The first was an unprecedented $41 billion liquefied natural gas (LNG) deal with Australia, which was announced last week. The deal calls for PetroChina Co. Ltd. (NYSE: PTR) – Asia’s largest oil and gas company – to buy 2.25 million tons per year of liquefied natural gas (LNG) from the Gorgon field in Western Australia over a period of 20 years.

It is the largest deal ever brokered between the two nations.

The Gorgon field has yet to be developed but is considered to be a key global resource and an economic boon for Australia.

“The Gorgon Project is globally and nationally significant with a resource base of more than 40 trillion cubic feet of gas and an estimated economic life of at least 40 years from the time of start-up,” said Chevron Australia Managing Director, Roy Krzywosinski.

“Furthermore, the Gorgon Project is Australia’s largest single resource project and is set to deliver significant economic benefits and create around 10,000 indirect and direct jobs during peak construction.”

Chevron Corp. (NYSE: CVX) owns and operates 50% of the field.

Yet this is just one of the mega-deals signed between China and Australia. China was Australia’s second largest merchandise trade partner in 2008 with two-way trade of $56.3 billion (A$67.74 billion). Australian exports to China grew 37% in 2008 from the previous year to $27 billion (A$32.48 billion) and comprised chiefly of raw and lightly processed farm, mineral and energy products.

“China needs us, we need China,” said Australian Trade Minister Simon Crean.

Of course, China’s demand for natural gas and other resources is growing so fast that it needs more than Australia.  That’s why the Red Dragon recently signed a $5.6 billion deal with a consortium of energy companies operating off the coast of Myanmar.

The consortium, led by South Korea’s Daewoo International Corp., will supply China National United Oil Corp. (CNUOC) with 500 million cubic feet of natural gas a year from 2013 to 2043. The supply, which will come from Myanmar’s A-1 and A-3 offshore blocks, amounts to about 7% of China’s current gas consumption, Reuters reported.

The consortium – which also includes India’s Oil and Natural Gas Corp., Myanmar Oil & Gas Enterprise, India’s GAIL Ltd., and Korea Gas Corp. – will invest a total of $5.6 billion in the project and be responsible for production and offshore pipeline transportation.

Land transportation will be jointly managed with CNUOC. The two parties also plan to build oil and gas pipelines through Myanmar and into China’s southwestern Yunnan province, Reuters reported.

Few Western countries, or Western companies do business with Myanmar, which has been heavily criticized for its human rights violations. The military junta that controls the country is considered one of the most repressive and brutal regimes in the world today. Forced labor, child labor, human trafficking, and instances of sexual abuse are widespread.

However, China, which has itself been a target among human rights watchdogs, chooses to overlook these discretions, preferring instead to focus on Myanmar’s resources. And in its defense, China is rightly concerned about securing enough raw materials to support its booming economy and a population of about 1.3 billion people.

Natural gas, for instance, accounts for just 3% of China’s total energy needs, but its use is expected to grow rapidly as energy demand increases. China currently consumes about 7.3 billion cubic feet per day, but that is expected to grow at a 10% compound annual rate to 18 billion cubic feet per day by 2020, according to Bernstein Research.

And China is doing the right thing by securing long-term supplies of natural gas now, while prices are low and supplies are high. It’s taken similar action with other commodities over the past year, stocking up on large amounts oil, copper, and iron ore as prices swooned.

China Gases Up While Prices Are Low

Natural gas prices yesterday (Thursday) fell to levels not seen since 2002 after the U.S. Energy Department said the amount of gas in storage hit a record high for this time of year.

Natural gas stockpiles rose by 52 billion cubic feet to about 3.2 trillion cubic feet in the week ended Aug. 21 –21% above year ago levels. Levels are now so high that some experts believe the United States will run out of storage capacity before winter begins.

“We have never been here before in terms of what to expect when storage gets this high,” Aubrey K. McClendon, Chief Executive Officer of Chesapeake Energy Corp. (NYSE: CHK), told the New York Times. “It’s like a balloon; there comes a point where you can’t blow any more air into it.”

Natural gas prices tumbled more than 6% to $2.725 per 1,000 cubic feet of gas on the New York Mercantile Exchange (NYMEX), a price not seen since Aug. 7 2002, The Associated Press reported.

However, now that gas prices have tumbled roughly 80% from last year’s high above $13, some investors believe the market is bottoming out – or at the very least, significantly below its fair value.

