Oil rose more than $2 a barrel, after touching a record $112.21, and gasoline jumped to the highest ever after the Energy Department reported an unexpected decline in crude supplies on Wednesday.

The department reported a drop of 3.1 million barrels in oil stockpiles, sending the price up as much as 3.4 percent in New York. Gasoline futures jumped as much as 2.6 percent. At the pump, consumers are paying a record $3.343 a gallon on average, said AAA, the nation’s largest motorist organization.

“This reaction to the D.O.E. numbers suggests that the supply and demand fundamentals are still important,” said Adam E. Sieminski, Deutsche Bank’s chief energy economist in Washington. “It’s not just the speculators that are driving prices higher.”

Oil’s 80 percent gain in the last year is the second biggest among 19 commodities on the Reuters/Jefferies CRB Index, trailing only wheat, which has doubled. Rising global demand for raw materials and a weakening dollar have led to records this year for raw materials including corn, soybeans, rice and gold.

Crude oil for May delivery rose $2.37, or 2.2 percent, to settle at $110.87 a barrel at 2:51 p.m. on the New York Mercantile Exchange, a record close. The intraday record of $112.21 a barrel was the highest since Nymex futures trading began in 1983.

Gasoline for May delivery climbed 2.38 cents, or 0.9 percent, to close at $2.7742 a gallon. Futures reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

American pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA said Wednesday on its Web site. Diesel prices advanced 1.2 cents, to $4.032 a gallon, AAA said. Diesel pump prices reached a record $4.037 on March 22.

Gasoline demand in the United States may drop by 85,000 barrels a day this summer, Guy Caruso, administrator of the Energy Information Administration, said on Monday, noting that gasoline use fell 1.4 percent in the summer of 1991, after a nine-month recession during George H. W. Bush’s presidency.

But Antoine Halff, head of energy research at Newedge USA in New York, said: “Domestic demand isn’t great but that’s not important. Global demand is still growing and that’s what matters.

Energy Dept. revises forecasts for higher oil, fuel prices

For the first time ever, the Energy Department’s Energy Information Administration, issued a forecast that says oil prices will average more than $100/barrel for 2008.

According to a revised forecast issued today in its Short-Term Energy Outlook, the EIA says West Texas Intermediate (WTI) crude oil prices, which averaged $72.32 in 2007, are projected to average $101/barrel in 2008 before declining slightly to $92.50/barrel in 2009.

The increased crude oil prices will also drive up diesel fuel, gasoline and natural gas prices, despite the fact that “U.S. consumption of liquid fuels and other petroleum is expected to decline in 2008 by about 85,000 barrels/day as a result of the economic slowdown and high petroleum prices.”

U.S. Energy Secretary Sam Bodman said on Monday U.S. gasoline prices could hit $3.50 a gallon this summer, but said he is "optimistic" that OPEC will come to the rescue of U.S. drivers but OPEC ministers said this week they don’t plan to increase supply because the high prices are not due to a lack of supply.

EIA data has national average gasoline prices currently at $3.33/gallon this week and on-highway diesel prices averaging $3.96/gallon nationally.

"I would like to think that we're not going to get to $4 (a gallon) but I don't make forecasts—whatever it is, it is," Bodman said in a Reuters report Monday.

“Easy oil “ is no longer available and the search for “difficult oil” is proving expensive as prospectors move into high risk and expensive frontier regions, which include offshore deep water.

Over the last five years we have seen a step wise increase of crude oil from $25 to $50 to $75 and recently we have seen the oil hit $110 per barrel. On the Kenyan market, premium gasoline has edged closer to Sh100 per litre.

High oil prices and recession are inseparable economic metrics.

In Kenya, visible inflationary impacts resulting mainly from oil prices (albeit some spill over impacts from the post-election violence) are already negatively influencing economic growth projections. With high price inflation , higher interest rates and credit squeeze start affecting business.

All these experiences were encountered here in Kenya in the early 1980s after the Iranian political crisis caused oil prices to skyrocket to high levels ($45 per barrel, which is equivalent to about $110 per barrel today).

Questions and conflicting answers still abound as to what exactly is fuelling the oil price escalation. What is known is that supply and demand are very much in a state of equilibrium with supply just exceeding demand, but not high enough to prevent price ripples when there is a sudden and unexpected supply disruption.

Opec nations who have about two thirds of proven reserves have only about a third of production capacity and unless they invest more in productive capacity, the world will remain in a supply stress for quite some time.

High prices always result in increased activity in search for more oil.

However “easy oil” is no longer available and the search for “difficult oil” is proving expensive as prospectors move more and more into high risk and expensive frontier regions, which include offshore deep water.

While the “easy oil” in areas with large reserves which are already developed (e.g Middle East) may cost as little as $10-20 per barrel to produce, new frontier areas may be producing at about $50 per barrel.

This implies that the Middle East countries sitting on developed easy oil reserves are making surplus billions of dollars, while the multinationals and independent oil companies are spending billions to re-establish new expensive reserves.

Incremental production can be sustained only if prices are high enough to finance high risks associated with difficult frontier zones. It is this incremental production that will maintain high prices in the future.

Opec countries with low production costs are finding it increasingly difficult and embarrassing to justify the current wave of high prices. Recently, they have argued that costing of oil should be based on cost of alternative sources of energy which they argue is above $ 70 per barrel.

If they persist with this argument, then they will continue to accumulate huge surpluses while the high cost producers will persevere in break-even economics.

The supply and demand sides of oil need to be analysed simultaneously. Increased prices will always push back demands to levels that economic activities can afford to finance. Demand for oil will certainly go down for a number of reasons.

High prices of oil will fuel inflation and this will curtail consumption of oil as it competes with other financial priorities. Motorists will drive less and they will acquire fuel efficient vehicles.

Countries will opt for locally produced cheaper alternative fuels. When demand push back becomes significant enough oil prices will react and start dropping as oil producers compete to maintain their market shares .

Unfortunately, the countries that have the highest demand growth projections ( India and China ) are not passing the full costs of oil price increases to the consumers.

This is through government subsidised prices and this tends to create a pseudo demand growth that is cushioned against the impacts of global price increases.

The most difficult task for economists today is to project future oil prices. However, a lot should be borrowed from the experiences of the past when high oil prices wrecked havoc on global economies .

When oil prices hit $ 45 per barrel ( equivalent to $110 per barrel in today’s dollars ) immediately after the Iranian Ayatollah Khomeini revolution in 1979, the world went into a serious recession.

High prices persisted for about four years and this was long and serious enough to compel consuming nations to make drastic changes to forestall the inflationary impacts.

In the 1980s, Kenya faced serious balance of payment problems resulting from high oil import bills and all the economic gains of 1970s were all but wiped out.

The Government reacted by introducing bio-fuels (10 per cent blend of alcohol in gasoline), banned import of passenger cars to discourage growth of gasoline consumption, loaded taxes on gasoline to discourage discretionary driving.

An oil pricing crisis developed between Treasury and oil companies when Treasury delayed awarding price increases in order to recoup increased oil costs, and at least one multinational oil company decided to pull out of the Kenyan market at that time.

The Government created a new Ministry of Energy in 1980 to focus on new developments in the energy sector and the National Oil Company in 1981. Energy conservation and efficiency campaigns were also initiated by the government.

Today, the real fear is the anticipation of a Sh100 per litre price for gasoline. If prices persist at above $100 per barrel, this eventuality is inevitable, and double digit inflation will be a permanent feature.

Without own oil resources, there will be little that Kenya will be able to do in the short term to cushion itself against the impacts of high prices.

However, the Minister for Energy should at this time proactively come up with a task force to recommend measures and regulations that should be gradually put in place to forestall the impact of high oil prices on the economy and lives of Kenyans.

Some of the issues to think about are: Prioritise the bio-fuels programme (bio-diesels and bio-alcohols ); Reduce urban fuel wastage by improving on public transport and reducing city traffic hold-ups and encourage efficiency and conservation of electricity usage to facilitate decreased thermal (oil) power generation.

The other is establish a strategic stocks programme to cushion the country on prices when they fluctuate up and down and improve rail and pipeline infrastructures to reduce usage of road transportation which is less energy efficient.

Lastly, quicken conversion of thermal electricity to renewable alternatives like geothermal and wind.

LONDON/PARIS (Reuters) - World oil supply is enough and there is no need for OPEC to boost output to lower near-record prices, the group's president and the oil minister for Qatar said on Tuesday.

The comments are the latest to underscore OPEC's view that factors beyond supply and demand have pushed prices higher. Oil hit a record $111.80 a barrel on March 17 and was trading around $109 on Tuesday.

"Supply is there. Stocks are in pretty good shape. We are entering the period when we see lower demand," Khelil, who is also Algeria's oil minister, told reporters on the sidelines of a conference in London.

