London Irvine Report May 14, 2007

Unprepared for Petro-Russia.

“The telephone has too many shortcomings to be seriously considered as a means of communication.”
Western Union internal memo, 1876

“The Americans have need of the telephone, but we do not. We have plenty of messenger boys.”
Sir William Preece, chief engineer of the British Post Office, 1876

Has Russia won just “the Great Game”. The jury’s still out but developments in central Asia at the weekend suggest they have. Below CNN updates us on the potentially calamitous news. While bad for America and the west in general, the west Europeans look likely to be the biggest losers. In energy supply ahead, Western Europe on one end and China on the other, each look like they will need to keep the Russian bear happy. China will have the easier task.

Russia signs Caspian pipeline deal
POSTED: 1101 GMT (1901 HKT), May 12, 2007
TURKMENBASHI, Turkmenistan (AP) — The leaders of Russia, Turkmenistan and Kazakhstan reached a landmark pipeline deal on Saturday that will strengthen Moscow’s control over Central Asia’s energy export routes.

The deal to build a pipeline along the Caspian Sea coast to ship Turkmen natural gas to Western markets via Kazakhstan and Russia is a blow to U.S. and European efforts to secure alternatives to Middle East oil and gas that would be independent from Russian influence.

“We are opening the Caspian route at the request of Turkmenistan,” Russian President Vladimir Putin said after the announcement of the deal in the Turkmen city of Turkmenbashi on the Caspian shore.

Putin said the new pipeline’s annual capacity may reach “at least” 20 billion cubic meters of gas by 2012, while Russian Industry and Energy Minister Viktor Khristenko told reporters that it could eventually carry 30 billion cubic meters a year.

There was no official word on the new pipeline’s cost, but the ITAR-Tass news agency said that a 2003 estimate put it at around $1 billion back in 2003.

The deal comes amid increased competition for Turkmenistan’s vast gas reserves since the death last year of President Saparmurat Niyazov, who had signed deals to build export pipelines to power-hungry China.

Turkmenistan is the second-biggest gas producer in the former Soviet Union after Russia, and its gas resources are playing an increasingly important role in the geopolitics of the region. Russia controls the only export routes for Turkmenistan’s gas and the main pipeline for Kazakh oil exports.

The United States and the European Union have lobbied hard for a route under the Caspian Sea to Azerbaijan and Turkey, bypassing Russia.

While both Turkmen President Gurbanguli Berdymukhamedov and Kazakhstan’s Nursultan Nazarbayev signaled Saturday that the trans-Caspian pipeline may also be considered in the future, the latest deal means that Russia would control the bulk of Central Asian energy exports.

Also on Saturday, the three presidents announced an agreement involving Uzbekistan to revamp the entire Soviet-built pipeline network that carries Central Asian gas to outside markets via Russia.

Khristenko said that once revamped, the system would be capable of carrying 90 billion cubic meters of gas annually. He scoffed at the trans-Caspian pipeline proposal as being economically unfeasible, saying it could only be viewed as a “political project.”

—-In another blow to Western hopes of securing Central Asian energy shipments that bypass Russia, Putin and Nazarbayev on Thursday agreed to expand the existing oil pipeline that carries crude oil from Kazakhstan’s Tengiz field to the Russian Black Sea port of Novorossiisk.

Putin also agreed to Kazakhstan’s participation in a Russian-controlled pipeline that runs from Bulgaria’s Black Sea port of Burgas to Alexandroupolis, in northern Greece.

The two deals are likely to reduce Kazakhstan’s interest in routes connecting with the U.S.-backed Baku-Tbilisi-Ceyhan pipeline that carries Caspian oil to Turkey on a route that bypasses Russia.
http://edition.cnn.com/2007/BUSINESS/05/12/russia.pipeline.ap/index.html

“While both Turkmen President Gurbanguli Berdymukhamedov and Kazakhstan’s Nursultan Nazarbayev signaled Saturday that the trans-Caspian pipeline may also be considered in the future, …..”

Dream on. Why would they willingly break their own monopoly in favour of the imperial west. Why would they bail out the west’s BTC pipeline, which will never run at full capacity or profitability without their oil? Why would they throw money away to the rich west. The west now has very limited options, which largely rest on regime change in central Asia, covert or otherwise. China and the rest are all members of the Shanghai Cooperation Organisation. China will eventually have a developed market of 1.3 billion
consumers. China’s wealth is rising, that of the west declining. Relations with China are cordial. Relations with Europe are icy.