Chesapeake Energy stock has risen nearly 8% in the past month, despite plunging prices and mounting inventories. Devon Energy Corp. (NYSE: DVN) is up about a 5.5%.

“The perception is that gas has finally gotten to its lowest point, so people are buying exploration and production stocks,” Marshall Adkins, energy analyst at Raymond James Financial Inc. (NYSE: RJF), told Reuters.

However, Adkins does not expect a rebound to come any time soon. His firm expects natural gas prices to fall below $2.50 per thousand cubic feet in the months ahead as an inventory overhang overshadows gas’ attractive price.

Still, there’s good reason to believe gas prices will have a strong rally in early 2010. To begin with, gas companies are slashing production exploration in dramatic fashion.

Newfield Exploration Company, for instance, has announced the plans to voluntarily curtail about 2.5 billion of cubic feet equivalent of gas of its third quarter of 2009 production in response to the recent lull in prices.

U.S. producers have cut the number of rigs drilling for new gas by more than half since Sept. 2008. Oil-services company Baker Hughes Inc. (NYSE: BHI) recently reported that 688 gas rigs were active in the United States, down about 56% from one year ago.

“We think the decline curve for production will be fairly steep because of the big drop in drilling,” Rich Howard, manager of the Prospector Capital Appreciation fund, told CNNMoney.

Source: China Landing Natural Gas Deals as Prices Plummet

Ambitious new projects to develop the steel and natural gas sectors will dramatically boost production. China and Russia are rushing in to secure supplies. But sanctions prevent the US from investing in Iran.

Sara says ongoing suspicion over Iran’s nuclear program will keep it off the investment table for much of the Western world…

Over the past several months, the investment world has turned its ever-roving eye on the Middle East and North Africa.

Since July, four new exchange traded funds have hit the market focusing on these regions. They are the WisdomTree Middle East Dividend Fund (NASDAQ:GULF); the Market Vectors Gulf States Index ETF (NYSE:MES); the PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA); and the SPDRs S&P Emerging Middle East & Africa ETF (AMEX:GAF).

But the one thing lacking in these investment vehicles is Iran.

Of course, the U.S. has decreed it will not make investments in Iran, who it considers a state-sponsor of terrorism. That’s nothing to fool around with.

While much of the Western world stands firm, other nations, like China and Russia aren’t quite as righteous. Russia has repeatedly stood against strong sanctions in response to Iran’s nuclear program… as has China, but for different reasons. Iran and Russia have a history that goes back to before the Cold War. But China…

Iran is the world’s fourth largest oil exporter, and China, in early December 2007, signed a $2 billion deal with the country to secure oil supplies.

Deals like this have been a welcome balm to Iran’s struggling infrastructure. U.S. and UN sanctions have taken their toll, and foreign investment has been nearly non-exsistent.

But things may be changing in Old Persia… The country just announced that it will increase its annual steel production to 15 million tons, representing a jump of 50% from current levels.

The steel industry hasn’t had a boost this big since March 2005 when a group of European and Iranian banks funded the Hormuzgan Steel project with $800 million. With imported steel accounting for about 40%-50% of demand, and demand across the Middle East rising significantly with the region-wide building boom, rising prices are creating a real problem for infrastructure expansion.

Iran has eight new major steel projects in the works.

It’s also planning on spending $30-billion to expand the South Pars natural gas field. This investment could reap as much as $22.3 billion a year by doubling annual production to 68 million tons.

Without a doubt, Iran is a major player in the Middle East, and will continue to be. It has a $13-billion sovereign wealth fund created from its oil wealth. And some of its major investments have been in financial institutions in the Middle East.

But will Western investors ever get a chance to make money off Iran’s growth, as it they have in Dubai, Egypt and Israel? And should they, for that matter?

It’s a philosophical question that I can’t answer. And it gets even harder when you hear that Iran is sharing its nuclear technology with Nigeria… A technology that the country repeatedly insists is for peaceful power generation while refusing to halt its uranium enrichment and submit to the International Atomic Energy Agency’s full inspections. (Though the IAEA does have Iran’s Natanz facility under video surveillance.)

In late August, Iran announced it had 4,000 centrifuges working on uranium enrichment, and another 3,000 being installed.

