Natural Gas: Is Rally Over or Taking a Breather?

• By Erik Norland

In the wake of a seven-year bear market in natural gas, we began publishing a series of reports in October 2015 warning that there was a preponderance of risk to prices rising: demand growth was steady, especially where electrical power generation was concerned, and there has been no growth in North American supply since the end of 2014.  So far, Henry Hub natural gas price action has largely borne out these observations, with prices rallying from below $2 per MMBtu to around $3 (Figure 1).  But prices have fallen back over the past few weeks.  Is this a signal that the rally is over, or is it just a hiccup? We suspect it’s the latter for a variety of reasons.

An Unusually Warm Fall Does Not Necessarily Mean an Unusually Warm Winter

Natural gas prices have waned a bit after rebounding from March 2016 lows.  This appears to be the result of an unusually warm start to fall in North America that has depressed electrical power and heating demand.  Be warned: a warmer-than-usual fall does not necessarily mean a mild winter.  Concern that January and February might be colder-than-usual in North America largely stems from the fact that we have gone from a strong El Niño earlier this year (Figure 2) to a mild La Niña (Figure 3). 

Figure 1: A Rebound After a Big (and Long) Bear Market.

Figure 2: January 4, 2016: Last Winter’s Strong El Niño Depressed Natural Gas Demand.

Figure 3: November 2016: Waters off California are Still Warmer-Than-Usual but a La Niña is Forming.

La Niña is, however, not the only concern.  While North America has enjoyed a much warmer-than-normal fall so far, the opposite is true for Siberia, which has been much colder and snowier than usual.  This could herald a brutal blast of Artic cold, and a strong and highly volatile polar vortex this winter.  If January and February in North America turn out to be colder-than-normal as a result of La Niña and the early buildup of snow and cold air over Siberia, natural gas prices could soar as more fundamental factors like supply and long-term demand reassert themselves.

Supply: No Growth, at Least not for the Moment

The single biggest upside risk to natural gas prices is the lack of supply growth.  Supplies from the lower 48 states peaked in early 2015 and have since fallen by 3-4% (Figure 4).  Such a drop might not sound like much but the inelastic nature of natural gas supply and demand means that small fluctuations in availability and end-use can give way to large percentage moves in prices.

The news about U.S. supply is not all bullish for natural gas prices.  Since we last wrote about natural gas in August, there has been a rebound in both oil and gas drilling, incentivized by the bounce in crude oil and natural gas prices.  The number of gas rigs has risen from 81 on August 26, 2016, to 117 by early November this year, while the number of oil rigs increased from 406 to 450 over the same period.  However, investment in the sector still remains depressed (Figure 5).  That said, increased investment could eventually improve supply and limit the extent to which natural gas prices might rise.  Finally, we would be remiss not to point out that the rig-count numbers do not take into account productivity.  A small number of highly productive rigs could add more to production than one might imagine.

Figure 4: Production of Natural Gas Has Begun to Stagnate, Even Declining Slightly.

Figure 5: Rig Counts are Rebounding But Investment Remains Depressed.

Demand: Still Positioned For Growth

On the demand side of the equation, electrical power generation from natural gas continues to rise.  Residential and commercial use dipped over the unusually mild 2015-16 winter but will probably recover later this year, especially if the coming winter turns out to be harsh (Figure 6).

Figure 6: Electrical Power Generation from Natural Gas Continues to Rise.

Electrical power demand is likely to continue rising for two reasons:

1. There has been no new coal power generation facility brought on line since 2013, leaving natural gas, wind and solar as the primary replacements (Figure 7).
2. Natural gas capacity factors have been increasing while coal capacity factors have been declining.  Essentially this means that natural gas power plants are operating more of the time than coal power plants for the first time (Figure 8).

Basically, not only is natural gas increasing its share of the generating capacity, a greater share of the natural gas generating capacity is actually in use at any given time.

Figure 7: Natural Gas has Displaced Coal to be the Largest Share of New Generating Capacity.

Figure 8: Natural Gas Power Plants Now Operate at Higher Capacity than Coal.

Export Demand:

While domestic demand for natural gas has been robust, mainly thanks to electrical power generation, export demand is not likely to be of much help.  Exports to Canada and Mexico could remain robust but hopes for a significant price boost from LNG exports have largely been dashed by the global convergence of prices, and Asian and European prices falling back towards the U.S. price (Figure 9).

