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Monday, October 1, 2012

Trans-Caspian pipeline: the reach of reason


Disagreement between Baku and Ashgabat on the ownership of hydrocarbon deposits in the Caspian shelf makes us take a fresh look at the efforts of the European Union, which is desperately promoting the Trans-Caspian pipeline. The Europeans are sure that they can persuade Azerbaijan and Turkmenistan to implement the realization of this mega-project as an ordinary business.

EU Ambassador to Azerbaijan Roland Kobia explicitly stated in an interview with VK that "Trans-Caspian pipeline is a commercial matter, not political one, and it applies only to countries that want to implement it." The rhetoric of the EU is based on the claim that Azerbaijan and Turkmenistan are two sovereign countries and have a right to decide if to create this facility or not.

Commission members’ trips to both capitals, but, above all, to Ashgabat are designed to influence the Turkmen authorities in terms of their compliancy with the Azerbaijani side on the same contentious issues which generally inhibit the negotiations of determining the legal status of the Caspian Sea.

Azerbaijan actively cooperates with Europe in energy sector and actually tends to prove its commitment to provide energy security of the EU. However, the calculation is based on the resources of Azerbaijan, which is going to significantly increase its gas production capacity in the next 5-7 years. As for creating Trans-Caspian pipeline and getting involved in gas supplies to Europe for Turkmenistan, the issue is not so simple.

Baku does not believe that Trans-Caspian pipeline which is proposed in order to transport Turkmen gas to Europe will be constructed in the near future; Azerbaijan is not interested in investing in this project. Such a statement was made last month by the Azerbaijani Industry and Energy Minister Natig Aliyev. "I do not think that the Trans-Caspian pipeline will be constructed in the near future. Who will construct it? Azerbaijan is not interested in this project, so either Turkmenistan or European companies should do it", - the minister told the reporters.

Trans-Caspian gas pipeline of not less than 400 km will be laid from the Turkmen coast of the Caspian Sea to Azerbaijan. There it can be connected to the existing pipeline infrastructure and, in particular, to "Southern Gas Corridor" which is being created by Azerbaijan, Georgia and Turkey,

At the same time, given the existing export potential of Azerbaijan, for Baku at the moment it is not so important to create Trans-Caspian pipeline, let alone the forcing of its construction. Azerbaijan does not intend in any case to upset relations with Russia and Iran, and it does not accept the rhetoric of the Europeans as the final and the only true one.

Speaking on the export potential of Azerbaijan, Natik Aliyev has noted that the country plans to increase its annual gas supplies to more than 30 billion cubic meters by 2030. According to him, the export of gas to be increased even up to 50 billion cubic meters. "I think if our programs can be successfully implemented... in 2030 we will be able to export over 30 billion cubic meters of gas per year," - Aliyev said. According to him, only in the second phase of the development of the field "Shah Deniz" Azerbaijan will be able to extract 30 billion cubic meters of gas. He added that the country is able to increase production at the expense of other fields.

The negotiations of Turkmenistan with the EU and other countries on the construction of the Trans-Caspian gas pipeline are underway since the late 1990s. There are not any direct arrangements for the implementation of this project yet. However, in September 2011, the European Union gave a mandate to start negotiations on the preparation of an agreement between the EU, Azerbaijan and Turkmenistan on the Trans-Caspian project to the European Commission; after that the process of negotiations began. The main obstacle to the implementation of the project is the unresolved legal status of the Caspian Sea. This argument is used by Russia and Iran in opposing the project. Another argument against it is the environmental risks that will supposedly arise in the case of laying pipe in a seismically active area of ​​the sea with its active mud volcanoes.

Iran-Pakistan gas project: U.S. no, Russia yes


Pakistan lives in an energy crisis. The country faces an acute shortage of energy resources which greatly hinders its economic development. Implementation of the Iran-Pakistan gas project could really help Pakistan's economy, but the question largely depends on the positions of the great powers.

