IEA: China leads demand for natural gas

By Eric Watkins

LOS ANGELES, June 5 – Natural gas is headed for a bright future, according to a new report by the International Energy Agency (IEA) projecting China to more than double consumption by 2017, while the U.S. will continue to benefit from lower prices from the unconventional gas revolution.

According to IEA’s Medium-Term Gas Market Report 2012, China will become the third-largest gas importer behind Europe and Asia Oceania, driving a 2.7% average annual growth in global gas demand through 2017.

At the same time, North America will become a net LNG exporter, while Japanese imports will continue to increase, depending on the outcome of current debates over the country’s nuclear policies.

The robust projections came as IEA reported that world demand for natural gas climbed just 2% in 2011, saying it was “much lower” than recorded in 2010.


IEA said natural gas had been growing at 3% per year, attributing the correction to a mixture of low economic growth, higher gas prices, and mild weather.

Gas-fired plants were affected by “sluggish European power demand” and the “strong growth” of renewables, IEA said, noting that relatively high gas prices and extremely low CO2 prices led to increased competition from coal.

In the OECD Americas region, low prices boosted the share of gas in the power generation and industrial sectors, especially in the U.S., IEA said.

In OECD Asia Oceania, Japan led additional demand as a result of efforts to offset missing nuclear power generation following closure of the country’s nuclear industry following the Fukushima Daiichi disaster in March 2011.


Outside OECD countries, IEA said that increased consumption of natural gas was driven by economic growth and increasing needs in both the power and industrial sectors.

It said gas markets grew strongly in Asia, the Middle East and Africa, but more moderately in Latin America and Former Soviet Union (FSU)/Non-OECD Europe.

Global gas supply increased by 93 bcm or 3% in 2011, reaching 3,375 bcm, with the increase coming largely from the U.S., Russia and Qatar.

Production of gas was marginal in non-OECD Latin America, and OECD Asia Oceania, while Europe’s gas production dropped 9.3% from 2010.

Unconventional gas represented 16% of global gas production as of 2011, and half of unconventional gas production came from tight gas despite the growing interest in shale gas.


Production increases in 2011 came mostly from North America, where shale gas continues to boom despite record low gas prices and the reduction in the number of rigs.

In addition to shale gas and tight gas, associated gas from light tight oil plays is also growing in importance, IEA said, noting that production from these three sources now “more than compensates” for the decline in US conventional gas production.

Over the medium term, unconventional gas production is expected to continue to expand, again coming primarily from North America, where US shale gas production continues to boom.


Outside North America, IEA said tight gas and coal-bed methane (CBM) “will be the largest contributors” to incremental production.

In the Middle East, Africa and Latin America, tight gas could complement existing conventional gas, while CBM is projected to increase markedly in China and Australia.

IEA noted that the global trade balance is “visibly shifting” to Asia, which is now not only attracting increasing flows of liquefied natural gas (LNG), but also of pipeline gas.

Global LNG trade increased by 9.4% to reach 327 bcm in 2011, which represents a significant slowdown compared to the record 21% increase in 2010.

But the trade in LNG is still increasing faster than global gas demand, IEA said, adding that most of the additional LNG supplies went to Asian markets, notably Japan.

© Glamma Productions Inc. 2012

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No faulty towers, if you please

By Eric Watkins

LOS ANGELES, June 4 – Will followers of the Bronte Sisters win out after all? Will the historically famous countryside near their family home be forever spared the view of wind towers as many literati and country folk wish? Will other areas of that green and pleasant land also be spared?

That’s the main question following revelations that ministers in the U.K. government are at odds with each other over public subsidies for onshore wind turbines.

U.K. Chancellor of the Exchequer George Osborne is fighting with Energy Secretary Ed Davey to cut funding for onshore wind turbine by 15% more than the 10% proposed earlier.

The government recognizes that generating electricity from renewable technologies is generally more costly than from long-established fossil fuelled technologies.


“If we are to meet this challenging target, appropriate support needs to be provided to these technologies to ensure that they are viable,” according to the Department of Energy and Climate Change.

Without any cuts at all, the British government is on track to spend somewhere between £250-£280 million by 2016-17. Quite where a cut of 25% would leave wind power remains to be seen. But supporters and opponents were out in full force as word surfaced of the increased cut.

