arctic Enclave, Wall Street Journal, Oct. 11, 2017

Longing for Lithium

Salar de Atacama. image from wikipedia

Lithium is a coveted commodity. Lithium-ion batteries store energy that powers mobile phones, electric cars and electricity grids (when attached to wind turbines and photovoltaic cells). Joe Lowry, an expert on the lightest metal, expects demand to nearly triple by 2025. Supply is lagging, which has pushed up the price. Annual contract prices for lithium carbonate and lithium hydroxide doubled in 2017, according to Industrial Minerals, a journal. That is attracting investors to the “lithium triangle” that overlays Argentina, Bolivia and Chile .  The region holds 54% of the world’s “lithium resources”, an initial indication of potential supply before assessing proven reserves.

Chile dominated the world lithium markets for decades. The Atacama salt flat has the largest and highest-quality proven reserves. The desert’s blazing sun, scarce rainfall and mineral-rich brines make Chile’s production costs the world’s lowest. Allied to this is the region’s most benign investment climate. Chile is far ahead in rankings of ease of doing business, levels of corruption, and the quality of its bureaucracy and courts (see charts). Its lithium deposits are close to Antofagasta and other Chilean ports;

But growth has flattened, allowing Australia to threaten Chile’s position as the world’s top producer…Laws enacted in the 1970s and 1980s classify lithium as a “strategic” material on the ground that it can be used in future nuclear-fusion power plants. There is little prospect that Chile will soon build one of these, but controls on lithium production remain as a way of protecting the desert’s fragile ecosystem.

Just two companies, Chile’s SQM and Albemarle of the United States, are allowed to extract brine under leases that were signed in the 1980s. In addition, they are subject to quotas on the lithium they can produce from the brine, which also yields other minerals….Ending the metal’s strategic status and getting rid of quotas would make still more sense. So would improving Chile’s institutions and infrastructure. 

Argentina: Under the constitution, provinces, not the federal government, own the country’s minerals. Mining firms had to find their way through a confusion of provincial rules and regulations. “It was like the Tower of Babel,” says Daniel Meilán, the country’s current mining secretary. I Argentina’s newish president, Mauricio Macri, has tried to unblock investment, including that in lithium….  The federal government is trying to harmonise provincial regulations. It has hammered out agreement on a standard royalty (3% of revenue, plus 1.5% to improve local infrastructure)…

These advances have started to unfreeze investment in lithium. In 2016 the sector attracted $1.5bn; production rose by nearly 60%….

Under the left-wing government led by President Evo Morales since 2006, Bolivia has pulled out of numerous bilateral investment treaties, denying investors access to international arbitration. His government has nationalised parts of the oil and gas industries, along with the biggest telecoms company and most of the electricity sector.  The government keeps an even tighter grip on lithium than it does on gas, its biggest export. YPFB, the state-owned natural-gas company, at least enters into joint ventures with private-sector firms. Since 2010 the right to extract lithium brine has been reserved for the state. Private firms can now do no more than gaze longingly upon the Uyuni salt flat near Potosí, the largest in the world…

Like Chile, Bolivia hopes to form partnerships with private firms to make value-added products, including batteries and electric cars, through a new lithium enterprise, Yacimientos de Litio Bolivianos. But the government’s insistence on keeping a controlling stake is discouraging potential investors. In 2016 Bolivia sold 25 tonnes of lithium carbonate to China, pocketing a princely $208,000.

The white gold rush: The lithium triangle, Economist, June 17, 2017

The Bloody Battle for Chip Hegemony

Intel chip. Image from wikipedia

China’s Tsinghua Unigroup Ltd., a state-owned firm is spending $24 billion to build the country’s first advanced memory-chip factories. It’s part of the Chinese government’s plan to become a major player in the global chip market and the move is setting off alarms in Washington.  When Unigroup tried to buy U.S. semiconductor firms in 2015 and 2016, Washington shot down the bids. It is considering other moves to counter Beijing’s push.

China is aiming “to take over more and more segments of the semiconductor market,” says White House trade adviser Peter Navarro, who fears Beijing will flood the market with inexpensive products and bankrupt U.S. companies.  Unigroup’s CEO Zhao Weiguo says he is only building his own factories due to Washington’s refusal to let him invest in the U.S. “Chinese companies have faced discrimination in many areas,” of technology, he says. “Abnormal discrimination.”

Semiconductors—the computer chips that enabled the digital age and power the international economy—have long been among the most globalized of industries, with design and manufacturing spread across dozens of countries.

Today, the industry is riven by a nationalist battle between China and the U.S., one that reflects broad currents reshaping the path of globalization. Washington accuses Beijing of using government financing and subsidies to try to dominate semiconductors as it did earlier with steel, aluminum, and solar power. China claims U.S. complaints are a poorly disguised attempt to hobble China’s development. Big U.S. players like Intel Corp. and Micron Technology Inc. find themselves in a bind—eager to expand in China but wary of losing out to state-sponsored rivals…

The new semiconductor battle marks a shift toward nationalism, trade battles and protected markets…The U.S. estimates China will eventually spend $150 billion [on developing s its indigenous semiconductor industry]  a figure equal to about half of global semiconductor sales annually.