Below, the chill deepens in Europe. Europe will have to choose in the decade ahead between a deeper Russian embrace, and greater distance from Washington, or getting less winter energy than it needs. The world is rapidly changing. Are resource wars the future ahead?

CFE Treaty on brink of collapse, Iran threat overblown-Russia gen.
BRUSSELS, May 10 (RIA Novosti) – The Treaty on Conventional Armed Forces in Europe is about to collapse, a senior Russian military official said Thursday.

“The CFE Treaty is on the brink of collapse, but Russia did not want that,” said Army Gen. Yury Baluyevsky, chief of the General Staff of Russia’s Armed Forces.

Russia’s representative at the NATO-Russia Permanent Joint Council meeting, Yury Baluyevsky, has come to Brussels to explain Russia’s recent statements on the CFE and the U.S. plans to its missile defense system in Central Europe.

“We hope our concerns will be heard,” Baluyevsky said, describing the CFE Treaty as the cornerstone of European security.

“Russia has fulfilled its commitments on military withdrawal from the South Caucasus,” he said, “There is no link between Russia’s military pullout from Georgia and Transdnestr and the ratification of this treaty by NATO member states.”

He also said Iran’s missile threat has been exaggerated and cannot serve to justify the deployment of elements of U.S. missile defense in Europe

“The threat posed by Iran’s missile potential is overrated and unrealistic, and may not serve as grounds for the deployment of American missile defense assets in Europe,” he said.
Gen. Baluyevsky said Iran is unlikely to develop intercontinental ballistic missiles in the foreseeable future since it lacks essential technology.

“Iran has no sponsors, and I am sure it will have none,” he said.

The Russian chief of staff also called for a thorough analysis of the real reasons behind the U.S. plans to deploy missile defenses in Central Europe.

—- He said the missile defense system in ineffective and can ensure neither U.S. nor European security.

“Before guaranteeing European security, the Pentagon should prove that it can protect the United States,” he said.

The CFE Treaty was signed in 1990 by the then-22 NATO members and the now defunct Warsaw Pact to enhance arms control in Europe, and amended in 1999 in Istanbul in line with post-Cold War realities.

NATO countries have not ratified the new version, demanding that Russia first withdraw from Soviet-era bases from Georgia and Moldova under its Istanbul commitments. Moscow says there is no link between the two documents, and has argued that NATO newcomers Slovakia and the three Baltic states have not joined the CFE at all, despite preliminary agreement that they would do so.
http://en.rian.ru/russia/20070510/65265934.html

Russia brews trouble in Europe’s Cuba
By Colin Freeman in Tiraspol, Sunday Telegraph
Last Updated: 1:28am BST 14/05/2007
—- Now, however, after 16 years of diplomatic limbo, the land sometimes referred to as “Europe’s Cuba” is finally achieving prominence on the international stage – as a pawn in Moscow’s renewed bid for influence on Europe’s old Cold War frontier.

With President Vladimir Putin furious at American plans to install missile shields in Poland and the Czech Republic, the Kremlin is anxious to prevent yet more parts of its “near-abroad” following the likes of Bulgaria, Estonia and Latvia into the Nato embrace.

Transdniester, along with South Ossetia and Abkhazia in Georgia, Crimea in Ukraine, and Narva in Estonia, is one of the Russian-speaking enclaves where Moscow is now ratcheting historical affinity to Russia into actively separatist, anti-Western zeal. Such sentiment flared up earlier this month when Russian-speaking youths rioted in Estonia over plans to remove a Soviet war memorial. The Kremlin aims to harness it into organised, pro-Russian movements, a Red-hued version of the Orange Revolution that ushered a pro-Western government into power in Ukraine two years ago.

Transdniester’s population of 550,000 offers a small but willing constituency.

While the rest of eastern Europe set about destroying its Soviet-era monuments after communism’s collapse in 1990, here they were retained as Transdniester’s ethnic Russians, many planted there during the communist-era Russification”, sought a rallying point against growing Moldovan nationalism.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/05/13/wmold13.xml

Russia’s energy win couldn’t come at a worse time for the EU. Below, the Paris based IEA foresees crude oil and petrol shortages ahead. Meanwhile trouble in Nigeria continues to escalate. For now, Chevron says its production in Nigeria hasn’t been further affected. For now, being the operative words. With the official start to the Atlantic hurricane season just a couple of weeks away, a summer of high oil volatility looks to be a traders dream.