"Nothing has changed to change at least my view of the situation, which is there is really no need for increasing the supply."

The oil minister for Qatar, one of the smallest producers in the 13-member Organization of the Petroleum Exporting Countries, made similar remarks in Paris earlier on Tuesday.

"I am confident there is no shortage of oil at all," Abdullah al-Attiyah told journalists on the sidelines of a meeting at the Qatari Embassy in Paris.

"Is there a need for extra production? I don't think so."

His remarks echoed comments al-Attiyah made in an interview with London-based al-Hayat newspaper, published on Tuesday, in which he said the oil market was "saturated."

OPEC pumps about two in every five barrels of oil.

ROME MEETING UNLIKELY

At its last three meetings, held in December, February and March, OPEC rebuffed calls from consumers including the United States to raise supply, saying the world had enough crude.

The group has not scheduled another meeting until September and there is little chance that ministers will gather during an energy forum in Rome on April 20-22, Khelil said.

"There is still that possibility that we informally meet," he said. "But the probability that we will, will be very low."

The OPEC ministers repeated the organization's view that factors including the weakness of the dollar, speculative trading and political tension in the world are lifting prices, not a lack of oil.

"The price is not related to supply at all but is under the influence of speculators," al-Attiyah said. "We don't see any panic in the world. The are no queues at gas stations."

Analysts say the weak dollar has helped boost the price of oil and other commodities as investors seek a hedge against inflation. That weakness is likely to persist, Khelil said.

"We see more lowering of the value of the dollar in the near future, as far as I am concerned," he said. "Consequently, we should see more impact on the oil price."

OPEC would have to act should a world recession hit demand, Attiyah told al-Hayat.

"Should there be a global economic recession, demand would decline in this case and OPEC would have to intervene to strike a balance between supply and demand," he said.

He said OPEC should react "immediately" should oil fall under $80, adding that crude should not be allowed to fall beyond a certain level because that would have a dire impact on the oil industry.

Dubai: Spiralling energy demand in the Gulf states, coupled with a gas-supply crunch, might lead to oil exports from the region falling during the summer, according to energy econ-omists.

A Lehman Brothers report puts the possible Gulf export shortfall due to high domestic demand at up to one million barrels per day (bpd).

According to Edward Morse, Lehman's chief energy economist, the world markets faced a shortfall of about one million barrels per day last July and August, and it could be repeated this year.

"The Middle East now appears to require more hydrocarbons being devoted to power generation than had been the case historically, as power needs to grow," said Morse.

While many expansion projects are being pursued across the region, the fear is that export capacity might not grow enough in the coming six months, leading to an increasingly tight market.

"Oil-boom-fuelled econ-omic growth, together with spiralling populations and subsidy-driven consumer patterns, have made the Gulf states some of the largest per-capita energy consumers in the world. Meanwhile, most of the countries have failed to bring sufficient amounts of new gas onstream, leading to a growing use of oil in power generation," said Samuel Ciszuk, Middle East energy analyst with Global Insight.

While describing Lehman's assessment of export shortfall as too high, Ciszuk said that during the coming summer, peak demand is likely to cause a diversion of gas from oilfield injection - lowering oil output - and crude from exports to power generation.

During the last few years some Gulf states such as Kuwait, Saudi Arabia and Oman have used rolling blackouts to cope with power shortages, and it has been reported that Abu Dhabi redirected some gas from its oilfield injection programmes to its power plants in order to prevent blackouts.

Based on its assessment of the demand-supply scenario, Lehman has increased its price forecast for the second, third and fourth quarters for Brent crude, in part to reflect the Middle East constraints, after prices averaged $96.31 in the first quarter.

The bank now expects Brent to average $85 a barrel in the second quarter from previous forecasts of $80 a barrel, $105 in the third quarter against an earlier call of $90, and $80 in the fourth quarter from $75 previously.

Despite the temporary shortfall, Lehman's Morse expects the region's output capacity to catch up with domestic demand in 2009, probably making the mid-2009 summer season much less tight when it comes to Gulf crude exports.

Tough environmental regulations that will increase significantly the costs faced by two British companies, BP and Royal Dutch Shell, in exploiting Canada’s huge oil sands reserves were on Wednesday backed by Malcolm Wicks, the energy minister.

In an interview with the Financial Times, Mr Wicks also sought to justify the government’s lobbying in Brussels to allow carbon capture and storage projects to count towards the UK’s target for renewable energy.

Speaking during a visit to Canada, the minister lauded the “very far-sighted” move by Canada’s federal government to force new oil sands projects to capture and store their carbon dioxide emissions after 2012. “Canada’s oils sands could provide up to 5 per cent of global supply ... [but] I understand the concerns about the environmental impact,” he said.

Canada’s stringent carbon capture requirements will add to the costs of the projects planned by BP and Shell in the sands, an environmentally sensitive reserve that is the largest outside Saudi Arabia.

Mr Wicks admitted the regulations had commercial consequences, saying: “if you look at it very narrowly, it will impact on the costs of the companies.” But he stressed the “prohibitive” long-term cost of failing to address climate change, including a failure to find sustainable ways of exploiting fossil fuels.

Market mechanisms, such as the European emissions trading scheme, would play a main role in making low carbon technology more affordable, Mr Wicks said. “The smart money will be on the development of a North American carbon market, including the US and Canada,” he said.

Mr Wicks set out plans to use this week’s bilateral talks in Canada to explore how the UK could work with Canada on developing global agreements to mandate “clean” coal-fired power plants, in China as well as the west. The UK is “seeking to build consensus around a strong package” of carbon capture measures at June’s G8 meeting of energy ministers, “en route to a meaningful global emissions deal” next year, the minister writes in an article in Wednesday’s Toronto Star.

Green groups argue that Britain’s moral authority to lead such talks is undermined by its stance in Europe. Ministers are lobbying the European Commission to allow carbon capture projects to count towards the UK’s target of increasing its energy from renewable sources from 3 per cent to 15 per cent by 2020.

MEXICO CITY: Mexico's president on Tuesday sent an energy reform bill to the Senate aimed at allowing private contractors a greater role in helping the ailing state oil company boost declining production and build new refineries.

Felipe Calderon stressed that the bill would not privatize Petroleos Mexicanos, or Pemex, a volatile issue that has led the leftist opposition to threaten massive protests if the conservative government tries to sell off a company seen as a symbol of national sovereignty.

Calderon, who won a disputed 2006 presidential election by a hair's breadth, said the bill would give Pemex greater freedom to contract work out to private companies, manage its own revenues and even issue bonds that only Mexicans could buy.

"We must act now, because time, and oil, is running out on us," Calderon warned in a nationally televised address. Oil revenues account for about 40 percent of Mexico's federal budget.

The bill would also give Pemex more freedom to manage its revenues — the majority of which are transferred directly to the government — and instead reinvest it in production and exploration.

Calderon proposed giving Pemex "greater power to make decision, manage itself and contract work, in order to gain access to state-of-the-art technology." While he did not specify the new contracting procedures, analysts say private firms might get exploration work and be paid a bonus — but not a percentage cut — for any oil they find.

Calderon made a bow to the sensitivity of the oil industry, which was nationalized in 1938 and is a point of pride in Mexico.

"I want to make clear that oil is and will continue to be exclusively Mexican property. Pemex is not being privatized. Oil is a symbol of the nation's sovereignty," he said.

The leftist Democratic Revolution Party claims the proposal involves handing over the oil in the Gulf of Mexico to transnational companies.

Former leftist presidential candidate Andres Manuel Lopez Obrador, who has already threatened to order thousands of followers to block highways and airports to protest any proposal that even hints at privatization, said the plan could cause conflict.

"If they take the oil away from us, there is going to be an atmosphere of farce, of frustration, and we don't want to live amid confrontation, disagreement, and conflict," he said.

Calderon proposed "allowing Pemex to hire specialized firms to build and operate new refineries for Mexico." The proposal also includes a plan for Pemex to issue Mexican-only "Citizen Bonds" to give the countries residents a chance to share in Pemex's income.

Production is plunging at Cantarell, the country's biggest-yielding oil field.

The government has said Pemex needs help from outside firms since the company lacks the expertise and equipment to explore and drill deep-water reserves, particularly in the Gulf of Mexico, where 50 percent of its potential reserves lie.

While Mexico has drilled just six wells there in recent years, companies are busily extracting crude from the U.S. side of the maritime boundary. Some analysts and lawmakers worry the drilling could threaten Mexico's share of the oil.

Mexico's constitution has banned most outside involvement in the company. But the government has eased restrictions slightly in the past 15 years to contract with private firms.

LOS ANGELES, The Al Qaeda terrorist organization, building on earlier claims, has taken responsibility for a rocket attack on a residential complex in Yemen that houses executives and the headquarters of Safer E&P Operations Co.