The whole situation, for investors and politicians alike, is scary. And while there may be opportunities in playing companies investing in Iran, like Sinopec (NYSE:SNP), the Chinese firm that inked the $2 billion oil deal, and Fortis Bank (Brussels:FORB), who helped finance the Hormuzgan Steel project, danger still abounds.

That will keep Western investors (most, anyway) on the sidelines, and pure Iranian plays off the investment table.

Source: Emerging Iran: Danger or Opportunity?

In my last column, I pointed out that the United States Oil Fund ETF and natural gas ETF United States Natural Gas Fund were in the process of tracing out at least an A-B-C correction to the downside.

Click this link to check out the chart from two weeks ago. Since then, USO has rallied enough to qualify for the “B” wave rally. From here, there are basically two scenarios…

1. If the “C” decline has already begun, the stock should trade down to at least the $86.50 area.

2. If the “B” wave rally is not yet complete, and USO trades above last week’s highs, the next resistance level is around $100.95.

Either way, USO should make new correction lows before a sustainable rally could unfold.

Gas Still in the “A” Wave

The natural gas market has performed weaker than crude oil and made new lows again last Friday. This means that UNG is still in the “A” wave decline and alert investors could have an opportunity to short the stock on the first decent rally, which would be the “B” wave.

Aside from that, most commodities have endured heavy selling pressure since topping out in early July. We’ve seen oil trade below $112 a barrel and gold dip below $800 an ounce before both rebounded last week.

Part of the rebound came as a result of a pullback for the U.S. dollar. So since commodities are strongly correlated to the dollar – and that appeared to be the focus of many traders last week – I’m going to take a look at a couple of the most active and interesting-looking charts this week…

This PowerShares ETF Is Powering Down

The chart below shows the daily performance of the PowerShares DB Commodity Index Tracking Fund (AMEX: DBC). As you can see, it looks very similar to the USO chart.

In mid July, DBC triggered a sell signal – and based on the chart pattern, it appears to be in the “B” wave of at least an A-B-C decline.

If DBC and all of the ETFs mentioned above have put in major, long-term tops, these three wave (A-B-C) declines could actually turn out to be longer-term, five-wave declines. However, it’s too early to determine if that’s the case yet, so we’ll stick with what we know for now.

So if the “B” wave on DBC is complete, the stock should trade down to the $35 area before a sustainable rally could get underway.

When Three Waves Becomes Five Waves

This next chart caught my eye because it traded down to its long-term trendline last week and has so far held above it.

Because the commodity futures create more accurate charts, while the ETFs just follow their lead, I’m going to break with tradition a little bit and use a weekly chart of the December Gold futures (GCZ8) for analysis here, rather than the SPDR Gold Shares (NYSE: GLD) chart.

The trendline on this chart goes all the way back to July 2005 and you can see that it was tested when the futures price traded down to $778 on August 15. Since that low, gold has rallied by about $55, but we still haven’t seen any significant buy signals get triggered so far – something that would tell us that the correction is complete.

However, this development spilled into GLD, as the stock posted an equivalent low of $76.61 on August 15. This was also around the same time that the dollar peaked.

The sharp dollar rally was a mirror image of the drop in GLD and usually after this type of action, the odds are that these markets could consolidate before making their next major move.

The Next Moves

The price action over the next week or so should be a good indicator of where GLD is headed next. If GLD begins to consolidate in the $80-86 area for a while, there’s a good chance that once the consolidation is complete, the next move will be down – especially since DBC still looks bearish.

If GLD and the December Gold futures make new correction lows, the selling could intensify, as we’re not the only folks watching the long-term trendline. However, if GLD begins to rally strongly on heavier volume, and closes above $88.50, the correction may be over.

According to the trading model used in my 1-2-3 Trader service, we could see buy signals triggered on GLD prior to reaching the $88.50 area, so I’ll keep you posted on the situation right here.

Source: Let the ‘Waves’ Guide You Towards Profits on Oil, Natural Gas, & Gold

One of the most volatile (and potentially profitable) commodities is natural gas. Sure, there is a lot of it out there, but it’s mostly waiting to be produced. That means any demand spike can quickly push up the price of natural gas. And what the Farmer’s Almanac says about this winter should perk up your ears.

The Almanac (which is right 80% of the time) predicts a cooler than average winter this year.

So far, it looks like that will be the case. According to the UK meteorological office, 2008 is 0.1 Celsius cooler than any year since 2000. The main reason is La Nina, a natural cycle that cools the globe.