Though Republicans and Democrats are at odds on many economic policy issues, they’re unified on this. An interagency working group on semiconductors, started by the Obama administration in 2015, has continued meeting under President Donald Trump. The group is weighing policies to make it more difficult for China to scoop up U.S. technology, according to people involved in the discussions.

One idea is tightening the rules covering U.S. approval of foreign investments to make it tougher for Chinese firms seen as security risks. Other options include trade sanctions, stricter export controls and added federal research spending

The U.S. views China as its biggest semiconductor challenge since Japan in the late 1980s. The U.S. triumphed then through trade sanctions and technological advances. Japanese firms couldn’t match U.S. microprocessor technology, which powered the personal computer revolution, and fell behind South Korea in low-margin memory chips.

China has advantages Japan didn’t. It is the world’s biggest chip market, consuming 58.5% of the global $354 billion semiconductor sales in 2015 according to PricewaterhouseCoopers LLP. That gives Beijing power to discriminate, if it wants, against overseas suppliers…Beijing’s semiconductor program shifted into high gear in 2012, when the value of its chip imports surged past its bill for crude oil for the first time…

Nearly 90% of the $190 billion worth of chips used in China are imported or produced in China by foreign-owned firms…The top 10 chip vendors in China by revenue are foreign.

“We cannot be reliant on foreign chips,” said China’s vice premier, Ma Kai in 2017…Beijing created a $20 billion national chip financing fund—dubbed the “Big Fund”— and set goals for China to become internationally competitive by 2030, with some companies becoming market leaders.  Local governments created at least 30 additional semiconductor funds, with announced financing of more than $100 billion. If all these projects are realized, the global supply of memory chips would outstrip demand by about 25% in 2020, estimates Bernstein Research, pushing prices down and battering profits of semiconductor companies globally… Beijing has been consolidating 600 small Chinese chip makers, many unprofitable, into a handful of larger companies China wants to compete internationally.

When the Big Fund financed an acquisition blitz, Unigroup was in the lead, bidding in 2015 for memory-chip maker Micron Technology, and then for a 15% stake in data storage firm Western Digital Corp.Some bids were so overvalued U.S. government officials joked the Chinese were willing to pay an “espionage premium.”  After a Chinese plan to buy a Royal Philips NV semiconductor-material unit fell apart, Phillips sold the unit to a U.S. private-equity group for about half the earlier price. Philips declined to comment.

The bids spooked Washington and the industry. In private meetings, Micron, Intel and others warned they faced an “existential threat” from China, say industry and government officials. The companies feared they were trapped in a prisoner’s dilemma. Each company was under pressure to sell to China for fear its competitors would sell if it didn’t.

In July 2017, Germany approved restrictions on foreign technology purchases, aimed at China, and the European Union also is considering barriers… The U.S. Committee on Foreign Investment in the U.S (CFIUS), an interagency review group, made clear most proposed acquisitions wouldn’t pass muster.

According to Rhodium Group, only about $4.4 billion in Chinese semiconductor acquisitions were completed since 2015. Unigroup’s bid for Micron fell apart. South Korea, Taiwan and Japan also blocked Chinese acquisition bids…

Mr. Trump proposed a 13% decrease in federal funding for basic research to $28.9 billion in fiscal year 2018, but semiconductor lobbyists say they hope to eke out an increase for chip-related research.

Chinese chip executives argue South Korea is a bigger threat to the U.S. chip industry due to its advanced technology.

After Unigroup’s plan to acquire Micron fell apart, it hired Charles Kau, the former head of Micron’s Taiwan joint-venture, and other experts from the island. It announced it would build its own memory chip facility—the mammoth Wuhan factories—at about the same price it would have paid for Micron.  Unigroup now has a new plan for Micron. It says it no longer wants to buy the firm, recognizing the chances of regulatory approval in the U.S. are nil, but says the two should work together to battle market leader Samsung Electronics Co. The combination of Micron technology and Chinese capital would help both companies take on the South Koreans, says Mr. Zhao, the Unigroup CEO.

Micron says the Federal Bureau of Investigation has begun investigating whether Micron employees in Taiwan who went to work for other firms, including Unigroup, have taken Micron technology with them.”

Excerpts from Bob Davis and Eva Dou. CHINA’S NEXT TARGET: U.S. MICROCHIP HEGEMONY, Wall Street Journal, July 28, 2017

The Power of Cables with an Ocean View

submarine communications cable. Image from wikipedia

Access to ultra-fast internet cables in London is likely to make financial firms reluctant to move out of London even after Britain leaves the European Union, a study by the European Central Bank has found.

But an ECB study found that any withdrawal from London would likely be gradual as firms would be loath to give up on Britain’s fibre-optic cables, crucial for ultra-fast electronic trading.

