Chinese walker

On Commander Ebi%26rsquo;s baseball cap, the logo reads: %26ldquo;Alaska%26rdquo;. Little else connects the 42-year-old %26ndash; who has spent the past five years in a militant camp deep in the tropical creeks of the Niger Delta %26ndash; with the prosperity and polar bears of the northernmost US state.

Except, that is, for oil. But while petroleum has made Alaskans among the wealthiest people in the world%26rsquo;s wealthiest country, Nigeria%26rsquo;s oil province %26ndash; on which the United States depends for nearly one in every 10 barrels of crude it imports %26ndash; has known little but conflict, corruption and misery in the half-century since the first barrel was shipped.

Yet Nigeria%26rsquo;s rulers are hoping a new policy to deliver the benefits of oil to the local population %26ndash; as Alaska does with its pioneering approach of distributing petrodollars in cash to citizens %26ndash; might help placate an insurgency that has cut production by as much as 40%.

That puts them at the frontier of new ideas for solving the problems that oil brings. %26ldquo;Countries that have managed natural resources well are those with powerful constituencies that can stop the government from feeding at the trough [of oil money],%26rdquo; says Todd Moss from the Washington-based Center for Global Development and an advocate of cash distributions. He favours Alaska-style pay-outs, which he says %26ldquo;are a way to manufacture such a constituency%26rdquo;.

Where civil society or non-resource business is weak, Moss points out, natural resources do not put a country on a fast track to development. %26ldquo;Look at Nigeria %26ndash; [US]$300 billion [in oil revenues] over the past three decades, but the average Nigerian has got poorer.%26rdquo;

So thoroughly has crude corroded the contract between government and citizens that most of Nigeria%26rsquo;s 150 million people regard the state more as predator than benefactor. In the delta, thousands of jobless young men extort, kidnap and blow up pipelines under the banner of resistance to a state that has failed them, and oil companies that have despoiled their lands.

A recent amnesty has lured them to surrender their arms for the present. Under government proposals designed to keep the delta from re-arming, the state would hand over 10% stakes in the joint ventures that run Nigeria%26rsquo;s biggest energy industry to %26ldquo;host communities%26rdquo;.

While the proposals could face stiff opposition from elsewhere in the country, they have been approved by ministers and a presidential implementation committee has been created, according to the architect of the plans, Emmanuel Egbogah, special adviser to president Umaru Yar%26rsquo;Adua on petroleum matters. The initiative, he says, is %26ldquo;revolutionary%26rdquo; and will mean that %26ldquo;every community %26ndash; whether blind or deaf or dumb, every citizen %26ndash; will say: %26lsquo;I own a part of this business.%26rsquo; %26rdquo;

Direct cash distributions are perhaps the most radical idea that has emerged from a decade-and-a-half-old movement to transform the way poor states manage their natural resources. That movement sprang from a growing realisation of a %26ldquo;paradox of plenty%26rdquo;: life in resource-rich countries often remains miserable.

Part of the reason is economic. Volatile commodity prices, and the built-in revenue bust inherent in depletable resources, complicate planning. Even in good times, resource economies can suffer from 1970s-style %26ldquo;Dutch disease%26rdquo;: the hard currency a country earns from its oil, gas or minerals distorts its economy, crowding out agriculture or manufacturing.

The other problem is political. States flush with resource revenues have a strong incentive for patronage and outright corruption. Entrepreneurship becomes an effort to %26ldquo;feed at the trough%26rdquo; in rent-seeking that at best fritters away productivity and at worst breaks down the rule of law.

There are exceptions. Norway, Botswana and Chile have harnessed oil, diamonds and copper for national development, giving hope that other countries too may succeed. In 2002 Tony Blair, then the British prime minister, announced the Extractive Industries Transparency Initiative (EITI), with dozens of governments, mining companies and oil groups pledging to declare payments and revenues. But neither such pledges, nor even the strictures of Washington%26rsquo;s multilateral institutions, can ensure countries keep to the straight and narrow.

Under fire from critics claiming resource extraction harmed the poor, the World Bank in 2000 placed conditions on financing an oil pipeline from Chad to the coast of Cameroon. It required that Chad%26rsquo;s royalties went into a special account rather than the national budget and that all payments were published. A share would be saved for future generations. Withdrawals had to go towards health, education or other social needs.

%26ldquo;It was a beautiful plan on paper %26ndash; but there was nothing to stop the government from reneging on the deal,%26rdquo; says Moss. Chad soon diverted money to military spending. In 2008 the World Bank withdrew from the project. Still, an international consensus emerged on policy for commodity-dependent countries: channel revenues into funds to insulate national budgets; increase transparency of payments; include checks and balances in spending.

Yet not even countries that have adopted such policies may succeed where Chad failed. East Timor%26rsquo;s government raided its savings fund by withdrawing more than the prescribed maximum. Such cases suggest the standard recipe is not enough to end the cycle of corruption. Advocates say only giving the people a direct stake in the resources will mend the bond between state and citizens.

%26ldquo;If every citizen [of Chad] had been entitled to cash payments … the political dynamic would have been very different,%26rdquo; says Moss. %26ldquo;Cash distribution is complementary to transparency efforts; in fact, it would help. If the amount paid out to citizens is different from what the government receives from oil companies, or if this year%26rsquo;s distribution is $52 while last year%26rsquo;s was $58, the government would have to explain that to people.%26rdquo;

The idea is gaining interest. When she was in the US Senate, Hillary Clinton, now secretary of state, sponsored a resolution recommending that Iraq set up a trust fund to distribute part of its oil revenues to the people. Presidential candidates in Iran and Venezuela have mooted the idea too, as has Muammar Gaddafi, Libya%26rsquo;s leader. According to proponents, the scheme could make about US$555 million annually available %26ndash; about $20 a year for every man, woman and child of the delta%26rsquo;s 28 million people, a significant amount in a region where 70% live on less than $1.50 a day.

Nigeria%26rsquo;s oil producing states already receive an extra slice of oil proceeds %26ndash; but much of the money vanishes. Dimieari Von Kemedi, an activist recently drafted into the government of oil-rich Bayelsa state, says his audit of state finances found contracts had been inflated to the tune of 17 billion naira (US$114 million).

Whether the new scheme can avoid such problems is critical to its success. %26ldquo;It will not be like the Alaskan case, when each individual gets his money,%26rdquo; Egbogah says. The intended option is a system of trust funds administered at the behest of each community %26ndash; bypassing the delta%26rsquo;s state and local governments.

By receiving a share in the proceeds of an oil industry they have long resented, delta dwellers would have an incentive to facilitate production, Egbogah reasons. But even so, critics warn that trusts risk replicating what they say is oil companies%26rsquo; practice of allocating funds to some communities in order to safeguard their own facilities, generating resentment in less favoured settlements.

A heated debate one recent morning in the royal hut of the Edagberi clan suggests the tensions that could emerge. %26ldquo;Some communities, they only have a pipeline or access road,%26rdquo; says Anigbo Williams, 52, chief of one of the clan%26rsquo;s six communities. %26ldquo;If you give him with his one well [a payment] and come and give me with 44 wells the same, you have a problem: we will feel we have been cheated.%26rdquo;

The proposals come at a critical moment not just for the delta. Tensions and a sense of paralysis are mounting with each day that the ailing Yar%26rsquo;Adua remains in the Saudi hospital to which he was rushed in November. The government is in the thick of oil industry reforms. It wants to incorporate the state oil company %26ndash; long regarded as a vessel of patronage %26ndash; and formalise loose joint ventures.

Oil companies are fighting tougher terms and negotiating renewals of 40-year leases on prime oil blocks. Adding the 10% plan into the mix heightens what was already a sense of make or break ahead of elections due in 2011.

All the while, the delta holds its breath. %26ldquo;It is left to [the government] to do something that will be favourable to each and every one of us in this part of the country,%26rdquo; says the Alaska-capped Ebi. But he warns that a badly executed plan would have harsh consequences, bringing new vigour to the guerrilla campaign to disrupt oil production. %26ldquo;If we are not developed, we will bounce back to the creeks. We are not afraid.%26rdquo;

Delta proposals

Can the centre hold together an oil fund handout?

The title of Nigeria%26rsquo;s most famous novel, Chinua Achebe%26rsquo;s Things Fall Apart, hangs like a perpetual warning over a country of 150 million disparate people stitched together under British rule, writes Tom Burgis. Predictions of imminent unravelling are often alarmist but the tension %26ndash; broadly between the mainly Muslim north and mainly Christian south %26ndash; is real, particularly over the distribution of oil wealth.

Another rift between the 28 million people of the crude-producing Niger delta and the rest has been sharpened by proposals to grant delta residents 10% stakes in oil ventures, to be taken from the national oil company%26rsquo;s holdings.