Tight supply could push oil prices higher: IEA
By Veronique Dupont
AFP PARIS
Petroleumworld.com 05 14 07
Oil prices could climb still higher this year despite a shaving of demand because supplies of crude oil and petrol are likely to tighten, the International Energy Agency warned Friday.

The IEA focused in its monthly report on political unrest in Nigeria, falls in OECD oil stocks and US petrol reserves ahead of the summer “driving season”, and strains in the global refining sector.

The agency reduced its forecast figure for global demand for oil in 2007 by 0.1 million barrels per day from its estimate in April, to 85.7 million barrels owing to mild weather in the northern hemisphere and a slightly lower forecast for demand in China.

But it warned: “With average (petrol) retail prices in the US near record highs at just over three dollars per gallon several weeks ahead of the start to the summer driving season, concerns over supplies are being raised.”

In addition, senior IEA analyst Lawrence Eagles noted that China’s estimated need for crude was based on “lower apparent demands” in the absence of official figures, but that economic growth figures suggested it could in fact be higher.

“If you look at GDP (gross domestic product) growth in the first quarter, which was over 11 percent, it would imply a much higher level of oil demand in the first quarter than the data we’ve seen,” Eagles told AFP.

—-It said that since the Organization of Petroleum Exporting Countries was “apparently unconvinced of the need to review crude production before its scheduled September meeting, steady output at current levels would lead to the group undershooting our calculated range for a call on it crude, and thus tightening stock further.”

The Paris-based IEA, which represents the interests of consumer countries in the Organisation for Economic Cooperation and Development, warned that a draw on OPEC crude oil stocks “of 900,000 barrels per day over the past six months is unusually high.

“Crude stocks will tighten if OPEC production stays at current levels through to the end of the third quarter – as some officials have suggested.”

Although an optimistic view might argue that current crude stocks are adequate, “this report anticipates a thirsty market in the months ahead.”
http://www.petroleumworld.com/storyt07051401.htm

Chevron scales down in Nigeria after kidnaps
AFP LAGOS
Petroleumworld.com 05 14 07
US oil giant Chevron said Saturday it was suspending non-essential activities off Nigeria’s oil-rich southern coast days after four of its workers were seized from a construction vessel.

“This change in work activity level, mainly in drilling and construction, is a precautionary measure that is being taken as a result of recent security incidents in the region,” the company said in a statement.

Almost 40 gunmen on Tuesday attacked the DLB Cheyenne on six small boats and seized four of the company’s US subcontractors.

Chevron, the second largest US oil company, said the scaling down followed “increased challenges in the Niger Delta region” and was essential for “the safety and security of our workforce and facilities.”

It would “have an impact on numerous contract workers,” the statement added, but spokesman Michael Barrett declined to comment on the number of workers and subcontractors that would be affected.

“There is currently no immediate impact on production,” the communique said.
http://www.petroleumworld.com/story07051413.htm

Below, more under reported news from Asia implying ever more long term Asian economic growth ahead. The westernisation of lifestyle for millions, looks set to run on for decades. But will there be oil for all?

VN enhances transport, economic ties with Guangxi
(11-05-2007)
HA NOI — Viet Nam and China’s Guangxi Province will work together to develop roads and a railway linking the two countries, Prime Minister Nguyen Tan Dung said yesterday at a reception for Party Secretary of Guangxi Zhuang Autonomous Region Liu Qibao in Ha Noi.

The Prime Minister will assign Vietnamese ministries and agencies to work with Guangxi on the issue in order to enhance relations and boost co-operation in economics, culture and education between the two nations.

Dung said Viet Nam attached special importance to its diverse ties with Guangxi, under the motto Two Corridors, One Economic Belt to which the national leaders had agreed.
He praised Liu’s proposal to expand co-operation with the model One Axis, Two Wings, including the Viet Nam-Singapore economic corridor axis and co-operation between the Mekong region and Bac Bo (Tonkin) Gulf.

