Friday, September 30, 2005

Chindia: Chinese and Indian economies futures

Chindia, where the world's workshop meets its office

By 2050, China and India will make up half of the global economy

Randeep Ramesh in Gangtok, Sikkim

The Guardian September 30, 2005

Tracing a route through the folds of the eastern Himalayas, Motilall Lakhotia is explaining how Indian trade caravans used to ply the scenic Chumbi valley into Tibet.
"It was a big trade even then. The Tibetans sold us Indians silver, raw wool and Chinese silk. We had manufactured goods and cotton. Especially blue cotton, because that is what everyone wore those days. You remember ... they called them Mao suits," says the dapper Mr Lakhotia.
The 80-year-old businessman is one of a dying breed of Indians who traded across the mountains. Many in Gangtok, the capital of India's Sikkim state, which nestles in the foothills of the Himalayas, remember a flourishing cross-border trade in wool, machine parts and tea carried by mules supervised by resident trade commissioners on either side.
The mountain kingdom of Sikkim was a pit stop on one of Asia's main arterial routes linking Tibet to the nearest ports on the Bay of Bengal. Goods were unloaded in Calcutta, driven 370 miles (600km) and then carried over mountain passes into Tibet before being taken as far again to Lhasa. A small Chinese community sprang up in Calcutta. Indian businessmen began buying homes and warehouses in Yadong in China.
In 1962 all this came to an end. The frontier was sealed after a short, bloody border conflict between Nehru's India and Mao's China. The Silk Road - or to give it its Chinese name, the Tea Horse route - which carried three-quarters of Sino-Indo border trade, worth hundreds of millions of silver dollars, was closed overnight. "When the war happened, it all disappeared. It was a good business and everything I had built up in seven years was gone," said Mr Lakhotia.
The hostility continued until early this decade when business ties began to ease the wariness between the world's two most populous nations. The value of the two-way trade has risen from a few hundred million dollars in the mid-1990s to $13bn (£7.4bn) last year.
Gangtok is likely to be one of the first beneficiaries of this rapprochement. By March the first direct trade link between India and China will be re-opened. Perched at 15,000 ft (4,500m), Nathu La pass will resume business as the world's highest customs post.
Huge markets
Karma Gyatso, industrial secretary in Sikkim, points out that a recent report by the Confederation of Indian Industry said the potential for cross-border trade could reach $10bn within a decade. "It will be a big boost to us. We have to tackle high levels of unemployment in the state and trade will provide opportunities for a lot of people here."
What's happening in Sikkim is only part of what is now being called the "Chindia effect", a phrase that has gained currency as it dawned on analysts that if the current growth rate persists in China and India, by 2050 the two nations will account for roughly half of global output. The "Chindia" region's potential of huge domestic markets - encompassing a third of humanity - cheap highly skilled labour and governments pursuing capital-friendly policies have led many to conclude that the world is at a tipping point in history.
In Mapping the Global Future, a report by the National Intelligence Council, a division of the CIA, analysts concluded: "In the same way that commentators refer to the 1900s as the 'American Century,' the 21st century may be seen as the time when Asia, led by China and India, comes into its own."
Such prophecies will only be made real if both nations can co-operate and compete peacefully. The extent to which historic differences are now being edged aside by growing economic links can be judged by the rising trade figures. Trade is projected to rise to $20bn by 2008 and shoot up to $30bn two years later. Sun Yuxi, China's ambassador to India, told a conference recently that in the first four months this year trade exceeded $6bn. "If it continues, we will hit our targets ahead of schedule," he said.
At the same conference earlier this month, a trade delegation from Jiangsu province made it clear that what interested them most was India's software industries. "We have come to learn from the Indian masters," Li Yuanchao, chairman of the Jiangsu People's Congress and in effect the local party boss, told a startled audience of Indian businessmen. Information technology has been India's most remarkable success story. The sector now contributes 4% of the nation's GDP and the industry's revenues are growing by 38% a year. Analysts predict it will have sales of $70bn by 2008.
Despite its reputation as a software superpower, India's exports have been driven by the export of one item: iron ore. Last year the country shipped 60m tonnes of iron ore to China, whose voracious construction industry is gobbling up the world's raw materials. Chinese officials have long insisted that if their country is the workshop of the world then India is the globe's office. The logic is that both can work together to corner markets. Many Indian IT firms already employ hundreds of programmers in China.
Tata Consultancy Services, one of India's biggest IT firms, signed up with Microsoft and the Chinese government in June to develop a global software company based in China. "We decided to come here because of the talent," said Girija Pande, TCS's Asia-Pacific head. "China now produces more computer science graduates than India and we want to tap into the domestic market, which is growing at 20% a year."
'Reform or perish'
To many experts, China offers India a role model. Indian information technology companies made a mark because the government avoided stifling them with regulation. Software and outsourcing companies are exempt from restrictive labour laws and they have been allowed to receive foreign direct investment, which is banned in, for example, retailing.
The lesson has not been lost on India's leaders. Hardly a day passes that its government does not invoke the "Chinese model" to justify rolling back the state. Whether trying to usher in flexible labour laws or setting up special economic zones to attract foreign direct investment, officials usually back up their policies with Chinese examples. Even leading communists in West Bengal, who have been in power in the state for 28 years, have taken to telling comrades that everyone must "reform or perish".
India and China are non-identical conjoined twins, joined at the Himalayas. China's success is built on high literacy rates and low poverty rates, ensuring that there are workers to fill positions in the country's labour-intensive manufacturing industry. In India, almost every second child under five is malnourished and half of its female population cannot read. The result is that India's economy depends on a thin sliver of its population.
In terms of its economy, China drew on its deep reservoirs of domestic savings to create world-class infrastructure and sucked in enormous amounts of foreign capital to build factories and to acquire the expertise that it required.
India, which began economic reforms a decade later, has taken a more conventional route. There are institutions to support private enterprise. There are established stock markets, which operate with a greater transparency than China's. It also has a decent legal system, albeit one that works better in theory than practice.
"The result is that with just a 25% savings rate, we have grown at 7%," says Jairam Ramesh, the economist and Indian MP who coined the term "Chindia". "The Chinese have a savings rate of 40% and managed 9% growth. It is that efficiency and our market economy that will help us in the future to catch up with China."

Making Sense of Chindia is a book by well-known economist and Member of Parliament – Jairam Ramesh.

Peter Ghooi: book review

Chillibreeze, Summer 2005

Book details: Making Sense of Chindia : Reflections on China and India by Jairam Ramesh. New Delhi, India Research Press, 2005, xii, 130 p., (pbk). ISBN 81-87943-95-5.

What is with “Chindia”? Is it possible to visualize India and China as comparable entities? Is it possible for the two countries to begin to respect each other and help themselves to rise to commanding heights in the comity of nations? Is it possible to think in terms of “Chindia”?
In this book, Jairam seeks to validate all these statements through a series of essays by examining different issues from past history to present reality and thoughts of what the future may hold.
The launch of the book
I had the opportunity to be present during the launch of this book in Bangalore on the 23 rd of April 2005 at the “Landmark” book store at the Forum Mall. I am not at skilled at reviewing books but having had this opportunity of hearing Jairam elucidate his current thoughts and answer the questions put to him; it is worth sharing these thoughts with a wider audience many of whom think of our two countries as only being in a state of confrontation and unease with each other.
It was but a few months ago, (in fact just a few days before I attended the launch of this book), that the Chinese President Wen Jiabao visited Bangalore first, before going on to Delhi . This came as a surprise to many, for those of us who live in Bangalore , this is a city defined by traffic jams and practically no infrastructure for growth.
Yet, even China with its amazing progress in creating infrastructure and economic growth thinks that there is something to be learned from us. There was the fiasco, of Tibetan students breaking through security cordon (outsmarting the police intelligence) and demonstrating against the Chinese premier. But, times have changed and we did not hear anything from the Chinese about this lapse.
However, I digress, coming back to the book, this is a rather slim book but written well in Jairam’s style. I realize that Jairam is not only great to watch and hear on debates like the “The Big Fight” on NDTV, but it’s also interesting to read his take on the global situation. And he is certainly eminently qualified to speak in matters of foreign policy and government decision making.
The historical relationship of “Chindia”
Jairam starts with the historical relationship between the two countries, which, in ancient times had links. This was when Buddhism was taken to China from India and we discovered our past history through the writing of the Chinese travelers. There was considerable trade in ancient times as well between our countries. However, in post-colonial times there was a lot of antagonism between both countries due to the politics of the day.
Most Indians who are in their thirties and upwards would have grown up in the atmosphere of the post 1962 war debacle with China . Our distrust and fear of the Chinese has only grown from this point and there are mutual misgivings on the border disputes, our nuclear policy and support to the Tibetan cause.
But perhaps it was the Indo-China war in 1962 that ingrained in us that China was the aggressor nation. Taking on from here we have seen how China’s spectacular success in abating poverty, the amazing growth in its manufacturing and infrastructure have made India feel vulnerable and threatened a few years back.
Globalization and the growing market of Chinese products
We thought that with the opening up of trade and globalization Indian industry would be unable to stand the might of Chinese manufacturing and would be swamped with Chinese products.
However, while there has been a huge increase in trade, it has not been one sided. Yes, Chinese products practically dominate certain sectors such as electronic gadgets and toys but we have seen that most Indian companie making quality products have continued to thrive. In fact we now see that many companies in the training and IT services sector are aggressively setting up shop in China and investing in China .
Software and IT services
India ’s spectacular success in software and IT services has made Chinese leaders sit up and take note. They now see India as a leading power and a country they should collaborate and do business with. Thus we see the pragmatism of Wen Jaibao’s approach of visiting the “software capital” of India and then going on to the national capital. They surely want to emulate the success that India has in the knowledge arena.
India’s Mind Block
However, Jairam’s contention is that Indian leaders on the other hand are still wary of giving too much to the Chinese. There are very few Chinese companies coming directly into India. Jairam cites the examples of Haier and Huawei Technologies who seem to be facing some obstacles and are not being allowed to expand freely. There is a mind block that does not want to accept that with changing times even sworn enemies can become friends. Perhaps the same can be said of our Pakistan relationship as well
An Opportunity for India
Jairam Ramesh says that both countries should come together and make use of this opportunity in time to strengthen their ties not only in terms of business but culturally and with people to people contact as well. This would be a great occasion for India to use the collaboration with China and make itself a more important player on the world stage.
The criticism against this book would primarily be that this anthology of essays has been written at different times and therefore there is a lack of continuity between the chapters. Also, one feels that when facts and figures are being quoted from say 2002 or earlier years for a book being published in 2005, they do seem a little outdated for a book of this type.
All in all, a very informative book, which tries to dispel many set notions regarding the country that has become a force to reckon with.