"Al Qaeda has issued a statement claiming the attack," said a Yemeni security official. Residents reported no injuries after three rockets struck near the residences of US employees of the Yemen-owned Safer E&P.

The official said police had arrested seven people in connection with the attack, adding that three people had fired the rockets from a car on the edge of the complex of villas in the al Hadda district in southwestern Sanaa, the Yemeni capital.

The attack occurred 2 days after the arrest in Sanaa of Al Qaeda operative, Abdullah al Rimi, who was sought by the US Federal Bureau of Investigation. Al Rimi has been identified as taking part in attacks in Riyadh, Saudi Arabia, in 2003 and on the USS Cole in 2000 in the Yemeni port of Aden, which killed 17 US sailors and injured many others.

Suspected Al Qaeda militants have claimed several attacks in Yemen, the ancestral homeland of the terror network's chief Osama bin Laden.

Last week, the Jund al Yemen Brigades, an Al Qaeda affiliate group, claimed responsibility for two operations carried out in Hadhramaut, including a Mar. 27 bomb attack on a pipeline belonging to Total SA in the Sah Valley and a Mar. 29 mortar attack on an unidentified Chinese oil company operating in Al-Khish'a.

Since the attacks on the USS Cole in 2000, several other foreign interests, specifically oil interests, have been attacked," according to the Yemen report by the US Energy Information Administration.

These include:

• The suicide bombing of the Limburg French oil tanker off the coast of Yemen, killing one and causing a massive fire and leakage of 150,000 bbl of oil into the Gulf of Aden (OGJ Online, Oct. 11, 2002).
• An unsuccessful firing of a surface-to-air missile at an oil company helicopter in 2002.
• The 2006 foiled suicide bomb attempt against two oil facilities.
• The more-recent attacks on oil company personnel near the border between the Marib and Shabwa governorates.

In addition, EIA said, there have been reports of violence in rural areas, attacks on oil company personnel, and kidnappings in Yemen.

Last December, Yemen's Deputy Prime Minister and Minister of Interior, Rashad al Alimi, identified terrorism as the chief threat to his country.

China signed two multibillion, dollar long-term deals to buy liquefied natural gas from Qatar on Thursday, marking a milestone in Asia’s evolution as the hottest market for the fuel.

PetroChina struck a deal to buy 3m tonnes of LNG a year over 25 years from 2011 with Qatar and Royal Dutch Shell, its partner. Analysts said the deal could could be worth as much as $60bn (£30.4bn).

NOOC, China’s primary LNG importer, also signed a framework supply agreement. Although it is yet too be formalised in a binding contract, it is for 2m tonnes a year from 2009.

The deals indicate that Beijing recognises it must pay global market prices to secure supplies of LNG. It has already intensified the demand pressures in the tight global LNG market and is expected to force other countries to pay higher prices.

“Three to four years ago, the Qatari projects were going to send this gas to the Atlantic Basin, particularly the US,” said Frank Harris, of Wood Mackenzie, the Edinburgh-based consulting firm.

“What it means is that we are going to see a lot less LNG go to the US than we thought.”

Though terms were not disclosed and the ultimate price paid will depend on the oil price, Wood Mackenzie valued the deal at $60bn, assuming a $100 a barrel crude price.

The natural gas market has tightened amid booming demand in Asia and a sharp decline in supplies from Indonesia, which has so little gas left to export that it renewed deals for five years rather than the usual 25. Japan, South Korea and other Asian nations have been scrambling to secure gas. In Japan, nuclear outages have pushed the leading utility to double the amount of LNG it bought in the past 12 months.

The country recently paid a record price for a five-year supply deal with Indonesia in anticipation of the deals and China’s emergence as a leading competitor. China has been reluctant to make a full return to global LNG markets since signing its first long-term supply agreement with an Australian supplier in 2002, which locked in a low price over the 25-year contract.Sharply Higher prices and a tighter market have pushed the country’s companies back into the fray.

HOUSTON, -- BP PLC and ConocoPhillips announced Apr. 8 they will join resources to build a 4 bcfd natural gas pipeline extending from Alaska's North Slope to markets in Canada and the US. Dubbed Denali, the proposed Alaskan gas line would be the "largest private-sector construction project ever built in North America," the partners said.

In a press conference held Apr. 8, BP and ConocoPhillips revealed plans to spend $600 million over the next 36 months on the first of many phases of the Denali line, namely an open season, which is slated to begin before yearend 2010. After the open season, the companies will file to obtain certification from the US Federal Energy Regulatory Commission and Canada's National Energy Board and will move forward with construction of the project.

The partners also will have to convince Alaskan authorities that their plan is the best one for developing the state's gas resources and that it's in line with the state's Alaska Gasline Inducement Act, adopted in February. AGIA, which was designed to advance construction of a gas pipeline from ANS, requires a pipeline project builder to meet certain requirements that will advance the project, in exchange for a license that provides up to $500 million in matching funds. These funds would help reduce the financial risks that such a huge project faces in its early stages.

Alaska received five applications coming from AEnergia LLC, the Alaska Gasline Port Authority, the Alaska Natural Gas Development Authority, Little Susitna Construction Co., and a joint application from TransCanada Alaska Co. LLC and Foothills Pipe Lines Ltd. TransCanada's proposal was the only one to be accepted as completed. A proposal submitted by ConocoPhillips did not meet the state's application criteria, the state said. BP and ExxonMobil Corp. did not submit an application.

Alaska Gov. Sarah Palin said of BP and ConocoPhillips's effort: "We look forward to any progress they will be able to show us on this project. Their decision to proceed is further proof that competition does work."

At this writing, TransCanada had not released any comment regarding BP and ConocoPhillips's announcement.

Project details
BP and ConocoPhillips said they will form a new company, to be headquartered in Anchorage, to manage the project. During the press conference, the companies said that a joint project team has been mobilized and that field work will begin this summer on the line.

The project will comprise about 2,000 miles of large-diameter, buried pipeline that will transverse Alaska, the Yukon Territory and British Columbia to Alberta. The line will operate at about 2,500 psi and will have 40,000-hp compressor stations every 100-200 miles. A gas treatment plant will be built near existing Prudhoe Bay facilities. The line will require 5-6 million tons of steel, the partners said.

The companies said should it later be required to transport gas on from Alberta, the project will also include about 1,500 miles of large-diameter line from Alberta on to the Lower 48 states. The companies said they would seek "other equity partners, including pipeline companies," that would "add value to the project and help manage the risks involved." Press reports have indicated that ExxonMobil Corp., the third-largest ANS producer, has been asked to join.

The partners said the Denali line will support in-state gas distribution efforts including gas to south-central Alaska. The line will provide at least five Alaskan offtake points, including Fairbanks.

A new web site outlining the project has been launched at denali-thealaskagaspipeline.com.

Demand for liquefied natural gas in the US and Europe will surpass Asian consumption by as early as 2015, while global LNG demand is set to triple between now and 2030, US giant ExxonMobil said today.
ExxonMobil said overall energy demand was expected to grow at 1.3% per year and gas consumption was expected to account for about a quarter of global energy consumption by 2030, up from about 20% now.

"From our projections, no fossil fuel will grow faster than natural gas," Alan Hirshberg, vice president of Established Areas Project at ExxonMobil, said at an oil and gas conference in Perth.

"By 2030, overall LNG demand will more than triple from where it is today and the regional distribution will significantly change."

The global LNG business has so far been driven by Asia, underpinned by consumption in Japan, South Korea and Taiwan. Asian demand currently accounts for about two-thirds of global LNG consumption.

But growing dependence on gas imports in the US and Europe will result in Western demand surpassing Asian consumption by as early as 2015, changing demand patterns for the first time in 30 years, Hirshberg said.

A long list of countries now plan LNG import terminals to diversify their supplies and reduce reliance on pipeline gas, while new techniques are allowing more producers to export gas as LNG and more countries to import it.

Changing patterns in global LNG demand will have an impact on LNG supply flows, which have so far been largely regional.

"Significant Middle East supplies will reach all the major markets. Some Asian supplies may reach the US west coast and Atlantic supplies will go to both Europe and US," Reuters reported Hirshberg as saying.

Hirshberg said ExxonMobil, which is a partner in the Chevron-operated Gorgon LNG project off Western Australia, was "optimistic" that the massive LNG project would go ahead despite long delays and surging costs.

"Although we're still some way from a final investment decision, we remain optimistic about Gorgon's potential and our ability to manage the technical and commercial challenges," he said.

"We're also actively engaged with potential LNG buyers in the Asia-Pacific region to ensure our share of Gorgon LNG is sold prior to any final investment decision."

Gorgon partners have increased the project's capacity by 50% to process 15 million tonnes a year of LNG in a bid to improve project economics.

Steel prices are poised to rise further after an Asia steelmaker yesterday agreed to a tripling in price of its supply of coking coal in a settlement that is likely to set the benchmark for the steelmaking industry.

