I was in fifth grade the year of the Chernobyl disaster. I watched with morbid rapture all the great nuke movies — Silkwood with Meryl Streep, Marshall Brickman’s Manhattan Projectand Hal Hartley’s Trust (which is as amazing as it is impossible to find). I grew up believing that nuclear energy — despite being low-carbon and, well, cheap — was most definitely not the answer to the world’s energy problems. But then Jean-Christophe Nothias, editor-in-chief at The Global Journal, asked me to do the story excerpted below. Here’s why my entire worldview on nuclear changed.
Since 2001, a project has been underway to determine ‘alternative’ nuclear technologies, conducted by a large group of scientists from over 15 nations. The list of specifications is very demanding, but with a simple objective: can science provide radical new solutions to allow us to dispense with ageing second- and third-generation nuclear technologies? The group came up with a set of discoveries promising remarkable advances. So, why does no one talk about them? Nuclear energy, it seems, remains a sensitive subject at the global level. Our reporter, Leah McGrath Goodman, decides to throw some light on the matter.
A Strange History
It is a little-known fact that the heavily guarded, Cold War-era fortress that houses the U.S. Department of Energy (DOE) in Washington is named after – as one official jokes without a trace of irony – “a deeply depressed man.”
That man, General James Forrestal, former Secretary of the U.S. Navy, died in 1949 under strange circumstances. Depending on whom you believe, he was either assassinated or committed suicide by tying the end of a bathrobe sash around his neck, the other to a radiator, and throwing himself out of a hospital window. His body was found, shirtless, on a ledge, in an alley. The investigation into his death was marred by rumors of foul play, but he apparently left a suicide note… Continue reading Picking Your Poison→
While Big Oil is always active during an election season, this year news and radio shows have been particularly shameless about airing back-to-back commercials propounding the virtues of oil and gas. Just yesterday, Sunday’s lineup featured a parade of ads from the American Petroleum Institute — the Washington lobby for Big Oil — hailing oil and gas companies for paying for health care and schools and saying they have created 9.2 million jobs nationwide. It did not offer any independent sourcing to back up those claims, but I am guessing it’s safe to assume we can trust them?
If an oil company is building a school, frankly, I would like to know about it. I am still waiting to hear back on the name and location of these schools. Or even just one school.
Sunday is the major news networks’ time to roll out their TV version of The New York Times Sunday section. On “This Week With George Stephanopoulos,” a commercial break featured the American Petroleum Institute, Chevron and British Petroleum — in a row.
Pandering To Oil And Gas
While it’s no secret news shows are increasingly desperate for cash, this gives the impression that some shows are literally for sale. If that’s true, it is a bad time for it, as this country is in dire need of objective, non-ad-fueled journalism. The Fourth Estate is the last barrier against obfuscation and corruption and, lately, it is not doing the greatest job of keeping its head above the fray.
If news outlets don’t take seriously the need for diverse messaging not only in the content of their programming, but also when it comes to their commercials, it isn’t that different from narrowing the conversation to hard Orwellian limits. Here, an example of what really happens during an American Petroleum Institute commercial shoot that purports to feature “real” Americans.
So, onto the commercials themselves (which were hilarious if you could ignore for one second that a single member of the viewing public might actually believe them).
A tip to the Big Oil marketing agencies: if you are going to make a misleading ad, try to not make it so hysterical.
Surreal Oil And Gas Ads
Among Sunday’s procession, the American Petroleum Institute managed to look the least ridiculous (which is kind of like complimenting someone for being the world’s tallest midget), while Chevron’s ad featured a young blonde woman, supposedly a Chevron employee, making intense statements about how “proud” she was of the company for investing in American concrete and American steel (a little too weird).
With the Senate recently voting down a measure to eliminate billions of subsidies for Big Oil, for those not looking to attack either Republicans or Democrats, the 1% or the 99% – just those operating on common sense – it should raise some questions.
Between 2007 and 2010, more than 70% of the increase in U.S. oil drilling took place on federal territories, representing 3.5 million barrels a day, according to the nonpartisan Congressional Research Service. Since then, oil drilling in the U.S. has climbed higher, topping 6 million barrels a day this spring for the first time since 1999.
