global developments

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Tom Whipple, Editor Current Developments Global Middle East Africa South Asia North America Europe Discussion & Analysis THE NIGHTMARE RETURNS Global Developments 1. NYMEX, BRENT CRUDE PRICES CONVERGE NEW YORK (Dow Jones, Saturday, July 20, 2013) -- U.S. oil prices settled just two cents below Brent crude, marking the closest that the two contracts have traded in nearly three years. Light, sweet crude for August delivery settled a cent higher at $108.05 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 63 cents, or 0.6%, lower at $108.07 a barrel. The Nymex contract hit an intraday high of $109.32 a barrel, briefly trading at a premium to Brent, before shedding most of its gains by the afternoon. Crude futures on the Nymex erased a more than $20 a barrel discount to Brent over the last five months, as pipelines and railroads drain record supplies that had accumulated across the U.S. Midwest. The erasure of the gap between the two benchmarks signals the end of a popular trade among investors, and is a sign that the price of oil paid by U.S. refiners once again reflects conditions in the global market. "WTI has reconnected itself to the world oil market," said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm. Domestic oil has for years traded at a discount to global crude, the result of a combination of booming North American oil production and a shortage of pipelines that could bring the oil to market. Newly exploited oil deposits from North Dakota and Canada piled up at storage depots in the Midwest. (move) Association for the Study of Peak Oil & Gas USA Saturday, July 20, 2013

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Page 1: Global Developments

Tom Whipple, Editor

Current Developments

Global Middle East Africa South Asia North America Europe

Discussion & Analysis

THE NIGHTMARE RETURNS

Global Developments

1. NYMEX, BRENT CRUDE PRICES CONVERGE NEW YORK (Dow Jones, Saturday, July 20, 2013) -- U.S. oil prices settled just two cents below Brent crude, marking the closest that the two contracts have traded in nearly three years. Light, sweet crude for August delivery settled a cent higher at $108.05 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 63 cents, or 0.6%, lower at $108.07 a barrel. The Nymex contract hit an intraday high of $109.32 a barrel, briefly trading at a premium to Brent, before shedding most of its gains by the afternoon. Crude futures on the Nymex erased a more than $20 a barrel discount to Brent over the last five months, as pipelines and railroads drain record supplies that had accumulated across the U.S. Midwest. The erasure of the gap between the two benchmarks signals the end of a popular trade among investors, and is a sign that the price of oil paid by U.S. refiners once again reflects conditions in the global market. "WTI has reconnected itself to the world oil market," said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm. Domestic oil has for years traded at a discount to global crude, the result of a combination of booming North American oil production and a shortage of pipelines that could bring the oil to market. Newly exploited oil deposits from North Dakota and Canada piled up at storage depots in the Midwest. (move)

Association for the Study of Peak Oil & Gas USA

Saturday, July 20, 2013

Page 2: Global Developments

2. WTI CRUDE EXCEEDS BRENT FOR FIRST TIME IN ALMOST THREE YEARS (Bloomberg, Saturday, July 20, 2013) -- West Texas Intermediate crude became more expensive than Brent for the first time in almost three years as pipeline and rail shipments helped clear a bottleneck that reduced the price of the U.S. benchmark. WTI hadn't been higher than Brent since Aug. 17, 2010. The move was in intraday trading. WTI averaged $17.47 less than Brent in 2012 and traded as much as $23.44 lower than its European counterpart Feb. 8. Improved pipeline networks and the use of rail links are helping to ease the North American oil glut created by rising production of crude from shale formations. WTI has jumped 18 percent this year, while Brent has decreased 2.5 percent as North Sea supplies stabilized after maintenance. "The price change reflects the changing balance in the market," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "It's the perception of traders that you are not going to have the surplus in the U.S. longer term. We are having more rail and pipeline capacity." WTI for September delivery rose to as much as 3 cents above Brent futures for the same month in intraday trading. WTI settled at a 20-cent discount to the U.S. benchmark. (move)

3. WTI CRUDE CAPS FOURTH WEEKLY ADVANCE AND SURPASSES BRENT (Bloomberg, Saturday, July 20, 2013) -- West Texas Intermediate capped a fourth weekly gain as the U.S. showed signs of economic recovery and as crude inventories dropped. WTI exceeded Brent for the first time since 2010 in intraday trading. Prices settled at a 16-month high as Moody's Investors Service revised the U.S.'s Aaa credit-rating outlook to stable from negative. Crude supplies tumbled 27.1 million barrels in three weeks ended July 12, the most in weekly statistics dating to 1982. WTI surpassed Brent by as much as 3 cents as pipeline and rail shipments helped clear a U.S. bottleneck. "Improved economic conditions here in the United States continue to boost the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "We have a tightening supply outlook. The Brent-WTI spread has moved a lot. Nothing seems to be able to stop it." WTI for August delivery, which expires on July 22, settled up 1 cent at $108.05 a barrel on the New York Mercantile Exchange, the highest level since March 19, 2012. Trading was 28 percent above the 100-day average for the time of day at 2:48 p.m. Prices increased 2 percent this week, extending July's gain to 12 percent. The more-active September contract advanced 6 cents to $107.87. (move)

4. GASOLINE ADVANCES AS SHUTDOWNS MAY CRIMP NEW YORK HARBOR SUPPLY (Bloomberg, Saturday, July 20, 2013) -- Gasoline jumped to the highest in four months on speculation that refinery shutdowns in Canada and Philadelphia may crimp New YorkHarbor supply. Futures rose as much as 1.7 percent as Philadelphia Energy Solutions' refinery idled an alkylation unit, which might affect the fluid catalytic cracker. Korea National Oil Corp.'s Come by Chance refinery in Newfoundland shut units for repair. Irving Oil Corp., an exporter to the U.S. Northeast, has idled multiple units, including two catalytic crackers, at its St. John, New Brunswick, plant, according to Genscape Inc., a Louisville, Kentucky-based energy information provider. "The alky at Philadelphia Energy Solutions is impacting gas production and, generally, you have to cut back the cat as well," said Andy Lipow, president of Lipow Oil Associates LLC in Houston. "Irving has been a significant buyer of gasoline for resupply and the cat crackers and the crude units could be down for several weeks." August-delivery gasoline rose 3.88 cents, or 1.2 percent, to $3.1486 a gallon at 10:23 a.m. on the New York Mercantile Exchange on trading volume that was 18 percent above the 100-day average for the time of day. Prices touched $3.1632, the highest intraday price since March 15 and are up 0.9 percent this week. Gasoline's crack spread versus WTI widened $1.279 to $23.851 a barrel, after dropping 12 percent yesterday. The fuel's premium to Brent gained $1.344 to $20.53. (move)

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5. ASIAN COAL USE GROWS DESPITE GAS CHALLENGE Economic Reality Is Trumping Pollution Worries in the Region (Wall Street Journal, Saturday, July 20, 2013) -- Sometimes dismissed as the dirty fuel whose day is nearly over because of environmental concerns and ballooning output of cleaner-burning gas, coal is on a roll in Asia, with governments across the region ordering new coal-fired power stations. Economic realities are outweighing worries about pollution, and coal's lower cost means its share of the energy mix in most Asian countries will rise for years, or even decades ahead. While investments in more expensive and cleaner power production are continuing, a greater emphasis on coal will provide life support for some mining companies grappling with a demand downturns elsewhere.

A file photo taken on April 25, 2012, shows coal being stockpiled at the port of Newcastle, Australia. It is the reverse of the scenario in the U.S., where coal's dominance is being usurped by fast-growing and cheap shale-gas output, prompting a rise in coal exports, some of which is making its way to Asia. In the U.S., gas sells for around a quarter the price it does in Asia. The fastest shift to coal is in Southeast Asia, where local gas output can't keep up with energy demand and increasingly available supplies of Australian and Qatari gas are seen as too costly. Southeast Asians are embracing coal even as additional gas projects are rolling out around the world, including in Russia, East Africa, not to mention North America. (move)

Middle East & North Africa

6. ALGERIAN ENERGY SECTOR IN DECLINE AMID SECURITY CONCERNS ALGIERS, Algeria, July 19 (UPI) -- Algeria's oil industry, its economic mainstay, is in decline amid dramatic changes across the Arab world that could yet bring political upheaval to the pivotal North African state, a major gas supplier to Europe.

Page 4: Global Developments

"There's little indication that the oil and gas sector is going to come out of its slump any time soon," warned analyst Richard Nield. "For a country that has emerged relatively unscathed from the worst effects of the global financial crisis, and which has continued to use its oil revenues to accumulate vast reserves of foreign exchange, Algeria's economy remains weak on a worryingly large number of fronts." The ruling elite's belief it had insulated itself from the tumultuous pro-democracy convulsions of the so-called Arab Spring, largely by using its petrodollars to muffle dissent, was rudely shattered in January when jihadists seized the sprawling In Amenas gas complex in the southeastern Sahara. Algerian Special Forces ended a four-day siege with a take-no-prisoners assault in which most of the 40 attackers were killed, along with 37 expatriate technicians. Six months later, Britain's BP and Norway's Statoil, who operate the plant with Algeria's state oil company Sonatrach, still balk at sending back foreign staff amid squabbles with the government over security. The Algerian military has In Amenas and other energy facilities under heavy guard these days. But the security crisis has added to Algeria's concerns about the slump in its energy sector, which accounts for 60 percent of budget revenues. (move)

7. IRAQ: BOMB EXPLODES IN MOSQUE (AP, Saturday, July 20, 2013) -- A bomb hidden in an air-conditioner that ripped through a Sunni mosque in Diyala Province during midday prayers killed at least 22 people on Friday, the police said, extending a wave of violence against worshipers during the holy month of Ramadan. Suicide attacks, car bombings and other violence have killed nearly 200 people since Ramadan began last week. Friday's explosion hit the Abu Bakir al-Sideeq mosque in the town of Wijaihiya, which is about 50 miles northeast of Baghdad. The police and hospital officials said the blast had also wounded more than 50 people. Also, attacks near the city of Mosul, 225 miles northwest of Baghdad, killed four people, officials said. More than 2,800 people have been killed in bombings and shootings in Iraq since April. (move)

8. THE NIGHTMARE RETURNS

(The Economist, Saturday, July 20, 2013) AFTER a lull of nearly five years during which it seemed as if Iraq might be emerging from the legacy of its civil war, the country has been drawn back into a nightmare of spiralling attacks on a widening range of targets. The past four months have been among the bloodiest since

Page 5: Global Developments

2008; nearly 3,000 people have been killed and over 7,000 injured. But the Islamic State of Iraq, the latest incarnation of al-Qaeda, now appears to have broadened its scope from its trademark attacks on security forces and Shia mosques and markets, to suicide-bombings of cafés and funeral gatherings. In the north in Diyala, Kirkuk and Nineveh provinces and in Anbar province in the west, a struggle for control between a resurgent al-Qaeda, newer Sunni extremist groups and re-emerging Shia militias is fuelling a lethal mix. Iraqi security officials say they have captured or killed more than 70% of al-Qaeda’s people in Baghdad and that successful attacks on police stations and government ministries have waned. But outside the capital, the threat is mounting. Al-Qaeda has regrouped in the surrounding tribal areas that have traditionally been used as staging posts for attacks on Baghdad. Regular strikes on police patrols and army checkpoints, as well as daily assassinations of officers and interior-ministry people, have kept security forces on the defensive. (move)

9. EGYPT'S DEADLY POLITICAL STALEMATE DRAGS ON Thousands rally in support of ousted President Morsi in Cairo and elsewhere, while opponents also hold demonstrations. (Al Jazerra, Saturday, July 20, 2013)At least three people have died after clashes between loyalists and opponents of ousted Egyptian president Mohamed Morsi, as tens of thousands of people have demonstrated in cities across Egypt. The three people were killed during clashes between rival demonstrators in the Nile Delta town of Mansoura, Al Jazeera's Rawya Rageh reported from Cairo, the capital. At least six others were injured in those clashes. The country's military, meanwhile, has warned that it may crack down violently on any future mass protests against the overthrow of the president that it carried out on July 3. A vast pro-Morsi crowd gathered at Cairo's Rabaa al-Adawiya mosque on Friday, where the former president's supporters have camped out since the military overthrew him. About 10,000 protesters then set off in the direction of an elite military compound, scene of the deadliest violence since Morsi's overthrow, carrying pictures of the deposed president and chanting slogans. They were blocked by soldiers and armoured vehicles. "Islamic, Islamic," they shouted, of their hopes for an Islamic state, as formations of fighter jets flew overhead and military helicopters whirled in the sky. (move)

