Mark Latham Commodity Equity Intelligence Service

Friday 19th August 2016
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    China police crack down on $30 billion in underground banking

    Chinese police have busted underground banks that handled 200 billion yuan ($30.2 billion) in illegal money transfers this year, the Ministry of Public Security (MPS) said on Wednesday.

    Police said they arrested 450 suspects involved in 158 cases of underground banking and money laundering, according to a notice posted on the MPS official website.

    Beijing has been fighting illegal cross-border outflows in an attempt to slow capital flight as its yuan currency weakens to near six-year lows.

    A special task force, jointly launched by the MPS, the central bank, and the foreign exchange regulator, uncovered illicit banking services in 192 locations this year, the notice said.

    On Wednesday, China state broadcaster CCTV separately reported that police in the southern city of Shenzhen recently busted an underground bank that handled 30 billion yuan in transactions over a six-year period.

    Police arrested 26 major suspects in four different cities, the report said. The underground bank was disguised as a trade company.

    "The key (problem) is that underground banks have become channels for drug dealers, smugglers, and economic criminals to transfer funds,” Shu Jianping, head of the anti-money laundering unit at the Ministry of Public Security, told CCTV.

    Beijing started a campaign against illegal banking in April last year and uncovered over 170 cases of money laundering and illegal fund transfers involving more than 800 billion yuan as of last November.

    The crackdown included an investigation into the country's biggest underground banking case involving $64 billion worth of illegal transactions.

    Although the crackdown has curbed underground banking to some extent, illegal activities using those "grey capital" networks are still spreading and becoming more elusive as collusion between banks in different regions is rife, the notice said.

    Underground banks are channels for transferring money obtained through illegal activity, including public funds embezzled by corrupt officials, an earlier Xinhua news agency report on the crackdown said.
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    Too much labour: migration poses problems.

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    Too much capital: negative rates.

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    Too Much Stuff: Hedgehog Houses

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    A Look at the Symbolic Meaning of the Hedgehog

    It's true, big things really do come in small packages and the animal symbolism of the hedgehog proves it.

    Those with the hedgehog as their animal totem know how to take care of themselves and do so with grace and style. We make this association by observing the hedgehog when it is threatened. It packs itself tightly in a neat little ball, exposing some lethal looking quills. Any predator who takes a bite of this prickly morsel will spit it right back out.

    Same goes with those who honor the hedgehog as their totem - these people always land on their feet and go through challenges with the same calm, cool practicality as the hedgehog does.

    This little creature packs a powerful symbolic punch with animal symbolism including, and connecting with the deeper meaning of the hedgehog will restore your own power supply.
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    Shipping traffic suspended in Turkey's Bosphorus after collision -shipping agent

    Traffic in Turkey's Bosphorus Strait, a key international shipping lane for oil and grain, was suspended on Wednesday after a bulk carrier collided with a coast guard boat, shipping agent GAC said.

    Six people were rescued and taken to hospital, a spokesman at the office of the Istanbul governor said.

    The coast Guard in Istanbul said it was unable to provide information on the accident.

    The collision occurred at 8:40 a.m. (0540 GMT) at the southern end of the strait, forcing the capsize of the coast guard vessel, GAC said.

    GAC identified the cargo ship as the M/V Tolunay, a Cook Island-flagged bulk carrier headed north to the Black Sea.

    More than 3 percent of the global crude supply - mainly from Russia and the Caspian Sea - pass through the 17-mile Bosphorus that connects the Black Sea to the Mediterranean.
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    Maduro says Venezuela signs $4.5 billion in deals that include Canadian and U.S. miners

    Venezuela's President Nicolas Maduro speaks during a meeting with ministers at Miraflores Palace in Caracas, Venezuela August 12, 2016. Miraflores Palace/Handout via REUTERS

    President Nicolas Maduro said on Tuesday that Venezuela had struck $4.5 billion in mining deals with foreign and domestic companies, part of plan to lift the OPEC nation's economy out of a deep recession causing food shortages and social unrest.

    Maduro said the deals were with Canadian, South African, U.S. and Venezuelan companies, but did not specify whether contracts had been signed or just initial agreements.

    The socialist leader, whose popularity hit a nine-month low in a survey published this week, said he expected $20 billion in mining investment contracts to be signed in coming days and that 60 percent of the income Venezuela received would be spent on social projects.

    Maduro hit back at critics from the left who accuse him of riding roughshod over environmental rules and indigenous rights in the Orinoco mineral belt in Venezuela's south in his rush to shore up his government's precarious finances.

    Venezuela has rich veins of gold and exotic minerals like cobalt, but the reserves have mostly been extracted until now by wildcat miners because of a long history of failed ventures and government intervention in the industry.

    Venezuela recently settled a long-standing dispute with Canadian miner Gold Reserve over the country's giant Las Cristinas and Las Brisas concessions.
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    China's electricity consumption picks up in July

    China's electricity use rose 8.2 percent year on year in July, official data showed Tuesday.

    In July alone, electricity consumption totaled 552.3 billion kilowatt hours, according to data from the National Development and Reform Commission.

    Electricity consumption totaled 3.3 trillion kilowatt hours in the first seven months, up 3.6 percent year on year, the commission said.

    Electricity use in the service sector and agricultural sector rose 10.2 percent and 6.4 percent, respectively, in the January-June period, while the industrial sector saw an increase of 1.6 percent.

    Meanwhile, the average use time for hydraulic power production equipment increased in the first seven months, while that for coal-fired power production equipment dropped, official data showed.
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    BHP’s mini-Macondo

    Andrew Mackenzie does not want to get his life back. The reserved chief executive headlined 2016 results with BHP Billiton’s efforts to rehabilitate a Brazilian district devastated by a dam burst last year. It was his ice breaker for BHP’s City presentation and in media calls on a day when the world’s largest miner unveiled a record $6.4bn loss. For all we know, the reserved Scot will broach the subject at the family dinner table tonight, too.

    The contrast is with Tony Hayward. He was forced to step down as chief executive of BP after he said he would “like his life back” at the height of US public fury over the Gulf of Mexico oil spill in 2010. The corollaries of the physical dangers posed to workers and locals by extractive industries are career setbacks for executives and financial peril for investors.

    The read-across between the Gulf spill and the collapse of a tailings dam at the Samarco copper mine in Brazil is an alarming one for Mr Mackenzie. Oiled pelicans and redundant shrimpers ultimately forced BP to set aside $61.6bn. Federal prosecutors in Brazil have made the same connection, filing a $44bn lawsuit based on BP’s clean-up costs.

    The cases are very different. BP had ultimate oversight of the Macondo well operated by Transocean. BHP splits responsibility for the Samarco mine with Brazilian giant Vale, via a joint venture company. Macondo spilled into open sea and went on spilling. The Samarco disaster devastated communities and choked a river with mud, but was over fast, leaving no toxic residues.

    A harsher comparison is between 11 lives lost off the coast of the world’s wealthiest nation and 19 fatalities in the backwoods of one of its poorest. It is this comparison in the minds of the Brazilian public that makes Samarco so perilous for BHP.

    The bulk of the miner’s $9.7bn in write-offs in the year to June was for US shale assets, some of the value of which may eventually be written back. However, the $2.4bn cost of Samarco looks like no more than an opening shot. Half of the amount covered asset writedowns. The remaining $1.2bn is for a rescinded federal settlement originally signed off by Dilma Rousseff, the Brazilian president facing parliamentary impeachment.

    The eventual cost depends on Brazilian courts, which are no more predictable than the US or UK kind. But Mr Mackenzie knows that bill is also sensitive to any behaviour suggesting it is merely a cost of business for BHP. BP will also have taught him the foolishness of allowing local claimants to seek compensation without proof of damages. Samarco will feature in his thoughts and opening remarks for some time to come.
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    Indonesia's proposed 2017 budget welcomed as pragmatic, realistic

    Indonesian President Joko Widodo presented a proposed 2017 budget that lifts spending a little while looking realistic about revenue and seeking to contain the country's fiscal deficit.

    Economists said the budget proposal given parliament on Tuesday is more realistic than the previous two Widodo presented after his 2014 election.

    Tax targets in the earlier budgets were highly ambitious, and in 2015, there was a revenue shortfall of nearly $20 billion.

    In the 2017 proposal, Widodo aims to balance the desire to give the sluggish economy some stimulus while not spending far more money than the government has.

    "The budget is a largely pragmatic one, with realistic macroeconomic expectations and more grounded revenue and expenditure assumptions," said Wellian Wiranto of OCBC in Singapore.

    The proposal was unveiled three weeks after well-respected World Bank managing director Sri Mulyani Indrawati returned home as finance minister, a post she held for some years under Widodo's predecessor.

    The budget "looks to have Sri Mulyani's fingerprints all over it, and probably carries the spirit of being better to over-deliver than to over-promise," Wiranto said.

    Only days after returning, Indrawati cut $10 billion from the 2016 budget to ensure the fiscal deficit does not breach the 3 percent of gross domestic product (GDP) legal limit.

    Even with those cuts, the deficit is likely to be 2.5 percent this year. The 2017 plan sees a deficit of 2.41 percent and assumes the economy will grow 5.3 percent.


    Indonesia's growth pace slowed every year from 2011 through 2015, reaching 4.8 percent last year. Hopes to get back above 5 percent this year were buoyed by stronger-than-expected annual growth of 5.18 percent in the second quarter, but officials said that reflected better crops.

    Widodo, who said Indonesia still faces "sizable" challenges, called for 2017 spending of 2,070.5 trillion rupiah ($158.2 billion), about 5.5 percent higher than what the government expects to spend this year.

    The 2017 revenue target is 1,737.6 trillion rupiah. In the original 2016 budget proposal, the target was 1,822.5 trillion rupiah, and Indrawati now expects 2016 revenue of only 1,567.2 trillion rupiah.

    The 2017 target takes account of a tax amnesty programme to end in March. Widodo said on Tuesday that after the amnesty, the government will implement a "tax law enforcement" programme. Historically, few Indonesians pay tax, and few pay what they should.

    Yustinus Prastowo, an analyst at Center for Indonesia Taxation Analysis, called the 2017 tax target "proof that Sri Mulyani doesn't want to be too ambitious because we don't know whether this amnesty would be successful."

    Indrawati said big 2017 allocations would be for the public works ministry and security.

    Widodo told parliament "Fiscal policy will be directed toward supporting people's purchasing power, and improving the investment climate and competitiveness of our industry."
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    China to increase imports of "urgently needed" products - cabinet

    China will increase imports of urgently needed key products, the cabinet said on Tuesday, and encourage financial institutions to increase credit support to appropriate companies.

    It did not specify what products were urgently needed.

    The government will also provide subsidies to low-income families when the monthly consumer price index (CPI) reaches 3.5 percent year on year, or food CPI reaches 6 percent, the State Council said in a statement.