The proposals%26rsquo; architects hope to give people who have long resented the oil industry an incentive to support it. Others fear that acknowledging the delta%26rsquo;s rights to %26ldquo;ownership%26rdquo; could increase discord. After a string of initiatives to placate the volatile region, one northern legislator speaks for many when he says the delta has already been offered %26ldquo;too many carrots%26rdquo;. To which many Ijaw, the delta%26rsquo;s biggest ethnic group, retort: give us our due or let us go our own way.

When civil war broke out in 1967, the central government, terrified of losing the delta%26rsquo;s newly drilled oilfields to secessionists, declared all natural resources state property. Today, however, the delta oil-producing states, where poverty is often less acute than in the north, receive 13% of oil proceeds before the remainder is shared out among all 36 states. Once the proceeds of a multibillion-dollar trade in stolen crude are included, the delta looks awash with cash. But, with graft and mismanagement, little reaches its inhabitants, even if oil spills do.

Nonetheless, delta leaders demand that the extra share is raised to 50%, arguing that the same principle could be applied to the barely exploited natural resources of other regions.

Privately, at least one minister expresses willingness to concede to delta demands if it would end militant attacks on the oil industry. The proposals%26rsquo; authors calculate that, with a restructuring of the national oil company, the treasury would lose only about 2% of oil revenues.

Yet striking such a bargain would be delicate %26ndash; especially for president Umaru Yar%26rsquo;Adua, who draws much of his political capital from his northern home city. By diverting oil revenues directly to deltans, he might break the hold of militant commanders. But by bypassing the state authorities, he risks alienating the delta barons of the ruling party ahead of 2011 elections. Everyone else will be left to ponder whether there is more prising them apart than holding them together.

http://www.ft.com/home/uk

Copyright The Financial Times Limited 2010

Homepage image from City of Refuge Africa

Hans-Martin Schulz, a German geologist, is co-founder of Gas Shales in Europe, a project funded by the oil and gas industry to explore the potential for development in Europe. %26ldquo;We are making the first steps in research,%26rdquo; he says. %26ldquo;It%26rsquo;s hard to estimate, at this point, what will happen.%26rdquo;

National and international energy policies will dictate how much gas is extracted, but there is no doubt that countries from Poland to China want to get in on the act. On November 17, 2009, US president Barack Obama and China%26rsquo;s president Hu Jintao launched the US-China Shale Gas Resource Initiative, which aims to use experience from the US to assess China%26rsquo;s shale gas potential.

But gas has its critics. It is about 30% less carbon intensive than oil and 50% less than coal, but it still emits carbon, which makes it less desirable than renewable energy resources. Fracturing the rock requires large quantities of water laced with chemicals, which critics fear could leak into groundwater and aquifers. Shale developments have been blamed for contaminating wells and the death of livestock exposed to potassium chloride in the water used to fracture the rock; this has led regulators to consider buffer zones around reservoirs and aquifers.

There has been no outcry in places such as the American states of Texas and Louisiana, where lawmakers have long supported the oil and gas industry. Indeed, Louisiana is offering tax incentives for people to install fuelling equipment that will allow vehicles to run on compressed natural gas. But in the north-eastern states, where the mood is less welcoming, Chesapeake Energy recently abandoned plans to drill in the New York watershed, which supplies unfiltered water to nine million people. %26ldquo;Why go through the brain damage of that, when we have so many other opportunities?%26rdquo; says Aubrey McClendon, its chief executive.

The Riverkeeper, a New York environmental group, has called for a permanent ban on drilling in ecologically sensitive areas such as the state%26rsquo;s Catskills region. But local governments are torn, given the number of jobs shale developments create at a time of high unemployment. A study by IHS Global Insight reported that gas contributed $385 billion to the US economy in 2008 and more than $180 billion in labour income alone; by comparison, the coal industry contributed $79.9 billion. More than 30 US states boasted at least 10,000 jobs directly or indirectly attributable to the gas industry.

At the end of 2008, the US department of energy (DoE) says domestic proven gas reserves rose by 3% to reach their highest level since the US Energy Information Administration (EIA) first reported them in 1977. Discoveries of 29.5 trillion cubic feet (835.3 billion cubic metres) of gas during 2008 represented the sixth consecutive annual increase, with reserves from shale reservoirs up 51% over 2007.

%26ldquo;It is very significant,%26rdquo; says Richard Newell of the EIA. Under most scenarios of future energy and climate legislation, US natural-gas production will increase during the next 20 years. But further ahead, the picture becomes less clear. By 2050, if the United States built more nuclear and wind-generating capacity and managed to capture and store the carbon emitted from coal-fired power stations, then it would be cheaper to use those technologies than to burn more gas and capture its carbon emissions, Newell says. %26ldquo;The size of the role natural gas would play depends on the availability of those other options.%26rdquo;

In its favour, he notes, gas-fired power stations can be built faster and more cheaply than coal equivalents and offer a better fit with renewable sources because they are easier to turn on and off to supplement wind and solar when the wind drops and the sun doesn%26rsquo;t shine. %26ldquo;Price is the main impediment,%26rdquo; Newell says.

And natural gas prices are unpredictable. In recent months, when gas fell below US$3 per million British thermal units (mBtu) %26ndash; a seven-and-a-half-year low %26ndash; that hardly seemed a cause for concern. But as recently as 2008, US gas prices reached a record US$13.69 per mBtu. Even at US$3.20 per mBtu, however, developing shale gas is profitable.

%26ldquo;Every square inch of my district has natural gas under it,%26rdquo; says Tim Murphy, a US congressman, referring to Pennsylvania%26rsquo;s Marcellus Shale, which runs from New York to Tennessee. %26ldquo;It%26rsquo;s going to have an impact on the whole nation.%26rdquo; T Boone Pickens, the 81-year-old oilman who has become a spokesman for the natural-gas industry, told the US congress in October that the United States has more natural gas than all the oil in Saudi Arabia. If the country converted 6.5 million of its heavy trucks to run on that gas, it could reduce its oil imports from OPEC producers by 2.5 million barrels a day.

To make that happen, Murphy says the United States must create incentives for public gas refuelling stations, or in-home gas refuelling, and plug-in vehicles. This can be funded, he argues, from the additional revenues the government will receive from gas producers if they have incentives to increase output. %26ldquo;It%26rsquo;s a solution that grows upon itself.%26rdquo;

The biggest believers are in the Haynesville Shale formation of Louisiana, where last year gas projects produced US$3.9 billion in household earnings and accounted for 33,000 new jobs, according to Loren C Scott %26amp; Associates, an economic consultancy. It estimates state and local tax revenues increased by at least $153.3 million in 2008 as a result. %26ldquo;It%26rsquo;s going to turn this parish upside down over the next five to 10 years,%26rsquo;%26rsquo; says Tommy Craig, of the Community Bank of Louisiana. Deposits are already up 25% from late 2007.

Mike Smith is one of the few spending his windfall. Whereas others have run only to a new pick-up truck, he does not have a wife or children, so the money is his to spend. He has bought a couple of large-screen televisions and invested some of his payout, buying stock in Ford Motor Company when it hit $2 a share %26ndash; %26ldquo;I have a bunch of it,%26rdquo; he says. But after years of thrift, even he has mostly held on to the money, using it for necessities such as medical bills. He was able to pay upfront to have a cancerous growth removed from the side of his nose, rather than cover the costs in instalments.

Other big winners from the shale rush remain cautious about spending their signing bonuses, despite the promise of royalty cheques once production begins. The Marshburn family, who own some 160 hectares, including a share in the most productive Haynesville well to date, are one example. Mike Marshburn, a 59-year-old former rodeo star in a black cowboy hat and a shiny silver buckle he won as a rider in the 1970s, has already banked his bonus but continues to work on the gas fields as a contract welder, while raising bucking bulls on the side.

His wife, Celia, a retired schoolteacher, lifts up her boots to reveal holes in the soles. And their daughter, Mila, 25, is working her way through 14-hour days in nursing school, despite her family%26rsquo;s sudden wealth. %26ldquo;I just tell my friends, %26lsquo;Hey, that%26rsquo;s my parents%26rsquo; money. I%26rsquo;m going to make my own way.%26rsquo;%26rdquo; Her mother wants to create a beach on the lake their home overlooks, while her father has his eye on a new bull. But they are biding their time. %26ldquo;If these royalty cheques are big enough, I might retire,%26rdquo; Mike says.

Smith%26rsquo;s bonus will carry him through retirement, regardless of how big his royalty cheques turn out to be. His contract guarantees him 20 to 25% of what the company receives for gas under his land, and production is due to begin within months. He has a twinkle in his blue eyes when he talks of the dreams he can now afford to live out %26ndash; hunting bears in Alaska; golfing at the Masters in Augusta, Georgia; seeing the vast expanses of Wyoming and Montana; building a new home amid the pine trees on his acreage. %26ldquo;I%26rsquo;m more or less a homebody,%26rdquo; he says. %26ldquo;I think it%26rsquo;s time I get out.%26rdquo;

In the meantime, he is training his nephew to take over the business so that he can retire next year. And on the weekends, he still heads out of town, to hunt on his land, among the pine trees and the well pads.

