America's biofuel muddle Mar 25th 2010 | CHICAGO | From The Economist print edition
Coming up empty
America will have trouble meeting its ambitious goals for biofuels
THE renewable-fuel standard released in
February by America’s Environmental
Protection Agency (EPA) paints an ambitious
picture of biofuels’ future. It wants the amount
of the stuff used as transport fuel to climb from
13 billion gallons (49 billion litres) in 2010 to
36 billion gallons in 2022, requiring the largest
part of that increase to come from various
advanced biofuels, rather than ethanol made
from corn. But although the future looks
exciting, the present is rather grim. The EPA
has been forced to slash its 2010 mandate for
the non-corn biofuels, cellulosic ethanol, from
100m gallons to just 6.5m, less than the 11
billion gallons produced from corn in 2009.
The fact that corn-ethanol production has
continued to grow points to the efficacy of the
various protections and subsidies it enjoys
(falling maize prices helped too). Ethanol,
which is used mainly as an additive to petrol, is
not a particularly good fuel: it offers only about
two-thirds as much energy as petrol and can
corrode pipelines and car engines. By 2014,
ethanol production is expected to reach 10% of
America’s total fuel demand since the EPA does
not at present allow blends of more than 10%
for mainstream use.
Even as producers have urged the EPA to lift
this bar, it has challenged them to move beyond
corn and make ethanol from cellulose, the
abundant, inedible portion of most crops. Using
inedible inputs avoids fights about diverting
food crops for fuel, and frees the industry from
reliance on a single commodity. Despite ample
investment, however, production costs remain
high and commercialisation elusive. Since 2007
one company, Range Fuels, has received more
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than $150m in federal grants and guarantees for
a large cellulosic-ethanol plant, but has yet to
produce any. Still, it and others are gamely
pushing ahead. A boost came last month, when
Novozymes and Danisco, two Danish firms,
unveiled new, cheaper enzymes which are
needed to break down cellulose.
Cellulosic ethanol is cheaper but it is still
ethanol, a poor fuel. The alternative is to
produce something better, such as an advanced
biodiesel. According to Lux Research, based in
Boston, venture capitalists invested $208m in
algae technologies with this sort of thing in
mind during 2008, six times as much as they
spent in 2007. But building vast pools for algae
and turning them into fuel remains
tremendously expensive. Solazyme, a
Californian firm, is a promising anomaly, using
algae to make fuel from sugars in dark industrial
vats rather than pools. Such strategies may
work, but have yet to be scaled up. Solazyme,
tellingly, has developed other sources of
revenue.
America’s government is doling out grants and
loan guarantees, and oil companies are
investing, too. Solazyme has a partnership with
Chevron. Valero, America’s biggest oil refiner,
has bought up troubled ethanol plants and
invested in firms that use plant material, algae
and rubbish to produce fuel. BP’s broad-based
portfolio includes investments in Brazilian
sugarcane ethanol, cellulosic ethanol and a
partnership with DuPont to produce biobutanol.
“It still feels like the final bets have not been
made,” explains Phil New, the head of BP
Biofuels.
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Bully-beef bulls
Investors snap up Argentina’s 100-year bonds
Six defaults in the past 100 years do not deter a bet on 2117

Jun 24th 2017

ONE hundred years ago, Argentina was not the

country it is today. Thanks to a belle époque of lavish
foreign investment, rapid inward migration and
bountiful agricultural exports, its GDP per person in
1917 was comparable to that of Germany and France.
Although the first world war brutally interrupted
international trade and investment, the country
profited from filling the bellies of soldiers on the front
with tinned corned beef.

No one knows how Argentina may change over the

next 100 years. But many investors seem willing to bet
on one forecast: that its government will in 2117 repay $2.75bn-worth of dollar-denominated, 100-year bonds, sold to
enthusiastic investors on June 19th.

Since Argentina has defaulted six times in the past 100 years, that belief seems brave. But instead of looking
backwards, investors are looking from side to side, at the miserable yields on offer elsewhere. Argentina’s “century”
bonds yield almost 8%. That is comparable to what investors can now earn on an equally long-dated bond issued in
2015 by Petrobras, Brazil’s state-owned oil company. And it is several percentage points more than the yield on
Mexican bonds due in 2110 or Russian paper due in 30 years’ time.