    Authorities will also conduct inspections to ensure annual capacity reduction targets of steel and coal are met, it said.
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    China approved $8.95 billion of fixed asset investment projects in July: NDRC

    China's top economic planner last month approved 18 fixed asset investment projects valued at 59.4 billion yuan ($8.95 billion) in total, according to a statement issued by the National Development and Reform Commission at a briefing in Beijing on Tuesday.
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    Global miner BHP Billiton books record loss, sees good growth in 2017

    Global miner BHP Billiton books record loss, sees good growth in 2017

    A logo for mining company BHP Billiton adorns a sign outside the Perth Convention Centre where their annual general meeting was being held in Perth, Western Australia, November 19, 2015. REUTERS/David Gray/File Photo

    BHP Billiton reported a record $6.4 billion annual loss on Tuesday, hammered by a bad bet on shale, a dam disaster in Brazil and a commodities slump, but said it expects its cash flow to more than double this year.

    The world's biggest mining company said with cost cuts and a reduction in net debt it expects to generate more than $7 billion in free cash flow in the year to June 2017, at current prices for iron ore, copper, coal, oil and gas.

    "While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper," Chief Executive Andrew Mackenzie said in a statement.

    Excluding $7.7 billion in writedowns and charges, underlying profit still slumped 81 percent to $1.2 billion for the year to June 2016 from $6.4 billion a year ago, hit by weak prices for its major commodities.

    The underlying profit was the weakest since the merger of BHP and Billiton in 2001, but better than analysts' expectations of around $1.1 billion.

    Shoring itself up against tough markets, BHP, like rival Rio Tinto, in February abandoned its long-held policy of never cutting dividends, and flagged instead it would pay out at least 50 percent of underlying profit from then on.

    It announced a full-year dividend of 30 cents, which it said was more than the minimum under its new payout policy, although it was just below analysts' forecasts around 32 cents.

    Net debt rose slightly from December to $26.1 billion, which was higher than the $25 billion that analysts had expected, but BHP said it expects net debt to fall in the 2017 financial year.

    "We continue to pursue capital-efficient latent capacity opportunities which will support volume growth of up to four per cent next year, excluding our onshore U.S. assets where we continue to defer activity to maximise value," Mackenzie said, referring to its shale oil and gas business.
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    Connecting the dots of the transforming Chinese economy

    For a massive economy like China's, which is in the midst of transition, it is easy to dwell on fragmentary data while failing to see the forest for the trees.

    While the latest official indicators of traditional growth engines have underperformed, those measuring the new drivers of the Chinese economy suggest a silver lining.


    Growth in retail sales, industrial output and investment all decelerated from June levels, official data showed Friday, adding to concerns that the Chinese economy might be faltering.

    Customs data published earlier showed July exports contracted by 4.4 percent from a year ago while imports plunged 12.5 percent.

    Economists said the slowdown is expected if not desirable, given the side effects of the government's efforts to cut overcapacity, destock, deleverage, reduce corporate costs and shore up weak spots, five major tasks high on the agenda.

    Li Daokui, an economics professor at Tsinghua University and a former adviser to China's central bank, expects a painful adjustment period in the near term as the country shoulders the costs of restructuring.

    The dragging effect of the restructuring program can be seen in the efforts to slash overcapacity.

    In the first six months of 2016, China reduced steel production capacity by 13 million tonnes and coal capacity by over 72 million tonnes, official data showed.

    Short-term strains have resulted as China speeds up reform, said Zhao Xijun, vice head of the school of finance at Beijing-based Renmin University.


    Monthly dips in growth should not justify panic over the world's second largest economy, Zhao said.

    The economy is actually emerging stronger with solid improvement in structural reform and new growth industries, official data showed.

    Against the backdrop of lackluster industrial production, output of the high-tech industry climbed 12.2 percent in July, accelerating from June's 10.6-percent increase and more than double that of the entire industrial sector.

    New-energy car production surged 88.7 percent and revenues of strategic emerging service sectors gained 15.6 percent year-on-year in the first half of the year, according to data from the National Bureau of Statistics (NBS).

    Meanwhile, with an annual expansion of 40 percent, China's sharing economy market, including Internet-based ride-hailing businesses, will account for more than 10 percent of the country's GDP by 2020, according to an Internet Society of China report.

    The service sector expanded 7.5 percent in the first half, accounting for 54.1 percent of the overall economy, up 1.8 percentage points from a year earlier, according to NBS data.

    Investment in energy-intensive industries also continued to cool down, resulting in a year-on-year decline of 5.2 percent in energy consumption per unit of GDP in the first half.

    Thanks to new growth engines, the Chinese economy generated 7.17 million new urban jobs in the first half of 2016, according to the Ministry of Human Resources and Social Security.

    Li of Tsinghua University pointed to stable administration and policies, increasing human capital and further opening of the economy as three major advantages for China to achieve sustained growth.

    The country's growth in the next two decades will mainly be driven by urbanization, consumption and industry rearrangement, Li said.


    If China continues its current supply-side structural reform, and carries out pro-reform and stabilizing measures, its economy will continue to improve, said Zhao.

    However, the challenges should not be underestimated, as it is not easy for a huge ship to change course overnight, experts said.

    Take the overcapacity cuts in the steel sector as an example.

    In the first six months, China completed only about 30 percent of the planned cuts for the whole year. Warming steel prices had watchdogs on alert for a rebound in production capacity as crude steel output surged.

    A price rebound means local officials have balked, with some deciding to defer capacity cuts. Creating new jobs for hundreds of thousands of laid-off employees and the massive debts of steel enterprises pose tough challenges ahead for cutting overcapacity.

    However, the economy has embarked on an irreversible path of restructuring, and the transition, which is crucial to the country's supply-side structural reform, is bound to forge ahead, experts said.

    The International Monetary Fund (IMF) on Friday issued an affirmative forecast, expecting a positive outlook for the Chinese economy and predicting 6.6-percent GDP growth for this year.

    China's economic transition will continue and will be positive overall for the global economy, the IMF said in a report after concluding its annual economic health check on the Chinese economy.

    "Many countries could only dream of achieving growth rates that China has and is likely to achieve, which also reflects positively on the reforms that Chinese policymakers have undertaken," said James Daniel, the IMF mission chief for China.
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    Mining stocks rally postpones industry revamp

    Investors in mining stocks could face years of weak returns as a rally in share and industrial metals prices eases pressure on companies to restructure and curb oversupply.

    The mining sector is known for over-investment in boom times and crashes when demand weakens as economies slow, but many companies say they have learnt lessons and are making efforts to reduce debt and control spending.

    Mining stocks have more than doubled since multi-year lows touched in January, a rebound analysts link to cheap cash from Chinese financial stimulus rather than a fundamental increase in demand for industrial materials.

    The rally has given companies with fragile balance sheets a reprieve from the bankruptcies and mergers analysts say are needed to adapt to lower demand. This could extend the stagnation as production at weaker firms limps along, adding to inventories.

    "We see significant excess capacity in the (mining) industry which needs to be reduced before the fundamentals will improve, and this could easily take three years. We are therefore taking a cautious view toward the industry," said Lewis Grant, a senior portfolio manager at Hermes Investment Management.

    He said he was particularly wary of smaller firms and drawn toward miners with exposure to gold, such as Randgold Resources, as gold is seen as safe-haven investment.

    Commodity markets boomed shortly after the millennium, driven by demand from China, the world's biggest raw materials market. They started to falter early in 2011, led by copper after it became clear Chinese consumption was not as great as previously thought.

    In January this year, at the height of concerns about Chinese demand and weak balance sheets, the market capitalization of mining firms fell to less than $300 billion, a 75 percent fall from $1.1 trillion in March 2011. It has since risen to $480 billion, according to the MSCI global mining index.

    Mining companies, including Glencore, BHP Billiton, Rio Tinto and Anglo American, have all announced asset sales and said they are focused on lowering costs.

    But the sales are taking time and in some cases, industrial sources say mining assets have been taken off the market.

    Glencore has put on hold a copper mine sale, people familiar with the matter said.

    A company spokesman last week declined to comment, but Glencore has repeatedly said its policy is to only sell if it can achieve the right price.

    "If we had January-like conditions for six months, it would have gone a long way to cleaning up excess supply in commodities like iron ore, but China stimulus means we're back to where we started," Richard Knights, analyst at investment bank Liberum Capital, said.

    A surplus of iron ore, used to make steel for buildings and infrastructure, is expected to persist for the foreseeable future because the market is flooded and yet firms are still producing more, analysts say.

    As the impact of Chinese stimulus has waned, they have also become bearish about copper, used as a conductor for electricity and as a building material.

    "For a new commodity bull rally to happen, you need to see further capitulation and to see further tightening of the belts for some of these companies," David Neuhauser, managing director at U.S. hedge fund Livermore Partners, said.


    Livermore says it owns Glencore shares and has sold short Anglo American.

    Glencore, along with Anglo American, faces the biggest debt burden of the major miners, analysts say, and they have mooted Anglo American as a potential takeover target.

    Firms with less debt, notably Rio Tinto, which could seek to expand, are also wary of paying too much for other companies.

    Rio Tinto spent $38 billion on Alcan in 2007 at the top of the commodities boom in a deal viewed by analysts as the most calamitous the sector has seen.

    As the first mining company to take a major hit from a slowing market, Rio was forced to reform and its new CEO Jean-Sebastien Jacques, who took over at the start of July, said this month that maintaining a strong balance sheet was a priority in such a capital-intensive sector.

    The firm has outlined a moderate capital expenditure plan of less than $4 billion this year, $5 billion for next year and $5.5 for 2018, compared with $17.4 billion in 2012 when adding to production was all the rage.

    Fund managers say the new restraint is in tune with shareholder demands for value for money.

    "With the fresh memory of the prolonged bust in mind, most investors will put pressure on the miners not to repeat the same mistakes and overbuild," said David Finger, an analyst at Allianz Global Investors.

    Glencore, which stands out from the pack because of a big commodity trading portfolio that can generate profits even in falling markets, has gone further.

    Its CEO Ivan Glasenberg, who has criticized his rivals for adding volumes to oversupplied markets, says growth needed to be redefined as cash flow per share, rather than production.

    While acknowledging a shift in attitude from mining companies, the investment community is skeptical about the extent to which that can be achieved.

    "They are builders and engineers. They like digging massive holes in the ground. That psychology is difficult to overcome," one industry insider said on condition of anonymity.
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    Clinton Landslide?

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    We’re going to spend a lot of time over the next 87 days contemplating the possibility of a Donald Trump presidency. Trump is a significant underdog — he has a 13 percent chance of winning the election according to our polls-only model and a 23 percent chance according to polls-plus. But those probabilities aren’t that small. For comparison, you have a 17 percent chance of losing a “game” of Russian roulette.

    But there’s another possibility staring us right in the face: A potential Hillary Clinton landslide. Our polls-only model projects Clinton to win the election by 7.7 percentage points, about the same margin by which Barack Obama beat John McCain in 2008. And it assigns a 35 percent chance to Clinton winning by double digits.

    Our other model, polls-plus, is much more conservative about Clinton’s prospects. If this were an ordinary election, the smart money would be on the race tightening down the stretch run, and coming more into line with economic “fundamentals” that suggest the election ought to be close. Since this is how the polls-plus model “thinks,” it projects Clinton to win by around 4 points, about the margin by which Obama beat Mitt Romney in 2012 — a solid victory but a long way from a landslide.

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    He continues: "Believe me, if my purpose was not significant, I would not risk my life pursuing it.