Shale oil next?

US energy companies may be able to use technologies they acquired in the hunt for shale gas to tap oil trapped in dense rock formations.

Oil is often harder to extract, given its viscosity and bigger molecules, so engineers are tweaking the process. %26ldquo;We believe this is going to be game-changing technology,%26rdquo; said Mark Papa, chairman of EOG Resources. %26ldquo;We believe there is enough oil in rock across the US and Canada to be of significant impact.%26rdquo;

While increasing the size of the world%26rsquo;s third-largest oil production base would be difficult, success could slow the decline in US oil output that has continued since the 1970s. Papa believes the process will prove economic with oil prices at US$45 to $50 a barrel, compared with around $80 today.

While nobody knows how much oil might be freed by the new techniques, Edward van den Heuvel, commercial opportunity manager for Shell Chemicals, said that on average about a third of the oil in a field is recovered. With two-thirds of the oil left in the ground, it makes sense to revisit reserves once believed to be trapped in impermeable rock.

The biggest success so far has been in the Bakken Formation of Montana and North Dakota, where there are an estimated 3.65 billion barrels of recoverable oil. Bill Albrecht, vice-president of Occidental Petroleum, the biggest US independent, says: %26ldquo;There is a huge resource here.%26rdquo; But the technique needs refining before it will win widespread adoption. %26ldquo;Relative to gas, it%26rsquo;s still an emerging technology,%26rdquo; he admits.

Sheila McNulty is the Financial Times%26rsquo;s US energy correspondent.

http://www.ft.com/home/uk

Copyright The Financial Times Limited 2010

Homepage image from Chesapeake Energy

After their father died 15 years ago, Mike Smith%26rsquo;s six siblings wanted nothing to do with the tract of land the old man had gradually acquired from his income as a pipeline welder. The land, 365 acres %26ndash; 148 hectares — of it, lay in a quiet and sparsely populated corner of Louisiana: nothing but pine trees for miles around. In a county so poor that about a fifth of the population lives below the poverty line, the bequest wasn%26rsquo;t good for much.

But for Smith, a tall, slim man of 61 with a kindly face, DeSoto parish was home. %26ldquo;That%26rsquo;s where my roots are. I wanted the land,%26rdquo; he says. Smith paid US$300 an acre (less than half a hectare) %26ndash;$109,500 in total %26ndash; to his siblings. And while he kept his home in Shreveport, 65 kilometres to the north, he travelled down to DeSoto regularly to walk his acres, or hunt squirrel and deer. His plan was to sell the trees for lumber one day, and use the income to fund his retirement. Until then, he would pass the years frugally, making a living as a property valuer and sharing his 50-year-old house with two dogs and a cat.

All the while, the DeSoto county seat, Mansfield, home to 5,500 people, withered. With only coal and timber to support it, the parish could not even repair its roads. Across from the courthouse are telltale signs of the desperation that began to claw at the area %26ndash; the dusty, vacant windows of the hardware shop and cinema, and beyond them the Community Bank of Louisiana. It opened its doors in 1901 but is now so run down that the visitor struggles to make out what colour the wallpaper would once have been. The phones are from another age and an old standard lamp in an upstairs office blinks fitfully into life and then goes dark again.

%26ldquo;When I came in, the town was dead. There was no sign of economic growth here,%26rdquo; remembers Curtis McCoy, mayor for the past seven years.

All that changed in 2008, when oil and gas companies began knocking on doors, offering locals a couple of hundred dollars an acre if they would lease their land for prospecting. Some, like Jim May, executive director of the DeSoto Chamber of Commerce, jumped at the offer and signed a three-year lease on his 100 acres for a total of $25,000. Nobody had shown any interest in the land in decades, he reasoned. Six months later, the gold rush was at its height and prices leapt to $25,000 or even $30,000 an acre. %26ldquo;I lost $2.5 million,%26rdquo; says May with a wistful smile.

%26ldquo;People went to bed one night and woke up the next morning to find themselves rich,%26rdquo; says McCoy. That included Mike Smith, whose land was so sought after that in May 2008, PetroHawk Energy, a small, independent oil and gas company, handed him a $1.4-million signing bonus in return for permission to drill for natural gas on his late father%26rsquo;s property. %26ldquo;It changed my whole life,%26rdquo; he says. %26ldquo;I don%26rsquo;t have to cut my trees anymore.%26rdquo;

Smith is sitting behind the wheel of a new gold Cadillac, parked outside this year%26rsquo;s Haynesville Shale Expo in Shreveport, an event that has attracted 5,000 people, most of them landowners who missed the leasing frenzy and are eager to see whether they still have time to cash in. It was Smith%26rsquo;s dream since he was a boy to own a new Cadillac, like the one his father always made sure his mother drove. He paid $52,000 cash for the car. %26ldquo;That was the first investment. It kind of hurt a little bit,%26rdquo; he smiles. A small wooden cross dangles from the rear-view mirror.

. . .

The prize that drew companies such as PetroHawk to Smith%26rsquo;s impoverished corner of Louisiana is known as shale gas. Smith%26rsquo;s acres sit on top of the Haynesville Shale, named after the town near which the prospect was discovered %26ndash; a seam of black rock between 150 and 300 feet thick (45 to 90 metres thick) that lies hundreds of metres underground and extends across 3,400 square miles (8,800 square kilometers) of Louisiana and Texas. Trapped inside this rock are vast quantities of natural gas %26ndash; estimated at between 112 and 245 trillion cubic feet (roughly between three and seven trillion cubic metres). At the upper end of this range, Haynesville gas could meet the energy needs of the United States for about 12 years.

This isn%26rsquo;t the most extensive prospect of its kind in the United States; that distinction belongs to the Marcellus Shale in Pennsylvania and neighbouring states, which is reckoned to cover 65,000 square miles (nearly 170,000 square kilometres), an area larger than Greece. But based on the wells drilled so far, the Haynesville may well turn out to be one of the most productive. %26ldquo;It was the Haynesville that turned the tide on how big shale could be for US supply,%26rdquo; says Jeff Fisher, senior vice-president of production at another US company, Chesapeake Energy.

Indeed, the impact is expected to extend well beyond America%26rsquo;s borders. Industry consultants at PFC Energy in Washington, DC, believe that developing supplies trapped in shale deposits could more than quadruple the world%26rsquo;s known gas reserves. %26ldquo;This is a transformational event,%26rdquo; says its chairman, Robin West. His consultancy puts global reserves of natural gas from %26ldquo;unconventional%26rdquo; sources such as shale beds at 3,250 trillion cubic feet (92 trillion cubic metres), a total based on 1997 geological estimates that he believes will rise as the techniques available to extract the gas improve. By comparison, global reserves of natural gas from %26ldquo;conventional%26rdquo; sources total 620 trillion cubic feet (17.5 trillion cubic metres). Not all of these shale reserves will ever be tapped, but the technology to do so is available and, for the first time, companies are putting it to use.

To extract gas from shale involves drilling down, sometimes thousands of metres, and then sideways as much as 4,500 feet (1,370 metres). Once a well has been drilled, water with fine grains of sand is pumped through at high pressure; this fractures the shale and leaves behind the grains of sand, which prop open the fissures in the rock and allow the gas to escape.

Using this technique, Devon Energy, an Oklahoma-based oil and gas independent, sank a well last autumn in the Texas portion of the Haynesville shale (until then thought to be a low point in the %26ldquo;play%26rdquo;) that produced a flow rate of more than 30 million cubic feet (850,000 cubic metres) of gas per day, the highest ever from that area. This result led others to redraw the borders of the gas field, suggesting it was even more extensive than originally believed. %26ldquo;No one, us included, knows how that play is going to evolve,%26rdquo; says Larry Nichols, Devon%26rsquo;s chief executive. %26ldquo;We did not anticipate it would grow this much. Now we realise there are more opportunities for onshore growth than we ever thought would be possible.%26rdquo;

This realisation marks a volte-face for America%26rsquo;s oil and gas companies. By the 1970s, the majors had decided that onshore reserves of oil and gas in the United States had been tapped, so they sold much of their acreage in order to focus on offshore and international exploration. This left the independent explorers, which drill 90% of onshore wells in the country, to pursue what was left. %26ldquo;For years we have known that the United States holds vast quantities of so-called tight gas or shale gas %26ndash; natural gas locked in formations denser than concrete,%26rdquo; Rex Tillerson, ExxonMobil%26rsquo;s chief executive, said in October. %26ldquo;But we did not have the technology to extract this so-called tight gas in a cost-effective way. Until now.%26rdquo;

Credit for that breakthrough goes to George Mitchell, who at 90 is among the last of the original wildcatters still alive. His breed of oilmen spent their lives searching for the next Spindletop %26ndash; the Texas oil well that in 1901 spouted a thick, black geyser, marking the birth of the US oil industry. Duke R Ligon was senior vice-president at Devon Energy when, in 2002, Mitchell was preparing to sell his company to Devon and retire a billionaire. Few people realised it at the time, but Mitchell had already laid the groundwork for the shale boom by pioneering an effective and economic way to extract the gas. %26ldquo;You had to laugh in the negotiations because, according to him, everything was Spindletop,%26rdquo; Ligon recalls. He pauses, then adds: %26ldquo;He happened to be right.%26rdquo;

The technology and expertise developed by Mitchell Energy and refined by Devon has transformed the industry. In the past three years, estimates of US gas reserves have grown from 30 to 100 years%26rsquo; supply at today%26rsquo;s rates of consumption. %26ldquo;We did all the work,%26rdquo; Mitchell says. %26ldquo;The majors didn%26rsquo;t do it; the independents did it. Now the majors are angling all around.%26rdquo;

Exxon, the biggest of them all, has built up positions in the Marcellus Shale and other fields across Oklahoma, Arkansas and Texas, and in December it took over XTO Energy, a US independent, in a $41-billion deal that will further increase its exposure to onshore US natural gas. Exxon is also looking at making shale an international proposition and has holdings in Canada, Germany, Hungary and Poland.