South Korean steelmaker Posco said it had accepted a 205-210 per cent rise for its supplies from Australian miners.

Analysts said that the agreement was likely to be followed by other steelmakers in the region and in Europe, resulting in higher inflation in emerging economies.

The increase in the cost of coking coal as set by the Posco settlement was larger than the level expected by the market and the industry and comes on top of a 65-71 per cent rise in iron ore prices this year. Iron ore and coking coal are the two main expenditures for the steelmaking industry.

Analysts said that steel prices might need to rise up to 20 per cent to cover the jump in coking coal cost.

Steelmakers raised the prices of their products 10-20 per cent in February and March after the cost of iron ore went up.

Alan Heap, commodities analyst at Citigroup in Sydney, said that the coal markets had tightened further as a result of production losses in Queensland and reduced Chinese and South African exports.

China and South Africa suffered power blackouts this year and utilities in both countries are relying more on coal to increase power supply.

“We now expect coking coal contract prices to be set at $285 a tonne,” Mr Heap said. That compares with current prices of about $85 a tonne.

Spot transactions of coking coal have reached up to $375 a tonne for premium Australian coal, according to Mr Heap. He added that some steelmakers had purchased significant volumes of spot coking coal from US suppliers at very high prices, highlighting the degree of supply shortage in the industry.

The increase in coking coal prices is likely to be replicated in thermal coal for power plants, with Australian miners seeking to double the prices to about $110-$125 a tonne, according to brokers and analysts.

Westinghouse Electric, the nuclear design and build firm sold by the British ­government two years ago, has won its first ­contracts in America for 30 years.

The move underlines the worldwide ­renaissance of atomic power generation as a source of low-carbon energy. The Pittsburgh-based group, which has sought approval for its reactor design to be accepted in Britain, has won a deal from Georgia Power to build two AP1000 nuclear reactors at the Alvin W. Vogtle site near Waynesboro, Georgia, for an ­estimated $13bn (£7bn).

Westinghouse, which won the contract with its partner, the Shaw Group, said the project moves the country's nuclear revival "beyond the planning stage" and into a new era.

Steve Tritch, president of ­Westinghouse said: "Nuclear power is now rightfully recognised as a clean, safe and economically competitive source of baseload generation that helps ensure US energy independence."

Westinghouse was bought by BNFL in 1999 but the British government pushed for its sale saying it could leave the public purse facing substantial financial liabilities as it ramped up its business in the light of potential new building opportunities in the US and China. Ministers also expressed concerns that Westinghouse could be compromised if the government had to decide on a design for a new generation of British ­stations so the company was sold to Japan's Toshiba, for £2.8bn.

Westinghouse has submitted its AP1000 design in the UK but will face strong competition from Areva of France .

Last month, Georgia Power's ­parent group, Southern Nuclear, filed an application with the nuclear regulatory ­commission in America for a combined construction and operating license for Westinghouse's AP1000 plant design.

Each reactor can generate about 1,100 megawatts meaning two of this size could generate enough power for one million homes. Two existing reactors at Vogtle are owned by Southern's largest utility and three public power agencies: Oglethorpe Power, the Municipal Electric Authority of Georgia and Dalton Utilities. Georgia Power, along with co-owners of the ­Vogtle nuclear power plant near Augusta, will submit the contract terms to the Georgia public service commission in May to be considered along with other proposals to meet the utility's need for additional ­generation in 2016-2017.

The NRC which has received nine applications to build new reactors expects to receive as many as 22 other applications for 33 new reactors by 2010.

RWE, the German utility company, has made an indicative all-cash offer of close to 700p a share for British Energy, in a deal that could value the UK’s nuclear operator at up to £11bn ($21.7bn).

A sale at that price would raise almost £4bn for the government, although the money has been earmarked for the Nuclear Liabilities Fund to pay for the clean-up of reactor sites.

RWE, which made the offer several weeks ago, has now been granted access to British Energy’s data room and is carrying out due diligence, according to people close to the situation.

The offer was made before British Energy confirmed on March 17 that it was in talks that could lead to a full takeover. News of the offer sent British Energy shares up 29½p or more than 4 per cent to 731p at the open.

British Energy has not yet triggered a “formal” auction of the company and is still considering whether to sell to one bidder or a consortium.

EDF Energy, the UK arm of Electricité de France, is also conducting due diligence. It is understood to have initially made an offer to buy only part of British Energy, because it was reluctant to buy the nuclear generator’s ageing advanced gas-cooled reactors (AGRs).

Competition from RWE will mean that EDF would have to bid for all of British Energy, including the AGRs.

Centrica, the UK energy company, had also previously submitted an all-share offer for the nuclear operator, but this is unlikely to be a favoured option.

EDF is also considering a joint bid and is in early-stage discussions about teaming up with Centrica.

RWE and the rival bidders are expected to make new offers once they have completed their due diligence on the company.

British Energy declined to comment. The company’s shares closed just over 1 per cent lower at 701½p on Wednesday.

RWE had less than €5.1bn ($8.06bn) in net debt at the end of last year, giving it ample financial firepower for a deal. Paying £11bn would leave it with net debt only about three times last year’s operating profits. Analysts at Société Générale estimated that EDF could pay up to 760p a share for British Energy, valuing the company at more than £12bn.

The government is considering the sale of part or all of its 35 per cent interest in British Energy. It has signalled it would be prepared to accept a foreign buyer, but stressed it wants to ensure there is a competitive mar­ket in developing new nuclear power stations in Britain.

The UK Nuclear Decommissioning Authority's current funding model is "unsustainable," according to a report published Monday by a cross-party committee of members of parliament.

"Public funding for the NDA will almost certainly have to increase significantly in the coming years over and above current plans," the House of Commons Business, Enterprise and Regulatory Reform Committee said. The committee scrutinizes the work of the Department for Business, Enterprise and Regulatory Reform. BERR already spends over 40% of its departmental expenditure limit on the NDA, according to the report, but this seems not to be enough.

The MPs say that they are skeptical about how "watertight" the funding for the NDA is given the "volatile and declining" nature of its commercial income. "Nuclear decommissioning is too important to be left to the mercy of changing priorities in the Treasury and uncertain commercial income... a new system of funding is needed, and work on this needs to begin urgently," the MPs said.

The NDA is funded by a combination of commercial income and grant-in-aid. For 2007/08 its budget is set at GBP2.79 billion. Of this, GBP1.42 billion was intended to be ring-fenced grant-in-aid and GBP1.37 billion commercial income, chiefly from reprocessing but also including income from waste substitution.

The North East is set to become key to Britain's hopes of boosting its production of renewable energy after E.On submitted plans to build one of the largest ever wind farms in the country and the Government gave the go-ahead to a pilot tidal project in the Humber estuary.

But E.On's plans must first overcome objections from the Ministry of Defence who fear that the 83 turbines to be situated five miles off the coast of East Yorkshire will interfere with radar defences.

E.On hopes to begin building the £700m wind farm in 2010 with production of 300 megawatts of electricity in 2012.

It would go some way towards helping Business Secretary John Hutton achieve his aim of producing more than 33 gigawatts of electricity from offshore wind farms by 2020.
The plans have been criticised as unrealistic, as the high cost of steel and other components and the shortage of vessels needed to build them send costs soaring.

E.On said yesterday that production costs of £1m per MW for onshore wind farms doubled for offshore developments.

The MoD has also indicated it will object to the plans. It is understood that the turbines can create "clutter" on radar screens.

E.On UK chief executive, Paul Golby, said: "The next generation of large-scale offshore wind farms such as Humber Gateway have a vital role to play in the UK's future energy mix.
This scheme will displace the emission of hundreds of thousands of tonnes of carbon dioxide every year and will make a significant contribution to helping the Government meet tough renewable energy targets.

''As part of our multi-billion pound investment strategy, not only will it make a major contribution to the fight against climate change, it will help ensure a secure, reliable and clean supply of electricity for families and businesses in the UK."

The company already operates more than 20 wind farms in the UK, although the Humber Gateway will be its largest commitment to wind power.

The Government has given planning permission for a prototype tidal power project in the same area. Pulse Tidal's test project, which has been given £878,000 of public money, could generate up to 0.15MW of electricity from underwater currents in the Humber Estuary near Hull.

The technology could be used to develop 1MW units in tidal power farms generating up to 100MW or enough to power 70,000 homes.

Brussels proposed in January that Britain should get 15pc of all energy from renewable sources such as the wind, sun and biomass by 2020, compared with 1.3pc in 2005.

Windmills pay. On a breezy Saturday at the end of March, Aeolian Parks scattered across the hill-top ridges and off-shore sandbanks of Spain produced 40.8pc of the country's electricity needs - 9,862 megawatts to be precise.

