For the past 40 years, those in the US have been regaled by politicians about the need to rid the nation of the dependency on foreign oil, all the while operating a foreign policy built solely around the securing and maximizing of the flow of said foreign oil to the US. Now that Energy Return on Energy Invested (ERoEI) has become a topic of real interest, and the structural price for a barrel of oil equivalent (BOE) is firmly in the $100 per barrel range, the unlocking of various unconventional or tight supplies of oil and gas are not only economically viable, but are creating a production glut that current infrastructure cannot keep up with. This has resulted in the crash of US natural gas prices and the widening of the price spread between West Texas Intermediate Crude (AMEX:$USO) and Brent Crude (AMEX:$BNO).
These massive changes in US production are causing massive changes within the greater energy market. It’s created a massive arbitrage between the US and the rest of the liquid natural gas-using world, so much so that pressure is mounting to allow exports of LNG, which would be a huge boon to global growth, allowing that cheaper energy to disperse through the global market and keep a lid on LNG prices. Normally, something like this would be a boon to the world at large, but political reality is far different than market reality. As always, the two are in direct conflict with each other.
The leading American player in the rare earths mining sector Molycorp Inc (NYSE:$MCP) has revealed an intention to sell $200 million in stock and $100 million convertible senior notes – due in 2018 – to fund its latest capital expenditure, which includes development work at its Mountain Pass, Californiarare-earths mining facility. The news caused an 8.7% dip in the company’s shares in premarket trading; piling on a company whose shares had already fallen more than 60% in the 2012.
A consortium of investors led by City of London banker Ian Hannam, former BHP Billiton (NYSE:$BHP) executive Chip Goodyear, and the Polish billionaire Jan Kulczyk has been among those shortlisted for exploration of a handful of major mineral mining tenders opened up for bid by the Afghan government. The three projects – mostly involving mobilizing copper deposits – are located in the northern portion of the country where the Karzai government has more control versus the south where the Taliban is essentially in charge and has made life difficult for exploration projects in the past.
Asia’s leading refiner China Petroleum and Chemical Corp, known as Sinopec (NYSE:$SNP), is eyeing the French oil and gas explorer Etablissements Maurel & Prom (MAU) for a $2+ billion acquisition cost. MAU has an enterprise value of $2.27 billion including its $1.75 billion market cap and through June 2012, its ROE was 11.17%. But more than the numbers, the company has drilled more than 100 wells with an impressive success rate of 46% and has significant operations in the central African state Gabon from where it produces 20,000 BoE per day. Besides Sinopec, it is also believed that Shell (NYSE:$RDS.A), Anadarko Petroleum (NYSE:$APC) and Indian Oil Corp have also been at the negotiation table. Before that, a year ago, Sinopec started sniffing around looking for a partnership but now, unlike last year, the negotiations are believed to be about the acquisition of the entire company. Moreover MAU’s management has also clearly stated that it is too small to independently operate and would prefer partnering with a larger firm.
While the world’s attention was diverted from the reforms in Myanmar to Hurricane Sandy in the U.S., the little known landlocked communist country Laos–with a population of just 6.4 million and one of the least developed countries of the world — was finally able to secure itself a place in the world trade organization (WTO) after it applied for membership some 15 years ago. Meanwhile, the Asian Development Bank is expecting Laos to post GDP growth of 7.9% for 2012/13 which will be driven in part by its electricity sector. Laos has been working on several hydro power plants and its production in the next three years will reach 3,856MW from the current level 2,560MW. It has 17 hydropower plants working at the moment that light up 78% of its houses while it has dozens of projects in pipeline. If things go according to its plan, Laos would emerge as the net exporter of electricity by 2015, a landmark which most of its peers have been unable to reach.
Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital. (read more)
The Big Trade: Simple Strategies for Maximum Market Returns
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