WOOF...i'm around...busy day at the office and watching the ticker all day...Took a nice "paper loss" on the gs trade but I am still hanging in there...approching the 200 mark and that is my tipping point....hoping NOT to take a hugh loss on this one...I would love to get a nice dip on Friday....but all these "tree cutters" are hurting me....Still think that it hits 170's by Feb...just hope I can hang in there to see it.....Put my ass out there on this trade...Hopefully it won't get blown off....be most of tonight....
haven't read it but my own personal analysis tells me this thinking is wrong but who knows maybe my opinion will change as things unwind
that is the key question in my mind at this point in time
can the rest of the world pick up the slack, or does everybody fall on their face in unison
the problem i see is alot of the global economy is so interwined and dependent now
china and the eastern world needs our consumption,
canada, south america, russia, austrailia love the high commodity prices
i think once the shoe drops here
the consumption dries up and commodity prices fall along with it, the others will follow
also japan is likely heading for an R GS says
they've had consumption problems for a long long time domestically and very dependent on exports to the US
that said hard to gauge what is going on domestically in other eastern countries as i'm not a participant in those economies and not very familiar with them in general but learning what i can along the way
what i do know is many in india are calling it a bubble, and read stories about chinese maids and cooks quiting their jobs to trade stocks for a living so likely will go poof at some point
first time china has had a stock mania bubble so obviously the sheep are gonna get overexuberant and think the party will last forever always happens
The eastern economies could go 
up in one week flat, especially their stock markets.
Even an earthquake in Japan could be enough, the region simply doesn't have the economic depth that the west has, theres no cushion of underlying wealth except in Japan, and Japan has its own problems at the moment.
Food inflation in China was 20% in November, pork went up by 50%
China steps in to curb inflation
http://news.bbc.co.uk/1/hi/business/7180442.stm
up in one week flat, especially their stock markets.Even an earthquake in Japan could be enough, the region simply doesn't have the economic depth that the west has, theres no cushion of underlying wealth except in Japan, and Japan has its own problems at the moment.
Food inflation in China was 20% in November, pork went up by 50%
China steps in to curb inflation
http://news.bbc.co.uk/1/hi/business/7180442.stm
The eastern economies could go
Even an earthquake in Japan could be enough, the region simply doesn't have the economic depth that the west has, theres no cushion of underlying wealth except in Japan, and Japan has its own problems at the moment.
the problem with japan and the eastern world in general, is they aren't as sheepish like americans
they refuse to spend beyond their means, in order for them to pick up the slack they will have to become credit hungry in order to shrink the deficit we have going
chances of that slim to none though
Japan had 75 year mortgages shortly before their property market went up.
Don't think they're any sharper than the rest of us.
What's holding Japans "growth" up is egalitarianism, high wages for employees are a part of the culture, contributing to the overall high standard of living across the entire country.
Once a Japanese company can economically rape its employees, like they do in the west then things will pick up for a while.
up.Don't think they're any sharper than the rest of us.
What's holding Japans "growth" up is egalitarianism, high wages for employees are a part of the culture, contributing to the overall high standard of living across the entire country.
Once a Japanese company can economically rape its employees, like they do in the west then things will pick up for a while.
speaking of inflation haven't checked on zimbabwe for a while
-------------------------------------------------------
Zimbabwe: Economy in the Red, Black Market Thriving
Inter Press Service (Johannesburg)
9 January 2008
Posted to the web 10 January 2008
Elles Van Gelder
Bulawayo
When you get out of your car at the Ascot shopping mall in Bulawayo, southern Zimbabwe, it is almost certain that you will soon be approached by a black market trader.
Do you need soap? Are your windscreen wipers worn down? The shops in the mall may have little for sale; but, one of the traders can arrange for all your needs in a split second.
After President Robert Mugabe forced businesses to slash their prices several months ago, shelves were largely bare: manufacturers and shopkeepers did not want to operate at a loss. This scarcity provided opportunities for the black market, with Zimbabweans buying goods in neighbouring countries or directly from Zimbabwean manufacturers, and selling them on the streets.
All of this spelt further gloom for consumers, who were already struggling to keep pace with Zimbabwe's mind-boggling inflation rate, now at 8,000 percent according to official figures -- but estimated by economists to be around 100,000 percent. For those Zimbabweans who are out of work -- the CIA World Factbook puts unemployment at over 80 percent -- the situation is worse still. Some four million people in the Southern African country now require food aid, says the United Nations World Food Programme (WFP).
Alongside the economic difficulties, a years-long political crisis persists despite efforts to mediate between the government and the two factions of the opposition Movement for Democratic Change (MDC). Activists, journalists and others have been the targets of human rights violations.
Rumbi*, a former nurse and mother of three, is one of those who have turned to black market trading to make ends meet. Every week she travels by bus from the capital, Harare, to the South African border town of Musina to purchase stock. Lately, she has mainly bought cooking oil and soap, goods that are trucked back to Zimbabwe to be sold from her garage.
