LSGI Portfolio Comparative Performance* - LSGI Advisors Inc.

LSGI Advisors, Inc. – April 1, 2007 

1007 Beaver Creek Drive 

Duncanville, Texas 75137 

(972) 780-1805 (office) 

(214) 263-5201 (cell) 

Dear LSGI Investor: 

The LSGI Fund portfolio performed well last month. Due to our concerns about economic and market risks we have 

maintained a cash position that is well above average. Developments last month in the energy sector were positive for us, 

and earnings reported by firms in the LSGI portfolio were excellent. 

The performance of the LSGI Fund portfolio last month can be graphically represented as follows: 

$7,000 

$6,600 

$6,200 

$5,800 

$5,400 

$5,000 

$4,600 

$4,200 

$3,800 

LSGI Portfolio Comparative Performance* 

LSGI Portfolio Value Per Unit - 

Gross Returns 

180 Day Moving Average - LSGI 

Gross Returns 

Russell 2000 Small Cap Index 

Warren Buffett's Berkshire 

Hathaway (BRKa) 

Fidelity Growth Fund (FDGRX) 

Dow Jones Industrials Index 

Nasdaq Composite Index 

$3,400 

$3,000 

$2,600 

$2,200 

S&P 500 Index (VFINX) 

Fidelity Magellan Fund (FMAGX) 

Janus Fund (JANSX) 

$1,800 

$1,400 

$1,000 

Vanguard US Growth (VWUSX) 

Putnam Voyager Growth Fund 

(PVOYX) 

$600 

Firsthand Tech Value Fund (TVFQX) 

Mar- 

01 

Jun- 

01 

Sep- 

01 

Dec- 

01 

Mar- 

02 

Jun- 

02 

Sep- 

02 

Dec- 

02 

Mar- 

03 

Jun- 

03 

Sep- 

03 

Dec- 

03 

Mar- 

04 

Jun- 

04 

Sep- 

04 

Dec- 

04 

Mar- 

05 

Jun- 

05 

Sep- 

05 

Dec- 

05 

Mar- 

06 

Jun- 

06 

Sep- 

06 

Dec- 

06 

Mar- 

07 

_______________________________________________ 

* The accompanying chart for the LSGI Technology Venture Fund L.P. portfolio (‘LSGI portfolio’ or ‘Fund’) represents estimated returns as of April 1 st on a 

hypothetical investment made on April 1, 2001. LSGI portfolio ‘gross’ returns represent performance after payment of the 1% annual administration fee and 

all related Fund costs and expenses, including accounting and legal expense. LSGI portfolio ‘net’ returns reflect estimated portfolio performance after 

payment of the manager’s annual performance incentive fee (20% of gains) on January 1 st of each applicable fiscal year, taking into account the ‘high water’ 

provisions of the Fund, and calculated pursuant to the terms of the Second Amended and Restated Limited Partnership Agreement. 

Returns of the LSGI portfolio will vary with market conditions, and past performance does not reflect potential future performance. The objective of the Fund 

is aggressive growth. Data contained in this report is derived from sources believed to be reliable but we can make no guarantee as to the accuracy or 

completeness. The LSGI portfolio was established on July 1, 1999. The Fund or LSGI Advisors Inc. may have positions in, and may from time to time buy or 

sell, securities mentioned herein without prior notice to our investors. This Report is prepared solely for investors in the LSGI Fund and is not an offer to buy 

or sell securities, it is not intended for use by third parties.

LSGI Portfolio Commentary 

The Berkshire Hathaway annual report was published last month. Written by Warren Buffett, the annual report includes 

his opinions on the state of the markets and the business environment - and they help explain how he has consistently 

generated excess returns for investors. 

Reviewing the most recent annual report, and going back over the years and reviewing historical Berkshire Hathaway 

reports, three themes stand out that explain Buffett’s superior investment performance: 

• Good business sectors. Mr. Buffett focuses on firms in attractive sectors or business niches that allow companies 

to generate attractive margins. He notes that a great management will have difficulty making a poor business 

financially successful, but an average manager could do quite well operating in an attractive business niche. 

• Reasonable valuation and growth prospects. Noting the value-based philosophy of his college finance professor 

Ben Graham, Buffett and Berkshire have focused on paying a reasonable valuation for their ownership interests. 

Originally Buffett bought ownership interests by buying publicly traded shares on the open market. Due to the size 

and amount of capital they now manage he now prefers to acquire the entire enterprise through a negotiated sale. 

• Smaller firms and portfolios are at an advantage. Operating with large amounts of capital Buffett notes they 

cannot come close to generating returns as impressive as they did when they managed much smaller sums. He 

notes: 

Charlie Munger – my partner and Berkshire’s vice chairman – and I run what has turned out to 

a big business. . . We certainly didn’t plan it that way. Charlie began as a lawyer, and I thought of myself as a 

security analyst. Sitting those seats, we both grew skeptical about the ability of big entities of any type to 

function well. Size seems to make many organizations slow-thinking, resistant to change and smug. 

Buffett and Munger’s early focus were on small companies – firms that today would be referred to as ‘microcaps’. 

These firms trade in the most inefficient part of the market. Due to the market inefficiencies active portfolio 

managers can find attractive firms at reasonable valuations in this sector. 

While we did not intend to attempt to replicate Buffett’s strategy, the financial screens that we use to examine databases 

for good investment ideas tend to find firms: (1) in attractive business sectors, (2) with reasonable valuations and (3) 

attractive growth prospects, that are (4) small therefore (5) overlooked by most analysts. Our portfolio over the longer term 

has also tended to deliver excess returns to our investors. 

The historical performance of the LSGI Fund portfolio as of April 1 st is estimated as follows: 

Annualized Performance as of 4/1/07- Estimated * 1 Year 3 Year 5 Year 7+ Year Life of the Fund 

LSGI Technology Venture Fund - Gross Returns* 6.0% 40.1% 41.8% 27.1% 

LSGI Technology Venture Fund - Net Returns* 4.5% 33.6% 35.7% 22.9% 

Russell 2000 Small Capitalization Index 4.6% 10.7% 9.6% 7.5% 

Standard & Poor's 500 Index 9.7% 8.0% 4.4% 0.5% 

Nasdaq Composite Index 3.5% 6.6% 5.7% -1.4% 

At the end of the first quarter of 2007 – March 31 st – we prepared a linear regression analysis of the last five years of 

investment data to determine if we were adding value as an active manager. A linear regression is a method of organizing 

and analyzing a set of data points. It uses mathematical relationships to fit a straight line through the data set. This 

regression analysis is an important part of the Capital Asset Pricing Model (‘CAPM’) used in investment circles. 

Over the last five years the best performing index is the Russell 2000 Small Cap Index – so we will use that data set to 

determine if we are adding value. This index is also an appropriate benchmark since it also tracks the performance of 

small companies – firms that we tend to focus on when using our quantitative stock selection process. 

2

Going back over the last 60 months we draw a straight line 

through the set of data points using the linear regression 

methodology (see chart at right). Excess returns over and 

above what would be expected from movements of the market 

itself – known as alpha (‘α’) in the investment community – 

amounted to 1.52% per month net of all fees and expenses. 

It is rare for an actively managed portfolio to generate this 

degree of excess returns, or ‘alpha’. The results of the 

regression analysis are statistically significant. 

Note that the coefficient of determination – also known as “R 

squared” – is 0.402. That indicates that the performance of the 

LSGI portfolio is not explained well by movements of the 

Russell 2000 index. If the Russell 2000 index and our portfolio 

correlated perfectly R squared would be 1.000. 

The Russell 2000 index and the LSGI portfolio do not correlate 

closely, the movement in one variable does not explain the 

movement in the other. For our investors this is a very positive 

event – excess returns that don’t correlate closely with the 

market indices tend to reduce risk across an individual’s total 

portfolio. 

LSGI Net Returns (Monthly) . 

Y Axis 

LSGI Net Returns v. Russell 2000 Small Cap Index 

(last 60 months - monthly data) 

30.0% 

20.0% 

10.0% 

0.0% 

-15.0% -5.0% 5.0% 15.0% 

-10.0% 

-20.0% 

Russell 2000 Index Returns (Monthly) 

X Axis 

y = 1.2377x + 0.0152 

R 2 = 0.402 

The ‘beta’, or volatility, of the regression model is 1.2377, which means the LSGI portfolio is 1.2377 times as volatile as 

the Russell 2000 index. Volatility is considered a measure of risk according to some analysts, the higher the volatility the 

more risky the portfolio. Mr. Buffett considers the argument that volatility equals risk a ‘distortion’ according to some of his 

writings. 

Morningstar InvestorForce Database. In the Morningstar InvestorForce database as of 

April 1 st , on a total return basis their ranking placed us 55 th of 1149 portfolios over the last 

36 months. This ranks us in the top 5% of all funds in that database. 

Barron’s Portfolio Challenge. We used our LSGI screens again this year to identify companies to buy in the Barron’s 

Challenge portfolio management contest – companies we also bought for the LSGI Fund portfolio. Last year we finished 

the Barron’s contest in third place. This year, with a month remaining in the contest, we are in 18 th place in the contest out 

of 1,976 portfolios - in the top 1%. 

[Portfolios ranked 1 st to 16 h omitted] 

[Portfolios ranked 20 th to 1,976 th omitted] 

Looking forward, we remain optimistic that our portfolio will continue to perform well compared to the major market 

indexes. 

1 April 2007 

LSGI Advisors Inc. 

LsgiFund.com 

3

In this issue: (1) A review of LSGI portfolio performance and developments; (2) Developments in the energy sector; (3) 

LSGI Fund holdings and new additions Comtech Group (COGO), International Royalty Corp. (ROY), and Pioneer Drilling 

(PDC); (4) A discussion of developments in LSGI portfolio companies; and (5) Supplemental research and articles. 

LSGI PORTFOLIO 

Last month we made the following portfolio changes: 

• We sold our positions in EZ Corp. (EZPW) and PeopleSupport (PSPT). 

• We opened new positions in Comtech Group (COGO), International Royalty Corp. (ROY), and Pioneer Drilling 

Corp. (PDC). 

The ‘statistical profile’ – median valuation and growth characteristics - of the LSGI Fund portfolio as of April 1 st remains 

attractive: 

4

DEVELOPMENTS IN THE ENERGY SECTOR 

We found several developments of interest in the energy sector last month. The Congressional General Accounting Office 

(GAO) issued a report on the future availability of crude oil. Their conclusions included the following points: 

• Due to the large amount of crude oil used by the U.S. economy, and the large amounts of imports needed to meet 

demand, the U.S. economy is more vulnerable than most to any energy supply issues 

• Demand for crude oil has been increasing globally as economies expand and modernize, requiring additional 

supplies 

• Peak oil – maximum global crude oil production rates – is estimated to occur anywhere from now to 2040. The 

large band of uncertainty is due to the lack of transparent data on reserves, production declines, questions 

regarding the ability of technology to address supply and demand issues, and investment and political 

uncertainties 

• One-third of the world’s oil reserves are in politically ‘high risk’ areas, increasing the risk of global supply 

disruptions 

• One-third of the world’s oil reserves are in areas considered ‘high risk’ from an investment standpoint 

• National oil companies hold a majority of the reserves of the top 10 global energy companies. The main objective 

of these firms includes optimizing tax and transfer revenues, goals which might conflict with the incentive to 

maximize crude oil production rates 

• The potential for alternative fuels to replace oil in the transportation sector is limited, especially in the short term. 

Serious alternative fuels and vehicles will take decades to develop 

In addition to the GAO report, the following events also transpired: 

• Iran’s dispute with Britain over the fate of 15 sailors has not been resolved. Iran pumped about 4 million barrels of 

oil a day in 2006, ranking as the world's fourth-largest producer behind Russia, Saudi Arabia and the United 

States. Iran’s oil reserves are second only to Saudi Arabia's according to EIA. 

• Cantarell, located in the Gulf of Mexico and the world’s secondlargest 

oilfield, yielded more than 2 million barrels per day (bpd) as 

recently as 2005. Output from Mexico’s Cantarell fell by nearly 

500,000 bpd to about 1.5 million bpd in December 2006, a 25 

percent decline. Unless reversed, Cantarell’s production declines 

will be felt in the U.S. which will have to offset the loss by 

purchasing crude on the international market (see chart at right). 

• China's crude oil imports are expected to rise more than 10% in 

2007, the nation's top refiner said last month. China last year relied 

on imports for 47% of total oil consumed. 

• China plans to begin filling the tanks at its third strategic oil reserve 

in by mid-2007. China began building four oil strategic storage 

facilities in 2004. Two of these facilities are now in operation. 

• Passenger car sales in China's vehicle market soared by 33 per 

cent in the first two months of 2007 compared with the same 

period of 2006. Total vehicle sales, which also counts trucks and 

buses, rose 25 per cent. China surpassed Japan last year to 

become the world's No. 2 vehicle market after the United States. 

• Wholesale gasoline demand in the U.S. is cyclical and tends to begin rising in March. Despite the use of ethanol 

and a "slowing" economy U.S. gasoline demand remains well above the five year average, and is above the 

record consumption levels of 2006. The EIA estimates that overall U.S. gasoline consumption will increase by 

1.2% in 2007. 

5

• World oil demand growth, led by China and the United States, will increase in 2007, putting pressure on OPEC 

producers to boost production. Analysts forecast average world oil demand growth this year at 1.39 million barrels 

per day. That is up from demand growth of 800,000 barrels per day last year according to the International Energy 

Agency. 

• About 80% of the crude oil consumed today was discovered before 1973. It has been estimated that for the last 

decade 5 barrels of oil have been produced on a global basis for every barrel of oil discovered. 

• The 2007 hurricane season should be "very active," with nine hurricanes and a good chance that at least one 

major hurricane will hit the U.S. coast, according to Dr. William Gray. He expects 17 named storms this year, five 

of them major hurricanes with sustained winds of 111 mph or greater. The probability of a major hurricane making 

landfall on the U.S. coast this year: 74 percent, compared with the average of 52 percent over the past century. 

********************************************** 

LSGI PORTFOLIO - CORPORATE DEVELOPMENTS 

The following firms were added to our portfolio or had developments of interest last month: 

ALLIS CHALMERS ENERGY (ALY - $16.25) announced fourth quarter net income increased to $0.40 from $0.14 in the 

year earlier period. Revenue increased to $114 million from $33. ALY provides services in the energy sector. 

ANGEION CORPORATION (ANGN - $14.72) announced first quarter net income increased to $0.12 from $0.02 in the 

year earlier period. ANGN produces medical devices and related products for the health industry. 

AMERIAN ORIENTAL BIOENGINEERING (AOB - $9.42) announced fourth quarter net income increased to $0.17 from 

$0.10 in the year earlier period. AOB manufactures and markets pharmaceutical products in China. 

ARENA RESOURCES INC. (ARD - $50.44) announced year end oil and natural gas reserves increased 43% from year 

earlier levels. Production during the fourth quarter increased 92% from year earlier levels. ARD is a domestic crude oil 

producer. 

COMTECH GROUP INC. (COGO - $17.81) is added to the LSGI portfolio this month. COGO designs mobile handset and 

telecom equipment primarily for manufacturers in China. The company makes our screens, and has compelling valuation 

and growth characteristics. 

FUEL TECH INC. (FTEK - $25.13) announced fourth quarter net income decreased to $0.06 from $0.11 in the year 

earlier period. Most of the decrease in the current quarter is due to tax liabilities that were not present a year ago. FTEK 

makes pollution control equipment. 

INTERNATIONAL ROYALTY CORPORATION (ROY - $5.86) is a new addition to the LSGI portfolio this month. The 

company is engaged in acquiring natural resource royalties with a specific emphasis on mineral royalties. ROY holds over 

60 royalties in numerous different commodities being mined or processed. ROY is a rare chance to invest in a true 

profitable micro-cap in the mining/mineral processing sector. We add the company to our portfolio this month. 

6

GIGAMEDIA LTD. (GIGM - $13.75) announced fourth quarter net income increased to $0.17 per share from $0.04 per 

share in the year earlier period. Revenue increased to $30 million from $12 million in the year earlier period. GIGM 

provides services and products in the online gaming sector, focusing on China and European markets. 

K-TRON INTERNATIONAL INC. (KTII - $71.50) announced fourth quarter net income increased to $1.57 per share from 

$0.63 per share in the year earlier period. Revenue increased to $44.3 million from $29.3 million in the year earlier period. 

KTII produces and markets material handling equipment for several industrial markets. 

OMEGA FLEX INC. (OFLX - $22.30) announced fourth quarter net income increased to $0.29 per share from $0.24 per 

share in the year earlier period. Revenue fell to $19.1 million from $20.0 million in the year earlier period. The company 

makes flexible tubular and braided metal (stainless steel, bronze) hoses for liquid and gas transportation. 

OMNI ENERGY SERVICES CORP. (OMNI - $10.42) announced fourth quarter net income increased to $0.27 per share 

from $0.03 per share in the year earlier period. Revenue increased to $26.1 million from $11.1 million in the year earlier 

period. OMNI provides services to the domestic energy sector. 

PIONEER DRILLING CO. (PDC - $12.86) is added to 

the LSGI portfolio this month. PDC provides contract 

land drilling services to independent, and oil and gas 

exploration and production companies in the United 

States. The company's rig fleet consisted of 

approximately 57 operating drilling rigs. We think that 

the value of the equipment owned by this company is 

roughly twice the market value of the stock - and the 

fundamentals are very impressive from both a growth 

and valuation standpoint. While the onshore drilling 

sector is currently not favored by investors, we think 

the stock price could double within the next 18-24 

months. 

Rig fleet utilization has continued to increase over the 

last few years, and higher prices for both crude oil and 

natural gas will support further increases in rig activity 

going forward. 

PRIME ENERGY (PNRG - $58.66) announced fourth quarter net income decreased to $0.60 per share from $1.65 per 

share in the year earlier period. Revenue fell to $21.1 million from $22.9 million in the year earlier period. PNRG is a 

domestic natural gas producer. 

******************************************************************************** 

The Michigan Tech Applied Portfolio Management Program's team won the seventh annual RISE (Redefining Investment 

Strategy Education) portfolio management competition last week. RISE is the largest North American student investment 

and applied finance conference. The APMP won the "value" category with the highest risk-adjusted return for 2006 in the 

undergraduate division. This is the second year that the Michigan Tech APMP team has won top honors at RISE. More 

than 1,700 participants from 218 colleges and universities, representing every state and continent, attended this year's 

RISE symposium. 

LSGI Advisors Inc. awarded scholarships to current Michigan Tech APMP students, and we sit on the Board of Advisors to 

the program. 

As always we appreciate your support. Please call if you have questions. 

1 April 2007 

LSGI Advisors Report - LsgiFund.com 

(972)-780-1805 - Dallas, Texas 

7

Appendix 

The following articles and research materials on the energy sector, the markets, and the economy may be of 

interest to our investors. 

8

http://www.321energy.com/editorials/taylor/taylor040307.html?print=on 

Page 1 of 6 

4/3/2007 

« Return to 321energy.com 

Peak Oil, China, & India Will Send Oil Prices to the Moon 

Jay Taylor 

J Taylor’s Energy & Energy Tech Stocks 

April 3, 2007 

"It is evident that the fortunes of the world’s human population, for better or for worse, are 

inextricably interrelated with the use that is made of energy resources." (M. King Hubbert – 

1969) 

"There is no substitute for energy. The whole edifice of modern society is built upon it…It is 

not 'just another commodity' but the precondition of all commodities, a basic factor equal 

with air, water, and earth."E. F. Schumacher – 1973) 

“The Allies were carried to victory on a flood of oil…With the commencement of the war, 

oil and its products began to rank as among the principal agents by which they would 

conduct, and by which they could win it. Without oil, how could they have procured the 

mobility of the fleet, the transport of their troops, or the manufacture of several 

explosives?” (Britain’s Foreign Minister, Lord Curzon, commenting on the reason for the 

Allied victory in WWI) 

There is no doubt in your editor’s mind that empires cannot exist without control of the world’s oil 

supplies. If you don’t believe that, I would strongly suggest you read A Century of War, by F. William 

Engdahl. He points out that the rise of the existing Anglo-American empire was made possible by 

wrestling petroleum resources away from Germany prior to WWI. After WWI, the victors not only 

sucked the lifeblood out of Germany by imposing reparations three times the amount it could possibly 

pay, but in the process they deprived Germany of oil and other resources it needed to rebuild its 

economic interests. And so we had World War II, which set the stage for the existing Anglo-American 

empire and the major global institutions such as the World Bank, IMF, BIS, and United Nations that 

have continued to assist the U.S. and England in controlling the existing supplies of oil. 

