London Stock Exchange becomes takeover target

The London Stock Exchange has become a takeover target after its proposed merger with Canadian rival TMX was ditched. The Toronto-based group indicated it was unlikely to win the necessary two-thirds support from its shareholders.

The collapse of the deal is a major setback for LSE chief Xavier Rolet. At a time of rapid consolidation of world exchanges – for example, Deutsche Börse has swooped on NYSE Euronext – analysts believe London is now vulnerable to a bid from a player such as Nasdaq, the US technology bourse that tried to acquire the LSE in 2007. Other possible suitors include the Hong Kong and Singapore exchanges.

The LSE’s bid for TMX was trumped late on Wednesday by rival Canadian consortium Maple, playing the nationalist card, and was supported by large Canadian banks such as Toronto-Dominion. At the end of last year, British mining group BHP was forced to scrap a takeover of another Canadian company, Potash Corporation, after the government in Ottawa ruled the deal provided no “net benefit” to Canada.

Although Maple’s offer for TMX was worth more than the LSE’s and offered a “Canadian solution”, its merger plan could be blocked on competition grounds.

TMX said a majority of shareholder proxy votes supported the LSE merger resolution. “However, it is clear that the two-thirds threshold required to approve the merger would not have been achieved.”
Rolet said: “We are clearly disappointed that, despite a majority of both LSE and TMX Group shareholders voting for our recommended merger, the two-thirds approval threshold for TMX Group shareholders was not met and hence the merger will now not proceed.”

He added: “Our group is in good shape and financially robust. Whilst the merger with TMX Group was an exciting opportunity for LSE, we continue to see other significant growth opportunities.”

In terminating the merger agreement, TMX has agreed to pay a $10m (£6.3m) break fee to the LSE, and a further $29m if, within 12 months, it merges with Maple.

Simon Maughan, an analyst at broker MF Global, said: “The failure of the TMX deal will leave the LSE a target as investors have bought into the stock recently in the belief the TMX bid will fail and the LSE will end up on the block.”

Arnaud Giblat at UBS said there was an obvious candidate waiting for the London exchange should the LSE’s offer for TMX fail: “Nasdaq seems to want to bulk up and the LSE fits the bill.”
Canada’s main opposition party argued the LSE/TMX deal was not in the public interest and demanded the government hold a public inquiry. The left-leaning New Democratic Party said the arrangement, as structured, “was flawed and would lead to a foreign takeover of Canada’s capital markets”. It urged the federal government, which has a majority of seats in the legislature, to refrain from giving the deal its “rubber-stamp” approval.
Under Canadian law, any foreign acquisition or investment over C$312m (£200m) requires federal government approval and must pass a test ensuring it provides a net benefit to the country.

TMX operates cash and derivative markets for equities, fixed income and energy and owns both the Toronto and Montreal exchanges.

London Stock Exchange becomes takeover target

The London Stock Exchange has become a takeover target after its proposed merger with Canadian rival TMX was ditched. The Toronto-based group indicated it was unlikely to win the necessary two-thirds support from its shareholders.

The collapse of the deal is a major setback for LSE chief Xavier Rolet. At a time of rapid consolidation of world exchanges – for example, Deutsche Börse has swooped on NYSE Euronext – analysts believe London is now vulnerable to a bid from a player such as Nasdaq, the US technology bourse that tried to acquire the LSE in 2007. Other possible suitors include the Hong Kong and Singapore exchanges.

The LSE’s bid for TMX was trumped late on Wednesday by rival Canadian consortium Maple, playing the nationalist card, and was supported by large Canadian banks such as Toronto-Dominion. At the end of last year, British mining group BHP was forced to scrap a takeover of another Canadian company, Potash Corporation, after the government in Ottawa ruled the deal provided no “net benefit” to Canada.

Although Maple’s offer for TMX was worth more than the LSE’s and offered a “Canadian solution”, its merger plan could be blocked on competition grounds.

