Russia Ups Ante with Caspian Neighbors by Moving Offshore

November 21, 2011 by · Leave a Comment
Filed under: Economic News 

On 16 November in Astrakhan Lukoil president, Vagit Alekperov told journalists that his company will spend over $16 billion over the next decade to develop the country’s Caspian offshore Korchagin and Filanovskii oil and natural gas fields in the Caspian, at the signing of a cooperation agreement with the Astrakhan Region.

An equitable division of the Caspian’s offshore resources have bedeviled the region since the December 1991 implosion of the USSR, putting the Soviet Union’s previous cozy arrangements with the Shah’s Iran “into the dustbin of history,” to quote Leon Trotsky.

Before the collapse of the USSR, the Soviet Union and Iran effectively divided the inland sea amongst themselves, according to the terms of the 1940 Soviet-Iranian treaty, which replaced the 1921 Treaty of Friendship between the two countries, which awarded each signatory an “exclusive right of fishing in its coastal waters up to a limit of 10 nautical miles.” The treaty further declared that the “parties hold the Caspian to belong to Iran and to the Soviet Union.”

Since 1991 three new nations have arisen in the Caspian basin to contest this bilateral arrangement – Azerbaijan, Turkmenistan and Kazakhstan. For the past two decades the five nations have wrangled about how to divide the Caspian offshore waters, and little has been achieved.

Amidst the disagreements Azerbaijan, Turkmenistan and Kazakhstan have tentatively moved cautiously to develop their offshore reserves in sectors that they believe would be indisputably within their future assignations under an eventual five-state agreement.

Even within these cautious offshore margins, Azerbaijan and Kazakhstan have increased their output in the last 15 years by 70 percent.

But at issue are the diametrically opposed positions of Iran and the Russian Federation about how to develop an international Caspian consensus beyond the now moribund 1921 and 1940 treaties. Iran insists that all Caspian nations should receive an equitable 20 percent of the Caspian, while the Russia Federation has consistently maintained that the five Caspian riverine nations should receive their portion based on the length of their coastline. Under the Russian formula, Iran’s sector would consist of 12 percent to 14 percent of the Caspian’s waters and seabed.

The stakes are high – in 2009 the U.S. government’s Energy Information Administration estimated that the Caspian could contain as much as 250 billion barrels of recoverable oil along with an additional 200 billion barrels of potential reserves, in addition to up to 9.2 trillion cubic meters of recoverable natural gas.

Accordingly, all five Caspian nations have been delicately developing their offshore Caspian reserves in areas that will undoubtedly remain theirs whatever eventual agreement is hammered out between Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan. The Russian Federation and Iran are the last two nations to move “offshore.”

Alekperov said, “Five hundred billion rubles ($16 billion) will be invested in development. This huge amount will provide an opportunity for sustainable development in the region.”

Astrakhan Region Governor Aleksandr Zhilkin waxed lyrical on the importance of the agreement for the long-term development of Astrakhan’s shipbuilding industry, situated on the lower Volga, the Russian Federation’s major river emptying into the Caspian. Zhilkin commented, “All shipyards in Astrakhan Region will have work for the next ten years. Vagit Yusufovich (Alekperov) mentioned that Lukoil is investing more than 500 billion rubles ($16 billion) over the decade.

Zhilkin’s remarks to reporters are hardly an idle boast, as he stated that Lukoil had paid more than $16.1 million in taxes last year to Astrakhan’s regional budget.

So, the Russian Federation, like its four Caspian neighbors, is now beginning to tiptoe into its offshore waters, all the while insisting that its vision of divvying the inland sea prevails.

The last two decades have seen an apparent pragmatism slowly evolve over the Caspian offshore resources, first in Baku, followed by Astana, Ashgabat and more recently and reluctantly, Tehran and Moscow. While the issue of a final disposition of the Caspian’s offshore waters remains significant if for no other reason than the various proposed undersea pipelines such as Turkmenistan-Baku, which could be an influential element in the European Union’s projected $15 billion Nabucco natural gas pipeline reverie, all five nations seem to be moving cautiously towards planting their offshore flags in areas unlikely to arouse their neighbors.

It will be interesting to see if they meet in the middle.

