Wednesday, February 6, 2013

Do Natural Gas Vehicles Have legs?

  • Technology for natural gas powered vehicles (NGV) is making new strides in lowering costs and reducing emissions.
  • Fueling costs of natural gas vehicles are one third of traditional unleaded gasoline fueled vehicles.
  • However, the challenge of fueling availability, remains an obstacle.
  • Consequently, the gas industry needs to build infrastructure, like a network of fueling stations, to meet the needs of motorists.
  • In light of the potential for NGVs, manufactures such as Ford, General Motors, Dodge, and Honda are already producing models of natural gas powered vehicles.
  • As expected, mechanics and auto shops will also need to make some changes. But they won’t need to become familiar with a whole new engine.
  • The potential for the growth of the NGV industry remains significant.

Top 5 Geopolitical Risks Facing Commodities in 2013

5 Major Geopolitical Risks Facing Commodity Markets In 2013:

"On January 14, Deutsche Bank published their 2013 market outlook in which they identified several geopolitical hot spots to worry investors and businesses.

They include a wide range of developed and less developed economies, many of which are key producers of commodities and/or a key link in product supply chains. If something goes awry in any of these hot spots what will be the impact on commodities?"

1. The US/Middle East

The shift in the U.S.’s strategic priority from the Middle East to Asia has pros and cons for stability in the Middle East and by implication oil prices. Whereas previously the U.S. might have intervened sooner in Syria sooner not so long ago; the on-going conflict in the country as well as tension elsewhere (Israel/Egypt) has the potential to spiral out of control and drag other countries in the mix – potentially disrupting oil production. Unintended consequences.

 Meanwhile, the likely appointment of Kerry and Hagel as US Secretary of State and Defence Secretary could see renewed diplomatic efforts with Iran, which could reduce the risk premium (estimated at somewhere between $10 per barrel and $20 per barrel) that exists currently based on fears that the Strait of Hormuz will be blocked. The probability of an attack on Iran by the US/Israel by the end of 2013 has dropped from around 50 percent in October to 25 percent currently.

2. Venezuela 

 As the health of the country’s President Hugo Chavez worsens, attention has centred on what this will mean for oil output from Venezuela and its affect on oil prices. Oil production has suffered under Chavez’s rule through breaking contracts with private companies, firing workers that did not support Chavez and a lack of investment. In the short-term uncertainty over whether there will be a smooth transition of power and social unrest may underpin oil prices.

For a decline in oil prices to be seen, there would need to be clear signs of increased drilling activity. However analysts at WTRG say there is little chance of any downside risk to prices as there would need to be a 50 percent increase in drilling activity and a reversal of many of the social projects Chavez set up.

 3. Mali/Nigeria 

 On the face of it, the onslaught of radical Islamic fighters against the Mali government would not appear to have a big impact on commodity markets. Mali’s main commodity export is gold – the country being the third biggest gold producer in Africa after South Africa and Ghana. Mali’s gold mines are centred on the south and south west of the country far away from where the civil war is taking place in the north. Even so the unrest has already led to mining delays, as travel bans have made harder to secure technicians and suppliers.

 The recent terrorist attack to a gas facility in Algeria may be symptomatic of events that could occur more often in the region. Algeria is a major exporter of gas to Europe. Although there is no sign that the current unrest has led to lower gas supplies to Europe there could well be supply shortfalls and increased energy price volatility in Europe. However, even if Algeria were to suffer a serious disruption it would not be too bad. The real risk is that countries like Nigeria (the eight largest exporter of oil) suffer similar unrest leading to disruption to their energy and commodity output.

4. South Africa 

Unrest at platinum mines in South Africa last year served to illustrate some of the endemic problems in the country including high unemployment, poor conditions and poor pay. Weak demand for platinum from the car industry led to lower platinum prices in 2012. In mid-January,

Amplats announced that it would be closing 7 percent of annual platinum output in response to low prices and weak demand, increasing the likelihood that strike action will take place undermining and boosting prices. Furthermore mine workers will be looking forward to the election later in 2013 for signs that conditions will be improved.