TMX said a majority of shareholder proxy votes supported the LSE merger resolution. “However, it is clear that the two-thirds threshold required to approve the merger would not have been achieved.”
Rolet said: “We are clearly disappointed that, despite a majority of both LSE and TMX Group shareholders voting for our recommended merger, the two-thirds approval threshold for TMX Group shareholders was not met and hence the merger will now not proceed.”

He added: “Our group is in good shape and financially robust. Whilst the merger with TMX Group was an exciting opportunity for LSE, we continue to see other significant growth opportunities.”

In terminating the merger agreement, TMX has agreed to pay a $10m (£6.3m) break fee to the LSE, and a further $29m if, within 12 months, it merges with Maple.

Simon Maughan, an analyst at broker MF Global, said: “The failure of the TMX deal will leave the LSE a target as investors have bought into the stock recently in the belief the TMX bid will fail and the LSE will end up on the block.”

Arnaud Giblat at UBS said there was an obvious candidate waiting for the London exchange should the LSE’s offer for TMX fail: “Nasdaq seems to want to bulk up and the LSE fits the bill.”
Canada’s main opposition party argued the LSE/TMX deal was not in the public interest and demanded the government hold a public inquiry. The left-leaning New Democratic Party said the arrangement, as structured, “was flawed and would lead to a foreign takeover of Canada’s capital markets”. It urged the federal government, which has a majority of seats in the legislature, to refrain from giving the deal its “rubber-stamp” approval.
Under Canadian law, any foreign acquisition or investment over C$312m (£200m) requires federal government approval and must pass a test ensuring it provides a net benefit to the country.

TMX operates cash and derivative markets for equities, fixed income and energy and owns both the Toronto and Montreal exchanges.

UK factory PMI surges to 16-month high, exports recover

Growth at British factories surged unexpectedly to a 16-month high in October, helped by a recovery in export orders, according to a survey that will temper some of the concern that the economy is losing steam after two years of gains.

The Markit/CIPS purchasing managers’ index (PMI), published on Monday, was a rare bright spot for British manufacturing, which has lagged the wider economic recovery.

Bank of England policymakers, meeting this week to set out a new outlook on the economy, will be encouraged by new manufacturing orders from home and abroad and faster hiring. But most are expected to wait for further improvement before deciding to raise record-low interest rates.
The PMI jumped to 55.5 in October from 51.8 in September, well above even the highest forecast in a Reuters poll.

Taken in isolation, the survey suggested a doubling of economic growth in the final months of the year, after it slowed to 0.5 percent on the quarter in the July-September period, survey compiler Markit said.

Britain was the fastest-growing big, developed economy last year, but other business surveys have suggested the pace of expansion has moderated, dented by an uncertain global outlook.

Economists warned Monday’s strong PMI could be a one-off.

The Confederation of British Industry said last week that factory orders suffered their biggest fall in three years in the three months to October.
“It is not obvious why UK manufacturing would be surging right now against a moderate global background and with sterling having appreciated over the year,” said David Tinsley, an economist at UBS. “Still, it’s an interesting spanner in the narrative of a weak manufacturing outlook for now.”
Sterling shot to a 10-week high on a trade-weighted basis and British government bond prices rose to a six-week high.

The survey showed export orders grew at the fastest pace since August 2014 and jobs growth hit a 16-month high.

“Scratching further beneath the surface of the data reveals that the upturn is largely confined to the biggest manufacturers, who also benefitted most from the better export sales,” said Rob Dobson, a Markit economist.

Markit data show such a jump in the manufacturing reading has always been followed by an increase in the closely watched PMI for services, due on Wednesday.

Services, which account for more than three-quarters of the private sector economy, was the sole industry driving economic growth in the third quarter, according to preliminary official data released last month.

UK factory PMI surges to 16-month high, exports recover

Growth at British factories surged unexpectedly to a 16-month high in October, helped by a recovery in export orders, according to a survey that will temper some of the concern that the economy is losing steam after two years of gains.

The Markit/CIPS purchasing managers’ index (PMI), published on Monday, was a rare bright spot for British manufacturing, which has lagged the wider economic recovery.