Business Week special issue on Chindia: many articles exploring various aspects

BusinessWeek on "Chindia"

Vinnie Mirchandani : blog: 16 August 2005

BusinessWeek's latest issue is almost completely devoted to China and India - over 70 printed pages and more on-line. Their huge potential, their appetite, their challenges. I have met two of the prime authors - Pete Engardio, based in NYC (but spent years in Hong Kong and other parts of Asia) and Manjeet Kripalani, based in Mumbai - and they know their stuff and have covered the 2 countries for years now.
As I leafed through the issue and some of the data they quote (from various research firms) I found my mind brimming with burning questions:
1) Is the West prepared to absorb $ 2 trillion in exports from the 2 countries expected in 2010, almost triple what it is today?
2) Are China and India prepared to import at least $ 1.8 trillion a year in return so we do not end up with massive trade wars or dramatically reduce 1 above? (By the way a $ 1 trillion in Middle Eastern oil imports would not be a good answer to this question).
3) How many US and European companies are aggressively innovating and moving up the "stack" in their product value chain?
4) How many US and European companies are gearing up to aggressively export to these countries as GE is?
5) What are government and corporations doing to retrain western labor force to support 3. and 4?
6) Can western labor for "utility" (as against innovation) work be made more competitive with technology (like Jetblue with VoIP) or as wage inflation grows in India and China?
7) What impact will India's projected 1.3 billion people in 2015 (up almost 40% from today) on its already poor infrastructure?
8) Will Indian and Chinese companies learn to quickly build strong management teams in US and Europe? (It took the Japanese a while to find the right "mix". Even now vendors like SAP are learning about multi-national management. I find many of the Indian firms micro-managing from India when over 75% of their revenues come from the US and Europe)
9) If China is so far ahead in exports and GDP compared to India, could it not just afford to buy a few Indian services firms and acquire market share, rather than build that capability itself?
10) If China and India were emerging technologies, not markets, where would Gartner put them on its "hype cycle"?
Lots of questions - hopefully lots of people smarter than me around the world are asking similar questions and coming up with answers. We have to thank Pete, Manjeet and the rest of the BW crew for stimulating this discussion. And introducing the term "Chindia" to Google.
Author's Note: Manjeet Kripalani at BusinessWeek corrects me and says they did not come up with the term "Chindia" - see her comment below. Nice and modest of her.
August 16, 2005 in Globalization and Technology Permalink
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Nice of you to blog us, Vinnie! But one correction. BusinessWeek did not introduce the word Chindia to the world. Jairam Ramesh did - he wrote a book on it released this April. Then CLSA followed it up with a bigIndia-China report called Chindia, released in June. BusinessWeek is just a follower here! So maybe we will popularize the term internationally (people in India use it commonly already), but Jairaminnovated it!
Posted by: Manjeet Kripalani August 17, 2005 11:46 PM


Sample article from the Business Week special issue:

A New World Economy The balance of power will shift to the East as China and India evolve

