This is what an oil boom looks like

Foreign Policy slide show.

A rogue, reckless petrostate

Foreign Policy: Over the last decade, Canada has not so quietly become an international mining center and a rogue petrostate. It's no longer America's better half, but a dystopian vision of the continent's energy-soaked future. That's right: The good neighbor has banked its economy on the cursed elixir of political dysfunction -- oil. Flush with visions of becoming a global energy superpower, Canada's government has taken up with pipeline evangelists, petroleum bullies, and climate change skeptics. Turns out the Boy Scout's not just hooked on junk crude -- he's become a pusher. And that's not even the worst of it.

With oil and gas now accounting for approximately a quarter of its export revenue, Canada has lost its famous politeness. Since the Conservative Party won a majority in Parliament in 2011, the federal government has eviscerated conservationists, indigenous nations, European commissioners, and just about anyone opposing unfettered oil production as unpatriotic radicals. It has muzzled climate change scientists, killed funding for environmental science of every stripe, and in a recent pair of unprecedented omnibus bills, systematically dismantled the country's most significant long-cherished environmental laws.

The EIU on North America’s oil and gas boom

Economist Intelligence Unit: Ten years ago, if you told an American that by 2012 the US would produce more oil and gas than it could readily use, he might have questioned your sanity. Yet this is what is happening, driven by advances in extracting oil and gas from shale rock. Across the northern border, meanwhile, Canada is busily tapping into its prodigious tar-sands resources. On both fronts, US energy supplies have begun to look more secure.

At the same time, gluts are building up. Pipeline infrastructure is under strain and the prices of gas and some types of oil have dropped. How much longer can the North American hydrocarbons boom last? What is the outlook for prices? How will surging petroleum production find its way from fields to the buyers who need it? Can the US achieve oil self-sufficiency, or even energy independence? These are among the questions addressed in this special report, which collects recent articles published by the Economist Intelligence Unit's Energy Briefing & Forecasts service.

Chinese Illegal Gold Miners in Ghana

Yang Jiao: Large influx of Chinese miners in mineral-rich African countries is rare. But the incident in Ghana points to vulnerabilities in the governance of resources and state control of transnational capital and migration as China and many African countries embrace neoliberal economic policies...

Mining in Brazil and Ecuador

The Economist this week:

• Mining in Brazil: A long-awaited bill ends uncertainty, but will hit mining companies’ profits
• Mining in Ecuador: As Brazil raises its mining royalties, Ecuador cuts its own

Obama's New Climate Push

Slate:

A New Climate Push: Associated Press: "President Barack Obama is planning a major push using executive powers to tackle the pollution blamed for global warming in an effort to make good on promises he made at the start of his second term. Obama's energy and climate adviser, Heather Zichal, said Wednesday the plan would boost energy efficiency of appliances and buildings, expand renewable energy and use the Environmental Protection Agency's authority under the Clean Air Act to regulate heat-trapping pollution from coal-fired power plants. The plan is expected to be unveiled in coming weeks."

How He'll Do It: New York Times: "Zichal suggested in her remarks that a central part of the administration’s approach to dealing with climate change would be to use the authority given to the Environmental Protection Agency to address climate-altering pollutants from power plants under the Clean Air Act. She said that none of the initiatives being considered by the administration required legislative action or new financing from Congress, but any effort to clamp down on power plant emissions is likely to provoke intense opposition in Congress and litigation by industry. Such regulations would hurt states heavily dependent on cheap power produced from coal and would drive up electricity prices, at least in the short term. ... The issue of power plant regulation is sensitive because it will most likely make electricity more expensive in many parts of the country and put further stress on the coal industry, which is already suffering from a lack of demand as utilities switch to natural gas, which is cheaper."

In His Own Words: "“The grim alternative affects all nations — more severe storms, more famine and floods, new waves of refugees, coastlines that vanish, oceans that rise," Obama said in Berlin. "This is the future we must avert. This is the global threat of our time. And for the sake of future generations, our generation must move toward a global compact to confront a changing climate before it is too late. That is our job. That is our task. We have to get to work."

Africa 'ripped off big time' by foreign resource firms

The Guardian: "The reality is, Africa is being ripped off big time," was the unusually blunt assessment by Donald Kaberuka, president of the African Development Bank (AfDB), in an interview with Reuters on Sunday. Kaberuka was addressing the perennial question of foreign corporations extracting Africa's mineral resources at huge profit for shareholders with scant reward for local populations. Speaking a day after meeting British and African leaders in London before the G8 summit, Kaberuka told the news agency: "Africa wants to grow itself out of poverty through trade and investment – part of doing so is to ensure there is transparency and sound governance in the natural resources sector."