According to the Pakistani newspaper The Express Tribune, Russian and Pakistani representatives discussed Russia's possible participation in the Iran-Pakistan gas pipeline construction project (Pakistan's section) during a meeting in Islamabad on the level of the joint intergovernmental commission. The Russian side expressed its desire to help Pakistan to overcome its energy crisis and stressed Russian Gazprom's readiness to participate in financing the project.

A meeting of the Russian-Pakistani commission was of a preparatory nature ahead of President Putin's visit to Pakistan in October. It is planned to sign a number of major agreements with Pakistan and it is assumed that the Iran-Pakistan gas pipeline project will be one of them.

Half the energy resources consumed by Pakistan fall to natural gas. So far, the country produced and consumed its own gas without importing it from other countries.

In 2011, Pakistan extracted 39 billion cubic meters of gas and consumed the same volume. However, the home grown amount is not enough to ensure the normal functioning of the Pakistani economy. According to Pakistani sources, at present, up to 10 billion cubic meters of gas per year are required now. In 2014-15, this figure will increase to 25.7 billion cubic meters a year. A year later, it will amount to 30.8 billion cubic meters and in 2017 the supply deficit will reach 36 billion cubic meters a year.

Besides the acute need for gas, Pakistan is in a position close to critical due to a lack of funds for the construction of its part of the project in terms of limited time. According to the contract, the Pakistani section worth $1.5 billion must be constructed and a full-scale exploitation of the gas pipeline must be launched by late 2014. If the terms are violated, Islamabad will have to pay huge fines to the Iranian side which is completing the construction of its section of the pipeline.

Everybody has an interest in this game.

Pakistan is trying to ensure gas supplies as soon as possible for the needs of its economy which is suffocating from a lack of energy resources. Pakistan's leadership stresses its firm determination to complete the construction of a pipeline from Iran by all means as the Iranian gas is much more accessible now, than the Turkmen (TAPI project). This does not mean that the Turkmen gas will be superfluous. These figures testify to the fact that Pakistan will need it in the short term prospect.

Taking into account the recently discovered huge gas reserves, Turkmenistan is trying to enter new markets. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project looks very promising. Something was done to promote it. An inter-state agreement between the participating countries was signed in 2010. Turkmenistan signed a memorandum of understanding with Afghanistan in May 2012. The purchase-sale agreements of Turkmen gas were signed with the State Gas Systems of Pakistan and Indian GAIL ltd.

According to many experts, the main obstacle for the project is the security in the Afghan section of the route. Potential investors are hesitant to finance the construction without serious guarantees which no one can offer.

However, Turkmenistan is holding a series of world road-show business trips to attract investment for the TAPI project construction in the three largest financial centres of the world - New York, London, Singapore these days.

Many U.S. companies are very interested in participating in the TAPI project, U.S Assistant Secretary of State for South and Central Asia Robert Blake mentioned it during a visit to Central Asia in August. Blake stressed that progress on this issue depends on what will be offered.

"The participation in the construction of these pipelines is associated with many risks. In particular, firms will consider issues such as the incentives Turkmenistan is ready to offer to international companies to take part in the project. Let's wait for the road shows."
He said that concrete discussions about who will form and lead a consortium for the practical construction of the pipeline will begin after their completion.

The issue of diversification of export routes is important for Iran having more gas reserves than neighbouring Turkmenistan. However, as opposed to Ashgabat, a political aspect in the implementation of its own gas pipeline project is important for Tehran.

It is necessary for Tehran to demonstrate the failure of the sanctions regime, the presence of partners and allies and its international isolation, especially such as Pakistan, the U.S. old strategic partner in the region amid the US-Iranian confrontation.

It is important for the U.S. to ensure Iran's maximum isolation, especially its oil and gas potential to weaken the economy and at least force it to abandon its nuclear programme. Accordingly, Americans want to prevent the construction of a pipeline from Iran to Pakistan under any circumstances by putting pressure on Islamabad by persuasion and poorly hidden threats.

What does Russia want? As always, it has the most unpredictable plans. The idea of "what is good for the enemy of America is good for Russia" may have a right to exist. In the future, under any pretext it is possible to refuse an agreement to finance the Iran-Pakistan project, whilst demanding the U.S. offers concessions on other foreign policy issues. This action is allowed in politics.