Business Week 18 August 2005

It may not top the must-see list of many tourists. But to appreciate Shanghai's ambitious view of its future, there is no better place than the Urban Planning Exhibition Hall, a glass-and-metal structure across from People's Square. The highlight is a scale model bigger than a basketball court of the entire metropolis -- every skyscraper, house, lane, factory, dock, and patch of green space -- in the year 2020.
There are white plastic showpiece towers designed by architects such as I.M. Pei and Sir Norman Foster. There are immense new industrial parks for autos and petrochemicals, along with new subway lines, airport runways, ribbons of expressway, and an elaborate riverfront development, site of the 2010 World Expo. Nine futuristic planned communities for 800,000 residents each, with generous parks, retail districts, man-made lakes, and nearby college campuses, rise in the suburbs. The message is clear. Shanghai already is looking well past its industrial age to its expected emergence as a global mecca of knowledge workers. "In an information economy, it is very important to have urban space with a better natural and social environment," explains Architectural Society of Shanghai President Zheng Shiling, a key city adviser.It is easy to dismiss such dreams as bubble-economy hubris -- until you take into account the audacious goals Shanghai already has achieved. Since 1990, when the city still seemed caught in a socialist time warp, Shanghai has erected enough high-rises to fill Manhattan. The once-rundown Pudong district boasts a space-age skyline, some of the world's biggest industrial zones, dozens of research centers, and a bullet train. This is the story of China, where an extraordinary ability to mobilize workers and capital has tripled per capita income in a generation, and has eased 300 million out of poverty. Leaders now are frenetically laying the groundwork for decades of new growth.INVALUABLE ROLE Now hop a plane to India. It is hard to tell this is the world's other emerging superpower. Jolting sights of extreme poverty abound even in the business capitals. A lack of subways and a dearth of expressways result in nightmarish traffic.But visit the office towers and research and development centers sprouting everywhere, and you see the miracle. Here, Indians are playing invaluable roles in the global innovation chain. Motorola, (MOT ) Hewlett-Packard (HPQ ), Cisco Systems (CSCO ), and other tech giants now rely on their Indian teams to devise software platforms and dazzling multimedia features for next-generation devices. Google (GOOG ) principal scientist Krishna Bharat is setting up a Bangalore lab complete with colorful furniture, exercise balls, and a Yamaha organ -- like Google's Mountain View (Calif.) headquarters -- to work on core search-engine technology. Indian engineering houses use 3-D computer simulations to tweak designs of everything from car engines and forklifts to aircraft wings for such clients as General Motors Corp. (GM ) and Boeing Co (BA ). Financial and market-research experts at outfits like B2K, OfficeTiger, and Iris crunch the latest disclosures of blue-chip companies for Wall Street. By 2010 such outsourcing work is expected to quadruple, to $56 billion a year.Even more exhilarating is the pace of innovation, as tech hubs like Bangalore spawn companies producing their own chip designs, software, and pharmaceuticals. "I find Bangalore to be one of the most exciting places in the world," says Dan Scheinman, Cisco Systems Inc.'s senior vice-president for corporate development. "It is Silicon Valley in 1999." Beyond Bangalore, Indian companies are showing a flair for producing high-quality goods and services at ridiculously low prices, from $50 air flights and crystal-clear 2 cents-a-minute cell-phone service to $2,200 cars and cardiac operations by top surgeons at a fraction of U.S. costs. Some analysts see the beginnings of hypercompetitive multinationals. "Once they learn to sell at Indian prices with world quality, they can compete anywhere," predicts University of Michigan management guru C.K. Prahalad. Adds A. T. Kearney high-tech consultant John Ciacchella: "I don't think U.S. companies realize India is building next-generation service companies."SIMULTANEOUS TAKEOFFS China and India. Rarely has the economic ascent of two still relatively poor nations been watched with such a mixture of awe, opportunism, and trepidation. The postwar era witnessed economic miracles in Japan and South Korea. But neither was populous enough to power worldwide growth or change the game in a complete spectrum of industries. China and India, by contrast, possess the weight and dynamism to transform the 21st-century global economy. The closest parallel to their emergence is the saga of 19th-century America, a huge continental economy with a young, driven workforce that grabbed the lead in agriculture, apparel, and the high technologies of the era, such as steam engines, the telegraph, and electric lights.But in a way, even America's rise falls short in comparison to what's happening now. Never has the world seen the simultaneous, sustained takeoffs of two nations that together account for one-third of the planet's population. For the past two decades, China has been growing at an astounding 9.5% a year, and India by 6%. Given their young populations, high savings, and the sheer amount of catching up they still have to do, most economists figure China and India possess the fundamentals to keep growing in the 7%-to-8% range for decades.Barring cataclysm, within three decades India should have vaulted over Germany as the world's third-biggest economy. By mid-century, China should have overtaken the U.S. as No. 1. By then, China and India could account for half of global output. Indeed, the troika of China, India, and the U.S. -- the only industrialized nation with significant population growth -- by most projections will dwarf every other economy.What makes the two giants especially powerful is that they complement each other's strengths. An accelerating trend is that technical and managerial skills in both China and India are becoming more important than cheap assembly labor. China will stay dominant in mass manufacturing, and is one of the few nations building multibillion-dollar electronics and heavy industrial plants. India is a rising power in software, design, services, and precision industry. This raises a provocative question: What if the two nations merge into one giant "Chindia?" Rival political and economic ambitions make that unlikely. But if their industries truly collaborate, "they would take over the world tech industry," predicts Forrester Research Inc (FORR ). analyst Navi Radjou.In a practical sense, the yin and yang of these immense workforces already are converging. True, annual trade between the two economies is just $14 billion. But thanks to the Internet and plunging telecom costs, multinationals are having their goods built in China with software and circuitry designed in India. As interactive design technology makes it easier to perfect virtual 3-D prototypes of everything from telecom routers to turbine generators on PCs, the distance between India's low-cost laboratories and China's low-cost factories shrinks by the month. Managers in the vanguard of globalization's new wave say the impact will be nothing less than explosive. "In a few years you'll see most companies unleashing this massive productivity surge," predicts Infosys Technologies (INFY ) CEO Nandan M. Nilekani.To globalization's skeptics, however, what's good for Corporate America translates into layoffs and lower pay for workers. Little wonder the West is suffering from future shock. Each new Chinese corporate takeover bid or revelation of a major Indian outsourcing deal elicits howls of protest by U.S. politicians. Washington think tanks are publishing thick white papers charting China's rapid progress in microelectronics, nanotech, and aerospace -- and painting dark scenarios about what it means for America's global leadership.Such alarmism is understandable. But the U.S. and other established powers will have to learn to make room for China and India. For in almost every dimension -- as consumer markets, investors, producers, and users of energy and commodities -- they will be 21st-century heavyweights. The growing economic might will carry into geopolitics as well. China and India are more assertively pressing their interests in the Middle East and Africa, and China's military will likely challenge U.S. dominance in the Pacific.One implication is that the balance of power in many technologies will likely move from West to East. An obvious reason is that China and India graduate a combined half a million engineers and scientists a year, vs. 60,000 in the U.S. In life sciences, projects the McKinsey Global Institute, the total number of young researchers in both nations will rise by 35%, to 1.6 million by 2008. The U.S. supply will drop by 11%, to 760,000. As most Western scientists will tell you, China and India already are making important contributions in medicine and materials that will help everyone. Because these nations can throw more brains at technical problems at a fraction of the cost, their contributions to innovation will grow.CONSUMERS RISING American business isn't just shifting research work because Indian and Chinese brains are young, cheap, and plentiful. In many cases, these engineers combine skills -- mastery of the latest software tools, a knack for complex mathematical algorithms, and fluency in new multimedia technologies -- that often surpass those of their American counterparts. As Cisco's Scheinman puts it: "We came to India for the costs, we stayed for the quality, and we're now investing for the innovation."A rising consumer class also will drive innovation. This year, China's passenger car market is expected to reach 3 million, No. 3 in the world. China already has the world's biggest base of cell-phone subscribers -- 350 million -- and that is expected to near 600 million by 2009. In two years, China should overtake the U.S. in homes connected to broadband. Less noticed is that India's consumer market is on the same explosive trajectory as China five years ago. Since 2000, the number of cellular subscribers has rocketed from 5.6 million to 55 million.What's more, Chinese and Indian consumers and companies now demand the latest technologies and features. Studies show the attitudes and aspirations of today's young Chinese and Indians resemble those of Americans a few decades ago. Surveys of thousands of young adults in both nations by marketing firm Grey Global Group found they are overwhelmingly optimistic about the future, believe success is in their hands, and view products as status symbols. In China, it's fashionable for the upwardly mobile to switch high-end cell phones every three months, says Josh Li, managing director of Grey's Beijing office, because an old model suggests "you are not getting ahead and updated." That means these nations will be huge proving grounds for next-generation multimedia gizmos, networking equipment, and wireless Web services, and will play a greater role in setting global standards. In consumer electronics, "we will see China in a few years going from being a follower to a leader in defining consumer-electronics trends," predicts Philips Semiconductors (PHG ) Executive Vice-President Leon Husson.For all the huge advantages they now enjoy, India and China cannot assume their role as new superpowers is assured. Today, China and India account for a mere 6% of global gross domestic product -- half that of Japan. They must keep growing rapidly just to provide jobs for tens of millions entering the workforce annually, and to keep many millions more from crashing back into poverty. Both nations must confront ecological degradation that's as obvious as the smog shrouding Shanghai and Bombay, and face real risks of social strife, war, and financial crisis.Increasingly, such problems will be the world's problems. Also, with wages rising fast, especially in many skilled areas, the cheap labor edge won't last forever. Both nations will go through many boom and harrowing bust cycles. And neither country is yet producing companies like Samsung, Nokia (NOK ), or Toyota (TM ) that put it all together, developing, making, and marketing world-beating products.Both countries, however, have survived earlier crises and possess immense untapped potential. In China, serious development only now is reaching the 800 million people in rural areas, where per capita annual income is just $354. In areas outside major cities, wages are as little as 45 cents an hour. "This is why China can have another 20 years of high-speed growth," contends Beijing University economist Hai Wen.Very impressive. But India's long-term potential may be even higher. Due to its one-child policy, China's working-age population will peak at 1 billion in 2015 and then shrink steadily. China then will have to provide for a graying population that has limited retirement benefits. India has nearly 500 million people under age 19 and higher fertility rates. By mid-century, India is expected to have 1.6 billion people -- and 220 million more workers than China. That could be a source for instability, but a great advantage for growth if the government can provide education and opportunity for India's masses. New Delhi just now is pushing to open its power, telecom, commercial real estate and retail sectors to foreigners. These industries could lure big capital inflows. "The pace of institutional changes and industries being liberalized is phenomenal," says Chief Economist William T. Wilson of consultancy Keystone Business Intelligence India. "I believe India has a better model than China, and over time will surpass it in growth."For its part, China has yet to prove it can go beyond forced-march industrialization. China directs massive investment into public works and factories, a wildly successful formula for rapid growth and job creation. But considering its massive manufacturing output, China is surprisingly weak in innovation. A full 57% of exports are from foreign-invested factories, and China underachieves in software, even with 35 software colleges and plans to graduate 200,000 software engineers a year. It's not for lack of genius. Microsoft Corp.'s (MSFT ) 180-engineer R&D lab in Beijing, for example, is one of the world's most productive sources of innovation in computer graphics and language simulation.While China's big state-run R&D institutes are close to the cutting edge at the theoretical level, they have yet to yield many commercial breakthroughs. "China has a lot of capability," says Microsoft Chief Technology Officer Craig Mundie. "But when you look under the covers, there is not a lot of collaboration with industry." The lack of intellectual property protection, and Beijing's heavy role in building up its own tech companies, make many other multinationals leery of doing serious R&D in China.China also is hugely wasteful. Its 9.5% growth rate in 2004 is less impressive when you consider that $850 billion -- half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings. Its factories burn fuel five times less efficiently than in the West, and more than 20% of bank loans are bad. Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital, estimates Beijing National Accounting Institute President Chen Xiaoyue. "We build the roads and industrial parks, but we sacrifice a lot," Chen says.India, by contrast, has had to develop with scarcity. It gets scant foreign investment, and has no room to waste fuel and materials like China. India also has Western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. A BusinessWeek analysis of Standard & Poor's (MHP ) Compustat data on 346 top listed companies in both nations shows Indian corporations have achieved higher returns on equity and invested capital in the past five years in industries from autos to food products. The average Indian company posted a 16.7% return on capital in 2004, vs. 12.8% in China.SMALL-BATCH EXPERTISE The burning question is whether India can replicate China's mass manufacturing achievement. India's info-tech services industry, successful as it is, employs fewer than 1 million people. But 200 million Indians subsist on $1 a day or less. Export manufacturing is one of India's best hopes of generating millions of new jobs.India has sophisticated manufacturing knowhow. Tata Steel is among the world's most-efficient producers. The country boasts several top precision auto parts companies, such as Bharat Forge Ltd. The world's biggest supplier of chassis parts to major auto makers, it employs 1,200 engineers at its heavily automated Pune plant. India's forte is small-batch production of high-value goods requiring lots of engineering, such as power generators for Cummins Inc. (CMI ) and core components for General Electric Co. (GE ) CAT scanners.What holds India back are bureaucratic red tape, rigid labor laws, and its inability to build infrastructure fast enough. There are hopeful signs. Nokia Corp. is building a major campus to make cell phones in Madras, and South Korea's Pohang Iron & Steel Co. plans a $12 billion complex by 2016 in Orissa state. But it will take India many years to build the highways, power plants, and airports needed to rival China in mass manufacturing. With Beijing now pushing software and pledging intellectual property rights protection, some Indians fret design work will shift to China to be closer to factories. "The question is whether China can move from manufacturing to services faster than we can solve our infrastructure bottlenecks," says President Aravind Melligeri of Bangalore-based QuEST, whose 700 engineers design gas turbines, aircraft engines, and medical gear for GE and other clients.However the race plays out, Corporate America has little choice but to be engaged -- heavily. Motorola illustrates the value of leveraging both nations to lower costs and speed up development. Most of its hardware is assembled and partly designed in China. Its R&D center in Bangalore devises about 40% of the software in its new phones. The Bangalore team developed the multimedia software and user interfaces in the hot Razr cell phone. Now, they are working on phones that display and send live video, stream movies from the Web, or route incoming calls to voicemail when you are shifting gears in a car. "This is a very, very critical, state-of-the-art resource for Motorola," says Motorola South Asia President Amit Sharma.Companies like Motorola realize they must succeed in China and India at many levels simultaneously to stay competitive. That requires strategies for winning consumers, recruiting and managing R&D and professional talent, and skillfully sourcing from factories. "Over the next few years, you will see a dramatic gap opening between companies," predicts Jim Hemerling, who runs Boston Consulting Group's Shanghai practice. "It will be between those who get it and are fully mobilized in China and India, and those that are still pondering."In the coming decades, China and India will disrupt workforces, industries, companies, and markets in ways that we can barely begin to imagine. The upheaval will test America's commitment to the global trade system, and shake its confidence. In the 19th century, Europe went through a similar trauma when it realized a new giant -- the U.S. -- had arrived. "It is up to America to manage its own expectation of China and India as either a threat or opportunity," says corporate strategist Kenichi Ohmae. "America should be as open-minded as Europe was 100 years ago." How these Asian giants integrate with the rest of the world will largely shape the 21st-century global economy.
[Note also the reader comments at the end of this article]

Monday, September 26, 2005

Future crude oil production: optimistic and pessimistic views

Oil & Liquids Capacity to Outstrip Demand Until At Least 2010: New CERA Report

In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010— Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010


