But otherwise, Kazakhstan was an empty desert. Even in the days of the old Silk Road, traders would skirt Kazakhstan’s southern border rather than try to cross that hell of a desert. It was remote. Desolate. The Soviets used parts of the northeast to test nuclear weapons.

The Aral Sea, site of one of the greatest environmental disasters ever, is in Kazakhstan. A century ago, carp, perch, caviar-bloated sturgeon and much more filled the Aral Sea. Fisherman hauled hundreds of tons of fish per year, fed themselves and loaded trains full of fish headed to Moscow. Then the Communists had some harebrained scheme to use the water for irrigation. And the great Aral Sea eventually ran dry.

It seems fitting. Kazakhstan has been a relatively barren and primitive place for millennia. The Soviets didn’t help that much.

Then Kazakhstan found oil.

The stuff just bubbled up from salt-encrusted lowlands. Exploratory drilling dates to 1979, but the oil and gas only really started to flow in 1991. That’s when Chevron hooked up with the Kazakh national oil company, Tengizneftgaz. Chevron supplied the technology to boost production.

Since then, many of the world’s largest oil companies are now active in Kazakhstan. Today, Kazakhstan has about 3% of the world’s oil reserves. Vast areas remain unexplored. And more than $130 billion in spending is on tap for the region.

In 2001, a pipeline opened up connecting the Tengiz oil field to the Black Sea. Another pipeline serves China. But the delivery of oil through here still has challenges. Oil flows through the pipeline only seven months out of the year. In the winter, they have to mix a less viscous fluid with the oil so it doesn’t freeze.

China would love to expand its oil supply from Kazakhstan. It helps diversify away the risks China takes by relying heavily on oil from the Straits of Hormuz (out of the Persian Gulf) and the Straits of Malacca (from across the Indian Ocean; the U.S. Seventh Fleet controls these Straits, only adding to China’s oil security concerns). By getting its oil from an overland source, China is less susceptible to oil blockades. That must make Chinese defense ministers smile.

And Kazakhstan is China’s western neighbor. The two share almost a thousand miles of border. Kazakhstan’s oil fields are not far from China’s border. It seems a natural partnership, but there are a couple of flies in the sugar.

The first is that the history between the two countries is complicated and ancient. The Qing Dynasty did some brutal things to the Muslim peoples of Central Asia in the 17th century. And even today, there is suspicion of the Chinese. It may seem strange from an American point of view, but people here have long memories of such things.

Then there is Russia.

Russia has ambitions here as well. That makes things much more complex. Kazakhstan’s closest ally is Russia, historically speaking. About a third of the population is of Russian descent. And the two countries maintain a tight dialogue. The president of Kazakhstan meets with Putin once a month.

The Russians have a complex history with Kazakhstan, too. Stalin and his goons killed millions of Kazakhs. In 1926, there were 6 million people in Kazakhstan. By 1933, after Stalin’s bloody work, 2.5 million of them were dead. Yet somehow, the Kazakhs overlook this more recent tragedy in snuggling up with Russia.

Even the U.S. has tried to make nice with Kazakhstan, but it runs a distant third. Kazakhstan is like the girl everyone wants to date in high school.

Meanwhile, billions of dollars from oil sales flows to Kazakhstan’s coffers. Oil and gas now make up nearly 60% of the country’s exports. Economic growth tops 8%. (Still most of its people are poor. Monthly per capita income is about $770, which is less than it sounds because as is typical with great boomtowns, the cost of living where the money is, namely the oil towns, is pretty high.)

To invest in the boom directly, you can own a Kazakh oil producer. The one that stands out is JSC KazMunaiGas. JSC is the second largest producer of oil in Kazakhstan. Even if you have no intention of buying a Kazakh oil producer, this is a fascinating story on the face of it.

JSC is the only listed Kazakh oil producer. It trades in London under the ticker symbol KMG. JSC had a $2 billion IPO back in 2006. Today, the market values the stock at $8 billion. It generated $2 billion in net profit last year, so it trades for 4 times earnings. Since the IPO, the company has made about $1.3 billion in distributions to shareholders. It’s also buying back stock now.

The government owns 62% of JSC – which is not a bad thing, I would say. It’s like having a fight judge in your corner as a boxer. In fact, JSC has right of first refusal on any takeover for oil and gas assets in Kazakhstan – thanks to the government. So there you go.