Whenever various countries try to exercise their own sovereign rights to do as they wish with their own 

oil, and when those actions get in the way of the large corporate and banking interests of the Anglo- 

American empire, either covert or overt military action is taken to unseat the sovereign rights of those 

nations. The first example of that after WWII took place in Iran when that nation elected Dr. 

Mohammed Mossadegh as its leader in 1951. Mossadegh won election on a platform that would have 

required the Anglo-Iranian Oil Company to share profits on a 50/50 basis. The British did not want any 

part of that so it went to the Eisenhower Administration, and the CIA was put into action to overthrow 

Mossadegh, at which time Reza Shah Pahlavi was put into power—ensuring the oil would again flow to 

Anglo-American interests. In A Century of War, the author points out how Israel was implemented in 

Palestine as a means of enabling the Anglo-American empire to maintain a toehold in this oil-rich region 

of the world. As a result we in the American empire have managed to live an opulent lifestyle while the 

rest of the world lives in poverty. 

“The skylines lit up at dead of night, the air-conditioning systems cooling empty hotels in


Page 2 of 6 

4/3/2007 

the desert, and artificial light in the middle of the day all have something both demented 

and admirable about them: the mindless luxury of a rich civilization, and yet of a 

civilization perhaps as sacred to see the lights go out as was the hunter in his primitive 

night.” (Jean Baudrillard – 1989) 

American and western European opulence have prevailed over the past 60+ years. We Americans have 

come to think it our natural-born right to be able to drive huge SUVs while most of the world lives in 

relative poverty. But our materialistic view of the world is on a collision course with a new reality that 

will be forced on us and will reduce our standard of living. The new reality I speak of is derived from a 

combination of declining production of oil, especially cheap oil, and rising competition from huge 

numbers of middle-class people from places like China and India as well as other lesser-developed 

countries. We are going to continue to pay much more for oil, as various geopolitical interests compete 

for dwindling supplies of oil, and as central bankers print more and more money in a self-deceptive 

move to try to pretend to society that we can afford expensive oil. 

Peak Oil as China and India Growth Rates Explode 

Another book I have recently read 

and highly recommend that you 

read is, The Party’s Over, by 

Richard Heinberg. This book 

discusses the arguments for and 

against Peak Oil, though the author 

admits he is a believer in peak oil 

theory. Unless there is some grand 

deception afoot to distort data on a 

wide front by a large number of 

people, in my view, peak oil theory 

has great credibility. Tellingly, it is 

the geologists who hunt for oil who 

are the strongest believers in peak oil, while economists who live in their theoretical world tend to 

dismiss claims that modern civilization is facing an energy, and thus an economic, crisis of epic 

proportions. 

Let’s take a look at some of the evidence presented in Mr. Heinberg’s book. 

During the 1920s, oil was discovered in western Pennsylvania. The relatively short life of those wells 

caused geologists and folks in general to believe in the notion that oil wells had a very limited lifespan. 

But then came some huge discoveries in western Texas and in the Persian Gulf that led people to scoff at 

the notion that we would need to worry any time soon about limited oil supplies. 

One person who did not scoff at that notion was Marion King Hubbert, who became one of the bestknown 

geophysicists in the world because of his disturbing prediction first announced in 1949 that the 

fossil-fuel era would prove to be very brief. He had actually started to do some work on petroleum and 

natural gas reserves while he was a student at the University of Chicago in 1926. In 1949, he used 

statistical and physical methods to calculate total world oil and natural gas supplies and documented 

their sharply increasing consumption. Then, in 1956, on the basis of his reserve estimate and his study of 

the lifetime production profile of typical oil reservoirs, he predicted that the peak of crude-oil production 

in the U.S. would occur between 1966 and 1972. At the time, most economists, oil companies, and 

government agencies, including the USGS, dismissed the prediction. But in fact, oil production did peak 

in 1971, as shown on the chart above. Roughly speaking, the production of oil from wells occurs over


Page 3 of 6 

4/3/2007 

time on a normal distribution curve, as early production is slow until a peak is hit at about halfway 

through the life of a well and then declines begin to occur. With oil discoveries and heavy consumption 

taking place first in the U.S., and with an absence of wars to deter production, and with modern 

technologies being used first here, production from the lower 48 states has peaked earlier than 

international production, which is pictured on your left. 

One of Hubbert’s chief followers is Colin J. 

Campbell. After earning his Ph.D. at Oxford in 1957, 

Campbell worked first for Texaco and then Amoco 

as an exploration geologist, his career taking him to 

Borneo, Trinidad, Colombia, Australia, Papua New 

Guinea, the U.S., Ecuador, the U.K., Ireland, and 

Norway. He later was associated with 

Petroconsultants in Geneva, Switzerland, and in 

2001 brought about the creation of the Association 

for the Study of Peak Oil (ASPO), which has 

members affiliated with universities in Europe. He 

published extensively on the subject of petroleum depletion, and is author of the book The Coming Oil 

Crisis. 

Campbell’s most prominent and influential publication was the article “The End of Cheap Oil?” which 

appeared in the March 1998 issue of Scientific American. That article concluded the following: From an 

economic perspective, when the world runs completely out of oil is…not directly relevant: what matters 

is when production begins to taper off. Beyond that point, prices will rise unless demand declines 

commensurately. Using several different techniques to estimate the current reserves of conventional oil 

and the amount still left to be discovered, we conclude that the decline will begin before 2010. 

The chart of actual production as well as projected future 

production is noted above. Taken into consideration here are 

supplies of heavy oil and deepwater sources as well as 

assumptions of polar exploration as well. If this chart is close to 

being accurate—and I believe it is—then global supplies of oil 

are beginning to decline just as tens of millions of higher 

energyconsuming middle-class folks in China and India begin to 

enjoy the luxuries we in the West have known for decades. But 

can’t we find more oil if we simply look harder for it or if we 

opened up areas off the coast of the U.S. and in Alaska that have 

been off limits for so long? No doubt we would find some 

additional supplies of oil if we drilled for more in these off-limit 

places, but a stunning and sobering fact that we need to deal 

with is that it is becoming increasingly expensive and non 

economic to explore for oil and gas, as the two charts on your 

right illustrate. The top chart shows the decline in barrels of oil 

found per foot of drilling. Prior to 1950, between 30 and 52 

barrels of oil were found per foot of drilling. Since 1980, that 

number has ranged between 5 and 12 barrels of new oil per foot 

of drilling! 

The chart on your right tracks the cost per oil and gas well. 

What we are interested in here is the real cost after factoring out 

inflation. That figure is shown in the solid black line. Note how


Page 4 of 6 

4/3/2007 

these costs per well have jumped from approximately $225,000 per well in 1960 to considerably over 

$800,000 per well in 2000. Moreover, the following illustration (which measures the net present value 

of oil and gas discoveries versus the net present value of exploration and development expenditures) 

shows that there is no good reason to continue exploring for oil and gas, because the returns (expressed 

in the net present value of exploring and developing as opposed to the net present value of oil and gas to 

be produced in the future) have turned negative over the past couple of years. In other words, factoring 

in the time value of money, on average it now costs more to explore and develop oil and gas wells than 

revenues that are returned out of the ground. 

Amazingly, we are seeing a very dramatic 

decline in return on investment, not over 

a long period of time but over the past 

few years. Note from the chart on your 

left that in 1999 and 2000, there was a net 

positive return as present value of future 

flows of oil and gas still exceeded the 

cost of exploration and development by a 

considerable margin. However, by 2001, 

the net present value of cost was around 

9%, while the net present value of future 

cash flows to be derived from the 

production of oil and gas was only about 

6%. During the next two years, the 

expense of exploring and developing cost companies a present value of 8%, while the returns slipped to 

less than 4% by 2003. These are the kinds of statistics that explain why oil companies are not plowing 

back their profits into more drilling even as the price of oil has risen dramatically. To me that is the best 

argument of all in favor of peak oil. If profits are to be had from exploration and development, 

companies will carry out those activities. But if they are not there, they won’t. It’s as simple as that. Of 

course, production can and has continued to decline even as new discoveries drop dramatically, as 

illustrated by the next chart, which shows a growing gap between current production and past and future 

discoveries. 

Amazingly, about 80% of the oil consumed today was 

discovered before 1973. But most Americans could care 

less about the declining discoveries of new oil supplies as 

long as they can afford to keep fueling up their SUVs. And 

even though the price of oil has been on the rise, so far 

there have been no shortages as production continues to 

rise. The chart on your right, however, which shows past 

and future discoveries of oil and existing production, 

suggests that while consumers may not care now, it won’t 

be long before they do, because if these statistics are in 

fact true, it is only a matter of time before there will be a substantial reduction in the quantity of oil 

available to the markets. If/when that takes place, one of two outcomes can be expected. If central 

bankers around the world choose not to accommodate their economies by cutting back on the creation of 

new money from thin air, the global economy is likely to be thrust into a global depression the likes of 

which we have not seen in the West since the 1930s. If, as now appears more likely, central bankers 

continue to print more and more money in an illfated attempt to accommodate higher oil prices, we may 

well be facing a hyperinflationary scenario, as independent economist John Williams has predicted. 

Interestingly, John is predicting hyperinflation around the year 2010, a time by when we would expect 

oil supplies to start declining rather dramatically. (For more on John William's theories , subscribe to J


Page 5 of 6 

4/3/2007 

Taylor's Gold & Technology Stocks, and we will send you a complimentary copy of an article we 

published in last weekend's Hotline message that lays out the arguments for an impending hyperinflation 

in America.) 

Of more immediate concerns are tensions now brewing in the Middle East again over disagreements 

with Iran. With regard to that issue, I would direct your attention for a second time to the words of 

Britain’s Foreign Minister, Lord Curzon, who recognized that oil supplies were crucial to the success of 

the Allied Powers in WWI. Modern-day empires require oil to sustain themselves. Iran seeks to preserve 

its own oil supply, which will in time be inadequate to meet its own needs. And so it seeks to establish 

nuclear power plants to preserve this precious resource. As Scott Ridder has recently written, the chance 

of nuclear power plants in Iran leading to its threat to the U.S. is slim to none. 

What is at stake here is the continued domination of the post-World War II Anglo-American centric 

global power structure. If the U.S. loses its ability to access oil from the Middle East, it will be finished 

as the world’s lone superpower. In A Century of War, F. William Engdahl points out oil is the reason we 

are in Iraq and is why England and the U.S. forced Palestinians off their land and created Israel in 1948. 

The following chart shows why it is so imperative, for the preservation of the Anglo-American empire, 

that the oil keeps flowing from the Middle East. Recall above on page two that we discussed how the 

U.S. reached its peak oil production in 

1971. As you can see from the chart on 

your left, up until about that time, the U.S. 

exported just about as much oil as it 

imported. Then came the oil crisis of the 

early 1970s, and thanks to pricefixing 

(Marxist) policies of the Ford and Carter 

administrations, we actually had gas 

shortages and long lines at gas stations in 

the U.S. 

The reliance of the U.S. on imported oil 

gave rise to Iranian political in the in the 

1970s and to the overthrow of the Shaw, 

America’s choice dictator because he co-operated with America’s global interests. As the chart above 

shows, U.S. imports are now far greater than ever before, so that any disruption in that part of the world 

could bring about disastrous consequences for the global economy; and unless our access to oil 

continues from the Middle East, the Anglo-American status as lone superpower and owner of the 

world’s reserve currency could go up in hyperinflationary smoke. Because of the importance of oil in 

terms of military dominance, I fully agree with Jim Dines, who suggests that in a few short years all the 

major oilfields of the world are likely to be in the hands of the militaries of various governments. What 

we are seeing in Iran and the geopolitical games being played among China, Russia, and Iran on the one 

hand and the U.S. and western Europe on the other is just the beginning of what is likely to become 

increasingly hostile and hot areas of military conflict. 

We have not even begun to address the issue of global warming, which most scientists now believe is 

being rapidly caused by the use of hydrocarbons including oil, gas, and coal. If the majority of scientists 

are right, we may have life-threatening climate problems to deal with in addition to shortages of 

lifesustaining energy forms. The environment, peak oil, and rising political instability of sources of oil 

are all good reasons why I believe uranium and nuclear power are in the very early stages of what James 

Dines suggests may be the greatest bull market ever. 

Jay Taylor


Page 6 of 6 

4/3/2007 

April 3, 2007 

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Falls Church News-Press - Falls Church News-Press :: The Peak Oil Crisis: The Studies 

http://www.fcnp.com/index2.php?option=com_content&task=view&id=510&Itemid=33&... 

Page 1 of 2 

3/31/2007 

The Peak Oil Crisis: The Studies 

By Tom Whipple 

Thursday, 16 November 2006 

Across the world governments are scrambling faster and faster preparing for the coming energy crisis. Delegations from China 

are everywhere making deals for a share of the soon-to-dwindle oil flow. Almost weekly there is a new announcement from 

Beijing regarding plans for more wind, solar and biofuels. Japan and Korea are looking for alternative sources of energy supply. 

Sweden is saying, flat out, that peak oil is coming and is making plans for a fossil fuel-less future. 

The European Union is all over the map with plans for alternative fuels, new regulations on energy consumption, and efforts to 

guarantee an energy supply for the continent. 

Meanwhile, energy exporters are reveling in their newfound wealth and influence while in the poorer corners of the world people 

are quietly shutting off the lights. For many, the oil age ended when oil reached $60 a barrel. 

Here in America, however, there is as yet little sense of urgency about the future of our energy supply. Last summer when 

gasoline was $3+ a gallon and warnings of devastating hurricanes were in the air, Congress was indeed thrashing about in an 

attempt to reassure the voters they would do something prior to the fall elections. But the storm subsided, the hurricanes went 

away, oil stockpiles climbed, gasoline settled back to $2, and all was well. With a sigh of relief, the Dow-Jones surged to a new 

all-time high. 

Should any of you be feeling complacent, however, let me reassure you that the world is still burning 85 million barrels a day 

(b/d), there really have not been any important new discoveries, no world-saving technological breakthroughs have come to light, 

and you are only continuing to drive because so many of the world's peoples can't afford $60 oil. 

Beneath the surface in America, however, there is movement. The Democrats now control the Congress and are already floating 

proposals that could help with the coming crisis. These include rolling back tax breaks for the major oil companies, probing offshore 

lease deals, providing more money for renewable fuels, pushing for diesel and electric cars, and settling the spent nuclear 

fuel issue. 

Of more long-term significance, however, two major studies of the prospects for world energy supplies are currently underway in 

Washington. The first of these is being done by the Government Accountability Office and is to be released on February 28. This 

study will actually deal with the prospects for "peak oil" -- when it will come and what can be done to mitigate the consequences. 

The GAO was asked by the House of Representatives Science Committee to undertake this study that has been underway for 

over a year. 

The second and what on the surface sounds the most in-depth study of world energy resources ever undertaken is being done 

under the auspices of the National Petroleum Council (NPC). This council, a federally chartered and privately funded advisory 

committee to the Secretary of Energy, was established by President Truman in 1946. Its purpose is to represent the views of the 

oil and natural gas industries with respect to any matter relating to oil and natural gas. Note the words "the views of the oil and 

natural gas industries" as they just may come back to haunt us after the two studies are released. 

On October 5, 2005, Energy Secretary Bodman sent a letter to the NPC asking what the future holds for oil and gas supplies, can 

supplies continue to be found at affordable prices, and just what does the oil and gas industry recommend to ensure our 

prosperity? The issue was promptly accepted for study and the next seven months were spent planning and getting organized. 

Two weeks ago the NPC released an updated status report outlining the details of just who is studying what. 

The scope and work plan for the study are truly impressive. Task groups are to work on supply, demand, technology, and 

geopolitics. The task groups are to be overseen by a coordinating sub-committee that in turn reports to a Global Committee and 

finally to the NPC leadership itself. These task groups are supported by 25 "cross-cutting" subgroups, which are to examine 

smaller topics such as biomass, nuclear power, and "non-proprietary data." At last word some 200 people were involved in the 

NPC effort. The study also is reaching out to nearly everyone who can spell "oil" -- academia, laboratories, professional societies, 

consultants, governments, industry and you-name-it. 

From reading the work plan for the study, one can't help but be impressed by how thorough and comprehensive the study will be. 

Of particular interest is the opportunity to use and assess proprietary information about the world's oil reserves and prospects for 

production held by participating oil companies. 

What can we expect from these studies? The GAO effort will almost certainly be the straightforward professional exercise we 

have come to expect from this organization. The study will probably acknowledge that world oil production will peak someday and 

the researchers, who work for the Congress, will do their best to give a balanced answer to questions of when production will

Falls Church News-Press - Falls Church News-Press :: The Peak Oil Crisis: The Studies 

http://www.fcnp.com/index2.php?option=com_content&task=view&id=510&Itemid=33&... 

Page 2 of 2 

3/31/2007 

peak and what might we do about it. 

As for the NPC study, it would be unfair to prejudge something that has not yet been written. Considering its proposed scope and 

the number of people involved in the drafting, it may provide much valuable new data and many insights into the prospects for the 

earth's energy resources. It could even turn out to support the idea that severe energy shortages lie just ahead and give a 

balanced presentation of the prospects for energy during the next 25 years. 

On the other hand it is hard to avoid noting that several of the leaders of the NPC study have long records of vehemently 

opposing the idea that world oil production will peak within the next 10 years. Moat notable of these are the study's chairman, Lee 

Raymond, formerly of ExxonMobil, and Daniel Yergin of Cambridge Research Associates. 

If one were cynical, you could believe that the NPC study, which by definition is to provide the oil and gas industry's position, was 

commissioned to provide a counterweight to the independent GAO study should it conclude that peak oil is for real and imminent. 

The timing of the two studies' release will of course give the NPC plenty of time to incorporate or attempt to refute whatever 

evidence or logic the GAO cites in reaching its conclusions. 

No matter what the studies conclude, the possibility that our oil supplies will decline in the near future is one of the most, if not the 

most important issue facing the world in the coming century. These studies are bound to play a major role in the coming debate. 

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http://www.rockrivertimes.com/index.pl?cmd=printstory&id=15880&cat=2 

Page 1 of 3 

3/9/2007 

The giant sucking sound, revisited 

By Michael Vickerman, RENEW Wisconsin 

Back 

Remember the metaphorical “giant sucking sound” Ross Perot invoked in the 1992 

presidential debates? Perot employed that image to characterize the rapid exodus of jobs to 

Mexico that would surely result from ratifying the North American Free Trade 

Agreement. 

Fifteen years later, that vivid phrase could appropriately describe the increasingly 

desperate circumstances befalling Cantarell, Mexico’s largest oilfield, situated about 50 

miles off the coast of the Yucatan Peninsula. 

The giant sucking sound you might hear at Cantarell is what happens when hundreds of oil 

wells begin drawing gas and water from the very reservoirs that used to yield copious 

quantities of petroleum. It’s the sound of an oilfield rolling over its peak. 