CAMBRIDGE, Mass., June 21, 2005 – Despite current fears that oil will soon “run out,” global oil production capacity is actually set to increase dramatically over the rest of this decade, according to a new [private] report by Cambridge Energy Research Associates (CERA). As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.
In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010— Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010 -- a 20 percent increase over the period.
This significant expansion in liquids productive capacity will meet volatile and expanding demand later in this decade and beyond, according to the CERA report. “We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007–08 or thereafter and even lead to a period of price weakness,” observe the report’s authors, Peter M. Jackson, CERA’s Director of Oil Industry Activity and Robert W. Esser, CERA’s Director, Global Oil and Gas Resources. “Following development of the current worldwide inventory of major discoveries, we also foresee far more capacity expansion in the medium term from field upgrades than through exploration.”.
“Today’s high prices are the result of an exceedingly tight and precarious supply-demand balance,” says Daniel Yergin, CERA Chairman. “Yet significant new capacity will be coming on stream – much of it launched a few years ago on price assumptions much lower than today’s market prices. The addition of that new capacity is what is required to improve the supply demand balance.”
The full report will be presented and discussed in a special forum next week at CERA’s “East Meet West” International Energy Conference in Istanbul, Turkey, June 28-30.
Unconventional Oils
Jackson and Esser argue that “unconventional” oil will play a much larger role in the growth of supply than is currently recognized. These unconventional oils include condensates, natural gas liquids (NGLs), extra heavy oils (such as Canadian oil sands), and the ultra-deepwater (greater than 2,500 feet deep). By 2020, they could be almost 35 percent of supply.
The CERA analysis indicates the pace of new major projects coming onstream worldwide will be sustained to 2010, with fewer giant projects going forward after that. “We have some concerns as to whether the deepwater and Russian “miracles” can continue to shore up non-OPEC liquids capacity expansion past 2010, when non-OPEC capacity growth will start to slow significantly,” say Jackson and Esser. “This rate of growth will be closely related to the emergence of new deepwater plays in existing and new areas, and also the rate at which the huge potential of Russia is unlocked. However, OPEC can continue recent rates of capacity expansion after this time.”
“The main risks to our Supply Expansion scenario,” comments Yergin, “are above ground, not below ground – changes in the political and operating climate that could delay expansion.” In CERA’s downside “Delay and Disruption” scenario, the lower boundary in the analysis, capacity increases by 11.5 million barrels between 2004 and 2010.
Peak or Undulating Plateau?
The CERA analysis rejects the current fear that a near-term “peak” in world oil production and a coming exhaustion of supply are near. The report indicates that the “inflexion” point will come in the third or fourth decade of this century. Moreover, rather than a “peak,” it will be an “undulating plateau” that will continue for several decades.
“In the years ahead, the scale of the business will continue to grow, as long-term, multi-billion dollar projects become more and more common – and more and more necessary, and an expanding effort is put into upgrading existing fields,” say Jackson and Esser. “One of the most biggest challenges will be to find the giant projects of the next decade, which will put great pressure on the search for high-quality, significant opportunities that in themselves meet the criteria of ‘big’.”
Primary findings of the report include:
OPEC Outlook – Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity. Post-2010, OPEC has the hydrocarbon resources to continue expanding capacity at a slightly lower rate than the current decade’s 10.9 mbd growth. CERA believes OPEC will accelerate key projects in anticipation of a non-OPEC slowdown in capacity growth.
Non-OPEC Outlook – Non-OPEC capacity will expand rapidly for the balance of the decade, adding 7.5 mbd to reach 55.8 mbd by 2010, with the increase dominated by contributions from Russia, the Caspian, Brazil, Angola and Canada. Beyond 2010, the rate of increase for non-OPEC liquids capacity is expected to slow dramatically to as low as 2 mbd by 2020. A step change would be needed in investment in exploration to stimulate more rapid expansion of non-OPEC liquids capacity.
Specific countries – The report expects Saudi Arabia’s liquids productive capacity to rise by 1.5 to 2.0 mbd by 2010, to about 12.5 mbd, and observes that the country is still “underexplored.” It describes “reduced near-term expectations” for output in Russia, reflecting “the slow development of the export infrastructure and political uncertainty.” Capacity in the United States will decline from 7.55 in 2005 to 7.15 in 2010 – about a 5% percent decline.
Supply sources -- A large number of major, new projects are approved and under development or looking highly likely to proceed, especially in the deep water, the Caspian, in extra heavy oil, and gas-related liquids from the gas boom. There are approximately 20–30 new major (greater than 75,000 barrels per day) projects coming onstream every year to 2010, and these are contributing between 3 and 4 mbd of new liquids capacity annually.
What Kind of Capacity? – Of the 17.7mbd of gross capacity expected to be added to the world production stream between 2005 and 2010, more than half (10 mbd) will be light liquids and almost 20% (3.2 mbd) will be heavy. Much of the impetus for high oil prices and increasing spreads between WTI and heavy crude in 2004 was that there was there was no ready refining capacity to absorb the growing quantities of heavy, sour oil. Given the time needed to build additional refinery capacity, this will not change in the short to medium term and, as Saudi Arabia, Venezuela and Canada step-up heavier crude production in the longer term, the prospect of wider light-heavy spreads will encourage either investment in refinery conversion capacity or upgrading capacity nearer the wellhead.
Unconventional liquids – Condensates, natural gas liquids (NGLs), extra heavy oils, and the ultra-deepwater (greater than 2,500 feet deep) will be the key component of the increase to 101.5mbd in 2010 when they will represent 30% of the total – compared with 22% today and less than 10% in 1990. Also by 2020 unconventional liquids will account for 34% of the total liquids capacity in 2020, compared with 22% percent today and less than 10% in 1990.
Supply balance -- The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.
Peak or Plateau? -- CERA believes there will be no “peak oil” problem before 2020. However, sometime beyond 2020 an inflexion of sorts will occur, but it will not be followed by a precipitous decline in productive capacity At this time CERA believes that the worldwide capacity profile will track an “undulating plateau” for a number of decades before starting to decline more slowly than might be thought today, as a step change in investment occurs and new technology is pumped into exploration, field upgrades, stranded gas, and heavy oil projects in a manner quite unlike any other period in the history of the oil industry.
Methodology -- CERA’s methodology “for liquids production capacity forecasting adopts a bottom-up approach in which the overall profile is the sum of the outlooks for fields in production, fields under development, and fields under appraisal, all of which is built into a national outlook. A component of capacity from future exploration investment, yet-to-find, is also included. For some countries, we include data from every producing field and upcoming major project, while in others the data is less comprehensive.”

Cambridge Energy Research Associates (CERA), a subsidiary of IHS Inc., is a leading provider of independent analysis to energy and power companies, consumers, financial institutions, governments, and technology companies. CERA ( delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Beijing; Calgary; Mexico City; Moscow; Oakland, California; Oslo; Paris; Rio de Janiero; and Washington, DC.

© 2005, Cambridge Energy Research Associates, Inc. All rights reserved. CERA and the CERA logo are registered trademarks of Cambridge Energy Research Associates, Inc.

With a combined 70 years of experience in the oil fields, report authors Robert Esser and Peter Jackson bring extensive knowledge of petroleum geology to this study. Trained as geologists, both spent many years in the oil industry, analyzing projects, drilling oil wells, and conducting geological studies before coming to CERA.

Robert W. Esser, Senior Consultant and Director, Global Oil and Gas Resources
Robert W. Esser, CERA Senior Consultant and Director, Global Oil and Gas Resources, is a distinguished authority on worldwide oil and gas productive capacity, and on global exploration and producing activity. His track record predicting market trends in oil and natural gas is recognized as one of the most accurate in the industry. Mr. Esser's expertise encompasses oil and gas exploration and worldwide producing activity, prospects for existing production, the significance of recent discoveries, and the pace of future discoveries and their influence on future productive capacity. He was formerly the Mobil Corporation expert responsible for energy resource and oil and gas supplies projections, used by Mobil both for crude price forecasts and as a basis for the exploration and production strategy. Mr. Esser is a member of the American Association of Petroleum Geologists (AAPG) and a trustee of the AAPG Foundation. He is the author of numerous CERA reports and analyses of global exploration and production for oil and gas, including recent reports on North American natural gas productive capacity with emphasis on the Gulf of Mexico and US Lower 48. He holds a BS from Yale University and an MS in Geology from Stanford University.

Peter M. Jackson, Director, Oil Industry Activity
Peter M. Jackson, CERA Director, Oil Industry Activity, has global experience in the upstream oil industry, including a strong technical background in exploration and development (E&P) projects, new business venture management, acquisitions, and strategic E&P investments. He is also an expert in management development in the oil industry, with an emphasis on change management under the oil industry’s new corporate profile of increasing technological sophistication. Since joining CERA Dr. Jackson has developed a detailed insight of liquid supply and reserve issues with particular focus on the OPEC countries.
Dr. Jackson has held senior positions overseeing E&P activity in Northwest Europe, Italy, the Gulf of Mexico, and Southeast Asia. Before joining CERA, Dr. Jackson spent 17 years with Enterprise Oil. He was most recently Head of Management Development, responsible for corporate strategic imperatives and performance, developing leadership policies and process with over 150 senior managers, focusing on innovation and change management. Previously he was President, and Vice President of Exploration and Production, based in Houston, where he managed the company’s Gulf of Mexico acreage, including acquisitions and E&P. Earlier he was Chief Geologist and launched a new risk assessment and prospect analyses process, among other technical research and development initiatives. He was also Exploration Manager in Italy; Team Leader, Operated Developments, in the North Sea; and Senior Geologist, International New Ventures, focusing extensively on Southeast Asia. He formerly worked for BRITOIL in the North Sea, Northwest Europe, and in Indonesia. Dr. Jackson holds a BSc with honors from St. Andrews University and a PhD in Geology from Edinburgh University.

CERA’s standard methodology for liquids production capacity forecasting adopts a bottom-up approach in which the overall profile is the sum of outlooks for fields in production (FIP), fields under development (FUD), and fields under appraisal (FUA) built into a country outlook. A component of capacity from future exploration investment, yet-to-find (YTF), is also included, and this requires a significant lead time to first production. For some countries, we include data for every producing field and upcoming major project, including depletion rates, while in others the data is less comprehensive. Even so, in most countries, knowledge of developments of the largest fields alone provides a reasonably accurate view of the overall outlook for productive capacity. CERA uses data from many sources, including IHS Energy’s production database, which is the most reliable source of exploration and production information available.

An excerpt from the ‘private’ report is on:,2017,23649,00.pdf

Oil Depletion? It's All In The Assumptions

By Ronald Cooke Part one of two-part series examining CERA's optimistic assessment of world oil resources


Good News

In good news for the SUV set, Daniel Yergin's Cambridge Energy Research Associates (CERA), is predicting we will soon be awash in light, sweet crude - ideal for making gasoline.

CERA's Worldwide Liquids Capacity Outlook To 2010 -- Tight Supply Or Excess Of Riches predicts we humans will have 6 to 7.5 million barrels per day of excess capacity and we can expect an extended period of lower prices – perhaps by 2007. Petroleum production will be expanding faster than demand over the next 5 years. The report has tabulated 20 to 30 new projects with a capacity of over 75,000 barrels per day that will become available in each and every year until 2010. By then, worldwide production could increase by up to 16 million Bbl/day. However, most of the increased production will come from reworking existing fields, rather than new oil discoveries, and after 2010 the majority of new production will come from OPEC.

CERA doesn't believe in peak oil, at least not before 2010, and probably not before 2020. The report indicates that the "inflexion" point will come between 2030 and 2040. Moreover, rather than a "peak," it will be an "undulating plateau" that will continue for several decades. OPEC, the company claims, will be able to add 8.8 Mbl/day by 2010 and can continue its expansion – at a somewhat slower rate – beyond 2010. Non-OPEC production will experience a robust increase through 2010, and then slow significantly thereafter. Unconventional oil production will increase throughout this period, supplying almost 35 percent of the world's oil by 2020.

