The New Energy Scramble

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Johnny Oxygen
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The New Energy Scramble

This is from Agora's 5-minute Forecast.




Dave Gonigam – June 23, 2011

  • New Middle East energy scramble under way… The 5 handicaps a winner and spots an opportunity
  • “Bernanke effect,” rotten jobs numbers sink stocks, commodities… Barry Ritholtz on a “savage tragedy”
  • U.S., 27 other nations tap oil reserves… Byron King on why the stated reason makes little sense
  • Quest for perfect shave yields $100,000 razor… and a little-known metals play

   A mad scramble for energy in the Middle East, foreshadowed in this space on April 4, began in earnest within the last 24 hours.

And hardly anyone is noticing it this morning, outside some remote outposts of the energy trade press.

That means for the moment, few people are aware of the immense wealth-building potential resulting from this energy scramble. Once the mainstream catches on, it’s set to explode.

   The catalyst is a decision yesterday by a heretofore obscure body in Israel — the Public Utilities Authority.


It granted permission to Israel Electric Corp. to lease a liquefied natural gas (LNG) tanker. The tanker will sit a few miles off the coast and anchor to a permanent station onshore, supplying the nation with electricity.

Without this step, Israel faces a choice within less than two years:

  • Blackouts
  • Costly imports of coal or diesel fuel.

Understandably, Israel finds neither choice acceptable.

   Israel is in this pickle because its natural gas usage has tripled since 2004… and right now it gets 40% of its natural gas from Egypt. Twice this year, saboteurs have blown up the pipeline between the two countries, disrupting supplies.


The second time, Egypt’s government took its sweet time restoring service after repairs were complete.

That might be because the military junta that took over after the forced departure of Hosni Mubarak wants desperately to distance itself from the deal Mubarak cut with the Israelis to sell them the gas.

Terms of the deal have never been made public, but most Egyptians believe the Israelis are buying at below-market prices, with the proceeds going straight to the pockets of Mubarak’s cronies.

After a delay of nearly a month, Egypt resumed the flow of gas about 10 days ago. If the terms of the Israeli-Egyptian agreement had been changed, no one was saying.

All appeared well, until…

   Two days ago, someone leaked an Egyptian government document to Al Jazeera — confirming what many Egyptians suspected:


It’s printed on letterhead of the Egyptian petroleum ministry, dated Jan. 26, 2004, and signed by the former oil minister — who now sits in jail, while prosecutors build a corruption case against him.

It spells out how the Egyptian gas is sold through a firm called East Mediterranean Gas —headed by a Mubarak confidant. He was arrested in Spain last week. He too faces corruption charges.

Will the price of the deal end up being disclosed at trial? How will ordinary Egyptians react? Will Egypt’s post-Mubarak rulers cut off the gas to Israel just to keep the peace at home?

Israel isn’t waiting to find out. Hence, the authorization yesterday for the LNG tanker lease.

Of course, that’s just a short-term fix. Israeli leaders also have their eye on a long-term solution — one that will allow them to thumb their noses at the Egyptians.

   Enter a natural gas discovery so massive the Israelis have given it the name Leviathan. “At 16 trillion cubic feet,” says our resident energy geologist Byron King, “Leviathan is one of the world’s largest new gas fields of the past 25 years.”


Indeed, “the geology off the coast of Israel,” Byron continues, “has every indication of meeting criteria for a major petroleum system. It has analogues with other of the world’s best hydrocarbon-rich areas.”

He’s thinking specifically of offshore Brazil — home to the massive Tupi oil field. And off Africa’s Atlantic coast — the scene of an oil find that’s already delivered 514% gains to readers of his premium service, Energy & Scarcity Investor.


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