To American ears, the name Cantarell evokes a casual, Southwestern feeling, more 

suggestive of a dude ranch than the world’s No. 2 oil field. By far the most productive oil 

reservoir in the Western Hemisphere, Cantarell was yielding more than 2 million barrels 

per day (bpd) as recently as 2005, outperforming all other fields, save mighty Ghawar in 

Saudi Arabia. At $50 per barrel, that level of production translated to $100 million a day. 

When a wealth generator of that magnitude starts to sputter and lose productivity, other 

oilfields must pick up the slack, or else the Mexican economy is bound to take a hit. 

Unfortunately, the most recent numbers from PEMEX, the state-owned oil company, 

don’t justify confidence. Output from Cantarell fell by nearly 500,000 bpd to about 1.5 

million bpd in December 2006, a 25 percent decline from 2005’s totals. Cantarell’s swoon 

took PEMEX’s total output below the 3 million bpd level for the first time in six years. 

PEMEX exports more than half of its crude to the United States alone; only Canada 

exports a larger volume. Since Cantarell’s output is roughly equivalent to Mexico’s total 

exports, production declines will be felt in the United States, which will have no choice 

but to offset the loss by purchasing more expensive crude on the international market. 

Make no mistake, a production crash at the world’s second-largest oilfield will have an 

effect on import volumes and the price of crude. In fact, oil markets have already taken 

notice. In mid-January, the per-barrel price of crude briefly sagged below the $50 mark. 

Since PEMEX’s admission two weeks ago, the markets have rebounded somewhat. 

PEMEX is working to expand output from other fields to offset continued losses at



Page 2 of 3 

3/9/2007 

Cantarell, which are expected to average 15 percent a year. To meet that objective, 

PEMEX will inject nitrogen into the largest of the remaining oilfields, increasing reservoir 

pressure and flow rates. No doubt that will help, as Mexican crude is on the heavy side of 

the spectrum. But as demonstrated at Cantarell, where nitrogen injections since 2000 

produced substantial gains in flow rates, once the practice is discontinued, output drops 

sharply. 

If the projected annual decline rate is accurate, Cantarell will drop out of the million bpd 

club by 2010. As noted in the Wikipedia entry for Cantarell: “This rapid decline is 

postulated to be a result of production enhancement techniques causing faster oil 

extraction at the expense of field longevity.” Indeed, the consequences of nitrogen 

injection on an oilfield are not at all dissimilar to the effects of anabolic steroids on power 

hitters, both during and after usage. 

To increase output at Cantarell, PEMEX constructed the world’s largest nitrogenproducing 

plant. This facility, which was dedicated entirely to Cantarell, consists of four 

production lines, each with their own air separation units and natural gas-fired tubines. A 

fair amount of natural gas is sacrificed to capture nitrogen and pipe the gas 50 miles away 

to liberate more of Cantarell’s crude from the sea bottom. From the perspective of the 

Mexican government, whose taxes on PEMEX profits account for 37 percent of its budget, 

the effort was worth it, at least while production was going up. 

But now, having reached Cantarell’s downslope, the Calderón government finds itself 

hopelessly squeezed between an implacable geological reality and the need to find a 

replacement cash cow. But if the news from Cantarell means that Mexico’s overall oilexporting 

capacity is also in decline, then the government will have no choice but to limit 

petroleum consumption at home to prop up PEMEX’s export earnings, on which it is so 

dependent. 

The other large revenue generator for Mexico is tourism. Increasing oil extraction activity 

has been a long-time pillar of Mexico’s economic strategy, to keep the cost of jet fuel low 

enough to ensure more and more planefuls of Yankee and European tourists coming over 

to visit its beaches, mountains and ruins. Mexico’s dependence on tourism revenues 

provides additional motivation to emphasize oil exports over domestic consumption. 

An America that is distracted by loonball astronauts and celebrity inquests has no clue 

about the meaning of Cantarell’s decline, nor is it in any position to appreciate the 

unprecedented gyrations that await Mexico’s economy and society. There will be 

ramifications to the United States, of course, especially if the Mexican government’s 

predictions that oil exports will remain steady turns out to be too optimistic. It stands to 

reason that a decline in Mexico’s public spending will result in greater economic hardship, 

which would likely hasten the volume of illegal immigration into the United States. At 

that point it may not be possible to hear the giant sucking sounds at Cantarell above the 

cacophony occasioned by a swell of economic refugees surging north of the border. 

From the March 7-13, 2007, issue 

Copyright 2002-2007 - The Rock River Times



Page 3 of 3 

3/9/2007 

Copyright © 2002-2007 - The Rock River Times

http://bioage.typepad.com/photos/uncategorized/cantarell.png 

Page 1 of 1 

3/13/2007

FIN24 : Empowering Financial Decisions 

http://www.fin24.co.za/articles/print_article.asp?articleid=1518-1783_2080445 

Page 1 of 1 

3/8/2007 

Print 

China's oil imports to top 10% 

08/03/2007 12:34 

Beijing - China's crude oil imports are expected to rise more than 10% to top 160 million tonnes in 2007, the nation's 

top refiner said on Thursday. 

The figure, published in the China PetroChemical News, a newspaper owned by China Petroleum Chemical Corp 

(Sinopec), compared with crude imports of 145 million tonnes in 2006. 

With nearly stagnant oil production at home, China last year relied on imports for 47% of total oil consumed. 

The booming Chinese economy, which grew 10.7% in 2006, the fourth year of double-digit expansion, has forced the 

country to source energy and resources throughout the world. 

China's key economic planning body announced last month that energy industries in nine oil producing countries 

were on a short list of "suitable" sites for Chinese investment. 

Among them were Kuwait, Qatar, Amman, Morocco, Libya, Nigeria, Norway, Ecuador and Bolivia.

People's Daily Online -- China to fill its third strategic oil reserve in mid-2007 

http://english.people.com.cn/200703/08/print20070308_355650.html 

Page 1 of 1 

3/8/2007 

China to fill its third strategic oil reserve in mid-2007 

China plans to begin filling the tanks at its third strategic oil reserve in east China's Shandong Province by 

the middle of this year to help secure the country's fuel supplies. 

China Petroleum and Chemical Corporation (Sinopec) will complete the Huangdao base in Shandong, said 

Du Guosheng, assistant to the president of Sinopec. 

The capacity of the Huangdao base is expected to reach 19 million barrels, Du said. 

China began building four oil reserves in 2004. Two are in Zhejiang Province, both of which have started 

operating. The others are respectively in northeast China's Liaoning Province, which has not be completed, 

and in Shandong Province, which will be in operation by the middle of this year. 

Some 6 billion yuan have been invested to secure reserve capacity of 10 million tons at the four sites. 

China is planning to build the second set of strategic oil reserves, which are expected to add another 28 

million tons of storage capacity,according to sources with NDRC. 

Gansu Province in the northwest has been selected as a site for one of the new reserve, while southern 

Guangdong and Hainan provinces are hoping to be chosen as other sites as they are close to Petro China's 

oil refineries in southern China. 

Du also said the company will complete talks with Saudi Aramco, which is looking to buy a 25-percent stake 

in the Sinopec's Qingdao refinery, which has a processing capacity of 200,000 barrels a day. 

The country imported 138.8 million tons of crude oil in 2006, up 16.9 percent from 2005. Imports that year 

accounted for 47 percent of the country's consumption. Industry observers have warned China will likely 

need to import more than 50 percent of its petroleum needs in a year or two. . 

Source: Xinhua 

People's Daily Online --- http://english.people.com.cn/

globeandmail.com: Chinese car sales soar 33 per cent 

http://www.theglobeandmail.com/servlet/story/RTGAM.20070309.wchinacar0309/BNStory... 

Page 1 of 4 

3/9/2007 

Posted AT 7:08 AM EST ON 09/03/07 

Chinese car sales soar 33 per cent 

ASSOCIATED PRESS 

BEIJING — Passenger car sales in China's booming vehicle market soared by 33 per cent in the 

first two months of this year compared with the same period of 2006, an industry association said 

Friday. 

Total vehicle sales, which also counts trucks and buses, rose 25 per cent, the China Association of 

Automobile Manufacturers said. 

China surpassed Japan last year to become the world's No. 2 vehicle market after the United States 

based on strong truck and bus sales, but is still in third place for sedans. 

Sedan sales in January and February totalled 712,200 units, while total vehicle sales were 1.3 

million units, said the CAAM, the main government-authorized industry group. 

Related to this article 

Latest Comments 

• Start a conversation on this story 

China's vehicle sales, including trucks and buses, rose 25.1 per cent last year to 7.2 million units, 

according to the CAAM. Passenger car sales rose to 3.8 million. 

In January and February, the top-selling auto model in China was the Santana sedan made by 

Shanghai Volkswagen Automotive Co., a joint venture involving German's Volkswagen AG, with 

30,500 units sold, according to the CAAM. 

The top-selling auto maker was General Motors Corp.'s Shanghai General Motors joint venture at 

67,500 units, according to the CAAM. 

The top Chinese auto maker was Chery Automobile Co., with 51,600 units sold, the group said. 

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Page 4 of 4 

3/9/2007

Midwest Has 'Coal Rush,' Seeing No Alternative - washingtonpost.com 

http://www.washingtonpost.com/wp-dyn/content/article/2007/03/09/AR2007030902302_p... 

Page 1 of 4 

3/10/2007 

Midwest Has 'Coal Rush,' Seeing 

No Alternative 

Energy Demand Causes Boom in Plant Construction 

By Steven Mufson 

Washington Post Staff Writer 

Saturday, March 10, 2007; A01 

COUNCIL BLUFFS, Iowa -- From the top of a new 

coal-fired power plant with its 550-foot exhaust stack 

poking up from the flat western Iowa landscape, 

MidAmerican Energy Holdings chief executive David 

L. Sokol peered down at a train looping around a 

sizable mound of coal. 

At this bend in the Missouri River, with Omaha visible in the distance, the new MidAmerican plant is 

the leading edge of what many people are calling the "coal rush." Due to start up this spring, it will 

probably be the next coal-fired generating station to come online in the United States. A dozen more are 

under construction, and about 40 others are likely to start up within five years -- the biggest wave of coal 

plant construction since the 1970s. 

The coal rush in America's heartland is on a collision course with Congress. While lawmakers are 

drawing up ways to cap and reduce emissions of greenhouse gases, the Energy Department says as many 

as 150 new coal-fired plants could be built by 2030, adding volumes to the nation's emissions of carbon 

dioxide, the most prevalent of half a dozen greenhouse gases scientists blame for global warming. 

Even after a pledge last month by a consortium of private equity firms to shelve eight of 11 planned coal 

plants as part of their proposed $45 billion buyout of TXU, the largest utility in Texas, many daunting 

projects remain on drawing boards. Any one of the three biggest projects could churn out more carbon 

dioxide than the savings that a group of Northeast states hope to achieve by 2018. 

Utility executives say that the coal expansion is needed to meet rising electricity demand as the U.S. 

population and economy grow. Coal-fired plants provide half the electricity supply in the country. 

"A lot of congressmen ask me, 'Dave, why are you building that coal plant?' " says MidAmerican's 

Sokol. "And I say, 'What are my options?' " 

Sokol says he wants to help customers improve efficiency by 10 percent. His holding company, which is 

more than 80 percent owned by Berkshire Hathaway, includes the utility PacifiCorp in the Northwest 

and Rocky Mountains as well as MidAmerican; together they generate 16.7 percent of their power from 

renewable resources. The Iowa subsidiary alone gets 10 percent from renewables. Between 2000 and 

2005, the company cut the amount of carbon emitted for every unit of energy generated by 9 percent. 

But half of that reduction in the rate of emissions was offset by higher overall output. Electricity demand 

in Iowa is growing at a rate of 1.25 percent a year, and Sokol says that until new technologies become 

commercial or nuclear power becomes more accepted, coal is the way to meet that demand. 

It remains unclear how Congress will cope with this problem. Although climate-change experts hope



Page 2 of 4 

3/10/2007 

that new technology will deliver a way to capture and store carbon dioxide produced by coal plants, that 

technology remains in the pilot stage; it could take another decade before it is proven. 

Companies say the new coal plants are better than old ones, though both use the same approach: 

pulverizing coal, then burning it in huge boilers to power giant turbines. The new $1.1 billion 

MidAmerican facility will be one of the nation's biggest, with 790 megawatts of capacity. Its boilers and 

pulverizers will devour 400 tons of coal every hour, 3.5 million tons a year, Sokol says. Combined with 

an existing plant next door, it will require a fresh train of coal every 16 to 17 hours; each train will be 

nearly 1.5 miles long and lug 135 cars about 650 miles from Wyoming's Powder River Basin. 

While newly constructed plants cough up a tiny fraction of the pollutants environmental regulators have 

focused on in the past -- sulfur dioxide, mercury and nitrogen oxides -- they emit only 15 percent less 

carbon dioxide. They do that simply by being more efficient. Scrubbers like those used to extract other 

pollutants from a plant's exhaust don't exist for carbon dioxide. 

Environmentalists worry that the new pulverized-coal plants, built to last 40 to 50 years, will saddle the 

country with high greenhouse-gas emissions for decades. Peabody Energy, for instance, has proposed 

two giant 1,500 megawatt plants, one for western Kentucky and one for southern Illinois. 

"Each of these coal plants is making bad global-warming policy, project by project," says Bruce Nilles, 

a Madison, Wis.-based Sierra Club lawyer who is fighting the Midwest plants. "It's a high priority to 

convert these investments in coal plants into something cleaner and smarter." 

If coal plants must be built, environmentalists prefer integrated gasification combined cycle (IGCC) 

plants that they say will make it easier later to capture carbon dioxide and store it underground. Only a 

handful of those are being planned. 

"We're making investment decisions today that will make it impossible in 2020 to get the next increment 

of [greenhouse gas] reduction," Nilles says. 

But the IGCC plants can add as much as $200 million to construction costs; only two are operating 

today. Companies that make the plants, such as Siemens and General Electric, aren't willing to guarantee 

certain levels of performance, utility executives say. Referring to GE's chief executive Jeffrey R. Immelt 

and GE's "ecomagination" ad campaign, one utility executive who spoke on condition of anonymity 

because his company might still do business with GE said, "I think Immelt's ecomagination got away 

from him." 

State regulators, who give thumbs up or down to coal plant proposals, worry mostly about reliability and 

costs to consumers. In the 1990s, many utilities built natural-gas-fired plants, but in the past two years 

gas prices have soared. Now, coal backers say that coal is cheaper than other fuels such as natural gas. 

One wrinkle: The cost of building coal plants is climbing as demand for engineers and equipment rises. 

In December, Westar Energy, the largest electric utility in Kansas, shelved its plan to add a 600- to 800- 

megawatt coal-fired plant. Greg A. Greenwood, vice president of generation construction at Westar, said 

that in the previous 18 months the estimated construction cost had soared $400 million. 

Environmentalists and many economists argue that the price of coal plants is higher when environmental 

costs are included. 

One of the Sierra Club's targets has been a $2.2 billion project belonging to We Energies, part of



Page 3 of 4 

3/10/2007 

Wisconsin Energy. In the town of Oak Creek, just south of Milwaukee, the company has carved 6 

million cubic yards of earth from a bluff along Lake Michigan to create a bowl for two 615-megawatt 

coal-fired power plants, the first due to open in 2009. Trucks and workers are crawling over the site; five 

enormous boilers stand side by side, waiting for duty. Cranes lean in over the steel scaffolding, and a 

completed exhaust stack points into the winter sky. 

The plan for the plants was hatched after a hot 1997 summer, when the utility came close to ordering 

rolling blackouts to deal with heavy electricity demand. The state had not built a new power plant since 

1984, and the crisis helped ensure a unanimous vote by the Wisconsin Public Service Commission for 

more coal plants. 

But the Oak Creek project sparked a range of protests that landed it before the state Supreme Court, 

which ruled 4 to 3 in favor of the plant. Construction began the next day. 

We Energies chief executive Gale E. Klappa says the trimming of greenhouse gas emissions is a 

worldwide problem and asks why We Energies should voluntarily shoulder the burden. "You could 

black out the state of Wisconsin . . . and it would not make a difference in the CO2 levels of the world," 

he says. 

Klappa says new coal plants have benefits. He spreads a piece of paper on his conference table. It shows 

the amount of carbon dioxide emitted for each megawatt-hour of energy dropping by 12.5 percent from 

1990 through 2011 after the new coal plants come online. Another sheet of paper, however, shows that 

with higher electricity output, We Energies' total emissions of carbon dioxide will grow 76.6 percent. 

"With significant investment and technology, we can bend the line down, but getting the level down to 

1990 levels is a huge challenge not only for us, but for society as a whole," Klappa says. 

Nilles says that We Energies has made only a feeble attempt to slow the 2 percent a year growth in 

energy demand. Klappa says that he aims to reduce demand by 55 megawatts, just 1 percent. 

Nilles says that the model for electricity expansion is the municipal utility in Springfield, Ill., which 

negotiated a plan with the Sierra Club after the group had stopped three coal plants in the state. Under 

the plan, the utility will increase the money spent on energy efficiency tenfold, shut down two old coal 

plants, improve pollution controls at three others, buy enough wind-powered energy to meet 20 percent 

of its needs, and build a new cleaner coal plant. However, its capacity -- and thus its carbon dioxide 

emissions -- will increase. 

While some of the Sierra Club members in Springfield weren't satisfied, Nilles says "for a state capital 

in the middle of coal country, the symbolism [of the agreement] is huge. How do you quantify that?" 

Ads by Google 

© 2007 The Washington Post Company



Page 4 of 4 

3/10/2007 

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Global boom in coal power – and emissions | csmonitor.com 

http://www.csmonitor.com/2007/0322/p01s04-wogi.htm 

Page 1 of 3 

3/23/2007 

from the March 22, 2007 edition - http://www.csmonitor.com/2007/0322/p01s04-wogi.html 

Global boom in coal power – and emissions 

A Monitor analysis shows the potential for an extra 1.2 billion tons of carbon 

released into the atmosphere per year. 

By Mark Clayton | Staff writer of The Christian Science Monitor 

Forget the documentary "An Inconvenient Truth." Disregard rising public concern over global warming. Ignore the 

Kyoto Protocol. 

The world certainly is – at least when it comes to building new electric-power plants. In the past five years, it has 

been on a coal-fired binge, bringing new generators online at a rate of better than two per week. That has added 

some 1 billion tons of new carbon-dioxide emissions that humans pump into the atmosphere each year. Coalfired 

power now accounts for nearly a third of human-generated global CO2 emissions. 

So what does the future hold? An acceleration of the buildup, according to a Monitor analysis of power-industry 

data. Despite Kyoto limits on greenhouse gases, the analysis shows that nations will add enough coal-fired 

capacity in the next five years to create an extra 1.2 billion tons of CO2 per year. 

Those accelerating the buildup are not the usual suspects. 

Take China, which is widely blamed for the rapid rise in greenhouse-gas emissions. Indeed, China accounted for 

two-thirds of the more than 560 coal-fired power units built in 26 nations between 2002 and 2006. The Chinese 

plants boosted annual world CO2 emissions by 740 million tons (see chart). But in the next five years, China is 

slated \to slow its buildup by half, according to industry estimates, adding 333 million tons of new CO2 emissions 

every year. That's still the largest increase of any nation. But other nations appear intent on catching up. 

"Really, it's been the story of what China is doing," says Steve Piper, managing director of power forecasting at 

Platts, the energy information division of McGraw-Hill that provided country-by-country power-plant data to the 

Monitor. "But it's also a story of unabated global growth in coal-fired power. We're seeing diversification away 

from pricier natural gas and crude oil. Coal looks cheap and attractive - and countries with coal resources see an 

opportunity that wasn't there before." 

For example, the United States is accelerating its buildup dramatically. In the past five years it built 2.7 gigawatts 

of new coal-fired generating capacity. But in the next five years, it is slated to add 37.7 gigawatts of capacity, 

enough to produce 247.8 million tons of CO2 per year, according to Platts. That would vault the US to second 

place –just ahead of India – in adding new capacity. 