What this means is that any commodity used to keep people warm (like natural gas or heating oil) should see heavy demand this winter. As people pay to keep warm, they’ll divert money away from non-essentials.

The best way to play this is to wait until fall and start buying up shares of Chesapeake Energy, which is a natural gas producer and explorer. As natural gas prices move higher, so should shares of Chesapeake Energy.

Source: Want to Know Where Natural Gas Prices are Headed?

Energy expert Byron King says investors shouldn’t panic over the drop in prices. For a start, August is a notoriously poor month for commodities. It tends to be a month of net selling.

Despite some demand issues caused by the global slowdown, Byron says commodities are in a short-term correction. And that means plenty of great bargains on offer…

This from Bryon:

First, you need to know that August is almost always a tough month (depending on how you look at it) for resource prices and resource stocks. A lot of people take vacations in August, including some folks who are key players in the resource markets. So the market makers are on holiday, as are the markets.

Indeed, no less an authority than Rick Rule was discussing this at the recent Vancouver Investment Symposium. “August is when a lot of things go on sale,” according to Rick. Rick views August as a good time to buy great resource stocks at relative bargains.

Also – at least in U.S. markets – August tends to be a time for net selling. Traditionally, a lot of parents and grandparents sell stocks and redeem mutual funds to come up with tuition payments for private schools and colleges. This insight comes from an old acquaintance of mine who helps to manage the endowment funds of Harvard. He told me that Harvard makes money both ways. Harvard gets paid the tuition. And the endowment fund buys stocks that are relatively cheaper in August.

So even in the face of some dramatic declines of late, my goal is to keep it all in perspective. Don’t panic yourself out of the market just because some things happen in August. This is only one month in the year.

Dollar Strengthening

Let’s look at some other issues that have affected the marketplace. The U.S. dollar has been strengthening in the past month. The dollar has gone from about $1.60 per euro to about $1.50, a gain of about six percent or so. That kind of currency swing in just one month – between two of the world’s major currencies – is evidence of a powerful wave out in the world marketplace.

What kind of wave? Call it sentiment. Call it perception. Or as Groucho Marx once said, “Call it a banana.”

But the bottom line is that people are buying dollars and selling euros. This is based on their beliefs about the future and not much else. Really, it’s not as if just one month is enough time for anything major to occur within the structure of either the U.S. or the European economic spaces.

For example, new industries and labor markets don’t rise and fall in just one month. Tax codes don’t revise within a matter of weeks. Demographic shifts don’t occur in a month. But a month is plenty of time for peoples’ attitudes to change from “sell” to “buy,” and vice versa.

For our purposes in this newsletter, we worry about energy and resources. And in the space of one month, it’s not as if the underlying values of energy and resources are falling. People still need and want oil, corn, copper, etc. (At $113 per barrel of oil, they want less of it, to be sure.)

But in this summer’s monetary phase – driven by sentiment – the dollar is strengthening. So pricing is weakening for energy and resources and their stocks.

But really, how strong is the dollar over the medium to long term? Will the U.S. somehow magically balance its budget? Is there any hint that Congress will change the U.S. tax code to make American industry more competitive?

~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~

When the Gold-to-Silver Ratio Slides into Balance, You Get Rich

The world has about five times more gold than silver. What if silver cost one-fifth the price of gold?

It would skyrocket over 950%!

I’m not saying it will soar that high. I’m not ruling it out, either. At the very least, I’m convinced you’ll see the white metal price rocket above the 300% level very soon. Even the pressure from rising gold prices alone demands it.

Just check out this report, to see how you can make those kinds of profits…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The dollar is looking good because the alternatives are looking less good. That’s hardly a ringing endorsement for the future. So again, the evidence points to us experiencing a short-term correction.

World Economy Weakening

Then there’s an article in today’s Wall Street Journal titled “World Economy Shows New Strain.” The first paragraph in the lead article on Page 1 states: “The global economy – which had long remained resilient despite U.S. weakness – is now slowing significantly, with Europe offering the latest evidence of trouble.”

Later on, the WSJ article states, “The global weakness marks a sharp reversal of expectations for many corporations and investors, who at the year’s outset had predicted that major economies would remain largely insulated from America’s woes.”

