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Global Outlook

In Your Face

May 28, 2014, Wednesday, 20:47 GMT | 15:47 EST | 00:17 IST | 02:47 SGT
Contributed by eResearch


A Major Blow to America

For the past few years, Russia has significantly increased its political status by preying on a weak Obama. But this week, Putin may have delivered Obama's final blow.

Before I get to that, let me start at the root of the problem.


Growing Debt Burden

For years, Obama has been on a major spending spree; spending money that America does not have in order to stay in power. But this money has to come from somewhere, and it has to be paid back.

Obama believes that shipping LNG to Europe will generate enough jobs and tax revenue to pay off America's growing debt.

The problem is that his solution is not only many years away, but LNG cannot (yet) be shipped from America to Europe cheap enough for Europe to wean itself from Russian gas supply. Russian gas supplies are estimated to be 40% cheaper than LNG from America.

So, unless Russia decides to raise prices by 35% to 40%, it is not economic for Europe to buy gas from America - not unless America can find a way to reduce costs. Even if America is capable of reducing costs, it can still easily be undercut by Russia's cheaper pipeline gas.

Obama has told the world that when it gets its LNG exports up and running, Europe will pay less for gas, thus removing Russia's "energy blackmail" on Europe. What he has not told the world is how much money he expects to make for America.

But, given today's cost estimates, how will America be able to provide Europe with cheaper gas, and make money to pay for the nation's growing debt?


A Piece of the Pie

The truth is Obama wants a piece of the energy revenue to pay for America's extravagant spending spree over the last decade. Just last year, America spent over $416 billion in interest payments, while running a deficit of over $750 billion. No nation can remain a dominant power if it continues to rack up debt.

America needs additional revenue now.


The Real Reason for War in Syria, Ukraine, and Everywhere

War stems from the control of energy and resources. Everything you hear and see on the news regarding Syria, Ukraine, and just about everywhere, stems from the control of energy.

For example, Russia' annexation of Crimea is not just about politics.

As I mentioned in a past Letter:

"One of the primary reasons for Russia's annexation of Crimea is access to the Black Sea.

While Crimea accounts for less than 4% of Ukraine's GDP, the region is vital to developing the substantial Black Sea oil and gas that lies in its watershed.

According to Ukrainian government figures, the deep-water natural gas reserves in the region were estimated between 4 trillion and 13 trillion cubic meters. It was estimated that with a small investment of around $8-9 billion, production could reach nearly 10 billion cubic meters per year by the year 2030 - right around the time Russia's oil production is expected to decline.

Putin's annexation of Crimea now blocks Ukraine's physical access to those resources, much of which foreign capital (from Western nations, including Exxon Mobil) was ready to deploy for development."

Both Russian and American intentions are clear in the battle for Ukraine and Syria; it is a battle over energy corridors that control much of Europe's gas supply. If the U.S.A. wins control over those corridors, it would make it harder for the Russians to supply Europe with cheaper gas.

However, even if America is successful in supplying Europe with cheaper gas, Russia still has a wildcard.


China: The Next Biggest Consumer

Do not think for one second that Russia has not thought about the potential loss of gas sales to the USA via LNG prospects. LNG from America to Europe is inevitable. That is why so many LNG gas stocks continue to hit new 52-week highs. Eventually, America will be able to use LNG sales not only to help repay its massive debt, but also to undermine Russian profits. This is America's lifeline.

As I mentioned earlier, Putin has been planning for this for a long time. He knows that America has incredible influence over Europe and could easily persuade Europe to purchase gas from America - even at a higher price.

That is why Russia has, over the last decade, been negotiating with China - the world's second biggest consumer of energy - to provide energy to the growing nation.

In a recent Letter, I said:

"State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China in 2018 via the first pipeline between the world's largest producer of conventional gas to the largest consumer.

Putin is visiting China in May and many sources, including those from Gazprom, believe that a deal will be struck.