Even nations that have pledged to reduce global warming under the Kyoto treat are slated to accelerate their 

buildup of coal-fired plants. For example, eight EU nations – Germany, Italy, Poland, Spain, Bulgaria, Hungary, 

Slovakia, and the Czech Republic – plan to add nearly 13 gigawatts of new coal-fired capacity by 2012. That's up 

from about 2.5 gigawatts over the past five years. 

New countries join coal-fired binge



Page 2 of 3 

3/23/2007 

In all, at least 37 nations plan to add coal-fired capacity in the next five years – up from the 26 nations that added 

capacity during the past five years. With Sri Lanka, Laos, and even oil-producing nations like Iran getting set to 

join the coal-power pack, the world faces the prospect five years from now of having 7,474 coal-fired power plants 

in 79 countries pumping out 9 billion tons of CO2 emissions annually – out of 31 billion tons from all sources in 

2012. 

"These numbers show how far in the wrong direction the world is poised to go and indicate a lot of private sector 

investors still don't get it in terms of global warming," says David Hawkins, climate center director of the Natural 

Resources Defense Council in Washington. "This rapid building of global-warming machines – which is what coalpower 

plants are – should be a wakeup call to politicians that we're driving ever faster toward the edge of the 

cliff." 

But the cliff can be avoided, some researchers say, without having to reduce the world's energy consumption. 

If carbon dioxide gas could be captured at power plants and then pumped underground and permanently 

"sequestered" in layers of rock, then coal might continue to be used without damaging the climate, concluded a 

major report by the Massachusetts Institute of Technology released last week. 

In that light, whether or not China decides to build power plants that sequester carbon dioxide underground will 

be a central question. Right now, based on those power plants that Platt's has been able to verify, overall 

construction growth could be tapering off. But none of them is expected to sequester emissions – and estimates 

of how many plants China expects to build vary widely. 

So far there are 100 power plants with firm construction plans compared to 361 built in the previous five years, 

according to Platts. But other analysts, pointing to official government reports, say the total may be far higher. 

Chinese government reports, for instance, tout coal-power plant building far in excess of what Platt's and others 

have been able to verify – about 170 gigawatts of new coal-power over the past three years, according to China 

expert Philip Andrews-Speed, director of the Centre for Energy, Petroleum and Mineral Law and Policy at the 

University of Dundee in Scotland. 

"If the Chinese are right then it's a much worse problem than we might think," says Christopher Bergesen, a 

Platts expert who oversees power-plant data collection. He acknowledges Platts data may be a conservative 

base line for China. But until China reveals plant-specific data, not just aggregate numbers, he and other 

researchers can't be sure how fast China is building power plants that spur global warming. 

That leaves climate scientists and policy experts wondering how to influence power-plant construction in China 

and India. A huge factor is whether the EU and the US are able to persuade the Chinese to build plants that 

capture and sequester CO2. Much depends on the US because China is unlikely to sequester its carbon dioxide 

if the US does not, analysts say. 

"The Chinese won't be able to go forward by themselves," says Dr. Andrews-Speed. "They are going to need, 

EU, Japan, and US together to help them and set a good example." 

Right now, the US is planning to build more than 150 coal-fired power plants that don't sequester their emissions, 

according to the US Department of Energy. Platts short list of those most likely to be built in five years lists 64 

power plants – which would still vault the US into a virtual tie with India at 38,000 megawatts of new output. 

If that happens, the US alone would add 250 million tons a year of CO2 emissions to the atmosphere - on top of 

the billions its power plants already emit. The recent decision by new owners of TXU not to build eight coal-fired 

power plants gives some reason for hope.



Page 3 of 3 

3/23/2007 

But if the US began building plants that stuff the CO2 underground, the picture could change dramatically, 

experts say. At least five bills now pending in Congress would effectively put a price on CO2, but just two of those 

push sequestration. 

"The good news is the politicians have their hands on the steering wheel," Dr. Hawkins says. "If they would just 

turn the wheel toward sequestration, then we don't have to go over this cliff." 

Impact on climate models 

To date, many climate models have not fully accounted for the worldwide acceleration of coal-plant building, 

scientists say. 

"The phenomenon ... would lead to greater CO2 emissions than most 'business as usual' forecasts project," says 

Robert Socolow, co-director of the Carbon Mitigation Initiative at Princeton University in an e-mail. "Fortunately 

the world has now begun to take CO2 seriously, and coal-power emissions will be target No. 1 worldwide over the 

next decade. The fact that the US is waking up at last will give us the opportunity to have a positive effect on CO2 

policy in the rest of the world,"he adds. 

Full HTML version of this story which may include photos, graphics, and related links 

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Contact Us | Privacy Policy | Rights & Permissions | Terms of Service | Advertise With Us | Today's Article on Christian 

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:: Print Version :: 

http://www.farmandranchguide.com/articles/2007/03/04/ag_news/markets/market01.prt 

Page 1 of 2 

3/4/2007 

Demand for corn remains strong despite higher prices 

By ANDREA JOHNSON, Assistant Editor 

Corn futures have climbed up over $4/ bushel, but demand for corn 

remains strong. 

Print Page 

“We have to watch the demand side,” said Randy Martinson, Progressive 

Ag, West Fargo. “Exports have been too strong.” 

U.S. corn export sales were running 15-16 percent above USDA 

projections about a month ago. Sales in late February were running 

about 8 percent above USDA projections. Martinson pointed out that 

USDA has also increased their projections for U.S. corn exports a couple 

of times. 

“The key to look at that is we have about a 2 billion bushel estimate for 

exports,” he said. “If we're 8 percent ahead of that, we're going to 

export an extra 150 million bushels.” 

With corn ending stocks currently at 750 million bushels, taking another 150 million bushels for exports 

leaves a very tight 600 million bushels for ending stocks. Corn ending stocks have only been tighter one 

marketing year - 1994-95 - when ending stocks were projected at 468 million bushels. Market analysts are 

suggesting ethanol production requires 3 billion bushels of corn - or almost 22 million acres - in the 2007 

U.S. growing season. 

“Crude is going to play a very important role on building future ethanol plants,” he said. “If crude stays up 

above $50/barrel - we'll see a lot of plants built. If crude slips below $50 - a lot of those plants might get 

cancelled.” 

Martinson believes that the U.S. needs to grow about 12 million more acres of corn - or a total of 90 million 

corn acres planted with an average yield of 150-155 bushels/acre. 

Putting those numbers into a supply/demand chart suggests that raising that size of a crop puts ending 

stocks at about 700 million bushels - still well below the 1 billion bushel carryout the market likes to see. 

Almost 25 percent of this year's corn acres could be planted to corn going into ethanol production. 

But a lot of those acres are going to be planted to corn following corn and in areas where corn is not usually 

raised. USDA shouldn't be surprised if those acres do not make top yields. 

“Weather is going to play a very huge role for corn this year,” Martinson said. “With the upper Midwest being 

a little dry, that's going to make us think we're not going to have those yields. Those yields aren't going to 

average 150 bushels/acre - they're probably going to be closer to 135 bushels/acre. That puts more 

emphasis on southern Minnesota, Iowa and Illinois to increase their corn acres.” 

This winter, Martinson has been a speaker at marketing seminars across the Upper Midwest. Farmers in 

Indiana told him that conditions were very wet last fall, and not much tillage was completed. 

“Those producers are not going to be looking at more corn acres, because logistically they can't go in there 

and work their fields in the spring, and get that land in condition to put corn on it,” he said. “They are not 

looking at increasing corn acres.” 

According to the Chicago Board of Trade website, there are no technical signs of a near-term top for the corn 

market. Corn demand remains very strong, ending stocks are tight, and aggressive fund buying has 

supported solid gains. 

USDA reported that corn export sales for the week ending Feb. 16 were 839,400 metric tonnes (33 million

:: Print Version :: 

http://www.farmandranchguide.com/articles/2007/03/04/ag_news/markets/market01.prt 

Page 2 of 2 

3/4/2007 

bushels) for the current crop and 90,500 metric tonnes (3.6 million bushels) for the 2007 corn crop. 

Traders are building a large weather premium into the corn market ahead of the planting season, the 

website noted. Prices on Feb. 23 settled with the March 2007 contract at $4.30/bushel; May at $4.42 1/2; 

July at $4.52; September at $4.35 1/2; December 2007 at $4.21, and December 2008 at $3.93/bushel. 

At elevators across the Upper Midwest, cash corn on Feb. 23 ranged from $3.69-$3.95/ bushel according to 

the Toolshed Ag Information Network found at http://www.smallgrains.org. 

At one west central Minnesota elevator regularly followed in this column, cash corn on Feb. 23 was $3.95 

with a basis of 48 cents under. Compared with the bid on Feb. 9, the cash price was 24 cents higher, and 

the basis had widened by 13 cents - indicating that buyers were finding plenty of corn despite great demand. 

“Feed demand won't go down a lot - the poultry growers will slow down a little bit, they will be the first to 

react because they can react faster,” said Martinson. “Then it's going to be the pork producers that cut back. 

They haven't shown any signs of reluctance of feeding corn. They will take a little hit, because hog prices are 

pretty good. The cattle producer - it's going to take about another year and a half to react to higher prices. 

“Exports are what we're going to have to watch. What we need to do is stop exports so we can get that 

extra 2 billion bushels of corn in for domestic demand. That's going to be hard to do.” 

China, Argentina, Brazil and South Africa are the four countries that export corn beyond the United States. 

The U.S. supplies two-thirds of the export market for corn. 

Martinson thinks the corn industry needs to look at what the ethanol industry is asking them to provide. 

Does the U.S. want enough corn raised to supply E10 or E15 across the nation? If that's the case, then 

enough acres will have to be devoted to corn production to meet that need. 

According to Martinson, today's plants are supplying enough ethanol to run E3 for the entire U.S. - that's 

just 3 percent ethanol and 97 percent gas. 

Martinson has several messages for producers. 

If you are increasing your corn acres, be prepared for the volume at harvest time. Growers have traditionally 

stored two-thirds of the crop on the farm and their last third at the elevator. As corn acres increase, so does 

the volume of grain stored at or delivered to the elevators. 

“Don't look for basis to be very good at harvest time, because there's going to be a lot of bushels coming to 

the elevator,” said Martinson. “It will probably be after March before that basis improves.” 

If he were a producer, Martinson would be looking at forward selling at the elevator - because some corn is 

going to have to be delivered at harvest anyway. He would leave the basis open to see if there is any sort of 

weather scare that tightens up basis. 

He would also consider options this year. 

http://www.farmandranchguide.com 

Copyright © 2007 Farm & Ranch Guide

Expert: Nation's electricity system at risk - Pittsburgh Tribune-Review 

http://www.pittsburghlive.com/x/pittsburghtrib/business//print_497573.html 

Page 1 of 2 

3/14/2007 

Expert: Electricity system at risk 

By Rick Stouffer 

TRIBUNE-REVIEW 

Wednesday, March 14, 2007 

Electricity substations could be the part of the country's power system most 

vulnerable to terrorist attack, although no sector is totally safe, a leading power 

expert said Tuesday. 

"Substations are where I'm most concerned with attack," said M. Granger 

Morgan, co-director of Carnegie Mellon University's Electricity Industry Center. 

"First, the high-voltage transformers for the most part are custom-made and are 

very, very hard to move." 

Substations are locations where transformers are placed to either increase or 

decrease voltage. 

Custom-made transformers are very expensive and thus few are kept in stock 

by operators, plus most are manufactured outside the country, according to 

Morgan, who chairs Carnegie Mellon's engineering and public policy 

department. 

Even with the best protection available, the nation's electrical system is 

vulnerable to terrorist attack, according to Morgan. 

"Rapid restoration of the system is critical; even with the best protection the 

system is vulnerable," Morgan said, addressing attendees at the third annual 

Carnegie Mellon Conference on the Electricity Industry. The two-day program 

at Carnegie Mellon's Tepper School of Business ends this afternoon. 

Morgan recently chaired a National Research Council study on how to make 

the nation's transmission and distribution system safer from terrorism. 

Morgan said the nation's power system has five main parts: generation, 

transmission, substations, communications and control systems, and 

distribution lines. 

No facility or single piece of equipment is totally terrorist-proof, Morgan said. 

The key to protecting the system is to put in place redundant equipment, 

stockpile supplies, and allow the use of so-called microgrids that can operate in 

concert with the nation's power grid, or supply power to specific areas, such as 

an industrial park. The problem with microgrids, Morgan said, is that under 

existing law, they're illegal. 

Rick Stouffer can be reached at rstouffer@tribweb.com or .

Expert: Nation's electricity system at risk - Pittsburgh Tribune-Review 

http://www.pittsburghlive.com/x/pittsburghtrib/business//print_497573.html 

Page 2 of 2 

3/14/2007 

Images and text copyright © 2007 by The Tribune-Review Publishing Co. 

Reproduction or reuse prohibited without written consent from PghTrib.com

Selling Unleaded Puts Looks Like Great Play for Summer Months 

http://www.resourceinvestor.com/pebble.asp?relid=29720&t=60 

Page 1 of 3 

3/10/2007 


By James Cordier and Michael Gross 

10 Mar 2007 at 09:15 AM 

TAMPA (ResourceInvestor.com) -- One of the more enticing factors of investing in commodities is the seasonal nature of 

supply/demand cycles in certain markets. In some agricultural markets, planting and harvest cycles can play a considerable 

role in price direction as fear runs highest during growing seasons while supply runs highest during harvest. 

It is true that past performance is not indicative of future results. Just because prices have moved a certain direction in 

year's past does not mean they will move similarly this year. However, if one can determine the fundamental factors that 

have moved prices in years past and determine if those factors are similar this year, one can utilize that data in making 

price projections for the current year. 

The energy markets, in contrast to agricultural commodities, experience seasonal tendencies based more on demand cycles 

rather than supply cycles. And nowhere is this demand cycle more pronounced than in unleaded gasoline. 

If you live in the Northern Hemisphere, you may have noticed that you often pay more for unleaded gas during the summer 

months. This is not due to coincidence nor is it due to any magical formula set forth by oil companies. It is basic 

supply/demand economics. The northern hemisphere summer brings with it what has come to be known as "driving season" 

in the U.S. and Europe. With warmer weather and kids out of school, the public is more apt to travel. This typically creates a 

surge in gasoline consumption at the retail level, which in turn, has tended to drive up prices at the pump beginning in May 

and peaking during the July/August time period. 

A key aspect of seasonal analysis is that price tends to precede consumption. Thus, while prices at the pump will tend to 

rise during the summer months, demand at the wholesale level tends to begin rising in early March as distributors begin to 

build gasoline inventories in order to have enough supply on hand to meet summer demand. Thus, in the past, prices on the 

wholesale level (read futures contracts) have tended to rise in accordance with this increase in commercial demand. 

Of course there are other factors that influence the price of gasoline as well. However, during this time of year, they are set 

against the backdrop of this rising demand. In our opinion, seasonal demand alone should be enough to underpin gasoline 

prices to the point where put selling becomes an attractive strategy for high probability income on a portfolio. However, an 

overall view of the current fundamentals affecting gasoline prices has convinced us that there are several factors in addition 

to rising demand that should contribute to higher prices this spring. (For those readers in the Southern Hemisphere, we use 

the term "spring" and "summer" in accordance to the U.S. and Europe, as we see demand in these regions as the key factor 

driving prices at the NYMEX). 

Before establishing a bullish position in the market, an investor should first understand the key fundamentals that drive 

gasoline prices to determine if they are supportive of a favorable market move (or non-move). There are three main factors 

that will determine the ultimate price of unleaded gasoline (or reformulated gasoline blendstock for oxygenate blending 

"RBOB" as it is now known at the exchange.) They are: 

1. The Price of Crude Oil: As the primary ingredient in unleaded gas, crude prices can obviously have a major impact 

on gasoline prices (although this relationship can work in reverse as well). Factors that affect crude prices such as 

industrial usage, supply disruptions or geopolitical events can have a big impact on unleaded gas prices. At present, 

U.S. crude stocks remain at an annual deficit and are, surprisingly, 17.4 million barrels below year ago levels. We 

see the risk of a sizable move in crude prices more to the upside than the downside as we remain moderately bullish 

the crude market (see “Dip in Crude Prices should be opportunity for Put Sellers”). 

2. Gasoline Demand: As discussed above, wholesale gasoline demand tends to begin rising in March. However, the 

longer term demand picture for gasoline appears bullish as well. Despite all the talk of ethanol and a "slowing" 

economy, gasoline demand remains well above the five year average and even above the consumption levels of 

2006, when gasoline demand set a record. The EIA estimates that overall U.S. gasoline consumption will increase by 

1.2% in 2007 and another 1.2% in 2008. Current gasoline consumption is running about 9.2 million barrels per day. 

Yet, over the last 15 years, gasoline consumption has surged by an average of nearly 9% between early March and 

peak demand season in late July. An equivalent surge in demand this year would put daily U.S. consumption at 

nearly 10.03 million barrels per day, an all time high.



Page 2 of 3 

3/10/2007 

3. Gasoline Supply: U.S. gasoline stocks were running at an annual surplus as of February - as much as 5% above 

the five year average. But a consistently strong demand for fuel through the U.S. winter has helped whittle 

inventories down to about even with the average for this time of year. This week's EIA report saw stockpiles fall by 

3.8 million barrels to 216.4 million barrels. This was more than twice the drawdown that analyst had expected. 

However, stronger than normal winter demand is not the whole story. Shipping delays and lower imports from 

Europe have been cited as reasons for the supply draw-downs. Nonetheless, the U.S. acquires most of it's gasoline 

from domestic production. And U.S. refinery facilities are antiquated at best. Each year, refinery maintenance seems 

to take longer and run into more glitches, resulting in more production going offline. This week, refinery operating 

rate fell to 85.8%, well below the already unspectacular 87.3% five year average. This has prevented refiners from 

ramping up unleaded production and has brought concern to the market that inventories will be inadequate to meet 

summer demand. 

The EIA projects gasoline prices at the pump will average $2.60 per gallon during the April-September time period. This 

would be 32 cents per gallon higher than the February 2007 average price and would equate to roughly $2.10 to $2.20 on 

the wholesale level. 

While we believe the chances of gasoline trading at the levels mentioned above are good as we approach the U.S. summer, 

we feel the chances of prices not falling substantially are even better. This is why we believe that put selling is an excellent 

income strategy to employ over the next 60-90 days in the unleaded gas market. Remember that when selling puts, the 

market does not have to necessarily move higher for the seller to profit. It only has to remain anywhere above the seller's 

strike price. It is our opinion that there are some high probability strike price levels now available in this market, far below 

today's futures price. 

As we stated to Bloomberg News this week, we feel crude and unleaded probably are a bit overbought and due for a 

pullback in the short term. However, we would view this as a correction in a bull market and an opportunity to sell puts far 

below the current market. 

Copyright © Liberty Trading Group 2007 

James Cordier is head trader and president of Liberty Trading Group, a futures brokerage firm specializing in option writing 

on commodities. Michael Gross is an analyst with Liberty Trading Group. Be sure to catch Liberty Trading's James Cordier 

live on CNBC, this Monday, March 12 at 10:15 am EST.



Page 3 of 3 

3/10/2007 

© Copyright 2007, Resource Investor. 

Printed via the AbsolPublisher content management system.

Drivers Shrug as Gasoline Prices Soar - New York Times 

http://www.nytimes.com/2007/03/30/business/30gas.html?ref=business&pagewanted=print 

Page 1 of 4 

3/30/2007 

March 30, 2007 

Drivers Shrug as Gasoline Prices Soar 

By CLIFFORD KRAUSS 

HOUSTON, March 29 — Prices at the pump are rising again, much as they do every spring as 

oil traders bid up the price of crude ahead of possible summer shortages. Possibilities for more 

conflict in Iran and elsewhere in the Middle East are adding to the surge. 