It is not altogether clear why the government should be proposing any cuts in the subsidy for onshore wind power just now. Some point to the 100 or so Conservative Members of Parliament who have signed a petition against wind farms. Others maliciously say the government is caving in to blandishments of the petroleum lobby.

Word of the disagreement came as Britain’s Queen Elizabeth, in the state opening of Parliament, confirmed that MP’s would in the next 12 months receive long-awaited legislation aimed at encouraging investment into low-carbon energy.


The legislation will aim at reforming the country’s electricity market in what one observer called “the biggest shakeup” since the 1990s when privatization created one of the world’s most liberalized energy markets.

“My government will propose reform of the electricity market to deliver secure, clean and affordable electricity and ensure prices are fair,” the Queen said, adding that the government will introduce legislation to establish a Green Investment Bank.

The growing debate came as the International Energy Agency commended the U.K. as “leading by example” when it comes to seeking concrete solutions to the low-carbon investment challenge.

In Energy Policies of IEA Countries – United Kingdom 2012 Review, IEA applauds the UK’s long-term vision for a low-carbon future – greenhouse gas emissions are to be reduced by 80% from 1990 to 2050 – and its achievements to date.

But the report also sounds some notes of caution regarding the design and implementation of the policies, while providing recommendations for UK policymakers to consider.


“The United Kingdom consistently plays a constructive role in international climate policy, and its domestic policies enhance its credibility on the world stage,” said IEA Executive Director Maria van der Hoeven.

“For the United Kingdom to decarbonize its economy and energy system, however, huge private-sector investments in energy infrastructure are needed,” van der Hoeven said.

“Consumers must be certain that they are paying for the most cost-effective solutions,” she said, adding that, “Enhanced co-operation with neighboring countries will increase electricity security.”

IEA said the U.K. government’s proposed Electricity Market Reform is a “pioneering effort” that will be closely observed by other countries as they seek to ensure continuing reliability of electricity systems while they promote timely de-carbonization of electricity supplies.


IEA noted that the Green Deal program, which the U.K. plans to launch later this year, aims to improve energy efficiency in buildings and public spaces. But it warned that for the program to succeed, the general public must be “sufficiently aware of its benefits.”

In a low-key criticism of the U.K.’s plans, IEA said that the transition to a low-carbon economy will take time, and that fossil fuels, in particular oil and natural gas, will remain important.

“The report therefore encourages the U.K. to maximize its remaining potential for oil and natural gas production as the low-carbon transition continues,” IEA said.

In case anyone failed to get the message, IEA spelled it out very clearly, saying that, “Oil imports are well diversified and oil stocks are very robust, while natural gas import capacity exceeds annual demand by a wide margin.”


IEA also said that, “Large investments in LNG capacity have increased the flexibility of gas supply. Another asset is the liquid, well-functioning wholesale natural gas market.”

In a word, while endorsing the plans of the U.K. government to pursue its green policies, IEA also cautioned Whitehall not to forget the obvious: that green strategies – and strategists – must be prudent.

And the Bronte Sisters? Well, their supporters will doubtlessly welcome the IEA’s observation even as they celebrate a High Court ruling that villagers’ rights to enjoy their surrounding landscape are more important than any government-backed plans for the construction of four 350-ft wind towers in the area.

No faulty towers in that countryside, if you please.

© Glamma Productions Inc. 2012

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Coal: U.S. exporters face West Coast challenges

By Eric Watkins

LOS ANGELES, June 1 – U.S. exporters of coal are finding it difficult to get their products to Asian markets, a difficulty underlined this week when the Seattle city council declared its opposition to moving coal through the city.

“The City of Seattle opposes the establishment of coal export terminals in Washington State,” reads the text of Resolution 31379, which passed by a unanimous 9-0 vote earlier this week.

Seattle’s council warned that for any coal-loading facilities in Seattle, the city “will fully enforce public nuisance and municipal land use restrictions … require any piles of coal stored on the property to be fully covered, and require that the facility use a covered loading process to reduce health and safety impacts.”

Seattle’s vote took aim at several firms desirous of opening of coal-export terminals in Washington and Oregon, not least the Burlington Northern Santa Fe railroad, which handles much coal from Wyoming, the nation’s leading producer.

The vote targeted a company that already is aware of coal-dust issues, too.


The Seattle vote also targets countries abroad with a need for coal.