Bank of England policymakers, meeting this week to set out a new outlook on the economy, will be encouraged by new manufacturing orders from home and abroad and faster hiring. But most are expected to wait for further improvement before deciding to raise record-low interest rates.
The PMI jumped to 55.5 in October from 51.8 in September, well above even the highest forecast in a Reuters poll.

Taken in isolation, the survey suggested a doubling of economic growth in the final months of the year, after it slowed to 0.5 percent on the quarter in the July-September period, survey compiler Markit said.

Britain was the fastest-growing big, developed economy last year, but other business surveys have suggested the pace of expansion has moderated, dented by an uncertain global outlook.

Economists warned Monday’s strong PMI could be a one-off.

The Confederation of British Industry said last week that factory orders suffered their biggest fall in three years in the three months to October.
“It is not obvious why UK manufacturing would be surging right now against a moderate global background and with sterling having appreciated over the year,” said David Tinsley, an economist at UBS. “Still, it’s an interesting spanner in the narrative of a weak manufacturing outlook for now.”
Sterling shot to a 10-week high on a trade-weighted basis and British government bond prices rose to a six-week high.

The survey showed export orders grew at the fastest pace since August 2014 and jobs growth hit a 16-month high.

“Scratching further beneath the surface of the data reveals that the upturn is largely confined to the biggest manufacturers, who also benefitted most from the better export sales,” said Rob Dobson, a Markit economist.

Markit data show such a jump in the manufacturing reading has always been followed by an increase in the closely watched PMI for services, due on Wednesday.

Services, which account for more than three-quarters of the private sector economy, was the sole industry driving economic growth in the third quarter, according to preliminary official data released last month.

Europe Calls for Tougher Rules on Global Markets

Sometimes it’s not just what is said that counts, but the way it is said. And if tone is anything to go by, the leaders of the European Union’s largest economies are dead serious about cleaning up global finance markets. On Sunday, officials from eight E.U. countries wound up an economic summit in Berlin calling for tougher regulations on international financial markets—including secretive hedge funds and the tax havens they often rely on to do business. The question is: will the U.S., the biggest financial player in the world, ever agree to the binding international regulation the Europeans seek?

The way they’re talking, it sounds as if many European leaders don’t want to give their American peers much choice in the matter. German host Chancellor Angela Merkel said the group—France, Italy, Britain, Luxembourg, Spain, the Netherlands and Czech Republic—had agreed to measures they will insist be adopted at the G20 meeting in London in early April. “All financial markets, products and participants including hedge funds and other private pools of capital which may pose a systematic risk must be subjected to appropriate oversight or regulation,” Merkel said in a summit statement. “A clear message and concrete action are necessary to engender new confidence in the markets and to put the world back on a path toward more growth and employment.” (See 25 people to blame for the financial crisis.)

French President Nicolas Sarkozy was just as adamant. “We can’t afford failure in London,” he said after Sunday’s meeting. “We have to succeed and we can’t accept that anyone or anything will get in the way of this summit, which will be a historic summit. We will be successful [because] if we fail there will be no safety net.”

There’s just one problem with Europe’s position: it’s far from certain Washington is going to accept strict new regulations imposed on the U.S. economy by outsiders. President Barack Obama wooed the world with talk of change, but resistance to regulation remains strong in the U.S, where the ability of companies and markets to invent, innovate, and take risks remains fundamental to the American dream. “There’s an enduring view in the U.S. that the national economy is a powerful machine that crashes every now and again, but which eventually fixes itself and roars back to the front of the pack,” says Mark Duckenfield, a professor of politics in the world economy at the London School of Economics. “The European leaders proposing this international regulation are generally conservative, not wild-eyed socialists. Still, any effort to come up with international rules applicable to the U.S. usually raises fears about American businesses finding themselves hog-tied as a result—which gets Joe the Plumber types shouting bloody murder.” (See pictures of the global financial crisis.)

Duckenfield notes that political conservatives such as Sarkozy and Merkel have a significant ally to their cause inBritish Prime Minister Gordon Brown, who, in spite of his nominally leftist Labour Party affiliation, has always been a market liberal. As recently as 2007, Brown opposed European calls for better regulation of hedge funds—investment schemes that had helped made London Europe’s finance capital. But on Sunday, Brown wrote in Britain’s Observer newspaper that finance markets and banks should be obliged to factor the collective interest of long-term economic gain into their activities, an effort he said should serve as “the foundation on which a new system must be based”.