If this deal can be inked when Putin visits China in May, it will show that global power does not have to remain in the West.

China already overtook Germany as Russia's biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.

If Russia continues to be isolated by additional Western sanctions, we may see Russia attempt to step up further cooperation, such as an arms deal, with China.

America may claim to be in the process of providing cheaper gas to Europe, but this may actually result in higher overall gas prices - especially after 2015.

Mongolia is already set up to become one of the world's biggest energy corridors.

It is only a matter of time before a deal is struck. This will change the world."


Changing the World

Everything has unfolded exactly as I have talked about over the past year and months.

Russia has just struck a massive gas deal with China. It is a 30-year supply deal for 38 billion cubic metres - exactly as expected - worth a whopping $400 billion beginning in 2018. It is so big it puts the amount of gas that Russia ships to Western Europe to shame - by a factor of five.

More importantly, it now means that global power through the control of oil and gas is now shifting to the East.


What this Means for the World

First, here's a quick history lesson.

Many years ago, the dollar became the world's reserve currency. Many people talk about this term, but no one really knows what it means or how it came about. Furthermore, people forget how the dollar received this prestigious status.

In 1971, President Nixon closed the gold window and prevented foreign governments from converting their dollars to gold. This was a result of foreign investors (and their lack of faith in the USA) rushing to cash in their U.S. dollars for gold, dramatically emptying the gold in Fort Knox.

(No one still knows how much gold America has left; the vaults have yet to be audited and all of the gold America holds for foreign nations somehow can't be repaid.)

As a result, a new monetary system was created backed by nothing more than promises from bankers and politicians. Using their connections and relationships, and promises of protection and military backing, a deal was struck with OPEC to price oil in U.S. dollars exclusively for international transactions.

As a result, the dollar received a special place in world currencies, backed essentially by oil. This gave the USA artificial strength by allowing the USA to export its monetary inflation by importing oil and other goods at a major discount; thus, other nations ended up with piles of dollars, while the USA ended up with real hard assets (and political favours.)

Now that the printing press in America has been set on overdrive, nations around the world are feeling the dramatic effects of importing inflation from the use of the dollar. They are not happy. But there is nothing they can do about it ... yet.

Gold Standard?

We may hear that America will never go back to the gold standard. But what happens if other nations do?

What happens when nations who control a large part of the energy market decide to not necessarily abandon the dollar in trade, but bypass it as the only form of currency acceptable?

We will soon find out because it is already happening.

In 2003, Iran began pricing its oil exports in Euros for Asian and European buyers. Five years later, the Iranian government opened an oil exchange on the island of Kish in the Persian Gulf for the purpose of trading oil in Euros and other currencies. By 2009, Iran completely ceased any oil transactions in U.S. dollars.

Iran is the second largest OPEC oil producer. Its actions pose a direct threat to the dollar, hence America's ongoing hostility toward Tehran.

I have also mentioned in many past Letters the many nations who are now bypassing the dollar in trade. As this continues, the dollar's rule will slowly begin to crumble, as oil and gas that was once traded only in dollars will slowly begin to trade in other currencies. Thus, the dollar's role as the world's reserve currency will be diminished.


The Final Blow?

With so much of the world now trading energy supplies in other currencies, the final blow would be Russia striking a massive energy deal with China.

Obama, along with his meaningless sanctions against Russian officials, finally pushed Russia into inking a deal with China that was ten years in the making.

In a few years, possibly sooner, the ramifications of the East's actions on the dollar will come to light and force America to the brink of either full-on world war, or the demise of its power.

For now, the Fed will likely raise rates or cut back on stimulus in order to instill confidence back in the dollar. However, the wheels are already in motion to undermine the dollar, and they continue to turn with aggressive momentum.


No More Dollar?

Just before the massive gas deal was struck between Russia and China, VTB Bank (Russia's second biggest lender) and the Bank of China signed an Agreement on Cooperation to bypass the dollar in bilateral trade.