10. RAS TANURA OIL-TANKER CAPACITY SEEN JUMPING 29% IN LATEST WEEK (Bloomberg, Saturday, July 20, 2013) -- The combined carrying capacity of oil tankers calling at Saudi Arabia's Ras Tanura jumped 29 percent in the week ended July 13, vessel-tracking data compiled by Bloomberg show. The implied capacity of vessels calling at the world's largest crude-export complex expanded to the equivalent of 9.61 million barrels a day from 7.46 million barrels for the prior week, according to signals gathered by IHS Fairplay, a Redhill, England-based maritime research company. The data may be incomplete because not all transmissions are captured. The Ras Tanura complex, including Ras al-Ju'aymah, is the biggest global crude terminal, according to the website of Saudi Arabian Oil Co., known as Saudi Aramco. Tankers hauling crude from the Persian Gulf may call at other loading ports before or after Ras Tanura, indicating they might have collected partial cargoes elsewhere. The table below lists the destination countries of tankers calling at Ras Tanura in the latest week as of about 10 a.m. London time today. The percentages represent the share of the total number of ships loading at the terminal that each country is due to receive. Very large crude carriers are assumed to carry 2 million barrels apiece, twice as much as Suezmax tankers. The tally excludes vessels smaller than Aframaxes, each holding about 650,000 barrels. (move)

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11. ISRAEL'S DILEMMA: WHERE TO SELL THE EAST MED GAS TEL AVIV, Israel, July 18 (UPI) -- The Israeli government, rejoicing in the Jewish state's growing reserves of natural gas off its Mediterranean coast and the possibility of oil as well, is wrestling with the geopolitical ramifications this energy wealth has brought in its train. The problem is whether to build a natural gas pipeline under the Mediterranean to Turkey to reach the European market, and risk antagonizing Russia which sees Europe as its turf, or go for liquefying the gas for shipping via the Red Sea to China and the high-value Asia market, and possibly annoy the United States. As Israel stands on the brink of becoming a significant energy power in the region, lawmaker Isaac Herzog, chairman of the opposition Labor Party parliamentary group, observed: "This is a strategic turning point, which turns Israel from a resource-poor country ... into a country with important strategic national resources. "The wise use of natural gas resources can contribute to national strength ... and change the geopolitical balance of regional power ... The gas fields are more than an economic resource, they are primarily a strategic resource. "The Middle East has been undergoing dramatic changes in the past few years, and they are far from over," Herzog wrote in Globes, Israel's business daily. "The U.S. has gradually withdrawn from policies of military and political intervention which characterized it in the previous decade, and its ability to influence regional governments is sharply waning. (move)

Sub-Saharan Africa

12. NIGERIAN LAWMAKERS WANT SHELL, ENI OIL AWARD REVOKED (Bloomberg, Saturday, July 20, 2013) -- Nigeria should revoke oil rights for which Royal Dutch Shell Plc (RDSA) and Eni SpA (ENI) paid $1.1 billion, a parliamentary committee said, alleging that the acquisition process was "highly flawed." Shell and Eni jointly bought Oil Prospecting License 245 from Malabu Oil & Gas Ltd., controlled by Dan Etete, a former oil minister, in 2011. Located in the deep offshore waters of the Gulf of Guinea, it is estimated to hold at least 9 billion barrels of crude reserves worth $1 trillion, according to a probe report by a House of Representatives committee filed as a public record and provided to Bloomberg yesterday. Unfortunately our national interest, knowingly or unknowingly, was ceded away to the two oil majors," the committee said. The sale violates a law to promote increased Nigerian ownership of oil assets by giving foreign companies 100 percent ownership as well as the country's tax regulations, the report said, alleging a "lack of transparency and full disclosure" by Shell in acquiring the license. Nigeria is Africa's largest oil producer, with Shell, Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total SA (FP) and Eni running joint ventures with state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the country's oil. The West African nation produced 1.83 million barrels a day of oil in June, according to data compiled by Bloomberg. Bonny Light crude, a key export grade from Nigeria, rose 0.1 percent to $109.98 at 2:40 p.m. in London, the highest in more than three months. (move)

13. CHINA TAKES STEP TO FINANCIAL REFORM (Financial Times, Saturday, July 20, 2013) -- China's central bank has liberalised tightly controlled interest rates in a clear sign of Beijing's intention to tackle the difficult financial reforms that economists say are needed to keep the Chinese economy on track. On Friday, the People's Bank of China said it was scrapping a decades-old floor on the discount that Chinese banks can offer for commercial interest rates - the biggest change to the country's interest rate regime since caps on lending rates were removed in 2004. But the highly symbolic move marked something of a bureaucratic defeat for the central bank, which had hoped to liberalise the ceiling on bank deposit rates at the same time, according to people familiar with the matter. In a statement, the PBOC said the main reason for not removing caps on interest rates for deposits was because the implications of that reform were much greater and the risks of implementing it much higher. "We must

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proceed [with this reform] in an orderly manner once all the necessary preconditions are in place," the bank said. The main opponents of deposit-rate liberalisation are China's state-owned banks, which depend on the spread between artificially low deposit rates and lending rates to stay profitable. (move)

South Asia

14. INDIA PAYS A HIGH ECONOMIC PRICE FOR POLLUTION: STUDY NEW DELHI, July 18 (UPI) -- The annual cost of environmental degradation in India is about $80 billion, or 5.7 percent of the country's gross domestic product, says a new report by the World Bank. The report, "Diagnostic Assessment of Select Environmental Challenges in India," released Wednesday, analyses the trade offs between economic growth and environmental sustainability. The Organization for Economic Cooperation and Development last month said that India "has probably recently" surpassed Japan to be world's third largest economy, after the United States and China. But the World Bank in its report says that India cannot continue on a path of "grow now and clean up later" and warns that failure to address environmental challenges could constrain the country's long-term productivity. "India has performed remarkably economically, but that's not reflected in its environmental outcomes," said Muthukumara Mani, the World Bank's senior environmental economist and author of the report, the Financial Times reports. "'Grow now, clean up later' really doesn't work." The study focuses on PM10, which refers to air pollution particles up to 10 micrometers in size, mostly from the burning of fossil fuels. The study includes scenarios showing the economic effects of reducing the PM10 particulates. If India were to reduce its particulate emissions 10 percent by 2030, for example, it would represent a loss of 0.3 percent to the GDP. Reducing particulate emissions by 30 percent would lower GDP by about $97 billion, or 0.7 percent, the study says. (move)

North America

15. API: U.S. JUNE OIL USE DOWN 1% VS YEAR EARLIER AT 18.727M B/D --U.S. second-quarter oil use down 0.3% vs. year earlier, at 18.593 million barrels a day

--Gasoline use down 2% in second quarter vs. year earlier, at 8.775 million barrels a day

--Crude imports down 12.2% in second quarter vs. year earlier at 7.789 million barrels a day NEW YORK (Dow Jones, Saturday, July 20, 2013) -- U.S. oil demand fell 1% in June to 18.727 million barrels a day, the lowest level for the month in 16 years, the American Petroleum Institute said Thursday. In the second quarter, demand was 0.3% lower, at 18.593 million barrels a day. Demand for gasoline, the most widely used petroleum product in the world's biggest oil consumer, fell 1.9% from a year earlier to a 12-year June low of 8.865 million barrels a day. Second-quarter gasoline use was 2% lower than in the same period in 2012, at 8.775 million barrels a day. "The latest data continues to reflect the uncertainty visible in the broader economy," John Felmy, API's chief economist, said in a statement. "Domestic crude production reached a 22-year June high last month, but demand remains soft." Demand for distillate fuel, the umbrella group for diesel fuel and heating oil, rose 5.5% from a year earlier, to 3.935 million barrels a day. Within that figure, demand for ultra-low sulfur diesel fuel, used to power trucks and trains, was 6.5% higher at 3.72 million barrels a day. Second-quarter distillate use was up 4.1% from a year earlier, at 3.878 million barrels a day. Jet fuel use dropped 4.8% from a year earlier, to 1.47 million barrels a day in June, while heavy residual fuel oil, which is losing market share to cleaner-burning natural gas, saw record-low June demand of 317,000 barrels a day, down 14.7% from a year earlier, the API said. (move)

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16. LOS ANGELES GASOLINE DROPS TO FOUR-MONTH LOW ON HIGH PRODUCTION (Bloomberg, Saturday, July 20, 2013) -- Spot gasoline in Los Angeles tumbled to the lowest level in four months as production in the state jumped to a eight-year seasonal high. California-blend gasoline, or Carbob, production jumped 5.3 percent in the week ended July 12 to 7 million barrels, the most for the period since 2005, according to data compiled by the California Energy Commission. Valero Energy Corp. (VLO)'s Wilmington refinery returned its fluid catalytic cracker and alkylation unit to full rates this week after repairs. Spot Carbob in Los Angeles declined 6 cents versus gasoline futures traded on the New York Mercantile Exchange to a discount of 12 cents a gallon, according to data compiled by Bloomberg at 3:49 p.m. New York time. That's the lowest level since March 20. Carbob in San Francisco also weakened 0.5 cent against futures to a discount of 17.5 cents a gallon. Retail gasoline in California climbed 0.3 cent to $4.042 a gallon, Heathrow, Florida-based AAA, the nation's largest motoring organization, said today on its website. Conventional gasoline in Portland also fell versus futures, dropping 4 cents to a premium of 4 cents a gallon. (move)

17. TRANSCANADA SAYS KEYSTONE XL START IN 2015 'DIFFICULT' (Bloomberg, Saturday, July 20, 2013) -- TransCanada Corp. (TRP) Chief Executive Officer Russ Girling said the timeline for U.S. approval of the $5.3 billion Keystone XL pipeline project will make the start of operations in the second half of 2015 "difficult." The CEO said a final environmental impact statement from the State Department may come in "weeks, not months," after which there will be a 90-day review of whether the project is in the U.S. national interest. "I hope a decision can be made this year," Girling said today in an interview at Bloomberg headquarters in New York. If approved, Calgary-based TransCanada needs 24 months to build the pipeline, which would connect oil production from Alberta to refineries on the U.S. Gulf Coast. President Barack Obama initially rejected the project in January 2012, citing concerns with its path through ecologically sensitive lands in Nebraska. The company reapplied with a new Nebraska route last year and split the project in two, building the southern portion that doesn't require a permit first. Environmentalists oppose the project because of the potential for oil spills along its more than 2,000-mile (3,200 kilometer) route. Some opponents are also blocking it because it will transport crude from Alberta's oil-sands projects, which generate more greenhouse gases than most conventional production. "Keystone is not the driver of whether Canadian oil sands will be produced," Girling said. "They will be produced anyway." (move)

18. SENATE OKS GINA MCCARTHY AS EPA LEADER (Rigzone, Saturday, July 20, 2013) -- The Senate approved President Barack Obama's pick to head the U.S. Environmental Protection Agency (EPA) Thursday. Senators voted 59-40 to overcome Republican objections that tried to block a vote on Gina McCarthy to lead the EPA, reported the Associated Press. McCarthy, who previously served as EPA's assistant administrator for the Office of Air and Radiation, is considered a "longtime environmental champion while Republicans say the she has helped issue regulations that hurt the economy and cost jobs," AP stated. "We congratulate Gina McCarthy on her confirmation as the next EPA administrator," American Petroleum Institute President and CEO Jack Gerard said in a release. "McCarthy's confirmation comes at a critical time as our economy is recovering and America is becoming a global leader on energy. President Obama has laid out a vision for an 'all-of-the-above' energy strategy, and we hope McCarthy's leadership will align the agency's regulations with that vision" "Gina McCarthy and I have a constructive working relationship based on open and honest dialogue that will continue as we work towards the shared goal of improving the data available on the environmental impact of natural gas," added Dave McCurdy, president and CEO of the American Gas Association (AGA), in a released statement. "We look forwarding to working with Gina and her staff on that effort." (move)

