Having a Gas

We’ve all heard the story before. In the next couple decades, energy demand will skyrocket. Oil thirsty nations like China and India demand more air conditioning, more home game consoles, and more home PCs as they grow into global middle class giants, and hot on their heels maturing economies like Poland and Brazil want their cut, too.

The EIA forecasts a 50% increase in demand. Population-wise, that’s like adding another China and India to the world, on top of all the power strain we have now. Picture those East Coast blackouts. Yep, that’s going to be all Asia unless we get more electrons.

In picture form it looks like this:

 

And the only other place on Earth you see a big divide like that is the 38^th parallel

 

Which makes this one of the biggest challenges of our time. It's not just Climate Change, it's powering forward the world forward. It's only recently that more than half of us even entered cities, remember. A lot of the world is not that advanced yet.

But any time there’s a challenge, there’s an opportunity.

This is one of those topics that interests me, because:

1.       It’s a growth market

2.       It’s a market on which the US can capitalize

For this post, I really want to talk about Liquefied Natural Gas (LNG), because it’ one of those geeky tpics no one talks about. Instead we get daily reports on phallic oil pipelines or sexy “natural” green energy.

LNG? Come on…

Well, you should care. Facts below.

LNG is a quick, quick, quick growing market. Global capacity rose from less than 50 million tons in 1990 to almost 240 million tons in 2012. That’s a nine-fold increase, in a span over 20 years. That’s “make China look slow” growth.

In the past few years especially, imports have risen dramatically, as Korea and Japan buy up all the LNG they can to power their growth. For Japan, that’s partly because of the nuclear shut-down, but naturalgas is a relatively clean-burning fuel compared to coal.

 

And it’s also gotten a lot of cheaper because of new production techniques. That means that even in the US electricity for natural gas has exploded:

 

Enter LNG. Natural gas gets moved by pipeline, a lot like oil. Unlike oil, natural gas is….well…

Gaseous.

That makes moving gas a lot more difficult, which has opened up some pretty huge arbitrages. Natural Gas in Japan is several times more expensive than in the US (barring this crazy winter), and even the UK pays a lot more.



 

It’s also an immature market: Japan and Korea and other nations pay for gas on prices indexed to oil. That means oil goes up, natural gas goes up. Sort of like you paying more for your loan because the Fed Rate went up. Which might make sense, because those are general credit rates that should be linked. But natural gas is NOT oil. The relationship is more like paying extra for your milk, because the price of carrots went up.

That might be expected in an immature market, not in a vastly mature market.

A lot of the Asian nations have been trying to alter these arrangements, without terribly much luck. But LNG pricing is a focus of the US government. Obama even guaranteed $6 billion in financing to help energy projects go ahead in Asian nations. It’s an essential part of the “pivot.”

US LNG, though, has been lagging. Right now it’s a not major effort of US, which restricts the export of natural gas, and what gas does get exported mainly gets done via pipeline. Granted, it’s only recently that we’ve come into a huge gas boom, but this is a major growth opportunity for the US. The EIA is saying we might be totally gas-sufficient as soon as 2020, which means in 10 years we might have a huge export opportunity. Particularly if other nations start demanding LNG imports as well. Argentina, for instance, recently started bidding against Japan on some contracts.

Were I in a policy position, this would be one of those “Grow as quick as you can” industries, particularly if it energizes regions like the Gulf Coast (which could definitely use a good boost given its poor faring on most quality of life metrics).

It’s one of those exciting things to watch and something to keep your eye on in the medium-term. Relevant thoughts include:

1.       US diplomacy in Asia

2.       Growing energy demand

3.       Green Energy in general

4.       Jobs in the US

5.       Regulation in the US

6.       Asian cooperation and flexibility (can they create continent-wide partnerships to reduce costs)

 

Have a great week everyone!

 

-Robert

CVS No Longer Stacking Tobacco

In a huge PR move this week, CVS Caremark announced their stores will no longer carry tobacco products. The move takes effect October of this year.

 CRK's move surprised me, given that WAG recently fought and had the courts overturn a California law to this effect. While the tobacco-free pharmacy sort of makes since, these pharmacies are not really "health" facilities right now. They're drug dispensaries. You go there to pick up pills, not to lower your cholesterol. And based on this business model, you really want additional foot-traffic. That means "don't alienate 20% of America."

However, that's not what CRK wants to be, or Walgreen's for that matter. Both these places now run their own healthcare on-site. Both these companies want to capture an increasing share of the health-care dollar, and they might have a good shot at it given how most states are moving to deregulate primary care....for instance, substituting nurse practitioners for doctors for certain functions.

Just take a look at the picture, and see the potential sales for WAG and CRK:

Right now, pharmacies are taking that $1,106 dollars per person, and if they can squeeze in some extra sales from that $1,670 that's going to clinics and doctors right now....