    "The reason I climbed your tower was to get your attention. If i had sought this via conventional means, I would be much less likely to have success because you are a busy man with many responsibilities."

    The man adds that he wants his video to go viral and urges viewers to "get out and vote for Mr Trump in the 2016 election."

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    Anglo's top shareholder could reduce it to diamond-only miner

    The world's number five diversified mining company, Anglo American announced a "radical portfolio restructuring" at the end of last year. The company with roots going back more than a hundred years to South Africa's gold and diamond fields said it would cut around 85,000 employees, almost two-thirds of its workforce.

    London-listed Anglo also said it's reducing the number of mines it operates from 55 to as few as 16 to focus on diamonds, copper and platinum because of better long-term potential. Its nickel, coal and iron ore assets will be put up for sale.

    Now it appears Anglo's largest shareholder, South Africa's Public Investment Corporation would prefer an even more drastically downsized company.

    PIC, which manages state pension funds of more than $130 billion, has grown its stake in the company to more than 13%, after picking up shares earlier in the year when Anglo was worth less than $5 billion, down from a a peak of $70 billion in 2011.

    "If they did this, it would be the end of Anglo"

    Various media reports say PIC which is overseen by South Africa's minister of finance wants to bundle all of Anglo's assets in the country into a single entity with its platinum mines as the crown jewels. PIC also owns 30% of world number three platinum producer Lonmin.

    The African nation's platinum mines, responsible for nearly 70% of global output, employs more than a hundred thousand workers and labour strife, sometimes accompanied by violence, has become a regular feature of the industry.

    Bringing the sector, which is seen as a vital strategic asset for the country, under greater state control has been a goal of the ruling ANC party which recently suffered a stinging rebuke from voters in local elections.

    Anglo CEO Mark Cutifani is said to have resisted PIC's demands when it comes to jettisoning Amplats, but the slow progress of asset sales to tackle the company's crippling (and junk rated) debt is adding to pressure.

    TheAustralian newspaper (where predictions of Anglo's demise is a popular sport) speculates that "carving out all the South African operations would reduce Anglo "to a middling player focused on just two divisions — its highly coveted copper mines and diamond giant De Beers":

    “If they did this, it would be the end of Anglo. There would be a queue of bidders for copper, offering big numbers that they would find it very hard to turn down. That would leave it with De Beers.”

    Anglo's market value is up a stunning 186% so far this year for a market capitalization of $16.1 billion on the back of stronger iron ore, coal and platinum prices.The platinum price is performing better than gold in 2016 with a year to date advance of a shade over 33%, while iron ore has surged by more than 40% and met coal is back in triple digits.

    Given Anglo's great run since January, the consensus view has become more bearish and further upside for the stock may be limited. Of 24 analysts reporting on the stock 11 expect the company to underperform going forward while five brokerages are urging investors to sell at these levels.
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    Zambia's Lungu leads in election, main opponent alleges irregularities

    President Edgar Lungu was leading in Zambia's presidential election on Monday, with 85 percent of the constituencies counted, but his main rival demanded a recount in a key district, citing irregularities.

    Lungu faces a stiff challenge from United Party for National Development (UPND) leader Hakainde Hichilema, who accuses him of running the economy down, a charge the president has rejected.

    With 50.14 percent, Lungu was ahead of Hichilema, with 47.7 percent, after results were collated from 132 of 156 constituencies in Aug. 11 voting, the Electoral Commission of Zambia (ECZ) told a news conference.

    But Hichilema told a separate media briefing his party wanted a recount of votes in Lusaka district "for the sake of free, fair, credible and transparent elections".

    "The question is will the elections be defined as free and fair, transparent and credible in this environment? My answer is no," Hichilema said.

    "Zambia needs to remain peaceful. Anybody seeking political office wants to make sure that they take over a country that is peaceful and stable so that you can implement your vision."

    The winner of the presidential election in one of the most stable democracies in Africa must get more than half the vote, failing which the top two candidates face a re-run.

    The UPND said on Saturday that data from its own parallel counting system showed Hichilema beating Lungu "with a clear margin", based on about 80 percent of votes counted.

    All parties have access to the raw voting data and may add up the results faster than the national commission.

    The ECZ had hoped to have final results from the elections - in which Zambians also chose members of parliament, mayors and local councillors and decided on proposed constitutional changes by early Sunday.

    But it said the process had been lengthened by a large voter turnout, now at 56.22 percent, far above 32 percent last year, when Lungu won an election to replace Michael Sata, who died in office.

    The commission and Lungu's Patriotic Front have both rejected the UPND's charges that some officials were working to manipulate results to help the ruling party.

    One of its officials accused Hichilema of making inflammatory statements.

    "Our main concern is that Mr Hichilema has decided to take his frustrations to a criminal level," said Given Lubinda, a member of the parliament dissolved ahead of the vote.

    Supporters of the two main parties clashed over rising unemployment, mine closures, power shortages and soaring food prices after weak global prices hit exports of copper, the mainstay of the economy.
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    Too Much Stuff: the heart of the matter.

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    "Every central bank in the world says they want inflation…they've come nowhere close...but that just means they are going to keep on trying; central banks cannot allow deflation because it increases the real value of debt… they are not going to rest until they get it," The James Rickards Project director told CNBC's "Squawk Box" on Monday.

    Value of negative-yielding bonds hits $13.4tn Financial Times - 2 days ago
    The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates ...
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    Distressed Assets Pile Up at Life Insurers, and More Are Coming

    North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.

    Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.

    They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.

    In the coming years, the companies are likely to buy more risky junk debt, said David Havens, a bond analyst covering insurers at brokerage Imperial Capital. For one thing, they need the income as central banks globally keep bond yields low, cratering investment returns for the industry. Also, proposed regulatory changes may make it cheaper for insurers to own the bonds, he said.

    "They don’t really have a lot of alternatives to buying this stuff in this environment," Havens said on the telephone in an interview. While insurers are unlikely to buy more distressed bonds, they will probably buy more junk-rated debt that is at least four steps below investment grade, he said. That debt is more likely to fall to distressed levels when the credit cycle changes for the worse.

    Energy bonds looked fairly safe to many insurers because oil and gas companies had high levels of assets relative to their debt, according to Mike Collins, a portfolio manager at Prudential’s fixed income unit, which oversees $652 billion for external investors. But as oil prices have plunged, so has the value of the assets, and the bonds have proven to be far riskier than they appeared, Collins said. He was speaking generally and not about Prudential in particular.

    “I don’t think anybody expected oil to fall as much as it did,” Collins said, referring to the price of a barrel of oil, which plunged from more than $100 in 2014 to less than $26 in February. “That caught a lot of people by surprise, and a lot of companies have gone from looking like they’re in great shape to distressed very quickly."

    Prudential Financial held $535 million of distressed debt measured by fair value in the second quarter, the most of any insurer in the peer group tracked by Bloomberg Intelligence in absolute terms but less than one tenth of a percent of its overall assets. The company had $383 million of distressed bonds at the end of 2015.

    Still Cautious

    Distressed bonds are a small percentage of most life insurers’ investments, accounting for less than a tenth of a percent of the industry’s assets, and the companies can hold onto them for a long time, giving them leeway to work out difficulties and recover as much money as possible. The firms are refraining from taking excessive risk now, said Peter Wirtala, a strategist at Asset Allocation & Management Co., which manages $17.9 billion for about 100 insurance clients.

    "Even as urgently as everyone needs yield, they’ve been cautious on the asset front," Wirtala said.

    Still, distressed assets are likely to keep piling up at insurers as the price of oil remains around $40 a barrel, said Sasha Kamper, a senior research analyst focusing on distressed holdings at Principal Financial Group Inc.’s asset manager.

    "We are near the peak of the credit cycle, and we will expect to see increased defaults going forward," Kamper said.

    S&P Global Ratings said on Thursday that 111 companies globally have defaulted so far this year, the highest number since 2009, during the financial crisis. Energy and natural resources account for about 53 percent of those defaults.

    Even if distressed holdings are largely accidental now, regulators are considering proposals that could ease the amount of capital life insurers can use to fund junk bonds, which makes it more profitable for the companies to increase their investment risk. Life insurance companies are seeking more income as low bond yields globally corrode their investment returns.

    Under current rules from the National Association of Insurance Commissioners, which sets standards for the U.S. industry, a bond with a rating four steps below junk needs to be funded with capital equal to at least 10 percent of the bond’s value before taxes. The NAIC is considering a proposal to lower that to around 6 percent.

    Investors are likely to respond by buying more speculative-grade bonds, said AAM strategist Wirtala. They will probably also buy more investment-grade bonds with ratings close to the top of the spectrum, which can be funded with less capital, he said. The higher-quality assets can offset the lower quality ones from a capital use standpoint, he said.

    "This is really something we’re telling people to keep an eye on," Wirtala said.
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    Indonesian president approves plans to form state holding companies -minister

    Indonesia's president Joko Widodo has approved plans to create holding companies for state firms in oil, mining, financial services and food sectors, State-Owned Enterprise minister Rini Soemarno told reporters on Friday.

    "The president hopes the future industrial development will be done by state-owned companies," Soemarno said.

    PT Pertamina will be the holding company in oil and gas sector, and publicly-listed gas distributor PT Perusahaan Gas Negara will be one of its units, Soemarno said.

    State aluminium producer PT Inalum will be the holding company for mining sector, while PT Danareksa will be the holding in financial service sector.
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    China July power output up 7.2 pct at 550.6 bln kWh

    China July power output up 7.2 pct at 550.6 bln kWh

    China generated 550.6 billion kilowatt-hours (kWh) of power in July, up 7.2 percent from a year ago, government data showed on Friday.

    Output for the first seven months of the year rose 2 percent to 3.3121 trillion kWh, the National Bureau of Statistics said.
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    Oil and Gas

    Oil Debt Woes Reach Malaysia as Offshore Rig Bonds in Distress

    Bonds of a Malaysian offshore oil rig contractor have dropped to distressed levels, the latest sign that crude’s rebound this year hasn’t been enough to stave off pain in an industry beset by prices still about half their decade average.

    Perisai Petroleum Teknologi Bhd, which contracts out drilling rigs and charters vessels for towing equipment, said on Thursday it will start discussions with holders of its Singapore dollar notes, without providing further details. Its S$125 million securities due Oct. 3 have dropped 17 cents this month to a record low 60 cents, according to prices from DBS Group Holdings Ltd.

    Smaller Southeast Asian firms in the oil and gas industry are struggling along with global peers after a 49 percent collapse in oil prices in the past two years leaves them strapped for cash to pay off debt. In Singapore, Swiber Holdings Ltd. was placed under interim judicial management earlier this month and Kris Energy Ltd. said on Sunday it is exploring asset sales and refinancing as its debt covenants may come under stress.

    Perisai had 36 million ringgit ($9 million) of cash and bank balances as of March 31, according to company results.
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    For Asian LPG buyers, it's an 'all-you-can-eat buffet'

    The acute state of oversupply in Asian LPG markets can be best described by the title of a 1966 song by The Beatles -- "Here, There and Everywhere."