 5. China/Japan

 In contrast to East Asia the potential for conflict between China and Japan is barely mentioned elsewhere. Since Japan announced last September that it would nationalise the Senkaku Islands (three privately owned islands which China has long contested Japan’s sovereignty over) relations between the two economies has deteriorated while both sides have undertaken tit for tat military exercises. Any escalation in tensions may also bring in other countries like India, Vietnam and the Philippines, which also have territorial disputes with China.

Appropriating Risk to Sovereign Debt

By Grant de Graf

Sovereign debt can be defined as Bonds issued by a national government in a foreign currency, in order to finance the issuing country's growth.


In Europe, government debt has escalated significantly over the past few years, ostensibly causing what is known as the Euro debt crisis. The reality is that the European Debt Crisis is complex and a consequence of a number of factors, including:
  • off-balance sheet and surprise debt discovery (Greece)
  • a failure of the Euro zone economic model,
  • potential debt burden realized (real estate in Spain, banks in Ireland)
  • the inability of monetary policy to function in step with fiscal policy, 
  • the Euro currency and the constraints it imposes on member nations to automatically adjust to economic imbalances through  market mechansim, 
  • contagion from the U.S. recession,
  • exposure to the sub-prime crisis, 
  • a dilution of confidence in nations to service and repay debt, 
  • austerity being haphazardly imposed by European central government on its weaker members 
  • cyclical economic factors in growth trends
  • Inflation (current Zimbabwe and Latin America in the 1980s)

What many pundits argue is the result of the Euro debt crisis, in some cases is in fact the cause, which means that although a dip in the economic cycle was inevitable, the extent of the swing has been exaggerated through harmful government policy and initiative.

Although the debt ratio of PIIGS (as a percentage of GDP) has escalated since the advent of the Euro debt crisis, many developed countries continue to exhibit high levels of GDP. For example Greece (as of 2010) had a percentage debt to GDP of 165, Italy 120, Portugal 109, and Ireland 108, relative to Japan's 208. (See source: List of Countries by Public Debt)

* Source: Wikipedia, Sovereign Debt Crisis

At risk globally, are countries who are exposed to significant debt, but who are unable to function with a successful economic model, which provide investors with a level of certainty that debt can be serviced or repaid in the long term.

In many instances the servicing of debt is effected by other factors extraneous to debt. For example in South Africa, political tension and the instability of the labor force, has more recently affected investors' perceptions of the mining industry, placing the country's key strategic resource in jeopardy.

In some South American countries, drug violence continues to limit the development of industry, as the risk of new investment constrains growth and development.

The extent of a nation's sovereign debt and the risk factor that is appropriated to it, will ultimately depend on the country's economic viability and its ability to meet short-term and long-term obligations.

  • Interest rates of bonds specific to a country increase
  • Capital values of existing bond issues fall
  • Cost of capital for future bond issues increased
  • Possibilty of default in debt repayment
  • Central banking institutions (like ECB or IMF) need to buy bonds or take up new issues to keep interest rate in check and take up slack in demand
  • Governments need to increase taxes to meet shortfall in servicing of bonds 
  • Decrease in investor and business confidence
  • Deflation as economies shrink
  • Austerity as governments cut expenditure in anticipation of growing budget deficit   

  • Countries can buyback debt at lower, discounted capital values
  • Potential to renegotiate terms of debt repayment with creditors
  • Traders may buy debt (if they anticipate interest rates will fall in the future, and if possibility of debt default is low, or if there is anticipation that currency will strengthen as with South African rand in early 2000s)

Groups at Risk
  • Investors 
  • Traders
  • Stocks and forex
  • Central banks
  • Investment banks
  • Government
  • Importers and exporters
  • Shipping and industry
  • Tourism
  • General business
  • Bond holders and traders
  • Politicians
  • Rating agencies
  • Civil servants
  • Labor unions