Plus, that's expected to grow, while generic drug sales are expected to have weak growth. Given consolidation in PBMs, too, which might keep reimbursement rates down, you might expect pharmacies to aggressively re-invent themselves.

Which is what CRK is doing.

From a public health perspective? I don't see the big deal. The vast majority of tobacco sales take place at gas stations.

However, that does not mean people will stop trying to spin this as a great movement forward in the Great Progressive March of America, or whatever nonsense propels Obama forward ;)

"We didn't make this drug for Indians"

If you're tuning into the latest drama over expensive drugs, that might be all the coverage you hear. No rhetorical strategy works better than implying your opponent harbors deep hatred and violently racist thoughts, and wants poor brown-skinned people to die, just because they are not white.
Especially when we're talking about Germans. Just look at the guy. He's basically a Nazi!

I cure cancer and make toasters. Also, I'm Dutch, not German

The real issue lies in something called "compulsory licensing." Imagine that today you invent Time-Travelling Ninja Robots that are immune to magical spells, and it just so happens that tomorrow China declares war on us with an army of Gandalf the Gray clones leading the foray.

 

Under a regime of compulsory licensing, the Defense Department could force you to give up your Ninja Patent to Ford Motor Company. Why? National Defense, that's why.

 

But what about saving lives?

 

Modern drugs prove incredibly expensive, and, indeed, outside the reach of many patients. The treatment for this guy's cancer-killer comes out to $100,000 a year or something like that, which is just a weeeeeeee bit outside the price range of a nation with a per capita income 1/3 of China's.

 

 

The idea of a compulsory license is not new, and yes they are contentious. The general WTO rule, is that you can break a patent (and let's not be sissies and pretend it's not) for domestic consumption, but not for purposes of export. And then there's another exception, that nations that cannot possibly make the drug get a waiver. So India cannot export this cancer drug, except to Mozambique, because Mozambique can't make this stuff.

 

India, however, has only recently issued a compulsory license, for this one drug, back in 2012, and they are obligated to provide Bayer an appeal. Think of this as a test case.

 

Now, what did Bayer actually mean when they said "We didn't make this stuff for Indians"? He means that even though India screwed the market, it doesn't matter, because profit projections are based on sales in advanced economies.

 

So why do we care if India steals our stuff? I mean, doesn't hurt anyone, right?

 

Ever buy a US pickup truck? Probably, because foreign trucks are taxed at an incredibly high 20% because of some stupid chicken stuff back in the 1950s. But once enacted, policies have a habit of lasting forever, like some sort of mal-formed zombie that wears a bullet-proof helmet.

 

 

Pictured Above: Corporate Tax Reform

 

And while India is somewhat poor today, it is developing, and someday might be an essential market for our goods. And since we're a high value-added, R&D, intellectual property economy, we have an issue if India can simply extract the value of all our work. In the sense of, reimagine the entire economy, because we have nothing scarce anymore.

 

It might be necessary in some cases. The HIV crisis is a good example, along with other communicable diseases. It is not, however, immediately clear why prolonging a person's life 5.5 months instead of 2.8 months is a public health problem sufficient enough to break a patent. It is also not immediately clear why India cannot spend some of its $163 billion corruption and Su-30MKI budget on apparently life-saving drugs.

 

Probably too busy creating ballistic missile submarines to deter mighty China with its recessed nuclear arsenal, or a Pakistan too crippled to successfully deter the Taliban.

 

 

There ain't no such thing as a free lunch.

 

-Robert



Does Fox News make us more extreme?

We started this blog because we feel like lonely, lonely little boys. Where we come from, libertarians and communists toss bombs at each other, people discuss whether the US attacked itself on 9/11 to justify stealing oil, and don't even get me started on abortion.
The three of us? We feel stuck in the middle. Where's the space for the guys that think the rich might need to pay a little more, but think the far left loonies can't be trusted with a butter knife let alone the healthcare system?
That's a microcosm of society as a whole. Congress itself divides in a pretty extreme fashion, and increasing. And it isn't just Congress. People as a whole are sorting out, such that the number of "extreme" counties, IE, ones that vote for one candidate or the other by a margin of more than 10%, have pretty much doubled since the Carter era.
Yikes.
The question is why. Partly, the problem MAY be so-called "echo chambers." Sit in a cave and yell "universal healthcare is great!" You'll hear it back, 10,000 times, before that message goes away.
Okay, rename that cave MSNBC, and have a bunch of people yelling the same message, and see what happens.
The idea is that, if you immerse yourself in that kind of environment, you will end up confirming your own beliefs. Thus, us politically-motivated types become more and more extreme over time, especially since we don't even read the same books. And if Twitter mirrors society, then Republicans and Democrats do not even talk to each other.