Last year, according to the Energy Information Administration, the U.S. saw a 53.8% increase in exports of coal to Asia, with most of the increase going to Japan. Indeed, Japan saw its volume of U.S. coal imports rising by 118.8% last year.

The rise in Japan’s imports of U.S. coal has been occasioned by the shut down of its nuclear-powered generators in the wake of last year’s meltdown at the Fukushima Daiichi reactor.

In the absence of nuclear power, Japan has been ramping up imports of substitute fuel, including oil and natural gas – as well as coal.

A similar situation exists in South Korea which last month said it may expand imports of power-station coal as a nuclear-plant failure that was hidden for a month stokes opposition to atomic energy a year after Japan’s Fukushima disaster.

State-owned Korea Electric Power Corp. (KEP) said it might increase its purchases of coal to replace nuclear power generation if its Kori 1 reactor remains shut and the government fails to extend the lifespan of a second reactor.


The cost of generating electricity from coal is twice as much as from nuclear power, but is considerably cheaper than oil or natural gas, according to the Korea Energy Economics Institute and independent analysts.

“Economically, coal is the best,” said Osamu Fujisawa, an independent energy economist in Tokyo who told Bloomberg News that coal imports may gain as much as 2.45 million metric tons a year if both South Korean reactors are closed.

“If you’re trying to increase summer power generation, coal is the best in terms of cost,” Fujisawa said.

South Korea’s imports of thermal coal were a record 94.5 million tons last year, up from 87.8 million in 2010, according to shipbroker Simpson Spence & Young Ltd., while a report from Bank of America said South Korea will buy 103 million tons of seaborne thermal coal this year.


The vote that took place in Seattle last week stands in opposition to the efforts of those countries to secure alternative fuels in the wake of a nuclear disaster. Possibly the Seattle City Council did not consider that point. 

Then, again, possibly it did.

The vote in Seattle was not just another case of not-in-my-backyard thinking or nimbyism. No, the Seattle Council wants to legislate for everyone’s backyard, a point made clear by one councilman.

Council member Mike O’Brien, chair of the Energy and Environment Committee and prime sponsor of the resolution, said: “Seattle has a commitment to fight climate change and become a carbon neutral city by 2050.”

The citizens of Seattle, of course, have every right to determine matters for themselves, and there is no requirement for them to have coal trains passing through their fair city. But the vote attempts to go well beyond that.


The vote in Seattle targets suppliers in other states, transport systems that serve many interests in Seattle and beyond, and markets on the other side of the world – to say nothing of industries that produce goods that are shipped back through the Port of Seattle.

The vote by Seattle’s City Council will have no effect on the international coal trade. Suppliers will continue to supply coal. Trains and ships will continue to transport coal. Markets in Asia will continue to demand coal.

The vote in Seattle simply means that nine council members in the Emerald City have attempted to cross their city off the map of international coal commerce.

Saner heads will surely prevail. If not, coal will move without Seattle.

© Glamma Productions Inc. 2012

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U.S.: No exception for Japan on exports of natural gas

By Eric Watkins

LOS ANGELES, May 31 – The Obama administration is said to be reconsidering a recent decision to deny exports of liquefied natural gas to Japan, given the country’s need to find a replacement fuel following closure of its nuclear facilities.

Several U.S. companies, including Sempra Energy and Dominion Resources Inc., are behind efforts to seek permits from the Department of Energy to export gas to countries – such as Japan – that lack free-trade agreements with the U.S.

But the chances of reversing the decision on Japan are especially slim right now, despite a bit of soft-shoe from an administration spokesperson.

“I think it’s going to require more people taking a look at it,” said one unnamed official of the Obama team. “We’re very sympathetic to Japan. They’re in a very difficult situation.”


Japan is indeed in a very difficult situation, given that its imports of LNG in fiscal 2011 rose 18% over 2010 to a record 83.18 million tons due to the shutdown of the nuclear reactors.

The extra imports of LNG gave Japan its first trade deficit for 31 years, and one that is expected to continue in fiscal 2012. SMBC Nikko Securities Inc. estimates that Japan’s imports of LNG in 3Q12 will grow by 300 billion yen to 1.62 trillion yen.

Ken Koyama, chief economist at Japan’s Institute of Energy Economics recently explained his country’s interest in U.S. exports of LNG and how Japan might be able to lower its procurement costs while also ensuring a stable fuel supply.