And all the while competitors from around the world are lining up, hoping to learn from the pioneering US independents and take that expertise with them wherever they can.

NEXT: What lies ahead?

Sheila McNulty is the Financial Times%26rsquo;s US energy correspondent.

Copyright The Financial Times Limited 2010

http://www.ft.com/home/uk

Homepage image from US Energy Information Administration

It only takes eight seconds to demolish a four-star hotel.

Nanchang, the capital of Jiangxi province in south-eastern China, which claims it is en route to becoming a %26ldquo;low carbon city%26rdquo;, has done something almost unbelievable. On February 6, the landmark 22-storey, 86-metre high Wuhu Hotel, which only opened in 1997, was dynamited. The hotel was owned by Hong Kong%26rsquo;s Kaimei Group, which bought it in July, 2007 with a view to adding a further three floors %26ndash; raising the building to a height of 90 metres %26ndash; and refurbishing the interior to five-star standards.

The changes were approved by the local planning authorities, but the company then changed its mind. According to a city planner quoted in the city%26rsquo;s Information Daily on November 19 last year, Kaimei became nervous about possible subsidence and abandoned its plans. A new proposal was submitted: to demolish the original building and replace it with a new 25-storey hotel and six-storey auxiliary building. The Nanchang government signed off the plan in early November, approving both demolition and reconstruction.

The news of the demolition was met with scepticism from the public, with some commenting that the Wuhu was %26ldquo;the best hotel in the city%26rdquo; and demolition would be an %26ldquo;enormous waste%26rdquo; and others calling for an investigation. But the hotel was nonetheless demolished, to the bewilderment of the local community.

The quality of the original building can not have been the issue %26ndash; otherwise, how could Kaimei have planned to extend it to 25 storeys? Furthermore, professor Xue Fengsong of the People%26rsquo;s Liberation Army University of Science and Technology, an explosions expert who was responsible for the demolition, told the media that the building was %26ldquo;solidly constructed%26rdquo;. The official line from Kaimei%26rsquo;s spokesperson, Qi Xiaoxing, was that there were failings in the structure and design of the hotel and that reinforcement would have been insufficient to enable the planned increase in height. Perhaps they are right that the Wuhu Hotel could not have been transformed into a 25-storey, five-star hotel. But it was designed as a 22-storey, four-star hotel. Why force these changes upon it?

Kaimei%26rsquo;s behaviour is strange enough. But the really odd thing is that Nanchang%26rsquo;s planning authorities played along. Surely, they realised the demolition would waste a huge amount of social resources, not to mention produce large quantities of dust pollution and building waste. Governmental neglect of duty led directly to the destruction of the hotel. Since Jiangxi is one of eastern China%26rsquo;s less economically developed provinces, the demolition of a perfectly good hotel in the provincial capital is particularly surprising. Its reconstruction also entails the pointless consumption of large amounts of energy, which will doubtless increase the city%26rsquo;s carbon footprint.

The ironic thing is that Nanchang talks endlessly about developing a low-carbon economy and creating a low-carbon city. In November last year, the city held the %26ldquo;First World Low-Carbon and Eco-Economy Conference and Technology Exhibition%26rdquo;. Low carbon banners and slogans were plastered everywhere and the conference even earnestly announced a %26ldquo;Nanchang Declaration%26rdquo; on the development of an eco-friendly global economy %26ndash; through the promotion of low energy consumption, low carbon emissions and low pollution.

Prior to the conference, the UK%26rsquo;s Strategic Programme Fund had launched a low-carbon cities project, with Nanchang the first signed up. The Nanchang Daily reported that Nanchang, along with the provinces of Guangdong and Hebei, and the cities of Chongqing and Baoding, had been named as %26ldquo;National Low-Carbon Economy Pilots%26rdquo; at a climate-change conference in Beijing. The city is clearly very concerned about its environmental labels. Clean energy has an important place on Nanchang%26rsquo;s low-carbon roadmap, with plans for a world-class photovoltaic park. And several months ago, solar energy firm Saiwei%26rsquo;s thin film solar-cell plant went into operation in the Nanchang High-Tech Development Zone.

Many other Chinese cities have the same ambitions and plans for low-carbon economies and new energy. Indeed, a wave of %26ldquo;low-carbon cities%26rdquo; is sweeping across the land. The development of new energy sources is, of course, to be encouraged. But it would be short-sighted to think it is all that is required for a low-carbon economy. Other methods such as waste reduction through urban planning and advocating the use of public transport are equally important.

Demolishing a hotel that has been in use for little more than a decade is not common. But unnecessary demolitions do often happen in China. In one district of Fuzhou, the capital of the south-eastern province of Fujian, the local government recently released a startling piece of news: it plans to demolish a 15 million yuan (US$2.2 million) primary school, which only opened last year, along with a number of residential buildings that are less than ten years old in order to allow construction of a %26ldquo;Central Business District%26rdquo;.

Last summer I visited a project in Wuhan, central China%26rsquo;s most populous city, linking two urban lakes with a 1.7-kilometre long canal. The work involved the relocation of 8,932 households %26ndash; but the majority of those homes were not actually in the area needed by the project. In early 2007, a Zhejiang University building on the bank of Hangzhou%26rsquo;s West Lake, east China, was also dynamited. The 20-storey, 60-metre high building was designed to last a century but ended up being used for just 13 years. The university had sold its lakeside campus to Hong Kong%26rsquo;s Kerry Properties, which plans to build a new complex.

The legal system should be the strongest guarantee of development of a low-carbon economy. But many take advantage of loopholes or a lack of legislation or simply forget about the law altogether. The unavoidable truth is that many of China%26rsquo;s local government officials have not appreciated the true meaning of a low-carbon economy. They like the low-carbon city label, but not what it really entails.

Li Taige is a Beijing-based journalist. He obtained a master%26rsquo;s degree in engineering from Sichuan University in 1997, and studied as a Knight Science Journalism Fellow at the Massachusetts Institute of Technology (MIT) in 2003-2004.

Homapage image from Lotus prince.

Mobile-livestock keeping, or pastoralism, plays a critical role in the economic prosperity of Africa%26rsquo;s drylands. Across east and west Africa, an estimated 50 million livestock producers support their families, their communities, and a massive meat, skins and hides industry based on animals that are fed solely on natural dryland pastures. Where other land-use systems are failing in the face of global climate change, mobile-livestock keeping is generating huge national and regional economic benefits.

Today%26rsquo;s pastoralists download the latest market prices for cattle on their mobile phones, use cheap Chinese motorbikes to reach distant herds or lost camels and trek their livestock thousands of kilometres by foot, truck or ship to trade them nationally and internationally. Prevalent perceptions of pastoralists are that they are a minority, out of touch with the rest of the world and practicing an archaic and outmoded lifestyle. The reality is that pastoralists are fully integrated with wider global processes.

But moving is now becoming a serious problem. Grazing lands are being taken over for other uses and access to water and markets is increasingly difficult. With reduced mobility the economic profitability of livestock keeping is being critically undermined. Animals are producing less meat, less milk and are more susceptible to drought and disease. This is contributing to poverty, resource degradation and conflict.

New thinking, new policies and innovative practices for pastoralist mobility are beginning to take root in many parts of dryland Africa. The African Union and other regional institutions are recognising the huge benefits to be reaped from supporting livestock mobility. This is encouraging several governments to develop informed, progressive policies that reflect the needs of modern pastoralism.

Why move?