Then Yergin adds a sobering caveat: "The main risks to our Supply Expansion scenario are above ground, not below ground – changes in the political and operating climate that could delay expansion." In CERA’s downside "Delay and Disruption" scenario, capacity increases by only 11.5 million barrels between 2004 and 2010.
What is the implication? Will delayed projects and disruptions in the supply chain lead to temporary shortages before "Peak Oil" hits us? Perhaps we should review CERA's implied assumptions. They are, after all, the basis of CERA's optimistic conclusions.
Underlying every data analysis and series of conclusions is a collection of assumptions. In order to avoid oil shortages, temporary or longer term, for example, we have to make multiple assumptions about our ability to find, produce, transport, refine and distribute oil (the supply chain). At some point in our analysis, these assumptions have to be tested for credibility.
Will they hold up under careful examination?

Assumption # 1. Peace in Iraq.
A key element for any increase in Middle East oil production has to be Iraq. Estimates of found oil range from 46 to 112 Bbl, with another 100 Bbl a strong "maybe it's there". If there is no peace in Iraq, or if Iraq succumbs to the policies of an Islamic Theocracy, then Iraq's contributions to OPEC's annual production volumes will never reach the levels envisioned by the International Energy Agency (IEA). If Iraq's government is stable, and favors a high production policy, then world oil supplies will be a little closer to the IEA's projections through 2020.
The future of Iraq rests on the outcome of an escalating cultural conflict between Islamist and Western values. Until that gets resolved, we can only guess at the future of Iraqi oil production.

Assumption # 2. Political and labor stability.
Any optimistic analysis of oil production must assume there will be relative political and labor stability in the Middle East, North West Africa, South America, and Caspian regions. As recent events have shown, however, these areas are prone to conflict that disrupts the flow of oil. Up until 2004, temporary disruptions in one region could usually be replaced by production from other resources. Going forward, there may not be sufficient spare capacity to cover lost production from one or more regions. As a result, sporadic shortages are a possible reality.

Assumption # 3. Islamist terrorist activity will not disrupt the supply chain.
Islamist terrorist activity will continue to disrupt the supply chain from time to time. The land locked Caspian, for example, could be the source of 60 Bbl of oil. Maybe more. And these wells are coming on-line. But most of the oil in this region must pass through a very long pipeline in order to reach the consumer. History suggests political volatility in this region will eventually disrupt supply chain operations. Perhaps for multiple years.
Islamist terrorist activity, whether sporadic or sustained, will continue to be a potential threat to the flow of oil, not only in the nations of the Caspian, the Middle East, and North West Africa, but also within the borders of consuming nations.

Assumption # 4. The proven reserves claimed by OPEC actually exist.
It is unlikely the proven reserves claimed by OPEC actually exist. Many believe they are a fabrication of the quota justifications that occurred in the 1980s. Furthermore, the claim that "Proven" reserves are increasing needs to be examined because in a sense we are merely talking about definitions. Words. As the price of oil increases, it becomes economically feasible to spend more money on production. Make sense? So the reserves that could not be classified as "Proven" at $26.00 per barrel become damn attractive if the price for a barrel goes to $55.00. There isn't any more oil. It's just that "Probable" oil reserves become "Proven" oil reserves as the price of oil increases because we can afford to spend more money on recovery. All we did was reclassify the definition of the oil we already have in the ground. No one found any more oil. Not a drop.

Assumption # 5. There will not be a substantial increase in reserve depletion rates.
Only 4 "super-giant" oilfields have been found outside the Middle East since 1960 (in Russia, China, Alaska and Mexico) and all of these - except China - are now in decline. Oil production is in decline in 33 of the 48 largest oil producing nations. Using improved technology often increases the rate of depletion. New finds tend to be smaller and deplete faster. Worldwide, estimated rates of depletion run as high as 8 percent per year.

Assumption # 6. All proven and potential reserves will be produced on schedule.
This assumption only works if hundreds of exploration and drilling operations in multiple countries and oceans under a wide variety of operating conditions and technical challenges occur on a schedule that coincides with the IEA's demand projections. Everything has to work. No significant political or labor conflicts. No ideological confrontation. No financing or management Snafus. Cooperative weather. And a reasonably predictable growth in market demand so consumption can equal production (with a little to spare).

Assumption # 7. Middle Eastern production capacity will continually increase, reaching ~ 29 Mbl/d by 2010 and at least 43 Mbl/d by 2020.
Middle Eastern production capacity will increase. The goal of 29 Mbl/day by 2010, however, is ambitious, and few believe OAPEC will be able to deliver 43 to 50 Mbl/day by 2020. Exploration and production will be challenged by Islamist opposition in Iran, Iraq and Saudi Arabia (and perhaps elsewhere). There is a long list of reserve and technical restraints in this region. We must also understand that the creation of a large surplus capacity is NOT in OAPEC's selfish best interest. Faced with enormous population growth and big welfare bills, every Middle Eastern government knows that when the oil is gone, their regime is in trouble. Leaders may determine they can actually make more money, and enjoy greater personal longevity, - by pumping less.

Assumption # 8. The EROEI of all oil production exceeds 1.EROEI.
Energy Returned On Energy Invested means that the energy derived from exploration, production, refining, and transportation exceeds the energy consumed for these activities. We tend to forget. If the EROEI of any energy resource is 1 or less, then doing that activity no longer provides a net addition to our stockpile of energy.
The average EROEI of world oil production has been declining. I read somewhere that before 1950 the EROEI for oil was more than 100:1. By the 1970s it had dropped to 30:1, and by 2005 the average EROEI on new production had fallen to 10:1. As we go for oil in increasingly difficult environments (deep under the ocean, open pit mining, etc.) the EROEI will decline further. We have to face the facts. Just because there is oil in the ground does not mean it is practical to extract. Every well has its cost in money AND energy. At some point the EROEI for every well will fall to less than 1, making oil from that well an impractical resource for energy.

Assumption # 9. Unconventional oil production will increase throughout this period, supplying almost 35 percent of the world's oil by 2020.
We have inherited up to 7 Tbls of oil trapped in sand or shale formations. But that is a misleading number. Only 5 Tbl are worth mining and of that number, perhaps 25 percent will be feasible to produce because production cost and EROEI factors make extensive mining impractical. Given the production problems associated with squeezing oil from rock and sand, the rate of production will be painfully slow. A goal of 15 to 18 Mbl per day by 2020 from recoverable reserves of 620 to 910 Bbl appears reasonable.
We expect to find oil beneath polar ice and permafrost in the Artic. Although total recoverable oil is something of a mystery at this point, figure 55 to 100 Bbl (maybe more). Unfortunately, exploration, production and transportation in this frigid environment are no fun. And costly. So don't expect polar oil to yield enough production to avoid oil shortages.
We are learning how to drill in the deep waters (over 2,500 meters) of the ocean. There is oil in the Gulf of Mexico, along the coastal shelves of South America and Africa, and a number of other locations around the world. Recovery takes time, is a technical and operations challenge, and is very costly. Add another 80 to 120 Bbl of oil to the reserves we will ultimately recover.
In addition, one can expect we humans will pump out a limited amount of heavy oil and oil from coal bed methane deposits.
If we add up all of these resources, we probably have up to 1.1 Tbl of unconventional oil to play with over the next 20 years. But our estimate of annual production is much lower. Technical, weather, geography, political, environmental, cost and EROEI factors will limit total production to around 100 Bbl from 2005 to 2020. This estimate – by the way - mirrors the Energy Outlook projections made by ExxonMobile in its "World Liquids Production Outlook" presentation.
To these numbers we need to add, as CERA does, Natural Gas Liquids (NGL) and condensates as unconventional oil. If we add all of these forms of unconventional oil together, CERA's projections appear reasonable.

Assumption # 10. There is sufficient infrastructure to support a vigorous increase in production.
Oil is a cyclical business. Prices bounce up and down because there is almost always a mismatch between supply and demand. For a number of reasons, exploration and production investments have not kept up with projected increases in demand. That investment deficit has left us with insufficient spare production capacity to sustain the world's projected economic growth. Even if we have ample reserves in the ground, there is no guarantee enough oil wells will be developed in time to avoid sharply higher prices and possible shortages. We don't have enough oil rigs, tankers, petroleum engineers, or refinery capacity. The problem is systemic and will take several years to resolve.

Assumption # 11. Non-Muslim engineers, technicians and laborers will be permitted to work in the fields of the Middle East, North West Africa, and countries adjacent to the Caspian basin.
Non-Muslim engineers, technicians and laborers will be permitted to work in the fields of the Middle East, North West Africa, and countries adjacent to the Caspian basin. However, Islamist activity and local sociopolitical conflict could jeopardize personnel security. Iran's new government, for example, has made it clear that non-Muslim foreigners are not welcome to bid, or work, in Iran's oil patch.

Assumption # 12. There is sufficient capital to fund the proposed supply chain activities.
There is sufficient capital to fund all of the proposed supply chain activities if one assumes the credit markets will not be overly stressed by other economic events, such as a collapse of the market for Mortgage Backed Securities or a massive default on the loans outstanding to Hedge Funds.

Assumption # 13.There will be a dramatic decrease in the growth rate of oil consumption.
Emerging nations, like China and India, will increase their per-capita and total consumption of oil. Although I fully expect a decrease in the growth rate of oil consumption will occur, it will - as I point out in "Oil, Jihad and Destiny" – be due to recessive factors. Production will equal consumption only if there is a destruction of natural demand or if shortages force reduced consumption. In either case, the rate of growth decreases.

Assumption # 14. As a result of over production, we will be awash in oil.
It is more likely that Saudi Arabia will continue to act as a swing producer, restricting its production in order to encourage higher prices. Indeed, Saudi Aramco engineers may welcome the opportunity to take key wells off-line for service if the world appears to be "awash" in oil.

Assumption # 15. The price of oil will decline.
It is highly likely that the price of oil will fall below $40.00 per barrel. The history of the oil industry is characterized by volatile changes in price because of the chronic imbalance between supply and demand. But a temporary decline in price is no basis for making either public policy or personal choice decisions. For every short term decline, expect a subsequent increase in the price. The long term trend for all petroleum prices is UP.