The much-derided turbines produced enough wattage to power the great cities of Madrid, Barcelona, Seville, Valencia, Toledo, Cordoba, Granada, Santander, Bilbao, and Zaragoza combined. The workday record on a Tuesday, March 5, was 28pc.

Years of nurture by the Spanish government have paid off. Spain is a global superpower in the wind race, with 15,000 MW of capacity. The region of Navarra is 70pc green, shielded against gas-shocks, Russian politics and soaring oil prices.

Today's wind turbines are a far cry from the archaic mini-mills that scar the landscape for little return, and provoke such fury in the English shires. They are vast. Each mast can power a neighbourhood.

Here in the wet misty mountains of Asturias, the German power group E.On is erecting a battery of mills that tower 410ft into the sky. They are higher than the dome of St Paul's Cathedral or the US Congress on Capitol Hill. The rotors alone dwarf the wingspan of an Airbus A380 super jumbo.

"We are beyond the boutique phase," said Frank Mastiaux, the head of E.On's green operations. "When this began in the 1970s it was a niche play, a nice tax break for German dentists and doctors. Now it is turning into an industrial business. Productivity has grown by 150 times in 25 years."

Every mill costs €2.6m (£2m) to buy and erect, yet the Danish manufacturer Vestas is sold out until 2010.

E.On is coy about profit margins. The European operations are flirting with break-even cost, but the company's huge 10-mile wind farms in the Texas outback have reached the magical level of €50 per megawatt hour (with US government subsidies), far below natural gas at the current market price.

America is the new Mecca for wind power. The ranchers are fully signed up. They collect an annual royalty of $5,000 to $10,000 for each turbine, and cattle can still graze underneath.

The wind revolution has crept up on us. It is solar power that has seized the popular imagination.
"Everybody loves solar, but in fact solar and wind technology are miles apart," said Dr Mastiaux. "The cost of wind power is €50 to €100 a megawatt hour, while for solar it is still more than €450. The killer for solar is the cost of silicon."

As of 2007, renewable energies produced 242 GW (gigawatts), or 5pc of all global electricity. The mix is wind (93 GW), small hydro (77), biomass (48), geothermal (9.6), solar (8.5), biogas (5.2), and tide power (0.3).

E.On, Europe's biggest privately owned energy company, believes all these forms together will quadruple over the next 12 years to 970 GW, led by wind. Dr Mastiaux said: "Renewables will soon be a €200bn business. I can't think of any other industry with growth like that."
The Global Wind Energy Council (GWEC) predicts that wind power will provide almost 29pc of world electricity by 2030.

Yet the International Energy Agency says 3.5pc is more realistic. A report from the UK's Royal Academy of Engineering concluded that wind power still costs two to three times more than nuclear energy, even after decommissioning. The dispute centres on the back-up needs when the wind is not blowing.

E.On has done its own sums, based on the yield from its 1,100 MW network of wind parks across Europe and the US. It believes wind will reach durable "grid parity" with other fuels in just over a decade, if not before.

The group is taking the plunge, spending €6bn in three years to stake out its share of the renewable frontier. It lags Spain's Iberdrola, but aims to raise its wind power tenfold by 2015.

E.On's cluster of four parks in Asturias will generate 126 MW by the end of this year. The power is fed into the local grid. It is enough to supply 82,000 homes in the coastal cities of Oviedo, Aviles, and Giron.

Hardly anybody lives in these cool Celtic highlands, the only region of Spain never conquered by the Moors. The sight of huge white poplars across the ridges at 3,300ft seems to cause little offence, although Asturias hoteliers have called for a halt to new wind farms. Local branches of the socialist party (PSOE) have launched a campaign against the "massive proliferation" of turbines along the Galician coast.

Mr Mastiaux admits that it is becoming ever harder to erect turbines on land, especially in Britain and Germany. "We've hit tissue rejection. Nobody wants to look out of their window at a wind farm," he said.

The company is going off-shore. The wind yield is stronger, but the costs are higher. There is only one ship in the world fitted to install the 200-tonne masts.
E.On already has a £75m project on Scoby Sands off the coast of Norfolk, where 30 turbines are cranking out 60 MW for 30,000 homes.

It is developing one of the world's largest offshore sites with Shell on the outer Thames Estuary. Known as the London Array, it is eventually expected to provide 1,000 MW - or a quarter of London's power.

If the prices of oil and gas fall sharply - and stay low - as they did in the 1980s and again in the late 1990s, the huge gamble on renewables may prove a costly flop. But demand suggests that is unlikely to happen.

World oil output has been flat for four years, despite frantic efforts by BP, Shell, Exxon and peers to find new supplies. China's oil imports grew 14pc last year.

Goldman Sachs says crude may reach $175 a barrel within two years. "Markets are as tight as a drum and now the US has hit the stimulus button," says the bank's oil guru, Jeff Currie.
The switch to grain-based ethanol - or "dethanol", to critics - is nearing political limits as the United Nations warns of food rationing and possible starvation.

Wulf Bernotat, E.On's cigar-chomping chief, says global electricity demand will double by 2030 as the industrial revolutions of Asia gather pace.

Wind power ticks more good boxes than almost any other option. It is clean, nearly silent, emits no CO2, pays its way, and is "home made" - no small matter as Europe's reliance on imported gas jumps from 54pc to 80pc over the next 15 years.

"Those who don't like wind power have a duty to offer an alternative. So far they haven't really come up with anything," said Dr Bernotat.

Few working on the front line of the global energy crisis would disagree.

India, Africa face shortages, huge increase in costs

NEW DELHI - India and African nations are calling on the Western world to rethink the diversion of huge amounts of food for biofuel, which has created shortages and driven up prices in poorer countries.

Faced with record-high oil prices, governments in Europe, the United States and Canada are subsidizing the production of ethanol, a gasoline substitute, from corn and other grains.

While the move to turn food into fuel has benefitted a few African nations with grain surpluses, such as Uganda, speakers at the first Africa-India Forum yesterday blamed the tactic for skyrocketing prices and shortages.

Rising food prices threaten many African economies, while in India food price increases are largely responsible for driving inflation to 7%, a three-year high.

"These days the farms have been put to biofuel production, creating a shortage of food and therefore creating a problem of high prices," said Jakaya Mrisho Kikwete, the Tanzanian President and head of the African Union.

With shortages and high prices set to continue for the foreseeable future, the UN Food and Agriculture Organization (FAO) warned food riots which have struck several impoverished countries in recent weeks could spread.

"The problem is very serious around the world due to severe price rises and we have seen riots in Egypt, Cameroon, Haiti and Burkina Faso," Jacques Diouf, director-general of the FAO, told reporters in New Delhi.

Five people have been killed in a week of demonstrations in Haiti over high food prices in the poorest country in the Americas, while unions in the West African nation of Burkina Faso called a general strike over soaring food and fuel costs.

"There is a risk that this unrest will spread in countries where 50% to 60% of income goes to food," Mr. Diouf said.

Global food prices, based on United Nations records, rose 35% in the year to the end of January, markedly accelerating an upturn that began, gently at first, in 2002.

Since then, prices have risen 65%. In 2007 alone, according to the FAO's world food index, dairy prices rose nearly 80% and grain 42%.

Manmohan Singh, the Indian Prime Minister, said the Indian and African economies must acquire the momentum needed to meet all their food needs through domestic production.

"There's no single answer to the question of food security," he told a news conference at the end of the summit, adding agriculture was an area with huge potential for cooperation between India and Africa.

Mr. Diouf said world cereal stocks were enough to meet demand for just eight to 12 weeks, while grain supplies were at their lowest since the 1980s.

"This is due to higher demand from countries like India [and] China, where GDP grows at 8% to 10% and the increase in income is going to food," Mr. Diouf said after meeting India's Farm Minister, Sharad Pawar.

"I welcome economic growth in India and China, but I also hope they will invest in agriculture because these two countries account for 2.2 billion people out of six billion."

He said he was advising governments to invest in irrigation, storage facilities and rural infrastructure and increase productivity to meet the challenge of food scarcity.

Some of the world's most populous countries have felt the impact of higher prices after rice joined a wider rally that has buoyed other grains such as wheat and corn.

Rice prices in Thailand, the world's biggest rice exporter, have doubled since the start of this year after India heavily restricted and then banned the export of non-basmati rice to ensure it had enough to feed its people.

In Manila, President Gloria Macapagal Arroyo unveiled a series of measures to boost rice production as troops armed with M-16 rifles supervised the sale of subsidized grain and the government threatened to jail hoarders for life.

---

FROM FOOD TO FUEL - Since April, 2006, eight million hectares of corn, wheat, soya and other crops that once provided animal feed and food have been diverted from food production in the United States to biofuels. - In 2008, 18% of U.S. grain production will go to biofuels. - Brazil -- the world's largest ethanol producer -- Argentina, Canada and Eastern Europe are diverting large amounts of sugar cane, palm oil and soybean crops to biofuels. - Europe has mandated a 5.75% use of biofuels by 2010. If achieved, this could require 20% of Europe's cropland to be diverted from food to fuel production. - If Australia were to replace 10% of its unleaded gasoline with bioethanol, and if this were to come from fermentation of wheat, it could require about 40% of the country's annual average wheat crop.