Sarkozy went even further, demanding new regulations that would impose responsibility and moderation where excess once reigned. After the meeting, Sarkozy said that “the violence of the [economic] crisis, its depth, call for really profound changes.” He also claimed the European objective going into the G20 meeting is to ” to start capitalism again from scratch, [and] make it more moral”.

Dramatic stuff—but will it ever fly in Washington? Or even everywhere in Europe? “If I put it very tenderly, the divergence in opinions was rather big,” said Czech Prime Minister Mirek Topolanek, whose country currently holds the E.U.’s rotating presidency. In Sunday’s meeting, Topolanek defended the liberal market orthodoxy of many central European members and the U.S. is likely to look to countries like the Czech Republic for support in defining some “lowest-common-denominator rules” that everyone can accept, says Duckenfield. Which may leave other European leaders talking tough but unable to get their way.

Europe Calls for Tougher Rules on Global Markets

Sometimes it’s not just what is said that counts, but the way it is said. And if tone is anything to go by, the leaders of the European Union’s largest economies are dead serious about cleaning up global finance markets. On Sunday, officials from eight E.U. countries wound up an economic summit in Berlin calling for tougher regulations on international financial markets—including secretive hedge funds and the tax havens they often rely on to do business. The question is: will the U.S., the biggest financial player in the world, ever agree to the binding international regulation the Europeans seek?

The way they’re talking, it sounds as if many European leaders don’t want to give their American peers much choice in the matter. German host Chancellor Angela Merkel said the group—France, Italy, Britain, Luxembourg, Spain, the Netherlands and Czech Republic—had agreed to measures they will insist be adopted at the G20 meeting in London in early April. “All financial markets, products and participants including hedge funds and other private pools of capital which may pose a systematic risk must be subjected to appropriate oversight or regulation,” Merkel said in a summit statement. “A clear message and concrete action are necessary to engender new confidence in the markets and to put the world back on a path toward more growth and employment.” (See 25 people to blame for the financial crisis.)

French President Nicolas Sarkozy was just as adamant. “We can’t afford failure in London,” he said after Sunday’s meeting. “We have to succeed and we can’t accept that anyone or anything will get in the way of this summit, which will be a historic summit. We will be successful [because] if we fail there will be no safety net.”

There’s just one problem with Europe’s position: it’s far from certain Washington is going to accept strict new regulations imposed on the U.S. economy by outsiders. President Barack Obama wooed the world with talk of change, but resistance to regulation remains strong in the U.S, where the ability of companies and markets to invent, innovate, and take risks remains fundamental to the American dream. “There’s an enduring view in the U.S. that the national economy is a powerful machine that crashes every now and again, but which eventually fixes itself and roars back to the front of the pack,” says Mark Duckenfield, a professor of politics in the world economy at the London School of Economics. “The European leaders proposing this international regulation are generally conservative, not wild-eyed socialists. Still, any effort to come up with international rules applicable to the U.S. usually raises fears about American businesses finding themselves hog-tied as a result—which gets Joe the Plumber types shouting bloody murder.” (See pictures of the global financial crisis.)

Duckenfield notes that political conservatives such as Sarkozy and Merkel have a significant ally to their cause inBritish Prime Minister Gordon Brown, who, in spite of his nominally leftist Labour Party affiliation, has always been a market liberal. As recently as 2007, Brown opposed European calls for better regulation of hedge funds—investment schemes that had helped made London Europe’s finance capital. But on Sunday, Brown wrote in Britain’s Observer newspaper that finance markets and banks should be obliged to factor the collective interest of long-term economic gain into their activities, an effort he said should serve as “the foundation on which a new system must be based”.

Sarkozy went even further, demanding new regulations that would impose responsibility and moderation where excess once reigned. After the meeting, Sarkozy said that “the violence of the [economic] crisis, its depth, call for really profound changes.” He also claimed the European objective going into the G20 meeting is to ” to start capitalism again from scratch, [and] make it more moral”.

