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30 March 2013

Press review 30-03-2013

Events in Cyprus eventually took a course not as bad as it looked a week ago. Small savers were spared, share holders and bond holders were hit first and mid to large savers got uneven slashes, depending on how bad was their particular bank. Painful, but way more logical than the brain-dead proposal that initially came out of the Eurogroup. Cyprus is now entering an impoverishment cycle that was likely unavoidable.

This new way of dealing with ailing banks, hitting lenders (into which savers are included) instead of simply offloading debt on sovereign states, marks a clear turning point in the European crisis. Time will tell if this is a good path or not; it is a two edged sword, if on the one hand it protects sovereign states from the risks of the financial sector, it also undermines trust on banks. In a few months time, when it will become clear that Portugal is insolvent, we shall see the real repercussions of this new policy.

Mid week the spotlight was turned on other small states that have economic models similar to Cyprus'. One of these states is Luxembourg, where I presently live, and the answer from the local government was quite interesting, even if somewhat obvious.

Le Monde
A son tour montré du doigt, le Luxembourg rejette toute comparaison avec Chypre
Jean-Pierre Stroobants, Frédéric Lemaître et Claire Gatinois, 28-03-2013

Le torchon brûle entre Berlin et Luxembourg depuis que Wolfgang Schäuble, le ministre allemand des finances, a remis en question "le modèle économique de Chypre".

Sa critique du poids trop important des banques dans l'économie de l'île visait directement d'autres places financières, dont, en premier lieu, le Grand-Duché. Car si le secteur financier chypriote représente sept fois le produit intérieur brut (PIB) du pays, pour celui du Luxembourg, c'est... vingt-et-une fois.

Jeudi 28 mars, M. Schäuble, s'exprimant sur la radio allemande SWR, a toutefois indiqué que le Luxembourg dispose d'un modèle économique différent de celui de Chypre et qu'une comparaison entre les deux était "absurde".
Après Chypre, le Luxembourg montré du doigt pour son secteur financier

Le gouvernement, dont le Premier ministre est l’ancien patron de l’Eurogroupe, Jean-Claude Juncker, a souligné le «caractère fondamentalement international» du secteur financier luxembourgeois au sein de la zone euro, «qui fait de lui un point d’entrée important pour les investissements dans la zone euro».

«Ce secteur contribue ainsi à la compétitivité générale de tous les Etats membres», a-t-il assuré en défendant «sa clientèle diversifiée, ses produits sophistiqués, sa supervision efficace et l’application rigoureuse des standards internationaux (qui) font sa spécificité».

Les autorités luxembourgeoises ont joint à leur communiqué des données chiffrées montrant que le secteur bancaire luxembourgeois compte 141 banques de 26 pays, l’Allemagne arrivant largement en tête devant la France et la Suisse.
What the Luxembourgish government meant with its thorough answer is simply this: don't count on us to aid your ailing banks. This goes perfectly in line with the new policy coming out of the Eurogroup, and besides, Luxembourg's resources to help such a large financial sector are quite limited. But again, the reverse of the medal is the impact this may have on the trust from savers and investors in general. Personally I don't feel reassured at all, as long as the crisis lasts and continues undermining banks, Luxembourg's economic model is effectively at risk.

Shifting now to energy, the main highlight of this week goes to a post by Jérôme at the European Tribune on the impact renewable energies are having on the European electricity market. It is short, easy to read and littered with relevant information, absolutely not be missed.
European Tribune
The new economics of the power sector
Jerome a Paris, 25-03-2013

A lot of strange things have been happening in the power sector lately, from negative prices, to utilities closing down brand new power plants and, naturally, action in various places to cut support for renewable energy (done in Spain and even mooted in Germany).

I've long described renewable energy producers as a price takers (i.e., they don't influence market prices in the short term and have to "take" market prices as set by other factors), but we are getting to the point, in a number of places, where the penetration of renewable energy is such that it has a real macroeconomic impact on the prices of electricity, and thus on the way power markets run. There's also been a big political battle brewing, as renewables "subsidies" are targeted by governments at a time of austerity in Europe, egged on by hardly disinterested utilities.