The enormous damage being done by "splash and dash" imports of American biodiesel were highlighted today when one of the UK's leading operators, D1 Oils, said it was closing down all its refining operations in Britain after running up a £46m loss annual loss.

The company, listed on the London Stock Exchange, said in future it would concentrate on developing and growing jatropha plants in other parts of the world in cooperation with oil group, BP, and said it had raised £15m of new money to stabilise the financial side of the business.

Nearly 90 staff in Middlesbrough and Bromborough, Merseyside, could lose their jobs as the newly built biodiesel refineries and research laboratories are shut down. D1 will hope to sell on the equipment and sites but said the economics of the business were so poor now that it would be lucky to gain much on their disposal.

Elliott Mannis, the D1 chief executive, said it was "extremely frustrating" that the company had been forced to bow out of refining because nothing had been done to stop the deluge of B99 biodiesel from the US. "It's an unbelievable situation and there is no end in sight," he added.

The biofuels boss said the "upstream" side of the business, by contrast, had very good prospects as demand for biodiesel was increasing all the time. The company insists that its jatropha planting on 192,000 hectares of land in India and Africa is fully sustainable and is not competing with food crops.

Some environmentalists have opposed the D1 strategy, claiming jatropha is not always being planted on marginal land unsuitable for food crops. But Mannis denied this. "We encourage farmers to grow jatropha on their own marginal land and do not support the planting on arable land," he added, saying first usable production from its fields would be ready later this year.

City analysts expressed disappointment at D1's annual losses, which compare with a deficit of £12.6m in 2006, and agreed the US subsidy regime had wrecked refining margins. "The withdrawal from refining comes as no surprrise given that refining biodiesel in Europe is not going to be viable until the 'splash and dash' double subsidy is ended and significant amounts of cheaper feedstock (such as jatropha) come on stream," said a research note from stockbroker Ambrian Partners

Splash and dash is where biodiesel is carried to the US by ship - sometimes from Europe - purely to add a drop of ordinary diesel and take advantage of public money being handed out on any refining done on America.

The European Biodiesel Board is poised to make a formal report on these problems to the European commmission and hopes it can put pressure on Washington to bring this practice to an end.

The continuing surge in the price of corn, which is punishing households with higher food prices, is cutting the profits of American ethanol producers and playing havoc with an industry that was blamed for causing the grain shortage.

The price of a bushel of corn soared above $6 on the Chicago Mercantile Exchange last week, pushed higher by news that American farmers were planting less corn.

Farmers planted a record 94 million acres of corn last year but the US Department of Agriculture forecasts only 86 million acres this year as farmers switch from corn to soya bean, another crop that is generating record profits.

Expensive corn is hurting the livestock industry, which in turn will raise the price of meat, Rich Feltes, senior vice-president of commodity research for MF Global, said. “Hog producers are liquidating sows, the farmers are operating in the red,” he said.

The skyrocketing cost of corn is rebounding on the ethanol industry, which is taking an ever larger proportion of the US corn harvest to manufacture road fuel.

Last week Renova, an AIM-listed ethanol manufacturer, confirmed that it was struggling to secure finance for a 21 million-gallon plant in Idaho, and last month Pacific Ethanol, a Californian producer, disclosed big quarterly losses, cost overruns and bank loan defaults as the cost of corn hit its margins.

“Financial markets have been spooked [by the present price of corn],” Christopher Thomas, the chairman of Renova, said. “Two years ago the cost of corn was $2 a bushel; now it has reached $6. As the feedstock goes up, your margin is squeezed.”

Mr Feltes said that ethanol had turned an agricultural commodity into a fuel. “It's all about the shortage of land created by a rapid ramp-up of ethanol,” he said.

Demonstrators have tried to storm the presidential palace in the Haitian capital, Port-au-Prince, as protests over hunger and rising food prices spread across the developing world.

Demanding the resignation of President René Préval, the protesters attempted to break through the palace gates before being driven back by a contingent of Brazilian United Nations peacekeepers who used tear gas and rubber bullets.

The prices of basic foods such as rice, beans, condensed milk and fruit have risen by more than 50 per cent in Haiti, where the poor even rely on biscuits made of mud to get through the day. Even the price of this traditional Haitian remedy for hunger pangs has gone up to more than $5 (£2.50) for 100 biscuits.

There is now a grave danger of a coup being triggered in what is the poorest country in the western hemisphere. Rising costs of commodities and basic foodstuffs have brought immense hardship to the population, 80 per cent of whom survive on less than £1 a day and only a minority has paid full-time jobs.

And it's not just in Haiti where unrest is growing. A combination of high fuel prices, booming consumption of food in increasingly wealthy Asia, the use of crops for biofuels, and speculation on futures markets have driven commodity prices to record levels.

The rising food prices are causing waves of unrest around the world. In Manila, troops armed with M-16 rifles now oversee the sale of subsidised rice, the latest basic crop to see a spike in prices. In Egypt, Indonesia, Ivory Coast, Mauritania, Mozambique, Senegal, Burkina Faso and Cameroon there have been protests in recent weeks all related to the food and fuel prices.

Last night a desperate appeal by President Préval, who was elected in 2006, failed to restore order to the shattered capital. "The solution is not to go around destroying stores," he said. "I'm giving you orders to stop."

His first public comments on the crisis came nearly a week into the protests. With his job on the line, he urged congress to cut taxes on imported food.

But gunfire rang out around the palace after the speech, as peacekeepers tried to drive away people looting surrounding stores.

Some of the world's most populous countries are now increasingly vulnerable to higher food prices, with the cost of rice now rising in line with that of other grains such as wheat and corn. As food insecurity spreads, the UN's Food and Agriculture Organisation (FAO) is warning of tense times ahead because the shortages of basic commodities and high prices are expected to continue. There are only eight to 12 weeks of cereal stocks in the world and grain supplies are at their lowest since the 1980s.

Jacques Diouf, the director of the FAO, said: "There is a risk that this unrest will spread in countries where 50 to 60 per cent of income goes to food." The cause, he said, was "higher demand from countries like India and China, where GDP grows at 8 to 10 per cent and the increase in income is going to food". The UN fears that governments may be toppled and that food riots could spread, fanned by hunger, frustration and global television coverage.

The UN is helpless in the face of the spreading crisis and it can only advise governments to improve crop irrigation, storage facilities as well as infrastructure.

Since 2002 there has been a steady surge in global food prices. They rose 35 per cent in the year to the end of January, and since then prices have jumped by 65 per cent. According to the FAO's world food index, dairy prices rose nearly 80 per cent and grain 42 per cent last year.

Worldwide wave of protest

Morocco

34 people were jailed in January for rioting over the rise in food prices.

Indonesia

10,000 demonstrated in Jakarta this week after soya bean prices rose 125 per cent in the past year.

Cameroon

24 people died and 1,600 people were arrested during food riots in February. Tax cuts and wage increases followed.

Egypt

A wave of protests led to four deaths this month, after food prices rose 40 per cent.

Pakistan

Thousands of troops have been deployed to guard rice supplies after rationing was introduced in January.

Sir John Holmes, undersecretary general for humanitarian affairs and the UN's emergency relief coordinator, told a conference in Dubai that escalating prices would trigger protests and riots in vulnerable nations. He said food scarcity and soaring fuel prices would compound the damaging effects of global warming. Prices have risen 40% on average globally since last summer.

"The security implications [of the food crisis] should also not be underestimated as food riots are already being reported across the globe," Holmes said. "Current food price trends are likely to increase sharply both the incidence and depth of food insecurity."

He added that the biggest challenge to humanitarian work is climate change, which has doubled the number of disasters from an average of 200 a year to 400 a year in the past two decades.

As well as this week's violence in Egypt, the rising cost and scarcity of food has been blamed for:

· Riots in Haiti last week that killed four people

· Violent protests in Ivory Coast

· Price riots in Cameroon in February that left 40 people dead

· Heated demonstrations in Mauritania, Mozambique and Senegal

· Protests in Uzbekistan, Yemen, Bolivia and Indonesia

UN staff in Jordan also went on strike for a day this week to demand a pay rise in the face of a 50% hike in prices, while Asian countries such as Cambodia, China, Vietnam, India and Pakistan have curbed rice exports to ensure supplies for their own residents.

Officials in the Philippines have warned that people hoarding rice could face economic sabotage charges. A moratorium is being considered on converting agricultural land for housing or golf courses, while fast-food outlets are being pressed to offer half-portions of rice.

