More Young People.

If we look at the history of the last quarter century, we see two dominant and inter-related trends.  Radical Islam isn’t one of them.  First, the collapse of Soviet Communism inspired other followers to abandon the controlled economy for participation in the world market.  Second, information technology destroyed many old barriers.  Upheaval and opportunity resulted.   Currently, about a quarter of all the people in the world are aged 10 to 24.[1]  That is, they were born between 1992 and 2006.  The world in which they have grown up is that same world that older people have often found so disorienting.   Now young people face their own problems.

Those billions of young people are not equally distributed around the world.  They account for only 17 percent of the population in economically developed countries; for 29 percent in less-developed countries, and 32 percent in the least developed countries.  In the United States, the median age is 37; in Russia, 39; in Germany, 46.  In Nigeria, the most populous nation in Africa, the median age is 18.  China offers a particularly interesting case of a transition.  Faced with a swiftly rising population, China declared a one-child policy for married couples.  It worked so well that the youth base of the population narrowed to a frightening degree.  A shortage of workers to replace those who are approaching retirement loomed.  At the same time, young couples found themselves providing care for up to four aging parents, while trying to work and raise their own child.  Recently, the government ended to one-child policy.

A disproportionate share of young people lives in the countries least well able to provide them with either an adequate education or a decent standard of living.  Take the example of India.  There are more than 420 million Indians between the ages of 15 and 34.  The median age is 27.  Desperate measures to expand primary education have had mixed results.  Although almost all Indian children now attend primary school, half of fifth graders can neither read at a second grade level nor do subtraction.[2]

Then, India needs to create 12-17 million new jobs every year to absorb the population growth.  In India and in other countries in similar dire straits, young people are forced into spotty, badly-paid just to get any jobs at all.  India’s reluctance to end the carbon-burning that drives economic growth in that country is easier to understand in light of that imperative.  The here and now weighs more heavily in the balance of decision-makers than does the future.[3]

Migration from “young” countries to “aging” countries might offer a solution.  However, there are several big barriers here.  First, even in the developed countries there is a problem of youth unemployment: in the United States, almost 17 percent of people between 16 and 29 are not in school and not working; in the European Union the youth unemployment rate averages 25 percent.[4]  It will be difficult to make the case for expanded immigration of young people when a country cannot even provide work for its own young people.  Second, the poor quality of education in many developing countries means that only some people will be viable migrants.

Even so, migration from the Lands of Inopportunity to the Lands of Opportunity may be inevitable.  There are 11 million illegal immigrants in the United States.  The current refugee crisis in Europe shows just how difficult it can be to keep out hordes of determined people.

[1] Somini Sengupta, “The World’s Big Problem: Young People,” NYT, 6 March 2016.

[2] The wretched state of education can be glimpsed in Aravind Adiga, The White Tiger (2008), and Mohsin Hamid, How to Get Filthy Rich in Rising Asia (2013).

[3] A third problem is anti-female sex selection.  There are 17 million more Indian males than females aged 10 to 24.

[4] Sengupta argues that the high European rate results from a combination of a slow economy and the absence of economically valuable skills.  The same may be true in the United States, although some economists would argue that the skills-deficit argument is false.

Tales of the South Atlantic II.

World oil supply has increased faster than has demand, so prices have fallen.[1] All sorts of changes have resulted. For example, most counties maintain some kind of petroleum reserve to be able to respond to emergencies. Many oil-consuming countries are seizing the opportunity presented by the fall in world oil prices to complete or expand those reserves. Asian countries, in particular, are buying oil where they can get it. Often, that means buying on the West Coast of Africa. “Years ago, you never saw the Chinese chartering [tankers] in West Africa,” said one shipping expert. “Now they are the largest charterer here.” The four chief oil export ports in West Africa are Luanda Oil Terminals in Angola; Warri Port , and Port Harcourt Terminals , in Nigeria; and Sogara Oil Terminal in Gabon.[2] All of them face out onto the South Atlantic.

The tankers themselves make an interesting story. Between the 1950s and the 1970s, tankers grew in size from about 500 feet in length and a capacity of 16,500 Dead Weight Tons to the “Very Large Crude Carriers” (VLCC) that run about 1,100 feet in length and can hold up to two million barrels of crude oil.[3] At Spring 2015 prices, that is a cargo worth $120 million. There are about 600 VLCC afloat at the moment.

Why did oil tankers grow in size? “Previously on LA Law,” Middle Eastern oil flowed to Europe and other Western ports through the Suez Canal. The Six Days War closed the Suez Canal for an extended period, forcing tankers to make the much longer voyage around the Cape of Good Hope.[4] To increase the efficiency and lower the transportation costs of oil, shipping companies started ordering bigger and bigger tankers. Then the oil port facilities had to be re-built because there was no way to bring these giants into any conventional port. (Indeed, the largest tanker built, the “Seawise Giant,” couldn’t use the English Channel.

The break-even charter rate for VLCC is about $25,000 a day. The global financial crisis caught tanker companies by surprise. The world economy—and demand for oil—slowed down, while they had to take delivery of a bunch of expensive ships that they had contracted for several years earlier. In 2013, average shipping rates for the VLCCs ran about $12,000 a day; in 2014 they averaged $22,000 a day. For the shipping companies, Asian entry into the West African oil market means more of their ships are making the longer runs to the Far East and back, rather than more and shorter runs across the Atlantic to ports in the Americas. This leaves fewer ships to handle that business, so the freight rates go up. In early 2105, the added Asian demand pushed rates up to $69,000 a day. More normal off-season rates run $40,000 a day.

Weird story: Speculators want to buy oil while it is cheap and sell it when the price rises. Where to store it in the meantime? Normally, in a tank farm ashore. However, there are a limited number of empty storage tanks, so the price charged by the owners tends to rise as more people want to use the tanks. Also, at some point, all the storage tanks are filled up, but the speculator still has to take delivery of the oil s/he bought low in order to sell high. Now what? Somebody chartered the VLCC “Alsace” and had it anchored off the Orkney Islands in February and March 2015. What did the crew do all day? Play cards, check on the anchors, watch the flat-screen TV? How would you like to be captain of an anchored ship? Garrr.

[1] Stanley Reed, “Oil Glut Benefits Those Who Ferry It,” NYT, date misplaced.

[2] http://globalenergyobservatory.org/list.php?db=Transmission&type=Oil_Ports

[3] By way of Ultra-Large Crude Carriers (ULCC) that were over 1,300 feet in length a capacity of 500,000 Dead Weight Tons.

[4] Avoiding that long, costly voyage had been why building the Suez Canal had been a good idea in the first place. Egypt’s loss of toll revenue from the re-routing of that traffic hasn’t helped the country’s always-struggling economy. “Thanks President Nasser!”