Essentially, pastoralists move to take their animals to places where they can find the best quality grazing. It is the scattering of different pastures over different places at different times that makes mobile-livestock keeping so productive in what is otherwise a difficult environment. To sedentary-livestock keepers, who rely on uniformity and economies of scale, randomly variable concentrations of nutrients on the range would be a serious constraint to productivity. But to pastoralists, who are mobile and maintain populations of selectively feeding animals, it represents a resource.

Modern ranching is often believed to be an improvement over traditional livestock management. But research in Ethiopia, Kenya, Botswana and Zimbabwe comparing the productivity of ranching against pastoralism all came to the same conclusion: pastoralism consistently outperforms ranching and to a quite significant degree. Whether measured in terms of meat production, generating energy (calories) or providing cash, pastoralism gives a higher return per hectare of land than ranching.

In east Africa, the intra-regional livestock trade is a major and growing industry, with an annual value in excess of US$65 million (444 million yuan). The profitability of this trade is dependent on livestock being mobile, particularly across borders. In many countries of the Sahel, livestock%26rsquo;s contribution to total agricultural GDP is above 40%. These figures are sizable, and yet they still fail to capture the full contribution of pastoral production systems to national economies. National accounts are based only on the value of final products such as meat and hides and leave out the many social, security and ecological benefits mobile-livestock production adds.

During periods of drought or disaster, mobility becomes absolutely essential for pastoralists, when they are forced to move in order to survive. Drought is a normal occurrence in drylands, and is a key reason why mobile-livestock keeping, rather than crops, is the production strategy of choice.

Obstacles

Pastoralists are increasingly constrained. Farms frequently block access to their grazing areas; national border controls hinder their trade patterns; and the areas they traditionally preserve for times of drought are now national parks or agricultural schemes. In other areas national government policies actively encourage pastoralists to settle and be %26ldquo;modern%26rdquo;. These policies are often driven by unfounded perceptions that pastoralism is economically inefficient and environmentally destructive. Alternative land uses, including large-scale agriculture and national parks, are believed to bring in more national revenues and to have less environmental impact. But this is not evidence based.

Farming is one of the biggest challenges to pastoral mobility. The slow but inexorable advance of family farms, combined in places with the establishment of large-scale commercial farming, is swallowing up vast areas of grazing lands. The United Nations Environment Programme (UNEP) has called for a moratorium on the expansion of large mechanised farms in Sudan’s central semi-arid regions, sounding a warning that it was a %26ldquo;future flashpoint%26rdquo; for conflict between farmers and pastoralists. Northern Sudan%26rsquo;s huge commercial farms have been blamed for fuelling conflict and for environmental degradation and human rights abuses.

Particularly in east Africa, the loss of land to national parks, game reserves, hunting blocks and conservation severely restricts pastoral mobility as much of this land either consists of critical dry- or wet-season grazing or cuts across seasonal migration routes. The creation of Uganda%26rsquo;s Kidepo Valley National Park in the 1960s, on the border with Sudan and Kenya, severely restricts the movement of the Toposa from southern Sudan to dry-season grazing in Kaabong district, northern Uganda. Within Kaabong District, Dodoth pastoralists have also lost critical wet-season grazing in the north-eastern Timu forest when it was declared a forest reserve in 2000, according to research by Michael Godwin Wantsusi of the Karamoja Agro-Pastoral Development Programme. Yet a lot of evidence suggests that pastoralism is far more compatible with wildlife than other forms of land use, particularly crop farming.

Both non-pastoralists and pastoralists are enclosing the rangelands. From the Borana in southern Ethiopia, to the Fulani in Niger and Burkina Faso and Somali groups in Somaliland, a territory in the Horn of Africa, pastoral families are fencing grazing land. Poverty, due to shrinking herd sizes, is driving thousands of pastoral families throughout east and west Africa to fence off the rangelands to practice rain-fed agriculture and, where water is available, dry-season gardening. Others are enclosing land from a fear of losing out as more and more land is taken or are seeking to protect the rangeland from farming or the cutting of trees for charcoal.

It is not known how much former pastoralist-grazing land has been lost overall but much of it is in the form of wheat farms, sugar farms, irrigated tobacco, cotton and sorghum schemes, flower and vegetable farms, game and cattle ranches, national parks and forest reserves. And it is not just the sheer extent of the lost land that is so important; it is the nature of that lost land that is critical. Much of the alienation concerns strategic areas such as wetlands or riverine forests. Here, because of higher and more stable moisture, pastures of higher nutritional content can be found, particularly in the dry season when the surrounding range is dry and poor.

These areas represent %26ldquo;islands%26rdquo; of high-quality pasture where livestock feed until the arrival of new, fresh grass with the next rainy season. The loss of these areas undermines the profitability and resilience of the whole pastoral system. Little research has been carried out to calculate the economic and environmental impacts the loss of these areas has had on national economies, and whether the expected benefits from the new land-use systems are greater than the benefits lost as a result of displacing pastoralism.

Conflicts are also a major block to mobility, altering grazing patterns, reducing productivity and increasing environmental degradation. The enduring conflicts in Chad and Sudan mean pastoralists move together in larger groups for security but have subsequently found it more difficult to access high quality pasture and water. Sudan%26rsquo;s conflict with Egypt also reduced access to key grazing areas for Beja pastoralists in Red Sea state, north-west Sudan. Where grazing areas cannot be accessed, the under-utilisation of pasture leads to bush encroachment. Where pastoralists become squeezed into smaller grazing areas, competition for a dwindling resource increases and conflict becomes inevitable and self-perpetuating.

Across the drylands inappropriate policies are blocking livestock mobility. Enduring perceptions of pastoralism as an outdated, economically inefficient and environmentally destructive land-use system continue to drive rangeland and livestock policy in much of Africa. Yet, none of these perceptions are evidence-based, informed by past failure or reflect current scientific knowledge of the dynamics in dryland environments and livelihood systems. Nor are they designed with the participation of pastoral communities. These persistent beliefs must be left behind in the twentieth century.

Ced Hesse is principal researcher in the climate-change group at the International Institute for Environment and Development (IIED). Co-authors of this piece were Saverio Kratli, Izzy Birch and Magda Nassef.

An earlier version of this article was published in book form by the IIED as %26ldquo;Modern and mobile: The future of livestock production in Africa%26rsquo;s drylands%26rdquo;, edited by Helen de Jode. It is summarised and used here with permission.

NEXT: recognising global advantages

Homepage image from World Bank

Residents in Shanghai%26rsquo;s Baoshan district have, for years, endured the ghastly smells produced by Shanghai Richina Leather and other tanneries owned by its multinational parent company, Richina Group. Yet there is almost nothing in the Chinese media about this corporation and few would recognise the name of its boss, financier Yan Ciliang

Yan Ciliang, or Richard Yan as he is known in English, is the founder of the Richina Group and legal representative of all its subsidiaries. Born in China, educated at Harvard, and now a citizen of New Zealand, Yan is vice-chair of the board of directors of the China Leather Association.

At first glance, Yan%26rsquo;s life looks like a classic success story. In 1981, he became the first Chinese secondary-school student to win a Rotary Scholarship to study English at Auckland Grammar School in the New Zealand capital, and he went on to attend Auckland University. In 1985, he worked at Westpac Bank in Sydney, Australia, which later funded his MBA at the US%26rsquo;s prestigious Harvard Business School. Then, in 1992, the American Ziff family became the principal investors in a US$52.5 million (358 million yuan) investment fund and, the following year, Yan and Harvard classmate Susanna Foels founded Richina Capital Partners to manage that fund. Thus was born the Richina Group.

To date, the group%26rsquo;s subsidiaries occupy four main fields. One is Yan%26rsquo;s original line of work: finance. Richina%26rsquo;s financial business is concentrated in its wholly-owned Chinese holding company, Richina Pacific (China) Investments. This company provides a wide range of financial and business services for multinationals headquartered in Shanghai. Its own parent company, Richina Pacific, de-listed from the New Zealand stock exchange in a 2008 restructuring that left many former shareholders unhappy. The firm%26rsquo;s registered office is now in Bermuda with its operational headquarters in Malaysia.

Richina is also invested in tourism, including in the Blue Zoo Beijing and the Jinjiang Inn, a hotel in central Shanghai. The company also runs restaurants, shops and hotel-style apartments and owns car parks and a taxi fleet in Shanghai. Richina%26rsquo;s construction portfolio includes the wholly-owned subsidiary Mainzeal, a major New Zealand property and construction firm.

The group%26rsquo;s interest in leather and associated products is run by Richina Industries, which oversees Shanghai Richina Leather and the Shanghai Leather Company, processing leather, manufacturing leather footwear, clothing, sporting goods, luggage, furnishings and car upholstery and leather chemical products.

On February 27, 2003, New Zealand%26rsquo;s second largest daily newspaper, The Dominion Post, reported that the Richina Group owed its profits that year largely to the Chinese market. According to the report, Richina Pacific had turned a loss of NZ$15.3 million (73.9 million yuan) to a profit of NZ$8 million (38.6 million yuan) in a single year. A significant return from Shanghai Richina Leather, a focal point for the group, was credited with the turnaround.