While Rumbi sells to friends and neighbours, her biggest clients are other traders. In the course of a month, she spends about 15,000 U.S. dollars on goods, for a profit of some 2,300 U.S. dollars. This money enables her to send her children to a private school -- in Zimbabwe public schools are struggling to retain their poorly-paid teachers. "I can't say that I have a good life, but I am doing better than most," she says.
But, the profits come at a cost -- bribes, for instance, to ensure that the police don't arrest her for illegal trading.
As soon as Rumbi has received Zimbabwe dollars for her goods, she changes them for U.S. dollars or South African rands on the parallel market. Because of hyper-inflation, local currency depreciates in value constantly, making it imperative that U.S. dollars be bought immediately to get the best rate of exchange for local money. Rumbi only sells foreign currency for Zimbabwe dollars just before she needs to spend locally.
Rumbi would fare poorly if she tried to change money at a bank. The official government exchange rate is 30,000 Zimbabwe dollars for one U.S. dollar. That same U.S. dollar buys around 2.5 million Zimbabwe dollars on the black market. At the beginning of the year, two kilogrammes of rice cost 323 U.S. dollars at official rates, and not even four U.S. dollars at black market rates.
Also, if Rumbi were to deposit her money in a bank account, it may prove difficult to get the money back in cash. Zimbabwean banks suffer from a chronic shortage of cash because most of the money is circulating in the black market. Illegal money changing has become a full-time job for many.
Arthur* spends every day at a sprawling parking lot for minibuses along the western border of Zimbabwe, near Plumtree, waiting for people entering from Botswana. He changes their South African rands, Botswana pula, and U.S. dollars into local currency. "This is much better than an office job," Arthur says, while counting out big piles of Zimbabwe dollars.
Arthur has been an illegal money-changer for three years. On average, he takes home 20 million Zimbabwe dollars daily -- about eight U.S. dollars on the black market.
According to Zimbabwean economist John Robertson, government is keeping the official exchange rate unrealistically low to buy loyalty from ministers and other officials. While foreign currency might be hard to come by for persons buying at the government rate, it is available to those in powerful positions, who are then able to get far more for Zimbabwe dollars than they might otherwise.
"If you are in a good position in the government you can claim foreign currency with which you can import expensive goods and can go shopping in Malaysia and China," says Robertson.
For ordinary Zimbabweans, meanwhile, Malaysia and China are just the stuff of dreams -- as, in many cases, is shopping.
-------------------------------------------------------
Zimbabwe: Economy in the Red, Black Market Thriving
Inter Press Service (Johannesburg)
9 January 2008
Posted to the web 10 January 2008
Elles Van Gelder
Bulawayo
When you get out of your car at the Ascot shopping mall in Bulawayo, southern Zimbabwe, it is almost certain that you will soon be approached by a black market trader.
Do you need soap? Are your windscreen wipers worn down? The shops in the mall may have little for sale; but, one of the traders can arrange for all your needs in a split second.
After President Robert Mugabe forced businesses to slash their prices several months ago, shelves were largely bare: manufacturers and shopkeepers did not want to operate at a loss. This scarcity provided opportunities for the black market, with Zimbabweans buying goods in neighbouring countries or directly from Zimbabwean manufacturers, and selling them on the streets.
All of this spelt further gloom for consumers, who were already struggling to keep pace with Zimbabwe's mind-boggling inflation rate, now at 8,000 percent according to official figures -- but estimated by economists to be around 100,000 percent. For those Zimbabweans who are out of work -- the CIA World Factbook puts unemployment at over 80 percent -- the situation is worse still. Some four million people in the Southern African country now require food aid, says the United Nations World Food Programme (WFP).
Alongside the economic difficulties, a years-long political crisis persists despite efforts to mediate between the government and the two factions of the opposition Movement for Democratic Change (MDC). Activists, journalists and others have been the targets of human rights violations.
Rumbi*, a former nurse and mother of three, is one of those who have turned to black market trading to make ends meet. Every week she travels by bus from the capital, Harare, to the South African border town of Musina to purchase stock. Lately, she has mainly bought cooking oil and soap, goods that are trucked back to Zimbabwe to be sold from her garage.
While Rumbi sells to friends and neighbours, her biggest clients are other traders. In the course of a month, she spends about 15,000 U.S. dollars on goods, for a profit of some 2,300 U.S. dollars. This money enables her to send her children to a private school -- in Zimbabwe public schools are struggling to retain their poorly-paid teachers. "I can't say that I have a good life, but I am doing better than most," she says.
But, the profits come at a cost -- bribes, for instance, to ensure that the police don't arrest her for illegal trading.