JSC exports about 75% of its oil at market prices. So it is not forced to sell a lot to Kazakhs at below-market prices. About 25% is sold at home at prices about 40% less than market prices. There are no hedges, so investors get the full benefit of any upside in oil prices.

JSC is cash-rich and has zero net debt. So no financial risk, either. The company also has some of lowest finding and development costs in the world at only $4.80 per barrel of oil. It has proven reserves of 700 million barrels and has been successful in building new reserves.

Plus, Kazakhstan is lowering its tax burden. As a result, JSC pays less in taxes than Chevron does as a percentage of profits.

Finally, JSC enjoys low geologic risk. In the past, this has been a problem in Kazakhstan. The geology is complex and hard to predict. But most of JSC’s oil fields are traditional sandstone formations.

All in all, JSC looks like a great way to play the growth in Kazakhstan’s oil industry. So, if you’re feeling speculative – and can buy LSE shares – then you might look to dip your toes in the water here. And there may be U.S. shares one day. I’ll be watching, and so should you.

Source: What Would Borat Do?

Nigeria’s main militant group said on Sunday it had attacked three oil installations belonging to Royal Dutch Shellin the Niger Delta, widening a month-old offensive against Africa’s biggest energy industry.

“We’ve got weakening stock markets and the dollar is starting to strengthen,” said Rob Montefusco, a trader at Sucden Financial. “Also technically, it all broke down on Friday.”

U.S. crude for July , which expires later on Monday, fell $2.10 to $67.45 by 1414 GMT. It traded as low as $67.05 intraday, the lowest price since June 8. Brent crude slipped $1.88 to $67.31.

The World Bank warned on Monday prospects for the global economy remained “unusually uncertain” despite recent signs of improvement in parts of the world and cut its 2009 growth forecasts for most economies.

Wall Street opened lower, European stocks lost ground and the dollar rose against a basket of other major currencies. A stronger dollar can limit the appeal of oil and commodities to investors.

Chart patterns are also pointing lower for crude. Both Brent and U.S. crude closed below the $70 mark on Friday, a bearish technical development. Even so, crude has more than doubled from a low of $32.40 in December.

Rebels in Nigeria have been carrying out attacks on the oil industry for years in what they claim is a struggle for a fairer share of the region’s energy wealth.

Also supporting the market was data showing China’s implied oil demand rose 6 percent in May over a year ago, its fastest growth since August 2008. China is the world’s second largest user of oil.

In the Middle East, Iranian opposition leader Mirhossein Mousavi urged supporters to continue protests over the re-election of President Mahmoud Ahmadinejad, in a direct challenge to the Islamic Republic’s leadership.

Some analysts say the political turmoil in Iran, a major oil exporter, so far is of limited significance for the markets due to high levels of unused production capacity and inventories. Others see it as supportive.

“The deterioration in the Iranian situation should prevent a sharper sell-off,” said Edward Meir, analyst at MF Global.

Crude oil speculators on the New York Mercantile Exchange slashed their net long positions nearly in half in the week to June 16, data showed on Friday. Long positions are bets that prices will rise.

LONDON, June 22 (Reuters)

U.S. crude rose 49 cents to $71.76 a barrel by 1515 GMT, having topped $72 earlier. London Brent crude gained 45 cents to $71.51 a barrel.

Nigeria’s main militant group MEND said Friday it had attacked a pipeline operated by Italy’s Agip , close on the heels of previous attacks on facilities operated by Royal Dutch Shell and Chevron . Together, the attacks have cut at least 133,000 barrels of daily output.

Rebels in Nigeria, the world’s seventh-largest oil exporter, have been carrying out attacks on the oil industry for years in what they claim is a struggle aimed at spreading the region’s energy wealth to the poor local communities.

Oil prices also got support from political turmoil in Iran, the world’s fifth largest exporter, in the wake of its presidential election.

“We will see support continue to come from Iran and Nigeria. There is no immediate supply threat from Iran but in Nigeria, (there) is an actual physical disruption,” oil analyst Olivier Jakob of Petromatrix said.

Analysts said gains on Wall Street, fed by optimism that the worst of the economic recession was over, encouraged commodity buying by brightening the outlook for demand.

Oil prices have nearly doubled since February on signs of a potential economic recovery but the pace of the rally has sparked concerns prices are not well supported by fundamentals.