Via VTB:

"The agreement was signed by First Deputy President and Chairman of VTB Bank Management Board Vasily Titov and Bank of China President Chen Siqing.

Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, interbank lending, trade finance, and capital-markets transactions."

Meanwhile, it appears that Chinese banks have halted dollar transactions with most Afghan commercial banks.

While it is easy to say the dollar is going to fall, there has to be another currency to take its place if that were to happen. Many believe that the Yuan could take over this spot. However, the Yuan lacks full convertibility in world trade and many still do not "trust" it. But what happens if the currency was pegged to something ... say, gold? There is no doubt that both China and Russia, now energy-partner powerhouses, have been buying every bit of gold they can find.

Russia, in particular, has been dumping U.S. bonds and using those funds to buy - you guessed it - gold. Since 2006, Russia has consistently increased its gold holdings. In April alone, Russia bought 900,000 ounces of gold.

China, on the other hand, has been secretly buying up gold through many different sources - but have yet to announce its true holdings and accumulation. The nation is certainly enjoying cheaper gold prices as a result of what appears to manipulation by Western banks.

(Barclay's was just finedfor manipulating the price of gold over the last ten years.)

It is no wonder Russia's President Vladimir Putin told foreign journalists at the St Petersburg International Economic Forum that gold is better than the dollar:

"For us (Russia and China) it is important to deposit those (gold and currency reserves) in a rational and secure way," he said. "And we together need to think of how to do that, keeping in mind the uneasy situation in the global economy."

Putin also said China and Russia will consider further steps to shift to use of national currencies in bilateral transactions."


In Your Face, Obama

As you now understand from my tone, it is not about politics, it is about money.

So much that even one of America's biggest companies, Exxon Mobil, slapped Obama in the face by recently signing a deal for a joint project to drill for oil in the Arctic and Siberia and to liquefy natural gas for export to the Far East, with Rosneft's (Russia's largest oil firm) CEO, Igor Sechin - despite recent sanctions by Obama's administration.

Igor Sechin warned Western governments that more sanctions over Moscow's seizure of the Black Sea peninsula from Ukraine would be counter-productive. His underlying message was clear: If you isolate Russia, Moscow will find business elsewhere. Given the recent half-trillion dollar gas deal with China, I would say Russia already has.


What You Do Not Know About The Oil Boom

While most of the power plays in the energy sector surround oil and gas, they are not the only energy source with strength. Despite what you hear, uranium and nuclear power continues to be a dominant form of sustainable energy - especially in America.

Do not think for one second that Russia does not know this ... heck it has been supplying America with this power source over the last twenty years.

As the dollar's dominance continues to fade in world energy trade, so will its purchasing power. The once highly-leveraged dollar, which exported inflation to other nations and gave America a major upper hand in trade, will eventually lose its purchasing power. That means not only will the dollar fall, but also will the price of energy increase for every American.

Despite having a new found wealth of oil and gas, via fracking etc., other forms of energy, such as uranium - for example - is very limited when compared to what is being produced at home.

As a matter of fact, all of this oil and gas boom may not be as "booming" as what was once thought.


Fracking: Boom or Bust?

The Energy Information Administration (EIA) just slashed its estimate of recoverable reserves from California's Monterey Shale by a ridiculous 96 percent, saying oil from the largest U.S. formation will be harder to extract than previously anticipated.

Via Bloomberg:

"The Monterey Shale is now estimated to hold 600 million barrels of recoverable oil, down from a 2012 projection of 13.7 billion barrels, John Staub, a liquid fuels analyst for the EIA, said in a phone interview."

Via LA Times:

"The new estimate, expected to be released publicly next month, is a blow to the nation's oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The Monterey Shale formation contains about two-thirds of the nation's shale oil reserves."

Simply put, the EIA just told us this:

Nearly two-thirds of America's shale oil reserves cannot be recovered...at least, not at today's prices.

