How to Invest in the Global Shale Oil and Gas Boom

The North American shale oil and gas boom is fascinating Americans with its stunning potential, as it propels U.S. oil production to the highest level since May 1989.

It is also creating a formidable profit-making opportunity for those who know how to invest in this burgeoning industry.

Even better news for investors – as Money Morning Global Energy Strategist Dr. Kent Moors has said repeatedly – the shale revolution isn’t confined to the United States and Canada; it’s going global.

A recent study by the Energy Information Administration (EIA) found that – using currently available technology – global shale resources hold a whopping 32% of the world’s recoverable natural gas and 10% of the world’s recoverable oil.

The study, published on June 10, also found that the United States is only fourth in recoverable shale gas resources, with 665 trillion cubic feet (tcf). Leading the pack were China (1,115 tcf), Argentina (802 tcf), and Algeria (707 tcf).

Regarding recoverable shale oil resources, the United States ranked second, with 58 billion barrels. Russia came in first, with 75 billion barrels, and China and Argentina ranked third and fourth, with 32 billion and 27 billion barrels respectively.

These impressive figures mean only one thing: tremendous opportunity for those who know how to invest in the shale oil boom’s international debut.

IHS Global: Shale Oil Boom to Be Duplicated

The EIA study isn’t the only one pointing to a global shale revolution.

The latest report by IHS Global Insight states that the 23 most promising global shale formations hold about 175 billion barrels of extractable oil, with worldwide shale fields containing seven times the recoverable shale oil contained in North American basins.

The firm’s geological study found 148 shale plays globally that could have up to 300 billion barrels of recoverable oil. In comparison, IHS believes North American shale formations have roughly 43 billion barrels of commercially recoverable shale oil.

The report said that those reserves may potentially produce, by 2020, 5 million barrels of oil per day. That’s more than the current production of Canada or Iraq.

The study specifically pointed to three potentially vast shale oil fields: the Vaca Muerta formation in Argentina, the Bazhenov Shale in western Siberia, and the Silurian formations in North Africa.

Richard Anderson of Eurasia Drilling, the most active drilling contractor in Russia, spoke to the Financial Times. According to Anderson, the Russians can and will discover the methods to access the shale formations, and “then we’re off to the races. My guess is it will be like the Eagle Ford and the Bakken.”

By TONY DALTORIO, Contributing Writer, Money Morning
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Nigeria fuel corruption

Motorcycle taxis queue to buy fuel at a Total filling station in Lagos on January 17, 2012. Many filling stations in Lagos and other parts of the country are short of supplies, with long lines for gasoline. Others are out of fuel entirely. (PIUS UTOMI EKPEI/AFP/Getty Images)

Nigeria finds $4 billion in fuel corruption

A Nigerian legislative committee has discovered at least some of the depth of the corruption surrounding its fuel industry.

Every day, fuel importers drop off 59 million liters of fuel. The country consumes 35 million liters daily. That leaves 24 million liters of oil available for smugglers to export, paid for by government fuel subsidies. This costs the Nigerian people roughly $4 billion yearly, according to Reuters.

“There is a gap of 24 million liters per day being funded by Nigerians as subsidy that was not utilized by them. This of course amounts to overpayment; or in other words, sharp practices,” Farouk Lawan, chairman of a House of Representatives committee probing subsidies, said on local television, according to Reuters.

Nigeria is Africa’s largest oil exporter, but it imports most of the fuel it uses at home. The nation’s four refineries are run-down, producing roughly 15 percent of their intended capacity, according to The Economist. For decades, the government has spent $8 billion a year subsidizing fuel imports, reducing prices for Nigerian people, almost all of whom live on less than $2 a day.

Critics say the subsidy also pays for and encourages corruption — the squandering of tax-payers’ money that could be spent on roads, schools, electricity and oil refineries. President Goodluck Jonathan says he plans to phase out the subsidy as a part of a move to clean up the Nigerian government.