Here's the thing. It's all bullshit.
At least for most people.

So says "Media and Political Polarization" by M Prior.

He points out an interesting statistic: only 5% of Americans even watch more than an hour of Fox News a week. Think about your last cocktail party or your kid's baseball game. How many people actually cared when you started your summary of minimum wage politics? And how many rolled their eyes?
The eye-rollers outnumber the interested by a lot. These kinds of channels just cannot radicalize most people, because most people simply do not care enough to radicalize. It's like reading the Communist Manifesto to your cat, or teaching advanced physics to your dog.
Instead what's happened is that you have a big mass of people who just don't care, and only watched the news because it was the only thing on television. Once cable kicks off, all the girls can watch HGTV, all the boys can watch ESPN, and the weirdos can watch 24 hour news channels.

And us weirdos? There's a ton of cross-over. Prior points out that almost a third of traffic at the NY Times comes from conservatives. I am not surprised: I kept Krugman on my blog-roll and read him religiously until NYT held me to 30 hits a month or whatever. Most of us are issued-based, which means we like to read things from different sources about issues we like.

Thus, if I like economics, I am going to learn about the minimum wage from the conservatives, but I am going to reach out to liberal websites to learn from them, too. You never know, they might know something!

That's not to say there is not a problem with polarization. We definitely have an issue with a radicalized Congress. Instead of looking to our media sources, though, what we should be looking towards are the incentives driving individual Congress-men to become more extreme. Reliance on donor financing and partisan supporters, for instance. Narrow, deep bases are like suction cups, that tie you down to a single space, while you reach out and try to grab as many flying independent "voters" as possible.

If anything, the problem is not one of people caring too much and becoming extreme, but most people caring too little, and therefore exerting little to no influence in the process...and therefore having no power.

-Robert

Optimistic About Jobs in 2014?

This month's unemployment report looked surprisingly rosy for once. The official U3 Unemployment Rate finally slipped below 7%, for the first time in about half a decade. It's true we're understating that number by a lot, but, but, BUT at least the direction is holding for once!

There's a lot of hires, but as you can see from Calculated Risk, we actually have a lot of quits. Sounds bad, but that is a positive thing. Taking a look at the graph, you can see quits bottomed out in the depth of recession: if you think there are no other jobs out there, you aren't going to leave your current one, even if your boss sexually harasses you, snorts coke, or keeps you at an entry level job for a decade.

It's still way, way, way low. The quits are at the same level as "jobless recovery" levels back in 2003, but, again, it's a solid trend upwards. We are still about a sixth below peak quit levels.

I wouldn't be surprised to see this trend continue. Unemployment benefits have expired, and though Congress might make some progress on that front (especially with the Republicans more conciliatory this year), I would expect to see some marginal improvement in the employment situation of the Long-Term unemployed.

We're still showing some positive business growth. Industrial production is trending up. And while companies might LIKE workers to work more hours, they can't really get them to do that: the hours worked holds steady.

So companies will increase production, hire more workers, and some more people will try finding work this year. Not to mention a lot of people quitting their jobs and trying to find new ones. Might actually be good for wages, too!

It's not all roses, though. We have a huge long-term unemployed group, about 39% of the total unemployed. Going off Japan, it looks like there will be a permanent shift towards more part-time workers. We can't be sure about that, though. The United States has been a more flexible work-place for quite some time. Indeed, while temp jobs HAVE gone up, they have only gone up to the proportion they were BEFORE the recession...a lot of people who lost jobs in the first place were the so-called temp workers.

Most importantly, they are not spiraling out of control, but peaking out. This to me suggests that you might want to view temp jobs as a leading indicator, which will lead to more aggressive full-time hiring this year and next year.

But 2014 will be an interesting test of that.

In the mean-time....cautiously optimistic.


-Robert

Some trippy stuff, by Nicholas Kaldor

So, for awhile now, Nicholas Kaldor has probably been among my favorite economist as far as originality of thought and brilliance goes, and this passage right here blew my mind, written in 1971.

"… Some day the nations of Europe may be ready to merge their national identities and create a new European Union – the United States of Europe. If and when they do, a European Government will take over all the functions which the Federal government now provides in the U.S., or in Canada or Australia. This will involve the creation of a “full economic and monetary union”. But it is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it."

Wow. Predicting the formation of the EU (which happened 20 years later) and warning that IF this formation was only monetary and not fiscal+political, it could fall apart and lead to a breakdown of the European project. Amazing. And I thought Wynne Godley was pretty prescient.

'Tis unfortunate that Friedman, and not Kaldor, had the larger microphone.

Anyhow GV, Remi, you still there and you feel like restarting up this blog? I'm pretty sick myself of the BR and GV just got banned there, so.. yeah.

So are you guys still alive

You heard me