For almost five decades, Indonesia held a unique position as the only Asian member of the OPEC oil-exporters’ cartel. When it joined OPEC in 1962, it was Southeast Asia’s undisputed energy giant. But yesterday marked the end of an era for the country. Indonesia has formally withdrawn from the oil cartel.

You see, the country’s oil production hit a peak in 1976. And In the early 90’s it was still producing about 1.7 million barrels per day. But ageing oil fields and a lack of investment has seen falling production since 1995. The country now produces about 800,000 barrels per day and it’s been a net oil importer since 2005. Its days in OPEC were obviously numbered.

It’s big news in the oil industry, but I think that the country’s withdrawal from OPEC is really a bit of a non-event — at least from an investor’s point of view. Indonesia is still a major energy exporter. The country is the world’s biggest exporter of thermal coal, which is widely used in the power sector. It is the world’s second biggest exporter of liquefied natural gas (LNG) after the Gulf state of Qatar. And it has recently overtaken Malaysia as the world’s biggest producer of palm oil as well.

Global oil demand is expected to increase by 1.03 million barrels per day this year. And about 70 per cent of that additional demand is going to come from Asia. But it’s not just oil. Asia’s growing economies are fuelling demand for just about all forms of energy. And Indonesia is well placed to profit from it.

Coal is gold…

The country is sitting on about 90.5 billion tons of coal. And demand for the stuff is surging. In fact, Indonesian companies are now selling coal to Japanese buyers at double last year’s prices. So, investors have been flooding into the sector. Indonesia’s biggest coal miner, Bumi Resources, has seen its share price soar by about 431 per cent in the last year. Its market cap is now $16.4bn

Now the country’s second and third biggest coal miners are planning on floating on the markets as well. Number two producer, Adaro Energy, is planning a Rp12,000 billion ($1.3bn), public offering. That will make it the biggest IPO in Indonesia’s history. And it’s going to be the world’s 8th biggest IPO this year.

Adaro has already pulled in top international investors. 64% of the company is controlled by two Indonesian strategic investors. But 36 per cent of the shares are owned by major global investors, including Goldman Sachs, Citigroup and the Government of Singapore Investment Corporation.

And demand for the IPO has been huge. In March, the company announced that it planned to raise $500 million. Then, earlier this month, they raised that to about $1 billion…and then $1.3 billion…

The Adarco IPO is scheduled for next month. The country’s second biggest coal miner Indika Inti Energy plans on raising $300 million through selling an 18 per cent stake in an IPO shortly before the Adarco float. Both these IPOs are probably going to do well. Investors and speculators who missed out on Bumi Resources’ rally will probably try to get in early this time… a move I see as being quite sensible.

Bumi Resources is one to watch…

The two new coal IPO’s might take some of the wind out of Bumi’s sails. And if we see that happen, a fantastic buying opportunity will present itself.

Just consider: China is building new coal-fired power plants at a rate of about one per week! And then there is India. Asia’s other giant plans on adding more than 400,000 Megawatts of new capacity by 2030 — and the bulk of that is going to be powered by coal. So, the coal story still has a long way to go. In the months to come there could be moves to be made… and a second chance for anyone who missed out the first time around.

I’ll keep you posted.

Regards

Manraaj Singh
Profit Hunter
Editor

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Source: Careful Timing Could Mean Big Profits From The Worlds No.1 Coal Exporter

Maybe if they’d known this before hauling the oil executives up to Capitol Hill last week, they might not have made as many fatuous statements as they did. Then again, who am I kidding?

For all the attention paid to China’s increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the region’s six largest petroleum exporters — Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar — curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in net exports of 862,000 barrels a day, according to the U.S. Energy Information Administration.

Demand in the Middle East is a major factor right now, said Adam Robinson, an oil analyst at Lehman Brothers in New York. Mr. Robinson predicts the region will constitute more than 40% of increased demand next year.

Now that I think about it, maybe we should conceal the rising usage/falling exports within OPEC nations from members of Congress. It’ll just make them more inclined to follow through on the notion of suing OPEC.

The unstated assumption would go something like this: The nerve of those countries, using more of the product that lies under their soil, when everyone knows we have the right to buy as much as we want at a price of our choosing so we don’t have to drill off our own coasts. (Yes, I know they subsidize, and we all know that’s foolish. What do you want to do about it?)

Oh, and there’s this cheery sentence buried in the article: “Mexican officials announced Monday that output from the country’s once-mighty offshore Cantarell field had plunged by a third in less than a year.”

Someone call a priest to administer last rites to Cantarell. Then call a bookie to place bets on the year when Mexico ceases exporting oil, like Indonesia, which acknowledged its status this week by announcing it will pull out of OPEC at year’s end.

Source: Oil Exports Down

The papers are so full of claptrap and humbug this morning…we don’t know what to laugh at first.