One name on the list of Richina Group executives is symptomatic of Yan%26rsquo;s highly placed connections. Jenny Shipley, the independent chair of the Mainzeal board, formerly independent director of Richina Pacific and chair of Richina Leather, was once prime minister of New Zealand. In July of 1999, Shipley paid a working visit to China at the invitation of Jiang Zemin.

In May 2007, Yan Ciliang generously funded the Peking University New Zealand Centre, co-founded by Auckland Peking universities. The opening ceremony was attended by New Zealand%26rsquo;s foreign minister, Winston Peters, with a distinguished list of ambassadors and officials.

According to a reliable source, the Richina group is about to reorganise its Chinese operations, relocating its leather production to a new facility in Liaoning and capitalising on the property value of its Shanghai Leather portfolio for residential and commercial development. The relocation will finally end the long nightmare of Richina%26rsquo;s Shanghai neighbours, according to Richina Industries president and chief executive Bob Moore. %26ldquo;By October 2010, we will have built a dedicated leather-tanning plant to take on the production halted in Shanghai due to odours,%26rdquo; he said.

Yan has never responded in person to questions on Richina%26rsquo;s constant environmental violations. Asked what Yan thinks of the company%26rsquo;s environmental record, Bob Moore replies carefully: %26ldquo;Yan Ciliang is the investor and we are his managers. All the responsibility is ours. Yan certainly wants Richina Leather to reach world-class environmental standards and we will work hard to achieve that goal.%26rdquo;

Xu Shuda is a reporter based in Shanghai.

Homepage image from Qinghemen Archives shows Yan Ciliang (middle), founder of the Richina Group.

Tin-mine pits are like enormous open wounds dominating the landscape of island Bangka, near Sumatra and only 40 minutes flight from the Indonesian capital, Jakarta. Even from the air it is obvious that the island is a textbook example of man-made environmental calamity. Only a few tiny pockets of natural forest remain, surrounded by rubber and palm-oil plantations.

The island of Bangka, home to around 650,000 people, is known for its white beaches. But most of these are now covered by garbage and exhibit the latest %26ldquo;cultural trend%26rdquo;: affluent young people and families bring their cars and scooters to the seafront and drive back and forth on the sand until late in the evening. Silence %26ndash; once the last attraction of the island %26ndash; is gone, replaced by the roar of engines. The beach, decorated by some fantastic rock structures, is now badly polluted.

Just a few miles across the sea from Bangka, a dilapidated hydrofoil (one of which recently sank) enters the magnificent Sungai Musi River, one of the mighty rivers of Sumatra Island. While I admire the surface of the river from the boat, a local student suggests I look between the trees separating the river bank and the interior: %26ldquo;Try to catch the moment %26ndash; the opening. You will see, there is nothing left of the forest.%26rdquo;

One hour later, this black smoke and pop-music belching craft docks at the port of the city of Palembang. With 1.5 million inhabitants, the city is the second largest in Sumatra and one of the most populous in Indonesia. It is one of the most appalling urban centres on the Asian continent, with hardly anything to offer except a handful of Dutch-era buildings and several picturesque traditional houses on stilts inhabited by the very poor. Although located some 80 kilometres from the coast, Palembang is a vast seaport with huge vessels docked at the banks and in the middle of the Musi River. The river and the streams that feed into her are not just polluted, they appear to be positively toxic.

Inflated carcasses of dogs and other animals are floating on the surface of the river, together with industrial waste, debris, bottles and simple household waste. Palembang is home to oil refineries as well as cement and fertiliser plants. It sits in the middle of two major areas of unbridled deforestation on the island of Sumatra. While Indonesia is often referred to as the %26ldquo;ground zero%26rdquo; of climate change, Palembang should be considered one of its most telling monuments.

Isna Wijayani Lexy is professor of journalism at the Faculty of Social and Political Science in Sumatra%26rsquo;s Baturaja University. Hers is one of the few outspoken voices in this part of the world: %26ldquo;Illegal loggers can usually count on backing from the police, military, local government officials and thugs,%26rdquo; she says. %26ldquo;Media only cover raids against the loggers, that is, if there are raids. Even then it is very rare that journalists cover them on their own as they are usually short of funds and can%26rsquo;t just go up or down the river as they please.

%26ldquo;On this, as well as many other topics, there is news hegemony and no diversity in content. The local journalists dare not take risks. Journalists in Palembang only look for easy news and if they have been %26lsquo;serviced%26rsquo; (bribed), bad or critical news will not be published. Money talks here, even when it comes to the news.%26rdquo;

There are plenty of alarming reports by local academics and international observers about the archipelago%26rsquo;s disappearing rainforests and unbearable pollution levels in all major Indonesian cities. But there are few sound analyses that link all the factors that make Indonesia, environmentally, one of the most battered nations on earth: corruption, governmental incompetence, the powerful position of armed forces and unbridled pursuit of profits utilising the easiest and often least-sustainable means.

Restraint was broken on January 29, 2010, when The Jakarta Globe reprinted an Agence France%26ndash;Presse report on an academic study into illegal logging in the forest bordering Malaysia on the island of Borneo, which began: %26ldquo;The Indonesian military is deeply involved in the trade in illegally felled timber that is destroying vast tracts of pristine forest and contributing to global warming, researchers said Friday.%26rdquo; But, given the combination of state controls and the silence of the media, the public remains largely uninformed about the environmental and social disasters that are devastating their country.

Despite pollution, the River Musi is still one of the mightiest waterways of south-east Asia. The misery along this waterway is on a par with some of the poorest parts of Africa. Tiny villages and towns along the shores are lost in time, often cut off from the rest of the country. Upang town is built on stilts. It is an expensive one-hour boat ride from Palembang at breakneck speed and survives by supplying riverboats with fuel and food. Upang sits at the heart of the Musi River%26rsquo;s illegal logging trade.

Two young girls, Linda and Yanti, are working in a local eatery. %26ldquo;Each household has people who work across the river on %26lsquo;cleared land%26rsquo;,%26rdquo; explains Linda. %26ldquo;People from the entire area are working on %26lsquo;cleared land%26rsquo;, many doing the %26lsquo;clearing%26rsquo; itself. There are no permits necessary and no taxes; nobody checks.%26rdquo;

The girls explain that their monthly income is 20,000 to 30,000 Indonesia rupiahs (US$2 to US$3). %26ldquo;My dream is to become rich,%26rdquo; says Yanti. %26ldquo;If I were rich, I would give alms (zakat) and then travel. I would go to Bandung and to Jakarta. I would visit the National Monument.%26rdquo; Neither girl has ever left Upang %26ndash; not even to visit Palembang, 25 miles up the river.

The girls have no knowledge about deforestation. They know it only as %26ldquo;clearing the land%26rdquo;, something good for planting rice and palm oil. They had no idea what global warming is either. We ask the same question of several people along the Musi River and always receive the same answer %26ndash; incomprehension and bewilderment on their faces. Rural Indonesia is extremely poor and underdeveloped and moral and ethical questions here are simply perceived as odd. Caring for the environment and the world are luxuries most impoverished Indonesians cannot afford while, for the rich rulers of this nation, they are simply not profitable enough.

As we sail across the river and slowly progress towards Palembang, the full horror of the deforestation suddenly emerges: hundreds of square miles of rainforest destroyed and replaced by tremendous bare plains; some areas still burning. There are bags with chemicals and bottles of spray scattered all over the earth. Even for those who are not experts on the environment, this could hardly appear to be anything other than unbridled, gross and brutal rape of nature.

At one of the epicentres of the disaster, Sawah Upang, we spot an old couple sitting in front of their house. They wave and happily explain their presence there: %26ldquo;We are from Palembang. Five years ago we bought the land here from other people from Upang. Now we have our rice fields here.%26rdquo; Deforestation? Global warming? They both smile, not comprehending.

On the way back to Palembang it begins to rain. Huge rusty cargo ships stand in the middle of the river like tremendous ghosts, while the factory chimneys regurgitate colourful smoke skyward, even in this heavy downpour. Streams bring brown and foamy liquid to the river. All around is misery, dirt and hopelessness %26ndash; so common in today%26rsquo;s Indonesia but here, somehow, brought to the extreme.

Indonesia achieved the world%26rsquo;s fastest rate of deforestation between 2000 and 2005, with an area the size of 300 football fields removed every hour, according to Greenpeace. The country has already lost over 70% of its intact ancient forests and half of what is left is threatened by commercial logging, forest fires and clearances for palm-oil plantations. And the greed seems to know no bounds.

No matter how pressing, the environmental issues cannot be separated from the general and continuous decay of the Indonesian state %26ndash; from its endemic corruption, impunity of armed forces, extreme breed of market fundamentalism and tendency to put faith above rational thinking.

Andre Vltchek is a novelist, journalist and filmmaker.