Meanwhile, in Canada (The Economist): STEPHEN HARPER, Canada’s prime minister, made a splash on the eve of this week’s G8 summit of large industrialised economies. His government, he announced on June 12th, would make it mandatory for resource companies to disclose payments to governments, both domestic and foreign... But between Mr Harper’s announcement and the implementation of the new rule lies a long path littered with obstacles that will certainly delay, if not block, the intended result. Given that Canada is a significant player in mining finance—in 2011 almost 40% of equity in global mining firms was raised on the Toronto exchanges, which currently host 1,663 mining firms—this is of more than academic interest beyond Canadian borders.

Safe sex in Nigeria: How Shell and ENI win a Nigerian oil block

The Economist:

• Court documents shed light on the manoeuvrings of Shell and ENI to win a huge Nigerian oil block and on the dilemmas of their industry
• Are high oil prices here to stay?
• Making sense of America's new energy resources

Cash Transfers and the Resource Curse

Nathan Jensen blogs:  The Center for Global Development has a series of proposals on using cash transfers to mitigate the natural resource curse... This is a really interesting idea, but I have a few concerns:

• ... It isn't clear to me how cash transfers would change the incentives to rebel or for leaders hold onto power...
• ... As long as natural resource producers can borrow against resource wealth, this can provide a steady stream of rents to the government...
• ... One reason for governments (or MNCs) to control resources is that they mitigating the adverse effects of price volatility...
• ... A strong assumption is that by allocating resources and then taxing them, citizens will demand more from the government...There is some good work on the “fiscal illusion” where citizens are especially bad at linking the costs of government spending to their own tax bills. 

... Would giving citizens a direct financial stake in natural resource contracts increase their incentives to support expropriations or contract renegotiations with natural resource extraction firms?  ...

Read the full post here

Mexico: Plans End to 75-Year Pemex Monopoly in Crude Oil

Bloomberg:  Mexican President Enrique Pena Nieto said he’s negotiating support to break the state monopoly over oil and gas exploration and production this year to accelerate economic growth. The peso pared its loss... In the model envisioned by Pena Nieto, state-owned Petroleos Mexicanos would develop certain fields, with others being tapped by foreign and private companies. He declined to discuss details of the proposal, or whether it would require a change in the constitution...

Natural resources and democracy

An update on the empirical literature from Why Nations Fail. And a follow-up here. It seems more posts on this are still to come.

Mineral Mining and Female Employment

OxCarre WP: We use the rapid expansion of the number of mineral mines in Sub-Saharan Africa to explore changes in local labor markets. Matching over two decades of panel data on industrial mines to survey data for half a million women and exploiting the spatial and temporal variation in the data in a difference-in-difference strategy, we find that opening of an industrial mine induces a structural shift whereby women switch from working in agriculture to services. We also find that the probability to earn cash income increases and women become less likely to work seasonally once a mine opens nearby. The results illustrate that mineral mining creates non-agricultural employment opportunities for women despite their absence from the mining workforce. The spillover effects wear off with distance from mine and the effects on service employment are reversed when a mine closes.

Oil-to-Cash Won't Work Here!

Center for Global Development: Oil-to-Cash is a proposal for governments facing a resource windfall to consider transferring some or all of the new income directly to citizens in a universal, transparent, and regular dividend. Having put this money in the hands of its citizens, the state would treat it like normal income and tax it accordingly—forcing the state to collect taxes, fostering citizen oversight, and building accountability in the management of resource revenues and the delivery of public services.

In discussions about Oil-to-Cash, policymakers and other interested parties frequently express a similar set of doubts and criticism. The criticism tends to focus on claims of better uses for the money, unforeseen consequences of a dividend, or some unique logistical or political barrier in a particular country.

This paper lists—and attempts to address—the most serious objections to this idea. The response to many objections is to ask about a plausible counterfactual (how do cash transfers compare to the alternative policy options?). Others warrant a clearer articulation of available evidence or ways to mitigate real worries through smart program design.

The limits of the Earth

Scientific American:  The world is facing incredibly serious natural resource and environmental challenges: Climate change, fresh water depletion, ocean over-fishing, deforestation, air and water pollution, the struggle to feed a planet of billions. All of these challenges are exacerbated by ever rising demand – over the next 40 years estimates are that demand for fresh water will rise 50%, demand for food will rise 70%, and demand for energy will nearly double – all in the same period that we need to tackle climate change, depletion of rivers and aquifers, and deforestation.