As soon as Rumbi has received Zimbabwe dollars for her goods, she changes them for U.S. dollars or South African rands on the parallel market. Because of hyper-inflation, local currency depreciates in value constantly, making it imperative that U.S. dollars be bought immediately to get the best rate of exchange for local money. Rumbi only sells foreign currency for Zimbabwe dollars just before she needs to spend locally.
Rumbi would fare poorly if she tried to change money at a bank. The official government exchange rate is 30,000 Zimbabwe dollars for one U.S. dollar. That same U.S. dollar buys around 2.5 million Zimbabwe dollars on the black market. At the beginning of the year, two kilogrammes of rice cost 323 U.S. dollars at official rates, and not even four U.S. dollars at black market rates.
Also, if Rumbi were to deposit her money in a bank account, it may prove difficult to get the money back in cash. Zimbabwean banks suffer from a chronic shortage of cash because most of the money is circulating in the black market. Illegal money changing has become a full-time job for many.
Arthur* spends every day at a sprawling parking lot for minibuses along the western border of Zimbabwe, near Plumtree, waiting for people entering from Botswana. He changes their South African rands, Botswana pula, and U.S. dollars into local currency. "This is much better than an office job," Arthur says, while counting out big piles of Zimbabwe dollars.
Arthur has been an illegal money-changer for three years. On average, he takes home 20 million Zimbabwe dollars daily -- about eight U.S. dollars on the black market.
According to Zimbabwean economist John Robertson, government is keeping the official exchange rate unrealistically low to buy loyalty from ministers and other officials. While foreign currency might be hard to come by for persons buying at the government rate, it is available to those in powerful positions, who are then able to get far more for Zimbabwe dollars than they might otherwise.
"If you are in a good position in the government you can claim foreign currency with which you can import expensive goods and can go shopping in Malaysia and China," says Robertson.
For ordinary Zimbabweans, meanwhile, Malaysia and China are just the stuff of dreams -- as, in many cases, is shopping.
Japan had 75 year mortgages shortly before their property market went
Don't think they're any sharper than the rest of us.
What's holding Japans "growth" up is egalitarianism, high wages for employees are a part of the culture, contributing to the overall high standard of living across the entire country.
Once a Japanese company can economically rape its employees, like they do in the west then things will pick up for a while.
Those 75 year mortgages were just as ignorant as the interest only, 0% down payment, and no documentation needed verifying employment and/or income loans used for real estate here the past handful of years.
Japans economy has been in toilet more often than not for nearly 20 years.
Joe, hopefully that trade works out for you, but GS is like getting money going against pinnacle...going to be tough.
merril lays the smack down to the fedspeak and CFC news from today
yawn nothing to see here just another writedown who cares
dow futures off 47
-----------------------------------------------------------
Merrill Lynch to Take $15 Billion Mortgage Writedown, NYT Says
By Joseph Galante
Jan. 11 (Bloomberg) -- Merrill Lynch & Co., the third- largest U.S. securities firm, may take a $15 billion writedown for losses stemming from mortgage investments, almost twice its original estimate, the New York Times reported, citing people briefed on the plan.
Merrill is trying to raise $4 billion in the coming days from investors in the U.S., Asia and the Middle East, the newspaper said, citing the same people. The firm is expected to disclose the loss when it reports earnings next week, according to the Times.
Banks and securities firms in the U.S. and Europe have turned to Asian and Middle Eastern governments for about $34 billion to prop up balance sheets battered by writedowns from the collapse of the U.S. subprime market. New York-based Citigroup Inc. and Merrill want to secure additional financing before they report the extent of their fourth-quarter losses next week, the Wall Street Journal reported yesterday.
Merrill's writedown is more than the $12 billion analysts had estimated, the newspaper said. Merrill spokeswoman Jessica Oppenheim declined to comment when contacted by Bloomberg News.
The firm lost as much as 50 percent of its market value in the past 12 months, a year during which escalating losses from investments related to subprime mortgages cost the job of former Chief Executive Officer Stan O'Neal. John Thain, the former head of NYSE Euronext, replaced him in December.
Merrill said last month that it's raising as much as $6.2 billion from Singapore's Temasek Holdings Pte. and New York- based money manager Davis Selected Advisors LP.
yawn nothing to see here just another writedown who cares
dow futures off 47
-----------------------------------------------------------
Merrill Lynch to Take $15 Billion Mortgage Writedown, NYT Says
By Joseph Galante
Jan. 11 (Bloomberg) -- Merrill Lynch & Co., the third- largest U.S. securities firm, may take a $15 billion writedown for losses stemming from mortgage investments, almost twice its original estimate, the New York Times reported, citing people briefed on the plan.
Merrill is trying to raise $4 billion in the coming days from investors in the U.S., Asia and the Middle East, the newspaper said, citing the same people. The firm is expected to disclose the loss when it reports earnings next week, according to the Times.