Figure 9: Natural Gas Spreads Have Collapsed.

Storage Levels Are Going To Be Less Of A Buffer

Despite rising electrical power demand, storage levels have soared over the past few years as supply outpaced demand.  El Niño played a large role in the storage boom, but the good news for natural gas bulls is that inventories have apparently peaked and appear set to come down.  Bulls should be warned, however, that the stored supply remains extremely large by historical standards and could limit potential upside until they come down substantially.  An unusually cold winter could, however, reduce storage levels significantly, as was the case in 1999 and 2000.

Figure 10: Storage Levels Continue to Rise but at a Diminishing Pace.

Bottom line

• An unusually warm start to the fall has interrupted the natural gas bull market, but an unusually cold winter could kick it back into gear.
• La Niña and heavy snowfalls in Siberia could trigger an Arctic blast in January and February.
• Supply continues to stagnate but investment is picking up again, and rigs are coming back on line.
• Electrical power demand appears set for further growth given the lack of alternatives to natural gas.
• Natural gas storage levels are record large and could limit upside moves, but storage levels are probably close to peaking and once they begin to decline could help sustain buying interest in natural gas markets.
• Once a natural gas bull market gets going, the potential price upside could be substantial.  In the early part of the last decade, prices spiked to as high as $10 per MMBtu.  That said, natural gas storage costs impose a significant negative carry for those who are structurally long.

The world’s use of oil is approaching a tipping-point.

Breaking the habit

The future of oil

AT THE TURN of the 20th century, the most malodorous environmental challenge facing the world’s big cities was not slums, sewage or soot; it was horse dung. In London in 1900, an estimated 300,000 horses pulled cabs and omnibuses, as well as carts, drays and haywains, leaving a swamp of manure in their wake. The citizens of New York, which was home to 100,000 horses, suffered the same blight; they had to navigate rivers of muck when it rained, and fly-infested dungheaps when the sun shone. At the first international urban-planning conference, held in New York in 1898, manure was at the top of the agenda. No remedies could be found, and the disappointed delegates returned home a week early.

Yet a decade later the dung problem was all but swept away by the invisible hand of the market. Henry Ford produced his first Model T, which was cheap, fast and clean. By 1912 cars in New York outnumbered horses, and in 1917 the last horse-drawn streetcar was retired in Manhattan. It marked the moment when oil came of age.

That age has been one of speed and mostly accelerating progress. If coal drove the industrial revolution, oil fuelled the internal-combustion engine, aviation and the 20th-century notion that mankind’s possibilities are limitless; it flew people to the Moon and beyond. Products that have changed lives—from lipstick to CD players, from motorcycle helmets to aspirin—contain petrochemicals. The tractors and fertilisers that brought the world cheaper food, and the plastics used for wrapping, are the progeny of petroleum products.

Oil has changed history. The past 100 years have been pockmarked with oil wars, oil shocks and oil spills. And even in the 21st century its dominance remains entrenched. It may have sped everything else up, but the rule of thumb in energy markets is that changing the fuel mix is a glacial process (see chart). Near its peak at the time of the Arab oil embargo in 1973, oil accounted for 46% of global energy supply. In 2014 it still had a share of 31%, compared with 29% for coal and 21% for natural gas. Fast-growing rivals to fossil fuels, such as wind, solar and geothermal energy, together amounted to little more than 1%.

Horses for courses

Yet the transition from horse power to horsepower, a term coined by Eric Morris of Clemson University, South Carolina, is a useful parable for our time. A hundred years ago oil was seen as an environmental saviour. Now its products are increasingly cast in the same light as horse manure was then: a menace to public health and the environment.

For all its staying power, oil may be facing its Model T moment. The danger is not an imminent collapse in demand but the start of a shift in investment strategies away from finding new sources of oil to finding alternatives to it. The immediate catalyst is the global response to climate change. An agreement in Paris last year that offers a 50/50 chance of keeping global warming to less than 2ºC above pre-industrial levels, and perhaps limiting it to 1.5ºC, was seen by some as a declaration of war against fossil fuels.