Moreover, many investors will hope to make a profit long before this belief in Argentina’s 22nd-century
creditworthiness is tested. If their case merely becomes more plausible (or if yields elsewhere prove disappointing),
Argentina’s bond prices are likely to rise, allowing their holders to sell at a profit. And the longer the life of a bond, the
more the price will move (in either direction).

For Mauricio Macri, Argentina’s president, the successful bond sale is a timely endorsement of his reform efforts. His
team had hoped that MSCI, which compiles stockmarket indices, would decide this week to readmit Argentina into its
widely-followed emerging-market index, rescuing it from the lower tier of “frontier markets”. But on Argentina, unlike
China, MSCI decided instead to wait. Investors, it said, are not yet convinced Mr Macri’s reforms are “irreversible”. It
is unusual for equity investors to be more circumspect than bond buyers. But they have a point. At times over the past
100 years, Argentina has shown that it can reform itself, reverse itself, and reverse those reversals.

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The Economist explains
Why the oil price is falling
Dec 8th 2014, 23:50 BY E.L.

THE oil price has fallen by more

than 40% since June, when it
was $115 a barrel. It is now
below $70. This comes after
nearly five years of stability. At a
meeting in Vienna on November
27th the Organisation of
Petroleum Exporting Countries,
which controls nearly 40% of
the world market, failed to reach
agreement on production curbs,
sending the price tumbling. Also
hard hit are oil-exporting
countries such as Russia
(where the rouble has hit record
lows), Nigeria, Iran and Venezuela. Why is the price of oil falling?

The oil price is partly determined by actual supply and demand, and partly by expectation. Demand for
energy is closely related to economic activity. It also spikes in the winter in the northern hemisphere, and
during summers in countries which use air conditioning. Supply can be affected by weather (which prevents
tankers loading) and by geopolitical upsets. If producers think the price is staying high, they invest, which
after a lag boosts supply. Similarly, low prices lead to an investment drought. OPEC’s decisions shape
expectations: if it curbs supply sharply, it can send prices spiking. Saudi Arabia produces nearly 10m barrels
a day—a third of the OPEC total.

Four things are now affecting the picture. Demand is low because of weak economic activity, increased
efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil
producers with nearly 4m barrels a day combined—has not affected their output. The market is more
sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it
does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and
their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb
production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi
Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little
(around $5-6 per barrel) to get out of the ground.

The main effect of this is on the riskiest and most vulnerable bits of the oil industry. These include American
frackers who have borrowed heavily on the expectation of continuing high prices. They also include Western
oil companies with high-cost projects involving drilling in deep water or in the Arctic, or dealing with maturing
and increasingly expensive fields such as the North Sea. But the greatest pain is in countries where the
regimes are dependent on a high oil price to pay for costly foreign adventures and expensive social
programmes. These include Russia (which is already hit by Western sanctions following its meddling in
Ukraine) and Iran (which is paying to keep the Assad regime afloat in Syria). Optimists think economic pain
may make these countries more amenable to international pressure. Pessimists fear that when cornered,
they may lash out in desperation.

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IMF slashes global growth forecast after China posts its worst economic
growth figures for 25 YEARS - fuelling fears we are on the verge of another
financial meltdown
By COREY CHARLTON FOR MAILONLINE, 19 January 2016