Banks and securities firms in the U.S. and Europe have turned to Asian and Middle Eastern governments for about $34 billion to prop up balance sheets battered by writedowns from the collapse of the U.S. subprime market. New York-based Citigroup Inc. and Merrill want to secure additional financing before they report the extent of their fourth-quarter losses next week, the Wall Street Journal reported yesterday.
Merrill's writedown is more than the $12 billion analysts had estimated, the newspaper said. Merrill spokeswoman Jessica Oppenheim declined to comment when contacted by Bloomberg News.
The firm lost as much as 50 percent of its market value in the past 12 months, a year during which escalating losses from investments related to subprime mortgages cost the job of former Chief Executive Officer Stan O'Neal. John Thain, the former head of NYSE Euronext, replaced him in December.
Merrill said last month that it's raising as much as $6.2 billion from Singapore's Temasek Holdings Pte. and New York- based money manager Davis Selected Advisors LP.
bernake's fedspeak scorecard
------------------------------------------------
Analysis: Bernanke Adopts Greenspan Tone
Thursday January 10, 5:43 pm ET
By Martin Crutsinger, AP Economics Writer
Analysis: Bernanke Is Moving More to Greenspan Playbook in Trying to Explain Fed's Intentions
WASHINGTON (AP) -- Fed Chairman Ben Bernanke borrowed a page from Alan Greenspan's crisis playbook when he promised emphatically to cut interest rates further if the weak economy needs the help.
The response from Wall Street on Thursday showed that the former Princeton economics professor is improving but still has a few things to learn before he can match Greenspan's magic in wowing financial markets.
Still, the effort rated at least a "B+" while previous Bernanke attempts to handle the first major crisis in his two-year tenure at the Fed have gotten far lower grades.
The Dow Jones industrial average reacted to the last Fed rate cut on Dec. 11 by plunging 294.26 points -- not exactly the response Bernanke was seeking as a way to instill confidence that he is up to the task of combatting the nation's worst credit crunch since the savings and loan crisis of the 1980s and early 1990s.
The problem has been that Bernanke and his Fed colleagues have appeared to be providing rate relief in a grudging fashion, disappointing investors who wanted a full-throated pledge that the central bank was prepared to do whatever was needed to keep the country from falling into a recession.
On Thursday in a Washington speech, Bernanke was more forceful. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."
That's more like it, investors said, pushing the Dow average up by 117.78 points. It was welcome relief for a market that has been plunging in the New Year as investors have had to digest once bad piece of news after another indicating that the country was moving dangerously close to a recession.
The most ominous signal on that score came last week when the government reported that unemployment in December shot up to 5 percent, from 4.7 percent in November. That was the biggest one-month gain in the jobless rate since October 2001 during a time of massive layoffs in the travel industry following the September terrorist attacks.
The worry is that a two-year slump in housing, which shows no signs of easing, has now started to spread to other sectors of the economy, especially the financial services industry, with various industry leaders declaring multibillion-dollar losses because of bad bets on securities backed by subprime mortgages where defaults are soaring.
The Bush administration, worried about what a recession in an election year would do to Republican chances to hold on to the White House, has announced that President Bush is considering a stimulus package that likely would include targeted tax breaks for individuals and businesses.
The problem is that it will take time for such a stimulus effort to get through Congress and by that time the country could well be in a recession. That is why the response from the Fed is viewed as critical. Timely interest rate cuts will boost economic activity and more importantly instill confidence that the central bank is on the job, doing what it can to prevent a downturn.
No one understood the Fed's confidence-building role better than Greenspan, who was confronted with his first market crisis, the 1987 stock market crash, only weeks after taking over at the Fed.
Greenspan rode out a number of other threats to the economy from S&L and banking troubles to the Asian currency crisis of 1997-98 with only two mild recessions during his 18 1/2 years at the Fed. That span included the country's longest period of interrupted growth, a decade of prosperity from 1991 until 2001.
There have been grumbles that Bernanke has been too much the academic, deferring to other members of the Fed, when what was needed was more of the approach of the two previous Fed chairmen, Greenspan and Paul Volcker, who both relished the roles of crisis managers who would make decisions and then by force of their personalities get others to go along.
Bernanke has stressed a more collegial approach, which has included going last to give his opinions at Fed rate-setting meetings where Greenspan, hoping to influence the discussion, had always gone first.
But in the Thursday speech, there were hints of a more forceful approach by Bernanke, whose comments were viewed by many analysts as a solid signal that the Fed is prepared to cut rates by a bolder half-point when Fed officials next meet Jan. 29-30 and to keep cutting rates as long as needed until the economy begins to gain traction.
"Bernanke's comments were unambiguous," said Mark Zandi, chief economist at Moody's Economy.com. "The Fed is going to do what it can do to avoid a recession."