    A steady influx of cargoes from the US, Iran's aggressive move to push cargoes at competitive prices, slower-than-expected demand growth in China on the back of a sluggish economy and Japan's inventory levels hovering at multi-year highs have all contributed to supply in Asia far outweighing demand, creating a glut not seen in recent years.

    "For a region that is structurally short of LPG and experiences the strongest demand growth globally, Asia is currently awash with LPG supplies," Andrew Echlin, global oil products analyst at Energy Aspects, wrote in a research report on LPG titled "Hero to Zero" published this month.

    Plentiful US exports, aided by VLGC rates falling to multi-year lows, have prompted gas carriers to put LPG into floating storage off Singapore. Energy Aspects said in the report that at least seven VLGCs were parked off the coast of Singapore, with some anchored for weeks.

    The precarious oversupply situation has pulled down prices sharply. The price of refrigerated propane on a CFR Japan basis first plunged to a record low of $271.50/mt on July 29, dragged down by a sluggish crude complex and chronic LPG oversupply. This was the lowest since Platts started publishing this assessment in October 2006.

    The first cycle propane price breached this level again on August 11. It has since rebounded and was assessed at $284.50/mt on August 15, underpinned by a firmer crude complex.

    In addition to bulging supplies and slower-than-expected Chinese demand growth, propane in Asia has come under significant downward pressure as third-quarter consumption is seasonally weak, in the absence of support from winter demand.


    Adding to the oversupply situation is fast rising exports from Iran, from where LPG exports grew by about 54% to 1.195 million mt in 2015 from 776,000 mt in 2014, data from Joint Organizations Data Initiative showed. Over January-May this year, exports totaled 459,000 mt.

    In addition, the US shipped more than 1 million mt of LPG to Asia in both June and July, well above the normal monthly volume of about 700,000 mt, Energy Aspects said.

    "The supplies are also arriving [in Asia] at a time when onshore inventories of LPG are at very high levels: inventories in Japan, for example, are the highest they've been since 2008 and were almost 11% higher year on year by the end of June. Inventories are also at multi-month highs in South Korea, Australia and Thailand," Energy Aspects said, describing the oversupply scenario in the region as "Asia's all-you-can-eat buffet."

    Sri Paravaikkarasu, head of downstream for Asia at Facts Global Energy, said that a few US LPG cargoes scheduled to arrive in Asia were facing the threat of being cancelled because of the lack of incremental demand.

    Chinese demand for LPG has also not grown as much as expected this year, due to sluggish macroeconomic conditions and the delayed commissioning of some downstream PDH plants. LPG supplies in the past one to two years have steadily outstripped demand growth.

    "China's LPG demand has not grown as quickly as some had earlier expected, mainly because new PDH capacity startups have not materialized," said Song Yen Ling, senior analyst at Platts China Oil Analytics.

    Apparent demand for LPG in China could grow at a similar pace in 2016 as 2015, when it expanded by 20.5%, according to Platts China Oil Analytics.


    High LPG inventories in Asian countries had caused domestic prices in China to fall to a level at which the residential and commercial sectors had incentive to switch away from LNG-derived natural gas, analysts said.

    "LNG substitution is likely already happening at refineries and petrochemical plants in Japan and South Korea, where access to storage makes switching a lot easier," Energy Aspects said. "LPG should also be attractive to Chinese buyers, although given the lack of heating demand at this time of year, switching volumes should be modest."

    Gordon Kwan, head of regional oil and gas research at Nomura, said naphtha continued to take a part of the demand away from LPG. With demand for naphtha for blending soft due to weak gasoline prices, a lot of the naphtha was being diverted to the petrochemical industry.

    "Until crude oil prices rise to about $60-$70/b, we might see that trend continuing," he said.

    Saudi Aramco lowering its August propane contract price by $10 to $285/mt and butane CP by $20 to $290/mt was expected to trigger an influx of cheap cargoes into the region.


    Looking ahead, buying interest could improve in Q4 on the back of the start-up of a new PDH plant in China, as well as better seasonal demand, sources said. "Everyone is piling their hopes on winter," said a Singapore-based source.

    China's Oriental Energy is due to bring online its 700,000-800,000 mt/year PDH plant in October. The company is expected to increase its LPG imports by one to two shipments of 44,000 mt/month from its current imports to feed this new plant, a source noted.

    The current low price and upcoming winter demand were also likely to spur the market higher from October levels, sources said.

    "We remain bearish on LPG prices relative to crude throughout the remainder of Q3, but see some upside to prices in Q4 ... as a result of higher crude prices, winter heating demand and the possibility that US supply will start to fall at around that time," Energy Aspects said.

    Some industry participants said the market had almost hit bottom. Chinese PDH plant operators, some of whom were ordered to stop production ahead of the G20 summit in Hangzhou, are expected to resume production and imports of LPG after the summit. The production stoppage is a move to curb pollution ahead of the summit over September 4-5.

    Historical data showed that outright prices of propane rose in Q4 compared with Q3 each year between 2012 and 2015, with the exception of 2014.

    Q4 usually receives a boost from winter demand for the heating fuel. In 2014 however, prices fell in Q4 due to Brent crude futures hitting 28-month lows and an abundance of cargoes arriving from the US, West Africa and Algeria, data from S&P Global Platts showed.

    Attached Files
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    Pemex Woes Snowball as Cash Crunch Deepens Production Plunge

    Petroleos Mexicanos’ deteriorating finances are poised to get much worse, signaling no end in sight to years of declining oil production.

    The company’s output may dwindle to about 1.6 million barrels a day by 2020, less than half its 2004 peak, because it lacks the technology and funds to revamp aging fields, Morgan Stanley analysts led by Martijn Rats said in a July 24 report obtained by Bloomberg. Pemex has had cash flow shortfalls for the past three years, and this year the gap will almost double to a record $22 billion, from $13 billion in 2015, according to data and estimates compiled by Bloomberg.

    Once a bigger supplier to the U.S. than Saudi Arabia, Mexico’s weight has waned as the shale boom reduced American imports and the oil crash dealt a blow to hopes of luring billions in foreign investment. The country is now stuck in a vicious cycle where declining revenues from its traditional cash cow have led the government to slash Pemex’s budget, reducing further its ability to reverse the fall-off. Given insufficient liquidity and investment, Pemex will continue to shrink as it fails to restore output in areas where it lacks technical expertise, the Morgan Stanley analysts said.

    “We expect some mind-the-gap issues, the private sector being hesitant in terms of long-term commitment in Mexico,” the analysts said. “Lower oil prices have exposed important shortfalls that will need to be addressed over the coming years.”

    ‘Reform 2.0’

    The Morgan Stanley output estimate for 2020 would represent a decrease of about 700,000 barrels a day from current levels. The continued output declines have exposed flaws in the fiscal framework of the country’s 2014 regulatory overhaul that ended decades of state monopoly to seek much-needed foreign investment, according to the report. Those flaws are likely to require modification or an "energy reform 2.0," the analysts said.

    The investment bank expects “a revised energy reform to be on the agenda for the next administration beyond 2018," requiring provisional measures such as additional capital injections from the finance ministry.

    On May 15, the Finance Ministry assumed 184.2 billion pesos ($10 billion) of Pemex pension liabilities and transferred 47 billion pesos in bonds known as Bondes D to the company in an effort to boost its liquidity. The government also gave Pemex a capital injection of 73.5 billion pesos to pay off outstanding debts to oil service providers and absorb some of the company’s pension liabilities in April.

    The cash flow shortfalls, which mean the company is spending more than it earns from operations, will further complicate efforts by Chief Executive Officer Jose Antonio Gonzalez to seek joint ventures, stabilize production and improve ailing refineries. The company’s total debt has ballooned to almost $100 billion, and it may lose its investment-grade rating from Moody’s Investors Service, which has put it on a negative watch for a possible downgrade. Pemex has also had to weather cuts of 162 billion pesos from its budget in the past two years amid the oil market rout. It’s output is set to decline for a 12th straight year.

    Tax Burden

    “The sharp decline in oil prices that began in late 2014 has had a negative impact on our ability to generate positive cash flows,” the company said in a May filing. A “heavy tax burden” limits Pemex’s ability to fund capital expenditures and the company “will need to raise significant amounts of financing from a broad range of funding sources,” according to the filing.

    Pemex forecasts production to fall to about 2.1 million barrels a day this year, which the company aims to stabilize and slowly increase in the following years, according to an e-mailed response to questions.

    Pemex’s cash gap contrasts with positive projections for Russia’s Rosneft PJSC and Colombia’s Ecopetrol SA and far exceeds an estimated $1.4 billion cash flow shortfall expected for Petroleo Brasileiro SA and the $1 billion dollar deficit for Argentina’s YPF SA, according to analysts’ estimates compiled by Bloomberg.

    "There is little chance that Pemex will be able to slow the decline of production in the short term," George Baker, an analyst and publisher of Mexico Energy Intelligence, said in a phone interview. "There are opportunities to increase production, but there isn’t the money to do it."

    Attached Files
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    Exxon, Chevron, Hess in Joint Bid for Mexican Oil

    Exxon Mobil Corp., Chevron Corp. and Hess Corp. have agreed to bid together for rights to drill for crude in Mexico’s deepwater oil areas, according to a person with direct knowledge of the plans.

    The three U.S.-based producers have reached a Joint Operating Agreement, which allows the consortium to bid to produce oil in the 10 areas up for auction on Dec. 5, according to the person, who asked not to be identified because the information isn’t public. A Joint Operating Agreement is a contract that establishes the role and obligation of each company in the accord, and designates the party that will act as the operator of a production area should it be awarded in the auction.

    Mexico hopes to raise $44 billion in its first-ever sale of deepwater drilling rights in the Gulf of Mexico, located in the Perdido area near the maritime border with the U.S. and in the southern Gulf’s Cuenca Salina. Seventy-six percent of the country’s prospective oil resources are located offshore in deep waters, according to Energy Minister Pedro Joaquin Coldwell.

    The country approved final legislation in 2014 to allow foreign crude producers to operate in Mexico for the first time since 1938, in an effort to reverse an 11-year decline in production. The Dec. 5 auction has been lauded by the government as the most likely to attract large foreign oil operators that possess the expertise and capital to produce crude miles below the surface of the Gulf, which Pemex has been unable to exploit because it lacks the technology to do so.

    All of the 26 companies that qualified to bid in the auction, including Royal Dutch Shell Plc, Statoil ASA, and BP Plc, are expected to sign similar agreements because the government’s capital requirements for bidding are considered too large for individual producers to do so alone. Petroleos Mexicanos, the country’s state-owned oil company, announced in May that they were in talks with Exxon, Chevron and Total SA to sign agreements of mutual interest to consider the possibility of bidding together in the deepwater round.

    A Joint Operating Agreement can be dissolved if one of the companies withdraws its intention to participate in the contract, and the companies may opt not to bid even if the consortium is still in place.

    A Chevron spokesperson said that the company could not comment on “speculation.” Hess spokesmen didn’t immediately respond to calls and e-mails after normal business hours. Exxon would not comment on the proceedings, according to a press official at the company’s Mexico offices.
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    Saudi Crude Oil Exports Hit Three-Month High

    Saudi Arabia raised its combined crude oil and refined-product exports to 8.83 million barrels a day in June, the highest on record for that month and the latest sign of the expansion of the kingdom’s share of global markets.

