Go to the Source - How to profit from Gazprom’s Crumbling Hegemony

This week’s newsletter is a fascinating one, where intelligence reports meet head-on with the trader’s report.   If you haven’t read Jen Alic’s piece regarding Cyprus and Russia, go and do it RIGHT NOW, it is one of the few out there with the correct perspective of the entire unfolding situation.

And the point of it is one that everyone else in the media is missing now – the Cyprus bank bailout proposal, the (I think) temporary rejection of the EU plan, the last minute plea from Cyprus to Russia – all of this – is not about money laundering or EU ability to retain this weak sister state.  It is ALL ABOUT PETRODOLLARS. 

That’s because the Levant basin and the fields within it represent a sea change of likely natural gas supply to Europe, no longer consisting solely of Russian gas.  The potential for Leviathan, Tamar and the other producing fields in the Levant basin, owned by Israel and Cyprus, could easily represent 40% of all of Europe’s necessary nat gas demand – yes, 40 – and that’s not counting the oil that likely lies beneath Leviathan, also blowing out projected reserve estimates. 

These have been amazing new finds, but it is only when the geopolitics like this Cyprus bank bailout come to the fore that the seismic shifts of petrodollars and power become apparent.  One thought I had is that the EU was far more willing to anger the Russians and their corrupt depositors in light of the independent gas supply soon to break Gazprom’s hegemony in Europe.  With Russia likely to deliver heavy capital to the Israelis just for first dibs at LNG production in Tamar and Turkey quietly planning a joint venture pipeline with the Israelis, there is clearly rhetoric that is not matching with events.  Stay tuned.

As a trader, it really helps to know all this, particularly because one American oil company has the inside track to development of this massive resource in the Eastern Mediterranean:  Noble Energy. 

Now, gone are the days when you could walk into some African nation, pay off some corrupt President with a meager 6% of net returns and get full access to assets without environmental restrictions and with the full support of the local military (see Mobil oil circa 1975) – nowadays there are very resourceful, far less corrupt bureaucracies to be negotiated with (although money still talks).  Israel, for example, pulled a Brazilian-type increase of leases on Noble in developing Tamar and the Noa fields, but the give-back for Noble has been an inside track on development in much of the remaining Leviathan – a conservatively estimated 231mboe.  Sure, there’s some development interest with Total and Eni, but to be ‘first in line’ over mega-caps like BP and even Exxon (both of whom would love a taste here) is a tremendous compliment to the skills of Noble CEO Chuck Davidson. 

You can play this with the Australian energy company Woodside, who has inked a deal with Noble for the massive LNG opportunity that’s being created, particularly since any possible pipeline into Turkey and therefore into Europe is likely almost a decade away.

But I say just go to the source.  Chuck Davidson has proven to be incredibly sharp in retaining the inside track to this game-changing development in the Eastern Mediterranean and I want to ride him.

Like I said in my report a few weeks ago:  Buy Noble.