However, Russia's attempt to establish its own interests including economic in Pakistan - one of the two largest countries in South Asia, having nuclear weapons, is still more real. It should be recalled that Putin's visit in October will be the first visit of a Russian president (USSR) to Pakistan, since 1948, that is during diplomatic relations between the two countries.

Ironically, or, if you like thanks to the principles of the free market heavily implicated in the geopolitics, there is such a situation that the U.S. and Russia seem to change their roles. The U.S. for the TAPI project, originating in Turkmenistan, a former Soviet republic, Russia's partners in the CIS, while Russia can finance the Iran-Pakistan project and therefore support Islamabad - the U.S. strategic partner in the South Asian region.

There is another important point in this story. According to the contract, Pakistan will initially import annually around eight to10 billion cubic meters of Iranian gas. Gas production in Iran in 2011 was 151.8 billion cubic meters, while consumption in the same year amounted to 153.3 billion.

The excess of the domestic consumption over the volume of production in Iran has recently become a trend. The country is short of gas given such a significant level of production and it imports gas from neighbouring Turkmenistan. Iran's Northern provinces have not yet been gasified and are suffering from the cold every winter. Where does Iran plan to take gas for export to Pakistan? Formally from the South Pars field, but in fact?

A Pakistani edition published sceptical comments of local experts that Russia's deal on financing the project or the participation of Russian companies in the construction of the Iran-Pakistan gas pipeline are unlikely to be concluded because of the U.S. position. This would put pressure on the Russian leadership as happened previously with China. It will become clear in October whether Pakistani sceptics are right or not following President Putin's visit to the country.

EUR / USD intraday: the downside prevails.



Pivot (level of cancellation): 1.2900

Our preference : Short positions long maturity under 1.29 with targets at 1.275 and 1.2725 in extension. Alternative scenario : Above 1.29 look for further upside with 1.2925 and 1.296 as targets. Comment : Broke the Alnspahtan Strength Index trend line rackets on the ascent.




GBP / USD intraday: key resistance level in the short term at 1.616.

Pivot (level of cancellation): 1.6160

Our preference : Short positions long maturity under 1.616 with targets at 1.609 and 1.607 in extension. Alternative scenario : Above 1.616 look for further upside with 1.621 and 1.6245 as targets. Comment : the break below 1.616 is a negative signal opened the way to 1.609.




USD / JPY intraday: continuation of the rebound.

Pivot (level of cancellation): 77.70

Our preference : Long positions above 77.7 with targets at 78.1 and 78.2. Alternative scenario : Below 77.7 look for further downside with 77.35 and 77.1 as targets. Comment : the RSI broke above the trend line rackets on the landing.




EUR / JPY intraday: under pressure.

Pivot (level of cancellation): 100.05

Our preference : Short positions long maturity under 100.05 with targets at 99.65 and 99.5 in extension. Alternative scenario : Above 100.05 look for further upside with 100.35 and 100.65 as targets. Comment : the RSI rackets on landing and refers to the fall of more.




GBP / JPY intraday: key resistance level in the short term at 126.2.

Pivot (level of cancellation): 126.20

Our preference : Short positions long maturity under 126.2 with targets at 124.9 and 124.3 in extension. Alternative scenario : Above 126.2 look for further upside with 126.8 and 127.15 as targets. suspension technician : as long as 126.2 is the level of resistance Search for volatile share price with a bias to the conflicts on the landing.




AUD / USD intraday: under pressure.

Pivot (level of cancellation): 1.0380

Our preference : Short positions long maturity under 1.038 with targets at 1.031 and 1.027 in extension. Alternative scenario : Above 1.038 look for further upside with 1.0405 and 1.043 as targets. Comment : the RSI rackets on landing and refers to the fall of more.




Cac 40 Oct 12 in intraday: under pressure.

Pivot (level of cancellation): 3405.

Our preference : Short positions long maturity under 3405 with targets at 3300 and 3260 in extension. Alternative scenario : Above 3405 look for further upside with 3470 and 3515 as targets. Comment : the RSI rackets Alhbootooichir to further decline.