    The world’s largest crude exporter typically ships less oil overseas from June to September as it burns more crude to power local electricity stations and meet extra demand for air-conditioning during the sweltering summer. The surge in June exports, as reported Thursday by the Riyadh-based Joint Organisations Data Initiative, suggests the extra output went beyond what was needed to cover this seasonal increase in domestic consumption.

    “The only way for Saudi Arabia to maintain oil exports and avoid loss of market share in the summer is to increase production,” said Anas Alhajji, an independent oil analyst based in Houston. “Without record high production, the Saudis would lose market share" so they will keep boosting output for at least the rest of this year, he said.

    Saudi Arabia supplied its overseas customers with 7.46 million barrels a day of crude and 1.37 million of refined petroleum products in June. The combined total is the most for that month since JODI started tracking flows in 2002. Output rose to 10.55 million barrels a day from 10.27 million in May, the data show.

    Market Battle

    Saudi Arabia is engaged in a battle for market share with Iran and Russia and has cut prices to its customers in Asia. Iran is pushing for an increase in production following the loosening of international sanctions in January. Despite the growing competition, OPEC officials have hinted at a potential deal, including a production freeze, during the next meeting of the International Energy Forum in Algiers in late September.

    Brent crude, the international benchmark, has rallied above $50 a barrel on talk of a potential freeze, despite skepticism from several analysts after a similar proposal failed in April.

    “At this stage we view the mentions of a freeze as a diversion from a continued drive from Saudi Arabia to gain as much market share as it can," said Olivier Jakob, an analyst at consultants Petromatrix GmbH in Switzerland.

    Saudi crude and refined products exports were 450,000 barrels a day higher in June than in the same month of 2015 and up more than 1.1 million barrels a day from June 2014. Over the same period, Iran and Iraq have also boosted exports.

    Saudi Arabia told the Organization of Petroleum Exporting Countries last week that its production rose further in July, reaching an all-time high of 10.67 million barrels a day. Khalid al-Falih, the kingdom’s energy minister, last week said the country was boosting oil production not only to meet the surge in local consumption during the summer, but also "in part to meet higher demand" from overseas customers.

    "We still see strong demand for our crude in most parts of the world, especially as supply outside OPEC has been declining fast, supply outages increasing, and global demand still showing signs of strength," he told the Saudi Press Agency.

    Saudi Arabia’s crude oil exports in the first six months of 2016 averaged 7.52 million barrels a day, compared with 7.46 million barrels a day in the same period last year, JODI data show. Production for the period climbed to an average 10.29 million barrels a day from 10.14 million barrels a day.
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    Lawyer accused of fraud by U.S. in BP oil spill case is acquitted

    A prominent Texas lawyer was acquitted on Thursday of charges he made up thousands of fake clients to sue BP Plc for damages that the oil company caused in the 2010 Gulf of Mexico spill, court records show.

    Mikal Watts was among five defendants found not guilty by a Mississippi federal jury of charges related to an alleged scheme to defraud a program set up by BP to compensate people who suffered economic losses from the spill. Two other defendants were found guilty.

    The U.S. Department of Justice had accused the defendants of submitting claims on behalf of more than 40,000 people who had not agreed to be represented by Watts' firm, or else were identified with stolen or bogus Social Security numbers and other personal information.

    According to the indictment, one alleged victim, named Lucy Lu, who supposedly was a deckhand on a commercial seafood vessel, was actually a dog.

    The convicted defendants were Gregory Warren and Thi Houng "Kristy" Le, who prosecutors said helped collect names and information.

    Also acquitted were Watts' brother David Watts and Wynter Lee, who both worked for Mikal Watts' San Antonio law firm, and field representatives Hector Eloy Guerra and Thi Hoang "Abbie" Nguyen, who was Le's sister-in-law.

    The Justice Department did not immediately respond to requests for comment. Mikal Watts, who represented himself at trial, and lawyers for Warren and Le did not immediately respond to a request for comment.
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    Woodside, Santos profits slump, focus on cost cuts

    Weak oil and gas prices hammered half-year profits at Australia's Woodside Petroleum and Santos Ltd on Friday, but investors sent their shares higher as both companies reported progress on cost-cutting.

    Woodside, Australia's biggest independent oil and gas producer, reported a worse-than-expected 50 percent slump in first-half profit, but tweaked up its output forecast for 2016, thanks to a strong performance at its Pluto liquefied natural gas (LNG) project.

    "It's really about squeezing our existing assets," Chief Executive Peter Coleman said on a conference call.

    Woodside managed to cut its gas production costs by 41 percent in the June half from a year earlier.

    "Those reductions are impressive," Deutsche Bank analyst John Hirjee told Woodside executives on a conference call after its earnings.

    Woodside's net profit fell to $340 million for the six months to June from $678 million a year earlier, well below an average of six analysts' forecasts around $391 million.

    It announced an interim dividend of 34 cents, down from 66 cents a year ago, but said it expects to produce between 90 and 95 million barrels of oil equivalent (mmboe) in 2016, up from an earlier forecast of 86 to 93 mmboe.

    Despite the profit fall, Woodside's low debt means it is in a much stronger position than many peers in the battered oil industry. It has been able to snap up assets cheaply, including a recent agreement to buy a 35 percent stake in three potentially oil rich blocks off Senegal for $350 million from ConocoPhillips.

    Santos Ltd, in contrast, slid to a loss in the first half of 2016, and is scrambling to slash costs and debt.

    Santos reported a loss of $5 million before one-offs for the six months to June, down from an underlying profit of $25 million a year ago. Analysts forecasts were in a wide range, but most were expecting a bigger loss.

    At the bottom line, Santos slid to a net loss of $1.1 billion, after booking a huge writedown on its Gladstone LNG stake, which it flagged on Monday. The project has been squeezed by a weaker outlook for LNG, having to rely on gas from other companies to help feed the plant and higher costs for that gas.

    Santos cut net debt in the first half by $220 million to $4.5 billion from December last year.

    Chief Executive Kevin Gallagher, in the job since February, said on Friday the company was on track to slash costs to be breakeven at an oil price of $43.50 a barrel this year. That compares with current oil prices just over $50.

    Woodside shares jumped 3.3 percent, while Santos shares rose 0.8 percent. Both outpaced the broader market's gains.
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    Iraq resumes pumping oil through Kurdish pipeline

    Iraq has resumed pumping oil from fields operated by state-run North Oil Company (NOC) via a Kurdish pipeline to Turkey, a spokesman for the oil ministry in Baghdad said on Thursday.

    About 70,000 barrels per day (bpd) are being pumped through the pipeline controlled by the Kurdish regional authorities, spokesman Asim Jihad told Reuters, giving no further details.

    Pumping stopped in March due to a dispute between the government in Baghdad and the Kurdistan Regional Government (KRG) over the control of Kurdish oil exports.

    The resumption of crude flows through the Kurdish pipeline should ease the financial burden on the Kurdish government that was hard hit by the collapse of oil prices two years ago.

    Kurdish officials in February warned that the economic crisis could increase desertions from their Peshmerga fighters that battling Islamic State group which controls vast swathes of territory just west of their region.

    The new oil minister in Baghdad, Jabar Ali al-Luaibi, expressed optimism on the day of his appointment on Monday that the problem with the Kurds could be resolved.

    Kurdish forces took control of the long-disputed Kirkuk and its oilfields in June 2014 after the Iraqi army's northern divisions disintegrated in the face of Islamic State's advance.

    The Peshmerga and the Iraqi army have taken back territory from the militants in northern Iraq and are preparing the final onslaught on their capital Mosul, with the backing of a U.S.-led international coalition. Iranian-backed Iraqi Shi'ite militias are also fighting Islamic State near the Kirkuk fields.

    Former oil minister Adel Abdul Mahdi in March demanded that the Kurds return to a previous oil agreement or sign a new agreement in order to resume pumping through their pipeline.

    The previous agreement provided for the KRG to transfer to Iraq's central state oil marketing company 550,000 bpd produced in their region, in return for a 17 percent share in the federal budget. The Kurds stopped oil transfers to the government last year, at which point they also stopped receiving federal funds.

    OPEC's second-largest crude producer after Saudi Arabia, Iraq produces 4.6 million bpd, of which about 500,000 bpd from the Kurdish region and the rest from the oil-rich south.

    In comments on Thursday, Luaibi said he would focus on increasing the nation's oil and natural gas output and also develop its refining capacity in order to cut its fuel imports bill, the ministry said in a statement.
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    The 100,000-Barrel Oil Output Increase That Didn’t Really Happen

    U.S. crude oil production is holding up better than the government previously thought.

    The output estimate jumped by 152,000 barrels a day for last week, the biggest increase since May 2015, according to the Energy Information Administration. Production didn’t actually increase by that amount but was modified to incorporate a “re-benchmarking” versus the agency’s Petroleum Supply Monthly, according to Jonathan Cogan, an EIA spokesman.

    The weekly data could also be adjusted after the release of the agency’s monthly Short-Term Energy Outlook. The next release is scheduled for Sept. 7, according to the EIA website.

    "The weekly data is based on models, with the exception of Alaska,” Cogan said. “When the monthly data or Short Term Energy Outlook differ from the weekly data, we re-benchmark”

    Alaskan crude production rose by 52,000 barrels a day to 477,000 barrels in the week ended Aug. 12, the EIA said. Alaskan output has been erratic week to week the last two months amid maintenance work.

    "I would caution anyone who takes the production number from one of our monthly reports and takes it as the beginning of a trend, and that’s certainly the case with the weeklies," Cogan said.
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    The Saudis Did NOT See This Coming From US Oil

    The hottest oil play in the western world is the Delaware sub-basin of the Permian in SW Texas. Producers are seeing huge increases in flow rates as they figure out proper fracking techniques. Rates are doubling from 1500-3,000 boepd! And payout times for wells are now as low as seven months-at $45 oil.

    Nobody saw this coming-especially the Saudis.

    Junior producers especially need fast payout times on their wells so they can recycle that money back into another well. If they have longer than 12-15 month payouts, they really can't grow within cash flow, and end up diluting shareholders through debt and continued equity raises.

    In the heart of this Shale Revolution-Resolute Energy. I added it to the OGIB portfolio on July 12, and added 10,000 shares on Monday Aug. 8 at $7.32 and added another 1000 shares Monday Aug 16 at $16.27. Here is my original notice to subscribers:

    The stock of Resolute Energy (REN-NYSE) has doubled in three trading days, going from $2.80 - $6.07 on the strength of huge flow rates from its Permian Basin play.

    And it may double again as the market understands

    This is fortuitous, as I'm studying the juniors in the Permian right now. This is the low cost oil play in North America and Permian stocks are receiving the highest valuation.

    Resolute has just 15,000 bopd of production, and a whopping $490 million of long term debt-a Zombie Stock, like I wrote about last week with Athabasca Oil, Birchcliff Energy and PennWest Energy.

    Investors have forsaken these heavily indebted companies for good reason. But as Resolute Energy showed us this week, when a Zombie comes back to life it can be explosive for share prices.

    Now, I'm writing about this stock because I did buy 2000 shares at $5.60 today. It took me that long to notice the stock rocketing up, do the research, figure out what this thing could be worth & decide if I wanted to play or not-because this stock could still double from $6/share-IF oil holds up.