Still, given that economic growth is believed to have slowed to a barely discernible pace in the closing months of last year, there is a worry over whether Bernanke's newfound forcefulness will be enough to keep the recession wolves at bay.
"Bernanke's speech on Thursday was appropriate, but it may have come too late," said David Jones, chief economist at DMJ Advisors.
------------------------------------------------
Analysis: Bernanke Adopts Greenspan Tone
Thursday January 10, 5:43 pm ET
By Martin Crutsinger, AP Economics Writer
Analysis: Bernanke Is Moving More to Greenspan Playbook in Trying to Explain Fed's Intentions
WASHINGTON (AP) -- Fed Chairman Ben Bernanke borrowed a page from Alan Greenspan's crisis playbook when he promised emphatically to cut interest rates further if the weak economy needs the help.
The response from Wall Street on Thursday showed that the former Princeton economics professor is improving but still has a few things to learn before he can match Greenspan's magic in wowing financial markets.
Still, the effort rated at least a "B+" while previous Bernanke attempts to handle the first major crisis in his two-year tenure at the Fed have gotten far lower grades.
The Dow Jones industrial average reacted to the last Fed rate cut on Dec. 11 by plunging 294.26 points -- not exactly the response Bernanke was seeking as a way to instill confidence that he is up to the task of combatting the nation's worst credit crunch since the savings and loan crisis of the 1980s and early 1990s.
The problem has been that Bernanke and his Fed colleagues have appeared to be providing rate relief in a grudging fashion, disappointing investors who wanted a full-throated pledge that the central bank was prepared to do whatever was needed to keep the country from falling into a recession.
On Thursday in a Washington speech, Bernanke was more forceful. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."
That's more like it, investors said, pushing the Dow average up by 117.78 points. It was welcome relief for a market that has been plunging in the New Year as investors have had to digest once bad piece of news after another indicating that the country was moving dangerously close to a recession.
The most ominous signal on that score came last week when the government reported that unemployment in December shot up to 5 percent, from 4.7 percent in November. That was the biggest one-month gain in the jobless rate since October 2001 during a time of massive layoffs in the travel industry following the September terrorist attacks.
The worry is that a two-year slump in housing, which shows no signs of easing, has now started to spread to other sectors of the economy, especially the financial services industry, with various industry leaders declaring multibillion-dollar losses because of bad bets on securities backed by subprime mortgages where defaults are soaring.
The Bush administration, worried about what a recession in an election year would do to Republican chances to hold on to the White House, has announced that President Bush is considering a stimulus package that likely would include targeted tax breaks for individuals and businesses.
The problem is that it will take time for such a stimulus effort to get through Congress and by that time the country could well be in a recession. That is why the response from the Fed is viewed as critical. Timely interest rate cuts will boost economic activity and more importantly instill confidence that the central bank is on the job, doing what it can to prevent a downturn.
No one understood the Fed's confidence-building role better than Greenspan, who was confronted with his first market crisis, the 1987 stock market crash, only weeks after taking over at the Fed.
Greenspan rode out a number of other threats to the economy from S&L and banking troubles to the Asian currency crisis of 1997-98 with only two mild recessions during his 18 1/2 years at the Fed. That span included the country's longest period of interrupted growth, a decade of prosperity from 1991 until 2001.
There have been grumbles that Bernanke has been too much the academic, deferring to other members of the Fed, when what was needed was more of the approach of the two previous Fed chairmen, Greenspan and Paul Volcker, who both relished the roles of crisis managers who would make decisions and then by force of their personalities get others to go along.
Bernanke has stressed a more collegial approach, which has included going last to give his opinions at Fed rate-setting meetings where Greenspan, hoping to influence the discussion, had always gone first.
But in the Thursday speech, there were hints of a more forceful approach by Bernanke, whose comments were viewed by many analysts as a solid signal that the Fed is prepared to cut rates by a bolder half-point when Fed officials next meet Jan. 29-30 and to keep cutting rates as long as needed until the economy begins to gain traction.
"Bernanke's comments were unambiguous," said Mark Zandi, chief economist at Moody's Economy.com. "The Fed is going to do what it can do to avoid a recession."
Still, given that economic growth is believed to have slowed to a barely discernible pace in the closing months of last year, there is a worry over whether Bernanke's newfound forcefulness will be enough to keep the recession wolves at bay.
"Bernanke's speech on Thursday was appropriate, but it may have come too late," said David Jones, chief economist at DMJ Advisors.
as for the oil debate
-----------------------------------------------------------
January 11, 2008
Hot Prospect for Oil's Big League
By ALEXEI BARRIONUEVO
NY Times
RIO DE JANEIRO — While some of the world's largest oil producers, including Mexico and Iran, are struggling to remain exporters, Brazil is moving in the opposite direction. A huge underwater oil field discovered late last year has the potential to transform South America's largest country into a sizable exporter and win it a seat at the table of the world's oil cartel.