“Japan’s LNG import prices are now around $16-$17 per million British thermal units (BTU) on a long-term contract basis, and the spot price has recently topped $18 per million BTU,” Koyama told Nikkei business daily. “By contrast,” he said, “major benchmark prices for natural gas in the U.S. stand at $2.”

According to Koyama, the “huge gap” in prices is attributable to different pricing methods: “In the U.S., the supply-demand balance determines natural gas prices. LNG prices for Japan, meanwhile, are linked to crude oil prices.”


At the same time, Koyama noted that growing production of shale gas in the U.S. has contributed to a market glut, which in turn is pushing down gas prices. By contrast, higher crude oil prices have sent LNG prices higher in Japan.

Koyama spelled out the difference in price by noting that the first U.S. exports of LNG for Asia will be sent to South Korea from Louisiana, and the price will be set based on the U.S. benchmark price.

“Suppose that the benchmark price is $2 and it costs $6 for liquefaction and transport, the price will be $8-$9 when the gas reaches Asia, much cheaper than the current $16-$17,” Koyama said.

Given the enormous potential savings, there can be little wonder that Japan’s Prime Minister Yoshihiko Noda raised the gas-export issue with President Barack Obama at an April 30 meeting in Washington, D.C.

No decision was made back then, and Japanese officials attributed this week’s decision to the current political situation in the United States.


“It is difficult for the U.S. to say yes [to exports] because of the presidential election,” said Hirohide Hirai, director of the petroleum and natural-gas division of Japan’s economy ministry. “There won’t be any deal with any country before November.”

To a certain extent, that may be true. Debate over U.S. natural gas is alive and well in the country, with advocates saying there is more than enough to meet domestic demand, while others insist that the gas should be available only for domestic consumption.

While that argument rages on, the real reason for turning down Japan’s request seems more related to its position on accepting U.S. exports of automobiles, beef, and insurance – issues that Obama raised with Noda at their summit in April.

Japan wants to join the Trans-Pacific Partnership, a free trade grouping that includes the United States, Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.


But approval of Japan’s bid hinges on obtaining consent from Congress and U.S. industry – especially U.S. automakers. They say that Japanese regulations bar them from penetrating the nation’s auto market and that the bilateral trade imbalance will widen if Japan joins the tariff-cutting framework.

“The many barriers that have kept imports out have to be corrected before Japan can be seriously considered to be a partner in any trade agreement,” said Stephen Biegun, Ford’s vice president for international governmental affairs.

“Japan is the third-largest auto market in the world,” Biegun told the Nikkei, “but has barely 5% of the market penetrated by imports.”


“The TPP is a key element of the Obama administration strategy to make U.S. engagement in the Asia-Pacific region a top priority,” according to U.S. trade officials.

Cheap U.S. natural gas is a carrot, a form of energy diplomacy,  to encourage countries around the globe to take up better trade relations with Washington. For that reason alone, one could hardly expect the U.S. president to make an exception over LNG for Japan — it would contradict his own policy.

But especially in the run-up to this year’s presidential election, no candidate would want to risk the ire of the U.S. auto industry: whether the votes of the United Auto Workers or the campaign funds of the Big Three.

Worse, a “Yes” on exports of U.S. LNG for Japan would likely bring the UAW and the Big Three together in opposition. That’s a combination powerful enough to give any candidate pause to reflect.

© Glamma Productions Inc. 2012

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More Saudi oil, more unconventional gas coming

By Eric Watkins

LOS ANGELES, May 30 – Even as the International Energy Agency touted the coming Golden Era of Gas, Saudi Aramco released Aiming Higher, a review of 2011 showing the firm’s increased output of crude oil, with more on the way in the coming year.

“Social and political unrest affected parts of the Middle East, while many nations struggled to boost economic growth against a backdrop of high unemployment and large national debt,” said Saudi Arabia’s Minister of Petroleum and Mineral Resources, Ali I. Al-Naimi.

“Such circumstances point to the need for steadfast consistency and readiness for swift and decisive action on the part of energy companies and policymakers alike,” Al-Naimi said in Aiming Higher.

The Saudi minister had no hesitation in stating the role played by Saudi Aramco during the unrest of 2011, saying it supported global energy security and petroleum market stability through “the continuing reliability of its operations and its investment in significant spare production capacity.”


Al-Naimi also alluded to the role played by Saudi Aramco’s spare capacity in the current international impasse with Iran.