    Everything changed for Resolute with just one press release (July 8) proclaiming amazing drill results- but first let me give you some quick background on Resolute.

    Since the oil crash in 2014 Resolute has been selling off assets to try and stay alive. In 2015 the company sold three assets to bring down debt:

    March 2015 sold non-core Midland Basin assets for $42 million
    September 2015 sold its Powder River Basin assets for $55 million
    November 2015 sold the rest of its Midland Basin assets for $177 million

    Besides good drilling results, Resolute's most recent press release said it had sold some midstream assets and would be getting $32.5 million in cash ASAP. That hardly moves the needle on the company's $520 million of total long term debt.

    A Step Change In The Permian

    These recent drill results were awesome (don't worry, details are coming...) and this will significantly increase the amount of cash flow that Resolute can generate-and improve its net asset value.

    A company's total leverage is determined by how much debt it has relative to its cash flow. Just as shrinking debt reduces leverage, so does increasing cash flow.

    Resolute did this by getting a whole lot better at drilling wells into the Permian.

    Resolute's main remaining Permian acreage is located in Reeves County in the Delaware Basin. The primary formation that Resolute is chasing on this land is the Wolfcamp A.

    The last time that Resolute had released details on its Reeves county Permian production was on May 9, 2016. The company was then able to give IP30s on two recent 7,500 foot lateral wells-which came in at 1,552 boe/day and 1,475 boe/day.

    Friday's release on its most recent Permian wells blew the prior (good) wells completely out of the water.

    Resolute has now moved to 9,000 foot laterals and production rates are much higher. The initial production rates on these wells are hitting 3,000 boe/day with the IP30 rates expected to double those of the 7,000 foot laterals previously drilled.

    With these new data points on its wells and with results from competitors with offsetting acreage, Resolute has significantly updated its Wolfcamp A type curves.

    The 7,500 foot laterals are now expected to recovery 56% more oil and gas and the 10,000 foot laterals 51% more than previously believed. That is like night and day.

    In addition to getting 51% more oil, Resolute said they were able to lower cost 12-18%.

    Lower capex and increased flows puts the PV10 value of $10 million per well at these low oil prices. Wells costs on the longer laterals are $9.4 million and the shorter ones they're targeting $8.2 million. Ideally I want to see a PV10 that's 130-150% of the well cost, but that's...ok.

    Resolute has 22,420 gross / 12,940 net acres under lease in Reeves County where it believes it has identified 255 gross Wolfcamp A and Wolfcamp B locations to drill. The company has 80% of 2016 hedged at $80/b and 25% of 2017 production at $54/b.

    What is the stock worth? The secret here is that Resolute has only 15.5 million shares out. Callon has 118 million. At $6/share the Resolute market cap is $93 million. Add $490 million debt to get Enterprise Value (EV) of $583 million. Divide that by 15,000 boepd to get a per flowing barrel valuation of $38,866.67.

    Per flowing boe is the weakest valuation metric to use, but consider Callon paid $80,000 per flowing boe for its latest acquisition, you get a sense Resolute stock could still run up.

    If all the increase in EV to get to $80K/per flowing boe came from the stock -well, here's the stockbroker monkey math-15K x $80K=$1.2 billion - $490 million debt = $710 million market cap / 15.5 million shares = $45.8/share.

    That sounds ludicrous doesn't it? That math shows why per flowing boe is the weakest metric to use.

    But this is the Permian and there is a comparative bubble in the Permian. If someone paid $10/share for Resolute today, that's only $43K per flowing boe.

    That's hugely accretive to Callon or Diamondback (FANG-NYSE) or Matador (MTDR-NYSE)-why wouldn't they take it over now just as type curves and EURs are increased dramatically, reducing leverage-and before the Market really catches on.

    The Bonds Are Also Responding

    Stock market investors weren't the only ones cheering the news from Resolute. Bond investors also like what they see. Resolute bonds that were trading for not much more than twenty cents on the dollar just a couple of months ago are now over seventy cents.

    Another thing I have preached on and on about is...share counts matter. I LOVE finding low float companies with big revenues. I think it's incredible to find a 15000 boepd producer with only 15.5 million shares out. That is real leverage! That's why some monkey math takes this stock to $24-$42...of course commodity prices have to co-operate. But a low float stock in the highest value play in North America can be a lucrative and beautiful thing.

    The other thing I really liked about the stock was how well it traded today-in a straight line, not all over the map. Steady and real accumulation, not a flood of profit taking from daytraders throughout the day.

    The company should be able to use this news to almost get out of the woods and on the path to recovery. The value of its Permian acreage has permanently increased and will give the company several additional options to bring its balance sheet even more in line.
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    Argentina Reneges on Lower Oil Prices Promise

    The Argentine government has gone back on a promise to cut crude oil prices, after last week it emerged it had reached an unofficial agreement with oil producers and refiners to cut prices at the wellhead in order to trim the gap between local and international crude prices and make life a little bit easier for refiners. The cut would have been by 2 percent a month over the next three months.

    The oil industry got on board with the proposal, agreeing to put a ceiling on retail fuel prices in exchange. Prices at the pump have jumped 31 percent since the start of the year in Argentina, together with a 35-percent devaluation of the local currency. The devaluation followed the removal of capital controls, undertaken by the new government.

    As Omar Gutierrez, the governor of oil-rich Neuquen region, said following a meeting with stakeholders in the oil price issue, “The national government does not have in its agenda any type of decrease in the subsidy.”

    His words were echoed by Neuquen senator Guillermo Pereyra, who is also leader of the local oil workers’ union. Perreyra added that “A technical energy committee will be formed where the provincial government, producers, unions and the national government will participate.”

    Crude oil prices in Argentina are being held artificially at levels higher than those on international markets in a bid to stimulate the industry and avoid large-scale job losses. The subsidies also aim at controlling inflationary pressures that have seen Argentina record an inflation rate of 46 percent in the 12 months to July.

    As the deal fell through, local oil producers will continue to get US$67.50 for each barrel of Medanito crude they sell to local refineries and US$54.90 per barrel of the heavier Escalante blend. This is 10-12 percent lower than prices were in January, thanks to a cut the new government, which came into power last December, implemented.

    Opposition to the removal of subsidies was expected: communities in Argentina’s oil-rich regions depend on the royalties that international oil producers pay for the crude they pump there. This leaves refiners at a crossroads: if they can’t get oil cheaper, they would have to sell their products at higher rates, which excludes lowering prices at the pump.
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    Continental Resources Announces $222 Million Sale Of Non-Strategic Assets In North Dakota And Montana

    Continental announced today that it has signed a definitive purchase and sale agreement with an undisclosed buyer to sell non-strategic properties inNorth Dakota and Montana for $222 million. The sale includes 68,000 net acres of leasehold primarily in western Williams County, North Dakota, and 12,000 net acres of leasehold in Roosevelt County, Montana. The sale also includes net production of approximately 2,800 barrels of oil equivalent (Boe) per day. The agreement provides for customary closing conditions and adjustments.

    "This is our third sale of non-strategic assets this year, with total expected proceeds of more than $600 million. We plan to apply proceeds to reduce debt and strengthen our balance sheet," said Harold Hamm, Chairman and Chief Executive Officer.

    In May 2016, the Company announced the sale of approximately 132,000 net acres of leasehold in theWashakie Basin in Wyoming for $110 million. On August 3, 2016, Continental announced it had signed a definitive purchase and sale agreement with an undisclosed buyer to sell approximately 29,500 net acres of non-strategic leasehold in the eastern SCOOP play in Oklahoma for $281 million.

    "Our guidance for the year has not changed. The combination of Continental's high quality drilling inventory, strong balance sheet and $560 million investment in drilled but uncompleted wells (DUCs) provides the Company with a robust platform for high-value future growth," Mr. Hamm said. The $560 million investment includes both operated and non-operated DUCs, approximately 80% of which are inNorth Dakota.

    Continental currently has approximately ­­­215 gross operated DUCs in inventory, of which approximately 165 are in the Bakken. The Company expects the total to grow to approximately 240 gross operated DUCs at year-end 2016, with approximately 190 in the Bakken. The Company said its Bakken DUCs have an average estimated ultimate recovery (EUR) of 850,000 Boe per well and can be completed at an average cost of between $3.0 million to $3.5 million per well.
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    PTT’s LNG imports to reach 5 million tons in 2017

    PTT of Thailand is set to import 5 million tons of liquefied natural gas in 2017, according to the company’s CEO Tevin Vongvanich.

    In comparison, PTT is expected to import around 3 million tons of LNG in 2015.

    Speaking at a news conference, Vongvanich noted that the company entered talks with a number of suppliers to work out long-term deals, Reuters reports. Among the suppliers are Shell and BP, and contract details are expected to be concluded in September.

    Vongvanich added that Thailand is at the last phase of gas production due to the decline in domestic resources, and the company’s investment budget, which has been set at around US$1.25 billion will focus on the infrastructure like LNG terminal and gas pipelines.

    Thailand’s energy minister Anantaporn Kanjanarat, was reported earlier in May as saying that PTT is aiming to invest about $28 million to increase the capacity of its Map Ta Phut LNG import terminal by 1.5 million tons of liquefied natural gas per year.

    With the expansion completion expected in 2019, the terminal’s capacity would reach 11.5 mtpa of LNG.
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    Floating storage eyed for European naphtha on oversupply

    A few charterers such as Koch are looking to put naphtha on Long Range 2 tankers as floating storage in the Mediterranean region because Europe has been bursting at the seems with naphtha over the last two quarters against the background of a closed arbitrage to the Far East, sources said Wednesday.

    "Koch was asking questions to put a LR2 tanker as floating storage on Tuesday, but I am not too sure if that was naphtha. Nonetheless, we declined as we don't want to lock-in the prices at such low levels given that market is very weak. But, we expect the markets to bounce back after the summer," a shipowner said.

    According to market participants, there are two options for charterers to deploy a ship as floating storage. Firstly, is by putting it on time-charterer, and secondly by putting the ship on a demurrage.

    The cost of putting a ship on a time-charter is around $18,000-$19,000 a day for a year, while if it goes on demurrage it's around $20,000-$21,000/day.

    A few shipbrokers said Koch was looking to put naphtha into floating storage, and it's likely to get a ship on demurrage.

    Sources said one LR2 loaded with naphtha was being used as floating storage in Gibraltar, while another LR2 carrying naphtha was heard on its way from the Russian Black Sea port of Tuapse to Gibraltar. This second LR2 was expected to be used as floating storage because the current contango as well as the physical discount -- CIF NWE naphtha physical cargoes were assessed Tuesday at a $6/mt discount to the September swap -- could offset the cost of demurrage.

    The naphtha market has remained bearish, the September crack was trading at minus $5.70/b at noon London time Wednesday, up from minus $5.85/b at market close Tuesday, while the September/October swap spread was seen trading at minus $5.00/mt, versus minus $5.25/mt at market close Tuesday.

    "We need to see the August/September spread weaken for that to be economic," a trader said when asked about the logic for keeping naphtha in floating storage.