But there is something new this time, energy experts say, in how drivers are reacting — or, 

more accurately, not reacting, even as the price of gas has climbed over the last two months to 

a national average of more than $2.60 a gallon. It has topped $3 a gallon in many parts of the 

country, particularly along the Pacific Coast. 

In the late 1970s, OPEC oil shocks and gas lines persuaded most Americans to sacrifice some of 

their pleasure trips and drives to the mall, ease up on the gas pedal, and switch to the bus or 

train. 

But as Americans enter the sixth year of rising oil and gasoline prices, their shift in driving 

habits this time has been much less extensive. What’s more, in recent weeks, gas consumption 

has gone up, not down, and drivers are changing their daily driving habits only slightly. 

“I don’t think about gas prices at all,” said Michael Machat, 48, a lawyer in West Los Angeles, 

where gasoline prices are among the highest in the country. As he filled up his BMW with super 

unleaded at $3.39 this week, he added, “I guess maybe if it was $10 a gallon, I’d think about it.” 

A recent study that Christopher Knittel, an economics professor at the University of California, 

Davis, helped write showed that every time from November 1975 to November 1980 that 

gasoline prices went up 20 percent, consumers changed their driving behavior by cutting gas 

consumption by 6 percent per capita nationwide. 

But from March 2001 to March 2006, drivers reduced consumption just 1 percent when prices 

rose 20 percent. Prices swung up and down seasonally during both periods, but Mr. Knittel 

said the two periods were comparable because regular gasoline prices increased in both periods 

by about 66 percent, to $2.50 from $1.50 in real terms, set at 2000 dollars.



Page 2 of 4 

3/30/2007 

While more and more consumers around the country are buying smaller, more-efficient cars 

and fewer S.U.V.s, that trend is unfolding a lot more slowly these days than 30 years ago. It was 

a very different era back then, when Congress was willing to enact tougher gasoline standards 

and when President Jimmy Carter called on the country “to live thriftily” and “find ways to 

adjust and to make our society more efficient.” 

“One would think that with prices up over the last few years, people would drive less, but that’s 

not the case,” said Aaron Brady, an expert on gasoline refining and consumption at Cambridge 

Energy Research Associates, a consulting firm. “Demand is up over the last year.” 

The Department of Energy reported on Wednesday that gasoline demand for transportation 

over the last four weeks averaged 9.2 million barrels a day, or 1.6 percent higher than in the 

corresponding time last year, when prices were a bit lower. The rising use by consumers and 

businesses is putting further pressure on prices. On top of that, United States commercial 

crude oil inventories fell by 0.9 million barrels in the week ended March 23, compared with the 

previous week. Spring is also the season when refineries retool, producing slightly less 

gasoline. 

Economists say the increasing demand for gasoline and the muted reaction among drivers are 

related to many factors, all having enormous policy implications as the Bush administration 

and Congress try to find ways to stem climate change and oil imports, which now supply about 

60 percent of American needs. 

Experts note that commuters are driving longer distances to work because of suburban sprawl, 

that improvements in mass transit have fallen behind over the years and that driving to malls 

and ferrying children around has become part of the American lifestyle. Some suggest that with 

more dual-income families, high gas prices mean less to many families than they once did, and 

credit cards have eased the immediate pain at the pump. 

“Our preferences have changed over the years and we are much more willing to continue our 

driving habits in the face of price increases,” said Mr. Knittel, who is studying driver response 

to gas price increases. “Unlike the 1970s when people did drive less, data shows people now are 

not taking the extra step to conserve.” 

Interviews with drivers around the country show they are less than alarmed by the new run-up 

in prices, even if they are not happy about it. And they still suspect Big Oil is fleecing them. Not 

surprisingly, higher-income drivers are particularly unruffled, but middle-income drivers also 

seem fairly tranquil.



Page 3 of 4 

3/30/2007 

Veronica Burgos, a 39-year-old bookkeeper, says she is not about to give up her aging gasguzzling 

navy blue Ford Explorer to commute to work and shuttle her children around, even 

though gasoline prices in the Los Angeles area where she lives are now “ridiculous.” 

“With this S.U.V., you really feel it, but I have two kids so I need it,” she said. “In reality my 

husband would probably rather that I don’t drive the S.U.V. so much, but I still do and I drive 

quite a bit. With work and two kids and all their activities, especially on the weekend, we’re 

more comfortable in the S.U.V. So what are you going to do?” 

Across the country prices of gasoline have been shooting up for the last two months, with AAA 

reporting that the average retail price for regular unleaded is $2.62 a gallon, the highest since 

last September and 12 cents higher than a year ago. A month ago, the average was $2.37. 

With crude oil prices rising in recent days because of Iran’s detention of British military 

personnel last week, some experts say retail gasoline prices may go up another 10 or 15 cents in 

the next couple of weeks before settling down. Oil closed up $1.95 at $66.03 a barrel on 

Thursday. 

“The market rally in gasoline is like the Oscars,” said Tom Kloza, chief oil analyst at Oil Price 

Information Service, a trade publication. “It gets moved up every year.” 

The immediate cause for the rise in gas prices is the annual slowdown in March at the 

refineries, as they switch from winter to summer oil blends. But this year, that has been 

accentuated by refinery accidents, escalating tensions over Iran and more speculation by 

traders. 

“The prices for unleaded gasoline are way overblown for this time of year,” said Michael Rose, 

director of the energy trading desk at Angus Jackson in Fort Lauderdale, Fla. “The traders are 

just going along with a theory that we are going to have a gasoline shortage in the summer.” 

Most experts expect prices to ease in April, as refineries resume full operation, before rising 

again during the summer driving season. But many are wondering why the demand for 

gasoline is going up in March, a month not usually known for heavy driving. 

“Is it because the economy is stronger or because people are going back to their old driving 

habits?” wondered Charles T. Drevna of the National Petrochemical and Refiners Association. 

There had been signs that the high price of oil was beginning to have an impact on 

consumption. The International Energy Agency reported that oil consumption in its 30



Page 4 of 4 

3/30/2007 

member countries, including the United States, declined 0.6 percent last year, the first drop in 

more than two decades. 

Sales of sport utility vehicles peaked in 2002, and have fallen since; sales of small cars rose 5.3 

percent last year. 

But in research for a new study, Mr. Knittel said he found little change in the average fuel 

efficiencies of vehicles driven by motorists over the last five years. 

“Our preliminary analysis is showing vehicle choice is less sensitive to gas prices today than 

compared with the 1970s,” he said. “We might be buying fewer S.U.V.s, but a lot of the shifting 

is to cars that are not appreciably more fuel-efficient, such as minivans.” 

Lisa Muñoz contributed reporting in Los Angeles, Nate Schweber in Westchester County and 

Micheline Maynard in Detroit. 

Copyright 2007 The New York Times Company 

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Ghawar Is Dead! 

http://www.commondreams.org/views07/0307-33.htm 

Page 1 of 4 

3/8/2007 

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Published on Wednesday, March 7, 2007 by CommonDreams.org 


The Wide-Spread Use of Advanced Extraction Techniques are 

Killing the Mother of All Oil Fields 

by Matthew S. Miller 

“How could we drink up the sea? Who gave us the sponge to wipe away the entire 

horizon? 

What were we doing when we unchained this earth from its sun?” 

- Friedrich Nietzsche, The Gay Science- 1882 

“My father rode a camel. I drive a car. My son flies a plane. His son will ride a 

camel.” 

- Anonymous Saudi Sheik – 1982 

“Ghawar, Ghawar she gave and gave; They sucked her dry like mankind’s slave; 

The Sheiks told us that big oil lie; And all those people had to die.” 

- Lyrical History - 2082 

I’ve watched in shock and awe in recent days, shaking my head and wringing my 

hands. Yet another unremarkable narrative of celebrity intrigue entered the echo 

chamber of the mainstream media system and its 24/7-positive-feedbackamplification-loop 

to emerge as biggest news event - no, the earth-shaking cultural 

event of the year. This time it is…Anna Nicole is dead! 

Her mournful supplicants conduct vigils in her memory and quietly reflect upon her 

iconic life, wishing her soul Godspeed. Meanwhile, we are left to ponder the 

paternity of her unfortunate offspring and the symbolic meaning of her celebrity 

status for posterity. All the while we wait with bated breath as Wikipedia straightens 

out the facts of her untimely demise. 

Hers was the quintessentially American tale of the technological metamorphosis of 

East Texas trailer trash into the bearer of the trophy titties for an oil tycoon. Her bare 

breasts in the pages of Playboy reaffirmed the greatness of our country! She pulled 

her self up by her bra-straps and made her way in the world. We imagine that the 

indelible image of her “candle in the wind” life will never be extinguished because 

she really lived the collective dream. Sometimes it’s funny how fake-life makes 

contact with real-life. 

It was also announced recently, without the same media feeding frenzy, that another 

queen of mass-culture is dead too. Few of us even know her name. Rather than 

being the personification of the contemporary zeitgeist, she is one of the 

cornerstones of what Marx called global capitalism’s base. She was an integral part 

of the concrete material conditions that make our peculiar form of social 

organization possible. Her name is Ghawar, and she is the mother-of-all oil fields. 

She was once a veritable sea of light sweet crude 174 miles long and 12 miles wide, 

under the sands of the eastern province of the Kingdom of Saudi Arabia (KSA), and 

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Page 2 of 4 

3/8/2007 

now she is dead. 

Ghawar is by far the largest conventional oil field ever discovered. Since first tapped 

in 1948, Ghawar has produced some 60 billion barrels of oil and accounted for 60- 

65% of Saudi production from 1948-2005. While actual field by field production 

numbers remain a Saudi State secret, Ghawar is estimated to produce more than 

five million barrels per day or 6.5% of the planet’s daily production total of 84 million 

barrels. 

Ghawar’s obituary has already been written, but the Saudis have thus far prevented 

the appropriate authorities from entering the house to inspect the body. We have 

only second hand reports of her demise. Of these accounts, the most notable is 

investment banker Matthew Simmons’ book Twilight in the Desert: The Coming 

Saudi Oil Shock and the World Economy. Simmons assembles a picture of declining 

Saudi production from publicly available technical reports written by Saudi-Aramco’s 

own reservoir engineers in recent decades. His portrayal of the situation is dire 

indeed. He claims that “When Saudi Arabia peaks (enters the unavoidable state of 

permanent production decline) the world, categorically, has peaked.” It looks like the 

2006 numbers confirm Simmons’ 2005 prophecy. 

The writers at the Oil Drum, a data driven oil analysis website, after assessing the 

production data from several independent reporting agencies, claim that Saudi 

production is down a whopping 8% in 2006 from 2005 numbers. The decline would 

have been closer to 14% without the addition of the Haradh III mega-project. They 

assert that Saudi Arabia has now officially peaked and that the pace of production 

decline there is likely to accelerate. Remember, Ghawar accounts for 60% of Saudi 

production. 

A correlate of this geologic prediction is their prediction of the seismic effect this 

news will have on KSA political life. This is not positive; think terrorist attacks, 

followed by beheadings, followed by rebellion, followed by more beheadings, 

followed by boots on the ground - American boots. 

Ghawar has been on life support for some time. The wide-spread use of advanced 

extraction techniques like water-injection and horizontal-brush drilling are the 

hallmarks of field maturity and imminent production collapse. Brush drilling is to an 

oil reservoir what a straw is to the paper cup wrapped around a chocolate shake –it 

allows you to suck out every last bit of creamy goodness quickly and efficiently. 

Unfortunately, Ghawar is not the only oil royal in critical condition. 

The obituaries just keep rolling in. “Kuwaiti oil production from the world's secondlargest 

field (Burgan) is ‘exhausted’ and falling after almost six decades of pumping” 

according to the chairman of the Kuwaiti state oil company. The L.A. times tells us 

that “Production at Cantarell, the world's second-largest oil complex, which provides 

about 60% of Mexico's crude, averaged 1.78 million barrels a day in 2006. That's a 

13% drop from 2005.” The famous North Sea basin and it gigantic Forties Field, the 

oil find that made Britain a petroleum exporter for the past 20 years, is about to 

experience a precipitous production decline. Back in 2000 we learned that China’s 

only super-giant field, Da Qing was also at death’s door. These fields and others like 

them provided the mother’s milk, in the form of light sweet crude, which nourished 

the global capitalist system now enshrined and deified in American mass-culture. 

In America we know all about big dreams and dead oil fields. Our East Texas field, 

discovered in the 1930’s, gave us the energy we needed to forge ourselves as a 

superpower in the cauldron of WWII and it paved the way for the elaboration of the 

post WWII American dream: a car, a job, and a house in the suburbs for our 

returning troops. This version of the dream supposed the fact that East Texas oil 

was cheaper than water to be a permanent condition. This dream died in 1971 when 

the contiguous lower 48 states peaked as an oil province.



Page 3 of 4 

3/8/2007 

In all honesty, these old oil fields don’t really die, they just fade away as their power 

to shape culture through increased production progressively, sometimes 

dramatically, diminishes. Interestingly enough, Anna Nicole Smith, a mere cultural 

artifact also destined to fade dramatically in a few more news cycles, was actually a 

person born Vickie Lynn Hogan in 1967 in Houston, Texas. This city is the heart and 

soul of America’s and the world’s fading oil industry. Before she was a celebrity 

queen she was a stripper and a waitress in a roughneck town who followed a 

dream. 

When Anna Nicole’s beautiful breasts are lowered into the ground, the event will 

subconsciously affirm and immortalize America’s collective delusion; the belief that 

conspicuous consumption, in all its forms, can go on forever. While one queen of 

kitsch may have died, the dream of getting something for nothing, of recreational 

driving and super-sized eating, of perpetual entertainment, and of an idyllic future in 

the suburbs where one may realize the imperative of personal accumulation through 

gold-digging matrimony, will be renewed and confirmed. Those fake breasts nourish 

the fake dialectic which has colonized our collective consciousness. Our fraudulent, 

media-fueled, optimism will again, temporarily, pull the curtain over the reality 

behind the scenes and present us with a red, white and blue facade of tranquility. 

Screaming “Ghawar is dead” and lighting a lantern in the daylight, confirms one 

‘certifiable’ for most Americans. Peak oil is here now! Saying even this engenders 

looks of complete incomprehension among the masses! Peak oil means the death 

of the American dream embodied in those cold, dead, marvels of plasticity on Anna 

Nicole’s chest. Hell, it means the end of plastic surgery! It means the end of 

economic growth and everything that entails. Our collective fake-life can’t go on 

much longer after its real-life sources of nourishment dry up and become the ashes 

of history. It won’t be long now until we realize that our world has come unplugged 

from the ancient sunlight that provides its artificial neon glow. 

Matthew S. Miller, Ph.D (MMiller33@ucok.edu) is a lecturer for the Department of 

Humanities and Philosophy at the University of Central Oklahoma. 

© Copyright by Matthew S. Miller 2007 

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Income Gap Is Widening, Data Shows - New York Times 

http://www.nytimes.com/2007/03/29/business/29tax.html?ref=business&pagewanted=print 

Page 1 of 3 

3/29/2007 

March 29, 2007 

Income Gap Is Widening, Data Shows 

By DAVID CAY JOHNSTON 

Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with 

incomes that year of more than $348,000 — receiving their largest share of national income 

since 1928, analysis of newly released tax data shows. 

The top 10 percent, roughly those earning more than $100,000, also reached a level of income 

share not seen since before the Depression. 

While total reported income in the United States increased almost 9 percent in 2005, the most 

recent year for which such data is available, average incomes for those in the bottom 90 

percent dipped slightly compared with the year before, dropping $172, or 0.6 percent. 

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 

million each, an increase of more than $139,000, or about 14 percent. 

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much 

income as the bottom 150 million Americans. Per person, the top group received 440 times as 

much as the average person in the bottom half earned, nearly doubling the gap from 1980. 

Prof. Emmanuel Saez, the University of California, Berkeley, economist who analyzed the 

Internal Revenue Service data with Prof. Thomas Piketty of the Paris School of Economics, said 

such growing disparities were significant in terms of social and political stability. 

“If the economy is growing but only a few are enjoying the benefits, it goes to our sense of 

fairness,” Professor Saez said. “It can have important political consequences.” 

Last year, according to data from other sources, incomes for average Americans increased for 

the first time in several years. But because those at the top rely heavily on the stock market and 

business profits for their income, both of which were strong last year, it is likely that the 

disparities in 2005 are the same or larger now, Professor Saez said. 

He noted that the analysis was based on preliminary data and that the highest-income



Page 2 of 3 

3/29/2007 

Americans were more likely than others to file their returns late, so his data might understate 

the growth in inequality. 

The disparities may be even greater for another reason. The Internal Revenue Service 

estimates that it is able to accurately tax 99 percent of wage income but that it captures only 

about 70 percent of business and investment income, most of which flows to upper-income 

individuals, because not everybody accurately reports such figures. 

The Bush administration argued that its tax policies, despite cuts that benefited those at the 

top more than others, had not added to the widening gap but “made the tax code more 

progressive, not less.” Brookly McLaughlin, the chief Treasury Department spokeswoman, said 

that this year “the share of income taxes paid by lower-income taxpayers will be lower than it 

would have been without the tax relief, while the share of income taxes for higher-income 

taxpayers will be higher.” 

Treasury Secretary Henry M. Paulson Jr., she noted, has acknowledged that income disparities 

have increased, but, along with a “solid consensus” of experts, attributed that shift largely to 

“the rapid pace of technological change has been a major driver in the decades-long widening 

of the income gap in the United States." 

Others argued that public policies had played a role in the shift. Robert Greenstein, executive 

director of the Center on Budget and Policy Priorities, an advocacy group for the poor, said that 

the data understates the widening disparity between the top 1 percent and the rest of the 

country. 

He said that in addition to rising incomes and reduced taxes, the equation should take into 

account cuts in fringe benefits to workers and in government services that middle-class and 

poor Americans rely on more than the affluent. These include health care, child care and 

education spending. 

“The nation faces some very tough choices in coming years,” he said. “That such a large share 

of the income gains are going to the very top, at a minimum, raises serious questions about 

continuing to provide tax cuts averaging over $150,000 a year to people making more than a 

million dollars a year, while saying we do not have enough money” to provide health insurance 

to 47 million Americans and cutting education benefits. 

A major issue likely to be debated in Congress in the year ahead is whether reversing the Bush 

tax cuts would slow investment and, if so, how much that would cost the economy.



Page 3 of 3 

3/29/2007 

Mr. Greenstein’s organization will release a report today showing that for Americans in the 

middle, the share of income taken by federal taxes has been essentially unchanged across four 

decades. By comparison, it has fallen by half for those at the very top of the income ladder. 

Because the incomes of those at the top have grown so much more than those below them, 

their share of total income tax revenue has risen despite the reduced rates. 

The analysis by the two professors showed that the top 10 percent of Americans collected 48.5 

percent of all reported income in 2005. 

That is an increase of more than 2 percentage points over the previous year and up from 

roughly 33 percent in the late 1970s. The peak for this group was 49.3 percent in 1928. 

The top 1 percent received 21.8 percent of all reported income in 2005, up significantly from 

19.8 percent the year before and more than double their share of income in 1980. The peak was 

in 1928, when the top 1 percent reported 23.9 percent of all income. 

The top tenth of a percent and top one-hundredth of a percent recorded even bigger gains in 

2005 over the previous year. Their incomes soared by about a fifth in one year, largely because 

of the rising stock market and increased business profits. 

The top tenth of a percent reported an average income of $5.6 million, up $908,000, while the 

top one-hundredth of a percent had an average income of $25.7 million, up nearly $4.4 million 

in one year. 



Output Falling in Oil-Rich Mexico, and Politics Gets the Blame - New York Times 

http://www.nytimes.com/2007/03/09/business/worldbusiness/09pemex.html?_r=1&oref=slo... 