OK, so here we have some evidence that there’s a medium-term “demand” issue at work in the world economy. The U.S. is on the cusp of a recession, what with the broken banking system and chronic monetary mismanagement of the currency. The perception of lower demand going forward is hurting pricing for energy and resource plays.

And euroland, particularly the German economy, is in a recession. This reinforces the worldwide nature of the slowdown. Lower demand hurts current pricing power.

So what’s left? Asia? Will the “China growth story” continue into the future? Actually, I expect China (and the rest of Asia) to grow, but not at rates we’ve become used to seeing in recent years. In particular, I expect to see fewer subsidies for energy use, especially as the world economy adjusts to oil priced over $100 per barrel.

And I expect to see credit tighten in China as the central bank attempts to keep a lid on inflation in the Middle Kingdom. Just a little bit of inflation in China means a whole lot of wealth destruction for Chinese savers and Chinese capital creation.

The Chinese might take some risks that they deem acceptable, like using underage girls on their Olympics gymnastics team. But the Chinese are way too smart to risk igniting long-term inflation in their economy. That would be bad for social harmony, and the Chinese are big on social harmony.

Where Are We Now?

So what’s the bottom line? Where are we now? We’re in the midst of a short-term correction. There are many great buys out there, but I can understand if you want to be cautious and sit on the sidelines and accumulate cash.

If you do buy resources or stocks, just be careful and nibble away. Don’t try to buy everything all at once.

Source: Resources Hit the Dog Days

Wrong, says Smart Commodities UK editor Garry White. Now is a great time to snap up some Russian assets.

Although Russia is currently involved in fighting in Georgia, don’t expect it to last long. Russia has made its point. Georgia has been cowed. And there’s no reason to fear Russia’s brand of pugnacious capitalism – even authoritarian capitalists need customers to survive.

Here are Garry’s top five reasons to consider investing in Russia…

1. Russia has the largest natural gas reserves in the world.
2. Russia has eighth-largest oil reserves, and is the world’s second-largest oil exporter.
3. Russia has the world’s second-largest deposits of coal.
4. Russia has borders with both Europe and China.
5. Russia has the largest territorial Arctic waters of any country in the world.

I’ll explain the importance of this last point in just a second. First, take a look at the map below:

It was released by Durham University last week, and shows territorial claims in the Arctic. The huge green zone belongs to Russia.

When subsea mining in the Arctic becomes a reality – and I believe it will – Russia will benefit more than any other country. Do not underestimate this.

The skirmish in Georgia is a distraction

Stock market falls since Friday have created a buying opportunity in Russian stocks. Forget the headlines in the newspaper, what’s going on in Georgia is just a skirmish… a skirmish that was entirely predictable.

Many press reports have focused on the fact that Russia tried to bomb the Baku-Tbilisi-Ceyhan pipeline. They are implying that Russia has invaded the country as part of a resource war.

This is not the case. These people should read some history.

The pipeline is the only oil link between Europe and the East that does not go through Russia. This so-called “southern energy corridor” was seen as vital to the west when it was built in the 1990s.

Of course, the pipeline is an issue for Russia, but in this case it is a actually a side issue. They did not go into Georgia to attack the pipeline.

The South Ossetia problem is almost 100 years old.

The region has struggled for independence through most of the 20th century. The first time there was an uprising against Georgian authorities was in 1918.

The Russian attack was not a surprise. The Georgians have been warned over and over again.

When he was president, Vladimir Putin said on numerous occasions that if Georgia attacked South Ossetia, then Russia would fight to protect its interests. The Georgians thought the Kremlin was bluffing. Patently, it was not.

The majority of South Ossetians look to Russia rather than Georgia. They hold Russian passports and they use Russian banknotes.

So, after the Georgian government attempted to deal with the South Ossetian rebels they sealed their country’s fate. The Kremlin does not make idle threats.

Authoritarian capitalism is here to stay

Although the fighting is still continuing, I don’t expect it will go on for long. Russia has made its point. Georgia has been cowed.

I do not fear the Russian and their pugnacious brand of capitalism. Even authoritarian capitalists need customers to survive.

The Russians need the west as much as the west needs Russian energy. And, with the emergence of China, we had better get used to the new brand of doing business. Authoritarian capitalism is here to stay, but you have no need to be fearful. Be greedy instead.

PS: You can subscribe to Smart Commodities right here.

Source: Don’t Fear Russia: Get Rich The Putin Way