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    Tight gas output triples in Argentina’s Neuquen basin, but costs still vary

    A large shift to tight gas production in Argentina’s Neuquen basin is being driven by pricing incentives and lower costs vs. shale gas wells. However, at current costs, only the best tight gas wells break even at the incentivized $7.50/MMbtu gas price, according to analysis from research and consultancy firm Wood Mackenzie Ltd.

    Tight gas production from the basin almost tripled over a 2-year period to 565 MMcfd during the first quarter, representing one quarter of the basin’s overall output, WoodMac notes, but well performance has been variable across all formations. Of the six tight gas formations studied, the median well in the Neuquen basin has a 90-day initial production (IP) rate of 2 MMcfd, with top quartile wells performing about five times higher than the bottom quartile.

    Horizontal wells targeting the Mulichinco formation show the highest estimated ultimate recovery (EUR) at more than 5 bcf. The best wells in Punta Rosada are expected to achieve similar results with a vertical construction. Representative wells in the Lajas formation, meanwhile, are expected to recover a third of that volume.

    “The large variability indicates that tight gas in Neuquen will continue to require a statistical development approach,” said Horacio Cuenca, WoodMac director of Latin America upstream research. “This means that large, multiwell development programs will be used to spread the productivity risk among a large number of wells. This approach is more similar to shale than to conventional developments.”

    High costs, high output

    WoodMac notes that longer laterals, more fracture stages, and increased water and propant usage are all factors that have been shown to enhance production but also increase well cost. Different sections of the same play also require unique considerations given variance in rock quality and thickness, pressure, and temperature.

    “What is critically important is the relationship between the cost of these wells and the productivity they can achieve,” said Cuenca. “Our analysis shows that the tight gas wells with the highest costs also have the highest EURs and IP rates.”

    Using type-well EURs and WoodMac’s current well-cost estimates, Mulichinco horizontal wells and Punta Rosada vertical wells, the most expensive in the basin on average, are profitable at or below the government’s $7.50/MMbtu incentivized gas price. These costs reflect a 15% reduction versus 2015 levels driven by the strong peso devaluation at the beginning of 2016. However, considerable additional reductions are still needed for type wells in these and other formations to be economic at the $5.20/MMbtu average gas price without incentives.

    “Beyond discovering and focusing on the best producing sweet spots in each formation, enhancing EURs through more expensive wells—i.e. horizontal sections or targeting deep, thick formations with a high number of frac stages—seems a more plausible path for improving tight gas well economics in the short term rather than the drastic costs reductions needed with current EURs,” said Cuenca.

    Capital efficiencies on IP rates in the Neuquen basin ranged $9,340-20,000/boe/d while EUR capital efficiencies ranged $13.70-29/boe. In comparison, WoodMac’s recently estimated capital efficiencies for unconventional wells within the Karnes Trough and Edwards Condensate subplays of the south Texas Eagle Ford shale showed capital efficiencies on IP rates ranging $8,000-15,000/boe/d and EUR capital efficiencies ranging $16-31/boe.
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    Exxon's Baton Rouge refinery puts off shutdown: sources

    ExxonMobil Corp on Wednesday put off plans to shut its Baton Rouge, Louisiana refinery after it managed to start a liquefied petroleum gas (LPG) processing unit in the adjoining chemical plant, sources familiar with plant operations said.

    An Exxon spokesman declined to discuss operations on specific units at the Baton Rouge refinery.

    "Contrary to some reports, the ExxonMobil Baton Rouge Complex is operating," company spokesman Todd Spitler said in an email. "It is our practice not to comment on specific unit operations at our facilities. We do expect to meet contractual commitments."

    Normally, the 502,500 bpd Baton Rouge refinery sends LPG to the Sorrento, Louisiana Storage Facility where it is kept underground in salt dome caverns until needed. Flooding forced the closure of the facility over the weekend, said the sources, who requested anonymity because they were not authorized to speak publicly about the matter.

    The floods, centered on the Baton Rouge area, have claimed at least 11 lives and forced thousands of people from their homes.

    On Tuesday, Exxon shut a 110,000 bpd crude distillation unit at the refinery to reduce LPG production and the company was prepared on Wednesday to shut the refinery if the chemical plant unit could not be started, the sources said.

    The chemical plant unit will process the LPG produced by the refinery, the sources said. The refinery's production level is down to about 60 percent of capacity.

    In addition to the chemical plant unit shut on Tuesday, Exxon cut production on a 210,000 bpd CDU in half for maintenance planned prior to the floods, the sources said.

    Two other CDUs at the refinery have a combined capacity of 180,000 bpd. The CDUs do the initial refining of crude oil coming into a refinery and provide feedstock for all other units.

    Motiva Enterprises LLC's 235,000 bpd Convent, Louisiana refinery continues to operate with only essential personnel due to flooding in the area, said sources familiar with the company's operations. They requested anonymity because they were not authorized to speak publicly about the matter.

    A Motiva spokeswoman did not immediately respond to requests for comment.

    Production at the refinery has been reduced since Thursday when a 45,000 bpd heavy oil hydrocracker was shut by a large fire.

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    FERC terminates Downeast LNG applications

    The United States Federal Energy Regulatory Commission on Wednesday issued an order dismissing and terminating Downeast LNG’s applications to build an LNG import/export terminal and associated facilities in Washington County, Maine.

    The project has been plagued with delays and hold-ups, with Downeast LNG requesting the commission to hold the pre-filing process in abeyance several times, first in November 2015, with the latest request filed on June 2 asking for the extension of the hold on the proceeding until September 30, 2016.

    According to the FERC order, Downeast LNG requested the latest extension while it “pursued discussions with existing and potential investors to optimize the Downeast LNG project.”

    Prior to the last request to hold the pre-filing process, Downeast LNG, with its majority shareholder, a private equity manager Yorktown Partners, put the company up for sale.

    “We have reviewed our strategy and decided that an industrial player or a specialized investor such as an infrastructure fund is better suited to continue the permitting process and eventual build-out of the project,” George Petrides, Chairman of the Board of Downeast LNG, said at the time.

    However, the commission noted that its “pre-filing process in Downeast has resulted in no significant recent progress toward the development of the bi-directional import/export project application or in stakeholder engagement.”

    In the past nine months, Downeast LNG made no progress and presented nothing to persuade the commission that its situation is likely to change, FERC said, declining the latest request to hold the proceedings in abeyance until September 30.

    In addition, because the project has not made progress in the pre-filing review process towards a single proposal, “its pending import application and bidirectional import/export pre-filing proceedings have become stale”, FERC said.

    The proposed project was planned to have the capacity to export up to 3 million tons of liquefied natural gas per year (450 mmcf/Day) and regasify up to 100 mmcf/d.
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    BP to Halliburton in ‘Barroom Brawl’ as Drillers Slash Costs

    Mad Dog, BP Plc’s drilling project deep in the Gulf of Mexico, could be Exhibit A in the oil industry’s war on cost.

    When the British oil giant announced the project’s second phase in 2011, it put the price at $20 billion. Last month, after simplifying plans and benefiting from a sharp drop in everything from steel to drilling services, Chief Executive Officer Bob Dudley said he could do the job for $9 billion.

    Across the industry, companies have taken a chainsaw to expenses, slashing spending for the 2015-to-2020 period by $1 trillion through cutting staff, delaying projects, changing drilling techniques and squeezing outside contractors, according to consulting firm Wood Mackenzie Ltd. That’s cushioned businesses as oil prices plunged 60 percent since 2014. Now producers seek to show they can make the savings stick, while service providers try to reverse their losses.

    Industry costs “may be the defining issue of the next six to 12 months," said J. David Anderson, a Barclays analyst in New York. “As you start ramping up, the fact is you’re going to need more services and they’re going to have to come in at a higher price."

    London-based BP expects 75 percent of its reductions to hold even if oil rebounds, Dudley told investors in July. In earnings reports over the last month, U.S. shale drillers said at least half of their savings are permanent improvements in efficiency. But service providers such as Schlumberger Ltd. and Halliburton Co., which perform much of the drilling and hydraulic fracturing around the globe, tell a different tale: They may have cut rates to keep business during the oil rout, but those discounts were temporary.

    “Price negotiations have been a barroom brawl," Jeff Miller, president of Houston-based Halliburton, said on a July 20 conference call. “But we believe prices will recover."

    Who’s right could have big implications for the oil industry and the broader economy.

    U.S. benchmark oil has climbed about 18 percent since closing below $40 a barrel and slipping into a bear market this month. The grade traded at $46.77 a barrel at 12:51 p.m. Singapore time.

    “A lot of the actions that we’ve taken are what we would call self-help type of things, changing the way we work,” said Stephen Riney, chief financial officer of Houston-based Apache Corp., an oil explorer. “These are things that are not dependent upon the pricing from third parties.”

    While the industry has gotten more efficient, it’s likely to give back most of the gains, said Pritesh Patel, upstream director at research firm IHS Markit Ltd. About half the decline came as a strong U.S. dollar reduced the relative price of materials and labor, Patel said. Contractor discounts accounted for much of the rest, he said.

    Sustaining Cuts

    Producers will be lucky to sustain a third of the cost reductions, Patel predicted.

    One example of a cut that may soon be lost is in the Eagle Ford Shale in south Texas, where the price to lease a drilling rig with a crew tumbled by almost a quarter in the two-year downturn to $18,208 a day, according to a Bloomberg Intelligence estimate.

    Service providers say they’re getting to a point where they may no longer be able to offer such a discount. Schlumberger, Halliburton and Baker Hughes Inc., the top service companies, all reported losses in North America in the first three months of 2016.

    “A large wave of cost inflation from every part of the supplier industry is now building," Schlumberger CEO Paal Kibsgaard said on a July 22 call. Profit margins, he said, are “deeply negative."

    Permanent Changes

    Oil explorers insist they’ve made lasting changes. In the North Sea, producers such as BP are standardizing everything from drilling equipment to the light bulbs and paint used on offshore rigs. In the U.S., companies have built out infrastructure in shale plays, installing pipelines to transport crude and wastewater rather than paying to truck it away.

    In the Permian Basin in west Texas, Devon Energy Corp. has extended electricity to its well sites, allowing it to eliminate 300 rented generators, Chief Operating Officer Tony Vaughn said on an Aug. 3 call. Occidental Petroleum Corp. CEO Vicki Hollub said her company has improved well designs and can drill more quickly, accounting for about 80 percent of cost reductions.

    Apache has renegotiated power, water and chemical-handling contracts and cut lease-operating expenses, a measure of drilling efficiency, by 17 percent, CEO John Christmann told analysts on Aug. 4.

    Producers such as Apache and Devon are going to have to accept “the reality” of the service companies’ situation, Halliburton CEO Dave Lesar said last month.

    “Some of the efficiency gains we have made with customers are in fact sustainable and will continue, but others including deep uneconomic pricing cuts are unsustainable and will have to be reversed,” he said.

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    Origin Energy suspends dividend as annual profit slumps

    Australia's Origin Energy suspended its final dividend as it scrambles to cut debt and trimmed its guidance, after weak oil prices and spending on the A$26 billion ($20 billion) Australia Pacific LNG project nearly halved its underlying annual profit.

