The Egyptian Supergiant Gas Finding

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The use of the terms "supergiant" and "gas" in the same sentence usually refer to one of the four planets at the outer edge of the solar system that have neat rings and moons that may contain alien life.  In the natural resources industry, however, the two terms in conjunction indicate a massive finding: pockets of natural gas that contain huge amounts of the valuable fossil fuel that has done significantly better at the market than oil this year, but still remains in a rather pesky bear market, trading at 3-month lows.  While natural gas has spent almost all of the year in oil's shadow, perhaps the biggest story of the energy industry emerged last week to put gas firmly on the scope of international attention: an Italian surveyor team from the energy conglomerate Eni identified a supergiant gas pocket 120 miles off the shore of Egypt, amounting to what could be the largest natural gas pocket known to exist.  The presence of this supergiant reserve has the very real possibility to change the global economy as we know it.

Oil, Oil, Everywhere

The Middle East has been ground zero for oil production over the course of the past century.  While Egypt missed out on the petroleum booms that Saudi Arabia, Kuwait, and the UAE became rich off of in the early 1900s, the Egyptian use of oil dates back much further than the start of the 20th century.  The Roman Empire relied on Egyptian bitumen, a form of sticky semi-liquid petroleum, as a glue and waterproofing agent to hold together everything from roofing tiles to imperial palaces.  The Romans referred to the Dead Sea (then controlled by Egyptian pharoah dynasties) as the Palus Asphaltites, literally "Asphalt Lake."  While Rome relied far more on Egyptian grain than Egyptian oil, the region earned a reputation as a resource-plentiful province where corrupt governors -- the ancient equivalent of venture capitalists -- could quickly develop mines and quarries to extract riches before their term limit kicked in.  During the Renaissance era, Egyptian bitumen caulked the hulls of merchant ships sailing from one side of the Mediterranean to the other, creating a steady demand for a shipbuilding industry despite Egypt's obvious lack of forests.  With the advent of the modern petro-dollar, however, Egypt fell behind the swelling economies of neighboring oil-rich Libya and Saudi Arabia despite the fact that they have the largest non-oil economy of any Middle Eastern nation with only one in three export dollars deriving from fossil fuels.

How Giant Is Supergiant?

One hundred million years ago (give or take) Northern Africa had a far more lush landscape due to increased precipitation, giving rise to huge quantities of plant matter.  Said plant matter decayed and released its carbon, which each bonded together with four hydrogen atoms to form the methane that represents the majority of natural gas' chemical makeup.  Natural gas can only escape with access to the surface, meaning that all natural gas pockets lie very deep underground.  In the case of the Egyptian supergiant field, in fact, the gas sits under nearly a mile of water and rock in the Shorouk Block formation.  How much lies in the Shorouk formation?  Preliminary estimates suggest something in the vicinity of 30 trillion cubic feet (that's trillion, with a T); as such, the supergiant gas cluster provides a huge amount of wealth for the first Egyptian enterprises to tap into the bedrock.  The Eni CEO believes that the reserve will change the economy of Egypt as we know it, while also providing long-term supply for the global market.  The preliminary findings suggest a lot for surveyors to be happy about, but this is just the first stage of a very long process.  It'll be another year before the first cubic meter of natural gas can be sucked out of the Mediterranean Sea and turned into valuable electricity.  That gives investors a whole lot of time to gear up for a decline in gas prices once the new supply floods the market with cheap gas.

  • The Takeaway: the huge findings in the Shorouk rock should not be underestimated.  It's the newly-discovered largest reserve of gas in all of the Mediterranean, an area long known for energy exploration.  While the price of gas has gained slightly due to the news, investors should only consider keeping gas commodities in their portfolio for growth over the course of the next 12 months at most.  Any time after that could herald a very steep drop in value.
  • Short-sell natural gas commodities for far future delivery in order to profit once the Shorouk gas starts coming onto the market.  The traditional means of buying shares from a brokerage firm to repay at a set time represents the most convenient and straightforward route to capitalize on the price dip and supply overinflation.  Another option for investors who aren't keen on paying brokerage commissions lies in inverse exchange-traded funds.  VelocityShares Inverse Natural Gas ETN functions in the same method as shorting commodities from a broker but without a set sale date.  Since there is no set sale date, investors who choose this route will need to carefully plan for growth and duration to come to a conclusion about the best sell option in the future for their portfolio.

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