Source: http://oilprice.com/Geo-Politics/International/Tensions-Increasing-Over-Caspian-Energy-Riches.html

By. John C. K. Daly of http://oilprice.com

Crude Oil Analysis for the Week of November 14, 2011

November 15, 2011 by · Leave a Comment
Filed under: Economic News 

January Crude Oil finished sharply higher for the week, settling well above a key 50% support at $95.29, but below 61.8% resistance at $99.99. Additional Gann angle support is at $99.36 this week. The next important upside target is a downtrending Gann angle at $101.23.

The $99.36 to $99.99 combination should act as a pivot zone, controlling the market’s short-term direction. Since the steep Gann angle moves up at a rate of $4.00 per week. This market is going to have to close above $103.36 on a weekly basis in order for it to maintain its torrid upward pace.

Bullish traders will want to see the market continue to hold $99.36 this week. Since last week’s close was at $98.99, the market will have some catching up to do early in the trading session. A failure to regain the steep uptrending angle will be another sign that buyers are lightening up their positions and that sentiment may be shifting to the downside.

It sounds complicated, but it’s not. This market is being driven by momentum at this time. A slowdown in momentum will show up on the charts and will be the first indication that an overdue correction is about to begin. Traders have to watch for this momentum shift because the market is vulnerable to a correction of its rally. The first downside target is a 50% price level at $87.28.

Fundamentally crude oil is being driven higher by a combination of economic and external events. From an economic standpoint, the market was boosted by a weaker U.S. Dollar and a slight easing in the uncertainty over conditions in the Euro Zone. Political changes in Greece and Italy helped fuel a shift in sentiment late in the week, driving up demand for risky assets.

Earlier in the week crude oil’s link to the Euro was demonstrated after the yield on Italian 10-year government bonds surged to a new lifetime high of 7.48%. Crude oil prices plunged sharply lower on Wednesday, but this loss was regained after Italy’s Parliament on Friday approved an amendment to the country’s 2012 budget regarding new austerity measures. This then allowed for the resignation of Prime Minister Berlusconi without having to go through a long, drawn out process.

Political and economic conditions also improved in Greece after new Prime Minister Papademos approved the country’s latest austerity plan and accepted the terms of the Euro Zone’s 130 billion Euro bailout proposal. This action helped turnaround the Euro late in the week, giving traders the confidence to buy riskier assets like equities and commodities.

A couple of U.S. economic events also helped boost energy prices. On Friday, preliminary data showed that U.S. consumer sentiment rose to its highest level in five months in November. A drop in U.S. jobless claims also helped contribute to demand for higher-yielding assets. It appears that the U.S. economy is holding steady just waiting for the situation to improve in Europe.

Last Wednesday, the U.S. Energy Information Administration reported that U.S. crude oil inventories fell by 1.4 million barrels the week before to 338.1 million barrels. This came as a surprise since analysts were looking for an increase of about 0.5 million barrels. A report that China imported 29.6% more crude oil in October than last year was also a sign of an improving global economy.

Finally, early last week the U.N. reported that Iran was producing weapons grade Uranium like for its military operations. This fueled talk of an impending embargo of Iranian crude oil. Any disruptions in the supply chain will be bullish for crude oil prices, given the tight supply/demand situation.

All of the key fundamentals support higher prices, but traders will have to deal with the reality that many of these factors have already been priced into the market. The key to higher prices will be whether shorts will continue to be pushed out of the market and if buyers will continue to demand crude oil at such lofty price levels.

The fundamentals say yes, but the charts say the market is vulnerable to a near-term correction because of overbought conditions. Bullish traders should approach the market with caution as it approaches the psychologically important $100 per barrel level.

Factors Affecting Crude Oil This Week:

Supply and Demand:  With economic conditions improving in the U.S. and conditions getting better in Europe, demand for crude oil is expected to increase. This is likely to show up as a drawdown in U.S. inventory this week. Weekly inventories are going to have to continue to decrease to support $100 crude oil.

European Sovereign Debt:  Conditions seem to be improving in the Euro Zone because Italy and Greece have agreed to play by the rules. This will allow the European Union finance ministers to work on raising the money it needs to fund any future bailouts. The unknowns remain Spain, Portugal and Ireland. Will problems arise in these countries which trigger another setback?

U.S. Economy:  This week’s key reports include consumer inflation, producer inflation and retail sales. All are major reports tied to the strength of the U.S. economy. Traders will be watching for growth since this will be linked to any future decisions by the U.S. Fed to implement additional quantitative measures.

Source: http://oilprice.com/Energy/Oil-Prices/Crude-Oil-Analysis-for-the-Week-of-November-14-2011.html

By. FX Empire

Used with permission.