In other words, America may have lots of oil at home, but it is going to cost you. What is worse is that uranium, another energy source used widely in America, is also going to cost you.

That's because, as I mentioned in my letter, "An Explosive Opportunity," Russia controls much of this energy supply and is still currently supplying America with it.

Only now, it gets to dictate prices. Given the animosity towards America, will Russia continue to sell America uranium supplies for cheap?


The World Uranium Market: A Different View

My understanding of the uranium and nuclear energy market is very different from what western media portrays. Western media has shunned nuclear energy; yet it never mentions how much of it is still being used at home. More specifically, it never mentions better and viable alternatives.

I always like to look at situations from many different angles. Could it be that the West has instilled a lack of trust in nuclear energy in order to force prices down, just as it has gold? Especially since the East controls so much of the uranium supply?

For now, uranium prices remain low as the negativity instilled by western media continues to tarnish the sector. Therefore, Russia cannot dramatically increase the price of uranium it supplies to America at higher prices because it cannot justify the increase due to what appears to be a lack of demand. This simply would not make international political sense.

However, if eastern nations - such as China and Japan - continue with their nuclear start-ups, the supply and demand pricing issue would change very quickly.

But Russia will not wait to influence those it has little control over. What it will do is kill numerous birds with one stone: Anger the West, strengthen the uranium market, and strategically gain a toehold in the Strait of Hormuz.


Russia Set To Build Eight Nuclear Power Plants In Iran

Just a day after Russia announced the massive gas deal with China, it announced that it struck a deal with the Tehran regime to build - not one - but 8 more nuclear power plants in the country.

According to RIA:

"Moscow may sign an intergovernmental agreement with Teheran this year to build eight new reactors for nuclear power plants in Iran, a source close to the negotiations told journalists Thursday.

Two reactors could be built at the Bushehr Power Plant and six reactors at other sites, the source said, adding that the talks were in their final stage.

Russian President Vladimir Putin said earlier this week that Russian-Iranian cooperation would continue despite international turbulence around Tehran. Putin said that Russia and Iran are not only neighbors, but also long-standing reliable partners."

I just talked about Iran's attack against the Petrodollar over the past decade. Putin's remark not only increases the validity of uranium assets while slapping Obama again in the face, but it also shows Putin's strategy of uniting nations against the West.

Furthermore, the recent gas deal between Russia and China could be made exponentially stronger if the two nations had a toehold on the Strait of Hormuz.

(The Strait of Hormuz passes approximately 35% of the world's oil traded by sea and 20% of oil traded worldwide. If Iran is successful in blocking the passage, it would be extremely painful for the already fragile economies of Britain, Europe, the United States, and Japan - all of which rely heavily on oil and gas supplies from the Gulf.)


How to Take Advantage of Obama’s Lack of Action

I am not here today to scare you or tell you to dump your dollars. I am here today to tell you how to protect yourself. That is because aside from the renewed oil and gas sector in America, there is something else that may put all Americans at risk.

You see, not only is Russia taking control of gas sales, but it is also taking control of a major resource that powers much of America: uranium.

As a matter of fact, over the last twenty years, Russian supplies powered one in every ten light bulbs in America.

I believe that current uranium prices cannot go any lower. That means if you participate in the sector now, you could likely be getting in at the ground floor.

I have already written in the past that the only real way to play a rise in uranium prices is to play uranium stocks.

That is why I continue to favour uranium producers located in the USA, such as Uranerz Energy Corporation (TSX: URZ) (NYSE MKT: URZ).

If you have not read my report on Uranerz, you can by CLICKING HERE.

However, note that since my report, the Company has made significant progress and is now in production mode and could soon be announcing production numbers. That means it may begin to announce revenues from that production soon.

If the price of uranium climbs later this year, as I expect it to, Uranerz could be in a great position to take advantage of that.

The last time uranium prices boomed, many uranium stocks saw gains of over 500% ... some many times more. It could happen again.

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