It is worth deconstructing what's been happening.
A link in the comments at the European Tribune points to a long article at Forbes on the so far relentless growth of Wind power in Denmark. Now accounting for over 25% of supply, the government intends to take this to 50% in the next decade. Technically this should be possible, rest to know at what price. But if they made it thus far, and against what most imagined, I won't underestimate Danish resolution on the mater. Besides, on the time frame envisioned new and cheaper energy storage technologies should come on the market to lend a hand.
Denmark: 1,000 Megawatts Of Offshore Wind, And No Signs of Slowing Down
Peter Kelly-Detwiler, 26-03-2013

On March 18, Dong Energy’s Anholt offshore wind farm connected its 36th Siemens 3.6 megawatt (MW) turbine to the electric grid, thereby bringing the total of Denmark’s connected offshore wind to 1 gigawatt (1,000 megawatts). This capacity covers the equivalent of about 1 million Danish households’ electricity consumption. The Anholt complex itself will include 400 megawatts of capacity when completed. And Denmark has no plans to stop there, recently announcing that it will invite bids for an additional 1,500 MW of offshore wind. Denmark now gets almost 25% of its electricity from windpower, and this country of 5.5 million in habitants is planning to double that number to 50% by 2020.

It won’t be an easy task. With the existing wind capacity, there have already been times in recent years when surpluses have been generated and Denmark has actually paid other countries to take the excess power supply (much like the situation in West Texas, where surpluses of wind occasionally result in negative pricing for short periods). If significant changes to the electric system are not made, it is possible that supply might eclipse demand for up to 1000 hours per year by 2020 (out of the 8760 hours in a year), according to Jen Moller Birkebaek, a vice president at Energinet.dk, quoted in the NY Times.
And yet again the natural gas situation in Britain. The market did its job and the country is receiving 3 extra LNG loads that should take it through the remainder of the winter. There were no new record this week, but prices remain at levels that are not at all comfortable to consumers. In the midst of this story there's an interesting point to take notice, in recent days, when the weather was particularly foul, the Wind park came to the rescue, at one point meeting 40% of electricity demand.
Record Breaking Day for Wind

  • Wind generates over 5 gigawatts of electricity for whole 24 hour period for the first time

  • Enough to power the equivalent of 4 out of every 10 British homes

  • Power was generated during one of the coldest March days on record and whilst gas price at 7 year high

So Britain might just make it to the end of this extended winter, but constraints remain. The extra stocks draw down in the island and continental Europe will surely impact prices next winter, further difficulties are almost granted. Al Jazeera published a detailed account of the issue that is well worth reading.
Al Jazeera
Frigid UK weather lights gas supply fears
Simon Hooper, 28-03-2013

Thousands of homes across northern England, Scotland, Wales and Northern Ireland have already endured power cuts and massive disruption in recent days, as heavy snow brought down electricity cables and blocked roads.

But there could be worse to come. The cold weather has prompted a surge in demand for gas as households have turned up the heat, depleting reserves and prompting fears that storage facilities could be empty within days.

"Britain on brink of running out of gas," said the front page of last Friday's Times newspaper. "Welcome to blackout Britain," offered the Daily Telegraph on Monday, as the head of a Scottish power company warned the UK faced a "capacity crunch" over the next three years.
To finish off is a piece of news that went almost unnoticed. It seems we are far from knowing the full environmental impact of rock fracturation techniques used in shale gas exploration. Even years after wells have been abandoned potential impacts remain latent.
Oklahoma earthquake linked to oil extraction wastewater
Jason Palmer, 27-03-2013

Scientists have linked the underground injection of oil-drilling wastewater to a magnitude-5.7 earthquake in 2011 that struck the US state of Oklahoma.

Wastewater injection from drilling operations has been linked to seismic events in the past, but these have typically been much smaller quakes.

They also have tended to occur in the first weeks or months of injection.

The study in Geology suggests that "induced seismicity" can occur years after wastewater injection begins.
And that's all for the week. Have an Holy Easter.

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