The International Monetary Fund has slashed its global growth forecasts for the third time in less than a year amid
growing concerns of an impending financial meltdown.
Forecasting the world economy will grow at 3.4 percent this year and 3.6 percent in 2017, the IMF put both years
down 0.2 percentage points from previous estimates.
It comes as it emerged today China's economic growth has dropped to its slowest rate in 25 years, scaring investors
and prompting fears it could precede yet another financial crisis.
Chinese investors look at share prices at a stock brokerage house as it is revealed the country's rate of economic
growth has dropped to its slowest for 25 years
The country's GDP sits at 6.9 per cent, a far cry from the
whirlwind of the early 2000s in which it maintained double
figures and was a crucial driver of the global economy.
The sharp slowdown has sent shock waves through stock
markets from Asia to the Americas over the past six months, in
a rout that has wiped trillions off valuations.
The updated World Economic Outlook forecasts said a steeper
slowing of demand in China remained a risk to global growth
and that weaker-than-expected Chinese imports and exports
were weighing heavily on other emerging markets and
commodity exporters.
'We don't see a big change in the fundamentals in China compared to what we saw six months ago, but the markets
are certainly very spooked by small events there that they find hard to interpret,' IMF economic counsellor Maurice
Obstfeld said.
'It's not a stretch to suggest that [markets] may be reacting very strongly to rather small bits of evidence in an
environment of volatility and risk aversion.
'The oil price puts stresses on oil exporters... but there is a silver lining for consumers worldwide, so it's not an
unmitigated negative.'
These concerns have also shot to the top of global investors' risk lists for 2016 after the plunge stoked worries that the
economy may be rapidly deteriorating.
Although today's news its economy grew in line with an expectation of 6.9 percent lifted Asian and European stocks,
dealers remain cautious due to the poor rate of growth.
Shanghai's stock market, which has plunged almost 20 percent since the start of this year, ended up 3.2 percent in
characteristically volatile trade.
Analysts said the gains were boosted by expectations of government stimulus measures to kick start growth this year.
Others said the government-backed 'national team' investment group was buying shares to prevent a market sell-off,
with one eye on the upcoming Chinese New Year break.8
A man reads a newspaper with a front page headline which states 'China's GDP grows at 6.9 per cent'
'The sharp rise today is, without a doubt, supported by the "national team" as this is a good window for them to
swoop in,' Phillip Securities analyst Chen Xingyu told AFP.
'Only they have the resources to lift the market this fast.'
After being a major driver of international growth for decades, China is locked in the midst of a protracted slowdown,
leaving the U.S. as the only main driver of the global economy.

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Weak exports, factory overcapacity, slowing investment, a soft property market and high debt levels are all
compounding problems for the government as it tries to transition from a centrally planned economy to a more
market-oriented model that will require leaders to cede a large degree of control.
Zhang Yiping, an economist at China Merchants Securities, said the struggling property market - a major driver of
demand for materials from cement to steel - was mostly to blame for the difficulties.
'The policy to boost the property industry conducted in 2015 hasn't taken effect yet. I see more downward risks for
China's economic growth in 2016, and they actually look fairly severe.'
Property investment rose just 1 percent, a near 7-year-low, while new construction plunged 14 percent.
The China statistics bureau told a news conference that the 2015 growth had been 'hard won', adding that the
structural adjustment of the Chinese economy is at a crucial stage.
Mark Carney, Governor of the Bank of England, today said it is not yet time for the UK to increase interest rates from
their record low
That highlights the difficulties Beijing will face in getting policy - be it monetary easing, reforms, increased fiscal
spending or cutting red tape - to translate into actual growth in 2016.
Meanwhile, the Bank of England governor says there's no reason to raise interest rates given the collapse in oil prices
and volatility in China.
In a speech at Queen Mary University London today, Mark Carney said 'now is not yet the time' to increase rates from
their record low of 0.5 percent.
Mr Carney said the path for rates 'cannot be preordained,' and that it would depend on economic prospects, not the
calendar.
The U.S. last month hiked raised rates for the first time in nearly a decade as America's economy expanded strongly
last year.
But this does not mean the UK will follow suit with a rate rise soon, Mr Carney said.
Britain's export industry is more exposed to the weakening global economy than America, inflation is lower on these
shores and the UK is also undergoing hefty spending cuts as the Government seeks to tackle the deficit, according to
Mr Carney.
He said: 'Last summer I said the decision as to when to start raising Bank Rate would likely come into sharper relief
around the turn of this year.
'Well, the year has turned and, in my view, the decision proved straightforward: now is not yet the time to raise
interest rates.'
Mr Carney said policymakers needed to see faster economic growth, higher pay and more core inflation before
deciding to increase rates.
'Progress in all three ... will increase confidence that the initiation of limited and gradual rate increases will be
consistent with returning inflation sustainably to target.'
He said the UK's economic growth over 2015 had
'disappointed', averaging 0.5 per cent, per quarter, against
its earlier expectations of 0.7 per cent, per quarter.
He added that the outlook for the global economy may
weaken further, in particular due to China and other
emerging market economies.
The remarks came only hours after the Office of National
Statistics reported that Britain's consumer price inflation
rate rose to 0.2 percent in the year ending in December, up
from 0.1 percent in the year ending in November.
That level is well below the 2 percent target, minimizing
pressure on policymakers to hike rates.

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