The appeal of drilling in the U.S. has grown in recent years, as oil companies develop new technologies to capture energy resources locked in North America that were previously seen as out of reach. Big Oil also has grown wary of the legal and financial uncertainties that often plague their drilling activities in more exotic and restive regions, such as Venezuela and Nigeria, North Africa and the Persian Gulf.
Bottom line: drillers see America as the promised land compared with the dreary alternatives, because the U.S. is by far a safer and stabler place to do business.
Oil Still Fetches 1987 Rates
Yet Americans might be shocked to learn how much the oil companies are actually paying for the privilege to drill on taxpayer-owned territories. As of this writing, the starting bid for leases on parcels of land that allow an oil company to drill for 10 years is $2 an acre. Yes, the prices can get up into the thousands during the bidding process, but more often the land is sold for next to nothing.
Happy National Pancake/Leap Year/Week before Super Tuesday Day, all. It has been a turbulent past few months and not just in the oil market. I will get into why very shortly but, for now, let’s just say that after a long and dark winter, I am once again available for dancing in the streets. Without any further cryptic remarks, I’d like to share an interview I just did with The Global Journal, based in Geneva, which rang me up to discuss ‘The Asylum’ and what the future holds for the energy market and gas prices during this, our illustrious Election Year.
(Q portions courtesy of Janine Huguenin-Virchaux, the magazine’s books and culture editor.)
Your book mentions that “the market is no longer reflecting supply and demand.” What is the use of a market that does not reflect the true price of oil? Do we need new hijackers?
That’s a great question – do we need new hijackers? If we could get some hijackers that could take back the market so that it does reflect supply and demand more clearly, then I would say yes, we do! However, I would also say that there is a serious debate going on about the extent to which price does reflect supply and demand. I think there is very good reason to believe that the price does not reflect it anymore. There is also a very technical reason for what has been going on that has not really been acknowledged or understood by many people. And that is the relationship between speculation and price discovery. A lot of the information that I get is from people who read the book and then they come to me and bring me stuff that nobody seems to really know about.
A lot of these guys are just regular traders who trade physical oil and feel that supply and demand is not reflected in the price correctly anymore. Whereas their entire lives – some of these men and women have been trading oil for thirty years or more – they feel the price did reflect it. So they believe there’s a huge difference in what they are seeing today in terms of the market fundamentals versus the price. And what they used to do was see price and fundamentals fit together better. They see a lot of distortion happening now. A lot of these people are concerned with that. I want to say, it’s not all about making money for these people: some of them look at this and say “Oh my God, it’s not acting the way it used to anymore and it doesn’t look like it’s headed anywhere good.” And that is aside from the fact that trading has become so ferocious that it is more about preserving a global casino than about supplying oil to people who need it.
That’s the problem. The casino aspect overshadows everything. Most of the people who play this game don’t want oil. They just want to play the game.
What is the alternative? I mean, these are the people who are speculating on the price of oil. Is there anything that can change to make it different? To make it less casino-like?
FORTUNE — James Koutoulas walked into one of the worst bankruptcies in U.S. history with almost zero legal experience.
“When I got up the first day in bankruptcy court and saw the look on the judge’s face, I couldn’t blame him,” he says. “Bankruptcy court is a rich man’s club where everyone is old, so I stood out. Honestly, when I’m shaved, I look like I’m about 12.”
Yet Koutoulas, 30, may be one of the only former customers of MF Global, the now-defunct futures brokerage house, with the gumption to publicly object to the way they are being treated. Since filing for bankruptcy Oct. 31, MF Global’s woes have rapidly piled up – chief among them losing an estimated $1 billion-plus of customer funds. The loss directly crimped the wallets of some of the futures market’s most active participants, from small-time farmers to ranchers to hedge funds.
Koutoulas, chief executive of three-year-old commodities fund Typhon Capital Management, stumbled into the courtroom drama accidentally. His Chicago firm, which conducts the bulk of its business in the futures market, discovered shortly after MF Global’s bankruptcy that $55 million of its $70 million under management had been dragged into the proceedings. This was a surprise, because, by law, customer funds are supposed to be kept completely segregated from a brokerage firm’s own assets. That wasn’t the case with MF Global. For Koutoulas and tens of thousands of other MF customers, it was a rude awakening.