The UN Food and Agriculture Organisation says rice production should rise by 12m tonnes, or 1.8%, this year, which would help ease the pressure. It expects "sizable" increases in all the major Asian rice producing countries, especially Bangladesh, China, India, Indonesia, Burma, the Philippines and Thailand.

Holmes is the latest senior figure to warn the world is facing a worsening food crisis. Josette Sheeran, director of the UN World Food Programme, said last month: "We are seeing a new face of hunger. We are seeing more urban hunger than ever before. We are seeing food on the shelves but people being unable to afford it."

The programme has launched an appeal to boost its aid budget from $2.9bn to $3.4bn (£1.5bn to £1.7bn) to meet higher prices, which officials say are jeopardising the programme's ability to continue feeding 73 million people worldwide.

Robert Zoellick, president of the World Bank, said "many more people will suffer and starve" unless the US, Europe, Japan and other rich countries provide funds. He said prices of all staple food had risen 80% in three years, and that 33 countries faced unrest because of the price rises.

In the UK, Professor John Beddington, the new chief scientific adviser to the government, used his first speech last month to warn the effects of the food crisis would bite more quickly than climate change. He said the agriculture industry needed to double its food production, using less water than today.

He said the prospect of food shortages over the next 20 years was so acute it had to be tackled immediately: "Climate change is a real issue and is rightly being dealt with by major global investment. However, I am concerned there is another major issue along a similar time-scale - that of food and energy security."

Any farmer in the Philippines caught hoarding rice risks spending the rest of his life in jail for the crime of “economic sabotage”.

Meanwhile, on the streets of Jakarta, Indonesia, thousands of makers of traditional tempeh soyabean cakes strike in protest as their livelihoods are destroyed and their countrymen starve. In Malaysia, where immense palm oil plantations stretch as far as the eye can see, panic buying of palm oil has stripped stores bare.

Chinese, Korean and Japanese companies are preparing to compete in a desperate “land grab” for agricultural land across the globe. Japan already owns three times more farmland overseas than in its home territory; Seoul is keen to do the same.

For Asia's 2.5 billion people who depend on rice, these are anything but isolated incidents. They are what happens when huge sections of society move into the cities, when farm productivity growth halves over two decades and when bad weather or disease exposes fragile dependencies on the exports of a few nations.

They are also the result of the harsh economics of industrial growth. The dramatic improvement in lifestyles and family finances of millions of Chinese and Indians has driven a demand for meat, milk and cooking oils that did not exist a decade ago.

The more than doubling of China's average meat consumption since 1985, for example, has created an equivalent leap in demand for animal feed.

The US Department of Agriculture believes that the world will suffer a 29 million tonne discrepancy this year between what it needs to feed itself and what it can actually produce. Markets have been quick to recognise this and the traditional Asian staples of soyabeans, palm oil and pork have all soared.

Many grain and edible oil markets have also been squeezed by what some observers believe is an unsustainable conflict between cars and stomachs. Land that might previously have been used to feed people is increasingly planted with crops designed for conversion to biofuels, forcing unexpected rises in the prices of everything from tofu to instant noodles.

But perhaps more unsettling has been the suddenness with which Asia's exposure to a food crisis has emerged. Countries that, until a few weeks ago, could rely on substantial imports of rice from India, Egypt or China are scrambling to cope with a new reality in which they cannot do so.

Nations such as Japan and South Korea that were running food economies with small self-sufficiency ratios have taken only a few weeks to react bitterly to the new situation as the world's food stocks-to-consumption ratio plunges to an all-time low.

India - which traditionally has exported millions of tonnes of rice - has decided to set aside a special strategic food reserve on top of its existing wheat and rice stockpiles. Vietnam, the world's third-largest rice producer, has been forced to curb exports and Cambodia has banned them completely.

In Thailand, the world's largest producer of rice, rising concerns of a shortage have sent rice prices more than 50 per cent higher over the past month. When Samak Sundaravej, the Thai Prime Minister, appeared on his weekly television cooking show over the weekend he told Thais there would be “enough rice for the Kingdom”.

It was not a message designed to calm nerves elsewhere in Asia where Thai rice exports are an essential part of the diet.

Amid these highly visible signs of government-level panic, Asian countries that have rarely faced severe conflicts of “resource diplomacy” are accordingly readying themselves for showdowns.

Analysts give warning of governments across the region resorting to a “starve-your-neighbour” policy in an effort to becalm rioting domestic populations, and the UN International Fund for Agriculture has previously said that food riots will become commonplace.

In the Philippines and Sri Lanka, both nations that are heavily dependent on rice imports, politicians and business leaders are racing to strike deals with the likes of Vietnam and even Burma in their bid to secure rice supplies.

Troops and special police are expected to be used in the process of distributing rice to regions where supply was never an issue.

Feeding the world

33% Rise since January in price paid by Philippines for rice from Vietnam
3 billion People worldwide who rely on rice as a staple food
40% Rise in rice price in Thailand this year
19.2% Rise in consumer prices in Vietnam last month, against March 2007
8.4% Rise in food prices in the Philippines last month, compared with March 2007
854 million Number of people worldwide who are “food insecure”
1 billion People globally who survive on less than $1 a day, defined as “absolute poverty”

Gordon Brown is calling on the chairman of the G8 group of industrialised nations to devise an international plan to deal with rising food prices.

He wants Japanese Prime Minister Yasuo Fukuda to ask the World Bank, IMF and UN to work together on a strategy.

The British prime minister said the problem of hunger was growing for the first time in decade.

Mr Brown added that the cost of food was threatening to roll back progress made on development.

This week has seen warnings that soaring global food prices are not a temporary phenomenon, and that there are likely to be more food riots that could cause political instability.

'Elusive deal'
Five people have died in a week of rioting in Haiti, a rice importer and one of the world's poorest countries. Hungry rioters have demanded the government scrap all taxes on staples.
Mr Brown said the crisis had many elements and that he was demanding a full, co-ordinated response.

Short-term measures may include giving more support to food-importing developing countries and stepping up humanitarian aid.

Smallholders in poorer nations will also need help in boosting production, and the impact of the rapid expansion in the production of bio-fuels needs to be examined urgently, said Mr Brown.

The prime minister suggested concluding an elusive deal on the reform of global trade would help in tackling the crisis.

Mr Brown said: "Rising food prices threaten to roll back progress we have made in recent years on development. For the first time in decades, the number of people facing hunger is growing.

"The international community needs a fully co-ordinated response. We need both short-term action to deal with immediate hardship, and a medium-term response which will provide a framework for tackling the opportunities and challenges."

Shell has threatened to halt investment in Europe if the EU pushes ahead with contentious plans to charge for carbon emission permits as part of a €60bn (£48bn) climate change programme.

Christian Baime, a Shell France director, delivered the warning at a debate organised by the European Parliament. He expressed concern that any move to auction permits would be costly and added: "It's impossible. So there will be no more investments by Shell in Europe."

He indicated that the $250m in profit being made from refining and other operations covered by permits could be wiped out by a charging regime, making Europe unattractive for further investment.

The Shell declaration represents an escalation in the battle between industry and EU regulators on tougher controls on emissions to meet a 2020 target to reduce greenhouse gases by 20pc compared with 1990 levels. Shell says the allocation of permits should not be considered as a revenue raising opportunity.

A spokesman said: "Shell does not favour auctioning of allowances in the first phase of a system because the impacts on the industries and firms covered by the system are highly uncertain."

Other companies have been privately dropping hints that investment could be frozen unless there were concessions and have warned of a steep jump in the cost of energy.

The financial sector faces potential losses of almost $1,000bn as a result of the credit crisis, the International Monetary Fund said on Tuesday, warning of further losses and writedowns on prime mortgages, commercial real estate, leveraged loans and consumer finance.

The IMF said total losses and writedowns would reach about $945bn, based on market prices in mid-March. Banks would suffer slightly more than half the total losses, with the rest falling on insurance companies, pension funds, hedge funds and other investors.

The IMF believes that banks have already taken most of the writedowns needed on US subprime loans – with about $193bn taken already and only about $80bn to come. But it warned that as the US economy weakened, pain was spreading to other forms of lending.

“The deterioration in credit has moved up and across the credit spectrum,” Jaime Caruana, head of monetary affairs and capital markets at the Fund said.

The estimate is set out in a gloomy Global Financial Stability Report, which challenges the more optimistic tone in the markets since the rescue of Bear Stearns by the Federal Reserve and JP Morgan Chase. The report says “systemic risks have risen sharply” since October.

Mr Caruana, a former governor of the Bank of Spain, told reporters that the Bear rescue “helped to reduce the possibility of a tail event in the financial system” – in other words, it made a truly catastrophic outcome less likely.

But he said “funding strains remain high and balance sheet pressures on financial institutions continue.”

