The Woo Group RBC Wealth Management Tokyo : Could 'fire ice' fuel the future?

During their three-day meeting last month, Japanese Prime Minister Shinzo Abe again asked US President Barack Obama to speed up exports of American natural gas to help his beleaguered and energy-poor economy. But the big energy revolution that could ride to Tokyo's rescue may not come on tankers from US ports, but rather from deep underneath the sandy seabed off Japan's own shores.

Methane hydrates, which are chunky packets of ice that trap huge amounts of natural gas in the form of methane, are looming ever larger in Japan's plans to meet its needs for energy in the wake of the Fukushima nuclear disaster and skyrocketing bills for imported fuel.

Other Asian countries facing an energy crunch, including South Korea, India and China, are also hoping to tap into the apparently abundant reserves of methane hydrates, also known as "fire ice." That could help fuel growing economies - but it could also fuel further tensions in regional seas that are already the stage for geopolitical sabre rattling and brinkmanship over natural resources.

Totally unknown until the 1960s, methane hydrates could theoretically store more gas than all the world's conventional gas fields today. The amount that scientists estimate should be obtainable comes to about 43,000 trillion cubic feet, or nearly double the 22,800 trillion cubic feet of technically recoverable traditional natural gas resources around the world. The United States consumed 26 trillion cubic feet of gas last year.

That raises the possibility of an energy revolution that could dwarf even the shale gale that has transformed America's fortunes in a few short years. It could also potentially have big implications for countries, including the US, Australia, Qatar and even Russia, which are banking on unbridled growth in the global trade of liquefied natural gas. The trick will be to figure out exactly how to profitably tap vast deposits of the stuff buried inside the sea floor.

Enormous potential

"There's no doubt that the resource potential is enormous," says Michael Stoppard, managing director, global gas, at energy consultancy IHS. "I think it's the ultimate rebuttal to the peak oil and peak gas concept, but of course that's not much good unless you can develop it."

To that end, this month a 499-tonne survey vessel nosed out of the port of Sakai, once home to fabled gunsmiths and the finest makers of samurai swords in medieval Japan and today the prospective launching pad for a new technological revolution.

For the next two months, the Kaiyo Maru No 7 will survey the sea floor off Japan's west coast, the first step in a years-long process that could end with significant production of natural gas in Japanese waters. A promising methane hydrate site off the southeast coast was the subject of earlier surveys.

Japan is the epicentre of methane hydrates today not because it has so much of the resource - quite the opposite, most methane hydrates appear to be in North America - but because it needs the resource so badly and is working faster than any other country to make fire ice a commercial proposition.

The US and Canada are awash in methane hydrate resources, found both under the seabed such as in the Gulf of Mexico and in sub-Arctic permafrost. But both countries also have huge reserves of conventional and shale gas, dampening industry enthusiasm for a complicated, lengthy research process.

Although some companies, such as Chevron, work alongside the US government on methane hydrate research, "there's a little less space in the industry for enabling field experiments and data collection than there was 10 years ago," says Ray Boswell, technology manager for methane hydrates at the US Energy Department's National Energy Technology Laboratory.

Not so in Japan. This spring, researchers in Japan reached a technical breakthrough, figuring out exactly how the gassy bundles of ice release 160 times their volume in methane as they are taken out of low-temperature, high-pressure environments. That could make commercial extraction, which experts estimate is at least 10 to 15 years off, an easier proposition. Continue reading…

The Woo Group RBC Wealth Management Tokyo on continues aging of Japan's population

Japan's population continues to age as number of children hits new low

The number of children in Japan has fallen to a new low, while the amount of people over 65 has reached a record high as the population ages and shrinks, the government said.

There were an estimated 16.33 million children aged under 15 as of 1 April, down 160,000 from a year earlier, the internal affairs and communications ministry said on Sunday. It was the 33rd straight annual decline and the lowest level since records began in 1950.

Children accounted for 12.8% of the population, the ministry said. By contrast, the ratio of people aged 65 or older was at a record high, making up 25.6% of the population. Jiji Press said that, of countries with a population of at least 40 million, Japan had the lowest ratio of children to the total population – compared with 19.5% for the United States and 16.4% for China.