That agreement has been thrown into doubt by the election of Donald Trump, who has dismissed climate change as a “hoax”, as America’s next president. But if big energy consumers such as the EU, China and India remain committed to curbing global warming, all fossil fuels will be affected. The International Energy Agency (IEA), a global forecaster, says that to come close to a 2ºC target, oil demand would have to peak in 2020 at 93m barrels per day (b/d), just above current levels. Oil use in passenger transport and freight would plummet over the next 25 years, to be replaced by electricity, natural gas and biofuels. None of the signatories to the Paris accord has pledged such draconian action yet, but as the costs of renewable energy and batteries fall, such a transition appears ever more inevitable. “Whether or not you believe in climate change, an unstoppable shift away from coal and oil towards lower-carbon fuels is under way, which will ultimately bring about an end to the oil age,” says Bernstein, an investment-research firm.

Few doubt that the fossil fuel which will suffer most from this transition is coal. In 2014 it generated 46% of the world’s fuel-based carbon-dioxide emissions, compared with 34% for oil and 20% for natural gas. Natural gas is likely to be the last fossil fuel to remain standing, because of its relative cleanliness. Many see electricity powered by gas and renewables as the first step in an overhaul of the global energy system.

This special report will focus on oil because it is the biggest single component of the energy industry and the world’s most traded commodity, with about $1.5trn-worth exported each year. Half of the Global Fortune 500’s top ten listed companies produce oil, and unlisted Saudi Aramco dwarfs them all. Oil bankrolls countries that bring stability to global geopolitics as well as those in the grip of tyrants and terrorists. And its products fuel 93% of the world’s transport, so its price affects almost everyone.

Since the price of crude started tumbling in 2014, the world has had a glimpse of the havoc a debilitated oil industry can cause. When oil fell below $30 a barrel in January this year, stockmarkets predictably plummeted, oil producers such as Venezuela and Nigeria suffered budget blowouts and social unrest, and some American shale companies were tipped into bankruptcy. But there have been positive effects as well. Saudi Arabia has begun to plan for an economy less dependent on oil, and announced it would partially privatise Aramco. Other Middle Eastern producers have enthusiastically embraced solar power. Some oil-consuming countries have taken advantage of low oil prices to slash fuel subsidies.

Western oil companies have struggled through the crisis with a new cross to bear as concerns about global warming become mainstream. In America the Securities and Exchange Commission and the New York attorney-general’s office are investigating ExxonMobil, the world’s largest private oil company, over whether it has fully disclosed the risks that measures to mitigate climate change could pose to its vast reserves. Shareholders in both America and Europe are putting tremendous pressure on oil companies to explain how they would manage their businesses if climate-change regulation forced the world to wean itself off oil. Mark Carney, the governor of the Bank of England, has given warning that the energy transition could put severe strains on financial stability, and that up to 80% of fossil-fuel reserves could be stranded. The oil industry’s rallying cry, “Drill, baby, drill!” now meets a shrill response: “Keep it in the ground!”

Which peak?

This marks a huge shift. Throughout most of the oil era, the biggest concern has been about security of energy supplies. Colonial powers fought wars over access to oil. The Organisation of Petroleum Exporting Countries (OPEC) cartel was set up by oil producers to safeguard their oil heritage and push up prices. In the 20th century the nagging fear was “peak oil”, when supplies would start declining. But now, as Daniel Yergin, a Pulitzer-prizewinning oil historian, puts it: “There is a pivot away from asking ‘when are we going to run out of oil?’ to ‘how long will we continue to use it?’ ” For “peak oil”, now read “peak demand”.

Oil to fuel heavy-goods vehicles, aeroplanes and ships, and to make plastics, will be needed for many years yet. But from America to China, vehicle-emissions standards have become tougher, squeezing more mileage out of less fuel. Air pollution and congestion in big cities are pushing countries like China and India to look for alternatives to petrol and diesel as transport fuels. Car firms like Tesla, Chevrolet and Nissan have announced plans for long-range electric vehicles selling, with subsidies, for around $30,000, making them more affordable. And across the world the role of energy in GDP growth is diminishing.