Assumption # 16. Resource nationalism will not disrupt world oil markets.
If there is so much oil available for production, why are we drilling new wells in deep water? They are very expensive, challenge our best technology, pose an environmental hazard, and are at the mercy of the sea. Why don't we just drill on land?
Because the North Sea fields are declining, West Africa is in turmoil, Venezuela is politically unstable, Iraq is a crap shoot, Saudi Arabia is vulnerable to revolution, and Putin plans to use Russia's petroleum as a political weapon. China is buying up every drop it can find. The Italians have pointed out that the geographical flows of crude oil favor refineries on the Mediterranean coast over refineries located in North America.
Hmmmm. Are we witnessing an increase in resource nationalism?
The industrialized nations have no choice. Oil shortages will create a growing cadre of unemployed citizens and declining GDP. Political survival means drilling in every plausible location on this planet and competing with other nations for the oil that is left. The race is on.

Assumption # 17. Technology will save us.
Optimists claim that continuing improvements in computer, exploration, and drilling technology will sharply increase oil production. In truth, the oil industry has been continually improving upstream exploration and production technology since the birth of the oil age. Engineers are currently hard at work on improvements for drilling fluids, drill bits, directional drilling, multilateral drilling, sensors, GPS, drill casing materials, CO2 injection, reservoir modeling software, and a thousand other opportunities to increase recovery operations. The point is, there is no magic solution that will suddenly increase our reserves. Almost every technical solution has already been explored. Yes. New technologies will increase production. But the net impact is more likely to be incremental – not revolutionary.
For example, much has been made about the use of CO2 injection to increase recoverable reserves. Granted. It is possible to recover 60 percent (or more) of the oil that in the ground as we humans struggle to liberate every drop of oil from existing reservoirs. But many of our older oil formations have already been flushed with fluids and chemicals in an effort to increase production. Consequently, the use of newer technology will not always yield dramatic improvements in mature field recovery. New finds, on the other hand, provide an opportunity to secure higher increases than older formations. Recovery rates will also be higher and faster for light oils than for heavier crude. And finally, it may - or may not - be economical to use newer technology, such as CO2 injection, on some wells. What does this all mean? Over a period of years, average world recovery rates are more likely to be in the 45 to 50 percent range.
And there is a downside to the application of reserve enhancement technology. If we increase the rate at which we drain our available reserves, - depletion happens sooner.

Assumption # 18. Higher prices will encourage the production of more oil.
The classic economist assumes higher prices will stimulate greater production. And it usually works. But our hydrocarbon resources are finite. New production involves a complex series of challenges that can take several years to overcome. In order to continue along the growth curve of projected demand through 2020, we humans will have to consume most of our "Proven" reserves, convert most of our "Probable" reserves into "Proven" reserves, and maximize a phenomenon peculiar to the petroleum industry called "Reserve Growth". Oil prices will have to increase in order to justify the economics of this sequence. Total oil production, however, will continue to be limited by the factors discussed above in Assumptions 1 – 17.

PART TWO: Reality Check... What Other Experts Say: does not appear to be yet available.

Thursday, September 22, 2005

Roman Catholic Priesthood in USA: four articles and statistics

New Vatican Rule Said to Bar Gays as New Priests

Ian Fisher and Laurie Goodstein

New York Times 22 September 2005

ROME, Sept. 21 - Homosexuals, even those who are celibate, will be barred from becoming Roman Catholic priests, a church official said Wednesday, under stricter rules soon to be released on one of the most sensitive issues facing the church.
The official, said the question was not "if it will be published, but when," referring to the new ruling about homosexuality in Catholic seminaries, a topic that has stirred much recent rumor and worry in the church. The official, who has authoritative knowledge of the new rules, spoke on the condition of anonymity because of the church's policy of not commenting on unpublished reports.
He said that while Pope Benedict XVI had not yet signed the document, it would probably be released in the next six weeks.
In addition to the new document, which will apply to the church worldwide, Vatican investigators have been instructed to visit each of the 229 seminaries in the United States.
Although work on the document began years ago under Pope John Paul II, who died in April, its release will be a defining act in the young papacy of Benedict, a conservative who said last spring that there was a need to "purify" the church after the deeply damaging sex scandals of the last several years.
The church official said the ban would pertain only to candidates for the priesthood, not to those already ordained. He also said the document did not represent any theological shift for the church, whose catechism considers homosexuality "objectively disordered."
Although the document has not been released, hints of what it will say are already drawing praise from some Catholics, who contend that such a move is necessary to restore the church's credibility and who note that church teaching bars homosexuals, active or not, from the priesthood.
Other Catholics say, though, that the test should be celibacy, not innate sexuality, and they predict resignations from the priesthood that can worsen the church's deep shortage of clergy.
"I'm hearing that some men will choose to leave, because if they don't, it would be like living a lie," said the Rev. Robert Silva, president of the American National Federation of Priests' Councils, who opposes a ban because it would be "extremely hurtful" to chaste gay priests who are serving the church.
But the church official who discussed the expected new rules said the document called for barring even celibate men who considered themselves homosexual because of what he contended were the specific temptations of seminaries.
"The difference is in the special atmosphere of the seminary," he said. "In the seminary, you are surrounded by males, not females."
The issue of homosexuality in the priesthood and seminaries has long been a difficult one, which the Vatican appears to be addressing, particularly in the United States, on two apparently connected fronts.
The visits to the American seminaries cover a wide range of concerns, but among those the investigators will be looking for is "evidence of homosexuality" and whether seminarians are being properly prepared to live celibately. Both the document and the investigation come under the authority of the Vatican Congregation for Catholic Education.
Taken together, the document and visits seem aimed at imposing a stricter standard on both the atmosphere at seminaries and on whom they accept as candidates for the priesthood. Archbishop J. Michael Miller, the congregation's secretary, noted at a meeting in Baltimore last week with more than 100 bishops, priests and lay people that the new rules would come as no surprise because there was an existing Vatican document barring homosexuals from the priesthood, according to two church officials who spoke on the condition of anonymity because they felt there might be repercussions if they spoke for attribution.
Archbishop Miller appeared to be referring to a 1961 document that recommended against ordaining anyone who has "perverse inclinations to homosexuality or pederasty."
But that document has been overlooked by seminaries in the United States for many years. Although practices vary, most American seminaries in recent years have not uniformly rejected candidates with a homosexual orientation, seminary officials say.
Instead, they try to ascertain case by case whether the candidate is capable of living in a chaste and celibate manner, often rejecting candidates who have been sexually active in the years before deciding to join the priesthood.
Many gay men have entered the priesthood, though, and they are increasingly open with their colleagues, their bishops and in some cases, even with their parishioners, about their sexual orientation. The Rev. Donald Cozzens, a former American seminary rector, contended five years ago in his book "The Changing Face of the Priesthood" that "the priesthood is or is becoming a gay profession."
James Hitchcock, a conservative Catholic and a professor of history at St. Louis University, said some seminaries had reached the point of being "openly welcoming of homosexuals" and "don't even regard chastity necessary. "
"In that environment - and then you add to that the pedophilia scandals - probably the Vatican thinks that strong medicine is necessary for a serious disorder," said Mr. Hitchcock, who said he would nonetheless favor a system that allows for rare cases to be decided individually.
In fact, the degree to which the new rules would allow some slack appears to be a major question. It seems clear that the rules will be far more restrictive than current practice.
In what many church experts saw as a hint of the new rules, the archbishop leading the seminary visits was quoted last week by The National Catholic Register as saying even homosexuals not sexually active for a decade or more should not be accepted into seminaries.
But the church official said the rules were not absolute. The very definition of homosexuality, he said, is not fixed. And there may be rare cases in which a prospective seminarian who is confused about his sexuality might be accepted if the church decided he would still make a suitable, celibate priest.
"There is room for this," he said.
Still, Father Silva of the Federation of Priests' Councils and three other church officials, who spoke on condition of anonymity because they feared they would lose their jobs if they revealed dissension within church ranks, said several influential American church leaders had tried to persuade Vatican officials not to release a document about gay seminarians because it would create more problems in the priesthood than it would solve.
"People would do what they used to do, which is not be honest," said a gay American priest and professor at a Catholic college who did not want to be identified because he fears he could lose his church position if his sexual orientation was known.
"The irony is, if you look at the exact ages and seminary graduating classes of those priests who were convicted of sexual abuse in the past few years, they were not on the whole people who entered seminaries in the 1980's, when there began to be more openness about homosexuality," he said. "These were people from the old closeted days.
"So what the church is doing is repeating, in a weird way, the conditions they had before that gave rise to the abuse crisis."
But any move to ban or limit gay men from serving as priests would probably be popular among conservative Catholics, some of whom contend that heterosexuals hesitate to enter the priesthood because they have heard it is predominantly gay.
Mike Sullivan, of Catholics United for the Faith, a conservative advocacy group, said his group would favor a ban because putting a homosexual in an all-male seminary environment subjects that person to too much temptation, and increases his likelihood for failure.
"It's not appropriate to put an alcoholic in a bar either," he said.
On the general issue of homosexuality, official Catholic teaching, as explained in the catechism, says that while some people appear to have a predilection toward same-sex attraction, homosexual acts are impermissible and that homosexuals should remain chaste. But the church has also counseled understanding, and in 1986, the Congregation for the Doctrine of the Faith, headed then by Cardinal Joseph Ratzinger, now Pope Benedict XVI, denounced the "unfounded and demeaning assumption" that homosexuals could not control their sexual behavior.
The church official said, however, that the church was entitled to make its own decisions, based on theology, about who is allowed to be a priest, comparing the issue to that of women, who are barred from the priesthood as well.
"Being a priest is not a right," he said. "The Catholic Church never ordains anyone on the conception of human rights."
Ian Fisher reported from Rome for this article, and Laurie Goodstein from New York.