Page 1 of 5 

3/9/2007 

March 9, 2007 

Output Falling in Oil-Rich Mexico, and Politics Gets 

the Blame 

By ELISABETH MALKIN 

MEXICO CITY, March 8 — The KU-S oil production platform off the coast of Ciudad del 

Carmen, with its 10,000-ton tangle of yellow and red tanks and pipes, would seem the natural 

product of three years of soaring energy prices. The newly installed platform certainly is the 

face that Mexico’s state oil monopoly, Pemex, would like to show off. 

But Pemex is in trouble. Its production and proven reserves are falling, and it has no money to 

reverse the slide. Mexico is the second-largest supplier of imported oil to the United States, 

after Canada, but its total exports are slipping. If the company continues on its current course, 

Mexico may one day have trouble just keeping up with rising demand at home. 

The evidence of its predicament is clear not far from the KU-S platform. On the horizon, some 

50 to 60 miles into the southern Gulf of Mexico, aging rigs billow flames and black smoke over 

the waters as they burn off the natural gas they are unable to process. 

The major reason that Pemex’s prospects are so poor, energy experts agree, is government 

interference. The Mexican government, which expropriated the oil industry in 1938, depends 

on Pemex to finance its budget. Last year, sales at Pemex (its full name is Petróleos Mexicanos) 

reached $97 billion. But $79 billion of that went to the government, Pemex’s chief, Jesús Reyes 

Heróles, said last month. That accounted for almost 40 percent of the federal budget. 

Government interference is only part of the story. Pemex has been hamstrung by years of 

short-sighted management aimed at extracting the most cash for the government treasury — 

Mexico’s president and Congress must approve the company’s budget, its output, investments 

and exports each year. By law, Pemex is closed to any outside investment, shutting it off from 

private capital and expertise. 

In addition, Pemex has not reinvested enough for decades and, because it faces no competition 

at home, has lagged behind many of the industry’s technical advances. Its labor union has 

locked it into rigid work rules and siphoned off hundreds of millions of dollars for unexplained



Page 2 of 5 

3/9/2007 

benefits. And that does not even touch on the widespread corruption and waste. 

“Inside Pemex, I think they have creative solutions,” said Amy Myers Jaffe, an energy analyst at 

the James A. Baker III Institute at Rice University. “They know what they want to do. How do 

you get that solved within the politics of Mexico?” 

President Bush is scheduled to visit Mexico Monday and Tuesday, and oil is likely to be on the 

agenda. In comments to Latin American reporters this week, Mr. Bush mused that Mexico’s 

president, Felipe Calderón, should consider private capital to expand Pemex production. The 

comments ruffled Mexican sensitivities over national sovereignty of its oil resources. 

Over the last five years, Pemex has spent about $50 billion, mostly borrowed, to pump more 

and more oil and gas. “It should have spent much more on exploration so that it wouldn’t be in 

the situation it is in today,” said Adrian Lajous, who led Pemex in the 1990s. “It was a drive to 

generate short-term revenue for the government.” 

For all that spending, said George Baker, a Houston analyst who publishes a newsletter 

covering the Mexican oil industry, Pemex did not get much. “In the end, the results were very 

weak. You didn’t build a new refinery. You didn’t find more oil.” 

Mexico, the fifth-largest oil producer in the world in 2005, is sitting on tens of billions of 

barrels of untapped oil reserves. But much of that is in the deep waters of the gulf, not far from 

where American companies have announced discoveries. Pemex has neither the money nor the 

expertise to get at the oil. 

Its biggest field, Cantarell, in the shallow waters of the gulf, is one of the world’s richest. That 

field used to account for about 60 percent of Mexico’s oil production, but has gone into a sharp 

decline. Production at Cantarell fell 13.5 percent last year, and it will fall another 15 percent 

this year, Mr. Reyes Heróles said recently. 

The decline at Cantarell pushed Pemex’s output down from its peak of 3.4 million barrels a day 

in 2004 to 3.26 million last year. 

At the same time, Pemex’s proven reserves of crude oil have fallen to 11.8 billion barrels at the 

end of 2005 from 15.1 billion barrels at the end of 2002. 

Mexico’s nationalist energy policy has closed off the option that most cash-starved national oil 

companies have used — opening up some production to joint ventures with foreign companies. 

Any debate about how to fix the industry quickly becomes snarled in Mexico’s passionate oil



Page 3 of 5 

3/9/2007 

politics. The official history celebrates the government’s expropriation of the oil industry as a 

heroic act and recalls how ordinary Mexicans donated their jewelry to pay for “their” oil. In 

fact, state control of the industry is enshrined in Mexico’s Constitution. 

Even so, there is more agreement than ever before that the government has to rethink the way 

Pemex is run. 

President Calderón has been vague about his government’s plans three months into his 

presidency. His conservative National Action Party favors private investment. 

The left and Mexico’s old-guard nationalists oppose private investment, arguing that it is a 

cover-up for creeping privatization. That suspicion seems to resonate: a broad public opinion 

survey last year by CIDE, a university in Mexico City, and the Mexican Council on Foreign 

Affairs, found that 76 percent of Mexicans oppose foreign investment in oil. 

“It needs to hurt like hell before you can have an intelligent discussion,” said David Shields, a 

Mexico City energy analyst who has written a book about Pemex. 

Graco Ramírez, a senator from the leftist Party of the Democratic Revolution, said Mexico was 

already feeling the pain. Other than the sale of any part of Pemex, he said, nearly everything 

else is on the table “because of the seriousness of the country’s energy situation.” 

Shifting from the party’s line, Mr. Ramírez, who is the secretary of the energy commission in 

Mexico’s Senate, said there may be room for national oil companies — he singled out Statoil of 

Norway, Petrobras of Brazil and Petróleos de Venezuela, or PDVSA — to work with Pemex on 

deepwater exploration and a few other areas. 

Mr. Calderón has mentioned two of those companies as well. In a visit to inaugurate the KU-S 

platform last week, the president announced the expansion of an existing technology-sharing 

agreement with Petrobras. Two days later, Pemex announced an emissions-reduction 

agreement with Statoil. 

Political analysts warn that Mexico’s fractious politics could delay serious change. Another 

problem is that the government would have to collect more taxes elsewhere if it took less from 

Pemex. “Some reform of the laws governing Pemex’s operations seem almost certain to take 

place in the next 18 to 24 months,” Pamela K. Starr, an analyst at the Eurasia Group in 

Washington, wrote in a report released Wednesday. But, she added, “These reforms will be 

limited in scope.”



Page 4 of 5 

3/9/2007 

For now, Pemex is doing what it can alone to make up for lost time. In a beige-carpeted glasswalled 

research center that Pemex opened in Ciudad del Carmen six months ago, scientists and 

engineers study 3D images of the geological layers below the gulf’s deep waters to determine 

where they will put exploratory wells. 

“I think that this is the future or at least part of the future,” said Pemex’s director of exploration 

and production, Carlos Morales Gil. 

Even under the best of circumstances, though, Pemex cannot expect to see deepwater oil before 

2014. 

For now Mr. Reyes Heróles has more immediate concerns. He has said that Pemex needs to 

spend some $8 billion to $10 billion a year over its current investment budget of about $14 

billion. 

He doesn’t have it. 

The company’s finances are too “delicate” to keep borrowing, he said at a news conference last 

month. 

It will cost about $15 billion a year just to enhance reserves and keep output of crude above 

three million barrels a day, he said. The company is developing new fields to help make up for 

the decline at Cantarell. One of those is the adjacent field of Ku-Maloob-Zaap, where the new 

KU-S oil platform will produce 250,000 barrels of crude a day. 

Private analysts are cautious. “We don’t see even in the most optimistic model that they could 

manage to reverse the total fall in production,” said Alejandra León, an analyst at Cambridge 

Energy Research Associates in Mexico City. 

Outside of exploration and production, the rest of Pemex — its refineries, its pipelines, its 

money-losing petrochemical plants — have been ignored. Mexico now imports about 30 

percent of its gasoline from the United States. A series of fatal accidents a couple of years ago 

revealed the perilous state of its pipeline network. 

For years, the natural gas that was pumped up with the Cantarell crude was flared off because 

Pemex was unable to process it. “It’s like lighting dollars on fire,” said Kenneth B. Medlock III, 

who is also at the Baker Center at Rice University. 

Now Pemex is trying to make use of that natural gas and develop onshore reserves. The KU-S 

platform will process gas, not flare it, for example.



Page 5 of 5 

3/9/2007 

Pemex’s debt has climbed to about $53 billion; its fast-growing pension liabilities have reached 

another $40 billion. 

Pemex’s former chief executive, Luis Ramírez Corzo, estimated last November that Pemex 

could trim $2.5 billion from its operating costs. Labor costs for workers who had not enough 

work to do or none at all cost the company almost $1 billion of that, he said. 

And in a nod to the allegations of corruption at Pemex, Mr. Calderón named a new audit 

committee last month. 

Mr. Lajous, who ran Pemex in the 1990s, said, “The union is one of the key political 

complexities of what you have to deal with.” 

Some 100,000 of the company’s 148,000 employees are members of the union, and the union 

has five representatives on Pemex’s board. 

The union leader in charge since 1993, Carlos Romero Deschamps, refused a request for an 

interview. 

There are bright spots, though. “Pemex people are very good,” said a foreign oil executive who 

asked not to be identified because of the sensitivity of the debate in Mexico. “There are 

professionals with lots of experience.” 

Ms. Jaffe of the Baker Institute agreed. “The problems of Pemex,” she said, “are not technical. 

The problem is political.” 

And for all its troubles, Pemex is still a great source of pride to many Mexicans. Its workers are 

some of the best paid in Mexico, firmly in the middle class. 

“It’s one of the best companies in Mexico,” said Israel Cervantes, 28, who has been working on 

the rigs for three years and takes home $2,200 a month. “You can do all right by your family 

here.” 



Election a key moment for Nigeria, US - The Boston Globe 

http://www.boston.com/news/world/africa/articles/2007/02/20/election_in_nigeria_has_us... 

Page 1 of 3 

3/16/2007 

THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING 

Election in Nigeria has US ramifications 

Hopes are for first peaceful handover 

By Roy Greene, Globe Staff | February 20, 2007 

Some doubt President Olusegun Obasanjo will step down after two terms. (AP Photo) 

ABUJA, Nigeria -- President Olusegun Obasanjo is clear about his plans after finishing his second term and 

overseeing the national election in April: He will retire to the pastoral life of a gentleman chicken farmer. 

But many in this chaotic West African nation of 132 million are not so confident that Obasanjo will fade quietly 

from the scene. They worry that the 69-year-old leader might seize upon any voting irregularities, on the rising 

strife in the volatile Niger Delta region, or on the risk of religious and ethnic clashes as a pretext to declare a state 

of emergency and cling to power. 

After all, Nigeria has been down that road before, lurching from coup to counter-coup for decades. Obasanjo 

himself served as the military ruler from 1976-1979 before handing power to a civilian president. Then, in 1999, 

he was elected for the first of his two terms, but critics say he has ruled as an autocrat who has failed to deliver o 

promises of far-reaching reforms. 

On the eve of Obasanjo's scheduled departure, democracy is facing a crucial test in Nigeria, Africa's mostpopulous 

country and its largest oil producer. If he hands power to an elected successor, it will be the first such 

peaceful, constitutional transfer of power from one civilian government to another since Nigeria gained 

independence from Britain in 1960. 

The stakes in the April 19 presidential election are high not just for Africa but also for the United States, which 

relies on Nigeria for about 14 percent of its energy resources and is expected to seek more as it tries to reduce it 

dependence on the Middle East. 

"What we have is a president who thinks he's a messiah, and his basic belief is that he has all the solutions," 

Jibrin Ibrahim, director of the Center for Democracy and Development, a nongovernmental organization based in 

the Nigerian capital, told a group of visiting US editors. "But he has done his time and must now move on." 

Questions about the president's intentions have deepened since lawmakers rebuffed his attempt last spring to 

amend the constitution to allow him to seek a third term. In recent weeks, the president has insisted the election 

would take place as scheduled and that he would honor the results.



Page 2 of 3 

3/16/2007 

"By the 29th of May, I'll be back on the farm," he said, referring to the constitutional deadline for him to leave 

office. 

But from the dusty streets of Kano, a regional capital in the predominantly Muslim north, to the steamy coastal 

city of Lagos, Nigerians are questioning that pledge and how the nation would respond if the president refuses 

to budge. Some predict massive street protests and even violence. 

One worry is that divisions in a country split roughly into the Muslim north and mainly Christian south, and 

among such ethnic groups as the Yoruba, Hausa, and Ibo, will boil over. Festus Okoye, a lawyer in Kaduna, 

the northern city that saw deadly clashes between Muslims and Christians in 2002 over a beauty contest held 

there, said he could not rule out election-related violence if Nigerians believe their will at the polls has been 

ignored. 

"If political candidates and parties cannot respect their own constitution, they will have no respect among the 

people," said Okoye, who heads the group Human Rights Monitor whose office displays a picture of Rosa 

Parks as a reminder, he says, that an individual can make a difference. 

Western diplomats here credit Obasanjo with beginning to tackle the massive government corruption that has 

siphoned off billions in oil revenues and landed Nigeria on watchdogs' lists of most-corrupt nations. 

He established the Economic and Financial Crimes Commission in 2003, and its investigations have led to the 

jailing and ouster of two Cabinet ministers, several state governors, and the national police chief, and to a 

crackdown on notorious Internet scammers. Although critics accuse the agency of only going after Obasanjo's 

opponents, they concede that the fact that it even exists is a historic advance for Nigeria. 

Obasanjo also strengthened Nigeria's role as a regional leader, working to resolve conflicts in Sierra Leone, 

Liberia, and Sudan. On the economic front, Nigeria last year became the first African country to pay off it debts 

-- about $30 billion -- to the Paris Club, an informal group of creditor nations. 

But Obasanjo (pronounced o-BAS-in-jo) has faced criticism over a host of daunting problems that are 

resonating during the campaign, foremost the growing uprising in the Niger Delta in southeastern Nigeria, the 

center of the country's petroleum production since oil was found there in 1956. 

Militants demanding a greater share of oil profits for the region have stepped up kidnappings of foreign 

workers and attacks on pumping stations. The unrest has cut Nigeria's oil production by nearly one-quarter 

and rattled international markets. The militants have warned they will increase the attacks as the election 

nears. 

Activists say oil operations in the vast region of creeks and swamps have harmed the environment and forced 

fishermen to look elsewhere to make a living. Residents there lag behind other parts of the country in access 

to education, health care, and jobs despite sitting atop such a bounty. 

Obasanjo conceded that federal and state governments, as well as the oil companies, all bear responsibility 

for the conditions that spawned the violence and for the plight of the delta villagers. 

"We should not continue to pass the buck," Obasanjo, dressed in a blue traditional agbada tunic and hat, told 

visiting editors. "The truth is, everybody is to blame. And to solve this, we need all hands on deck." 

He said he believes the government must boost social programs to alleviate the suffering of delta villagers but 

also widen the military's campaign against what he called "pure criminality." 

Meanwhile, the main candidates seeking to replace Obasanjo have hit the campaign trail. They are: Umaru 

Yar'Adua, the nominee from the ruling People's Democratic Party; Obasanjo's vice president and former 

supporter Atiku Abubakar; and Muhammadu Buhari, a former military dictator. All are Muslims from northern 

Nigeria. 

A feud between Obasanjo and Atiku, known to Nigerians by his first name, has brought allegations of



Page 3 of 3 

3/16/2007 

corruption from both men, trumpeted daily in the country's scrappy national newspapers. They have not 

spoken in three months, Atiku said. 

The anti-graft commission has accused Atiku of diverting millions from a petroleum-development fund to his 

personal accounts. US authorities are also investigating whether US Representative William Jefferson, a 

Louisiana Democrat, bribed Atiku to help secure a telecommunications contract in Nigeria; FBI agents said 

they found $90,000 stashed in Jefferson's home freezer in 2005. 

The vice president denies the allegations, although he sees an advantage in the publicity. "In fact, it has even 

enhanced my chances because people see that there is clear political victimization of me," he told the editors. 

At a voter-registration station near the teeming, windswept Garki market in Abuja, enthusiasm about the 

upcoming election mixed with concerns about potential election violence. Sani Hamza, 32, watched intently as 

electronic machines recorded voters' images and thumb prints on identification cards. 

"There have been problems and confusion with registering," with some people simply giving up, said Hamza. 

"But in the end, we hope -- we believe -- that we will make it through this." 

Greene traveled to Nigeria on a Gatekeeper Editors Fellowship from the International Reporting Project at the 

Johns Hopkins University School of Advanced International Studies in Washington, D.C. He can be reached at 

Rgreene@globe.com. 

© Copyright 2007 The New York Times Company

Print Version - IRIN Africa | Nigeria | NIGERIA: As elections near democracy flounders |... 

http://www.irinnews.org/PrintReport.aspx?ReportId=71071 

Page 1 of 2 

3/29/2007 

humanitarian news and analysis 

UN Office for the Coordination of Humanitarian Affairs 

NIGERIA: As elections near democracy flounders 

LAGOS, 29 March 2007 (IRIN) - Many voters in Nigeria’s general elections in 

April say that little appears to have changed from previous elections that were 

characterised by massive fraud and violence followed by military takeovers. 

"They [electoral authorities] are just going to write whatever figures they like 

and declare whoever they want to be the winners," Joe Adeyanju, a 44-year-old 

car mechanic in Lagos told IRIN. 

"Our vote never counts", he said 

The same sentiment can be found amongst many Nigerians, whether in the 

Muslim north or the Christian and animist south. As they see it, the decision of 

who will rule Nigeria is being made not by voters but by the country’s corrupt 

and oppressive elite. 

Photo: Nicholas Reader/IRIN 

Many Nigerians say they will just let the election in April 

pass them by 

Some 64 million Nigerians - less than half the 140 million population - are 

registered to vote for the country's 36 state governors and state parliaments 

which are to take place on 14 April followed by elections for president and the 

federal legislature on 21 April. 

“I will exercise my franchise to vote but I won’t call it democracy,” said Prince Wegwa the head of a youth association in the village of 

Aluu in Rivers State. 

Wegwa said he just hopes the violence does not get out of hand and that fraud does not become an excuse for the army to retake 

power. 

Violent disputes over elections in the 1960s led to the country's first coup and the bloody civil war. Election rigging in 1983 provided a 

pretext for the military to seize power during which they annulled elections in 1993 that were considered largely free and fair. 

But the 1999 elections which brought to power Nigeria’s current president, Olusegun Obasanjo, was marred, according to both local 

and international observers, by ballot stealing and the falsification of figures. 

Even worse were the 2003 elections in which Obasanjo was reelected to his current final term in office. The fraud was so widespread in 

Obasanjo’s home state of Ogun that the Supreme Court eventually annulled the results although new elections were never held. 

The appeal court also decided that elections for governor in Anambra state were rigged, and after three years the governor, Chris 

Ngige of the ruling People's Democratic Party (PDP) was forced to step down. 

New elections in old kleptocracy 

This election will be different according to officials at the Independent National Electoral Commission (INEC), which is charged with 

organizing the elections. Now we have an electronic register the head of INEC Maurice Iwu, told IRIN. "Voter registration is where the 

rigging starts, which makes it important that we have a reliable register and a way of identifying the voter," he said 

He said new voter cards would also make voting more reliable. The cards must have both the holders photograph and thumbprint and 

must match the information in the electoral body's database. This will eliminate people registering more than once as well as ballotstuffing 

he said, which had been widespread during previous elections. 

Still many Nigerians are sceptical that the electoral system can stand firm against the widespread corruption in their country and the 

ruthless battle to control the country’s estimated $40 billion a year oil wealth, much of which lands in the personal bank accounts of 

whomever gets to hold office. 