“The UK’s advantage as a hub for trading using fibre-optic cables, combined with institutional inertia, suggest that any relocation of trading after Brexit, if at all, would likely be gradual,” the ECB said in its study.  Around 84 percent of transactions in euro are initiated outside the euro area, with Britain taking the lion’s share at 43 percent, according to a survey by the Bank for International Settlement cited in the ECB study.

“Technology has economically important implications for the distribution of foreign exchange transactions across financial centres, as a result,” the ECB said.   “Undersea fibre-optic cables provide a competitive advantage to financial centres located near oceans, like Singapore, because they are directly connected to the internet backbone, at the expense of landlocked cities like Zurich,” it added.

Excerpts from Fast Internet Likely to Keep Trading in London After Brexit: ECB, Reuters, July 5, 2017.

Seaborne Gas

One day in March 2017, he Rioja Knutsen tanker, filled with liquefied natural gas, was traveling from the U.S. to Portugal. Suddenly, Mexico’s power company lobbed in a higher bid for its cargo. At the Bahamas, the ship abruptly made a starboard turn and headed south.  How natural gas is bought and sold in the world’s scattered regional markets for the fuel is changing rapidly. Ships such as the Rioja Knutsen are stitching those regions together and a single global market is emerging.  This is already how nearly every other hydrocarbon, from crude oil to obscure petrochemicals, is sold. As gas joins the club, the effects will ripple through energy prices, company profits, the environment and geopolitics.

Behind the evolution is improving technology for moving gas as a liquid, which means it can go to many more places rather than simply where a pipeline runs. …The share of gas moving by sea reached 40% of total trades in 2015, and the International Energy Agency forecasts that seaborne gas will account for a bigger share of trading than pipelines by 2040.

Thirty-nine countries now import LNG, up from 17 a decade ago, according to data and analytics firm IHS Markit. Several more, among them Uruguay, Bahrain and Bangladesh, are expected to lift the total to 46 in the next couple of years.

In one sign of how gas is going global, the U.S. and China are working on a trade deal that could send vast quantities of gas pumped in Texas and Pennsylvania to factories in Shanghai and Guangdong. Improved access for U.S. exporters to China’s giant energy markets could boost overall global shipments…

As LNG import terminals open in more locations, gas pricing and trading mechanisms are developing as well. Some investors are increasingly using the gas price at a pipeline intersection in Louisiana, called the Henry Hub, as a global benchmark.  Trading in the New York Mercantile Exchange’s Henry Hub gas futures contract is becoming more global, said Peter Keavey, global head of energy at Nymex owner CME Group . In May, Standard & Poor’s and the Intercontinental Exchange launched the first futures contract based on LNG produced in the U.S.

Seaborne gas is reducing some countries’ historic dependence on pipelines that run through potentially unfriendly territory. Poland, for instance, opened its first import terminal a year ago, lessening its reliance on gas piped from Russia.

When global trade in LNG began in the 1960s, the cost of liquefying gas was so high it was a niche product, affordable only by developed countries such as Japan.  As the technology proved reliable, trade in LNG became more common, but contracts to deliver the fuel by ship were decades long and had ironclad destination clauses. Gas contracted for Tokyo couldn’t be rerouted to Seoul. Traders called gas tankers “pipelines at sea.Now, contracts are getting shorter and starting to allow gas to be diverted to where demand is greatest. Earlier this year, three large LNG buyers in Japan, China and South Korea agreed to work together to push sellers for more contract flexibility and fewer onerous restrictions.

At any given time, there are about 170 tankers filled with LNG on the world’s oceans,… At the heart of the changes is supply. Huge new discoveries in the U.S., Middle East, East Africa and Australia, along with recovery techniques such as fracking, have expanded the amount of gas available for export….One pioneer is Houston-based Cheniere Energy Inc. FBy next year, Sabine Pass and other LNG terminals are expected to turn the U.S. into a net gas exporter….In a quest for customers, Cheniere has invested in a Chilean project to build a power plant, LNG terminal, storage facility and pipeline.   Oil titans Total SA and Royal Dutch Shell PLC also are offering to build facilities to burn gas. The two and their partners are building an import terminal and pipeline for an estimated $200 million in Ivory Coast, which will feed a power plant in the West African country’s economic hub of Abidjan. Qatar, the longtime LNG leader, recently lifted a self-imposed moratorium on the development of its North Field, the single largest gas reservoir in the world. So far there is little indication Qatar’s diplomatic spat with Arab neighbors will affect the gas market.

Helping make gas more accessible is a relatively new technology—floating LNG facilities. ..The first floating terminal was christened in 2005. Today there are 25….Excelerate Energy, a Houston company that developed this technology, is working on new floating terminals in Namibia, Bangladesh, Pakistan and elsewhere. The equipment to liquefy gas can also now be put on a large vessel that can be anchored offshore.

Excerpts from Long Promised, the Global Market for Natural Gas Has Finally Arrived, Wall Street Journal, June 7, 2017