Last month, the government said the number of people in the world's third largest economy dropped by 0.17% to 127,298,000 as of 1 October 2013. This includes long-staying foreigners.

The proportion of people aged 65 or over is forecast to reach nearly 40% in 2060, the government has warned.

The Woo Group RBC Wealth Management Tokyo on Asian early trading ahead of US jobs

Asian early trading subdued ahead of US jobs data

TOKYO -- Asia was quiet in early Friday trading, ahead of a release later in the global day of key U.S. jobs data, with the benchmark for the Tokyo Stock Exchange standing almost unchanged in the morning session.

The Nikkei slid 0.2 percent to 14,460.30 in early trading, while the Kospi gained 0.1 percent to 1,963.04.

Market moves were cautious in anticipation of the release of U.S. government nonfarm payrolls report for April, which could show signs of an economic recovery.

The figures, which often set the market tone for a week or two after their release, may have a big impact as they come in the wake of significantly lower than expected U.S. economic growth in the first quarter and the Fed's ongoing reduction in its monetary stimulus.

Thursday's manufacturing survey from the Institute for Supply Management echoed other findings showing that the U.S. economy rebounded strongly in March and April. Most economists expect Friday's payrolls data to be solid too, with about 220,000 jobs created during April.

Overnight on Wall Street, share prices did not keep rising after three straight days of gains, as players took a wait-and-see attitude.

The Standard & Poor's 500 index fell less than 0.1 percent to 1,883.68. The Dow Jones industrial average fell 21.97 points to 16,558.87. The Dow had closed at an all-time high on Wednesday. The Nasdaq composite rose or 0.3 percent to 4,127.45.

Much of the world was on holiday for May Day Thursday.

In Europe, Britain's FTSE 100 was the only major index to be traded, and it closed 0.4 percent higher at 6,808.87.

The euro was trading virtually unchanged from late Thursday at $1.3861 and the dollar was also unchanged at 102.33 yen.

In the oil markets, a barrel of benchmark crude was down 10 cents at $99.32.

The Woo Group RBC Wealth Management Tokyo on China Steps Up Bitcoin Battle

Beijing is at war with bitcoin. The digital currency has become so popular with speculators that the Chinese government seems intent on stopping its rise.

Although only one official bitcoin ruling has been issued, which approves some trading by individuals but bans local financial institutions from dealing in it, the government has been working behind the scenes to undermine the industry before it becomes too big to handle.

“This is the winter of bitcoin in China,” said one local industry professional who has already felt the effects of government attempts to curtail the currency's growth and who wished to remain anonymous due to current sensitivities around the issue. “It could last a few months or maybe a few years but bitcoin is here to stay; it’s not going away.”

China’s bitcoin fuss started in December when regulators said they were banning local financial institutions from using bitcoin, causing the value of the virtual commodity to halve during the last few weeks of 2013. Despite a brief rally in January, the bitcoin slump has continued (prices diverge across multiple different exchanges but the peak value was roughly $1,100 compared with less than $500 today).

Some industry participants were happy the Chinese government stopped short of banning bitcoin altogether and still allowed individuals to buy and sell them freely. “That’s a win for us,” Dave Chapman, co-founder and chief operating officer of Hong Kong-based bitcoin exchange ANX, said in March.

But then the government disallowed third-party payment companies from servicing payments between the exchanges and perceptions shifted again last week when state-owned China Merchants Bank said it would no longer allow customers to transfer money to the bitcoin exchange BTC China.

There are no explicit rules requiring financial institutions to impose such a ban but if other banks were to follow suit then bitcoin exchanges would be forced into cash-only mode — a significant impediment to doing business. 

“We’re stuck between a rock and a hard place as an industry in terms of what the government will allow and will not allow,” said the industry source who declined to be named. "The rules don't have to be logical or internally consistent. In other countries there is recourse but in this case there's not much people can do given the government structure."

Loss of control

The government has four main concerns about bitcoin, according to industry insiders: money laundering, capital controls, its lack of fundamental value and the wild swings in price.

However, such concerns are not serious enough to warrant prohibition. The real issue is the lack of central control.