With security forces often favouring candidates from the ruling party, the opposition often recruit personal militias, said Olamide 

Kayode, a Lagos-based lawyer and political analyst. 

But he and other analysts see the threat of violence is sometime an effective deterrent to fraud. “Often it takes a balance of terror 

between rival groups to prevent rigging from taking place,” said Kayode.

Print Version - IRIN Africa | Nigeria | NIGERIA: As elections near democracy flounders |... 

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Page 2 of 2 

3/29/2007 

As an example he cited the 2003 elections in Lagos state where fears of a violent reaction to cheating prevented the ruling party from 

claiming victory. 

In the current election campaign opposition parties are calling on supporters to be vigilant. In the north, presidential hopeful 

Muhammadu Buhari has called on Nigerians to oppose all rigging while a slogan for the Peoples Progressive Party is ‘Vote and protect 

your vote’. 

Hotspots 

Already they have been assassinations of prominent political figures including one of ruling party candidate for governor of Lagos state 

Funso Williams and the candidate for governor in southwestern state of Ondo. 

Political tensions are also adding to existing ethnic and religious animosities. Clashes have occurred in the south-western city of 

Abeokuta and in rural towns in central Benue state, claiming several lives. 

Ongoing unrest in the oil-producing Niger Delta region has grown into a full-blown insurgency, according to conflict analysts including 

the International Crisis Group. The situation has markedly deteriorated in recent months with almost daily kidnappings of foreigners. 

But perhaps the greater risk to Nigeria’s democracy is a bitter political feud between Obasanjo and Vice President Atiku Abubakar. 

The two former allies fell out after Abubakar opposed moves to amend the constitution and enable Obasanjo stay on as president 

beyond the current two-term limit. Their relationship become publicly acrimonious starting in May 2006 when the move was defeated 

in parliament, with Obasanjo vowing his deputy will not succeed him. 

Abubakar left the ruling PDP to become the presidential candidate of newly formed opposition Action Congress. Then in September 

Nigeria's Economic and Financial Crimes Commission brought allegations of corruption against Abubakar concerning his use of a 

petroleum fund. In February that became grounds for INEC to exclude Abubakar from running in the elections. 

Abubakar and his party continue to conduct their campaign in the hope that the decision will be reversed but observers fear that 

serious violence could yet break out throughout the country. 

Many voters say the fighting amongst the political elite are what really decide who will rule them while the elections are just a show. 

Voter turn out dropped to 18 million in 2003, less than a third of all the registered voters. 

"I'll wait to see if they're actually counting votes," said the Lagos auto mechanic. If I see signs of rigging, I won't bother.” 

dm/dh/nr 

Themes: (IRIN) Conflict, (IRIN) Early Warning, (IRIN) Economy, (IRIN) Governance, (IRIN) Human Rights, (IRIN) Refugees/IDPs, 

(IRIN) Urban Risk 

[ENDS] 

Report can be found online at: 

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All IRIN material may be reposted or reprinted free-of-charge; refer to the IRIN copyright page for conditions of use. IRIN is a project of 

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World oil demand growth set to double - Energy - ArabianBusiness.com 

http://www.arabianbusiness.com/index.php?option=com_content&view=article&id=9174&t... 

Page 1 of 1 

3/9/2007 

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World oil demand growth set to double 

by Reuters on Thursday, 08 March 2007 

World oil demand growth, led by China and the United States, will nearly double in 2007, putting 

pressure on OPEC producers to boost production later this year, a Reuters poll found on Thursday. 

"OPEC is going to have to boost output in the second half of the year since non-OPEC supply growth 

will be unable to meet global demand," said Mike Wittner, analyst at investment bank Calyon. 

Analysts forecast average world oil demand growth this year at 1.39 million barrels per day. That is up 

from 800,000 bpd last year, according to the International Energy Agency. 

The poll also showed demand for OPEC crude oil rising 270,000 bpd to 30.38 million bpd. 

"Unless OPEC production is permitted to rise in the coming months, oil prices could once again set off 

in an upward direction as refiners chase scarce barrels to meet summer demand," the Centre for Global 

Energy Studies said in a recent oil report. 

The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, 

pledged to reduce supply by 500,000 bpd from Feb. 1, in addition to a 1.2 million bpd cut that took 

effect in November. 

Several OPEC ministers have indicated that OPEC would keep oil output unchanged when it meets on 

March 15 in Vienna if prices remained at current levels. 

Oil has traded above $60 a barrel for the past few weeks, rebounding around 20% from mid-January, but 

still far from last year's record peak of $78.40. 

Analysts forecast prices to average $61.29 this year, down from 2006's average of $66.24 a barrel. 

Demand from China, the world's second largest energy consumer, was forecast to rise 430,000 bpd this 

year to 7.57 million bpd. That is up from 400,000 bpd last year, according to IEA estimates. 

"We believe that there is no other demand-side force with greater impact on the global oil supplydemand 

balance than growth in Chinese oil demand," said Lehman Brothers in a research note. 

Oil consumption in the United States, the world's top energy user, is also expected to surge this year. 

"There was a decline in U.S. growth last year and this year we see it increasing, so that is a big swing for 

demand," said Sarah Emerson, director of Energy Security Analysis Inc.

Online Gambling Gone Wild: U.S. Crackdown Sparks Offshore Boom 

http://www.informationweek.com/shared/printableArticleSrc.jhtml?articleID=198700819 

Page 1 of 7 

3/30/2007 

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Online Gambling Gone Wild: U.S. Crackdown Sparks Offshore 

Boom 

Far from slowing its growth, a government crackdown on online gambling has sent many 

sites offshore, and many others underground. But it's a good bet that Internet poker will 

remain a booming industry. 

By Alice LaPlante, InformationWeek 

March 29, 2007 

URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=198700819 

Daniel Negreanu tends to understand the odds pretty well. As one of the most successful poker 

tournament players in the world, "Kid Poker" was in 1998 the youngest player to win the World Series 

of Poker--an honor he held until 2004--and continues to dominate high-stakes games throughout the 

poker-playing world. 

(click image for larger 

view) 

Full Contact Poker, which 

decided to stay in the 

United States market, 

allows people to play with 

no limit. 

view the image gallery 

However, in December 2005, wary of increasing government hostility 

towards Internet gambling, he knew it was time to fold. "Clearly, it wasn't 

going to be possible to live in the U.S. and run an online poker operation," 

he said. So he sold his successful online poker site, Full Contact Poker, to 

Big Stack Enterprises, based in Curacao. 

Negreanu, as usual, was ahead of the game. It wasn't until 10 months later, 

September 30, 2006, that the shot heard round the online gambling world 

was fired when Congress passed the Unlawful Internet Gambling 

Enforcement Act (UIGEA) as part of the larger SAFE Ports Bill. In less 

than two weeks, President Bush signed the new bill into law, and the global 

online gaming industry--which derived as much as 60 percent of its 

revenues from the U.S. market--took a devastating hit. 

The event couldn't have been worse timed from the point of view of Jez 

San, the former director of 3D game developer Argonaut Software, and the 

founder of PKR.com, a United Kingdom-based online poker site that was 

still in beta test at the time the bill was approved. Congress passed the legislation just 24 hours after San 

had finalized his first round of financing--and after he had sunk $1 million of his own money into his 

venture. "We had to make a decision, and we made it immediately not to launch into the U.S. market," 

said San, whose company has never allowed any U.S. citizens to play for money. "I like America. I want 

to be able to keep visiting without getting arrested. It was very important to me that we were legitimate."



Page 2 of 7 

3/30/2007 

At the same time, passage of the bill caused a 

host of firms that had previously been 

operating in the United States to withdraw. 

These included some of the largest and most 

successful online gambling sites in the world, 

including PartyPoker.com and 888 Casino-onthe-Net, 

both publicly traded and listed on the 

London stock exchange. 


But not everyone was so easily spooked. A 

view) 

large numbers of online gambling companies At PKR.com, players 

chose to keep their casinos open. Although create their own avatars, 

now operating illegally according to U.S. complete with customized 

Justice Department rules, they're reporting facial expressions and 

that business is pretty much as usual. gestures to bring a real-life 

Although there are fewer dollars overall, there component to the game. 

are less gambling houses vying for those 


dollars, and the ones who agreed to talk 

concur that after a dip in the second half of 2006, revenues are already on their way back up. 

"We were growing 300 percent last year, and although we lost some ground last summer, things have 

since rebounded, and we expect to be back up to our summer 2006 levels within the next month or so," 

said a senior executive at one of the top online gambling sites that has chosen to still accept U.S. 

customers, who declined to be identified for fear of prosecution. 

Another executive who asked for anonymity said that revenues had already shot past mid-2006 levels 

and showed no sign of abating. "U.S. citizens still want to gamble, and we intend to keep allowing them 

to," he said. Indeed, a host of new online gambling establishments are expected to quickly fill the void 

left by the ones that decided to bow out. 


view) 

A PKR.com player shows 

a classic poker face when 

viewing his cards. 


"Some sites have no downward loss of patrons at all. Even those that have 

lost customers are still making money--more than last year. It's a major 

blip, but still just a blip, and people will find ways of getting around it," 

said I. Nelson Rose, a professor of law at Whittier Law School in Costa 

Mesa, California, an expert on online gaming laws, Joseph Kelly, a 

professor of business law at State University of New York (SUNY) 

College in Buffalo, and co-editor of the Gaming Law Review agreed: "This 

is just a hiccup." 

Along with many others, Kelly believes that online gambling will 

eventually be legal in the United States. "The panic created by the DOJ's 

actions will eventually subside, new legislation will be passed, and we'll 

see a regulated industry emerge," Kelly said. When that will happen is 

anyone's guess. But "the notion that you can put a definitive stop to online 

gambling is a ludicrous one," he said. 

San himself is characteristically ebullient about what lies ahead. His firm--which provides poker players 

with an immersive experience using the 3D technology standard in video games and virtual worlds such 

as Second Life--is growing at 50 percent per month. It will be profitable this year despite barring U.S.- 

based players. "Nothing is going to be able to stop this industry," he said.



Page 3 of 7 

3/30/2007 

Numbers Racket Getting accurate figures on what is happening in online gaming has always been 

difficult, and is now almost impossible. 

"Because the public companies left, and the ones stayed are the less transparent private ones, it's much 

harder to get those numbers," said Sue Scheider, publisher of the Interactive Gaming News. "The 

difficulty with the unlisted firms is that they are under no obligation to publish their results, so it's 

incredibly difficult to tell what is actually happening in the market," agreed Ed Barton, an analyst with 

Screendigest.com, a market research firm that tracks on the online gambling industry based in London. 

Prior to the U.S. crackdown, online gambling revenues were approximately 

$12 billion globally, according to London-based Global Betting and 

Gaming Consultants. Although still just a fraction of the $258 billion 

overall gambling market--which includes land-based casinos and card 

rooms as well as government-sponsored lotteries--Internet revenues were 

growing at high double-digit rates. Indeed, after pornography, online 

gambling was the second highest Internet-based revenue generator, 

dwarfing global online retailing and ecommerce activities. 

Today, although no one is quite sure how many revenues have evaporated 

due to fears of legal liability, "online gaming is still huge," said Dave 

Schwartz, director of the Center for Gaming Research at the University of 

Nevada Las Vegas. "Depending on what numbers you believe it can easily 

be twice what the entire Las Vegas strip makes annually on all its 

activities, including food and hotel services in addition to gambling 

revenues." 


view) 

Pokerstars.com shows 

players a classic online 

"bird's eye" view of the 

table. 


Barton belongs to a set of analysts who believes that the volume of the U.S. market was so large as to be 

irreplaceable in the short term. "Although there are growth areas--particularly in Asian markets, where 

many U.K firms are setting up shop--"the rate of growth there is not event approaching the volumes we 

saw in the U.S. market," says Barton. "Make no mistake, the industry was hard hit." 


view) 

Bodog.com, which also 

decided to stay in the U.S. 

market, offers a wide 

variety of card games other 

than poker. Here's a 

blackjack game in 

progress. 


Still, Scheider, like many others industry observers, believes that firms still 

hoping to stay in the U.S. market can expect to prosper--albeit under a 

"Prohibition mentality." Other than that, she doesn't feel that the long-term 

effects will be all that significant. "It's very likely that revenues will just 

move from one person's pocket to another. The companies that have 

continued to take U.S. players are doing very well," she said. 

Many of the firms that chose to withdraw from the United States simply 

changed their focus to non-U.S. venues. Other than in a few isolated 

countries--notably, France and Israel, which are making noises about 

enforcing their own anti-gambling initiatives--most governments have 

rolled out the welcome mat. And positive results are beginning to roll in. 

One of the world's largest gambling sites, 888 Holdings PLC, a U.K. firm, 

announced in mid-February that its full-year net revenues rose 7 percent 

even after leaving the United Stages. 

"It's very hard to believe that the revenues of online gaming providers will 

flat line," said Tom W. Bell, a professor at the Chapman University School 

of Law who is an adjunct scholar at the Cato Institute and who follows the legal issues of online



Page 4 of 7 

3/30/2007 

gambling. "Although at a low point last fall, they almost immediately began to bounce back, and my 

guess they will continue to steadily increase over time." 

Double Trouble 

Although the SAFE Ports Bill that President Bush signed into law on October 13, 2006 had a huge 

impact on the market, it wasn't the only step the U.S. government took to deter online gambling. Having 

an arguably more dampening effect were other actions by the Justice Dept. 

The arrests of David Carruthers, the CEO of BetonSports, at a Dallas 

airport in July 2006 and the apprehension of Peter Dicks, the chairman of 

Sportingbet, in New York in September--both before the UIGEA was 

passed--put a preliminary chill on the industry. 

Then, in late January 2007, the DOJ began making arrests specifically 

based on the provision of the UIGEA that makes it illegal for banks to 

transfer money to Websites that allow Internet gambling. Its first move was 

to charge two former executives of Neteller, a publicly traded U.K. online 

money transfer company. By far the largest online gaming transaction 

processing concern in the world, more than $7 billion in 2005 and $5.1 

billion in the first half of 2006 went through Neteller's hands. Some 

estimates put that figure at representing as much as 50 percent of the global 

online better market. There were also press reports that the DOJ had issued 

subpoenas to a number of prominent global banks that had participated in 

the underwriting of the IPOs of overseas gambling sites. Upon this news, 

stock prices of online gambling concerns registered on the London stock 

exchange tumbled. 


view) 

Bodog.com, one of the 

most popular online 

gaming sites that still 

caters to U.S. players, 

provides crap tables that 

allows for stakes as high as 

$1,000 per roll. 


Although Neteller promptly released a statement that it would no longer process gambling revenues 

from U.S. customers, other payment processing options abound, such as ePassporte, ATMonline, and 

Click2Pay. And industry observers point out that five years ago when PayPal withdrew from the online 

gambling payment processing market, the impact on the industry was temporary before other firms 

leaped into the market. 


view) 

Americans can also 

continue to play classic 

casino games like roulette 

at Bodog.com. 


"What happens in the near term--say the next 12 months to five years-- 

depends on several things, including what sorts of payment mechanisms 

remain, and what new ones arise," said Bell, who believes it is very 

possible that new payment processes specifically designed to avoid the 

reach of U.S. regulators will be developed. Already, the most dedicated 

online gamblers are establishing offshore bank accounts and using phone 

cards to pay for their activities. 

In addition, said Bell, "the killer application for the gambling industry, 

which is sure to eventually emerge, will be a perfectly anonymous and 

untraceable form of digital cash." In effect, such forms of payment will 

replace the legitimate businesses of highly regulated firms with much more 

dubious ones. 

"This will prove of use to a number of unsavory characters, and be a regulator's nightmare," said Bell. 

"It's very likely that the United States will very much regret the actions it is taking."



Page 5 of 7 

3/30/2007 

Strange Bedfellows 

Bell believes that one driving force between recent anti-gambling activities can be found within the U.S. 

land-based gaming industry. "It's the politics of the bricks and mortar gambling interests, who don't want 

to see their customers going to their more convenient gambling venues," said Bell. 

Michael Pollock, managing director of the Spectrum Gaming Group, a research firm that tracks trends in 

the gaming industry, agreed. "The brick-and-mortar casinos have felt for many years that Internet 

gambling was a threat," he said. What will eventually happen, said Pollock, is that the U.S. industry will 

become regulated and legal, and the land-based casinos with the strongest brands will become the 

leaders in this domain. 

sThere is ample evidence emerging that the brick-and-mortar casinos are 

already starting to test the online waters with an eye toward eventually 

bringing that experience back home. In December 2006, the Sands 

launched an online casino in the U.K. market. In February, Playboy 

followed suit. "Over the next two years, we're going to see things like an 

Internet-based MGM and a Bicycle Casino, where there is a great deal of 

brand cross promotion going on," said Aaron Todd, a gaming industry 

reporter with Casino City, an online gaming portal. 

In the meantime, there's "reasonable cause" to worry that the only online 

gambling services that remain will be those of the less reputable sort, 

according Bell. "If regulators had consumers foremost in mind, if they 

were really attempting to protect consumers, they would recognize that 

people will continue to play online, and it doesn't make sense to drive out 

of the market the people who are the most credible and legitimate," he said. 


view) 

Partypoker.com, one of the 

world's most popular 

online poker rooms, pulled 

out of the U.S. market in 

October 2006. 


"It's an unfortunate set of circumstances from consumers' standpoint," said 

Sue Scheider. "I don't think the federal government is acting in their best interest. And it's clearly not 

revenue driven, because for years the industry has been begging 'regulate me, tax me.' " 

She's also heard all the speculation about the Las Vegas interests might be driving the agenda, but 

"ultimately, no one really knows who is behind this crackdown or why they are doing it." 

Tough Fight 

Many companies have been anticipating the moves by the U.S. government for a long time. Cryptologic, 

a Toronto-based provider of software and networking infrastructure for online gambling sites has been 

preparing for more than five years for the eventuality that the U.S. would make online gambling illegal. 

When the UIGEA was passed, it notified all its customers still allowing U.S. gamblers that they needed 

to find other vendors. 

"We've been in this industry for more than a decade and have always lived 

with the uncertainty of what the United States might eventually do," said 

Steve Taylor, chief financial officer of Cryptologic. "For that reason, years 

ago we started focusing more on Europe and other global markets." 


view) 

Business is good: Cryptologic recently signed deals with Playboy 

Enterprises as well as the government of the Netherlands to help them 

develop casino and poker sites. "We pride ourselves on being a legitimate 

player," said Taylor.



Page 6 of 7 

3/30/2007 

Although you can't see the 

expression on player's 

faces, unlike at PKR.com, 

at Partypoker.com you get 

a sense of the winners and 

losers from the chips piled 

up on the table. 


Indeed, Cryptologic just reported its strongest fiscal year ever, with 

revenues up 21 percent over 2006. Future growth rates look robust, says 

Taylor, who says he expects online poker to grow at a 20 percent 

compound rate over the next 20 years, and casino operations at 12 percent. 

"As broadband and e-wallet solutions become more available and 

acceptable, we believe we can meet or exceed those numbers. We are very 

bullish on the industry," says Taylor, who points out that currently only 

five percent of revenues for the total global gambling market come from 

online activities. "We think there's an awful lot of room for growth even without the U.S. market," he 

added. 

But those organizations still hoping that online gambling will eventually be legal in the United States 

aren't going away without a fight. The European Union is challenging the UIGEA through the World 

Trade Organization (WTO), charging that the U.S. has banned Internet gambling in a blatant attempt to 

protect domestic gambling revenues. Calling it protectionism, and saying it is clearly against WTO 

regulations, the WTO brought suit against the United States on behalf of the Caribbean countries of 

Antigua and Barbuda. 