“Historically, our spare capacity has been tapped to compensate for production disruptions and declining supply from other major suppliers, and is a cornerstone of the Kingdom’s forward-looking energy policy,” he said.

“As Saudi Aramco continues to meet growing international and domestic demand for energy, the company is taking great steps to expand the role it plays in the energy industry and the petroleum sector,” Al-Naimi said.

That view was echoed by Saudi Aramco President Khaled A. Al-Faleh, who said: “We will continue to lead the world in upstream technologies that significantly improve the rate of recovery from our fields and contribute to the discovery of additional hydrocarbon resources to meet the needs of our fellow human beings.”


The Saudi Aramco report underlined the Kingdom’s importance regarding the world’s oil reserves and production, saying it holds the world’s largest proven conventional crude oil and concentrate reserves at 259.7 billion barrels (bbl).

It also stated that the Kingdom controlled 13.3% of the world’s crude oil output in 2011, producing an average of 9.1 million b/d of crude oil production, a figure annualized at 3.3 billion bbl of crude oil.

The Saudi Aramco report stressed the Kingdom’s increased efforts in gas production, saying it focused heavily on major offshore developments in the Arabian Gulf, as well as its new facilities for gas processing and natural gas liquids fractionation.

According to the report, Saudi Arabia currently holds the world’s fourth-largest natural gas reserves of 282.6 trillion standard cubic feet (scf), and in 2011 produced 9.9 billion scf per day of gas, annualized to 3.6 trillion scf.


Saudi Arabia is also turning to the development of its unconventional gas reserves, which may rival its conventional gas reserves, according to the report.

“The development of new technology in areas of reservoir imaging, production enhancement, fracture detection and drilling optimization has dramatically improved the feasibility and affordability of unconventional gas production,” the report said.

Saudi Aramco’s unconventional gas program aims to augment conventional gas supplies to satisfy the growing demand for energy in the Kingdom well into the future, enabling the firm to “allocate crude oil toward high-value streams.”

The Saudi report coincided with release of the IEA’s special World Energy Outlook report on unconventional gas, called Golden Rules for a Golden Age of Gas – an age that looks increasingly possible if the right procedures are followed.


“The technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way,” said IEA Executive Director Maria van der Hoeven.

“But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks,” van der Hoeven said.

“The industry must win public confidence by demonstrating exemplary performance; governments must ensure that appropriate policies and regulatory regimes are in place,” she said.

The report argues that there is a critical link between the way governments and industry respond to these social and environmental challenges and the prospects for unconventional gas production. Depending on those responses, IEA sets out two possible future directions for unconventional gas.


In what it calls a “Golden Rules Case,” the application of these rules helps to underpin a brisk expansion of unconventional gas supply, which has far-reaching consequences:

  • World production of unconventional gas, primarily shale gas, more than triples between 2010-35 to 1.6 trillion cubic meters.
  • The United States becomes a significant player in international gas markets, and China emerges as a major producer.
  • New sources of supply help to keep prices down, stimulate investment and job creation in unconventional resource-rich countries, and generate faster growth in global gas demand, which rises by more than 50% between 2010 and 2035.

In a Low Unconventional Case where no Golden Rules are in place, IEA said a lack of public acceptance means that unconventional gas production rises only slightly above current levels by 2035. Among the results:

  • The competitive position of gas in the global fuel mix deteriorates amidst lower availability and higher prices, and the share of gas in energy use barely increases.
  • Energy-related CO2 emissions are higher by 1.3% compared with the Golden Rules Case but, in both cases, emissions are well above the trajectory required to reach the globally agreed goal of limiting the temperature rise to 2°C.

IEA said that the Golden Rules underline the importance of full transparency, measuring and monitoring of environmental impacts and engagement with local communities; careful choice of drilling sites and measures to prevent any leaks from wells into nearby aquifers.

They also include rigorous assessment and monitoring of water requirements and of wastewater; measures to target zero venting and minimal flaring of gas; and improved project planning and regulatory control.

© Glamma Productions Inc. 2012

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Japan to continue to import Iran’s oil

By Eric Watkins

LOS ANGELES, May 29 – What gives? The incoming head of the Petroleum Association of Japan said the country’s oil industry will work with the government to make sure Iran’s oil continues to flow into the country despite U.S. and E.U. sanctions.