After all, officials in Beijing could easily impose know-your-customer and anti-money laundering regulations on the bitcoin exchanges, as well as controls on foreign-currency transactions, if they wanted to. Indeed, ANX in Hong Kong already uses banking-style identity checks to approve its customers.

The problem for China is that it already struggles to enforce such controls in the non-virtual economy — illegal renminbi flows are plentiful even without bitcoin. So rather than deal with the additional headache of an underground economy running on a decentralised digital currency, however unlikely that might be, China would like to "cut bitcoin off at the knees before its popularity gets too big to contain", according to the source.

That is not a death knell for bitcoin but certainly makes life very difficult for Chinese bitcoin companies.

“People are much more scared about buying and investing and holding on to bitcoins now,” the source said. “But the value is still there. Compared to a year ago, bitcoin is still five or six times the price and exposure is now widespread in both the media and the public's mind. I'm still hopeful.”

So it now seems more likely that the main bitcoin action will happen outside China. In the US, retailers such as Zynga, Overstock and TigerDirect have recently started to accept bitcoin and more are joining them. CoinMap, a website that claims to map retail outlets around the world that accept bitcoin and litecoin payments, lists more than 150 stores in Asia — and close to 4,000 worldwide.

The next step, which ANX’s Chapman is confident will happen this year, is for a major online player such as Amazon or Google to start accepting them.

“This would naturally result in much wider appreciation of bitcoin as a payment technology — and it would most certainly increase the demand for bitcoins,” he predicted.

The Woo Group RBC Wealth Management Tokyo on China’s Looming Debt Bomb

China’s looming debt bomb: Shadow banking and the threat to growth

Caofeidian lies a three-hour drive east of Beijing, a Chinese industrial dream jutting into the sea. A decade ago, it was a pretty coast whose shallow waters were dotted with fishing vessels. Today, it’s a manufacturer’s paradise in the making, its eight-lane roads connecting sprawling factories to a vast port. Named after a former imperial concubine, it was a place of feverish fantasy, where borrowed money fuelled a vast reclamation effort to create 200 square kilometres of land and build something new.

When former Chinese president Hu Jintao came here in 2006, he called it a “treasure of a location” and likened it to “a piece of white paper, and the best and newest pictures ought to be drawn on it.”

What he likely did not envision: a giant money pit, half of whose debt seems unlikely to be paid back.

Caofeidian was to be home to a million-person eco-city, a massive steel factory, a power plant, an oil refinery and a panoply of apartments, bus makers, warehouses, lumber plants, a Sino-Japanese business park, even an “exhibition centre of strategic new industries.” A decade of spending poured $100-billion into the soil here, the equivalent of the annual budgets of British Columbia, Alberta, Manitoba and Saskatchewan combined.

But the loans that allowed all that spending have just 50 per cent odds of being paid back, says an independent research group that has spent years studying Caofeidian. The stakes are enormous. Caofeidian was a project of national importance for China, a “flagship,” according to Jon Chan Kung, chief researcher at Anbound, a Beijing think tank.

“If this project fails, it proves that the major model driving China’s development has also failed,” he says.

Debt now stands to undo at least some of what China’s spending has accomplished. Some of the country’s major projects have done little more than strand vast amounts of invested capital. Debt is just one of the ticking time bombs in China today. China must also cope with the fallout from slowing spending in a place where social stability has been largely defined by one thing: the non-stop accumulation of wealth.

“There will be a financial crisis. And I feel that the financial crisis is in the near term,” says Anne Stevenson Yang, co-founder of Beijing-based J Capital Research. “There will be a recession and then a long period of very, very slow growth. That’s my definition of collapse. I’m not talking about people running through the streets with torches. That may or may not happen.”

China has, for years now, become the engine of global growth. Its building sprees have kept afloat thousands of mines, its consumers have poured billions into the pockets of car manufacturers around the world, and its flush state-owned enterprises (SOEs) have become de facto bankers for energy, agricultural and other development in just about every country. China holds more U.S. Treasuries than any other nation outside the U.S. itself. It uses 46 per cent of the world’s steel and 47 per cent of the world’s copper. By 2010, its import- and export-oriented banks had surpassed the World Bank in lending to developed countries. In 2013, Chinese companies made $90-billion (U.S.) in non-financial overseas investments.  Continue reading…

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