The new oil, along with refining projects under way by Petrobras, the national oil company, could eventually make Brazil a larger exporter of gasoline as well, adding to supplies in the United States and other countries where it is all but impossible to build new refineries.
The subsalt basin that contains Tupi, the new deepwater field estimated to hold the equivalent of five billion to eight billion barrels of light crude oil, is creating a buzz among the world's largest oil companies. They have struggled lately to find global-scale projects worth investing in, even with oil touching $100 a barrel. Tupi is the world's biggest oil find since a 12-billion-barrel field discovered in 2000 in Kazakhstan.
Talk by the Brazilian government of tightening investment terms for the new offshore exploration frontier, however, could quickly curb international enthusiasm. Brazil is even drawing comparisons with Bolivia and Venezuela, two South American countries that have nationalized parts of their energy industries in recent years.
Still, Brazil has remained far more open to foreign investment than those neighbors, and it has encouraged international oil companies like Exxon Mobil, Shell and Chevron to pour billions of dollars into offshore exploration, though so far without much success.
Even if Petrobras asks for help from other major oil companies, developing Tupi will require solving thorny technical challenges and executing a project on a scale it has never tried before. The first commercial quantities of oil are not expected for some seven years.
José Sergio Gabrielli, the chief executive of Petrobras, said he was optimistic that the company could develop the oil with little outside help.
“We think we can develop the oil faster than we thought at the beginning,” Mr. Gabrielli said in an interview here last week. “We don't think we have any insurmountable challenge on the technology side.”
Just a decade ago the notion that Brazil would become self-sufficient in energy, let alone emerge as an exporter, seemed far-fetched — even in the sunny beach city of Rio, where Petrobras is based. Petrobras was formed five decades ago largely as a trading company to import oil to support Brazil's growing economy, which is now the world's 10th largest and supports more than 185 million people.
Yet two years ago, even without Tupi, Brazil reached its long-sought goal of energy self-sufficiency, in part by expanding its domestic fossil fuel resources but also by developing an extensive ethanol industry using sugar cane. Today Petrobras has a standing goal of raising its Brazilian crude oil output by at least 100,000 barrels a day every year.
With Tupi, Brazil's 12.2 billion barrels of proven reserves would increase to some 17.2 billion, putting Brazil ahead of Canada's 17.1 billion and Mexico's 12.9 billion. It would fall between China and Nigeria on a world scale, according to the BP Statistical Review of World Energy. Venezuela, by contrast, has some 80 billion barrels of proven reserves.
Rapid economic growth and declining oil production in oil-rich nations like Indonesia, Mexico and Iran are crimping how much they can sell abroad, straining the global oil market. In some cases, the governments of these countries subsidize gasoline heavily at home, which tends to encourage wasteful habits.
But Brazil, with an economy growing at a healthy clip, sells fuels to its citizens essentially at market rates. And the huge three-decade-old effort to turn sugar cane into ethanol has made Brazil the largest consumer of plant-based biofuels in the world. The government requires that gasoline contain a minimum of 25 percent ethanol and that every service station have at least one pump that delivers pure ethanol.
The growing ethanol program is putting Brazil in a better position to take advantage of Tupi's oil riches, Mr. Gabrielli said. Petrobras expects ethanol use to rise as more flex-fuel vehicles hit the roads. “We are going to have more gasoline for export than we have today,” he said, “because part of the gasoline is going to be displaced by ethanol.”
Petrobras currently sells some 90 percent of its refined products in the Brazilian market. To ensure a future as an exporter, Petrobras is building two new refineries scheduled to begin operations in 2010 and 2014, which will increase the country's refining capacity by nearly 40 percent. The company is also investing in units that will expand its production of heavy crude oil into diesel, and is pouring $8.6 billion into reducing sulfur at its 11 refineries.
But its biggest challenge will be developing Tupi into a major production field. The field lies some 4.5 miles below the ocean's surface. To reach it, Petrobras will have to go through 7,000 feet of water and then drill up to 17,000 feet of sand, rock and a massive salt layer that extends across hundreds of miles. Drilling around or through the salt poses a more significant challenge than drilling through salt layers in the Gulf of Mexico, which are more dispersed, analysts say.
Some analysts forecast that Tupi could cost more than $20 billion to develop, an estimate Mr. Gabrielli would not confirm. Drilling rigs are in short supply around the world, with rates running almost $600,000 a day for the largest ships.
The first big task, Mr. Gabrielli said, is to find an outlet for the huge amounts of natural gas that are also in the Tupi field, which is nearly 200 miles offshore. Given the challenges of building a gas pipeline from such a remote location, Petrobras is considering building floating liquefied natural gas plants or a floating gas-fired turbine to generate electricity.
To get the oil to shore, the company's engineers will need to find innovative ways to keep pipes warm and to develop stronger casings for wells to resist the effects of salt corrosion.
