In this episode: US economy, China’s fuel demand, melting glaciers, two views of biofuels

Futures tumble on Bear Stearns fire sale:

Stock futures plunged on Monday after JPMorgan Chase (JPM.N: Quote, Profile, Research) bought Bear Stearns (BSC.N: Quote, Profile, Research) for just $236 million and the Federal Reserve took emergency action to provide cash to Wall Street, raising concern that the credit crisis is spiraling out of control.

The Fed made an emergency quarter-percentage-point cut to its discount rate to 3.25 percent and expanded lending to a wider range of big financial firms, in the first such move since the Great Depression of nearly 80 years ago.

JPMorgan is buying Bear Stearns for $2 per share, or just one-fifteenth of the price the shares closed at on Friday. Shares of Bear, the fifth-largest U.S. investment bank, reached a high of $172.61 last year.

Once again, remember the basic causality chain: Housing and credit sector problems = lower interest rates = weaker US dollar = higher oil prices contributing to a much greater inflationary push than would be normal for rates at this level. Add to that the parallel vector of recession = lower stock prices = money looking for a safe haven = increased demand for US treasuries = more downward pressure on interest rates, and the story just gets uglier.

The FOMC (Fed. Open Market Committee) will be making another interest rate change tomorrow, widely assumed to be somewhere between a half and a full percentage point.

Related:

Wall Street in crisis of confidence

JPMorgan to buy Bear Stearns for $2 a share

Global stocks plunge after Bear Stearns news

Oil prices jump to new record peak

China’s Fuel Demand May Rise 8% This Year, Sinopec Group Says :

China’s fuel demand may rise 8 percent this year as the nation’s biggest manufacturing hub restarts oil-fueled power generators to ease shortages, said an official with state-owned China Petrochemical Corp.

“Shortages in regions like Guangdong will boost diesel use,” Ke Xiaoming, vice director of the Marketing Department of the Economic and Technology Research Institute at Sinopec Group, as China Petrochemical is known, said in the eastern city of Jinan, Shandong province, on March 15. Fuel demand rose 7.3 percent to 192 million metric tons in 2007, he said.

…

Guangdong has reopened 7,000 to 8,000 megawatts of oil- fired generation capacity to meet shortages that could reach as much as 10,000 megawatts by June, Yuan Maozhen, chairman of China Southern Power Grid Co. said March 13. Southern Grid supplies electricity to five southern provinces including Guangdong.

This takes a little deconstructing. What does this article mean by “fuel”? Just diesel? All oil? How much of the total oil demand is diesel?

The article mentions a yearly demand of 192 million metric tons. Multiplying that by 7.14 to convert to barrels (for the benefit of most oil geeks who use that unit) gives us 1,370 million barrels/year, or about 3.75 million barrels/day. According to the most recent BP Statistical Review, China’s oil consumption in 2006 was 7.4 million barrels/day, so it seems reasonable to assume that this is talking about just diesel fuel and not gasoline or other products derived from oil.

That 7.3% increase in diesel consumption for 2007 works out to about 13 million metric tons/year or 93 million barrels/year, about 0.25 million barrels/day or an increase of about 3.3% in China’s total oil consumption.

Meltdown in the Mountains:

The world’s glaciers are continuing to melt away with the latest official figures showing record losses, the UN Environment Programme (UNEP) announced today.

Data from close to 30 reference glaciers in nine mountain ranges indicate that between the years 2004-2005 and 2005-2006 the average rate of melting and thinning more than doubled.

The findings come from the World Glacier Monitoring Service (WGMS), a centre based at the University of Zurich in Switzerland and that is supported by UNEP.

It has been tracking the fate of glaciers for over a century. Continuous data series of annual mass balance, expressed as thickness change, are available for 30 reference glaciers since 1980.

Prof. Dr. Wilfried Haeberli, Director of the Service said: “The latest figures are part of what appears to be an accelerating trend with no apparent end in sight”.

The Service calculates thickening and thinning of glaciers in terms of ‘water equivalent’. The estimates for the year 2006 indicate that further shrinking took place equal to around 1.4 metres of water equivalent compared to losses of half a metre in 2005.

“This continues the trend in accelerated ice loss during the past two and a half decades and brings the total loss since 1980 to more than 10.5 metres of water equivalent,” said Professor Haberli. During 1980-1999, average loss rates had been 0.3 metres per year. Since the turn of the millennium, this rate had increased to about half a metre per year.

This is the UNEP item I mentioned yesterday but couldn’t locate.

See the linked article for more detail and a link to the data and graphs, which make the US financial news look like a picnic.

See this page on the Khosla Ventures web site for their papers related to biofuels, coal, etc. Khosla is, of course, Vinod Khosla, one of the most important and visible venture capitalists, particularly in the alternative energy field, and he’s also one of the most outspoken proponents of ethanol.

For a slightly different take on this topic, see the American Petroleum Institute’s alternative fuels resource page.