Mr Caruana said there had been a “collective failure to appreciate the extent of leverage in the financial system” and that balance sheet strains could limit banks’ capacity to lend.

America's mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is now a one-in-four chance of a full-blown global recession over the next 12 months, the International Monetary Fund warned today.

The US is already sliding into what the IMF predicts will be a "mild recession" but there is mounting pessimism about the ability of the rest of the world to escape unscathed, the IMF said in its twice-yearly World Economic Outlook. Britain is particularly vulnerable, it warned, as it slashed its growth targets for both the US and the UK.

The report made it clear that there will be no early resolution to the global financial crisis.

"The financial shock that erupted in August 2007, as the US sub-prime mortgage market was derailed by the reversal of the housing boom, has spread quickly and unpredictably to inflict extensive damage on markets and institutions at the heart of the financial system," it said.

After warning earlier this week that the world's financial firms could end up shouldering $1 trillion (£500bn) worth of losses from the credit crunch, the IMF said it expects the US to achieve GDP growth of just 0.5% this year, and 0.6% in 2008, with the housing crash getting even worse.

Simon Johnson, the IMF's director of research, said later the key risk to the forecasts was the danger of a vicious circle emerging, as house prices continue to fall, dealing a fresh blow to the banks, and exacerbating the problems in the markets. "Sentiment in financial markets has improved in recent weeks since the Federal Reserve's strong actions with regard to investment banks. But we have seen how strains in markets can quickly become reinforcing, and the possibility of a negative spiral or 'financial decelerator' remains a possibility."

President George Bush has already signed off a $150bn tax rebate package to kick-start the economy, and the Federal Reserve has backed an emergency buyout of investment bank Bear Stearns, but the IMF said this may still not be enough: "Room may need to be found for some additional support for housing and financial markets."

In the UK, the chancellor has repeatedly insisted that the economy is "better-placed" to weather the storm, because of its flexible labour market and low unemployment, but the IMF calculated that the British housing market is overvalued by up to 30%, and could be destined for a damaging correction.

Alistair Darling is due to fly to Washington tomorrow to discuss the turmoil with fellow G7 finance ministers.

Mervyn King, governor of the Bank of England, will also be in Washington this weekend to discuss the ramifications of the credit crunch with central bankers from around the world.

Wulf Bernotat, head of German power giant e.on, tells Ambrose Evans-Pritchard why the UK needs a policy rethink

Puffing on a Sumatran Nobel cigar, Germany's energy baron Wulf Bernotat has a few words of friendly warning for Britain: face up to the harsh realities of the global power crunch, or face strategic disaster.

"The UK is in a very bad situation. Roughly 40pc of its power is from coal, and 20pc from nuclear. It all needs to be replaced. But is anybody in the British Government out there making the case for clean coal? I don't see anybody," he said, speaking over a capuccino in Madrid.

Dr Bernotat, who heads Germany's power giant e.on, is no shrinking violet. Last year he lashed out at Brussels, calling the EU competition police a bigger threat to energy security than the Kremlin.

Brussels had forced e.on to cede its stake in the German grid as part of its anti-trust drive. He called it "expropriation", and blamed British officials - free-market vigilantes controlling the key levers of power in the EU's economic apparatus, as indeed they often do. Germany's Frankfurter Allgemeine newspaper calls the commission a branch office of Whitehall.

Dr Bernotat praised Downing Street for settling on some sort of energy strategy at long last after years of drift and muddle, but said Labour seemed to have gone overboard all of a sudden with a "romantic" enthusiasm for green power.

"You cannot replace 60pc of the country's generating capacity just by betting on renewables, which is what the pressure groups are demanding. It will be decades before we reach that point, and until then Britain is going to need coal-fired units. I hope some realism comes through in energy policy," he said, speaking in near perfect English from his London days as a Shell executive. He was once in charge of Shell's operations in Eastern Europe, and Africa.

E.on - Europe's biggest private energy group - is itself taking a €6bn (£4.8bn) gamble on wind turbines, hydro and tide power, solar technology, and biomass (wood chips) over the next three years, hoping to double the share of renewables in its energy mix to 24pc by 2030. But green power alone cannot plug the gaping holes in Britain's grid.

Critics say Britain has been remarkably complacent for years on energy policy, despite the steady slide in oil and gas output from the North Sea since 1999. Crude output is falling 10pc a year, not helped by Labour's windfall taxes on Brent production. The country became a net importer of oil in 2006.

A series of energy White Papers have failed to grasp the nettle, raising the risk of eventual blackouts, or worse. While Labour has now agreed to grant planning permission for nuclear plants, it has not yet fleshed out the details or clarified funding. The one piece of good news for Britain is the emergence of liquefied natural gas from Qatar and Egypt as a tradeable source of energy, free from pipeline blackmail.

Mr Bernotat expects the Government to put out tenders for four nuclear power sites, costing a total of around £15bn. "No single company can take the risk of investing that much money in any one country, so the contracts will have to be split up.

We want to be part of it," he said. E.on is willing to put up its own capital. It is not expecting any government subsidy.

The company is investing €63bn by 2010 in a drive to raise its electricity output by half to 90 gigawatts by 2015, mostly through organic growth. It already owns Powergen in Britain and runs a 1940 megawatt plant at Kingsnorth in the Medway Estuary, where new technology is raising the level of energy capture to 46pc.

The group's planned Wilhelmshaven plant in Germany will be the most advanced hard coal site in the world, reaching 50pc capture.

Mr Bernotat said the company had no plans to launch a fresh takeover blitz after gobbling up €11.8bn of assets spread across southern Europe from Spain's Endesa - the consolation prize for a losing a bitter battle last year.

The Spanish government blocked e.on's bid for the Madrid electricity group amid a burst of anti-German feeling, instead orchestrating a joint deal with Italy's Enel and the Spanish white knight Acciona. Brussels said the move was a flagrant breach of EU competition law.
"It leaves a bitter taste. I hope that a similar case will never be repeated," Mr Bernotat said.

"I have to say that the British play by the rules, and don't fiddle behind the curtains. The UK is the most open country for investment in Europe".

Britain is not alone in its dreamy approach to energy security. Germany is turning its back on nuclear power altogether, and coal is out of fashion. That could one day leave the country almost entirely beholden to Kremlin gas supplies.

LONDON (Reuters) - A corruption investigation into arms deals with Saudi Arabia should not have been halted, a London court said on Thursday in a ruling that sharply criticized the British and Saudi governments.

Two judges said the director of the Serious Fraud Office (SFO) had capitulated to threats from the Saudi royal family over arms deals with Europe's biggest defense company, BAE Systems Plc.

"No one, whether within this country or outside, is entitled to interfere with the course of our justice," one of the judges, Lord Justice Moses, told the High Court in London, calling the decision a failure of government.

"The law is powerless to resist the specific and, as it turns out, successful attempt by a foreign government to pervert the course of justice in the United Kingdom," Moses said.

Two anti-arms trade campaigners had said there was "very large scale bribery" of senior Saudi Arabian officials by the arms manufacturer over the state-to-state Al Yamamah deal and said the probe was halted after the threats.

"That threat was intended to prevent the (SFO) director from pursuing the course of investigation he had chosen to adopt. It achieved its purpose," Moses said.

Saudi envoys in London had no immediate comment.

Critics have attacked former Prime Minister Tony Blair for saying it was right to halt the investigation, arguing it would damage Britain's national security.

Arms sales to Saudi Arabia under the Al Yamamah pact dating back to the 1980s represent the biggest export deals in Britain and their cancellation would threaten thousands of jobs.

The judges allowed the challenge to the SFO decision by anti-arms campaigners, the Corner House Research Group and the Campaign Against Arms Trade (CAAT), to go ahead last November.

"This was the most extreme example so far of the levels to which the government will go to promote the interests of BAE regardless of the public interest," a CAAT spokesman told reporters after the judgment.

AIRCRAFT DEAL THREATENED

The groups had argued the SFO abandoned its investigation in December 2006 following Saudi threats to cancel a proposed order for Eurofighter Typhoon aircraft and to withdraw security and intelligence cooperation.

"The SFO are carefully considering the implications of the judgment and the way forward," an SFO spokeswoman said after the highly critical ruling.

A BAE spokeswoman said: "The case was between two campaign groups and the director of the SFO. It concerned the legality of a decision made by the director of the SFO. BAE Systems played no part in that decision."

Britain and Saudi Arabia, who have been signing arms deals since the 1960s, announced a 4.43 billion pound contract for 72 Eurofighter jets in September last year, fending off French and U.S. rivals.

The Al Yamamah deals were first signed in the 1980s after extensive lobbying by former prime minister Margaret Thatcher and have been worth an estimated $86 billion.

Additional reporting by Avril Ormsby; Editing by Jon Boyle

Airlines around the world are – figuratively at least – dropping out of the sky. Having watched the price of jet fuel soar