Dramatic stuff—but will it ever fly in Washington? Or even everywhere in Europe? “If I put it very tenderly, the divergence in opinions was rather big,” said Czech Prime Minister Mirek Topolanek, whose country currently holds the E.U.’s rotating presidency. In Sunday’s meeting, Topolanek defended the liberal market orthodoxy of many central European members and the U.S. is likely to look to countries like the Czech Republic for support in defining some “lowest-common-denominator rules” that everyone can accept, says Duckenfield. Which may leave other European leaders talking tough but unable to get their way.

Petrol Politics: How Much Should an Oil Spill Cost?

How serious should the penalties for an oil spill be? In early November, Chevron and its drilling partner Transocean accidentally spilled some 3,000 barrels of oil into the ocean off the coast of Rio de Janeiro in Brazil. As oil spill go, it was relatively minor—although it is a sign of how hard offshore drilling is. After about a week of work, Chevron managed to stop the spill—it helped that the damaged well was only about 3,900 ft. below the surface of the ocean. (BP’s Macondo well—which spilled 4 million barrelsinto the Gulf of Mexico last year after a blowout—was more than 5,000 ft. beneath the ocean surface.)

Problem solved? Not according to the Brazilians. A couple of weeks after the spill, Brazil announced that it was fining Chevron $28 million—or more than two times the $4,000 per barrel spilled that the U.S. government can charge under the Oil Pollution Act—and had its drilling rights in Brazil suspended. For Chevron the fine would be bad enough, but a permanent expulsion from Brazil’s rich offshore oil market—estimated to be worth nearly $200 billion—would be disastrous for the company. As if that’s not bad enough, last week Brazilian prosecutors brought an $11 billion—yes, that’s the right letter—against Chevron and Transocean. And this week Brazil’s federal police asked prosecutors to indict as many as 17 Chevron and Transocean employees—including the director of Chevron Brazil—for their alleged roles in the oil spill.

Is this fair?

There’s a certain amount of political gamesmanship going on in Brazil’s reaction to the spill. It’s common for some oil-producing countries to punish foreign oil companies when things go wrong. That’s a fact of life in the oil business—especially in more authoritarian nations like Venezuela. Democratic Brazil has a better reputation than most, but it has a federal system—and in the Chevron case, it’s state authorities who seem particularly vengeful, as Fortune‘sCyrus Sanati writes:

The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil’s burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron’s operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil’s oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil’s burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron’s operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil’s oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
But now those howls have turned into a stinging civil lawsuit. Prosecutors from Campos, a city near Rio de Janeiro, filed suit last Wednesday against Chevron and Transocean (RIG) for gross negligence in connection with the oil spill. They announced they were seeking 20 billion reals or around $11 billion in compensation for the spill. The fine was high, prosecutors say, in order to send a message that Rio was serious when it comes to environmental protection.

This is an internal Brazilian problem, with regions and cities like Rio—which needs money for the 2016 Olympics—angling to get a bigger share of offshore oil revenues from the federal government. Still, even if the $11 billion suit goes away—as many experts expect it to do—surely Chevron and other oil majors will have second thoughts before doing business in Brazil. And that could have major ramifications for a country that is set to become an oil major. Brazil’s national oil company, Petrobras, has had serious safety problems of its own—recent reports suggest that Petrobras spills more oil each year than Chevron with its accidents. If Brazil wants to move into the big leagues of crude oil, it will need help from the foreign majors—but Brazil’s valuable deepwater reserves and beautiful beaches may not be enough to overcome the threat of $11 billion lawsuits and criminal charges should anything go wrong. Not that Chevron was blameless, as the Financial Times writes:

But the whole incident should also serve as a warning to other foreign companies eyeing up Brazil’s oil industry. Although Chevron and Transocean have undoubtedly been caught up in a political power game, critics say both companies could have done more to prepare for such a disaster and done a better job of cleaning up afterwards.
Even simple things like having more executives at the companies who could speak Portuguese would have helped get rid of some of the bad feeling among the influential local press and government officials.
After all, if Chevron doesn’t get it right in Brazil, there will always be someone else around the corner waiting to take their place in one of the world’s most promising oil industries.

