Vol. 39 - OBSCURITIES RISE TO PROMINENCE: BY PINNACLE DIGEST - FEATURED IN "MOLYMANIA"

OBSCURITIES RISE TO PROMINENCE: FEATURED IN "MOLYMANIA"

Dear Member,

The commodity boom has extended to obscure metals and a market is being created for these metals which hasn’t been seen in twenty years. This week, we’d like to share with you the oil and gas pipeline and infrastructure issues which are surrounding various commodities but in particular the metal molybdenum. We have discussed molybdenum before, but never with this urgency and powerful documentation that will create only one thing: Demand.

A lot of secondary metals are shrouded in secrecy. Very little is known about the market size, global demand or even the price. Specialty metals in most cases are produced by large companies as by-products of primary metals. This is a great factor which has kept the value of commodities such as molybdenum, indium and germanium under the radar even as they approach historically high prices. The by-product issue is also a reason why no pure-play companies of a large size exist for these types of metals.

It is not the market nor is it the demand for any particular commodity, but it is our ability to preserve our way of living which will increase molybdenum’s value. As individuals, and as a nation, we have created a dependency on life’s essentials such as driving our car or the ability to heat our homes with a flick of the switch. These luxuries we all take for granted are made possible by multi-million mile networks of aging pipelines which supply our daily energy needs.

These pipelines are our energy transportation system, from which we rely on almost every day to put fuel in our cars and to power our computers. These pipelines are corroding due to various factors. The steel used in the 1950s and 1960s was simply not resistant or strong enough to withstand time. The hydrogen sulphide, carbon dioxide and common oxygen are causing the corrosion of our energy transportation system. How serious is the problem? How much money and demand will be involved?

The following information is from a Federal Highway Agency Report gathered from a study by CC Technologies in conjunction with NACE International which recorded the economic impact of corrosion in the United States economy. They found that corrosion costs the U.S. economy over $276 billion annually. This is equivalent to approximately 3% of the annual GDP. What is most shocking is that this value only includes the direct costs of corrosion, such as the owner and operator costs – it does not include the indirect costs to the user or public. In the United States the total costs of corrosion is a potential $552 billion per annum. Thus, it is clear that worldwide corrosion is a trillion dollar a year industry. Pinnacle Digest is confident that this figure will only increase.

Much of these energy transportation systems have outlasted their original design and as such are in desperate need of updates. Reports state that over half of the United States' 2.4 million miles of oil and gas pipelines were

originally constructed in the 1950s and 1960s. Due to the fact that this is true in the United States, it is probable that the rest of the world is suffering from the same problem, perhaps to a more severe degree. The leading cause of pipeline spills or failures is corrosion. Corrosion in oil and gas pipelines contributes to frequent leaks and ruptures.

A perfect example of this is when in last August BP had to shut roughly 8% of US oil production. “Unexpectedly severe corrosion” in their Alaska pipeline was quoted as the reason for closure of the line by a member of their management team. This was significant as it was the first ever shutdown in America's largest oil fields. Immediately following the corroded pipeline rupture, the industry introduced legislation in an attempt to prevent a recurrence of the disaster.

The Pipeline, Inspection, Protection and Enforcement and Safety Act was signed into law following the pipeline rupture in Alaska. There is much information which can be uncovered regarding this law, however its purpose and goals have not been realized in aspects. The pipeline industry took a look at the aging, out-dated infrastructure and aimed the legislation towards a low cost solution. This was the detection of corrosion and a progressive pipeline replacement. This approach does not promote longevity in terms of safety as it is difficult to identify which areas are experiencing the greatest corrosion.

During the 1960’s the US pipeline infrastructure relied primarily on carbon and low-alloy steels for natural gas and petroleum transportation. As oil fields have aged, so to have the pipelines which transport the oil. The risk of pipeline corrosion has never been higher. If the United States is encountering this problem, what is the chance that other countries, such as Russia, China and many European nations would encounter the same one?

These countries and many others are experiencing the same problem and are in an even more desperate scenario than the United States finds itself.

Molybdenum was initially used to harden steel and increase weld ability while reducing the carbon content previously utilized. This metal has played a critical role in the development of oil and gas projects in the arctic and sub-sea environments.
While researching Molybdenum at great lengths, we came across Rita Tubbs, the managing editor of Pipeline and Gas Journal. This is a leader in the research surrounding moly demand and its inevitable demand in the near future. In December of 2006 in a worldwide pipeline construction survey compiled by Rita Tubbs includes some significant facts. She stated that, "81,593 miles of new and planned oil and gas pipeline was under construction and planned." She also stated that North American pipeline construction plans nearly doubled to 28,314 miles.
Tubbs also cited that, "By 2008, contractors expect to see a workload that has not been seen in Canada for nearly three decades." This can only be referred to one thing: the oil sands of Alberta. Tubbs explained in her report that, “Much of the activity will be generated by the massive oil production that will come from the oil sands in northern Alberta which contain the largest deposits of hydrocarbons on earth. Terasen and Enbridge plan to move oil sands by pipeline.” Molybdenum will have to play a large role in moving the oil resources from the Albertan oil sands to rest of Canada via pipeline.

It is obvious where North America stands in their need for molybdenum. On a global scale the situation does not differ. Shanghai Daily Newspaper reported on February 26th of this year that China currently has over 24,000 miles of existing oil and gas pipelines, some of which are very outdated. China is currently adding 15,000 miles to their pipeline infrastructure, aimed to be completed by 2010. Upon this completion, China reported that they hope to extend their mileage by nearly 63%. In 2005, China completed a 625-mile pipeline from Kazakhstan, set to import 140 million barrels of oil annually.

The world's largest energy consumer by far is the United States. By 2025, the EIA has reported that the US will need 47% more oil and 54% more natural gas. The transportation and distribution lines needed to sustain this growth equates to a 30% increase in current pipelines, resulting in roughly 600,000 miles of new pipeline. We are willing to bet that the United States will do anything and pay anything to achieve this.

This new construction and added pipelines are great. However, our true focus is the impact this has on the molybdenum market and how will it affect demand. Information on these statistics is scarce, but the general consensus is that each new pipeline mile would contain between 600 pounds and 1 ton of molybdenum. An article from EnergyBiz Magazine stated that the United States has over 2.4 million miles in pipeline, one half of which potentially face imminent replacement. This means that updating America's outdated pipelines may require between 300 million and 1 billion pounds of molybdenum. The global need for energy is increasing at phenomenal rates.

These are speculative statements; however the facts clearly justify that as these pipelines have aged over 30 years will have to be replaced. It is greatly due to the chemical changes in the material passing through the pipelines which accelerate erosion. The extraction from artic and sub-sea levels add pressure to the pipes, in addition to lengthening them. This creates the need for more molybdenum. As China brings on new projects, Russia and Europe share in our aging pipeline problem in North America, thus leading to increased demand.

It is our belief that the demand for molybdenum will only increase. A further benefit of molybdenum is its impact on the environment. Pipelines and other metallic structures made of molybdenum weigh less, are more durable and resistant to corrosion than previous methods.

Currently molybdenum is roughly worth $30-35/lb and will be increasing over the next ten years. We believe that the molybdenum market has yet to peak and that demand and absolute necessity of this metal will drive it into the public eye, affecting its value greatly.

There will be a select group of junior mining companies who will capitalize perfectly on the demand market for molybdenum which we are now entering.

How much molybdenum will be needed?

Will a junior company mining for molybdenum be revalued sky high if they achieve solid results and prove their resources?

All the best with your investments,

PinnacleDigest.com