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19. WATER AT RISK FROM POWER PLANTS, CLIMATE CHANGE WASHINGTON, July 19 (UPI) -- The U.S. electric power sector is putting a strain on the nation's water resources, a Union of Concerned Scientists report warns. The report -- "Water-Smart Power: Strengthening the U.S. Electricity System in a Warming World" -- released this week as much of the nation grappled with a heat wave, says more than 40 percent of U.S. freshwater withdrawals are used for power plant cooling. "But during drought or hot weather, when plants cannot get enough cooling water, for example, they often must cut back or completely shut down their generators as happened repeatedly in 2012 at plants around the country," the report said. The U.S. Department of Energy released a report last week on the effects of climate change on the energy sector, citing instances of energy disruption due to climate conditions. "Last August, Dominion Resources' Millstone Nuclear Power Station in Connecticut shut down one reactor for two weeks because the temperature of the intake cooling water, withdrawn from the Long Island Sound, was too high and exceeded technical specifications of the reactor," the government report said. (move)

20. U.S. ENERGY RIGS RISE FOR THIRD WEEK, BAKER HUGHES SAYS (Bloomberg, Saturday, July 20, 2013) -- Oil and gas rigs in the U.S. rose by 11 to 1,770 this week, according to Baker Hughes Inc. (BHI) Oil rigs rose four to 1,395, the Houston-based field services company said on its website. Gas rigs increased by seven to 369. The total U.S. count has gained three weeks in a row. Rising output from shale formations such as North Dakota's Bakken and Texas's Eagle Ford plays have boosted domestic oil production to the highest level since December 1990. The surge in output helped the nation meet 89 percent of its own energy needs in March. Natural gas for August delivery fell 2.4 cents, or 0.6 percent, to $3.788 per million British thermal units at 1:17 p.m. on the New York Mercantile Exchange, up 26 percent from a year ago. U.S. gas stockpiles gained 58 billion cubic feet in the week ended July 12 to 2.745 trillion, the Energy Information Administration, the Energy Department's statistical arm, said yesterday. Supplies were 13 percent below year-earlier levels. U.S. oil output climbed 1.2 percent to 7.49 million barrels a day last week, EIA data show. Stockpiles fell 1.9 percent to 367 million barrels. Crude for August delivery fell 4 cents to $108 a barrel today on the Nymex, up 17 percent in the past year. (move)

21. BAKER HUGHES STARTS ONSHORE WELL COUNTS HOUSTON, July 19 (UPI) -- Oil services company Baker Hughes said Friday onshore drilling in shale reserve areas in the United States was more efficient than ever. Baker Hughes said Friday it launched a quarterly assessment of drilling activity in the United States. Its well count index would provide an assessment of oil and natural gas activity onshore in the United States. "In the past couple of years, a number of new technologies have been introduced that are purpose-built for drilling and producing from shale," Baker Hughes Chairman Martin Craighead said in a statement. "When we compare well count and rig count data side-by-side, we can see that efficiencies in the U.S. are improving and that drilling rigs in some basins are drilling wells faster." For the second quarter of the year, Baker Hughes counted 8,800 new wells in service in the United States. More than 3,000 of those new wells came from the Permian and Eagle Ford basins spread across southern states. Overall, however, the company said the number of new wells in the first quarter of 2013 was 8.1 percent less than a year ago but a modest increase from the previous quarter. Baker Hughes said it would publish new well counts on the second Friday of January, April, July and October. (move)

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Europe

22. EU, CHINA AGREE ON JOINT GREEN AGENDAS BEIJING, July 19 (UPI) -- European Union and Chinese governments said they agreed to launch a joint environmental policy dialogue with the aim of ensuring a sustainable future. The EU and China said Friday they plan to launch a sustainability program to address topics of mutual environmental interest. "The environment forum would convene every two years, involve stakeholders and business and would bring a new dimension to the partnership," a statement said. Chinese Environmental Minister Zhou Shengxian met in Beijing with his European counterpart, Janez Potocnik, to discuss environmental policies. Potocnik described how the EU was working toward a resource efficient economy while the Chinese minister discussed environmental policies in place to curb air and water pollution. The EU is debating how to capitalize on environmental benchmarks established for 2020. China, for its part, said it was serious about addressing climate issues when delegates convened in Washington last week. The EU said the first joint environmental forum with China would take place in Brussels next year with "green growth" as its theme. (move)

Discussion & Analysis

23. WATER: IS THERE A GLOBAL CRISIS? (Seeking Alpha, Saturday, July 20, 2013) Introduction We hear a lot about global crises every day — terrorism, global warming, children starving, children obese, running out of oil, and population bombs. Come to think of it, crisis mongering is not new. The media loves crises: they get more watchers and consequently, more ad revenues. You might remember Paul R. Ehrlich, a Noble Prize winner and Stanford Professor. Back in 1980, he wrote “The Population Bomb” in which he claimed population growth would soon outrun the supply of food and natural resources — a real global crisis. Julian Simon, also an academic, was skeptical, so he offered Ehrlich a wager. Erhlich could choose five commodities. Simon would bet him $200 per commodity that its price would be lower at whatever future date Ehrlich chose. Ehrlich bet that the prices of chromium, copper, nickel, tin, and tungsten would be higher in a decade — 1990. As it happened, the world’s population grew more rapidly (by 800 million) 1980-1990 than in any decade in history. But Erhlich lost the bet. The prices of the commodities he chose at the end of the decade were all lower. We hear now that we have a global water crisis. In what follows, the arguments for this latest crisis will be examined with facts and analysis. Are We Running Out of Water? As Table 1 indicates, we have plenty of water. 70% of the earth’s surface is covered by water and with global warming; an increasing amount of it is in liquid form. Only 3% of it is not salted, but that is a lot. We are not running out. And keep in mind that whether we are running out of water is hardly a meaningful question. This is because unlike oil and other earth materials, we don’t “use up” water: in almost all applications — agriculture, industry, and human consumption — virtually all water immediately recycles. (move)

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1. NYMEX, BRENT CRUDE PRICES CONVERGE NEW YORK (Dow Jones, Saturday, July 20, 2013) -- U.S. oil prices settled just two cents below Brent crude, marking the closest that the two contracts have traded in nearly three years. Light, sweet crude for August delivery settled a cent higher at $108.05 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 63 cents, or 0.6%, lower at $108.07 a barrel. The Nymex contract hit an intraday high of $109.32 a barrel, briefly trading at a premium to Brent, before shedding most of its gains by the afternoon. Crude futures on the Nymex erased a more than $20 a barrel discount to Brent over the last five months, as pipelines and railroads drain record supplies that had accumulated across the U.S. Midwest. The erasure of the gap between the two benchmarks signals the end of a popular trade among investors, and is a sign that the price of oil paid by U.S. refiners once again reflects conditions in the global market. "WTI has reconnected itself to the world oil market," said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm. Domestic oil has for years traded at a discount to global crude, the result of a combination of booming North American oil production and a shortage of pipelines that could bring the oil to market. Newly exploited oil deposits from North Dakota and Canada piled up at storage depots in the Midwest. In recent months, however, pipeline and railroad companies have laid new routes allowing that crude to get to refiners on the Gulf Coast. Other refineries that had been down for maintenance have recently resumed operations. U.S. oil inventories are down 27 million barrels in the last three weeks, according to the Energy Information Administration. Earlier this year, supplies were at a record high. Among the factors draining Midwestern inventories: earlier this month, BP PLC restarted operations at its massive refinery in Whiting, Ind.; and Magellan Midstream Partners LP earlier this year reversed its Longhorn pipeline, which now carries crude from West Texas to the refinery corridor along the Gulf Coast. Still, many market observers say they were surprised by the extent of the price move. In February, Nymex crude traded at a discount of more than $23 a barrel. Crude-oil inventories at the key storage hub of Cushing, Okla., are still high. "Traders have been pricing in normalcy before normalcy has occurred," said Matt Smith, a commodity analyst at Schneider Electric . Analysts attributed the day's volatile moves to traders locking in the recent sharp rise in the Nymex contract. "We have had a heck of a run over the past couple of days," said Stephen Schork, editor of energy newsletter the Schork Report.

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Many analysts say the gap between the two contracts could re-emerge if oil begins to pile up in the Gulf Coast. Mr. Lipow said the Nymex contract could trade at a premium for some time, but will likely return to a discount if high crude demand leads refiners to import additional crude oil. Front-month August reformulated gasoline blendstock, or RBOB, settled 1.36 cents higher at $3.1234 a gallon. August heating oil settled 1.13 cents lower at $3.0894 a gallon.

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2. WTI CRUDE EXCEEDS BRENT FOR FIRST TIME IN ALMOST THREE YEARS (Bloomberg, Saturday, July 20, 2013) -- West Texas Intermediate crude became more expensive than Brent for the first time in almost three years as pipeline and rail shipments helped clear a bottleneck that reduced the price of the U.S. benchmark. WTI hadn't been higher than Brent since Aug. 17, 2010. The move was in intraday trading. WTI averaged $17.47 less than Brent in 2012 and traded as much as $23.44 lower than its European counterpart Feb. 8. Improved pipeline networks and the use of rail links are helping to ease the North American oil glut created by rising production of crude from shale formations. WTI has jumped 18 percent this year, while Brent has decreased 2.5 percent as North Sea supplies stabilized after maintenance. "The price change reflects the changing balance in the market," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "It's the perception of traders that you are not going to have the surplus in the U.S. longer term. We are having more rail and pipeline capacity." WTI for September delivery rose to as much as 3 cents above Brent futures for the same month in intraday trading. WTI settled at a 20-cent discount to the U.S. benchmark. 16-Month High August WTI futures, which expire on July 22, increased 1 cent to $108.05 a barrel on the New York Mercantile Exchange, the highest level for a front-month contract in 16 months. The September contract advanced 6 cents to $107.87. Brent for September settlement dropped 63 cents, or 0.6 percent, to $108.07 on the London-based ICE Futures Europe exchange. The difference between WTI and Brent widened to a record of $28.08 a barrel on Oct. 14, 2011, prompting Goldman Sachs Group Inc. to forecast in February 2012 that planned pipeline capacity would cause the spread to shrink. It was $19.29 at the end of last year. Goldman closed its bet on the spread on July 2 after it narrowed to $5 a barrel. Since the start of 2012, new and reversed pipelines have boosted capacity to Houston by almost 1.2 million barrels a day, with 850,000 more coming online by the end of the year, according to data compiled by Bloomberg.

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Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) switched the direction of the Seaway pipeline last year to move barrels to the Houston area from Cushing, Oklahoma, the hub that serves as the delivery point for WTI futures traded on the Nymex. More Pipelines Magellan Midstream Partners LP (MMP)'s Longhorn pipeline expansion and Sunoco Logistics Partners LP (SXL)'s Permian Express line are expected to divert more crude from Cushing in the third quarter, while TransCanada Corp. (TRP)'s southern leg of Keystone XL will increase capacity from Cushing to Houston by the end of the year. "The dynamics are changing," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "It's a sign that oil is not just sitting in Oklahoma anymore. We are getting oil out of the storage to the market." U.S. crude inventories dropped 6.9 million barrels in the week ended July 12 to 367 million, the lowest level since Jan. 18, the Energy Information Administration reported July 17. Stockpiles at Cushing decreased 882,000 barrels to 46.1 million, the lowest level since Nov. 30, according to the EIA, the Energy Department's statistical arm. "The main factor has been de-bottlenecking of the pipeline systems around Cushing," said Francisco Blanch, head of commodities research at Bank of America Corp. in New York. "WTI and Brent shouldn't trade very far apart conceptually." North Sea North Sea crude production in July is set to rise to 1.94 million barrels a day, the most since April and 3.1 percent higher than a year earlier, as the main maintenance period for the region's oilfields ended, according to loading program data compiled by Bloomberg. U.S. crude output rose 89,000 barrels a day to 7.49 million in the week ended July 5, the highest level since December 1990, EIA data showed. U.S. production has climbed as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in states including North Dakota.

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3. WTI CRUDE CAPS FOURTH WEEKLY ADVANCE AND SURPASSES BRENT (Bloomberg, Saturday, July 20, 2013) -- West Texas Intermediate capped a fourth weekly gain as the U.S. showed signs of economic recovery and as crude inventories dropped. WTI exceeded Brent for the first time since 2010 in intraday trading. Prices settled at a 16-month high as Moody's Investors Service revised the U.S.'s Aaa credit-rating outlook to stable from negative. Crude supplies tumbled 27.1 million barrels in three weeks ended July 12, the most in weekly statistics dating to 1982. WTI surpassed Brent by as much as 3 cents as pipeline and rail shipments helped clear a U.S. bottleneck.