Analysts who think that the Paris accords will mark a turning point in global efforts to reduce carbon-dioxide emissions say global oil consumption could start to wane as early as the 2020s. That would mean companies would have to focus exclusively on easy-to-access oil such as that in the Middle East and America’s shale-oil provinces, rather than expensive, complex projects with long payback periods, such as those in the Arctic, the Canadian oil sands or deep under the ocean.

Yet many in the industry continue to dismiss talk of peak demand. They do not believe that governments have the political will to implement their climate goals at anything like the speed the Paris agreement envisages. In America they ridicule the idea that a nation built around the automobile can swiftly abandon petrol. And Khalid Al-Falih, Saudi Arabia’s energy minister, estimates that the world will still need to invest in oil to the tune of almost $1trn a year for the next 25 years. Oil veterans point out that even if global oil consumption were to peak, the world would still need to replace existing wells, which deplete every year at the rate of up to 5m b/d—roughly the amount added by America’s shale revolution in four years. Demand will not suddenly fall off a cliff.

A number of big oil companies accept that in future they will probably invest less in oil and more in natural gas, as well as in renewable energy and batteries. Rabah Arezki, head of commodities at the IMF, says the world may be “at the onset of the biggest disruption in oil markets ever”.

This report will argue that the world needs to face the prospect of an end to the oil era, even if for the moment it still seems relatively remote, and will ask three central questions. Will the industry as a whole deal with climate change by researching and investing in alternatives to fossil fuels, or will it fight with gritted teeth for an oil-based future? Will the vast array of investors in the oil industry be prepared to take climate change on board? And will consumers in both rich and poor countries be willing to forsake the roar of a petrol engine for the hum of a battery?

The OPEC "Vienna Matrix" - If 1MM Cut, Oil To $59; If No Cut, Oil To $40

While the market has taken the latest round of "optimistic" jawboning by OPEC members in stride, sending crude higher by 4% ahead of next week's OPEC meeting in Vienna where the terms of the OPEC production cut are expected to be finalized, the reality is that a favorable outcome may be problematic.

As Bloomberg's Julian Lee explained overnight, "OPEC says it’s close to a deal to cut oil output for the first time since 2008, a move that may halt a 2 1/2-year price slump. The actions of individual member states tell a different story. The simple math supporting cuts looked solid at OPEC’s meetings in June and December. Prices then were way below most members’ fiscal break-even points. An output cut now of 1.5 million barrels a day, or 5 percent, would need to boost the oil price by only $2.50 a barrel for OPEC nations collectively to be better off. A $5 price increase would boost the value of what they pump by about $100 million a day."

There are various nuances as to why a deal, one in which Saudi Arabia would bear the brunt of total production cuts, but as Lee notes, while OPEC Secretary-General Mohammed Barkindo has been touring member nations to shore up support for an agreement before the Nov. 30 meeting, culminating with a trip to Doha for talks last week, "the meeting didn’t resolve much. It certainly didn’t tackle any of the thorniest questions that OPEC must still overcome if coordinated measures are to happen."

“The road from the OPEC agreement in Algiers to the next official OPEC meeting in Vienna is long and bumpy,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London.

Meanwhile, OPEC production continues to surge, hitting new all time highes just this month, effectively leaving the cartel little option but to reduct supply, however even with a cut it would only bring down production to a level seen as recently as May of this year. As a result, as Bank of America notes, downward oil price pressures are now coming mostly from within the cartel itself. "Will OPEC decide to end the price war or not? For starters, it is important to note that the cartel is running with very limited spare production capacity. As a result, we would argue that it makes good economic sense to end the price war, or at least declare a truce, at this stage."

Which brings us to the 4 possible outcomes from the Vienna meeting and how they would impact the price of oil.  Here is how Bank of America lays out the possibilities:

• First, we see only a slim chance that OPEC does not announce an oil supply cut deal on November 30, an outcome that could send oil prices temporarily below $40/bbl, in our view.
• Most likely, OPEC will go with a 500 thousand b/d or 1 million b/d supply cut announcement, in our view. Should OPEC just deliver a half a million barrel deal, we see prices staying around the current levels.
• For prices to firmly break over $50/bbl, OPEC would have to deliver a 1 mn b/d cut.
• If the cut comes with firm quotas and a tight control mechanism, we see WTI prices averaging $59/bbl in 2017, while a looser deal would probably shave $5 off this number.