Dax Dec 12 in intraday: integration.

Pivot (level of cancellation): 7355.

Our preference : Short positions long maturity under 7355 with targets at 7180 and 7130 in extension. Alternative scenario : Above 7355 look for further upside with 7435 and 7480 as targets. Comment : the RSI rackets Alhbootooichir to further decline.



EU welcomes agreement on Caspian pipeline


The EU energy commissioner said Friday he welcomed the political support given for the construction of the Trans-Adriatic Pipeline project.

Albanian, Greek and Italian governments confirmed political support for the regional natural gas pipeline by signing a memorandum of understanding on the sidelines of the U.N. General Assembly.

EU Energy Commissioner Gunther Oettinger said the MOU amounted to an in-principle agreement to build the pipeline.

"This is another important step toward our aim to get gas directly from the Caspian region," he said in a statement.

The planned 320-mile pipeline is designed to carry as much as 353 billion cubic feet of natural gas per year from the Azeri waters of the Caspian Sea to European consumers. Land and water surveys for the potential route were approved for the Italian section earlier this month.

By next year, the BP-led group controlling the Shah Deniz gas field in Azerbaijan should decide between Nabucco West and TAP as its transport artery.

Oettinger's office said that, no matter which project is supported, "one or more pipelines" will be part of "an unbroken system" that ties the Caspian Sea to Europe.

Azerbaijan eyes aiding Israel against Iran



Israel's "go-it-alone" option to attack Iran's nuclear sites has set the Middle East on edge and unsettled its main ally at the height of a U.S. presidential election campaign.

Prime Minister Benjamin Netanyahu exudes impatience, saying Tehran is barely a year from a "red line" for atomic capacity. Many fellow Israelis, however, fear a unilateral strike, lacking U.S. forces, would fail against such a large and distant enemy.

But what if, even without Washington, Israel were not alone?

Azerbaijan, the oil-rich ex-Soviet republic on Iran's far northern border, has, say local sources with knowledge of its military policy, explored with Israel how Azeri air bases and spy drones might help Israeli jets pull off a long-range attack.

That is a far cry from the massive firepower and diplomatic cover that Netanyahu wants from Washington. But, by addressing key weaknesses in any Israeli war plan - notably on refueling, reconnaissance and rescuing crews - such an alliance might tilt Israeli thinking on the feasibility of acting without U.S. help.

It could also have violent side-effects more widely and many doubt Azeri President Ilham Aliyev would risk harming the energy industry on which his wealth depends, or provoking Islamists who dream of toppling his dynasty, in pursuit of favor from Israel.

Yet despite official denials by Azerbaijan and Israel, two Azeri former military officers with links to serving personnel and two Russian intelligence sources all told Reuters that Azerbaijan and Israel have been looking at how Azeri bases and intelligence could serve in a possible strike on Iran.

"Where planes would fly from - from here, from there, to where? - that's what's being planned now," a security consultant with contacts at Azeri defense headquarters in Baku said. "The Israelis ... would like to gain access to bases in Azerbaijan."

"ICEBERG" RELATIONSHIP

That Aliyev, an autocratic ally of Western governments and oil firms, has become a rare Muslim friend of the Jewish state - and an object of scorn in Tehran - is no secret; a $1.6-billion arms deal involving dozens of Israeli drones, and Israel's thirst for Azerbaijan's Caspian Sea crude, are well documented.

Israel's foreign minister visited Baku in April this year.

But a leaked U.S. diplomatic cable from 2009 quoted Aliyev, who succeeded his father in 2003, describing relations with Israel as "like an iceberg, nine tenths ... below the surface".

That he would risk the wrath of his powerful neighbor by helping wage war on Iran is, however, something his aides flatly deny; wider consequences would also be hard to calculate from military action in a region where Azerbaijan's "frozen" conflict with Armenia is just one of many elements of volatility and where major powers from Turkey, Iran and Russia to the United States, western Europe and even China all jockey for influence.