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"Improved economic conditions here in the United States continue to boost the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "We have a tightening supply outlook. The Brent-WTI spread has moved a lot. Nothing seems to be able to stop it." WTI for August delivery, which expires on July 22, settled up 1 cent at $108.05 a barrel on the New York Mercantile Exchange, the highest level since March 19, 2012. Trading was 28 percent above the 100-day average for the time of day at 2:48 p.m. Prices increased 2 percent this week, extending July's gain to 12 percent. The more-active September contract advanced 6 cents to $107.87. Brent for September settlement slipped 63 cents, or 0.6 percent, to end the session at $108.07 a barrel on the ICE Futures Europe Exchange. Volume was 1.1 percent above 100-day average. The contract fell below WTI in intraday trading for the first time since Aug. 17, 2010. Brent settled at a 20-cent premium to the U.S. benchmark. U.S. Economy Growth in the U.S. economy, "while moderate," is proceeding even as the U.S. has enacted tax increases and spending reductions that have improved the nation's debt trajectory, Moody's said yesterday in a statement. Moody's assigned the negative outlook in August 2011, warning of a possible downgrade on concern that fiscal discipline was eroding and the economy was weakening. "We had a little bit of a risk-on trade based on economic outlook," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "Inventories have come down a lot." U.S. crude stockpiles dropped to 367 million barrels last week, the lowest level since Jan. 18, the Energy Information Administration reported July 17. Stockpiles at Cushing, Oklahoma, the biggest oil-storage hub, decreased 882,000 barrels to 46.1 million, according to the EIA, the Energy Department's statistical arm. Improving Transport The convergence between Brent, a pricing benchmark for more than half the world's oil, and WTI shows how better pipeline networks and the use of rail have helped to unlock a supply glut at Cushing. WTI, the bellwether U.S. crude, had typically been the more expensive grade until mid-2010. "The key factor driving WTI is the narrowing Brent-WTI spread, which is signaling the bottleneck is alleviating," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. Crude also advanced as the dollar weakened after Federal Reserve Chairman Ben S. Bernanke damped speculation that a reduction of U.S. monetary stimulus was imminent. The currency fell as much as 0.3 percent to $1.3154 per euro from yesterday's $1.3109. A weaker dollar boosts oil's investment appeal. Relative Strength Prices fell 0.5 percent in intraday trading on speculation this month's gain has been excessive. WTI's 14-day relative strength index was 75.2, staying above 70 for an 11th day, a sign that prices may decline. The streak of 11 days over 70 is the longest since 2002. Some investors start selling contracts when the reading crosses that threshold, seen as a sign that speculative buying has driven prices unreasonably high.

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"The speed of the rise is too fast," said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. "Investors were a little overexuberant." Implied volatility for at-the-money WTI options expiring in September was 21.8 percent, compared with 20.2 percent yesterday, data compiled by Bloomberg showed. Electronic trading volume on the Nymex was 693,771 contracts as of 3:12 p.m. It totaled 715,326 contracts yesterday, 8.5 percent above the three-month average. Open interest was 1.86 million contracts.

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4. GASOLINE ADVANCES AS SHUTDOWNS MAY CRIMP NEW YORK HARBOR SUPPLY (Bloomberg, Saturday, July 20, 2013) -- Gasoline jumped to the highest in four months on speculation that refinery shutdowns in Canada and Philadelphia may crimp New YorkHarbor supply. Futures rose as much as 1.7 percent as Philadelphia Energy Solutions' refinery idled an alkylation unit, which might affect the fluid catalytic cracker. Korea National Oil Corp.'s Come by Chance refinery in Newfoundland shut units for repair. Irving Oil Corp., an exporter to the U.S. Northeast, has idled multiple units, including two catalytic crackers, at its St. John, New Brunswick, plant, according to Genscape Inc., a Louisville, Kentucky-based energy information provider. "The alky at Philadelphia Energy Solutions is impacting gas production and, generally, you have to cut back the cat as well," said Andy Lipow, president of Lipow Oil Associates LLC in Houston. "Irving has been a significant buyer of gasoline for resupply and the cat crackers and the crude units could be down for several weeks." August-delivery gasoline rose 3.88 cents, or 1.2 percent, to $3.1486 a gallon at 10:23 a.m. on the New York Mercantile Exchange on trading volume that was 18 percent above the 100-day average for the time of day. Prices touched $3.1632, the highest intraday price since March 15 and are up 0.9 percent this week. Gasoline's crack spread versus WTI widened $1.279 to $23.851 a barrel, after dropping 12 percent yesterday. The fuel's premium to Brent gained $1.344 to $20.53. Pump prices, averaged nationwide, rose an 11th consecutive time, gaining 0.3 cent to $3.67 a gallon, Heathrow, Florida-based AAA said today on its website. That's the highest level since March 22. Ultra-low-sulfur diesel for August delivery rose 0.72 cent, or 0.2 percent, to $3.1079 a gallon on volume that was 3.6 percent below the 100-day average. ULSD's crack spread versus West Texas Intermediate crude sank 4.8 cents to $22.142 a barrel. The premium over Brent increased 19.9 cents to $21.712.

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5. ASIAN COAL USE GROWS DESPITE GAS CHALLENGE Economic Reality Is Trumping Pollution Worries in the Region

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(Wall Street Journal, Saturday, July 20, 2013) -- Sometimes dismissed as the dirty fuel whose day is nearly over because of environmental concerns and ballooning output of cleaner-burning gas, coal is on a roll in Asia, with governments across the region ordering new coal-fired power stations. Economic realities are outweighing worries about pollution, and coal's lower cost means its share of the energy mix in most Asian countries will rise for years, or even decades ahead. While investments in more expensive and cleaner power production are continuing, a greater emphasis on coal will provide life support for some mining companies grappling with a demand downturns elsewhere.

A file photo taken on April 25, 2012, shows coal being stockpiled at the port of Newcastle, Australia. It is the reverse of the scenario in the U.S., where coal's dominance is being usurped by fast-growing and cheap shale-gas output, prompting a rise in coal exports, some of which is making its way to Asia. In the U.S., gas sells for around a quarter the price it does in Asia. The fastest shift to coal is in Southeast Asia, where local gas output can't keep up with energy demand and increasingly available supplies of Australian and Qatari gas are seen as too costly. Southeast Asians are embracing coal even as additional gas projects are rolling out around the world, including in Russia, East Africa, not to mention North America. Coal demand across Southeast Asia may almost double between 2010 and 2020 to 230 million tons, according to the International Energy Agency, which in an April report warned that its growing use to generate electricity is undermining efforts to rein in global greenhouse-gas emissions. "If you're a local politician in Southeast Asia, you would definitely consider coal to have a bigger role in your energy mix," said Graham Tyler, who heads energy research firm Wood Mackenzie's gas and power research team in Southeast Asia.

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According to Wood Mackenzie, the share of coal-fired power generating capacity in Southeast Asia's energy mix will likely rise to 48% by 2030 from 35% now. In Indonesia, the world's largest thermal coal exporter, the government proposed in May to alter a long-term plan to increase power generation using a variety of energy sources by raising coal's share. Malaysia is building four large coal-fired plants, adding five gigawatts of power capacity by 2019. Vietnam is adding nine large coal-fired plants, due online in 2015-2016, in part because exploitation of its domestic gas reserves is going more slowly than expected. A significant exporter of coal just a few years ago, it recently started importing and plans to raise coal-fired electricity capacity more than fivefold by 2020. In Thailand in April, power supplies became a hot issue after maintenance on a gas platform in Myanmar cut pipelined gas imports, creating power shortages that forced manufacturers to halt operations. Thailand uses gas for over two-thirds of its power needs, but officials want coal to play a larger role. "It is highly crucial for Thailand to introduce the use of coal in power generation in order to help shoulder the cost of natural gas," Thailand's energy minister, Pongsak Raktapongpasal, told The Wall Street Journal, adding that coal will help keep electricity prices low and enhance energy security. "When compared with other types of energy sources, coal remains cheaper," Mr. Pongsak said. Thermal coal prices in Asia have been trading at multiyear lows since slumping in mid-2012. The cost of producing electricity from coal has historically been well below that of gas and coal, U.S. government data show. China, the world's largest coal consumer, uses it for over two-thirds of its energy, and demand is expected to rise steadily until at least the end of the decade. India could become the world's largest thermal coal importer in coming years due to mining and transport bottlenecks and stagnant domestic natural gas output. Japan is burning more. Tokyo Electric Power Co., operator of the Fukushima nuclear power plant, said it used roughly three times more coal in June than a year earlier, helping offset idled nuclear reactors. All this is good long-term news for Australia, where for the past 18 months the mining sector has been hit by falling prices and softening demand. "The construction of new thermal power plants [in Southeast Asia] is very exciting in terms of being able to sustain our industry here in Australia," said Paul Flynn, chief executive of Whitehaven Coal Ltd., one of Australia's largest coal miners. Australian thermal coal exports are expected to rise to 183 million metric tons this year, up 7% on year, and by a further 7% in 2014, the government has forecast, despite some producers having shut mines and cut investments. "We don't foresee a glut of LNG in Asia and don't think marginal costs for gas will come down in the long run to where they can compete with coal," said Mr. Tyler of Wood Mackenzie.

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6. ALGERIAN ENERGY SECTOR IN DECLINE AMID SECURITY CONCERNS

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ALGIERS, Algeria, July 19 (UPI) -- Algeria's oil industry, its economic mainstay, is in decline amid dramatic changes across the Arab world that could yet bring political upheaval to the pivotal North African state, a major gas supplier to Europe. "There's little indication that the oil and gas sector is going to come out of its slump any time soon," warned analyst Richard Nield. "For a country that has emerged relatively unscathed from the worst effects of the global financial crisis, and which has continued to use its oil revenues to accumulate vast reserves of foreign exchange, Algeria's economy remains weak on a worryingly large number of fronts." The ruling elite's belief it had insulated itself from the tumultuous pro-democracy convulsions of the so-called Arab Spring, largely by using its petrodollars to muffle dissent, was rudely shattered in January when jihadists seized the sprawling In Amenas gas complex in the southeastern Sahara. Algerian Special Forces ended a four-day siege with a take-no-prisoners assault in which most of the 40 attackers were killed, along with 37 expatriate technicians. Six months later, Britain's BP and Norway's Statoil, who operate the plant with Algeria's state oil company Sonatrach, still balk at sending back foreign staff amid squabbles with the government over security. The Algerian military has In Amenas and other energy facilities under heavy guard these days. But the security crisis has added to Algeria's concerns about the slump in its energy sector, which accounts for 60 percent of budget revenues. On top of this, there is growing political uncertainty after President Abdelaziz Bouteflika, 76, suffered a stroke April 27 and was whisked off to a military hospital outside Paris. The government insisted the stroke was minor but Bouteflika remained in Paris for nearly three months, raising doubts about his ability to function as head of state and whether he'll run in presidential elections scheduled for April 2014. There were even rumors he was dead. His return to Algiers Tuesday did little to dispel political concerns. His plane landed at a military airfield outside Algiers rather than the capital's international airport. After a discreet welcome, a frail-looking Bouteflika was shown on television in a wheelchair at a gathering of senior officials. It seems unlikely, at this stage, that he'll run in 2014 for a fourth term, or even be able to see out his current term. No clear-cut successor is in sight. That raises the prospect of Algeria's shadowy cabal of generals, led by the powerful intelligence chief, Gen. Mohamed "Tewfik" Mediene, Bouteflika's longtime nemesis, taking control. Mediene has seriously weakened Bouteflika by taking down his political allies. One of the general's main targets has been Sonatrach, the state energy monopoly and a longtime Bouteflika bastion. Turmoil at Sonatrach seriously harmed the energy sector, particularly its efforts to open up new exploration to top up shrinking reserves of oil and gas. Until that's remedied, Algeria's energy sector will keep dwindling.