An earlier version of this article was published as: Andre Vltchek and Geoffrey Gunn, %26quot;In the Tropical Forests of Sumatra: Notes from Climate Change %26lsquo;Ground Zero,%26rsquo;%26rdquo; The Asia-Pacific Journal, 7-2-10, February 15, 2010. It is used here with permission.

Homepage image from Greenpeace

Tin-mine pits are like enormous open wounds dominating the landscape of island Bangka, near Sumatra and only 40 minutes flight from the Indonesian capital, Jakarta. Even from the air it is obvious that the island is a textbook example of man-made environmental calamity. Only a few tiny pockets of natural forest remain, surrounded by rubber and palm-oil plantations.

The island of Bangka, home to around 650,000 people, is known for its white beaches. But most of these are now covered by garbage and exhibit the latest %26ldquo;cultural trend%26rdquo;: affluent young people and families bring their cars and scooters to the seafront and drive back and forth on the sand until late in the evening. Silence %26ndash; once the last attraction of the island %26ndash; is gone, replaced by the roar of engines. The beach, decorated by some fantastic rock structures, is now badly polluted.

Just a few miles across the sea from Bangka, a dilapidated hydrofoil (one of which recently sank) enters the magnificent Sungai Musi River, one of the mighty rivers of Sumatra Island. While I admire the surface of the river from the boat, a local student suggests I look between the trees separating the river bank and the interior: %26ldquo;Try to catch the moment %26ndash; the opening. You will see, there is nothing left of the forest.%26rdquo;

One hour later, this black smoke and pop-music belching craft docks at the port of the city of Palembang. With 1.5 million inhabitants, the city is the second largest in Sumatra and one of the most populous in Indonesia. It is one of the most appalling urban centres on the Asian continent, with hardly anything to offer except a handful of Dutch-era buildings and several picturesque traditional houses on stilts inhabited by the very poor. Although located some 80 kilometres from the coast, Palembang is a vast seaport with huge vessels docked at the banks and in the middle of the Musi River. The river and the streams that feed into her are not just polluted, they appear to be positively toxic.

Inflated carcasses of dogs and other animals are floating on the surface of the river, together with industrial waste, debris, bottles and simple household waste. Palembang is home to oil refineries as well as cement and fertiliser plants. It sits in the middle of two major areas of unbridled deforestation on the island of Sumatra. While Indonesia is often referred to as the %26ldquo;ground zero%26rdquo; of climate change, Palembang should be considered one of its most telling monuments.

Isna Wijayani Lexy is professor of journalism at the Faculty of Social and Political Science in Sumatra%26rsquo;s Baturaja University. Hers is one of the few outspoken voices in this part of the world: %26ldquo;Illegal loggers can usually count on backing from the police, military, local government officials and thugs,%26rdquo; she says. %26ldquo;Media only cover raids against the loggers, that is, if there are raids. Even then it is very rare that journalists cover them on their own as they are usually short of funds and can%26rsquo;t just go up or down the river as they please.

%26ldquo;On this, as well as many other topics, there is news hegemony and no diversity in content. The local journalists dare not take risks. Journalists in Palembang only look for easy news and if they have been %26lsquo;serviced%26rsquo; (bribed), bad or critical news will not be published. Money talks here, even when it comes to the news.%26rdquo;

There are plenty of alarming reports by local academics and international observers about the archipelago%26rsquo;s disappearing rainforests and unbearable pollution levels in all major Indonesian cities. But there are few sound analyses that link all the factors that make Indonesia, environmentally, one of the most battered nations on earth: corruption, governmental incompetence, the powerful position of armed forces and unbridled pursuit of profits utilising the easiest and often least-sustainable means.

Restraint was broken on January 29, 2010, when The Jakarta Globe reprinted an Agence France%26ndash;Presse report on an academic study into illegal logging in the forest bordering Malaysia on the island of Borneo, which began: %26ldquo;The Indonesian military is deeply involved in the trade in illegally felled timber that is destroying vast tracts of pristine forest and contributing to global warming, researchers said Friday.%26rdquo; But, given the combination of state controls and the silence of the media, the public remains largely uninformed about the environmental and social disasters that are devastating their country.

Despite pollution, the River Musi is still one of the mightiest waterways of south-east Asia. The misery along this waterway is on a par with some of the poorest parts of Africa. Tiny villages and towns along the shores are lost in time, often cut off from the rest of the country. Upang town is built on stilts. It is an expensive one-hour boat ride from Palembang at breakneck speed and survives by supplying riverboats with fuel and food. Upang sits at the heart of the Musi River%26rsquo;s illegal logging trade.

Two young girls, Linda and Yanti, are working in a local eatery. %26ldquo;Each household has people who work across the river on %26lsquo;cleared land%26rsquo;,%26rdquo; explains Linda. %26ldquo;People from the entire area are working on %26lsquo;cleared land%26rsquo;, many doing the %26lsquo;clearing%26rsquo; itself. There are no permits necessary and no taxes; nobody checks.%26rdquo;

The girls explain that their monthly income is 20,000 to 30,000 Indonesia rupiahs (US$2 to US$3). %26ldquo;My dream is to become rich,%26rdquo; says Yanti. %26ldquo;If I were rich, I would give alms (zakat) and then travel. I would go to Bandung and to Jakarta. I would visit the National Monument.%26rdquo; Neither girl has ever left Upang %26ndash; not even to visit Palembang, 25 miles up the river.

The girls have no knowledge about deforestation. They know it only as %26ldquo;clearing the land%26rdquo;, something good for planting rice and palm oil. They had no idea what global warming is either. We ask the same question of several people along the Musi River and always receive the same answer %26ndash; incomprehension and bewilderment on their faces. Rural Indonesia is extremely poor and underdeveloped and moral and ethical questions here are simply perceived as odd. Caring for the environment and the world are luxuries most impoverished Indonesians cannot afford while, for the rich rulers of this nation, they are simply not profitable enough.

As we sail across the river and slowly progress towards Palembang, the full horror of the deforestation suddenly emerges: hundreds of square miles of rainforest destroyed and replaced by tremendous bare plains; some areas still burning. There are bags with chemicals and bottles of spray scattered all over the earth. Even for those who are not experts on the environment, this could hardly appear to be anything other than unbridled, gross and brutal rape of nature.

At one of the epicentres of the disaster, Sawah Upang, we spot an old couple sitting in front of their house. They wave and happily explain their presence there: %26ldquo;We are from Palembang. Five years ago we bought the land here from other people from Upang. Now we have our rice fields here.%26rdquo; Deforestation? Global warming? They both smile, not comprehending.

On the way back to Palembang it begins to rain. Huge rusty cargo ships stand in the middle of the river like tremendous ghosts, while the factory chimneys regurgitate colourful smoke skyward, even in this heavy downpour. Streams bring brown and foamy liquid to the river. All around is misery, dirt and hopelessness %26ndash; so common in today%26rsquo;s Indonesia but here, somehow, brought to the extreme.

Indonesia achieved the world%26rsquo;s fastest rate of deforestation between 2000 and 2005, with an area the size of 300 football fields removed every hour, according to Greenpeace. The country has already lost over 70% of its intact ancient forests and half of what is left is threatened by commercial logging, forest fires and clearances for palm-oil plantations. And the greed seems to know no bounds.

No matter how pressing, the environmental issues cannot be separated from the general and continuous decay of the Indonesian state %26ndash; from its endemic corruption, impunity of armed forces, extreme breed of market fundamentalism and tendency to put faith above rational thinking.

Andre Vltchek is a novelist, journalist and filmmaker.

An earlier version of this article was published as: Andre Vltchek and Geoffrey Gunn, %26quot;In the Tropical Forests of Sumatra: Notes from Climate Change %26lsquo;Ground Zero,%26rsquo;%26rdquo; The Asia-Pacific Journal, 7-2-10, February 15, 2010. It is used here with permission.

Homepage image from Greenpeace

Measures for the Banning of Illegal Financial Institutions and Illegal Financial Business Operations

Article 1 These Measures are formulated for the purposes of banning illegal financial institutions and illegal financial business operations, maintaining financial order and protecting public interest of society.

Article 2 All illegal financial institutions and illegal financial business operations must be banned.

Article 3 The illegal financial institutions referred to in these Measures mean those institutions established on their own without the approval of the People’s Bank of China for engaging in or mainly engaging in such financial business operations as attraction of deposits, granting of loans, handling of settlements, note discount, call loans, trust investment, financial leasing, financing guaranty and foreign exchange buying and selling.

The preparatory organization of an illegal financial institution shall be construed as an illegal financial institution.

Article 4 The illegal financial business operations referred to in these Measures mean the engagement on their own without the approval of the People’s Bank of China in the following operations:

(1)illegal attraction of public deposits or attraction in disguised forms of public deposits;

(2)illegal fund-raising from non-specified objects of society in any name without approval in accordance with law;

(3)illegal granting of loans, handling of settlements, note discount, fund calling, trust investment, financial leasing, fund accomodation guaranty and foreign exchange buying and selling; and

(4)other illegal financial business operations determined by the People’s Bank of China.