Viet Nam will also adopt measures to shape up the Dong Dang-Peng Xiang economic zone and organise the 4th China-ASEAN Trade Fair, the Prime Minister said.
http://vietnamnews.vnagency.com.vn/showarticle.php?num=05POL110507

In China news, dare China reign in its money supply. What happens to China’s stock market if they try? What happens to western markets too? More unintended consequences of fiat money. Stay long precious metals for when reality returns.

China Money Supply Rises 17.1%, Exceeding Target
By Nipa Piboontanasawat and Helen Yuan
May 13 (Bloomberg) — China’s money supply growth exceeded the government target for a third month and lending accelerated, adding pressure on the central bank to raise interest rates.

M2, which includes cash and all deposits, rose 17.1 percent in April from a year earlier, the People’s Bank of China said on its Web site today, after gaining 17.3 percent in March. That beat the 17 percent median estimate of 19 economists surveyed by Bloomberg News and the central bank’s 2007 target of 16 percent.

Outstanding yuan loans also rose more quickly last month than in March as tighter lending rules and higher borrowing costs failed to curb investments in factories and real estate. The People’s Bank of China has raised interest rates three times since April 2006, as well as increasing the amount lenders must set aside as reserves seven times, in a bid to slow asset bubbles and accelerating inflation.

“Lending is still very strong and that sustains fixed-asset investment,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. “The central bank wants to reduce loan growth and make savings more attractive to cool the stock markets.”

Kowalczyk expects the central bank to raise both lending and deposit rates in June. The one-year benchmark lending rate is at 6.39 percent.

Outstanding yuan loans climbed 16.5 percent in April from a year earlier, today’s statement said, up from 16.3 percent in March. Banks extended 422 billion yuan of new loans last month, making the total for the first four months 1.8 trillion yuan, more than half the total for the whole of last year.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFbsbycbXMbk&refer=worldwide

We end today with Friday’s news in grains. Baring a miracle the global inventory of wheat will decline to the lowest level in 26 years. Stating the obvious, far more people will be dependent on that carryover. We are into a northern hemisphere weather market in the grains. On the plus side it looks like India’s monsoon is arriving early. On the negative side, China, parts of Europe and north America, haven’t had an ideal planting and growing start. Higher food inflation seems highly probable ahead. Historically, that’s usually associated with rising social discontent sometimes to the point of disorder. Stay long gold and silver. We are into a transitional age.

Wheat Rises the Most in Two Weeks as World Supplies May Decline
By Tony C. Dreibus
May 11 (Bloomberg) — Wheat rose the most in two weeks in Chicago and Kansas City after the U.S. government forecast world reserves of the grain before next year’s harvest will decline for a third-straight year to the lowest in 26 years.
Global inventories will fall to 113.3 million metric tons on May 31, 2008, down 5.8 percent from an estimated 120.4 million at the end of this month and the lowest since 1982, the U.S. Department of Agriculture said in its first forecast of world wheat production for the market year that begins June 1.

“I would consider those numbers to be fairly darned tight,” said Jason Britt, an analyst at Central States Commodities in Kansas City, Missouri.
“When you put a world wheat number down around that level,” prices will rise, he said.

—–Wheat has climbed 29 percent in the past year and reached a 10-year high of $5.57 in October after regional droughts cut global production.

——The amount of wheat in storage in the U.S. on May 31, 2008, may increase 14 percent from a year earlier to 469 million bushels. That’s “on the low end” of most predictions, Mike Zuzolo, chief market analyst at Risk Management Commodities in Lafayette, Indiana, said in a report. Ten analysts surveyed by Bloomberg estimated supplies would total 486 million bushels.

——Global stockpiles are expected to be 120.36 million metric tons at the end of the 2006-2007 marketing year on May 31, down 19 percent from a year earlier, the USDA said. Supplies declined after the crop in Australia, the world’s third-largest exporter of the grain, was devastated by drought from May through September.

Australia will produce 10.5 million metric tons by May 31, 57 percent less than a year earlier, the USDA said. Though U.S. winter-wheat production is expected to rise 24 percent in the year ending May 31, 2008, stockpiles will remain low during the coming year, said Larry Young, a senior trader at Infinity Brokerage Services Inc. in Chicago.

——The need for more beef and pork, which are fed with grains including wheat, will increase as more people in developing countries such as China and India move to cities and change from grain-based diets to protein-based diets, Young said.
http://www.bloomberg.com/apps/news?pid=20601012&sid=a8Rxm6D2AhQs&refer=commodities

At the Comex silver depositories Friday, 58,088 ozs was withdrawn from Eligible at the Delaware Depository. Final figures were Registered 80.67 Moz, Eligible 50.79 Moz, Total 131.46 Moz.