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"Algeria's global position as a hydrocarbons exporter is declining by almost every measure," Nield reported in the Middle East Economic Digest. "If this decline continues, the country will face an increasing squeeze on its balance of payments and its fiscal balance. But for now, the government seems inclined to do little about it." "The whole country's in policy paralysis," declared Jonathan Stern of the Oxford Institute for Energy Studies in Britain. At the start of 2013, Algeria had proven oil reserves of 12.2 billion barrels, the fourth-largest in the Middle East and North Africa after Libya, Nigeria and Angola. It's oil production is the third-largest in Africa, but has fallen by just over 16 percent from 2 million barrels per day in 2005 to 1.7 million bpd in 2012 despite Energy Minister Chakib Khelil's loudly proclaimed drive to boost output. Gas production slipped by 7.6 percent over the same period, from 88.2 billion cubic meters to 81.5 bcm, according to Organization of Petroleum Exporting Countries figures. Exports of liquefied natural gas have tumbled from 25.75 bcm in 2005 to 15.3 bcm. That's a big fall of 40.6 percent. As production fell, domestic energy consumption rose. Between 2005 and 2012, natural gas use went up by one third from 23.2 bcm to 30.9 bcm. Oil consumption climbed by almost 50 percent from 250,000 bpd to 367,000 bpd in the same period.

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7. IRAQ: BOMB EXPLODES IN MOSQUE (AP, Saturday, July 20, 2013) -- A bomb hidden in an air-conditioner that ripped through a Sunni mosque in Diyala Province during midday prayers killed at least 22 people on Friday, the police said, extending a wave of violence against worshipers during the holy month of Ramadan. Suicide attacks, car bombings and other violence have killed nearly 200 people since Ramadan began last week. Friday's explosion hit the Abu Bakir al-Sideeq mosque in the town of Wijaihiya, which is about 50 miles northeast of Baghdad. The police and hospital officials said the blast had also wounded more than 50 people. Also, attacks near the city of Mosul, 225 miles northwest of Baghdad, killed four people, officials said. More than 2,800 people have been killed in bombings and shootings in Iraq since April.

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8. THE NIGHTMARE RETURNS

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(The Economist, Saturday, July 20, 2013) AFTER a lull of nearly five years during which it seemed as if Iraq might be emerging from the legacy of its civil war, the country has been drawn back into a nightmare of spiralling attacks on a widening range of targets. The past four months have been among the bloodiest since 2008; nearly 3,000 people have been killed and over 7,000 injured. But the Islamic State of Iraq, the latest incarnation of al-Qaeda, now appears to have broadened its scope from its trademark attacks on security forces and Shia mosques and markets, to suicide-bombings of cafés and funeral gatherings. In the north in Diyala, Kirkuk and Nineveh provinces and in Anbar province in the west, a struggle for control between a resurgent al-Qaeda, newer Sunni extremist groups and re-emerging Shia militias is fuelling a lethal mix. Iraqi security officials say they have captured or killed more than 70% of al-Qaeda’s people in Baghdad and that successful attacks on police stations and government ministries have waned. But outside the capital, the threat is mounting. Al-Qaeda has regrouped in the surrounding tribal areas that have traditionally been used as staging posts for attacks on Baghdad. Regular strikes on police patrols and army checkpoints, as well as daily assassinations of officers and interior-ministry people, have kept security forces on the defensive. The UN’s secretary-general, Ban Ki-moon, has warned of an “alarming” renewal of violence as a result of Iraq’s continued political stalemate and the conflict next door in Syria. “The battlefields [of Iraq and Syria] are merging,” Martin Kobler, the UN’s outgoing envoy to Iraq, told the Security Council on July 16th. Indeed, the Iraqi government is so concerned about Sunni fighters coming over from Syria that it is physically separating itself from its war-torn neighbour by digging deeper trenches and higher berms along the border. Iraq’s toxic political climate bears much responsibility for the violence. It is widely believed that some of the political parties represented in Iraq’s fractious parliament are themselves behind some of the bombings and assassinations. It is also assumed that Shia Iran and Sunni Saudi Arabia fund some of the most militant groups. Iraqi officials say that Turkey and other Gulf countries, including Qatar, are involved too; they all deny it. Even by Iraq’s miserable standards, the latest attacks during the Muslim holy month of Ramadan have been shocking. The dead include nine boys blown up while playing football in a street in Baghdad and dozens of young men bombed to death in a café in the disputed city of Kirkuk while enjoying their evening tea. Since the

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bombing of a funeral north-east of Baghdad on July 11th, grieving families mourning their loved ones nervously scan the faces of those coming to offer condolences, lest there be a suicide-bomber among them. ---------------------------------

9. EGYPT'S DEADLY POLITICAL STALEMATE DRAGS ON Thousands rally in support of ousted President Morsi in Cairo and elsewhere, while opponents also hold demonstrations. (Al Jazerra, Saturday, July 20, 2013)At least three people have died after clashes between loyalists and opponents of ousted Egyptian president Mohamed Morsi, as tens of thousands of people have demonstrated in cities across Egypt. The three people were killed during clashes between rival demonstrators in the Nile Delta town of Mansoura, Al Jazeera's Rawya Rageh reported from Cairo, the capital. At least six others were injured in those clashes. The country's military, meanwhile, has warned that it may crack down violently on any future mass protests against the overthrow of the president that it carried out on July 3. A vast pro-Morsi crowd gathered at Cairo's Rabaa al-Adawiya mosque on Friday, where the former president's supporters have camped out since the military overthrew him. About 10,000 protesters then set off in the direction of an elite military compound, scene of the deadliest violence since Morsi's overthrow, carrying pictures of the deposed president and chanting slogans. They were blocked by soldiers and armoured vehicles. "Islamic, Islamic," they shouted, of their hopes for an Islamic state, as formations of fighter jets flew overhead and military helicopters whirled in the sky. Nadim Baba, reporting from Nasr City, said that at the pro-Morsi rally behind him, "some are members of the Muslim Brotherhood and some are not....There are rallies in 11 of the governates of Egypt." Regarding security, our correspondent said: "We heard there were skirmishes near Al Azhar Mosque where people threw stones at supporters of Mohamad Morsi," but the situation had since calmed down. "The rallies have been largely peaceful, which is what the rally organisers have been asking for." "[We have] the power of the people," Essam el-Arian, the acting chief of the Brotherhood's Freedom and Justice Party, told Al Jazeera, adding that those at the protest were not just supporters of his party, but "normal citizens of this country". Late on Friday afternoonm Egypt's armed forces fired teargas at some of the pro-Morsi protestors who were heading towards the presidential palace on a road previously sealed off by the army. Following the teargas the crowd stopped moving forward, but have maintained their position. Smaller rallies also took off elsewhere in Cairo, in Egypt's second city of Alexandria, and other parts of Egypt after Morsi's Muslim Brotherhood had called for a day of protests dubbed "Breaking the Coup".

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Al Jazeera's Nicole Johnston, reporting from the pro-Morsi rally in Alexandria, said that "the numbers have really swelled after people broke their fast for Ramadan." "We haven't seen a strong security presence here, but earlier in the day, we did have military jets fly over Alexandria." Fight for stability Thousands of supporters of the military coup, meanwhile, gathered at a rival rally in Cairo's Tahrir Square. They set off firecrakers and chanted "The army and the people are one!" Their demonstrations have been far smaller since the mass rallies clamouring for Morsi's resignation in the days leading to the coup. Al Jazeera's Sherine Tadros, reporting from Cairo, said the anti-Morsi rally was meant "to show there is broadbased support for the 'roadmap'...Now the issue of concern is that of security." Meanwhile, reports emerged on Friday that Al Jazeera Network channels, which include Al Jazeera English, Al Jazeera Arabic, and Al Jazeera Mubashr Misr, are intermittently being jammed in Egypt. The latest rallies come a day after Morsi's army-installed successor President Adly Mansour vowed to fight for stability against opponents he accused of wanting to plunge the crisis-hit country "into the unknown". 'Bloody military coup' Morsi's supporters have clashed several times with security forces, most recently on Monday night, when they fought with police near Ramsis Square, a major thoroughfare in central Cairo. In a statement issued on Friday, the pro-Morsi coalition urged its supporters to remain peaceful and "adhere to civilised behaviour". "To every free Egyptian man and woman: Come out against the bloody military coup," the alliance said. Morsi's supporters are also staging sit-ins outside a mosque in the Nasr City district, and near Cairo University. Nearly 100 people have been killed in clashes since the removal of Morsi from power.

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10. RAS TANURA OIL-TANKER CAPACITY SEEN JUMPING 29% IN LATEST WEEK (Bloomberg, Saturday, July 20, 2013) -- The combined carrying capacity of oil tankers calling at Saudi Arabia's Ras Tanura jumped 29 percent in the week ended July 13, vessel-tracking data compiled by Bloomberg show. The implied capacity of vessels calling at the world's largest crude-export complex expanded to the equivalent of 9.61 million barrels a day from 7.46 million barrels for the prior week, according to signals gathered by IHS

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Fairplay, a Redhill, England-based maritime research company. The data may be incomplete because not all transmissions are captured. The Ras Tanura complex, including Ras al-Ju'aymah, is the biggest global crude terminal, according to the website of Saudi Arabian Oil Co., known as Saudi Aramco. Tankers hauling crude from the Persian Gulf may call at other loading ports before or after Ras Tanura, indicating they might have collected partial cargoes elsewhere. The table below lists the destination countries of tankers calling at Ras Tanura in the latest week as of about 10 a.m. London time today. The percentages represent the share of the total number of ships loading at the terminal that each country is due to receive. Very large crude carriers are assumed to carry 2 million barrels apiece, twice as much as Suezmax tankers. The tally excludes vessels smaller than Aframaxes, each holding about 650,000 barrels. Country Barrels Percentage Percentage July 13 July 6 China 12,000,000 18 19 Japan 12,000,000 18 23 India 8,000,000 12 5 Taiwan 6,000,000 9 -- U.S. 6,000,000 9 8 Egypt 5,650,000 8 11 Sri Lanka 4,000,000 6 -- Indonesia 2,000,000 3 -- Mauritius 2,000,000 3 4 South Africa 2,000,000 3 -- South Korea 2,000,000 3 -- Brazil 1,000,000 1 -- Saudi Arabia 650,000 1 5 Unspecified 3,950,000 6 8 Barrels 67,250,000 Bbl/day 9,607,143

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11. ISRAEL'S DILEMMA: WHERE TO SELL THE EAST MED GAS TEL AVIV, Israel, July 18 (UPI) -- The Israeli government, rejoicing in the Jewish state's growing reserves of natural gas off its Mediterranean coast and the possibility of oil as well, is wrestling with the geopolitical ramifications this energy wealth has brought in its train. The problem is whether to build a natural gas pipeline under the Mediterranean to Turkey to reach the European market, and risk antagonizing Russia which sees Europe as its turf, or go for liquefying the gas for shipping via the Red Sea to China and the high-value Asia market, and possibly annoy the United States. As Israel stands on the brink of becoming a significant energy power in the region, lawmaker Isaac Herzog, chairman of the opposition Labor Party parliamentary group, observed: "This is a strategic turning point, which turns Israel from a resource-poor country ... into a country with important strategic national resources. "The wise use of natural gas resources can contribute to national strength ... and change the geopolitical balance of regional power ... The gas fields are more than an economic resource, they are primarily a strategic resource. "The Middle East has been undergoing dramatic changes in the past few years, and they are far from over," Herzog wrote in Globes, Israel's business daily. "The U.S. has gradually withdrawn from policies of military and political intervention which characterized it in the previous decade, and its ability to influence regional governments is sharply waning. "In this geopolitical climate, Israel needs new collaborations and stable alliances, and the gas fields could be an important part of this aspect, and be tangible fruits of peace with value among the nations that surround us." Prime Minister Binyamin Netanyahu's government decided June 23 that 40 percent of the estimated 34 trillion cubic feet of natural gas so far discovered off Israel's coast should be earmarked for export. The remaining 60 percent will use used domestically, largely for electricity generation. Using the East Med gas instead of costly oil imports will help transform Israel's economy over the next few years. But not everyone's happy about the 40 percent cap on exports, particularly the energy companies that invested billions of dollars in exploration over the last five years and who want to maximize their returns as quickly as possible. The government expects gas export earnings of up to $60 billion over 20 years. But, in the 40 percent export cap is 13 percent lower that then 53 percent export quota proposed by a parliamentary committee set up the draft Israel's national energy policy. The government trimmed that in apparent response to public opinion that opposes hefty exports. This could impede further investment in Israel's energy industry that is needed to continue exploration.