It’s official: when a Wall Street powerhouse suddenly collapses and (possibly) more than a billion dollars goes missing, it’s no longer just the ordinary taxpayer’s problem. Now, it has moved up the chain. Below, the piece I wrote today for Fortune on what traders do when you misappropriate their money.
While Occupy Wall Street was holding its two-month anniversary rally in Manhattan last week, traders were quietly mounting a rather more sophisticated version of OWS on their own. Call it Occupy Wall Street Bankruptcy Court.
FORTUNE — Big institutional investors are getting a taste of what many frustrated taxpayers experienced during the financial crisis: Being on the hook for losses of a major financial firm against their wishes.
This time, of course, it’s MF Global at the center of the dispute. A once-trusted brokerage with roots dating back to the 1700s, MF Global is now a bankrupt firm suspected of misappropriating customer funds to the tune of at least $600 million.
More than two weeks after MF Global’s Halloween bankruptcy filing, there are more questions than answers and a surfeit of conflicts in an investigation that should be aiming to restore the public’s confidence, but is doing the opposite. On Monday, the bankruptcy trustee for the case announced that there may be much more than $600 million missing from MF Global accounts — perhaps as much as $1.2 billion.
Hundreds of millions of dollars of trading capital and collateral were frozen without notice, dramatically disrupting the derivatives marketplace and ushering in a phalanx of federal prosecutors, regulatory agencies and forensic accountants working around the clock to determine where the missing money is. This, after a lawyer for MF Global assured a New York judge earlier this month “there is no shortfall.”
What’s different about this case? One hedge fund executive summed it up best: “What is scary about MF Global is that there is no political will in this country to look out for people. Let this be a lesson that, if someone tries to steal from you, there is no one who is going to save you. I mean it is literally the most frightening thing that can happen in finance.”
You would think it would be the very traders about whom I wrote who would have caused the most trouble. This has not been so. On the contrary, most of them have been supportive to an unwarranted degree, including a rare few who have had every reason to be furious about what I wrote, but instead were reasonable.
Many of them also expressed a sincere belief that the global oil market has run off the rails and that prices are no longer set by supply and demand.
There is a time to wear a headband and a time not to wear a headband. Some would say it is best not to wear a headband outside kindergarten. But if you’re in Istanbul to consider offering the full thrust of free world legitimacy to the Libyan rebels, why not keep things flexible?
So, I wrote a book…but I have not been goodly enough to do much blogging about it. This was not intentional. This was mainly because of the furious pace of travel, lawsuits, the odd threat — and the fact that I was serving full time as a journalism fellow at the University of Colorado at Boulder, trying to do my best to live a quiet life. I have since made amends, and will be writing regularly about my continuing fascination with sins of affinity and cultures of corruption. Healthy stuff like that.
Let’s start today with Goldman Sachs letting us all know that oil supply is headed for levels that are “critically tight,” sending prices in the U.S. up to nearly $100 again and in Europe still higher. This contrasts somewhat with the bank’s remarks in April that “supply-demand fundamentals are significantly less tight,” made by the bank’s chief energy analyst David Greely. At the time, this prodded oil prices into a temporary swan dive that proved a good buying opportunity for — some would say — Goldman. Mind you, oil supplies in the U.S. have been near their upper limits for most of the year, so not sure what the rumpus is about.
By May, however, Goldman pulled an about-face with its global head of commodities strategy, Jeffrey Currie, predicting that the loss of oil production due to the conflict in Libya would cause oil prices to surge. On cue, they did. Never mind that the Libyan conflict began in February, raging throughout Goldman’s projection of a price crash. Or that Libyan oil production has been a tiny drop in the global bucket (1.6 million barrels a day to the 20 million-plus a day consumed by the U.S. alone).
All told, Goldman’s prediction came just a few weeks after the bank told its clients to dump their oil investments. It makes one wonder which bank doubling as the world’s largest commodities trader was buying oil during that time? Continue reading How Now, Gold Cow?→
Many of you have written to ask for a good bit more on the shenanigans prevalent in today’s oil market. Check out this show, aired today, from minute 14 on…(Thankfully, you can scroll through to the juicy stuff.) More to come on DOJ, FTC, CFTC and FERC investigations into the price of oil and gas — and where the biggest challenges lie for those who seek to break the back of the corruption.