But this may not be possible, given the mood of Africa’s most populous nation. After the subsidy was canceled on Jan. 1, fuel prices doubled and the price of food and transportation skyrocketed. Protests broke out across the country. Hundreds were wounded and 10 were killed in clashes with the police. Unions called general strikes, and businesses screached to a halt. The government finally caved when union leaders threatened to strike some oil companies, a move that could devastate the Nigerian economy and spike global oil prices.

On the streets, people called on the government to crack down on corruption — not the subsidy.  Protesters said no one believed the money the government saved by canceling the subsidy would go back to the people. The government reinstated the subsidy — or at least part of it — leaving the price of fuel 50 percent higher than it had been before Jan. 1, and leaders called off the demonstrations.

This leaves Nigeria in a conundrum. The subsidy appears to support institutionalized corruption, but the people of Nigeria will not support a government that cleans up its mess by taking money out of their pockets.
By: Globalpost.com

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Buy Rice Futures

Why you should Buy Rice Futures

February 10, 2011

By:fastcashforex

Global Food Prices: Five Reasons to Buy Rice Futures

The world is finally waking up to the fact that global grain prices are destined to head higher – much higher.

Nasty weather in key agricultural markets around the world has savaged the global grain crop, meaning worldwide supplies can’t help but be squeezed. Australia, for instance, is experiencing additional flooding in areas that were already battered by the torrential rains of November, December and January.

And as if the supply-related increase in agricultural commodities wasn’t enough, there’s also the U.S. dollar – and the so-called “race to the bottom” – to contend with. Make no mistake: The endless devaluations in the greenback are having a worldwide impact on agricultural commodity prices. Since commodities are priced in dollars, these devaluations translate into higher prices for grains and other food-related commodities.

Short supplies and rising prices are bad enough, but concerns about these first two realities are creating an additional catalyst that completes a trifecta for higher agricultural commodity prices.

And that third catalyst is panic buying – especially with rice, which is a basic table staple in Asian markets. For instance, The Saudi Gazette last week reported that Bangladesh recently tripled its rice-import target and Indonesia just purchased 820,000 tons of Thai rice, nearly five times the volume initially sought.

“This is only the start of the panic buying,” Ker Chung Yang, a commodities analyst at Singapore-based Phillip Futures, said in The Gazette report. “I expect we’ll have more countries coming in and buying grain.”

For global investors, there are five reasons why it’s definitely time to buy rice futures.

Five Keys to Higher Rice Prices
Global food prices set an all-time record in January – reaching their highest level since the United Nations’ Food and Agriculture Organization began to track them in 1990. They even topped the previous highs set during the global food prices scare of June 2008.

“The new figures clearly show that the upward pressure on world food prices is not abating. These high prices are likely to persist in the months to come,” said Abdolreza Abbassian, an economist for FAO, which is based in Rome.

Food-price inflation has become a major issue in the world’s emerging economies – particularly those in Asia. Those inflationary pressures are now threatening to ignite a rally in rice prices – even though bumper crops in Thailand and Vietnam should mean there will be ample supplies. Instead, the following five reasons almost assure us of increased rice prices by the end of this year.

Rice prices will increase because:

* The aforementioned huge early Asian crop is allowing U.S. farmers to shift to planting higher-margin grains
* Panic buying by consuming nations trying to fight food inflation will escalate the price of existing supplies.
* The weather effects of La Nina are continuing to affect historical rain patterns.
* We expect an actual imbalance between world supply and demand by the end of this year.
* The United States is exporting inflation to the rest of the world, and will continue to do so for the rest of 2011.

Thailand’s benchmark 100% “B” Grade white rice was offered at $540 per ton last week. That price is unchanged so far in 2011 – after having fallen 13% last year. During the 2008 food crisis, rice prices exceeded $1,000 a ton – a spike in food prices so severe that the head of the United Nation’s World Food Program said it was causing a “silent tsunami” of hunger to sweep the globe.

While the Westernized nations continue to feel the effects of deflation and de-leveraging, emerging-market economies are having almost the exact opposite experience. And rice prices may be the ideal way to illustrate this economic disparity.

You see, rice is a staple food for half the world’s population – particularly in Asia. And though there’s a huge-and-growing middle class in Asia, there are still millions of households that exist at or near the poverty line. A big run-up in rice prices would squeeze their budgets and topple them into poverty – causing a wave of unrest that the governments of those countries would do almost anything to avoid.