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The U.S. Geological Survey reported in 2010 that the Levant Basin, encompassing Israel, Syria, Lebanon, Cyprus and the Gaza Strip, contains an estimated 122 trillion cubic feet of gas and some 1.7 billion barrels of oil. Lebanon's waters are estimated to contain at least 25 tcf and Cyprus has made initial discoveries totaling an estimated 7 tcf, with much more likely to come. So Israel could come up with more sizeable discoveries in the next few years. The LNG option and an export route to the Far East via an LNG plant in Israel's southern port of Eilat on the Red Sea, would be the most lucrative. But it would also involve highly expensive infrastructure. There's considerable opposition to building an LNG plant at Eilat, a major tourist resort, but siting one there rather than on Israel's densely populated Mediterranean coast would mean bypassing the Suez Canal, and the risk that Egypt could close it down if relations with Israel become strained. The gas pipeline to Turkey, on the other hand, is a relatively simple project and could be completed within two years to Turkey, the gateway to Europe's growing gas market. Israelis say the payback period for investors would be just two years. The Americans, as far as is known, support the Israel-Turkey pipeline as it would bind two of U.S. regional allies together and could provide spin-off pipelines to Jordan and the West Bank, territories Washington wants to support. But the downside is this would irk Moscow, which doesn't want Israel horning in on its lucrative European sales, and automatically opposes anything Washington supports.

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12. NIGERIAN LAWMAKERS WANT SHELL, ENI OIL AWARD REVOKED (Bloomberg, Saturday, July 20, 2013) -- Nigeria should revoke oil rights for which Royal Dutch Shell Plc (RDSA) and Eni SpA (ENI) paid $1.1 billion, a parliamentary committee said, alleging that the acquisition process was "highly flawed." Shell and Eni jointly bought Oil Prospecting License 245 from Malabu Oil & Gas Ltd., controlled by Dan Etete, a former oil minister, in 2011. Located in the deep offshore waters of the Gulf of Guinea, it is estimated to hold at least 9 billion barrels of crude reserves worth $1 trillion, according to a probe report by a House of Representatives committee filed as a public record and provided to Bloomberg yesterday. "Unfortunately our national interest, knowingly or unknowingly, was ceded away to the two oil majors," the committee said. The sale violates a law to promote increased Nigerian ownership of oil assets by giving foreign companies 100 percent ownership as well as the country's tax regulations, the report said, alleging a "lack of transparency and full disclosure" by Shell in acquiring the license. Nigeria is Africa's largest oil producer, with Shell, Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total SA (FP) and Eni running joint ventures with state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the country's oil. The West African nation produced 1.83 million barrels a day of oil in June,

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according to data compiled by Bloomberg. Bonny Light crude, a key export grade from Nigeria, rose 0.1 percent to $109.98 at 2:40 p.m. in London, the highest in more than three months. Technical Partnership While Shell and Eni now hold 50 percent each of Malabu's former oil field, the "indigenous policy authorizes 40 percent maximum ownership to foreign oil companies," the committee said. Taxes weren't paid on the transaction on the basis that "no sale or transfer occurred," yet both companies became beneficiaries of a new asset, according to the report. "Shell companies have acted at all times in accordance with both Nigerian law and the terms of the OPL 245 resolution agreement," Precious Okolobo, a Lagos-based spokesman, said yesterday in an e-mailed response to questions. Eni, based in Rome, didn't immediately respond to an e-mail requesting comment. Malabu was awarded the rights to OPL 245 in 1998 by former military dictator Sani Abacha, whose son, Mohammed Abacha, got a 50 percent stake while 30 percent went to Etete, his oil minister. The company then formed a technical partnership with Shell. License Canceled President Olusegun Obasanjo, elected a year after Abacha died in 1998, canceled the license in 2001 without giving any reason and awarded it to Shell a year later. Malabu challenged the decision in court, saying the government revoked its license unfairly, leading to the agreement to sell its interests to Shell and Eni. President Goodluck Jonathan's government resolved the dispute over the license in a "satisfactory and holistic manner" after it considered a 2006 settlement reached by Malabu Oil and Shell, the government's indigenous policy and the fact that Shell has "substantially de-risked" the oil license, Justice Minister Mohammed Adoke said yesterday in an e-mailed response. Calls to Malabu Oil on numbers listed for its Lagos office didn't go through. "Our findings could not indicate anywhere Malabu Oil willingly inclined to relinquish the oil block," the parliamentary report said. "Where such inclination is presumed, they were rather forced on the company."

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13. CHINA TAKES STEP TO FINANCIAL REFORM (Financial Times, Saturday, July 20, 2013) -- China's central bank has liberalised tightly controlled interest rates in a clear sign of Beijing's intention to tackle the difficult financial reforms that economists say are needed to keep the Chinese economy on track. On Friday, the People's Bank of China said it was scrapping a decades-old floor on the discount that Chinese banks can offer for commercial interest rates - the biggest change to the country's interest rate regime since caps on lending rates were removed in 2004.

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But the highly symbolic move marked something of a bureaucratic defeat for the central bank, which had hoped to liberalise the ceiling on bank deposit rates at the same time, according to people familiar with the matter. In a statement, the PBOC said the main reason for not removing caps on interest rates for deposits was because the implications of that reform were much greater and the risks of implementing it much higher. "We must proceed [with this reform] in an orderly manner once all the necessary preconditions are in place," the bank said. The main opponents of deposit-rate liberalisation are China's state-owned banks, which depend on the spread between artificially low deposit rates and lending rates to stay profitable. In this instance, they were able to convince China's State Council, or cabinet, to delay the liberalisation that the PBOC was pushing for. Nevertheless, the move announced on Friday still provides a strong signal that China's new leaders, who took over in March and are expected to rule the world's second-largest economy for the next decade, are committed to pushing ahead with financial reforms. It came only days after the International Monetary Fund took a more cautionary note than it has in the past and warned that it was "increasingly urgent" for Beijing to implement critical economic reforms and that China's investment-dependent economic model was "not sustainable and is raising vulnerabilities". "This is a big deal," said Mark Williams, chief Asia economist at Capital Economics. "It is the biggest step to date showing the government is willing to allow market forces to play a bigger role in the financial sector." As China's economy slows - from double-digit rates of expansion a couple of years ago to 7.6 per cent annual growth in the first half of this year - financial market reforms are seen as increasingly important. "From a macro perspective, to some extent, [the latest reform] could be regarded as a 'stimulus' to the real economy, as state-owned enterprises will face a lower effective borrowing rate and that would help the economy to pick up somewhat late in the third quarter and in the fourth quarter [of this year]," said Liu Ligang, chief economist for Greater China at ANZ bank. Reform of the state-owned banking system is seen as especially urgent since easy credit combined with tight restrictions on the formal financial sector have spawned a thriving shadow banking sector in recent years. A plethora of entities, many of them linked directly or indirectly to state banks, have entered the market selling wealth management products, trust products and other financial instruments that already offer much higher interest rates than tightly regulated traditional bank deposits. Some analysts argue that this has led to de facto interest rate liberalisation for China's rich, since poorer people usually cannot afford to invest in these products and are forced to put their savings into deposit accounts offering artificially suppressed interest rates that are barely above the rate of inflation. Interest rate liberalisation is also regarded as a necessary precondition for eventual full convertibility of the renminbi and for China eventually to loosen its tight restrictions on cross-border capital flows.

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Although highly symbolic, the scrapping of the floor on lending rates, previously set at 30 per cent below the benchmark rate, is unlikely to have a significant near-term effect on financial markets and so was seen as a relatively uncontroversial reform to implement. Only 11 per cent of all loans in China were priced anywhere below the benchmark interest rate in the first quarter of this year and almost none of them was priced at a 30 per cent discount. "Symbolically, it is a move in the direction of liberalisation, but the actual effect on lending rates will be very small," said Yu Song, an economist at Goldman Sachs. "This intention is consistent with the recent overall macro policy direction: they want to reduce the financial burden of companies, which is beneficial for economic growth." On Friday, the central bank also said it had eliminated the upper limit on lending rates by rural co-operatives and lifted interest-rate controls on the discounting and re-discounting of bankers' acceptances.

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14. INDIA PAYS A HIGH ECONOMIC PRICE FOR POLLUTION: STUDY NEW DELHI, July 18 (UPI) -- The annual cost of environmental degradation in India is about $80 billion, or 5.7 percent of the country's gross domestic product, says a new report by the World Bank. The report, "Diagnostic Assessment of Select Environmental Challenges in India," released Wednesday, analyses the trade offs between economic growth and environmental sustainability. The Organization for Economic Cooperation and Development last month said that India "has probably recently" surpassed Japan to be world's third largest economy, after the United States and China. But the World Bank in its report says that India cannot continue on a path of "grow now and clean up later" and warns that failure to address environmental challenges could constrain the country's long-term productivity. "India has performed remarkably economically, but that's not reflected in its environmental outcomes," said Muthukumara Mani, the World Bank's senior environmental economist and author of the report, the Financial Times reports. "'Grow now, clean up later' really doesn't work." The study focuses on PM10, which refers to air pollution particles up to 10 micrometers in size, mostly from the burning of fossil fuels. The study includes scenarios showing the economic effects of reducing the PM10 particulates. If India were to reduce its particulate emissions 10 percent by 2030, for example, it would represent a loss of 0.3 percent to the GDP. Reducing particulate emissions by 30 percent would lower GDP by about $97 billion, or 0.7 percent, the study says. Yet the study points out that the health benefits under both scenarios compensate, to a large extent, for the projected GDP loss. Savings from reduced health costs range from $105 billion under the 30 percent emission reduction model to $24 billion under the 10 percent reduction model.

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"The productive part of the population that gets impacted from air pollution in the city, if you can save them, it is going to add up in terms of productivity, in terms of GDP. That is something, that I would say, is a major finding of the study," Mani said. The study says that nearly 25 percent of child mortality cases in India can be attributed to environmental degradation as well as an inadequate availability of clean water and sanitation. Separately, a study published last week in the journal of Environmental Research Letters revealed that India is the second most deadly place for air pollution after East Asia, with nearly 400,000 deaths blamed on the inhalation of particulates and more than 100,000 deaths each year due to ozone pollution, The Diplomat reports.

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15. API: U.S. JUNE OIL USE DOWN 1% VS YEAR EARLIER AT 18.727M B/D --U.S. second-quarter oil use down 0.3% vs. year earlier, at 18.593 million barrels a day

--Gasoline use down 2% in second quarter vs. year earlier, at 8.775 million barrels a day

--Crude imports down 12.2% in second quarter vs. year earlier at 7.789 million barrels a day NEW YORK (Dow Jones, Saturday, July 20, 2013) -- U.S. oil demand fell 1% in June to 18.727 million barrels a day, the lowest level for the month in 16 years, the American Petroleum Institute said Thursday. In the second quarter, demand was 0.3% lower, at 18.593 million barrels a day. Demand for gasoline, the most widely used petroleum product in the world's biggest oil consumer, fell 1.9% from a year earlier to a 12-year June low of 8.865 million barrels a day. Second-quarter gasoline use was 2% lower than in the same period in 2012, at 8.775 million barrels a day. "The latest data continues to reflect the uncertainty visible in the broader economy," John Felmy, API's chief economist, said in a statement. "Domestic crude production reached a 22-year June high last month, but demand remains soft." Demand for distillate fuel, the umbrella group for diesel fuel and heating oil, rose 5.5% from a year earlier, to 3.935 million barrels a day. Within that figure, demand for ultra-low sulfur diesel fuel, used to power trucks and trains, was 6.5% higher at 3.72 million barrels a day. Second-quarter distillate use was up 4.1% from a year earlier, at 3.878 million barrels a day. Jet fuel use dropped 4.8% from a year earlier, to 1.47 million barrels a day in June, while heavy residual fuel oil, which is losing market share to cleaner-burning natural gas, saw record-low June demand of 317,000 barrels a day, down 14.7% from a year earlier, the API said. U.S. crude oil output climbed 15.3% from a year earlier to a 22-year June high of 7.221 million barrels a day. For the second quarter, crude oil production averaged 7.287 million barrels a day, up 15.6% from a year earlier, as new technology such as hydraulic fracturing and horizontal drilling unlocked oil deposits trapped in shale rock in several areas of the nation. Higher domestic output continued to reduce the need for imported oil, the trade group said.