Some more detail on the two most likely outcomes:

OPEC agrees to 1 million cut:

Historically, Saudi production has fluctuated quite extensively to follow price (or demand) trends (Chart 15), in turn allowing for a steady and well managed inventory cycle. While BofA is not expecting a return to the old regime where Saudi micromanaged global oil stocks, it does project OPEC crude supply to drop sequentially (Chart 16). Under this scenario, BofA's base case, WTI crude oil prices will average $55/bbl in 1H17 and $59/bbl over the course of the year. The cut would enable a fast rebalancing of global crude markets and possibly a shift into backwardation. Moreover, the deal would likely incorporate a production freeze from Russia.

Oil may drop to $40/bbl if the cartel cannot agree to cut:

A 1million b/d swing in global oil supplies impacts prices, on average, by about $17/bbl (Chart 19). With non-OPEC supply stabilizing and OPEC adding more barrels to the market in recent months, a price recovery is looking less likely. If OPEC does not come to a deal on supply, we see the oil market surplus extending through 3Q17 (Chart 20) and oil prices facing a renewed slump. In some ways it is OPEC's moment of truth, or maybe just a moment of truce. After all, the ongoing price war is driven by technology. Even if the cartel puts a 12 month supply cut deal together, technological advances will likely keep pressing down shale oil cost structures.

The Secret World Of Indian Currency Printers (The conspiracy theorists are all out.)

by Shelley Kasli via GreatGameIndia.com,

The recent decision to discontinue the Rs 500 and Rs 1000 notes and introduce the Rs 2000 notes was taken with a view to curbing financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy. However, are our new currency notes printed with the involvement of the same blacklisted companies that infact were the source of fake notes to Pakistan in the first place?

RBI Rocked & Parliament Shocked

Sometime during 2009-10 CBI raided some 70-odd branches of various banks on the India-Nepal border from where counterfeit currency racket was unearthed.The officials of these branches told CBI that they had got these notes from RBI which led CBI to raid the vaults of RBI. What CBI found in the vaults of RBI were huge cache of counterfeit Indian currency lying in the denomination of 500 and 1000, the same counterfeit currency smuggled by the Pakistani intelligence agency ISI into India. The question was how did these fake currency landed in the vaults of RBI?

Later in 2010 the Committee on Public Undertakings (COPU), an Indian Parliamentary committee was shocked to find out that the Government had outsourced the printing of Rs 1 lakh crore of currency notes to US, UK and Germany putting the “entire economic sovereignty (of the country) at stake”.

The 3 companies to whom the Indian currency printing was outsourced are American Banknote Company (USA), Thomas De La Rue (UK) and Giesecke and Devrient Consortium (Germany).

Following the scandal the Reserve Bank sent a senior official on a fact-finding mission to De La Rue‘s printing plant in Hampshire, UK. RBI which imports 95% of its security paper requirements and which is believed to account for up to a third of De la Rue’s profits excluded De la Rue from new contracts. De La Rue was blacklisted by the government with 2000 metric tonnes of its paper lying unused at printing presses and godowns. It was a disaster and De la Rue’s CEO James Hussey who is the godson of the Queen of England herself quit the company mysteriously. De la Rue’s shares tanked and it almost went bankrupt losing one of its most valuable customer – RBI. Its French rival Oberthur approached De la Rue with a bid to takeover the company which was fought back.

The complaints sent to the Central Vigilance Commission (CVC) by ‘unnamed officers of the Ministry of Finance’ mentioned other companies too. These include French firm Arjo Wiggins, Crane AB of USA and Louisenthal, Germany. However as recently as January 2015 the Home Ministry barred the German company, Louisenthal, from selling bank note paper to the RBI after it discovered that the firm was also selling raw notes to Pakistan.

So who are these currency printers and how did they end up printing currency notes for the Indian government? How did the company from getting blacklisted to a point of bankruptcy rose to its feet and is preparing to enter the Indian market again? Most importantly why is it that the common Indian know nothing about it? Here is a brief story of these Money Makers.