There is Hillary’s proposal for a ‘Gas Tax Holiday,’ for example. The initiative is so absurd that even trained economists can see through it. Alice Rivlin, Bill Clinton’s former budget director said she was “appalled” at what “looked like pandering.” One hundred economists signed an open letter criticizing the proposal – pointing out the obvious, that it would increase driving and divert money now going to the U.S. government to the governments of Arab oil exporters.

Obama has an advantage; Paul Volcker is advising him. So, we can expect a little better. But little better is what we get. Obama proposes a cut in the payroll tax (which finances Social Security) – up to $1,000 – to help families “offset the cost not only of gas, but of food.”

As we have said many times, we never met a tax cut we didn’t like. But what troubles us is: where are the cuts on the other side of the ledger? If Social Security has less money, how will it keep up with baby boomer retirements?

The weekend press tells us that people are beginning to worry about whether they’ll be able to retire at all. The middle class counted on rising house prices. But now house prices are going down. What are they going to do?

They’re going to start saving, is the answer. “Consumers to the sidelines,” says a Wall Street Journal headline. “Americans cutting back for Mothers’ Day,” says a headline in the Los Angeles Times.

You will recall why stocks were certain to go to the moon, dear reader. It was “Dow 36,000″ for sure – because the baby boomers had to put money in stocks so they could retire. When that mirage disappeared, they turned to residential real estate. People figured that they could buy an extra house at the beach. They would enjoy it on weekends and holidays…and then, when the time came to retire…they could sell the main house and live off the proceeds. That strategy too was fine – as long as prices were rising.

And now the boomers find them themselves with no easy way to finance their golden years. (They should have bought gold when we first suggested it!) What can they do? They have to resort to the old-fashioned, tried and true method – thrift and savings.

Here, we will spell it out:

You take the total amount of income, after tax. Then, you subtract the total amount you spend. If the result is a positive number, at least you are headed in the right direction. If it is a negative number, we suggest you apply for a job in government…maybe with the Council of Economic Advisors or the Congressional Budget Office. Besides, the federal retirement system is the most generous one around – outside of Wall Street.

Yes, dear faithful reader…the economy is getting a nip on the derriere. The consumers who spent what they didn’t have are now forced to save the little they do have. Result: the consumer economy is slowing down. The bubble has sprung a leak…and the feds desperately try to keep pumping it up. (More below…)

But forget the math…forget the ledgers…there’s an election to be won…and faint humbug n’er won fair voter. No, the way to win is to go all out…tell the biggest lie possible…promise the moon…and pretend to be something you are completely and emphatically not.

George W. Bush, for example – son of a CIA Chief, Vice President and then U.S. president, educated at Andover, Yale and Harvard, from one of America’s richest, most elite New England families – passed himself off as a straight-talking yahoo in a cowboy hat. Now, both Obama and Hillary are trying to pretend that they feel the working classes’ pain. Hillary appeals to the redneck instinct for toughness; she will “obliterate” Iran if it lays a hand on Israel, she says.

(Why the yahoos from Kentucky should care what goes on between Israel and Iran has never been fully clarified…but in the final days of imperial grandeur no sparrow can fall anywhere in the world without setting off sensors in the Pentagon…and eliciting a rapid response from the military/industrial/political complex!)

Obama, meanwhile, can pretend to be a man of the people too. He drinks beer, when the occasion calls for it… and shoots hoops with the locals. Of course, neither politician would probably give the blue collar workers the time of day were it not for the fact the yahoos are likely to vote tomorrow.

Yes, dear reader, tomorrow is now the big day…the showdown between the two democratic candidates. If Obama wins big…he can say goodbye to Hillary. If the Clintons win big, they could still win the nomination…and probably, the election. At least, that’s what the pundits say…

And so we see how democracy really works…by flimflam and bamboozle.

*** We have set up shop in a café near Auteuil in Paris…copy of the International Herald Tribune in hand…and someone’s wifi connection at our fingertips. It is a delightful spring morning in Paris…the chestnut trees are in flower…birds sing, the sun shines, and beautiful women amble along the sidewalk.

We had a café crème and a croissant…and then, we were enjoying the view so much, we ordered another. The waiter brought a check – the damage was just $15, very reasonable, under the circumstances.

The relevant circumstance is that the price of food is soaring everywhere. The grains are selling near record prices…and so is oil. This is no laughing matter. Food is a relatively minor part of our own family budget; the rising prices are only a nuisance. But a news report from Reuters tells us that 20% of Asians live on less than a dollar a day. Many are farmers with their own local supplies of cheap food. But more and more of them live in cities and pay global prices for their daily bread.

Rising food prices are producing famine-like conditions for many of these poor people. For others, they are wiping out years of financial progress, creating what Reuters calls a “Poverty Time Bomb.”

–Hold everything. How about a reality check?