It’s not just about access to oil, however. Brazil’s offshore reserves are rich, but they’re also difficult to access. Some wells may be more than 20,000 ft. beneath the surface of the ocean. If there’s one thing we learned during the Deepwater Horizon oil spill—other than that Admiral Thad Allen kicks ass—it’s that repairing any blowouts or spills in very deep water is very difficult, akin to trying to operate on the surface of the moon. The early stumbles from companies like Chevron and Petrobras are not comforting as the oil industry prepares to go deeper and more dangerous, as we enter the age of extreme energy.

Petrol Politics: How Much Should an Oil Spill Cost?

How serious should the penalties for an oil spill be? In early November, Chevron and its drilling partner Transocean accidentally spilled some 3,000 barrels of oil into the ocean off the coast of Rio de Janeiro in Brazil. As oil spill go, it was relatively minor—although it is a sign of how hard offshore drilling is. After about a week of work, Chevron managed to stop the spill—it helped that the damaged well was only about 3,900 ft. below the surface of the ocean. (BP’s Macondo well—which spilled 4 million barrelsinto the Gulf of Mexico last year after a blowout—was more than 5,000 ft. beneath the ocean surface.)

Problem solved? Not according to the Brazilians. A couple of weeks after the spill, Brazil announced that it was fining Chevron $28 million—or more than two times the $4,000 per barrel spilled that the U.S. government can charge under the Oil Pollution Act—and had its drilling rights in Brazil suspended. For Chevron the fine would be bad enough, but a permanent expulsion from Brazil’s rich offshore oil market—estimated to be worth nearly $200 billion—would be disastrous for the company. As if that’s not bad enough, last week Brazilian prosecutors brought an $11 billion—yes, that’s the right letter—against Chevron and Transocean. And this week Brazil’s federal police asked prosecutors to indict as many as 17 Chevron and Transocean employees—including the director of Chevron Brazil—for their alleged roles in the oil spill.

Is this fair?

There’s a certain amount of political gamesmanship going on in Brazil’s reaction to the spill. It’s common for some oil-producing countries to punish foreign oil companies when things go wrong. That’s a fact of life in the oil business—especially in more authoritarian nations like Venezuela. Democratic Brazil has a better reputation than most, but it has a federal system—and in the Chevron case, it’s state authorities who seem particularly vengeful, as Fortune‘sCyrus Sanati writes:

The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil’s burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron’s operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil’s oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil’s burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron’s operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil’s oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
But now those howls have turned into a stinging civil lawsuit. Prosecutors from Campos, a city near Rio de Janeiro, filed suit last Wednesday against Chevron and Transocean (RIG) for gross negligence in connection with the oil spill. They announced they were seeking 20 billion reals or around $11 billion in compensation for the spill. The fine was high, prosecutors say, in order to send a message that Rio was serious when it comes to environmental protection.

This is an internal Brazilian problem, with regions and cities like Rio—which needs money for the 2016 Olympics—angling to get a bigger share of offshore oil revenues from the federal government. Still, even if the $11 billion suit goes away—as many experts expect it to do—surely Chevron and other oil majors will have second thoughts before doing business in Brazil. And that could have major ramifications for a country that is set to become an oil major. Brazil’s national oil company, Petrobras, has had serious safety problems of its own—recent reports suggest that Petrobras spills more oil each year than Chevron with its accidents. If Brazil wants to move into the big leagues of crude oil, it will need help from the foreign majors—but Brazil’s valuable deepwater reserves and beautiful beaches may not be enough to overcome the threat of $11 billion lawsuits and criminal charges should anything go wrong. Not that Chevron was blameless, as the Financial Times writes:

But the whole incident should also serve as a warning to other foreign companies eyeing up Brazil’s oil industry. Although Chevron and Transocean have undoubtedly been caught up in a political power game, critics say both companies could have done more to prepare for such a disaster and done a better job of cleaning up afterwards.
Even simple things like having more executives at the companies who could speak Portuguese would have helped get rid of some of the bad feeling among the influential local press and government officials.
After all, if Chevron doesn’t get it right in Brazil, there will always be someone else around the corner waiting to take their place in one of the world’s most promising oil industries.