The new oil frontier that Petrobras and its partners — including BG of Britain — have discovered in the Santos Basin where Tupi lies may lead the company to scale back its spending in Africa and the Gulf of Mexico in favor of pouring more money into developing Brazil's reserves. “The company will be overstretched and will have to revisit its strategy,” said Roger Diwan, a partner at PFC Energy in Washington.
The Tupi discovery has changed the psyche seemingly overnight in Brazil. Venezuela's president, Hugo Chávez, chided President Luiz Inácio Lula da Silva, calling him an “oil magnate.” Mr. da Silva himself declared the find as proof that “God is Brazilian” and vowed that Brazil would seek to join the Organization of the Petroleum Exporting Countries in a few years.
Petrobras's success was hardly an accident. In 1997 the Brazilian government opened up Petrobras's exploration and production division to outside companies and invited in private investors. More important, the company developed expertise in deepwater drilling that has put it on par with Shell and Exxon Mobil.
“They were not as insular as many of the state-owned oil companies were,” said Donald Hertzmark, an international energy consultant in Washington. “They are widely considered world class in deepwater drilling and have pursued myriad joint ventures throughout the world.”
The rise of Petrobras contrasts starkly with the decline of the other large oil company in South America, Petróleos de Venezuela, the national oil company of Venezuela known as Pdvsa. While Petrobras has achieved record production, Pdvsa's output has fallen since Mr. Chávez was elected in 1998.
Mr. Chávez has all but re-nationalized parts of the Venezuelan industry by imposing much-stricter terms on foreign oil companies.
Mr. Gabrielli says that Petrobras will avoid following the path blazed by Venezuela and Bolivia. He said that he was in favor of imposing tougher terms for the subsalt basin where Tupi is located, which the Brazilian Congress is now considering.
But he says that Petrobras has already borne considerable exploration risk, making it a far smaller gamble for outside companies to explore further in the offshore area. And he adds that most major oil producing countries, not just those proclaiming their socialist ambitions, impose stiff terms on foreign oil companies, especially in times of high oil prices.
“After the discovery we had,” he said of the potential profits to be earned by the oil majors, “this is like buying a winning lottery ticket.”
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January 11, 2008
Hot Prospect for Oil's Big League
By ALEXEI BARRIONUEVO
NY Times
RIO DE JANEIRO — While some of the world's largest oil producers, including Mexico and Iran, are struggling to remain exporters, Brazil is moving in the opposite direction. A huge underwater oil field discovered late last year has the potential to transform South America's largest country into a sizable exporter and win it a seat at the table of the world's oil cartel.
The new oil, along with refining projects under way by Petrobras, the national oil company, could eventually make Brazil a larger exporter of gasoline as well, adding to supplies in the United States and other countries where it is all but impossible to build new refineries.
The subsalt basin that contains Tupi, the new deepwater field estimated to hold the equivalent of five billion to eight billion barrels of light crude oil, is creating a buzz among the world's largest oil companies. They have struggled lately to find global-scale projects worth investing in, even with oil touching $100 a barrel. Tupi is the world's biggest oil find since a 12-billion-barrel field discovered in 2000 in Kazakhstan.
Talk by the Brazilian government of tightening investment terms for the new offshore exploration frontier, however, could quickly curb international enthusiasm. Brazil is even drawing comparisons with Bolivia and Venezuela, two South American countries that have nationalized parts of their energy industries in recent years.
Still, Brazil has remained far more open to foreign investment than those neighbors, and it has encouraged international oil companies like Exxon Mobil, Shell and Chevron to pour billions of dollars into offshore exploration, though so far without much success.
Even if Petrobras asks for help from other major oil companies, developing Tupi will require solving thorny technical challenges and executing a project on a scale it has never tried before. The first commercial quantities of oil are not expected for some seven years.
José Sergio Gabrielli, the chief executive of Petrobras, said he was optimistic that the company could develop the oil with little outside help.
“We think we can develop the oil faster than we thought at the beginning,” Mr. Gabrielli said in an interview here last week. “We don't think we have any insurmountable challenge on the technology side.”
Just a decade ago the notion that Brazil would become self-sufficient in energy, let alone emerge as an exporter, seemed far-fetched — even in the sunny beach city of Rio, where Petrobras is based. Petrobras was formed five decades ago largely as a trading company to import oil to support Brazil's growing economy, which is now the world's 10th largest and supports more than 185 million people.
Yet two years ago, even without Tupi, Brazil reached its long-sought goal of energy self-sufficiency, in part by expanding its domestic fossil fuel resources but also by developing an extensive ethanol industry using sugar cane. Today Petrobras has a standing goal of raising its Brazilian crude oil output by at least 100,000 barrels a day every year.