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Crude oil imports fell 15.2% from a year earlier to a 19-year June low of 7.721 million barrels a day, the trade group said. Second-quarter crude imports were 12.2% below the same period in 2012, at 7.789 million barrels a day. Refined products imports dropped 7.6% from June 2012, to 2.193 million barrels a day. In the second quarter, products imports were 1.2% above the year-earlier level, at 2.212 million barrels a day. Total crude oil and refined products imports fell 13.6% from a year earlier to a 17-year June low of 9.839 million barrels a day. Refinery inputs of crude oil and feedstocks averaged topped 16 million barrels a day for the first time since August 2011 and were 0.6% from a year earlier in June, at 16.078 million barrels a day. Distillate output set a June record of 4.8 million barrels a day in June, up 3.8% from a year earlier. Exports of refined products averaged 3.072 million barrels a day in June, down 4.3% from a year earlier, but were 0.3% above a year earlier in the first half of the year, the API said. Crude oil stocks at the end of June were 378.8 million barrels, down 2.5% from May and 1.9% below a year earlier. Gasoline stocks rose 8.1% year-on-year in June, to 224.6 million barrels and were 1.1% higher than at the end of May. Distillate stocks of 120.8 million barrels were down 0.8% from May, but up 0.6% from a year earlier.

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16. LOS ANGELES GASOLINE DROPS TO FOUR-MONTH LOW ON HIGH PRODUCTION (Bloomberg, Saturday, July 20, 2013) -- Spot gasoline in Los Angeles tumbled to the lowest level in four months as production in the state jumped to a eight-year seasonal high. California-blend gasoline, or Carbob, production jumped 5.3 percent in the week ended July 12 to 7 million barrels, the most for the period since 2005, according to data compiled by the California Energy Commission. Valero Energy Corp. (VLO)'s Wilmington refinery returned its fluid catalytic cracker and alkylation unit to full rates this week after repairs. Spot Carbob in Los Angeles declined 6 cents versus gasoline futures traded on the New York Mercantile Exchange to a discount of 12 cents a gallon, according to data compiled by Bloomberg at 3:49 p.m. New York time. That's the lowest level since March 20. Carbob in San Francisco also weakened 0.5 cent against futures to a discount of 17.5 cents a gallon. Retail gasoline in California climbed 0.3 cent to $4.042 a gallon, Heathrow, Florida-based AAA, the nation's largest motoring organization, said today on its website. Conventional gasoline in Portland also fell versus futures, dropping 4 cents to a premium of 4 cents a gallon.

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The 3-2-1 crack spread of Alaska North Slope crude, Carbob in Los Angeles and CARB diesel in Los Angeles narrowed for the third straight day, shrinking 50 cents a barrel to $14.89. The spread, an approximate measure of refining profits, is at the lowest level in more than two weeks.

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17. TRANSCANADA SAYS KEYSTONE XL START IN 2015 'DIFFICULT' (Bloomberg, Saturday, July 20, 2013) -- TransCanada Corp. (TRP) Chief Executive Officer Russ Girling said the timeline for U.S. approval of the $5.3 billion Keystone XL pipeline project will make the start of operations in the second half of 2015 "difficult." The CEO said a final environmental impact statement from the State Department may come in "weeks, not months," after which there will be a 90-day review of whether the project is in the U.S. national interest. "I hope a decision can be made this year," Girling said today in an interview at Bloomberg headquarters in New York. If approved, Calgary-based TransCanada needs 24 months to build the pipeline, which would connect oil production from Alberta to refineries on the U.S. Gulf Coast. President Barack Obama initially rejected the project in January 2012, citing concerns with its path through ecologically sensitive lands in Nebraska. The company reapplied with a new Nebraska route last year and split the project in two, building the southern portion that doesn't require a permit first. Environmentalists oppose the project because of the potential for oil spills along its more than 2,000-mile (3,200 kilometer) route. Some opponents are also blocking it because it will transport crude from Alberta's oil-sands projects, which generate more greenhouse gases than most conventional production. "Keystone is not the driver of whether Canadian oil sands will be produced," Girling said. "They will be produced anyway." Sixth Year In September, the project will enter its sixth year of review from the initial application date, Girling said. TransCanada applied for the permit to build Keystone XL in 2008. The company in April bumped back its target to complete the line to the second half of 2015, forecasting costs will rise amid delays receiving the needed approvals for construction. TransCanada continues to incur costs to store the equipment it has already purchased and to maintain the pipe, in some cases by recoating the steel, Girling said. The company won't update its cost estimate until after receiving U.S. approval, he said. The U.S. State Department, which must approve Keystone XL because it crosses an international border, has told TransCanada it expects to need the full 90-day period for the national interest review, during which eight agencies weigh in on whether to approve the presidential permit. The department was 79 days into the national-interest decision when a Congressional deadline forced Obama to reject the first application, Girling said. Not 'Rational'

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"There is only one rational decision here," Girling said. "Denial of this pipeline is not in any way rational. At best, it's symbolic." Halting the pipeline will make no difference on greenhouse-gas emissions, he said. "It will actually just impose greater risks on public health and safety." An explosion of a runaway train carrying oil in Lac-Megantic, Quebec, on July 6, which left as many as 50 dead or unaccounted for, stirred the debate over the safety of transporting crude by rail versus pipelines. The better safety record of pipelines over rail was clear before the Lac-Megantic disaster, Girling said. "Statistically, you can look at the history. Pipelines are the safest way to transport large volumes of hydrocarbons over long distances," Girling said. "That's a fact and doesn't really need to be debated."

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18. SENATE OKS GINA MCCARTHY AS EPA LEADER (Rigzone, Saturday, July 20, 2013) -- The Senate approved President Barack Obama's pick to head the U.S. Environmental Protection Agency (EPA) Thursday. Senators voted 59-40 to overcome Republican objections that tried to block a vote on Gina McCarthy to lead the EPA, reported the Associated Press. McCarthy, who previously served as EPA's assistant administrator for the Office of Air and Radiation, is considered a "longtime environmental champion while Republicans say the she has helped issue regulations that hurt the economy and cost jobs," AP stated. "We congratulate Gina McCarthy on her confirmation as the next EPA administrator," American Petroleum Institute President and CEO Jack Gerard said in a release. "McCarthy's confirmation comes at a critical time as our economy is recovering and America is becoming a global leader on energy. President Obama has laid out a vision for an 'all-of-the-above' energy strategy, and we hope McCarthy's leadership will align the agency's regulations with that vision" "Gina McCarthy and I have a constructive working relationship based on open and honest dialogue that will continue as we work towards the shared goal of improving the data available on the environmental impact of natural gas," added Dave McCurdy, president and CEO of the American Gas Association (AGA), in a released statement. "We look forwarding to working with Gina and her staff on that effort." McCarthy has a long history in the environmental arena, starting off as an anthropologist. She studied social anthropology as an undergraduate at the University of Massachusetts before receiving a joint M.S. degree in environmental health engineering and planning and policy from Tufts University. "People ask me why social anthropology prepared me for the work that I'm doing in government. Well, everyone who asked me that, I wondered if they had ever been in the Massachusetts Legislature, whether they had ever been in the Connecticut Legislature, and whether they had ever visited Congress recently, because it is a primitive society into itself," McCarthy said in her keynote address at the Green Education for The Next Generation at her alma mater.

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She has worked in federal and state governments for more than 25 years and her career has spanned five Massachusetts governors including former Republican presidential candidate Mitt Romney, and one Connecticut governor, Jodi Rell, under whom she ran the state's Environmental Protection Department. In 2009, she joined EPA and moved to Washington. "I am pleased that today the Senate took bipartisan action to confirm Gina McCarthy as the next Administrator of the Environmental Protection Agency," said President Obama in a White House statement. "With years of experience at the state and local level, Gina is a proven leader who knows how to build bipartisan support for commonsense environmental solutions that protect the health and safety of our kids while promoting economic growth."

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19. WATER AT RISK FROM POWER PLANTS, CLIMATE CHANGE WASHINGTON, July 19 (UPI) -- The U.S. electric power sector is putting a strain on the nation's water resources, a Union of Concerned Scientists report warns. The report -- "Water-Smart Power: Strengthening the U.S. Electricity System in a Warming World" -- released this week as much of the nation grappled with a heat wave, says more than 40 percent of U.S. freshwater withdrawals are used for power plant cooling. "But during drought or hot weather, when plants cannot get enough cooling water, for example, they often must cut back or completely shut down their generators as happened repeatedly in 2012 at plants around the country," the report said. The U.S. Department of Energy released a report last week on the effects of climate change on the energy sector, citing instances of energy disruption due to climate conditions. "Last August, Dominion Resources' Millstone Nuclear Power Station in Connecticut shut down one reactor for two weeks because the temperature of the intake cooling water, withdrawn from the Long Island Sound, was too high and exceeded technical specifications of the reactor," the government report said. The UCS report notes the nation's power sector is currently on a path that would primarily replace coal with natural gas, currently projected to supply 60 percent of the country's power by 2050. Although the shift from coal to natural gas would decrease water use, those declines in water withdrawals won't occur mostly until after 2030 -- "a 20-year delay that leaves the power industry unnecessarily vulnerable to drought and exacerbates competition with other water users," the UCS report says. "Our electricity system clearly isn't able to effectively meet our needs as we battle climate change and face a future of expanding electricity demand and increasing water strain," said Erika Spanger-Siegfried, co-author of the report and a senior analyst in the UCS Climate & Energy Program, in a statement. If the nation's power sector were instead to follow a path that includes strong investments in renewable and energy efficiency, the UCS report says, water withdrawals could drop as much as 97 percent from current levels by 2050.

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That scenario would also cut carbon emissions 90 percent from current levels. "Making low-carbon, water-smart choices is a high-stakes effort. The choices we make in the near term to define the power sector of this century will affect water resources, our climate and long-term hydrology, and the power sector's long-term resilience," said Peter Frumhoff, UCS director of science and policy.

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20. U.S. ENERGY RIGS RISE FOR THIRD WEEK, BAKER HUGHES SAYS (Bloomberg, Saturday, July 20, 2013) -- Oil and gas rigs in the U.S. rose by 11 to 1,770 this week, according to Baker Hughes Inc. (BHI) Oil rigs rose four to 1,395, the Houston-based field services company said on its website. Gas rigs increased by seven to 369. The total U.S. count has gained three weeks in a row. Rising output from shale formations such as North Dakota's Bakken and Texas's Eagle Ford plays have boosted domestic oil production to the highest level since December 1990. The surge in output helped the nation meet 89 percent of its own energy needs in March. Natural gas for August delivery fell 2.4 cents, or 0.6 percent, to $3.788 per million British thermal units at 1:17 p.m. on the New York Mercantile Exchange, up 26 percent from a year ago. U.S. gas stockpiles gained 58 billion cubic feet in the week ended July 12 to 2.745 trillion, the Energy Information Administration, the Energy Department's statistical arm, said yesterday. Supplies were 13 percent below year-earlier levels. U.S. oil output climbed 1.2 percent to 7.49 million barrels a day last week, EIA data show. Stockpiles fell 1.9 percent to 367 million barrels. Crude for August delivery fell 4 cents to $108 a barrel today on the Nymex, up 17 percent in the past year.

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21. BAKER HUGHES STARTS ONSHORE WELL COUNTS HOUSTON, July 19 (UPI) -- Oil services company Baker Hughes said Friday onshore drilling in shale reserve areas in the United States was more efficient than ever. Baker Hughes said Friday it launched a quarterly assessment of drilling activity in the United States. Its well count index would provide an assessment of oil and natural gas activity onshore in the United States. "In the past couple of years, a number of new technologies have been introduced that are purpose-built for drilling and producing from shale," Baker Hughes Chairman Martin Craighead said in a statement. "When we compare well count and rig count data side-by-side, we can see that efficiencies in the U.S. are improving and that drilling rigs in some basins are drilling wells faster."

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For the second quarter of the year, Baker Hughes counted 8,800 new wells in service in the United States. More than 3,000 of those new wells came from the Permian and Eagle Ford basins spread across southern states. Overall, however, the company said the number of new wells in the first quarter of 2013 was 8.1 percent less than a year ago but a modest increase from the previous quarter. Baker Hughes said it would publish new well counts on the second Friday of January, April, July and October.

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22. EU, CHINA AGREE ON JOINT GREEN AGENDAS BEIJING, July 19 (UPI) -- European Union and Chinese governments said they agreed to launch a joint environmental policy dialogue with the aim of ensuring a sustainable future. The EU and China said Friday they plan to launch a sustainability program to address topics of mutual environmental interest. "The environment forum would convene every two years, involve stakeholders and business and would bring a new dimension to the partnership," a statement said. Chinese Environmental Minister Zhou Shengxian met in Beijing with his European counterpart, Janez Potocnik, to discuss environmental policies. Potocnik described how the EU was working toward a resource efficient economy while the Chinese minister discussed environmental policies in place to curb air and water pollution. The EU is debating how to capitalize on environmental benchmarks established for 2020. China, for its part, said it was serious about addressing climate issues when delegates convened in Washington last week. The EU said the first joint environmental forum with China would take place in Brussels next year with "green growth" as its theme.