It’s not just about access to oil, however. Brazil’s offshore reserves are rich, but they’re also difficult to access. Some wells may be more than 20,000 ft. beneath the surface of the ocean. If there’s one thing we learned during the Deepwater Horizon oil spill—other than that Admiral Thad Allen kicks ass—it’s that repairing any blowouts or spills in very deep water is very difficult, akin to trying to operate on the surface of the moon. The early stumbles from companies like Chevron and Petrobras are not comforting as the oil industry prepares to go deeper and more dangerous, as we enter the age of extreme energy.

Betting on Big Solar

It’s good news for solar advocates and bad news for competitors: General Electric is breaking into the solar business in a major way. In April, GE announced it had built a solar module with the highest publicly reported efficiency rate for cadmium telluride thin film — the most popular low-cost solar technology. The commercial module topped out at 12.8%, according to independent testers at the National Renewable Energy Laboratory — nearly 3 percentage points higher than the industry average. (The efficiency rate is the percentage of the sun’s energy a solar panel can convert to electricity.) Those record-breaking solar modules will eventually be manufactured at a U.S. facility set to open in 2013 that will be the biggest solar factory in the country. The news means GE — which already has a wind-energy business worth some $6 billion — could be ready to dominate solar much as it leads the way in wind. “This is the beginning of what we see as a global competition,” says Victor Abate, GE’s vice president of renewables.
Despite GE’s experience in the energy business — its founder did, after all, invent the lightbulb — the multinational behemoth will be entering the solar race behind its rivals. Those include Arizona-based First Solar, which began life as a small start-up before investments from John Walton of the Walmart family helped it become one of the most successful renewable-energy businesses in the world, with manufacturing facilities that produce 2,300 megawatts’ worth of cadmium telluride thin-film solar modules a year. For now, GE’s manufacturing capacity — including the planned new plant in Colorado, which is expected to employ 400 workers and create an additional 600 jobs — still makes it at best a medium-size player in the industry.

But GE is GE, and it can bring resources to bear on renewable energy that no other corporation can — as its competitors in the wind-turbine industry already know. In 2002, GE grabbed the wind-power assets of Enron after the energy-trading company went bankrupt. At the time, Enron was the only major U.S. wind-turbine manufacturer left standing. On-and-off U.S. federal support had ceded the lead to European firms like Vestas and Gamesa. Today, though, GE is the third largest turbine maker in the world. “Our wind business was just a couple of hundred million dollars in 2002,” says Abate. “Now it’s a $6 billion platform. GE knows how to scale.”

That’s exactly what the solar industry needs. Solar power had an excellent year in the U.S. in 2010, growing by a remarkable 67%, faster than any other energy source. The U.S. Energy Information Administration predicts that over the next decade solar generation will expand more than fourfold. But solar can grow so fast, in part, because the market is so tiny: less than 1% of U.S. electricity comes from the sun. For that to change — for solar to become a game changer, not just a rounding error — it has to get radically less expensive. That improvement must come from innovation. Earlier this month, GE announced that a new power-plant design will integrate natural-gas electricity generation with both wind and solar as complements. Though GE has yet to reveal its cost structure for solar manufacturing, the company is confident that its efficient panels — and turnkey manufacturing — will rapidly bring down the cost of solar energy. Mark Little, GE’s global-research director, has suggested that within five years solar could be cheaper than fossil-fuel power in regions with expensive electricity. “The leverage we have is our improving efficiency,” says Abate. “Once you have a leading technical position, you can scale up and drive down cost.”