Adding to optimism in oil markets, the U.S. Transportation Department said on Friday Americans drove more miles in April than they did a year earlier, marking the first monthly rise in U.S. highway travel in more than a year.

NEW YORK, June 19 (Reuters)

Time to “Go Underground” for Great Returns

Of course, you might think one of the last places for toe dipping would be the oil and gas industry. A recent OPEC announcement that no additional production cuts were planned for March should serve to keep oil prices low… for now.

That’s not good news for drillers, producers and anyone else in the oil industry supply chain. Many deep-water projects need oil prices of $60-70 a barrel to be considered economically viable.

But there’s one exception: pipeline operators. You see, they get paid to move or store oil and natural gas products.

One operator that sits apart from the rest is TransCanada Corporation (NYSE:TRP). TransCanada is actually two businesses: a pipeline operator and a power producer.

Its revenues are split nearly equally between the two businesses. And with shares down nearly 40% in the last year and trading at just 11 times projected 2009 earnings, the stock is sitting at historical lows.

In its pipeline operation, TransCanada owns and operates pipelines in both Canada and the U.S. It moves oil and gas from drilling sites to tank farms, refineries, processors and electrical power utilities.

Right now, the company is building its Keystone pipeline that will carry crude oil from Alberta’s oil sands operations to refineries in the south-central U.S. This line was one of four proposals that eventually won out over the competition.

It’s also applied to build a second 1,703 mile-long line that will carry crude oil, and it would supply mid-western pipelines and refinery operations in the states.

These projects aren’t cheap: this one has a projected cost of nearly $3 million dollars… per mile. But that’s fine as TransCanada has plenty of free cash flow to pay for it.

Unlike most other pipeline operators, TransCanada’s business model affords it some measure of protection from wild swings in volume and oil and gas prices, as it typically signs long-term contracts with its customers.

That’s a big plus, and one of the reasons TransCanada typically trades at slightly higher P/E multiples than its competitors.

And in a market where it seems every day another company announces it’s slashing its dividend to preserve capital, TransCanada announced just the opposite: effective at the end of March, it’s increasing its dividend. The stock now sports a yield of nearly 5%.

In summary, TransCanada is a great conservative way to play the oil & gas sector, and represents the best of the pipeline bunch.

Source: TransCanada Corporation (NYSE:TRP): Stock of the Day

According to the London Times, the price of sulfur has risen from $50 to $500 a ton in under a year. More from this report:

“Shell is one of the most-efficient producers of sulphur,” Barry Clarke, a sulphur market analyst for Pentasul, said. Shell produces about 3.5 million tonnes of sulphur, much of it from its Canadian oil sands business, and its cost, Mr Clarke reckons, is merely the rail freight cost of getting the sulphur to a port, about $25 a tonne.

Mr Clarke agrees that sulphur, once a burden, could earn the oil industry billions this year. “It’s going to show up in the earnings of companies,” he said. The price is expected to rise further with spot cargoes changing hands for as much as $700 a tonne. Demand for metals is also keeping sulphur bubbling, as sulphuric acid is used in the mining industry to leech metal from ore.

“The biofuel boom has kicked off a big increase in the demand for sulfuric acid,” says Chris Mayer in The Daily Reckoning.

“In fact, some 60% of the sulfuric acid ends up in agriculture. The surge in ethanol production is a double whammy on sulfuric acid. First, all that corn needs fertilizers. And second, the ethanol facilities themselves also use sulfuric acid in their own processing. A typical ethanol facility requires 2,000-4,000 tons of sulfuric acid per year.

“Then there is that great demand pull from China and India. Traditionally, these two countries produced what they needed. But now their own rapid industrialization has turned the tables. They’ve switched from being exporters to importers of sulfuric acid.”

Read on to find the only “pure play” on sulfuric acid spot prices — a little-known company that’s one of the world’s largest suppliers of sulfuric acid.

“And, in the age where we don’t have oil, industry, or military might, ask Alan Greenspan what stands behind the dollar now.”

In an age when the US lacks energy, industry or military might… What stands behind the dollar now?

I have long tried to imagine the discussion at Bretton Woods in July 1944. US, British & Canadian troops had just landed in France. Germany was bleeding white on the Russian Front. The Japanese Empire was dying in the Pacific. Everyone knew that there was hard fighting ahead. But everyone also knew that the Axis was going to be defeated, and the Allied nations would win the war.