The Secret World of Money Makers

The high-security currency printing and technology business is dominated by a few Western-European companies. In his book Money Makers – The Secret World Of Banknote Printing author Klaus Bender offers a detailed view of the banknote industry and its modus operandi by removing the industry’s carefully imposed shroud of secrecy. The only previous attempt to reveal this story was published in 1983 by an American author, Terry Bloom in his book “The Brotherhood of Money – The Secret World of Banknote Printers”. The entire edition of that book was bought up – straight from the printing presses – by two prominent representatives of the industry to prevent the public from getting an inside view of the business.

The four major segments in the currency business are paper, printing presses, note accessories, inks and lastly integrators who provide total, end-to-end currency printing services. It is believed these businesses are tightly run by not more than a dozen companies operating out of Europe. These companies are believed to be operating since the 15^th century. De la Rue’s history goes even further back to the company’s plant near Bath which has been a mill operating for 1,000 years.

De la Rue was the official Crown Agent of the British Empire who still prints banknotes for the Bank of England. Crown Agents ran the day-today affairs of the Empire. In his book Managing the British Empire: The Crown Agents author David Sunderland explains how the Crown Agents printed the stamps and banknotes of the colonies; provided technical, engineering, and financial services; served as private bankers to the colonial monetary authorities, government officials, and heads of state; served as arms procurers, quartermasters, and paymasters for the colonial armies. In effect, Crown Agents administered the British Empire, which at one point in the 19th Century, encompassed over 300 colonies and nominally “independent countries” allied to the British Crown.

Later the Crown Agents’ office was set up, under the supervision of the Secretary of State for the Colonies, in 1831 to consolidate the activities previously undertaken by a number of agents of varying efficiency and probity. This was done to properly manage the budding Industrial Revolution that destroyed the traditional Indian markets and economy.

The first colony allowed to issue government notes was Mauritius, which in 1849 began to distribute rupee notes. No other colony was permitted to follow its lead until 1884. Colonies were required to obtain notes from the Agents, who passed orders onto the printing firm De la Rue.

As per official history the bank note printing in India started in 1928 with the establishment of India Security Press at Nashik by Government of India. Until the commissioning of Nashik Press the Indian Currency Notes were printed from Thomas De La Rue Giori of United Kingdom.

Even after Independence, for 50 years, Free India printed its rupees on machines bought from De La Rue Giori, run by the Swiss family Giori and till recently said to control 90 per cent of the banknote printing business. But than something happened at the closing of the 20^th century that changed everything.

The Hijacking Of Indian Airlines Flight 814

On 24 December 1999 Indian Airlines Flight 814 also known as IC 814 was hijacked by gunmen shortly after it entered Indian airspace. Hijackers ordered the aircraft to be flown to several locations. After touching down in Amritsar, Lahore and Dubai, the hijackers finally forced the aircraft to land in Kandahar, Afghanistan, which at the time was controlled by the Taliban. For those of you who are not aware of the incident remember the Ajay Devgan starrer action thriller Zameen, which was based on this incident.

What was not shown in the film however and what is not known to many still is that there was a mystery man on that flight. His name is Roberto Giori and he was the owner of De la Rue who controlled 90% of the world’s currency-printing business. The 50-year-old Giori, who holds dual Swiss and Italian nationality, is one of Switzerland’s richest men. Switzerland sent a special envoy to the airport to deal with the abduction of its currency king. It also put pressure on New Delhi to come to a solution that ensured their safe release.

Two days after the hijack, on Sunday, 26 December, the Swiss Foreign Minister, Mr. Joseph Deiss, had a long telephone conversation with his Indian counterpart, Mr. Jaswant Singh, the Swiss press had reported. The Swiss Government set up a separate cell in the capital Berne to deal with the crisis and had sent special envoy, Mr. Hans Stalder, to Kandahar who regularly reported back to Berne. According to the Repubblica and Corriere Della Sera newspapers, ever since his return to Switzerland by a special plane, Mr. Roberto Giori has been under the protection of the Swiss Government.

But there is a very important missing piece to this story. It is believed that a ransom was paid by the Indian Government for the safe release of Roberto Giori; this issue has been voiced not just from political sections but also from Intelligence. This issue is a hot potato for both the Congress and BJP and is likely to boil parliament in the near future.