U.S. Bishops to Begin Inspecting Seminaries

Wayne Laugsen

National Catholic Register September 18 2005

WASHINGTON — The bishop overseeing a Vatican-ordered inspection of U.S. seminaries said there is no room there for men with strong homosexual inclinations. And an apostolic visitation that begins this month will seek to determine whether seminaries are enrolling them.“I think anyone who has engaged in homosexual activity, or has strong homosexual inclinations, would be best not to apply to a seminary and not to be accepted into a seminary,” Archbishop Edwin O’Brien, who’s coordinating the visits of more than 220 seminaries and houses of formation, told the Register.Archbishop O’Brien, who heads the Archdiocese for Military Services USA, said even homosexuals who have been celibate for 10 or more years should not be admitted to seminaries.“The Holy See should be coming out with a document about this,” Archbishop O’Brien said.The visitations were sparked by the sexual abuse scandal that hit the U.S. Church in 2002.In a 2002 speech, Pope John Paul II linked the abuse scandals with seminary instruction and called for the exclusion of seminary candidates with observable “deviations in their affections.”“It would be lamentable if, out of a misunderstood tolerance, they ordained young men who are immature or have obvious signs of affective deviations that, as is sadly known, could cause serious anomalies in the consciences of the faithful, with evident damage for the whole Church,” the Holy Father said.His words echoed a 1961 instruction to the superiors of religious communities on “Careful Selection and Training of Candidates for the States of Perfection and Sacred Orders.”That document states: “Advancement to religious vows and ordination should be barred to those who are afflicted with evil tendencies to homosexuality or pederasty, since for them the common life and the priestly ministry would constitute serious dangers.”A February 2004 report commissioned by the U.S. bishops’ National Review Board noted that 81% of the reported victims of child sexual abuse by clergy from 1950 to 2002 were boys.The findings strengthened the argument made by many observers that at the heart of the sexual abuse problem was a strong presence of homosexuals in the priesthood.In his address to U.S. cardinals called to a special summit on abuse at the Vatican in 2002, Pope John Paul II said Catholics “must know that bishops and priests are totally committed to the fullness of Catholic truth on matters of sexual morality, a truth as essential to the renewal of the priesthood and the episcopate as it is to the renewal of marriage and family life.”The U.S. bishops have directed that the visitations pay special attention to areas such as the quality of the seminarians’ human and spiritual formation for living chastely and of their intellectual formation for faithfulness to Church teachings, especially in the area of moral theology.The Vatican Congregation for Catholic Education, which oversees seminary formation around the world, has appointed 117 bishops and seminary personnel as visitors — all from the United States. They are to visit each college- or theology-level institution, working in teams of three for smaller programs or four for the larger ones.Pittsburgh Bishop Donald Wuerl called the new visitations´ focus on celibacy a “significant difference” from the last such visitations in 1981.Writing in America magazine when the new visitation was first proposed in 2002, Bishop Wuerl cited the abuse charter that directs bishops: “These new visits will focus on the question of human formation for celibate chastity based on the criteria found in Pastores Dabo Vobis (1992).”Wrote Bishop Wuerl: “It is clear that the visitation will not encompass all the areas recognized in Pastores Dabo Vobis as points of development: intellectual, pastoral, spiritual and human formation,” as the last one did. “Rather this visitation will address human formation for celibate chastity.”The de-emphasis on chastity in the 1981 visitation led some to call it a “whitewash.”Archbishop O’Brien disagreed. He participated as a visitor in the ’80s, while serving as rector of the New York archdiocesan seminary, St. Joseph’s in Yonkers, and said it was a net plus for participating seminaries.“Probably the most valuable work is done in preparation for the visit,” Archbishop O’Brien said. “Seminaries know what the Holy See is looking for, and they have ample time, if they’re not meeting some of the standards, to make those standards a reality, and that’s what happened in the ’80s. Once the visits took place, most things were in place.”Archbishop O’Brien said that in the new visitations, interviews will be conducted on an anonymous basis in order that truth can be told without fear of retribution.“The seminarians themselves will be key players to this whole thing,” Archbishop O’Brien said. “They’ll be questioned individually, and if we get 50 out of 60 saying this was the case when I came in and this is the way it is now, there’s reason for credibility there.”Ultimately, the visits and individual reports will culminate in a final overview report that will be published by the Congregation for Education and the Congregation for Institutes of Consecrated Life and Societies of Apostolic Life. Archbishop O’Brien said the final report may come several years after the visits are completed.Archbishop O’Brien said neither he nor the rectors will see the individual reports from the seminaries going to the Vatican.He then added, “Rome will review it, and if they have concerns they’ll be in touch with the bishop or the religious superior about it.”

Seminaries to be a part of Vatican evaluation

Pittsburgh Post-Gazette September 18, 2005

By Ann Rodgers,

Three Western Pennsylvania seminaries will be evaluated during the next five months in a Vatican study prompted by the Catholic sexual abuse scandals that erupted in 2002.
U.S. bishops requested the study, which will examine the psychological, spiritual, intellectual and sexual factors that shape priests.
One of the study's 55 questions -- and one of only six mandatory ones -- concerns whether there is "evidence of homosexuality in the seminary." This has drawn fire from those who fear that the evaluation is a witch hunt to purge gay seminarians.
"The Vatican continues to be obsessed about homosexuality," said Debbie Weill, executive director of DignityUSA, a group for gay Catholics.
"The church is fostering a climate of hostility towards some of its very best priests and bishops. This is not the church Christ called us to be," she said.
But local seminary rectors say the study will evaluate the full range of requirements for priesthood. The consideration of homosexuality may be more nuanced than it appears on paper, said the Rev. James Wehner, rector of St. Paul Seminary in East Carnegie, where Pittsburgh's undergraduate seminarians live.
"It's not a black-and-white issue," Wehner said.
The study focuses on what the church calls "human formation" -- cultivating the character and conduct expected of a priest, said the Rev. Kurt Belsole, rector of St. Vincent Seminary in Latrobe, where 68 students are doing graduate work.
"It means they have to be a good human being before they can be a good priest," he said.
The church speaks of "formation" rather than "education" because seminary training is supposed to go beyond academics, to shape a soul and personality. In addition to classes, St. Vincent seminarians attend 10 conferences each semester on topics such as celibate life, the virtue of courage, and cultivating a habit of prayer.
Belsole is "very confident" that his school will receive a glowing report.
Three years ago St. Vincent did its own evaluation of how it lined up against the 1992 Vatican document on priestly formation.
"We are doing everything they asked us to," he said.
The visitation begins this month and continues through next year. Ss. Cyril & Methodius Byzantine Catholic Seminary on the North Side, which has seven Eastern Catholic students, will receive the first local visit Nov. 6-11. St. Vincent will be visited Jan. 15-20. St. Paul, with 11 seminarians, is scheduled for Feb. 5-11.
A 2004 study of child molestation accusations against priests revealed that 4,392 priests were accused of molesting 10,667 minors between 1950 and 2002, with the bulk of offenses in the 1970s. The fact that 81 percent of the victims were male, coupled with reports of a "gay culture" at some seminaries, led some bishops and Vatican officials to conclude that the underlying problem was homosexuality. There have been reports that the Vatican plans to ban gay men from seminary.
But there have been mixed signals. In April 2003 top Vatican officials heard presentations from eight international experts on pedophilia, who said that homosexuality did not cause men to molest minors. Consequently, some sources say the Vatican has backed off a complete ban.
But Archbishop Edward O'Brien of the Military Archdiocese, who is overseeing the seminary study, said last week that it would be better if gay men did not apply to seminary.
"The pressures are strong in an all-male atmosphere," he said. "And if there have been past failings, the church really must stay on the safe side . . . The same-sex attractions have gotten us into some legal problems."
Wehner cautioned against reading too much into O'Brien's remarks.
"He is being very general. I would not challenge what he said, but I think we need to be more specific. You can have an orientation and never engage in homosexual acts. And you can have some young man who has too much to drink and engages in perversions he never would otherwise. That doesn't mean he's gay," Wehner said.
Nearly 120 bishops and priests have been trained to carry out the visitations. There are 229 seminaries, and each visit is to last at least four days. The visitors are to confidentially interview all faculty and students, and give all graduates of the past three years the opportunity for an interview.
Their secret report is to be submitted to the Vatican, which will draft an evaluation for the local bishop or religious superior, who can challenge its findings before a final report is issued. A general letter to the U.S. bishops will give an overall assessment of "current priestly formation in the USA."
The point stressed most strongly in the 11-page working document is that the local bishop or superior is ultimately responsible for evaluating his seminarians, and that he must get to know them. There have been reports of U.S. bishops who do not meet their seminarians until they are on the verge of ordination.
"The bishop will not fail to visit the seminary frequently," the document says.
"On the basis of these direct contacts he will ensure that the seminaries form mature and balanced personalities, men capable of establishing sound human and pastoral relationships, knowledgeable in theology, solid in the spiritual life, and in love with the church."
The six mandatory questions concern whether psychological testing is used for admission, whether students or faculty "have concerns about the moral life of those living in the institution," whether there is "evidence of homosexuality in the seminary," whether there is "adequate formation" for a life of "celibate chastity," whether seminarians are "capable of dialoguing, on the intellectual level, with contemporary society."
The final one concerns whether the seminary checks for canonical "impediments or irregularities for Holy Orders" -- such as a psychiatric illness or a severely troubled history in a past marriage that was annulled -- especially among older candidates.
The other 49 range from whether authoritative church teaching is promoted and accepted to how seminarians conduct themselves off campus. One asks whether the seminary teaches "a proper understanding of the role of women in ecclesial life."
That doesn't mean only explaining the ban on women's ordination, but making sure that the seminarians appreciate and support all that women can do in the church, Wehner said.
"Eighty percent of the church is run by women, so we have to be able to work with women, and those relationships have to be healthy and appropriate," he said.
Wehner believes that St. Paul "exceeds the standards."
Applicants are rigorously evaluated before admission, and are re-evaluated at numerous points along the way, Wehner said. For at least 20 years the school has used an outside psychologist to conduct a battery of psychological tests. Confidential evaluations from people who know the candidate well are gathered before admission and before ordination, he said.
"I conduct the personal history interview. We talk about everything from use of drugs to dating experiences," Wehner said.
"They might be very pastoral, but are they capable of living a celibate life that is happy, healthy and holy? We don't want unhappy celibates."
Wehner said he has sent men away because they lacked the maturity or other personal qualities necessary for priesthood. One issue he looks closely at is whether they have friends their own age, since failure to mature emotionally has been linked to child sexual abuse and other problems.
Wehner does not think that good men who happen to be shy or eccentric will be rejected in the zeal to keep out the unfit.
"This is not a test of who has the best social skills. We're looking at dysfunction, rather than awkwardness or quirkiness," he said.

Homosexual orientation among Roman Catholic seminarian students


A Vatican document of 1961 bars persons with homosexual orientation from ordination and religious vows. However, this document appears to have been almost completely ignored. 1
It is important to keep in mind that the vast majority of priests, with a heterosexual, homosexual or bisexual orientation, do not molest or sexually abuse young people.