That’s the hope, anyway. But the solar business in 2011 isn’t the same as the wind industry was a decade ago, when GE began churning out turbines. Chinese companies like Suntech Power and Trina Solar can undercut their American competitors, thanks both to rock-bottom labor costs and steady government assistance of the sort not likely to be coming from Washington. American manufacturers like GE will struggle to beat the Chinese on sheer cost, though the company expects to reduce expenses on solar development by 50% over the next several years, Abate says. GE will need to win instead on innovations that take advantage of the company’s scope and its experience at making the right bet at the right time. For all their usual preferences for the small and local, greens should hope for GE’s success. If they want solar power to win big, they need the biggest player in the game.

Betting on Big Solar

It’s good news for solar advocates and bad news for competitors: General Electric is breaking into the solar business in a major way. In April, GE announced it had built a solar module with the highest publicly reported efficiency rate for cadmium telluride thin film — the most popular low-cost solar technology. The commercial module topped out at 12.8%, according to independent testers at the National Renewable Energy Laboratory — nearly 3 percentage points higher than the industry average. (The efficiency rate is the percentage of the sun’s energy a solar panel can convert to electricity.) Those record-breaking solar modules will eventually be manufactured at a U.S. facility set to open in 2013 that will be the biggest solar factory in the country. The news means GE — which already has a wind-energy business worth some $6 billion — could be ready to dominate solar much as it leads the way in wind. “This is the beginning of what we see as a global competition,” says Victor Abate, GE’s vice president of renewables.
Despite GE’s experience in the energy business — its founder did, after all, invent the lightbulb — the multinational behemoth will be entering the solar race behind its rivals. Those include Arizona-based First Solar, which began life as a small start-up before investments from John Walton of the Walmart family helped it become one of the most successful renewable-energy businesses in the world, with manufacturing facilities that produce 2,300 megawatts’ worth of cadmium telluride thin-film solar modules a year. For now, GE’s manufacturing capacity — including the planned new plant in Colorado, which is expected to employ 400 workers and create an additional 600 jobs — still makes it at best a medium-size player in the industry.

But GE is GE, and it can bring resources to bear on renewable energy that no other corporation can — as its competitors in the wind-turbine industry already know. In 2002, GE grabbed the wind-power assets of Enron after the energy-trading company went bankrupt. At the time, Enron was the only major U.S. wind-turbine manufacturer left standing. On-and-off U.S. federal support had ceded the lead to European firms like Vestas and Gamesa. Today, though, GE is the third largest turbine maker in the world. “Our wind business was just a couple of hundred million dollars in 2002,” says Abate. “Now it’s a $6 billion platform. GE knows how to scale.”

That’s exactly what the solar industry needs. Solar power had an excellent year in the U.S. in 2010, growing by a remarkable 67%, faster than any other energy source. The U.S. Energy Information Administration predicts that over the next decade solar generation will expand more than fourfold. But solar can grow so fast, in part, because the market is so tiny: less than 1% of U.S. electricity comes from the sun. For that to change — for solar to become a game changer, not just a rounding error — it has to get radically less expensive. That improvement must come from innovation. Earlier this month, GE announced that a new power-plant design will integrate natural-gas electricity generation with both wind and solar as complements. Though GE has yet to reveal its cost structure for solar manufacturing, the company is confident that its efficient panels — and turnkey manufacturing — will rapidly bring down the cost of solar energy. Mark Little, GE’s global-research director, has suggested that within five years solar could be cheaper than fossil-fuel power in regions with expensive electricity. “The leverage we have is our improving efficiency,” says Abate. “Once you have a leading technical position, you can scale up and drive down cost.”

That’s the hope, anyway. But the solar business in 2011 isn’t the same as the wind industry was a decade ago, when GE began churning out turbines. Chinese companies like Suntech Power and Trina Solar can undercut their American competitors, thanks both to rock-bottom labor costs and steady government assistance of the sort not likely to be coming from Washington. American manufacturers like GE will struggle to beat the Chinese on sheer cost, though the company expects to reduce expenses on solar development by 50% over the next several years, Abate says. GE will need to win instead on innovations that take advantage of the company’s scope and its experience at making the right bet at the right time. For all their usual preferences for the small and local, greens should hope for GE’s success. If they want solar power to win big, they need the biggest player in the game.