Under normal circumstances, the inflationary effects we’re seeing would not be as damaging to the world food prices. But we are in a major global weather pattern shift that has changed the rain patterns around the world.
La Nina is causing heavy rains to locations that normally experience little to no rain. This has caused flooding in such global breadbasket economies as Australia and Brazil. It has affected the monsoons of India and weather conditions on the U.S. East Coast.

Rice analysts have labeled price inflation as a “near-term” event, stating that an expected surge in rice supplies provided by a strong harvest would halt – and ultimately reverse – the current run-up in prices.
But the supply increases won’t be as large as these analysts expect.

The U.S. Wild Card
The price increases in grains have led the United States to shift its historical growing averages. In terms of the global pecking order among rice exporters, the United States typically ranks as the No. 3 or No. 4 largest exporter.

But not this year.

In 2011, U.S. farmers are shifting to other crops, hoping to capitalize by boosting their output of soybeans over rice.

In fact, Bloomberg News has reported that U.S. farmers will plant the fewest acres of rice crop since 1989. And with good reason: other grains have better profit margins than rice, especially since Asia’s largest rice growers have a “bumper crop” coming to market this year.

“Why would you want to take that risk to plant rice, knowing that your income is going to be way down?” Terry Hatley, an Arkansas farmer who this year may not plant rice for the first time in three decades, told a Bloomberg reporter. “Farming is a business, and you’ve got to look at the economics of it. Now, the economics on rice are very dim.”

Because the U.S. crop lags its Asian counterparts, such changes in planting plans by U.S. farmers will affect worldwide rice supplies in six months to nine months.

The “Egypt Effect”

The uprising in Egypt has been directly linked to the cost of wheat, as Russia was the supplier of wheat to the Middle East region. This historical relationship was put into doubt when Russia cancelled its exports of grains last summer.

Egypt has started to go into the spot market to purchase more expensive wheat to feed its growing population. The uprising is going to play havoc with additional supplies arriving and being distributed to the hungry population. And Egypt is not the only nation that has had to make large bulk purchases of food to try to meet domestic demand.

Take Indonesia, which is the first of many nations to come to market in an attempt to make larger-than-normal purchases of a particular commodity. In large part because of runaway food prices, Indonesia is facing an inflation rate of better than 7% – in a year in which the inflation rate had been expected to decline.

Cheap rice has risen 22% in the past year. Cooking oil jumped 15% and various types of “chillies” zoomed between 90% and 314%, The Australian newspaper reported.

Now the largest economy in Southeast Asia is importing rice in bulk for the first time since 2007. And Jakarta recently made an emergency decision to temporarily halt import duties on foreign supplies of rice, soybeans and wheat to ease food prices and take the sting out of inflation.

In fact, as a longtime observer of the global markets, I’ve found it interesting to observe the differing strategies that governments around the world have resorted to as they respond to the events in Tunisia and Egypt.

After the global food prices scare of 2008, authorities around the world were aware of the risks and better prepared to cope with rising food costs this time around, says Indonesia central bank spokesman Difi A. Johansyah.

“We expect food prices can be controlled so they won’t raise inflation expectations,” he said.

Indonesia President Susilo Bambang Yudhoyono said that possible steps to avoid a food crisis included waiving value-added taxes or import taxes for rice and cooking oil, maintaining sufficient stockpiles and preventing smuggling or hoarding.

Countries that operate under an autocratic government are announcing changes in their governments in an attempt to address the anger of a population that has no real say in deciding who will lead them. Shuffling the deck chairs on the Titanic has not fixed the problems before, and it won’t make a difference today.

The people are experiencing the pain that accompanies big increases in staple food prices. In such situations, it’s the price of the calories that drives the anger. And a fear of that anger will continue to induce governments to make the kind of hasty decisions that actually exacerbate the problem.

As investors in capitalist markets who will also feel some of that pocketbook pain, we have the ability to improve our lot by making investments that can offset the price increases. And we should make those moves now.

Article Source By Jack Barnes, Contributing Writer, Money Morning

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