Some definitions:

We will most frequently use the rather awkward term "person with a homosexual orientation," in this essay to avoid confusion. Terms like "Gay" and "homosexual," are ambiguous.
To many conservative Christians, homosexuality is interpreted in terms of behavior. A homosexual is a person who engages in same-sex behavior.
To most others, including religious liberals, gays, lesbians, human sexuality researchers, and mental health therapists, homosexuality is interpreted in terms of sexual orientation. The term refers to a person who is attracted to persons of the same gender. A homosexual may choose to be celibate, or may be sexually active.

What percentage of seminary students have a homosexual orientation?

As noted in an essay on priests with a homosexual orientation in the Roman Catholic priesthood, estimates range from "perhaps more than 10%" to 58%. It is generally recognized that a larger percentage of seminary students have a homosexual orientation. However, nobody knows with any degree of accuracy.
Men with a homosexual orientation might be attracted to the Roman Catholic priesthood for a variety of reasons:
Most probably feel deeply that they have a definite calling by God to become priests.
Some may be attracted by the "caring and nurturing nature of the priesthood, which is part of the nature of ministry." 2
The current bar against marriage for priests has no inhibiting influence, as it does among potential priests with a heterosexual orientation.
Priests are generally respected by the public. Being ordained gives homosexuals instant relief from the persecution that they had experienced as laity.
The priesthood gives them protection from homophobia and the potential of physical assault. Much of the public assumes that many middle-aged and older men who have never been married are gay. Thus, the priesthood becomes a safe place to hide their sexual orientation.
The Roman Catholic priesthood may be attractive to persons with a homosexual orientation because, at this time, is an all-male institution. They would feel comfortable there.
Some seminary students might be attracted by the homosexual sub-culture of most seminaries -- a culture that is probably not present in schools that train for other professions.
It is possible that some predatory candidates for the priesthood might seek ordination because it would give them a position of power over the laity and give them access to many children.
At this time, the Roman Catholic Church does not normally exclude male candidates for seminary because they have a homosexual orientation. The one exception is believed to be St. Charles Borromeo Seminary in Philadelphia, PA. 3 At least one seminary, University of St. Mary of the Lake, IL, a.k.a. Mundelein Seminary, accepts students with a homosexual orientation, but not those who admit to frequenting gay bars. 4 However, while in seminary and after ordination, all students are expected to remain celibate.

With the church's current requirement of priestly chastity, seminaries are having difficulty recruiting heterosexuals to the priesthood.

Father Donald Cozzens wrote that several studies have concluded that about 50% of priests and seminarians are gay. 5
David France of Newsweek, referring to St. John's Seminary in Camarillo, CA, wrote: "Depending on whom you ask, gay and bisexual men make up anywhere from 30 percent to 70 percent of the student body at the college and graduate levels." 3
Rt. Rev. Helmut Hefner, rector of St. Johns Seminary "accepts that his gay enrollment may be as high as 50 percent." 3
Gay journalist Rex Wockner commented: "When I was in the Catholic seminary in my early 20s (St. Meinrad College, St. Meinrad, Ind., 1982-1983; University of St. Mary of the Lake, Mundelein, Ill., 1983-1984), at least 50 percent of the students were gay....At St. Mary of the Lake, the straight students felt like a minority and felt excluded from some aspects of campus life to such an extent that the administration staged a seminar at which we discussed the problem of the straight students feeling left out of things..." 6
Author and sociologist James G. Wolfe estimated that 55.1% of seminarians were gay. 7
Bishop Jerome Listecki is an auxiliary bishop of Chicago, rejects some estimates that as many as 50% of seminarians have a homosexual orientation. 3
It would seem that about 50% of present-day seminary students have a homosexual orientation.

Does the gay sub-culture in seminaries affect heterosexual seminarians?

Many priests and theologians have commented about the gay sub-cultures in Catholic seminaries:
An anonymous priest from the Boston area commented in an interview with Joe Fitzgerald of the Boston Herald: "there's a subculture of gay priests and everyone knows it. I went through seminary with a lot of them and got hit on. And when I reported it, I was harassed to a point where, emotionally, it was very difficult to get ordained. I'm not the only one who had to fight to get through it; I know guys who left because of it. It was clear there was a cabal tacitly saying, 'Don't bother reporting this stuff.' You wouldn't believe the self-justifications, like, 'Well, celibacy only applies to not getting married, so since we're not getting married we can do whatever we want.' It was horrible, with a lot of intimidation, but I stayed because I felt this was what God was calling me to do; besides, if I'd walked, they'd have won." 8
Father McBrien, a theologian at the University of Notre Dame, commented that some seminary students "...who feel they have a genuine vocation for priesthood go into a seminary and feel very alienated by the gay culture. I don't say this in any homophobic sense. It's just the reality." 2
Pope John Paul II held a meeting with the American cardinals which dealt with the clerical sex scandals. Afterward, Bishop Wilton Gregory, head of the U.S. Conference of Catholic Bishops said: "One of the difficulties we do face in seminary life or recruitment is made possible when there does exist a homosexual atmosphere or dynamic that makes heterosexual men think twice [about entering.] It is an ongoing struggle to make sure the Catholic priesthood is not dominated by homosexual men." 9
R. Scott Appleby, a history professor at Notre Dame, said: "People I know quite well have left the seminary either in disgust because people are not keeping vows, or in alienation because they’re not gay. In some cases it’s a serious problem." 3
The Most Rev. Wilton Gregory said: "[T]here does exist a homosexual atmosphere or dynamic that makes heterosexual men think twice." 3
The Rev. Charles Bouchard, president of the Aquinas Institute of Theology in St. Louis said: "I think straight priests and seminarians shouldn’t be whining. I just don’t think it’s a big deal." 3
Father Donald Cozzens wrote: "What impact does the gay subcultrue have on the straight priest and seminarian?....straight men in a predominantly or significantly gay environment commonly experience chronic destabilization, a common symptom of which is self doubt...Their psychic confusion, understandably, has significant implications for both their spiritual vitality and emotional balance." 10
Timothy Radcliffe, Master of the Order of Preachers, commented on the emergence of a homosexual sub-culture within a seminary or religious order: "It can threaten the unity of the community; it can make it harder for the brethren to practice the chastity which we have vowed. It can put pressure on brethren to think of themselves in a way that is not central to their vocation as preachers of the Kingdom..." 11

Exclusion of homosexuals from the priesthood:

According to a Vatican document issued in 1961, approved by Pope John XXIII on 1961-JAN-23: "Advancement to religious vows and ordination should be barred to those who are afflicted with evil tendencies to homosexuality or pederasty, since for them the common life and the priestly ministry would constitute serious dangers." 12 The document "was promulgated by the Vatican’s Sacred Congregation for Religious on February 2, 1961. The same document is published in its entirety, in English, in the Canon Law Digest, Volume V (Bruce Publishing Co, 1963), pages 452 to 486." 13 The wording of the report is ambiguous, because it is not clear whether its use of the term "homosexuality" refers to the candidate's orientation or behavior. Irrespective of which is the correct interpretation, this exclusion seems to be totally ignored at most North American seminaries.

What does the future hold?

In 2002-MAR, the chief spokesman for Pope John Paul II, Joaquin Navarro-Valls, told The New York Times that better psychological screening and upgraded training in church seminaries would do little to reduce the number of priests with a homosexual orientation. He appears to propose that homosexuals be refused ordination. He suggests that the church become "less welcoming" of gays...People with these inclinations just cannot be ordained. That does not imply a final judgment on people with homosexuality. But you cannot be in this field." 5

Associated essay:
Roman Catholic priests with a homosexual orientation.

1 "Careful Selection And Training Of Candidates For The States Of Perfection And Sacred Orders: (S. C. Rel., 2 Feb., 1961)." Online at:
2 "Gay Priests," Religion & Ethics Newsweekly, 2002-MAY-10, at:
3 David France, "Gays and the Seminary," MSNBC, 2002-MAY-20, at:
4 "Catholic Seminary Admissions Tighten in Scandal," The Data Lounge, 2002-MAR-27, at:
5 "Vatican threatens gay purge of priesthood," The Data Lounge, 2002-MAR-6, at:
6 Rex Wockner, "The end of Catholicism in America," PlanetOut, at:
7 James G. Wolf, "Gay Priests," Harper and Row, 1989, Pages 59-60. Cited in Father Donald Cozzens, "The Changing Face of the Priesthood: A reflection on the priest's crisis of soul," Liturgical Press, (2000), Page 99.
8 Joe Fitzgerald, "Priest fears gays in ranks pose threat to Church," Boston Herald, 2002-MAR-6, at:
9 Melinda Henneberger, "Pope delivers apology to victims of sex abuse," New York Times, 2002-APR-24, at:,homepage
10 Op Cit, Father Donald Cozzens, Page 101.
11 Timothy Radcliffe, O.P., "The Promise of Life," International Dominican Information, # 361, 1998-APR, special number, A Letter to the Order, Page 96.
12 "Careful Selection And Training Of Candidates For The States Of Perfection And Sacred Orders: (S. C. Rel., 2 Feb., 1961)." Online at:
13 John Vennari, "Found: 1961 Vatican Document Barring Homosexuals from Ordination and Religious Vows," 2002-MAY-28, at:
Copyright © 2002 to 2005 by Ontario Consultants on Religious ToleranceOriginally written: 2002-MAY-14Latest update: 2005-JUL-27Author: B.A. Robinson

U.S. Data
Diocesan priests
Religious priests
Total priests
Priestly ordinations
Graduate-level seminarians
Permanent deacons
Religious brothers
Religious sisters
Without a resident priest
Catholic population
45.6 m
48.7 m
52.3 m
57.4 m
59.9 m
64.8 m
Percent of U.S. population
Catholic elementary schools
Students in Catholic elementary schools
Catholic secondary schools
Students in Catholic secondary schools
Gallup Poll: Yearly average percent of Catholics who say they attended Mass in the last seven days (i.e., those attending in any given week).
CARA Catholic Poll (CCP): Yearly average percent of Catholics who say they attended Mass once a week or more (i.e., those attending every week).

World Data
Diocesan priests
Religious priests
Total priests
Diocesan priestly ordinations
Graduate-level seminarians
Permanent deacons
Religious brothers
Religious sisters
Without a resident priest
Catholic population
Percent of world population
World Values Survey: Population weighted percentage of adult Catholics who say they attended Mass once a week or more (i.e., those attending every week) in the 38 largest Catholic population nations.