“With an eye toward maintaining stable procurement, we will continue to deal (with Iran) properly,” said Yasushi Kimura, recently appointed Chairman of JX Holdings and President of JX Nippon Oil & Energy Corp.

“We hope a measure that will enable insurance coverage will be realized through the cooperation of shipping companies, insurers and the government,” Kimura said, referring to Brussels’ ban on insurance companies within the E.U. from providing insurance or reinsurance related to oil transactions with Iran.

Earlier this month, the Japanese government said it was considering a new law that would enable the government to cover most of the insurance benefits removed by the sanctions for domestic shipping companies transporting Iran’s oil.


The law, yet to be approved or implemented, is meant to allay concerns that Japanese shipping firms would be unable to carry Iranian crude due to a sharp reduction in the amount of insurance money that could be paid out in case of accidents.

Japan has expressed the desire to continue importing Iran’s oil for a variety of reasons, not least that Tokyo does not want to adversely impact its long-term relations with the Islamic Republic – which controls about 10% of the globe’s oil supplies.

“It would not be easy to resume once we terminate our stable, long-term dealings with Iran,” said one Japanese official. Given Japan’s recent turmoil over nuclear power generation, that view is understandable.

Japan’s oil demand for thermal power generation roughly doubled in the fiscal year ended March as nuclear reactors remained closed, according to Akihiko Tembo, Kimura’s predecessor at the Petroleum Association of Japan


The International Energy Agency recently spelled out the situation for Japan’s increased oil imports following closure of the country’s 50-plus nuclear reactors after the disaster at its Fukushima Daiichi plant in March 2011.

“OECD Pacific demand remains supported by the nuclear-related shutdowns in Japan, with preliminary consumption of 8.4 million b/d in March, 335,000 b/d (4.2%) more than the corresponding month in 2011,” IEA said in its May report.

IEA said its 2012 demand outlook for Japan remains “unchanged for now at 4.5 million b/d” but it noted that the nuclear closures bring “an additional layer of uncertainty” to the forecast.

“We continue to assume a very gradual nuclear recovery towards end-2102, although a zero-nuclear case has only a marginal impact and would raise our oil demand projections by 80,000 b/d for 2012 as a whole,” IEA said.


The effect of a zero-nuclear case was underlined last month by Tembo who said that Japan’s oil demand for thermal power generation will remain strong this summer even if the Oi No.3 and No.4 reactors are restarted.

As Tembo put it, two working reactors alone can’t compensate for the country’s lost nuclear output.

If anyone doubts Tokyo’s resolve in seeking to reduce the country’s reliance on Iranian oil, they need to think again – especially in light of recent figures that show Japan’s oil imports from Iran dropping 36% on the year in March.

According to a preliminary report from Japan’s Agency for Natural Resources and Energy, the country’s overall crude oil imports rose 11% from a year earlier, largely due to stronger energy demand as a result of the nuclear meltdown.


Despite that increased demand, Japan’s imports from Iran dropped by 760,000 kiloliters on the year to 1.33 million kl. To make up the difference, Japan increased imports from Saudi Arabia by 14%, or 850,000 kl, to 6.78 million kl in March, while imports from Kuwait jumped by nearly 50%.

Japan is clearly pulling its weight when it comes to sanctions against Iran, and no one can expect a complete shut down of its imports from the Islamic Republic.

That’s why the U.S. in March said it was exempting 11 nations, including some E.U. members and Japan, from tough new sanctions on Iran, saying those countries were reducing their dependency on oil from the Islamic Republic.

Japan’s efforts to continue receiving Iran’s oil are not part of sanctions busting. Those efforts are being undertaken responsibly against a background of sharply declining imports from Iran despite the haunting specter of sharply increased — and increasing — domestic demand.

Japan is on course with sanctions.

© Glamma Productions Inc. 2012

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U.S., China wage war of words over solar panels

By Eric Watkins

LOS ANGELES, May 28 – A war of words has broken out after China filed a complaint with the World Trade Organization in response to the earlier decision by the United States to impose anti-dumping penalties against Chinese solar panel makers.

“China firmly opposes the abuse of trade remedy measures and trade protectionism,” said China’s Ministry of Commerce, referring to a number of products including solar panels, which were recently subjected to punitive tariffs imposed by the U.S. Department of Commerce.

U.S. trade officials did not take kindly to China’s decision to approach the WTO, suggesting that Beijing was knee jerking.