So 730 delegates from 44 Allied nations gathered in New Hampshire to chart the future course of the world monetary system.

There are, of course, reports and summaries of what people said for the record. But what did the US delegates REALLY say at Bretton Woods? Let’s just imagine…………

“OK, everyone. Nice to see you all. Hey, did you see the invasion force at Normandy last month? Can you do that? No? Oh. Well, we did that. And we can do it again.

“How about that industrial base back home, eh? Those Rosie the Riveter girls sure can knock out the old landing craft. How’s your industrial base? Oh. Well, that’s OK.

“And it’s a good thing we had all those bombers in the 8th Air Force in England, huh? Yep. Those bombers just turn the sky black, don’t they? And how about that steel rain when the bombs come whistling down? You want area bombing? We have area bombing. On a good day, we can do precision bombing too. Can you do precision bombing? No? Oh.

“And we have 200 submarines in the Pacific. Do you have 200 submarines? No? Oh, gee.

“Overall, we have a 2,000 ship navy, with over 100 aircraft carriers. Do you have a 2,000 ship navy, with over 100 aircraft carriers? No? Oh. That’s OK. Not everyone can have a 2,000 ship navy. Or 100 aircraft carriers.

“And have you heard about the B-29? It’s an intercontinental bomber. Yep. Takes off from the US, and bombs another continent. We’re going to build a lot of those B-29s. Do you have B-29s? No? Oh.

“And I can’t get into details, but the US has this really big program to develop the next generation of weapons. It’s all classified, so I can’t talk about it. But we have all the best physicists and chemists and mathematicians working on it. Really, there are so many brilliant minds working on it that you just can’t find a decent physicist or chemist or mathematician any more. Do you have one of those programs? No? Oh.

“And how about all that gold in the US government vaults. Back in 1933 President Roosevelt collected all the gold from every person in the US. All of it. The whole national treasure. It’s all under our control now. The Supreme Court said it was OK, so it’s even legal. Now we have just thousands of tons of gold. Do you have thousands of tons of gold? No? Oh.

“OK everyone, let’s get down to work. I propose that we make the US dollar the world’s reserve currency. Any questions? No? Oh.”

Until we meet again,

Byron King

Source: What Stands Behind the Dollar?

Brazilian billionaire Eike Batista is planning a 5.59 billion real ($3.37 billion) initial public offering of OGX Petroleo e Gas Participacoes SA, betting the country’s recent oil finds will lure investors who snubbed 20 IPOs this year.

“The market is definitely not the best right now, but for the oil sector that doesn’t really matter,” said Daniel Gorayeb, chief investment analyst at Spinelli SA, a Sao Paulo- based brokerage. “Brazil is a very attractive investment from a macro point of view, and the outlook for oil exploration in particular makes this IPO even more interesting.”

“Brazil’s Carioca field is a reserve with tremendous potential,” says Jason Simpkins in Money Morning, “as it may hold 33 billion barrels of oil and natural gas. Unfortunately, the field is 170 miles offshore, more than 6,000 feet under the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.

“Technologically challenging, physically intensive and costly projects like these are the future of the oil industry.”

Read on here to for a trio of petro-profit plays.

“Australia, Brazil, and Canada are the ultimate destinations for resource investors,” says Brian Hunt in Daily Wealth.

“Each is blessed with awesome energy, metals, and agricultural wealth… and each ABC currency is soaring right now.”

When oil sells for $125 a barrel, it creates a two-pronged situation in the oil industry: 1) It encourages producers to turn on the pumps at full blast. This depletes fields faster… 2) It creates unbelievably large cash flows for the “biggies” like Chevron, Gazprom, and ExxonMobil. And they can direct those cash flows toward finding more oil… It adds up to huge demand for pumps, drill steel, offshore platforms, pipelines, and valves.

Those fundamentals sound great… but what is the market saying about it?

The market says, “I like it… Let’s send Tenaris, the world’s top maker of drilling pipe, to a new all-time high. Don’t forget new highs for Flowserve, the big maker of pipe valves, and Gulf Island Fabrication, the rig builder. New highs for everyone who operates land drills as well. And heck, let’s include the infamous Halliburton. After all, it’s a bull market in oil services!”

Source: The Market Likes the Bull Case for Oil Services