This is part one of a two-part series on the limits of human economic growth on planet Earth. Part one details some of the environmental and natural resource challenges we’re up against. Part two, on the ultimate size of the resource pool and solutions to our problems, will be published tomorrow and linked here. Both parts are based on Ramez Naam’s new book, The Infinite Resource: The Power of Ideas on a Finite Planet

Shocks and ores

The Economist: Short-term gyrations in commodity prices may do more damage than long-run trends

Nigeria's oil pirates

Vice on HBO: High unemployment, political corruption, and the unequal sharing of oil resources have turned today’s Niger Delta into a hell on earth. Oil theft has become big business in Nigeria, costing oil companies more than $7 billion per year while polluting coastal farmlands and fisheries – and wrecking the lives and livelihoods of local residents. VICE travels to Africa’s oil-producing region to meet with oil thieves who refine and sell oil in West Africa, and follows one farmer’s attempt to sue a foreign oil company for poisoning his family’s land.

 

Coercion, Conflict, and Commodities

OxCarre WP: Why do armed groups sometimes coerce and sometimes not? Civilian suffering due to coercion in confl‡icts confl‡icts is large; yet, anecdotal evidence suggests that armed groups often choose not to coerce. To explain the observed variation in coercive practices, I combine a two-sector specifi…c-factors trade model with a model of violence. Armed groups operating in the resource sector and allocate military resources between con‡flict and coercion, which captures more land and labour respectively. The model shows that coercion depends, not only on economic factors, but also the military landscape and the interaction between the two. First, coercion is higher if labour scare or extraction labour-intensive. Second, coercion is high if one group is dominant, relative to the others. Third, the impact of the price of the commodity depends on the distribution of military strength: coercion increases with price if one group is dominant, but this effect is reversed if military power is highly decentralised. The first result is consistent with historical accounts of the reemergence of serfdom in 16th century Russia, and the prevalence of slavery in West Africa. The second result is explains why coercion decreased in the Kivu provinces after 2002: the Rwandan Army, by far the most powerful group, evacuated. The third result explains why the rubber boom in late 19th lead to a highly coercive regime in the Congo Free State, but less so in Amazonia. The Congo Free State had a monopoly, but confl‡ict between Spanish and Portuguese colonies escalated during the boom, reducing their coercive power. It further explains why, during the protracted Civil War in Sierra Leone, coercion was common in the rice plantations, but not the diamond mines. The number of battles were higher in the diamond-rich areas, but level of civilian victimisation less. With land the valueable factor of production, violence was allocated to con‡flict, not coercion.

China Is Reaping Biggest Benefits of Iraq Oil Boom

NY Times: Since the American-led invasion of 2003, Iraq has become one of the world’s top oil producers, and China is now its biggest customer. China already buys nearly half the oil that Iraq produces, nearly 1.5 million barrels a day, and is angling for an even bigger share, bidding for a stake now owned by Exxon Mobil in one of Iraq’s largest oil fields... “We lost out,” said Michael Makovsky, a former Defense Department official in the Bush administration who worked on Iraq oil policy. “The Chinese had nothing to do with the war, but from an economic standpoint they are benefiting from it, and our Fifth Fleet and air forces are helping to assure their supply.”

Diamonds for the poor

Spiegel (original in German): Botswana is the center of the global diamond trade: world market leader De Beers moved much of its business from London to Gaborone. The local government is involved in the gem sales - and thus financed houses and street lighting in the slums...

"Botswana is extremely good at it, the richness of the earth - the diamonds - to transform into wealth above ground, such as in education and human capital," said Rick van der Ploeg, Professor of Economics at Oxford University. Botswana is ethnically homogeneous than other states, and therefore less prone to the "resource curse".

"Basically, it is better to invest in an independent income funds," says van der Ploeg. "In many developing countries, however, there is a lack of capital, so it makes sense for countries to use the money for investment diamonds in the country."...

The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies

OxCarre WP: Natural resource abundance is a blessing for some countries, but a curse for others. We show that differences across countries in the degree of fiscal decentralization can contribute to this divergent outcome. First, the paper presents a unified theory that combines political and market mechanisms to illustrate why natural resource booms can create negative effects in fiscally decentralized nations. Thereafter, we employ Sachs and Warner’s cross-sectional data, and also construct a new panel-data sample to test the hypothesis. Results support the joint effect of the two variables.

Inflated Expectations and Natural Resource Booms

OxCarre WP: In this paper we identify the e ect of an oil price boom on households' satisfaction with income. In a natural experiment the increase in the oil price is used as an exogenous shock aff ecting households located in the oil and gas rich region of Kazakhstan. To evaluate the eff ect we use the Household Budget Survey of Kazakhstan from 2001 to 2005, a quarterly, unbalanced panel of 12000 households. An important feature of this survey is that household heads were asked to report their \satisfaction with household income on a scale from 1 to 5. Our results suggest that a 10% increase in the oil price decreased household's satisfaction with income by 2% with a lag of two quarters. We argue that this is due to peoples' inflated expectations regarding their income. This result highlights the importance of managing expectations in a rapidly changing economic environment.