Nonetheless, Rasim Musabayov, an independent Azeri lawmaker and a member of parliament's foreign affairs committee, said that, while he had no definitive information, he understood that Azerbaijan would probably feature in any Israeli plans against Iran, at least as a contingency for refueling its attack force:

"Israel has a problem in that if it is going to bomb Iran, its nuclear sites, it lacks refueling," Musabayov told Reuters.

"I think their plan includes some use of Azerbaijan access.

"We have (bases) fully equipped with modern navigation, anti-aircraft defenses and personnel trained by Americans and if necessary they can be used without any preparations," he added.

U.S. CONCERNS

The administration of U.S. President Barack Obama has made clear it does not welcome Israel's occasional talk of war and that it prefers diplomacy and economic sanctions to deflect an Iranian nuclear program that Tehran denies has military uses.

Having also invested in Azerbaijan's defenses and facilities used by U.S. forces in transit to Afghanistan, Washington also seems unlikely to cheer Aliyev joining any action against Iran.

The Azeri president's team insist that that will not happen.

"No third country can use Azerbaijan to perpetrate an attack on Iran. All this talk is just speculation," said Reshad Karimov from Aliyev's staff. He was echoing similar denials issued in Baku and from Israel when the journal Foreign Policy quoted U.S. officials in March voicing alarm that Azeri-Israeli action could thwart U.S. diplomacy toward Iran and across the Caucasus.

Israeli officials dismiss talk of Azeri collaboration in any attack on Iran but decline public comment on specific details.

Even speaking privately, few Israeli officials will discuss the issue. Those who do are skeptical, saying overt use of Azeri bases by Israel would provoke too many hostile reactions. One political source did, however, say flying unmarked tanker aircraft out of Azerbaijan to extend the range and payloads of an Israeli bombing force might play a part in Israeli planning.

Though denying direct knowledge of current military thinking on Iran, the Israeli said one possibility might be "landing a refueling plane there, made to look like a civilian airliner, so it could later take off to rendezvous mid-air with IAF jets".

A thousand miles separates Tehran and Tel Aviv, putting much of Iran beyond the normal ranges of Israel's U.S.-made F-16 bombers and their F-15 escorts. So refueling could be critical.

INTELLIGENCE COOPERATION

There is far from unanimity among Israeli leaders about the likelihood of any strike on Iran's nuclear plants, whether in a wider, U.S.-led operation or not. Netanyahu's "red line" speech to the United Nations last week was seen by many in Israel as making any strike on Iran unlikely - for at least a few months.

Many, however, also assume Israel has long spied on and even sabotaged what the Western powers say are plans for atomic weapons which Israel says would threaten its very existence.

A second Israeli political source called the idea of Azerbaijan being either launch pad or landing ground for Israeli aircraft "ludicrous" - but agreed with the first source that it was fair to assume joint Israeli-Azeri intelligence operations.

The Azeri sources said such cooperation was established.

As part of last year's arms deal, Azerbaijan is building up to 60 Israeli-designed drones, giving it reconnaissance means far greater than many analysts believe would be needed just to guard oil installations or even to mount any operations against the breakaway, ethnic Armenian enclave of Nagorno-Karabakh.

"With these drones, (Israel) can indirectly watch what's happening in Iran, while we protect our borders," legislator Musabayov said - a view shared by Azeri former military sources.

Less reserved than Israeli officials, the sources in Azerbaijan and in Russian intelligence, which keeps a close eye on its former Soviet backyard, said Baku could offer Israel much more, however - though none believed any deal was yet settled.

The country, home to nine million people whose language is close to Turkish and who mostly share the Shi'ite Muslim faith of Iran, has four ex-Soviet air bases that could be suitable for Israeli jets, the Azeri sources said. They named central Kyurdamir, Gyanja in the west and Nasosny and Gala in the east.

The Pentagon says it helped upgrade Nasosny airfield for NATO use. It also uses Azeri commercial facilities in transit to Afghanistan. But U.S. military aid to Azerbaijan is limited by Washington's role as a mediator in its dispute with Armenia.

One of the sources with links to the Azeri military said: "There is not a single official base of the United States and even less so of Israel on the territory of Azerbaijan. But that is 'officially'. Unofficially they exist, and they may be used."