IEA Report Calls for Governments to Embrace Nuclear Power

November 14, 2011 by · Leave a Comment
Filed under: Economic News 

The good news is that on 8 November the International Energy Agency released its 2011 “World Energy Outlook.”

While it will cheer nuclear advocates, overall the report makes for grim reading.

Pulling no punches, the report states at the outset, “There are few signs that the urgently needed change in direction in global energy trends is underway.”

Stripped of its cautious language, the IEA report essentially noted that should present trends continue, the world’s governments through a lack of progressive initiative embracing alternative energy sources would continue to rely on ‘tried and true” fossil fuels, resulting in increased pollution, more fossil-fuel dependency and increasingly upward energy prices.

For environmentalists, this is all good news, but the report contained a caveat virtually anathema to all green movements, that accordingly, governments should reconsider their reluctance to embrace nuclear power, as it does not generate greenhouse gases.

Like many discussions in Western economies since 2008, when the global recession first began to draw blood, the issue of reliable energy production ultimately devolves down to dollars and cents issues.

The grim reality for environmentalists is that no single renewable energy resource, from wind power to solar energy through biofuels, has remotely become competitive with kilowatt hours of electrical energy generated by coal or oil-fired power plants. The debate pits those opposed to a transition to greener technologies to those considering the bottom line, despite greenhouse gas emissions.

Even worse for the environmentalists, the IEA report advocates that as a short-term solution, governments ought to reconsider nuclear power, as it produces zero CO2 emissions. Projecting into the future the report notes, “A low-nuclear future would also boost demand for fossil fuels: the increase in global coal demand is equal to twice the level of Australia’s current steam coal exports and the rise in gas demand is equivalent to two-thirds of Russia’s current natural gas exports. The net result would be to put additional upward pressure on energy prices, raise additional concerns about energy security and make it harder and more expensive to combat climate change. The consequences would be particularly severe for those countries with limited indigenous energy resources which have been planning to rely relatively heavily on nuclear power”

But while sketching out a bleak scenario should governments remain largely disengaged to the larger issues involved in energy production, the IEA report nevertheless ends on a cautiously optimistic note, with its authors concluding, “International concern about the issue of energy access is growing. The United Nations has declared 2012 to be the ‘International Year of Sustainable Energy for All’ and the Rio+20 Summit represents an important opportunity for action. More finance, from many sources and in many forms, is needed to provide modern energy for all, with solutions matched to the particular challenges, risks and returns of each category of project. Private sector investment needs to grow the most, but this will not happen unless national governments adopt strong governance and regulatory frameworks and invest in capacity building. The public sector, including donors, needs to use its tools to leverage greater private sector investment where the commercial case would otherwise be marginal. Universal access by 2030 would increase global demand for fossil fuels and related CO2 emissions by less than 1%, a trivial amount in relation to the contribution made to human development and welfare.”

Accordingly, what is most notable about the IEA report is two things.

First, energy options beyond dependence on traditional fossil fuels such as coal and oil not only exist, but are available in significant amounts to make a serious contribution.

Secondly, as Germany’s experience in weaning itself off nuclear energy is showing, the alternatives are more expensive than current power production modes.

According to the IEA’s scenarios then, the issue of global power production over the next two-three decades devolves upon two major issues.

The first is cost, which will undoubtedly be an uphill struggle for many governments seeking to meet the population’s rising energy demands, who will be loathe to endure increasing energy bills.

The second consideration is the contentious issue of global warming, and the impact of traditional fossil fuel-fired power plants belching vast amounts of CO2 into the atmosphere.

While even the most diehard proponents of traditional power plant electrical generation to not deny that their facilities emit significant amounts of carbon dioxide, they denigrate the concerns of environmentalists as ‘fuzzy science.”

So, at the end of the day, the two fundamental issues facing the world’s nations seeking to satiate their population’s demand for reliable and inexpensive power devolve down to cost and scientific projections. We’ll leave the final word to the IEA, which laid out three scenarios, ranging from best- to worst-case – “The wide difference in outcomes between these three scenarios underlines the critical role of governments to define the objectives and implement the policies necessary to shape our energy future.” Accordingly, the major question is whether global governments will have both the cash and political will “to shape our energy future” to the best possible ends

Source: http://oilprice.com/Energy/Energy-General/IEA-Report-Calls-for-Governments-to-Embrace-Nuclear-Power.html

By. John C.K. Daly of http://oilprice.com


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