Whatever be the case the motive for the hijacking was reported to be to secure the release of terrorists held in Indian prisons. The hostage crisis lasted for seven days and ended after India agreed to release three militants – Mushtaq Ahmed Zargar, Ahmed Omar Saeed Sheikh and Maulana Masood Azhar. These militants have since been implicated in other terrorist actions including the Mumbai terror attacks.

While the release of terrorists maybe one of the motive for hijacking the plane, there are bigger things at stake here than is usually understood. Roberto Giori was not an ordinary man not even an ordinary VVIP. He was the owner of the company that has been printing currency notes for more than 150 countries since centuries. And it has a dark history in each and every country that it operated in. We mention few instances here for our readers to understand the gravity of the situation and encourage you to study others.

Colonel Muammar Gaddafi, the Libyan President was starved of currency before he was militarily overthrown. He was unable to pay his soldiers. The contract for printing the banknotes was given to De La Rue but they were not delivered until it was too late.

With the destruction of the Berlin Wall and the break-up of Soviet Union, many newly independent countries sprang up overnight. One such country was Chechnya (formerly part of the Soviet Union) who signed a secret deal to print passports and banknotes with De la Rue. Two brothers Ruslan and Nazerbeg Utsiev were sent to conclude the deal. Apart from printing passports and banknotes they were also trying to secure 2000 ground-to-air Stinger missiles from Britain, Russia’s age old arch-enemy. The KGB was tipped-off and soon two Armenian hitmen were on their way from Los Angeles to kill both the brothers and the deals. Both the brother were found dead soon after.

The brothers and the deals were dead but De la Rue survived. All was well until in 2010 the Parliament Committee was rocked with the scandal and De la Rue with other companies were blacklisted from operating in India and almost went bankrupt. This brings us to the recent demonetization move.

Is De la Rue involved in the printing of the new Rs 2000 notes?

As per a recent report by Economic Times,

[The notes]were largely printed at Mysuru under utmost secrecy while the paper note on which the printing was done came from Italy, Germany and London.

 

The printing, according to officials, began in August-September and nearly 480 million notes of Rs 2,000 denomination and an equal number of Rs 500 denomination were printed. The printing facility at Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL) in Mysuru under Reserve Bank of India was set up with the De La Rue Giori, now KBA Giori, Switzerland.

The Hindu reported,

India imports bank note papers from European companies like Louisenthal in Germany, De la Rue in United Kingdom, Crane in Sweden and Arjo Wiggins in France and Netherlands.

 

India had blacklisted two European firms in 2014 amid reports by security agencies that the security features, which come embossed on bank note paper, were compromised and given away to Pakistan.

But the ban was lifted and the companies were removed from the blacklist. Why? Here is the reason given for the lifting of the ban.

“These companies are in the business for 150 years? they will not hamper their trade by passing on information of one country to another. Some of these firms even print currency notes for smaller countries. After the investigations, it was found that the two firms had not compromised the security features and the ban was lifted,” said the official.

However the Serious Fraud Office (SFO) of UK itself in their inquiry had uncovered that a number of De la Rue employees had deliberately falsified certain paper specification test certificates for some of its 150 clients. Recently it was also revealed in the Panama Papers that De la Rue paid out a 15% commission to a New Delhi businessmen to secure contracts from Reserve Bank of India. There are also reports that De la Rue paid £40m in settlement to the RBI for issues in production of paper notes.

Even so after all this it has been given clearance and there are even plans in discussion with De la Rue for setting up of a security paper mill and a research and development centre of identity software in Madhya Pradesh. Martin Sutherland the new CEO of De la Rue in an interview titled Giving Make in India the Currency to Succeed with India Investment Journal said that under the UK-India Defence & International Security Partnership Agreement which was signed in November 2015, De La Rue is committed to supporting both governments on the subject of counterfeiting under this agreement.

However there has been no official announcement made regarding the lifting of the ban on De la Rue and its removal from the blacklist apart from the news report. De la Rue that almost went bankrupt after losing RBI contracts reported a whopping 33.33% rise in its shares in the last six months.

The question that still need to be answered is; are the new Indian currency notes printed with the involvement of blacklisted Crown Agent companies who supplied and were the source of fake notes for Pakistan at the expense of India’s National Security?

Note: In order to get answers to the above questions GreatGameIndia has under the Right to Information Act filed RTIs to know the truth of the matter in the service of the nation.