The source said Iran had been a main topic of talks in April with Israel's Soviet-born foreign minister, Avigdor Lieberman.

RECONNAISSANCE, RESCUE

Azeri tarmac, a shorter flight from key sites in northern Iran including the Fordow underground uranium enrichment plant and missile batteries at Tabriz, might feature in Israeli war planning in less direct ways, the former Azeri officers said.

With Israel wary of its vulnerability to pressure over air crew taken prisoner, plans for extracting downed pilots may be a key feature of any attack plan. Search and rescue helicopters might operate from Azerbaijan, the sources said - or planes that were hit or low on fuel could land at Azeri bases in extremis.

Such engagement carries risks for Azerbaijan and its oil platforms and pipelines operated with international companies.

Defending against Iran is part of public debate in Baku. The United States has provided Azerbaijan with three Coast Guard cutters and has funded seven coastal radar sites as well as giving Baku other help in protecting its oil installations.

Relations have long been strained between the former Soviet state and Iran, which is home to twice as many ethnic Azeris as Azerbaijan itself. Tehran beams an Azeri-language television channel over the border which portrays Aliyev as a puppet of Israel and the West, as well as highlighting corruption in Baku.

Azerbaijan sees Iranian hands behind its Islamist opposition and both countries have arrested alleged spies and agitators.

Faced with an uneven balance of force, Aliyev's government makes no bones about Israel being an ally. As one presidential aide, speaking on condition of anonymity, explained: "We live in a dangerous neighborhood; that is what is the most powerful driving force for our relationship with Israel."

However, Israel's confrontation with Iran may turn out, the arms build-up in Azerbaijan, including recent Israeli upgrades for its Soviet T-72 tanks, may have consequences for the wider region and for the stand-off with Armenia - consequences that would trouble all the powers with stakes in the Caspian region.

"We keep buying arms. On the one hand, it's a good strategy to frighten Armenia," one of the former Azeri officers said of the shaky, 18-year-old ceasefire over Nagorno-Karabakh. "But you don't collect weapons to hang on the wall and gather dust.

"One day, all these could be used."


Gold and Silver Prices – Daily Outlook for October 1


The prices gold and silver edged down during last week, as the concerns over Greece and Spain may have contributed to the decline of the Euro and bullion. In the past couple of weeks the decision of the FOMC to launch QE3 didn’t seem to have much of an effect on bullion prices. I have referred to this issue in a recent post and think that the effect of QE3 on gold and silver will be slow and over time. As I have indicated in the precious metals weekly outlook the main events of the week will revolve around: U.S non-farm payroll report, the ongoing developments in Europe mainly around Spain and Greece, the minutes of the FOMC meeting and Bernanke’s speech.  Today, Bernanke will give a speech regarding the Fed’s monetary policy. This speech could affect not only the USD but also precious metals. Other items on today’s agenda include: GB Manufacturing PMI, Euro Area unemployment rate and U.S. ISM Manufacturing PMI.

Here is a short outlook for precious metals for Monday, October 1st:

Precious Metals –October Update

On Friday, Gold edged down by 0.37% to $1,773.9; Silver also slipped by 0.26% to $34.58. During last week, gold decreased by 0.23%; silver, by 0.18%. Furthermore, on Friday the SPDR Gold Shares (GLD) also decreased by 0.26% and reached by September 28th 171.89.

For the rest of the report you can see it at Seeking Alpha

Current Gold and Silver Rates as of October 1st

Gold (October 2012 delivery) is traded at $1,772.3 per t oz. a $1.6 or 0.09% decrease as of 08:33*.

Silver (October 2012 delivery) is at $34.49 per t oz – a $0.087 or 0.25% decrease as of 08:33*.

(* GMT)

Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):

Today

09:30 – GB Manufacturing PMI

10:00 – Euro Area unemployment rate

15:00 – U.S. ISM Manufacturing PMI

17:30 – Bernanke’s Speech

Tomorrow

05:30 – Reserve Bank of Australia – Cash Rate Statement

Tentative – Great Britain 10 Year Bond Auction

2:30 – Australian Trade Balance