“China’s resort to dispute settlement is premature and not an appropriate use of dispute settlement system resources,” said Nkenge Harmon, a spokeswoman for the U.S. Trade Representative’s office.

“This step by China suggests that China does not really care what the United States does; rather, China has determined without benefit of the facts that whatever the United States does will fall short of what China would like to see,” Harmon said.


What China would like to see is a relaxation of the U.S. decision to impose tariffs on Chinese-made solar panels, made under the claim that Chinese companies are improperly flooding the U.S. market with government-subsidized products.

The DOC issued anti-dumping duties of 31.14% on imports of solar cells and panels from Suntech, 31.22% from Trina Solar, 31.18% from other companies that had requested but not received individual duty determinations and 249.96% from all other Chinese producers.

U.S. solar industry firms, which had initiated their complaint against China last fall, welcomed the decision by the DOC.

“Today, SolarWorld and the many industry players who embrace the sustainable efficiency gains and price declines that come from fair competition can take heart that the U.S. government is standing up against Big China Solar,” said Gordon Brinser, president of SolarWorld Industries America Inc.

SolarWorld issued a statement contending that the government of China has “showered” its manufacturers with support to cover costs in many phases of their business lives, spur them to massively overbuild production capacity, export more than 90% of production and sell solar products at dumped prices in the U.S. market.


“The National Renewable Energy Laboratory estimates that without such sponsorship, Chinese producers confront a 5% cost disadvantage in producing and delivering solar into the U.S. market, compared with domestic producers,” SolarWorld said.

“Commerce’s careful measures could help thwart China’s illegal drive to control the solar market and supplant manufacturers and jobs in America, the very country that invented, pioneered and innovated solar to today’s mainstream viability,” said Brinser, also leader of the Coalition for Solar Manufacturing.

But it is not altogether clear that Brinser’s desires will be fulfilled.


According Chinese state media, the global solar power industry is being hit by slowing demand and falling prices. But Suntech shows no sign of a downturn even in the face of the proposed U.S. tariffs.

“The production line is operating normally. And we are well prepared with our internationalized production,” Suntech spokesman Zhang Jianmin told China Daily. Suntech exported 460 megawatt modules to the U.S. last year, accounting for 23% of the company’s total global shipments.

“It is impossible to remain price-competitive with a tariff of 31%,” said Zhang.

But the U.S. tariffs apply only to solar cells, not to the modules in which they are assembled. That means firms on the Chinese mainland can serve the U.S. market provided they use cells from alternative sources.

Zhang told China Daily that the use of solar cells manufactured in Taiwan will push the price of his company’s modules higher, but he insisted that the company’s products will none the less remain competitive in the U.S. market.


CEOs from Changzhou-based Trina Solar and Suzhou-based Canadian Solar told China Daily that they also are using cells made outside the Chinese mainland to avoid the prospective tariff.

“The cost will be higher with the U.S. duties on Chinese solar products. However, the increased cost will be transferred to the downstream U.S. distributors, installers, and consumers,” said Gao Jifan, CEO of Trina Solar.

Meanwhile, China’s Ministry of Commerce is eyeing the U.S. very carefully for violations of trade rules, last week announcing that it uncovered six U.S. policies that support or subsidize the country’s renewable-energy industry, in contravention of WTO rules.

Chinese officials had no compunction is stating that retaliation over the solar panel tariffs is the purpose behind their search for U.S. violations of WTO policies

Ren Yifeng, executive secretary-general of the China Society for WTO Studies, said that China’s move in uncovering the alleged U.S. subsidies is aimed at hitting back at the anti-dumping duties imposed on Chinese solar products.


But executives in China’s solar industry called for reason to prevail to avoid an all-out trade war that would, at the very least, hamper development of new energy.

“I hope all industry insiders take action to avoid a ‘world war’ in the solar industry, because fighting each other will not help to promote new energy,” said Canadian Solar CEO Shawn Qu. “What we should do is play according to the market rules, and make solar cheaper and cheaper.”

He’s got a point there. But this is an election year, and there are more voters in the U.S. solar industry than there are in China’s – at least as far as the Obama administration is concerned. As for price making a difference, well, U.S. voters are much more concerned about gas pumps than solar panels.

The only war we’ll see between the U.S. and China over solar panels is a war of words.

© Glamma Productions Inc. 2012

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