Illegal attraction of public deposits referred to in the preceding paragraph means operations without the approval of the People’s Bank of China of attraction of funds from non-specified objects of society, issuance of vouchers and commitment to pay the principal and interest within a specified time period; attraction of public deposits in disguised forms referred to means operations without the approval of the People’s Bank of China of attraction of funds from non-specified objects of society not in the name of attraction of public deposits however with the commitment to the fulfilment of obligations identical in nature to those of attraction of public deposits.

Article 5 No unit or individual shall, without the approval of the People’s Bank of China in accordance with law, establish on its/his/her own a financial institution or engage on its/his/her own in financial business operations.

Organs of industry and commerce administration shall not process the registration of illegal financial institutions and illegal financial business operations.

Financial institutions shall not open accounts, handle settlements and provide loans for illegal financial institutions and illegal financial business operations.

Article 6 Illegal financial institutions and illegal financial business operations shall be banned by the People’s Bank of China.

Local people’s governments of the localities wherein the illegal financial institutions have been established or wherein illegal financial business operations have taken place shall be responsible for the work related to organization, coordination, supervision and banning.

Article 7 No unit or individual shall interfere with, reject and obstruct the banning by the People’s Bank of China in accordance with law of illegal financial institutions and illegal financial business operations.

Article 8 Functionaries of the People’s Bank of China should, in the fulfilment of duties and responsibilities in banning illegal financial institutions and illegal financial business operations, keep secrets in accordance with law.

Chapter II Procedures for the Imposition of Ban

Article 9 The People’s Bank of China should, upon uncovering, investigate and verify forthwith an illegal financial institution, illegal attraction of public deposits or attraction of public deposits in disguised forms as well as illegal fund-raising; and should, upon preliminary determination, ask the public security organ in time to establish a case for detection and investigation in accordance with law.

Article 10 The People’s Bank of China and public security organ should cooperate with each other in the process of investigation and detection of illegal financial institutions and illegal financial business operations.

Article 11 The public security organ shall take compulsory measures against the criminal suspect(s), funds and assets involved in the case of the illegal financial institution and illegal financial business operations to guard against the escape of criminal suspect(s) and transfer of funds and assets.

Article 12 The People’s Bank of China shall, upon determination through investigation, take a decision on the banning of the illegal financial institution and illegal financial business operations and declare the said financial institution and financial business operations illegal, order it to stop all business operations, and make a public announcement.

Article 13 The People’s Bank of China should, upon uncovering of a financial institution opening an account, handling settlements and providing loans for an illegal financial institution or illegal financial business operations, order the said financial institution to stop forthwith the business operations concerned. No unit or individual shall take down the funds concerned on its/his/her own.

The organ of industry and commerce administration should, upon uncovering, nullify the registration or effect a change in the registration forthwith of the registration of the organ of industry and commerce administration for the establishment of the illegal financial institution or engagement in illegal financial business operations obtained through deceit.

Article 14 During the investigation conducted by the People’s Bank of China on an illegal financial institution and illegal financial business operations, the unit or individual under investigation must accept the investigation conducted by the People’s Bank of China in accordance with law, report on the situation truthfully and provide relevant materials, and must not refuse or conceal.

Article 15 The People’s Bank of China may, during investigation on an illegal financial institution and illegal financial business operations, employ such means as taking notes, copying and tape recording of the information and materials related to the case to obtain evidences.

The People’s Bank of China may, under circumstances that the evidences may be destroyed or lost or difficult to obtain later, enter into registration and put it(them) in safekeeping beforehand, the interested party and persons concerned shall not destroy or transfer the evidence(s).

Chapter III Consolidation and Settlement of Financial Claims and Debts

Article 16 The institution engaging in illegal financial business operations shall be responsible for the consolidation and settlement of the financial clam is and debts formed as a result of illegal financial business operations.

Article 17 For an illegal financial institution that has the approval department, competent unit or founding unit, once declared banned by the People’s Bank of China, the approval department, competent unit or founding unit shall be responsible for the organization of consolidation and settlement of financial claims and debts; for an institution that has no approval department, competent unit or founding unit, the local people’s government of the locality wherein it is located shall be responsible for the organization of consolidation and settlement of financial claims and debts.

Article 18 The participant(s) shall bear by himself/herself(themselves)the loss suffered as a result of participating in illegal financial business operations.

Article 19 The debts and risks formed by illegal financial business operations shall not be passed onto state-owned banks and other financial institutions as well as any other units that have not participated in illegal financial business operations.

Article 20 Any remaining illegal property(properties) after the consolidation and settlement of financial claims and debts shall be confiscated and delivered to the central treasury on the spot.

Article 21 Dispute(s) arising from consolidation and settlement shall be resolved by the parties interested through consultation; in the event of failure of consultation, resolution shall be sought through judicial procedures.

Chapter IV Penalty Provisions

Article 22 Criminal liability shall be investigated in accordance with law for the establishment of an illegal financial institution or engagement in illegal financial business operations constituting a crime; where a crime has not been constituted, the People’s Bank of China shall confisticate its illegal gains and concurrently impose a fine of more than 100% less than five times of the amount of illegal gains; where there are no illegal gains, a fine of more than RMB 100000 Yuan less than RMB 500000 Yuan shall be imposed.

Article 23 For the approval without authorization of the establishment of an illegal financial institution or the approval without authorization of engagement in illegal financial business operations, the person-in-charge held directly responsible and other personnel directly responsible shall be imposed administrative sanctions in accordance with law; where a crime has been constituted, criminal liability shall be investigated.

Article 24 Any financial institution that opens an account, handles settlements and provides loans for illegal financial institutions or illegal financial business operations in contravention of provisions, shall be ordered by the People’s Bank of China to make a rectification, confisticated of the illegal gains, and concurrently imposed a fine of more than 100% less than five times of the amount of the illegal gains; where there are no illegal gains, a fine of more than RMB 100000 Yuan less than RMB 500000 Yuan shall be imposed; disciplinary sanctions shall be imposed on the person-in-charge held directly responsible and other personnel directly responsible; where a crime has been constituted, criminal liability shall be investigated in accordance with law.

Article 25 Whoever refuses or obstructs the People’s Bank of China in the implementation of its functions constituting a crime shall be investigated of criminal liability in accordance with law; where a crime has not been constituted, penalty for public security administration shall be imposed by the public security organ in accordance with law.

Article 26 Any functionary of the People’s Bank of China who divulges secrets in fulfilling responsibilities of banning the illegal financial institution and illegal financial business operations shall be imposed administrative sanctions in accordance with law; where a crime has been constituted, criminal liability shall be investigated in accordance with law.

Article 27 Functionaries of the People’s Bank of China, public security organs and organs of industry and commerce administration whose neglect of duty, abuse of power and malpractises for selfish gains constitute a crime shall be investigated of criminal liability in accordance with law; where a crime has not been constituted, administrative sanctions shall be imposed in accordance with law.

Any functionary of the People’s Bank of China who should have transferred the case of the illegal financial institution and illegal financial business operations to the public security organ but has failed to do so constituting a crime shall be investigated of criminal liability in accordance with law; where a crime has not been constituted, administrative sanctions shall be imposed in accordance with law.

Chapter V Supplementary Provisions

Article 28 Reference shall be made to these Measures in banning illegal securities agencies and illegal securities business operations. China Securities Supervision and Control Commission shall be responsible for the implementation thereof and may formulate specific measures for implementation in accordance with the principles of these Measures.

Reference shall be made to these Measures in banning illegal commercial insurance agencies and illegal commercial insurance business operations. The department of commercial insurance supervision and control under the State Council shall be responsible for the implementation thereof and may formulate specific measures for implementation in accordance with the principles of these Measures.

Article 29 All kinds of foundations, mutual aid societies, savings societies, capital service departments, share service departments, settlement centers and investment corporations that engage in illegal financial business operations exceeding the scope of the state policy prior to the coming into effect of these Measures should be sorted out and consolidated within the specified time period pursuant to the provisions of the State Council. Any institution that continues to engage in illegal financial business operations beyond the specified time period shall be banned pursuant to these Measures; where the circumstances are serious and a crime has been constituted, criminal liability shall be investigated in accordance with law.

Article 30 These Measures shall come into force as of the date of promulgation.

he US dollar and the Japanese yen maintained a strong tone in the past fortnight as risk aversion flows continued to dominate trading in financial markets. Investor sentiment was hit by a slew of bad news, including weaker than expected reports and poor earnings at major global banks. In addition, the downgrades or potential downgrades to sovereign ratings of some of the euro zone and other economies, including Greece, Spain, Portugal, Ireland and New Zealand due to their deteriorating fiscal conditions also hurt confidence.
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