The NYSE WIN system is now flat. The NASDAQ system is also flat. Since playing a black box system in the current geo-pol/economic climate, isn’t the wisest thing to do, we will adjust long positions to carry an offsetting deep-out-of-the-money matching option position to provide an automatic fail safe stop in the event another 1987 like event occurs before the PPT can
step in.

More details on the WIN system are available at link below.
http://website.lineone.net/~audluk/tocframe.htm

The monthly Coppock Indicators finished April:
DJIA: 156 up. NASDAQ: 91 up. SP500: 131 up.
The NASDAQ turned down in February and has now turned back up. The DJIA is now moving higher again from sideways. The S&P continues to move higher.

This week’s featured links:
Tungsten, molybdenum and uranium.

Oriental Minerals TSX.V: OTL
The Company’s current projects include the Sangdong tungsten-molybdenum mine, historically, one of the largest tungsten mines in the world; the Muguk gold-silver mine, formerly South Korea’s largest gold producing mine, as well as a number of other properties with significant known mineralization and excellent regional potential.

http://www.orientalminerals.com/s/Home.asp

Trigon Uranium Corp. TSX.V: TEL
Trigon Uranium Corp. is an aggressive Uranium exploration and development company. We focus on advanced exploration properties and development properties. This provides for faster time lines to production compared to grass roots exploration. The properties are located in jurisdictions which are mining friendly, politically stable, and have predictable legal systems. Our two major Uranium properties, the Marysvale and Henry Mountains properties are located in the US South West, a region which has produced over one billion pounds of Uranium. Trigon has a highly qualified team of uranium exploration experts with uranium experience in the US South West, Canada, and internationally

http://www.trigonuraniumcorp.com/

My thanks to readers Vance and Dale for suggesting the links.

A Personal Disclosure.
Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying companies and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades. I expect the pace of interest in natural resource stocks to quicken. I also expect many
junior resource stocks will become takeover or consolidation targets. I expect NAFTA based resource stocks to be especially prominent.

Where I hold a position prior to a company being featured as a link, this will be disclosed. Where I will be investing during the week of linking, this too will be disclosed.

In no event should my investing or not investing substitute for doing your own due diligence, if you are considering an investment in the stock.

My circumstances and resources are probably very different to other potential investors. All stocks linked in LIR, I consider to merit the link, whether or not I invest in the company. As before, neither LIR, Global Profiles nor myself get paid for featuring a link. Lastly, because I invest in a stock it does not necessarily turn it into a sure thing winner. Happily though, neither will my investing turn it into an automatic loser.

Below is the list of natural resource stocks I hold an interest in. In no particular order, they are:
Birch Mountain Resources Ltd. BMD. http://www.birchmountain.com/
Canadian Royalties Inc CZZ. http://www.canadianroyalties.com/en/
MacMillan Gold MMG. http://www.macmillangold.com/
Quaterra Resources Inc QTA. http://www.quaterraresources.com/
MBMI Resources Inc MBR. http://www.mbmiresources.com/
Candax Energy Inc CAX. http://www.candax.com/
Derek Oil & Gas Corp DRK. http://www.derekoilandgas.com/s/Home.asp
Consolidated Spire Ventures CZS. http://www.spireventures.com/pmt.php/index
Cornerstone Capital Resources Inc
http://www.cornerstoneresources.com
Pacific Asia China Energy Inc.
http://www.pace-energy.com

If you have a junior resource company you think has merit and don’t mind sharing it with others, feel free to send it along. If space permits and they have no objections, we’ll try to put up a link.

Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.

If you like this report, feel free to share it with others. It is not copyrighted but open sourced. If you have comments, witty remarks, or information to share, please send them along as well. If permission is granted, we may use them in this report.

Sometimes the daily LIR gets “bounced” out of the receiver’s server. When this happens it sometimes bounces you out of the LIR database as well. If you suddenly stop receiving the daily update but didn’t actually want a break from my daily insanity, just email me at the link below to get back onto the daily list.

Graeme Irvine

Global Profiles LLC
girvine@globalprofiles.net
http://www.globalprofiles.net

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