With Tupi, Brazil's 12.2 billion barrels of proven reserves would increase to some 17.2 billion, putting Brazil ahead of Canada's 17.1 billion and Mexico's 12.9 billion. It would fall between China and Nigeria on a world scale, according to the BP Statistical Review of World Energy. Venezuela, by contrast, has some 80 billion barrels of proven reserves.
Rapid economic growth and declining oil production in oil-rich nations like Indonesia, Mexico and Iran are crimping how much they can sell abroad, straining the global oil market. In some cases, the governments of these countries subsidize gasoline heavily at home, which tends to encourage wasteful habits.
But Brazil, with an economy growing at a healthy clip, sells fuels to its citizens essentially at market rates. And the huge three-decade-old effort to turn sugar cane into ethanol has made Brazil the largest consumer of plant-based biofuels in the world. The government requires that gasoline contain a minimum of 25 percent ethanol and that every service station have at least one pump that delivers pure ethanol.
The growing ethanol program is putting Brazil in a better position to take advantage of Tupi's oil riches, Mr. Gabrielli said. Petrobras expects ethanol use to rise as more flex-fuel vehicles hit the roads. “We are going to have more gasoline for export than we have today,” he said, “because part of the gasoline is going to be displaced by ethanol.”
Petrobras currently sells some 90 percent of its refined products in the Brazilian market. To ensure a future as an exporter, Petrobras is building two new refineries scheduled to begin operations in 2010 and 2014, which will increase the country's refining capacity by nearly 40 percent. The company is also investing in units that will expand its production of heavy crude oil into diesel, and is pouring $8.6 billion into reducing sulfur at its 11 refineries.
But its biggest challenge will be developing Tupi into a major production field. The field lies some 4.5 miles below the ocean's surface. To reach it, Petrobras will have to go through 7,000 feet of water and then drill up to 17,000 feet of sand, rock and a massive salt layer that extends across hundreds of miles. Drilling around or through the salt poses a more significant challenge than drilling through salt layers in the Gulf of Mexico, which are more dispersed, analysts say.
Some analysts forecast that Tupi could cost more than $20 billion to develop, an estimate Mr. Gabrielli would not confirm. Drilling rigs are in short supply around the world, with rates running almost $600,000 a day for the largest ships.
The first big task, Mr. Gabrielli said, is to find an outlet for the huge amounts of natural gas that are also in the Tupi field, which is nearly 200 miles offshore. Given the challenges of building a gas pipeline from such a remote location, Petrobras is considering building floating liquefied natural gas plants or a floating gas-fired turbine to generate electricity.
To get the oil to shore, the company's engineers will need to find innovative ways to keep pipes warm and to develop stronger casings for wells to resist the effects of salt corrosion.
The new oil frontier that Petrobras and its partners — including BG of Britain — have discovered in the Santos Basin where Tupi lies may lead the company to scale back its spending in Africa and the Gulf of Mexico in favor of pouring more money into developing Brazil's reserves. “The company will be overstretched and will have to revisit its strategy,” said Roger Diwan, a partner at PFC Energy in Washington.
The Tupi discovery has changed the psyche seemingly overnight in Brazil. Venezuela's president, Hugo Chávez, chided President Luiz Inácio Lula da Silva, calling him an “oil magnate.” Mr. da Silva himself declared the find as proof that “God is Brazilian” and vowed that Brazil would seek to join the Organization of the Petroleum Exporting Countries in a few years.
Petrobras's success was hardly an accident. In 1997 the Brazilian government opened up Petrobras's exploration and production division to outside companies and invited in private investors. More important, the company developed expertise in deepwater drilling that has put it on par with Shell and Exxon Mobil.
“They were not as insular as many of the state-owned oil companies were,” said Donald Hertzmark, an international energy consultant in Washington. “They are widely considered world class in deepwater drilling and have pursued myriad joint ventures throughout the world.”
The rise of Petrobras contrasts starkly with the decline of the other large oil company in South America, Petróleos de Venezuela, the national oil company of Venezuela known as Pdvsa. While Petrobras has achieved record production, Pdvsa's output has fallen since Mr. Chávez was elected in 1998.
Mr. Chávez has all but re-nationalized parts of the Venezuelan industry by imposing much-stricter terms on foreign oil companies.
Mr. Gabrielli says that Petrobras will avoid following the path blazed by Venezuela and Bolivia. He said that he was in favor of imposing tougher terms for the subsalt basin where Tupi is located, which the Brazilian Congress is now considering.
But he says that Petrobras has already borne considerable exploration risk, making it a far smaller gamble for outside companies to explore further in the offshore area. And he adds that most major oil producing countries, not just those proclaiming their socialist ambitions, impose stiff terms on foreign oil companies, especially in times of high oil prices.
“After the discovery we had,” he said of the potential profits to be earned by the oil majors, “this is like buying a winning lottery ticket.”