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23. WATER: IS THERE A GLOBAL CRISIS? (Seeking Alpha, Saturday, July 20, 2013) Introduction We hear a lot about global crises every day — terrorism, global warming, children starving, children obese, running out of oil, and population bombs. Come to think of it, crisis mongering is not new. The media loves crises: they get more watchers and consequently, more ad revenues. You might remember Paul R. Ehrlich, a Noble Prize winner and Stanford Professor. Back in 1980, he wrote “The Population Bomb” in which he claimed population growth would soon outrun the supply of food and

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natural resources — a real global crisis. Julian Simon, also an academic, was skeptical, so he offered Ehrlich a wager. Erhlich could choose five commodities. Simon would bet him $200 per commodity that its price would be lower at whatever future date Ehrlich chose. Ehrlich bet that the prices of chromium, copper, nickel, tin, and tungsten would be higher in a decade — 1990. As it happened, the world’s population grew more rapidly (by 800 million) 1980-1990 than in any decade in history. But Erhlich lost the bet. The prices of the commodities he chose at the end of the decade were all lower. We hear now that we have a global water crisis. In what follows, the arguments for this latest crisis will be examined with facts and analysis. Are We Running Out of Water? As Table 1 indicates, we have plenty of water. 70% of the earth’s surface is covered by water and with global warming; an increasing amount of it is in liquid form. Only 3% of it is not salted, but that is a lot. We are not running out. And keep in mind that whether we are running out of water is hardly a meaningful question. This is because unlike oil and other earth materials, we don’t “use up” water: in almost all applications — agriculture, industry, and human consumption — virtually all water immediately recycles. Table 1. – Global Water Resources

Item Thous. Km3 Share

Total Water 1,386,000 100.00%

Total Saline 1,351,000 97.47%

Oceans 1,340,000 96.68%

Other 11,000 0.79%

Total Freshwater 35,000 2.53%

Glaciers/ice 24,000 1.73%

Groundwater 10,500 0.76%

Lakes 91 0.01%

Wetlands 12 0.00%

Rivers 2 0.00%

Other 395 0.03%

Source: Meena Palaniappan and Peter H. Gleick, Peak Water So let’s ask a more meaningful question: do we have enough fresh water? Estimates are that we use slightly more than 50% of all renewable and “accessible” freshwater flows annually. And of course, these data vary significantly by region and year. Table 2 provides data on the water withdrawal rates of the largest 20 countries. China and the US have acceptably low overall withdrawal rates but we hear of serious water problems in each country. Clearly, many water problems are in-country distribution issues. Egypt? A real problem country. Anyone who has flown south from Cairo has seen a narrow strip of green on both sides of the Nile — the rest — desert. Table 2. – Water Withdrawal and Per Capita Usage, Largest Countries, 2011

Annual Renewable Annual Withdrawn Withdrawal Rate Per Capita Withdrawal

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Country bil. m3 bil. m3 (%) m3/p/yr

China 2,813 554 20% 410

India 1,446 761 53% 615

United States 2,818 478 17% 1,524

Indonesia 2,019 113 6% 459

Brazil 5,418 58 1% 292

Pakistan 55 184 334% 1,024

Nigeria 221 10 5% 61

Bangladesh 105 36 34% 232

Russia 4,313 66 2% 461

Japan 430 90 21% 706

Mexico 409 80 20% 660

Philippines 479 82 17% 844

Ethiopia 122 6 5% 61

Vietnam 359 82 23% 924

Germany 107 32 30% 394

Egypt 2 68 3415% 846

Iran 129 93 72% 1,221

Turkey 227 40 18% 542

Thailand 225 57 25% 858

Congo, DR 900 1 0% 9

World 42,370 3,894 9% 555

Source: World Development Indicators 2013, The World Bank Consider next the countries with the highest withdrawal rate (Table 3). How do these countries get by? Many use desalinization plants. Desalinization technologies are well-advanced and more than 10,000 desalinization plants are now in use. According to a recent study by the Pacific Institute, desalinization requires approximately twice as much power as wastewater reuse for the same volume of water. Yes, it is more expensive but it works. However, landlocked countries do not have this option, and Hungary, Turkmenistan, Uzbekistan, Moldova, and Azerbaijan are landlocked countries. Table 3. – Countries With The Highest Withdrawal Rates

Annual Renewable Annual Withdrawn Withdrawal Rate Per Capita Withdrawal

Country bil. m3 bil. m3 (%) m3/p/yr

U.A.E. 0 4.0 ∞ 435

Mauritania 0 1.6 ∞ 421

Kuwait 0 0.9 ∞ 277

Bahrain 0 0.4 ∞ 304

Egypt 2 68.3 3415% 846

Turkmenistan 1 28.0 2800% 5,413

Saudi Arabia 2 23.7 1185% 838

Libya 1 4.3 430% 699

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Uzbekistan 16 56.0 350% 1,881

Pakistan 55 183.5 334% 1,024

Syria 7 16.8 240% 750

Israel 1 2.0 200% 253

Moldova 1 1.9 190% 534

Iraq 35 66.0 189% 2,026

Yemen 2 3.6 180% 151

Azerbaijan 8 12.2 153% 1,312

Oman 1 1.3 130% 392

Sudan 30 37.1 124% 997

Netherlands 11 10.6 96% 632

Hungary 6 5.6 93% 563

Source: World Development Indicators 2013, The World Bank The Real Water Problem In attempting to deal with the water problem, it is important to understand how water is used. Globally, 69% of all water is used for agricultural irrigation, 17% is used by industry, and only 13% is used domestically. Next, I offer a few bulleted items that some people worry about: “The world’s population is growing by about 80 million people a year, implying increased freshwater demand of about 64 billion cubic meters a year. Competition for water exists at all levels and is forecast to increase with demands for water in almost all countries.” Source: WWDR, 2012 “Part of the current pressure on water resources comes from increasing demands for animal feed. Meat production requires 8-10 times more water than cereal production.” Source: WWDR, 2012 How about Ethanol? “Water withdrawals are predicted to increase by 50 percent by 2025 in developing countries, and 18 per cent in developed countries.” Source: Global Environment Outlook: environment for development (GEO-4). “Over 1.4 billion people currently live in river basins where the use of water exceeds minimum recharge levels, leading to the desiccation of rivers and depletion of groundwater.” Source: Human Development Report 2006 “In 60 percent of European cities with more than 100,000 people, groundwater is being used at a faster rate than it can be replenished.” Source: World Business Council For Sustainable Development (WBCSD). My response to these concerns? They can be dealt with. The real problem is in the area the World Health Organization calls “Water, Sanitation and Hygiene.” According to the World Health Organization (WHO), there are approximately 1.9 million deaths annually attributable to “water, sanitation and hygiene” problems, and most of these occur in developing nations. The WHO has also developed a health risk statistic — the Disability-Adjusted Life Years (DALYs). It measures years lost both because of a premature mortality and years lost due to time lived in less than full health. Data on how “water, sanitation and hygiene” problems compare with other problems are presented in Table 4.

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Table 4. – Deaths and DALYs from Selected Problems

Deaths DALYs

Cause (millions) (millions)

Tobacco 7.5 102.2

Obesity 2.6 73.0

Alcohol 2.5 131.4

Water 1.9 63.7

Source: WHO These data are subject to interpretation inasmuch as there is considerable discretion in deciding what something is “attributable to.” For example, the first and third leading causes of death are high blood pressure and high cholesterol, both having to do with being overweight/obese. A side note in passing — the FAO reports “that while some 870 million people were still hungry in 2010-2012… 1.4 billion are overweight, of whom 500 million are obese.” Back to water: in short, it is clear that there is a global water problem, mostly having to do with people’s health, and most of it located in developing countries. But before getting to this problem, let’s look at the US. US Water Problems As Jim Thebaut portrays in his video documentary Running Dry, there are real water availability problems in the southwest of the country. The reason is obvious — water has been treated as a free good. And where have most of the benefits gone? To agriculture — a huge subsidy. And put that together with the government subsidies to agriculture (Table 5), it is outrageous. Of particular note — the tobacco subsidies — subsidies to grow a crop that is highly addictive and a real killer. Table 5. – US Farm Subsidies, 2012

Item Amount

Corn 2,702

Soybean 1,469

Wheat 1,110

Cotton 561

Dairy 447

Tobacco 189

Sorghum 142

Livestock 59

Barley 52

Peanut 51

Sunflower 51

Canola 42

Rice 39

Tree 5

Oat 5

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Flax 5

Safflower 2

Mustard Seed 1

Conservation 1,750

Disaster 795

Total 9,476

Source: Environmental Working Group How can this be explained? Open Secrets estimates agribusiness paid lobbyists $139 million in 2012 to work for them. But there is a solution to the US water problem in the southwest: Come up with a regional plan to satisfy the water needs for the next 25 years (additional desalinization plants will be needed) and float a bond to finance it. Figure out how much it would cost to amortize the debt over the next 25 years. Add the annual amortization costs to annual “water” operating costs and charge water users accordingly. Water costs would increase substantially. That is what should be done. Developing World Consider next developing countries where there is a serious water problem. The UN estimates they could be cut in half for $20 billion a year. $20 billion is 0.2% of bilateral and multilateral development assistance. $20 billion is only 0.02% of global GDP. But should more money go into ending water problems? There are certainly other problems in the developing world, and it is probably an either/or situation. Consider the seriousness and progress on some of the other UN Millenium Development Goals: The proportion of people living in extreme poverty has been halved at the global level. The world reached the poverty reduction target five years ahead of schedule. In developing regions, the proportion of people living on less than $1.25 a day fell from 47 per cent in 1990 to 22 per cent in 2010. About 700 million fewer people lived in conditions of extreme poverty in 2010 than in 1990. Remarkable gains have been made in the fight against malaria and tuberculosis. Between 2000 and 2010, mortality rates from malaria fell by more than 25 per cent globally. An estimated 1.1 million deaths from malaria were averted over this period. Death rates from tuberculosis at the global level and in several regions are likely to be halved by 2015, compared to 1990 levels. Between 1995 and 2011, a cumulative total of 51 million tuberculosis patients were successfully treated, saving 20 million lives. The proportion of slum dwellers in the cities and metropolises of the developing world is declining Between 2000 and 2010, over 200 million slum dwellers benefited from improved water sources, sanitation facilities, durable housing or sufficient living space, thereby exceeding the 100 million MDG target. The hunger reduction target is within reach. The proportion of undernourished people in developing regions decreased from 23.2 per cent in 1990-1992 to 14.9 per cent in 2010-2012. Given reinvigorated efforts, the target of halving the percentage of people suffering from hunger by 2015 appears to be within reach. Environmental sustainability is under severe threat, demanding a new level of global cooperation. The growth in global emissions of carbon dioxide (CO2) is accelerating, and emissions today are more than 46 per cent higher than their 1990 level.

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Big gains have been made in child survival, but more must be done to meet our obligations to the youngest generation Worldwide, the mortality rate for children under five dropped by 41 per cent — from 87 deaths per 1,000 live births in 1990 to 51 in 2011. Too many children are still denied their right to primary education. Between 2000 and 2011, the number of children out of school declined by almost half — from 102 million to 57 million. In short, there are competing claims for aid monies. So what progress has there been on the water problems? I quote from the UN: “Over 2 billion people gained access to improved sources of drinking water. Over the last 21 years, more than 2.1 billion people gained access to improved drinking water sources. The proportion of the global population using such sources reached 89 per cent in 2010, up from 76 per cent in 1990. This means that the MDG drinking water target was met five years ahead of the target date, despite significant population growth. Gains in sanitation are impressive. From 1990 to 2011, 1.9 billion people gained access to a latrine, flush toilet or other improved sanitation facility.” This is great progress. Conclusion Is there a global water crisis? No. We are certainly not “running out of water.” But worldwide, water is “given away,” treated as a “free good.” This should stop. Water should be sold for what it costs to provide. In developing countries, water is frequently “not clean.” But in recent years, great progress has been made on this issue and it should be continued.

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