–”Brazil’s plan to become one of the world’s biggest oil exporters hinges on exploiting crude 6 miles below the ocean surface in deposits so hot they can melt the metal used to carry uranium to nuclear plants,” reports Joe Carroll in Bloomberg this morning. It gets better (or worse, depending on your perspective).

–”Tapping what may be the biggest oil finds in the Western Hemisphere in three decades will require equipment that can withstand 18,000 pounds per square inch of pressure, enough to crush a pickup truck, pipes that can carry oil at temperatures above 500 degrees Fahrenheit (260 Celsius) and drill bits that can penetrate layers of salt more than one mile thick.”

–The oil industry is becoming metals-intensive. And not just any metals. Our friends at Diggers and Drillers call them ’super metals,’ which sounds about right. It takes a special kind of metal to withstand the heat and temperatures you find in off-shore, deep-sea oil operations. That’s probably the better investment angle than, say, buying Petrobras (NYSE:PBR).

–Think about this for a second. To produce oil from Carioca, Brazil will have to drill to a depth of 10,000 metres (32,000 feet). That is twice as far down as the world’s deepest current production hole. It’s also deeper in the ocean than Mt. Everest is high in the sky. It may as well be Mars or Venus or the moon for as otherworldly as the conditions are.

–The oil industry sure has come a long way from when Colonel Edwin Drake drilled his first well in Titusville, Pennsylvania in 1859. Drillers are going to places they’ve never gone before, and it’s not cheap. For example, Exxon had to develop special pipes for its Sakhalin II project in Siberia because steel pipes were shattering at the temperatures engineers encountered. Bloomberg reports that Chevron destroyed more than a dozen drill bits costing US$50,000 each in a $4.7 billion oil project in Tahiti.

–Where do you even buy $50,000 drill bits?

–Incidentally, did you know that Howard Hughes made his money in drill bits? We didn’t know it either until we researched the subject this morning. Cemented carbide cutting tools, or tools made of tungsten and diamond, are in great demand these days. But in the oil business, it was Howard Robard Hughes Sr. who introduced rotating steel cones to the wildcatters in East Texas in the first two decades of the twentieth century.

–Hughes held the patent on the first rotating tricone bit for 17 years, between 1934 and 1951. This was the peak of exploring and drilling in the Continental U.S. It made Hughes and his more famous and eccentric son Howard very rich. You can afford to be weird when you reach a certain level of wealth. It doesn’t make it right, though. If you want to see a picture of the Hughes drill bit, check this out.

–Resources Minister Martin Ferguson told the ABC that contrary to reports in The Australian last week, the Federal Government has not told Chinese companies to “back off” in their pursuit of their Australian quarry.

–Right. You don’t imagine the Federal Government could come right out and tell China to get lost. It doesn’t want that to happen. But in an interesting coincidence, Stephen Wyatt reports in yesterday’s Financial Review that the, “Chinese may relent in iron-ore negotiations.” This refers to the reluctance of Chinese steel producers to pay a ‘freight premium’ for Australian iron ore (over and above what China pays for Brazilian ore).

–We called the Foreign Investment Review Board (FIRB) ourselves yesterday to see if they publish any information on foreign companies seeking to acquire $100 million or more of an Australian publicly listed company.

–”No we do not,” we were told.

–Fair enough. Here’s what we know. In early April the FIRB shot down a bid by the Shougang Group (China’s sixth largest steel maker) for Mount Gibson Iron Ore (ASX:MGX). We know that Shenzhen Zhongjin Lingnan Nonfemet Co Ltd has a joint bid with and Indonesian firm Herald Resources Ltd (ASX:HER). We also know that China’s state-owned MCC Mining has bid A$400 million one Cape Lambert Iron Ore’s Ltd (ASX:CFE) iron ore projects.

–There are other deals in the works. China Shenhua Group, China Coal Energy, and Yanzhou Coal Mining Co Ltd (listed in Hong Kong and China’s third biggest coal producer by market cap) are all interested in Australian coal. And Chinese iron ore trader Haoning Group would like to buy a stake in iron ore producer Brockman Resources Ltd (ASX:BRM).

–That’s what we know. What we don’t know is what Australia and China are saying to each other behind closed doors. And we don’t know what other Aussie companies might be on Chinese watch lists.

–If the FIRB isn’t going to tell us, there are other ways of prospecting around. Gabriel has been working on some technical and fundamental stock screens that produce at least ten new trading ideas each day (five momentum up, five momentum down).

–We’re experimenting with the variables, but this morning we asked him if a stock with symbol UMC had shown up on any of his screens. “Yes, yesterday it did. On the momentum up screen.”

–The stock came up on our computer screen last night when we were reading up on news from the bauxite market. UMC is the United Minerals Corporation (ASX:UMC). Please read this next note. We are not tipping it and have done no diligence on the stock at all.

–We do note, however, that the company is chasing both iron ore and bauxite in the Pilbara. That got our attention. We aren’t tipping it, but we wanted to know more.