In early February, the WTO ruled against the United States, and said it 

plans to prove it guilty of breaking international trade laws elsewhere in 

the world. And in mid-February, The Poker Players Alliance, an industry 

lobbying group, named former New York Senator Alfonse D'Amato as its 

chairman to spearhead plans to fight for an exemption for poker within the 

UIGEA. 

Indeed, many legal scholars doubt whether the UIGEA forbids anything 

not already made illegal under the Wire Act passed in 1961. There's even 

controversy about how far the Wire Act itself can be used to prevent online 

gambling, as the U.S. Fifth Court of Appeals has ruled against the DOJ's 

assertions that the Wire Act forbids all online betting. Instead, the court 

decided that the Wire Act pertains only to online betting on sports events. 

"There are a number of court cases pending that are creating reasonable 

doubts about how far the current laws go in forbidding anything other than 

sports betting," says Kelly. 


view) 

Five of the nine players at 

an online poker table at 

Doylesroom.com have 

opted to sit out this 

particular hand. 


Burgeoning Venues 

Ironically, the UIGEA contained a provision that has actually legalized new online gambling venues 

within the United States by stating that individual states have the ability to regulate Internet gambling 

within their borders. "This clarified things considerably, and has theoretically opened the door to a great 

deal of online gambling activity as long as companies can come up with ways to verify exactly where 

players are geographically located," said Todd. 

Rose believes that ultimately the efforts of Bill Frist et al will backfire. 

"He'll be responsible for the greatest explosion of creativity and expansion 

of intrastate gambling than ever could have been anticipated," said Rose. 

"It's crystal clear now that you've made it legal, that just about every state 

will look into it. I fully expect that California, Nevada, and New Jersey 

will legalize, regulate, and tax Internet poker within the foreseeable



Page 7 of 7 

3/30/2007 


view) 

The notice posted at 

Doylesroom.com that the 

site would no longer take 

U.S. players. 


future." 

Schwartz, who has written a number of books on the history of gambling, 

said that in the past, "if there's a law against gambling, people have always 

found a way around it." He believes there's little logic in the current 

legislative attempts to curb it. "There are ways to provide geographic and 

age verification. In Utah, if you can prove that you are 21 years of age, 

there really isn't a compelling reason that you can't place a bet in the state 

of New Jersey. So why not place an online bet? There's really no reason 

not to allow it." 

"There's a clear trajectory of how existing industries view new 

technologies," said Pollock. "First they try to fight it, to kill it off. Then 

they move into acceptance. And finally, they embrace it." 

The same pattern will play out here, said Pollock. "After efforts by the DOJ 

to put a lid on it, it will be highly regulated and controlled, and handled with integrity. No one can 

realistically put a lid on it. The economic case is too compelling." 

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Print this article 

UPDATE 1-World will need more OPEC oil in coming months-IEA 

Tue Mar 13, 2007 6:12 AM ET 

(adds detail throughout, IEA and analyst comment) 

By Janet McBride 

Close This Window 

VIENNA, March 13 (Reuters) - Oil stocks in industrialised nations may be headed for their biggest fall in more than 

10 years as OPEC production cuts bite, the International Energy Agency said on Tuesday, building a case for more 

OPEC oil. 

OPEC ministers have begun arriving in Vienna for a meeting on Thursday to determine output, with most indicating 

they expect the cartel to decide to hold production steady. 

At its last two meetings the group that pumps over a third of the world's oil agreed to curb supplies by 1.7 million 

barrels per day, roughly six percent. 

"In reality, stock trends and prices are signalling that higher OPEC exports will be needed in the months ahead," 

wrote the IEA, adviser to 26 industrialised nations. 

The IEA took a swipe at governments in Venezuela, Russia and other countries that have embraced "resource 

nationalism" by wresting control of oilfields from foreign companies. Greater state control of energy resources and 

the temptation to siphon off revenues threaten to choke investment, the IEA said. 

"Often political and social spending needs grow to the point where oil exploration and development investment is 

compromised, which can in turn reduce oil and gas exports," the agency said. 

Venezuelan President Hugo Chavez has poured billions of dollars of oil revenues into social spending. 

The IEA has also repeatedly criticised Russian gas giant Gazprom for failing to invest enough of its 

profits in maintaining pipelines and fields. 

FALLING OIL STOCKS 

Tighter OPEC supplies and a February cold snap in top energy consumer the United States have contributed to a 

steep decline in oil stocks in industrialised nations, and a recovery in the oil price from below $50 in January, the 

IEA said. 

At above $59 a barrel, oil is well off its $78.40 record high of last July, but is still three times the price seen at the 

start of 2002 when Chinese demand kicked in. 

"Preliminary data suggest that OECD stocks have fallen by over 1.26 million bpd over the first two months of the 

year, and could be heading for the largest first quarter stock draw for over 10 years," the IEA said in its report. 

Lawrence Eagles, head of the IEA's oil and industry markets division, noted crude oil stocks normally build during 

the second quarter which falls between winter demand for heating fuel and summer demand for gasoline and air

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Page 2 of 2 

3/13/2007 

conditioning. 

"This leaves the potential for a much tighter situation at the end of the second quarter," he told Reuters. 

BNP Paribas analyst Harry Tchilinguirian cautioned against reading too much into "notoriously fickle" preliminary 

numbers. 

"Crude oil inventories in Europe are among these and Europe does not have the equivalent of the U.S. weekly 

data," he said. 

The IEA kept its 2007 world oil demand forecast steady at 86 million bpd, up 1.8 percent on 2006. 

It estimated oil supplies from the 10 OPEC members bound by output restrictions fell to 26.76 million bpd in 

February, down 365,000 bpd from January and down one million bpd since September, shortly before OPEC's 

agreement to cut. 

All OPEC -- including Iraq and new member Angola, neither country subject to output restriction -- pumped 30.2 

million bpd in February, down 125,000 bpd from January. 

The IEA put demand for OPEC oil in the range 30.7 million bpd to 31.6 million bpd in 2007. 

© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar 

means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered 

trademarks and trademarks of the Reuters group of companies around the world. 

Close This Window

Uranium Ignites ‘Gold Rush’ in the West - New York Times 

http://www.nytimes.com/2007/03/28/business/28uranium.html?ei=5087%0A&em=&en=d... 

Page 1 of 5 

3/29/2007 

March 28, 2007 

Uranium Ignites ‘Gold Rush’ in the West 

By SUSAN MORAN and ANNE RAUP 

LA SAL, Utah — Given its connotations, Pandora is an oddly inappropriate name for an 

uranium mine. 

But that does not seem to bother Denison Mines, the company from Vancouver, British 

Columbia, that owns it. Denison recently reopened this mine about 30 miles southeast of 

Moab, along with several others in nearby western Colorado, after it lay dormant during the 

years when the nation shunned nuclear power. 

The revival of uranium mining in the West, though, has less to do with the renewed interest in 

nuclear power as an alternative to greenhouse-gas-belching coal plants than to the convoluted 

economics and intense speculation surrounding the metal that has pushed up the price of 

uranium to levels not seen since the heyday of the industry in the mid-1970s. 

“There’s a lot of staking going on,” said Mike Shumway, a 53-year-old Vietnam veteran who 

owns the contracting business that is working the Pandora mine. “It’s like the gold rush.” 

Mr. Shumway has personally amassed some 100 uranium claims, including four dormant but 

potentially rich mines. Some of the claims he bought quietly after less tenacious prospectors 

could not afford to hold theirs during the long drought while uranium was out of favor. Mr. 

Shumway’s eyes light up and he cracks a grin as he ponders the fortune he now hopes to gain. 

“There’s big money in it,” he said as he probed piles of waste ore at Pandora with a Geiger 

counter. “What other work do you know of where you can make millions in 30 days?” 

Not many. Prices for processed uranium ore, also called U308, or yellowcake, are rising 

rapidly. Yellowcake is trading at $90 a pound, nearing the record high, adjusted for inflation, 

of about $120 in the mid-1970s. The price has more than doubled in the last six months alone. 

As recently as late 2002, it was below $10. 

A string of natural disasters, notably flooding of large mines in Canada and Australia, has set 

off the most recent spike. Hedge funds and other institutional investors, who began buying up



Page 2 of 5 

3/29/2007 

uranium in late 2004 to exploit the volatility in this relatively small market, have accelerated 

the price rally. 

But the more fundamental causes of the uninterrupted ascendance of prices since 2003 can be 

traced to inventory constraints among power companies and a drying up of the excess supply 

of uranium from old Soviet-era nuclear weapons that was converted to use in power plants. 

Add in to those factors the expected surge in demand from China, India, Russia and a few other 

countries for new nuclear power plants to fuel their growing economies. 

“I’d call it lucky timing,” said David Miller, a Wyoming legislator and president of the 

Strathmore Mineral Corporation, a uranium development firm. “Three relatively independent 

factors — dwindling supplies of inventory, low overall production from the handful of uranium 

miners that survived the 25-year drought and rising concerns about global warming — all have 

coincided to drive the current uranium price higher by more than 1,000 percent since 2001.” 

Strathmore controls more than three million acres of exploration projects in Canada and 

previously discovered sources in the United States, primarily around Grants, N.M. In its 

heyday, the Grants “uranium belt” provided 340 million pounds of uranium, making New 

Mexico an even larger producer than Utah or Wyoming. Some politicians in the area hope 

there will be a new wave of mines, mills and jobs. 

Strathmore, with a market capitalization of $300 million, is one of about 400 publicly traded 

uranium stock companies (most of them, like Strathmore, trade on the Toronto Stock 

Exchange). Many of the companies are much smaller. Some are essentially shells. 

“There’s so much money pouring into this sector,” said Julie Ickes, editor and publisher of 

StockInterview.com, which tracks uranium prices and companies. “If you put ‘uranium’ in your 

company name, you can look like you’re looking for property,” he said. “It’s a lot of talk.” 

The feverish trading in speculative uranium company shares harks back to the early 1950s, 

when some 500 stocks traded on the Salt Lake City Penny Stock Exchange. Moab called itself 

“the uranium capital of the world.” 

“You could say there were more millionaires than people here in Moab,” said Sam Taylor, 73, 

who has been publisher of the local weekly, The Times-Independent, since he took it over from 

his father in 1956. 

Sitting stooped over his wooden desk at the newspaper’s office downtown, Mr. Taylor recalls 

how he got “the scoop of the century” when a young, cocky geologist named Charlie Steen



Page 3 of 5 

3/29/2007 

pulled up in his battered jeep asking if The Times-Independent would publish his six-page 

paper on his recent discovery of pitchblende, or high-grade uranium. 

Not long after, Moab lost its quietude and anonymity to the ore trucks roaring through town 

almost around the clock to deliver uranium to a mill on the north edge of town. 

Globally, 180 million pounds of processed uranium are consumed each year by nuclear power 

plants. Production worldwide from mines amounts to only 100 million pounds. Roughly 75 

million pounds come out of utility company stockpiles. What is actually traded in the spot 

market is only about 35 million pounds. 

Some industry watchers fear the uranium market is entering the bust phase of another boombust 

cycle. 

“It’s like the tech bubble,” said James Finch, senior editor of StockInterview.com. “We’re 

waiting for the crash.” 

But others see plenty of room for prices to climb. One is Bob Mitchell, founder of Adit Capital, 

a small hedge fund in Portland, Ore. In December of 2004, he became one of the first hedge 

fund managers to start buying uranium. 

Since then other hedge funds and institutional investors have jumped into the market, some of 

them hoarding uranium while the price keeps rising. Even some established mining production 

companies are spinning off or becoming partners with hedge funds. 

Uranium executives, investors and analysts alike agree that a major underlying cause of the 

current bull market is that mines are not generating enough uranium to meet growing demand. 

The supply constraints can be traced back to the end of the cold war when the United States 

and the former Soviet Union started converting enriched uranium from dismantled atomic 

weapons into nuclear fuel for peaceful purposes. 

That program, and huge incentives offered to uranium companies by the Nuclear Regulatory 

Commission, flooded the market with excess supply. At the same time, demand shrank. The 

price of uranium fell sharply. 

As a result, most uranium producers scaled back or closed their mines. Some companies sold 

themselves to French, Canadian and British corporations, which now dominate the industry. 

Some companies with nuclear power operations sold some of their inventories when the price 

was low to avoid storage costs.



Page 4 of 5 

3/29/2007 

But by 2003 uranium inventories held by utilities in the United States were coming back into 

balance. Then a series of natural disasters — flooding of the world’s largest uranium mine, 

McArthur River in Canada, and more recently at other mines in Canada and Australia — 

further pinched supply. Power companies now find themselves competing with aggressive 

institutional investors for high-price uranium. 

“For so long they’d been the buyer in a buyer’s market,” said Gene Clark, chief executive of 

TradeTech.com, a publisher of reports and data on the nuclear fuel market. “Now they’re like a 

wallflower. It’s hard on their egos.” 

James Malone, vice president of nuclear fuels at the Exelon Corporation, the Chicago-based 

utility that owns 17 reactors at 10 sites, making it the largest nuclear operator in the country, 

said in a telephone interview that current market conditions were having a “small impact” on 

some of the company’s contracts that were pegged to the market price. He declined to 

elaborate. 

The people staking claims and drilling underground are, in the meantime, happy to see the 

frothy market become frothier. So far this year, 2,700 new uranium claims have been filed with 

the Bureau of Land Management in Colorado alone. That is nearly half the claims filed in all of 

last year, and a big jump from the 104 claims for 2004. 

“It’s pretty spectacular,” said Jesse Broskey, a land law adjudicator with the bureau. “It’s 

tripled our workload.” 

But many people in the region, including leaders of the Navajo Nation, are not particularly 

excited to invite Pandora and other participants in the nuclear industry back into their 

communities. They say the mining and power companies poisoned workers and residents, in 

some cases fatally, with radon, silica and tainted groundwater. 

More stringent federal oversight means that mines built or refurbished today provide much 

better ventilation, which minimizes the underground risks. Mine operators are required to take 

readings of radon levels and air flow in the mines, and to measure miners’ exposure doses. 

Another red flag, for environmentalists and utilities alike, is the lack of a national storage site 

for radioactive waste. The proposed home, Yucca Mountain in Nevada, has cost taxpayers 

billions over many years as it sits idly, waiting for a final decision. 

That is one of several factors holding back the revival of nuclear power in the United States. 

“We won’t build a new plant knowing there’s nowhere to put the used fuel,” Mr. Malone of



Page 5 of 5 

3/29/2007 

Exelon said. “We won’t build one without community support, and we won’t build until market 

conditions are in place where it makes sense.” 

But that is not holding back Kyle Kimmerle, owner of the Kimmerle Funeral Home in Moab. 

Mr. Kimmerle, 30, spent summers during his childhood camping and working at several of his 

father’s mines in the area. In his spare time he has amassed more than 600 uranium claims 

throughout the once-productive Colorado Plateau. 

“My guess is that next year my name won’t be on the sign of this funeral home anymore and I’ll 

be out at the mines,” he said. 

He recently struck a deal with a company to lease 111 of his claims for development. The 

company, new to uranium mining, has pledged $500,000 a year for five years to improve the 

properties. Mr. Kimmerle will receive annual payments plus royalties for any uranium mined 

from the area. 

“Everybody’s jumping in while the price is going up,” he said. “Sure, it’ll eventually go down. 

It’s not going to be in three years. But after 10 years I’d say all bets are off.” 



Print Story: Strong hurricanes to hit U.S. Gulf in 07: AccuWeather on Yahoo! News 

http://news.yahoo.com/s/nm/20070327/ts_nm/usa_weather_forecast_accuweather_dc_2&p... 

Page 1 of 2 

3/27/2007 

Back 

Strong hurricanes to hit U.S. Gulf in 07: AccuWeather 

By Janet McGurty 

1 hour, 45 minutes ago 

The U.S. Gulf Coast, which is still rebuilding almost two years after Hurricane Katrina, faces a renewed threat of po 

storms this year, private forecaster AccuWeather said on Tuesday. 

After a quiet hurricane season last year, Florida and other Gulf Coast states likely will be hit with fewer storms than 

active 2005 season, which spawned the massive hurricanes Katrina and Rita, AccuWeather said. 

But the storms forecast for the region will pack a punch. 

"We will not get anywhere near the amount of storms that we did in 2005, but the intensity of the storms we do get 

major concern," Joe Bastardi, chief hurricane forecaster for AccuWeather.com, said in a statement. 

British forecasting group Tropical Storm Risk this month also predicted an active storm season. It forecast four "int 

hurricanes during the 2007 season, which runs from June through November. 

The predictions spell trouble for areas still recuperating from a chain of hurricanes that slammed the Gulf Coast in 

"The entire region -- including New Orleans and other areas that are still rebuilding after Katrina -- is susceptible to 

Bastardi said. 

Katrina killed about 1,500 people along the Gulf Coast in 2005, displaced tens of thousands more and caused billio 

in damage. 

Bastardi also said that storms forecast to hit this year could once again disrupt oil and natural gas operations along 

Coast, driving up energy prices for consumers. 

"This year's stronger storms are likely to be the kind of disruption that will be felt in wallets and pocketbooks," he sa 

U.S. gasoline prices reached a record high of $3.057 per gallon after Katrina, which caused oil refineries to shut do 

companies to evacuate workers from oil and gas producing rigs in the Gulf. 

After Hurricane Rita hit the region a month after Katrina, as much as 14 percent of U.S. refinery capacity was shut 

80 percent of crude oil and 66 percent of natural gas production were down for months. 

Bastardi also predicted the U.S. Northeast would likely be a target for strong storms for the next 10 years. 

"Last year, the Northeast may have dodged a bullet but, unfortunately, you can only be lucky for so long. We are in 

similar to that of the late 1930s through the 1940s, when the Northeast was hit by two major storms," he said. 

The relative calm of last year's hurricane season, which forecasters had mistakenly predicted would be busy, came 

heels of a record 28 storms and 15 hurricanes in 2005 and only a slightly less furious season in 2004. 

Bastardi said that, despite the milder 2006 season, the trend was toward strong hurricanes and tropical storms.

Print Story: Strong hurricanes to hit U.S. Gulf in 07: AccuWeather on Yahoo! News 

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Page 2 of 2 

3/27/2007 

"We are living in a time of climatic hardship," Bastardi said. "We're in a cycle where weather extremes are more the 

not the exception." 

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TSR Updates Hurricane Forecast 

http://www.insurancejournal.com/news/international/2007/03/21/77918.htm?print=1 

Page 1 of 1 

3/31/2007 

International News 

TSR Updates Hurricane Forecast 

March 21, 2007 

The UK-based Tropical Storm Risk (TSR) weather forecaster has issued a revised assessment of the 

upcoming Atlantic hurricane season, which indicates that it will be a more active season than previously 

expected. 

TSR, which operates in cooperation with the Benfield Hazard Research Centre and University College 

London, headed by Professor Mark Saunders and Dr Adam Lea respectively, said there was a "high 

probability" that 2007 would produce "Atlantic basin and US landfalling tropical cyclone activity" about 75 

percent above the 1950-2006 norm. 

The pronouncement was based on "current and projected climate signals," and "is the highest March forecast 

for activity in any year since the TSR replicated real-time forecasts started in 1984," said the bulletin. "There is 

a high (86 percent) likelihood that activity will be in the top one-third of years historically." 

The forecast covers the first of June to the 30th of November, and employs data compiled through the end of 

February 2007. TSR said its "two predictors are the forecast July-September 2007 trade wind speed over the 

Caribbean and tropical North Atlantic, and the forecast August-September 2007 sea surface temperature in 

the tropical North Atlantic. 

"The former influences cyclonic vorticity (the spinning up of storms) in the main hurricane track region, while 

the latter provides heat and moisture to power incipient storms in the main track region. At present TSR 

anticipates both predictors having a moderate enhancing effect on activity. Monthly updated forecasts will be 

issued through to August 2007." 

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http://www.insurancejournal.com/news/international/2007/03/21/77918.htm 

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