    Australia's top power and gas retailer, whose Australia Pacific liquefied natural gas project started exporting this year just as oil and LNG prices slumped, said on Thursday it expects to cut net debt to below A$9 billion by next June.

    Underlying profit fell to A$365 million ($280 million) for the year to June 2016 from A$682 million a year earlier, in line with analysts' forecasts around A$370 million.

    "While the Board will review each dividend decision in light of the prevailing circumstances, the Board's view is that suspension of the dividend is in the best overall interest of shareholders," Chairman Gordon Cairns said in a statement.

    The second unit of two units at the 9 million tonnes a year APLNG project is on track to start producing in the December quarter, Origin said.

    The ramp up has been a bit slower than expected while the oil price slump has persisted, delaying the benefits of the massive project, one of three LNG plants that have started up side by side in Queensland since early 2015.

    Origin has previously said 2015 and 2016 would be transitional years for the company, but has now pushed that out to include 2017.

    "In FY2018 and beyond, as APLNG completes the transition from development to production of its LNG project, Origin expects to see significant growth in earnings and returns, strong cash flow and continuing reduction in debt," Origin Chief Executive Grant King said in a statement.

    With both APLNG units operating, the company said it expects underlying earnings before interest, tax, depreciation and amortization to rise by at least 45 percent to between A$2.37 billion and A$2.6 billion in the year to June 2017, roughly matching market forecasts.

    But excluding LNG, the 2017 guidance worked out to $1.8 billion to $1.95 billion, which was lower than the company flagged in February.

    "We anticipate a negative reaction to the guidance downgrade," Royal Bank of Canada analyst Ben Wilson said in a note, who added that the suspension of the dividend was expected.

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    Too Big to Frack? Oil Giants Try Again to Master Technology That Revolutionized Drilling

    The oil-and-gas well BP PLC is drilling here in the Texas Panhandle looks ordinary enough from the surface. Yet a mile-and-a-half underground, horizontal pipes shoot off for at least a mile in three directions, like a chicken’s foot.

    The idea, part of an experiment by BP executive David Lawler, is to make three wells from one. It also is designed to help turn the London-based energy giant into a shale-oil innovator that can better compete with the entrepreneurial outfits that pioneered the business of hydraulic fracturing, or fracking.

    Big oil companies like BP are in need of a jolt. The multibillion-dollar projects they specialize in—giant offshore oil rigs and gas-export projects—are often prohibitively expensive in a world of $45-a-barrel oil. U.S. wells are a tempting option, but major oil companies have yet to prove they can master the techniques pioneered by shale drillers, whose innovations fueled a rebirth in U.S. energy production.

    London-based BP is moving into shale-oil drilling with wells such as the King Harry 1H in the Texas Panhandle, which descends 8,000 feet before splitting into three shafts. 

    If BP, Exxon Mobil Corp. and others can figure out how to coax enough oil out of fracked wells cheaply enough to make it profitable, it could help them maintain production levels. Failure could make it harder to replace the oil from declining older megaprojects, and leave them further behind on innovations transforming the industry.

    Six years after the Deepwater Horizon accident in the Gulf of Mexico caused the worst offshore spill in U.S. history, BP is turning again to America. Mr. Lawler, a former college football linebacker turned engineer, is in charge of the push into shale oil and gas. If the Perryton well succeeds, Mr. Lawler could try the same thing with drilling leases BP has in Oklahoma, Texas and beyond, potentially yielding oil and gas on a large scale.

    He isn’t the only Lawler in the fracking business. His older brother, Robert, known as Doug, is chief executive of Chesapeake Energy Corp., the trailblazer founded by fracking pioneer Aubrey McClendon, who died in a car crash in March.

    The Lawler brothers are part of the second wave of the fracking revolution: a move away from debt-fueled drilling mania to what they hope will be a more financially sustainable future.

    Doug’s challenge is to take debt-laden Chesapeake and its attractive drilling leases and turn it into a profitable business. David’s mission is to crack the code of shale drilling for BP, something that the world’s biggest energy companies haven’t been good at.

    Processes designed for huge offshore platforms are a poor fit for fracking, which requires endless tinkering to be successful. Frackers must also develop a substantial tolerance for failure. They often must drill dozens of wells to figure out the best techniques for particular locations.

    So far, big oil companies have compiled a poor record in U.S. fracking. Their fracked wells don’t produce as much as those of industry leaders because they haven’t mastered the technology. They have taken more than $20 billion in write-downs, some stemming from top-of-the-market acquisitions of fracking companies, and the plunge in crude prices has made things worse. Exxon has lost money in its U.S. drilling business for six straight quarters.

    In 2014 and 2015, shale wells drilled by BP, Royal Dutch Shell PLC, Exxon and Chevron Corp. were one-third less productive, on average, than the top 10 operators, according to data from analytics firm NavPort. Their wells have improved each year, but so have those of the top operators. Many big companies—often called “integrated” firms because they have production and refining operations—say they are getting better and have drilled some profitable wells.

    “You have to be quick, you have to be nimble, you have to be flexible,” says shale pioneer Mark Papa, former chief executive ofEOG Resources Inc. “The track records of the integrateds is really not very pretty.”

    David Lawler, 48 years old, acknowledges the challenges BP faces trying to go small. Exxon, Shell and Total SA all notched losses or write-downs from their shale businesses, even before oil prices began falling two years ago.

    Yet Mr. Lawler says he is optimistic that BP can make shale profitable at today’s prices, even if it isn’t blessed with what others in the industry see as good rock—land in the country’s most prized oil-and-gas basins. “It’s about how fast we can change,” he says.
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    US Methanol Confirms MDN Rumor – 2 (or More) Plants Coming to WV

    Last week MDN was the first to share the news that the California-based US Methanol is building at least two, rumoured up to five, methanol plants in the Mountain State.

    MDN shared a rumour (based on a source) that until we disclosed it, was not public knowledge: The first methanol plant they will build will be in Institute, WV, and the second in Belle, WV–both in the Charleston region.

    We now have confirmation of that rumour via several news accounts. We also told you that both plants were being disassembled in other countries and brought here.

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    Summary of Weekly Petroleum Data for the Week Ending August 12, 2016

     U.S. crude oil refinery inputs averaged about 16.9 million barrels per day during the week ending August 12, 2016, 268,000 barrels per day more than the previous week’s average. Refineries operated at 93.5% of their operable capacity last week. Gasoline production increased last week, averaging 10.3 million barrels per day. Distillate fuel production increased last week, averaging over 4.9 million barrels per day.

    U.S. crude oil imports averaged 8.2 million barrels per day last week, down by 211,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 8.4 million barrels per day, 11.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 610,000 barrels per day. Distillate fuel imports averaged 92,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.5 million barrels from the previous week. At 521.1 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 2.7 million barrels last week, but are well above the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 1.9 million barrels last week and are near the upper limit of the average range for this time of year.

    Propane/propylene inventories rose 1.8 million barrels last week and are at the upper limit of the average range. Total commercial petroleum inventories increased by 1.3 million barrels last week. Total products supplied over the last four-week period averaged about 20.8 million barrels per day, up by 1.4% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.8 million barrels per day, up by 1.7% from the same period last year. Distillate fuel product supplied averaged over 3.7 million barrels per day over the last four weeks, up by 0.3% from the same period last year. Jet fuel product supplied is up 6.0% compared to the same four-week period last year.

    Cushing down 800,000 Bbl

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    US oil production surges

                                                 Last Week   Week Before  Last Year
    Domestic Production   '000...... 8,597            8,445          9,348
    Alaska '000................................. 477               425             438
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    Eagle Ford rig productivity doubles

    Eagle Ford rig productivity has doubled in 18 months, from 550 to 1,100 B/d per rig. Better than Moore’s law!

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    Diesels splutter as new petrol engine emerges

    Nissan’s new petrol engine could make advanced diesel engines obsolete.

    The new engine – called a Variable Compression-Turbo (VC-T), has 27% better fuel economy than previous models but provides comparable power and torque.

    It’s also cheaper than today’s advanced turbo-charged diesel engines and should meet emissions rules in most countries without requiring costly treatment systems.

    “We believe this new engine of ours is an ultimate petrol engine that could over time replace the advanced diesel engine of today,” Kinichi Tanuma, a senior Nissan engineer said.

    James Chao, Asia-Pacific Managing Director at consultant IHS said: “Increasing the fuel efficiency of internal combustion engines is critical to automakers. Not all consumers will accept a battery electric vehicle solution. But significant challenges remain, such as increased complexity and cost, as well as potential vibration issues.”

    The VC-T powertrain is expected to be officially unveiled at next month’s Paris motor show.
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    China drafts rules to lower natural gas transportation costs

    China's state planner has proposed new rules regulating the cost of transporting natural gas by pipeline that analysts say will lower prices in order to boost consumption of the cleaner-burning fuel.

    The government will use an "allowed cost plus reasonable margin" scheme in setting the transportation cost for natural gas, the National Development and Reform Commission (NDRC) said on Wednesday on its website.

    Under the proposal, natural gas pipeline operators will fix their transportation prices by compiling the cost of their fixed assets such as pipelines and storage, operating costs and depreciation, and then adding a fixed 8-percent margin to those costs, the NDRC said.

    However, the 8 percent margin only applies to pipelines with a capacity utilization higher than 75 percent, the NDRC said, without stating what the margin would be for pipelines using less than 75 percent of their capacity.

    The lower margin should lower the gas costs for consumers as the current margin pipelines are making is believed to be higher than the 8 percent proposed by the NDRC.

    Analysts said the changes underscore Beijing's plan to lift sagging demand growth for natural gas, seen as the most efficient fuel to cut greenhouse gas emissions in the world's largest emitter and tackle air pollution. China is the world's third-largest gas consumer.

    "The new regulation should help reducing the cost of natural gas," said Diao Zhouwei, a Beijing-based analyst with IHS. "China's reform of its natural gas pipeline is moving toward its planned direction. Focusing on tightening pricing regulations as well as lowering the cost through better transparency."

    Previously, transportation cost were set by the NDRC based on the individual pipeline projects. This new proposal would apply across companies rather than by specific pipeline.
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    Fed-up east coast Aus gas buyers hatch LNG import plan

    Industrial gas buyers have been forced to consider importing LNG at a Sydney or Melbourne port to ensure a competitive supply of gas due to what they say is a major failing of energy policy that has left manufacturers stranded and put jobs on the line.

    Manufacturing Australia chairman Mark Chellew said initial studies showed gas could be imported from the US at a price of about $6 a gigajoule, about a third less than prices some industrial users are facing by 2018.

    "If we got to that stage it would be a major fundamental policy flaw of all governments," Mr Chellew said. "It is a flaw that we've got to the stage of having to seriously consider it."

    Mr Chellew partly blames the "over-zealous" drive into renewable energy by some state governments for contributing to the energy difficulties that erupted in South Australia in June and which he says risk spreading across the eastern states.

    At the same time, the onshore gas ban in Victoria, difficulties with NSW gas and a tripling in demand for gas on the east coast due to the new Queensland LNG export industry have squeezed supplies for manufacturers, chemical producers and power generators.

    "We jumped off a cliff around 15 years ago and we haven't yet invented the parachute," Mr Chellew said of the policy failings that led to the current fix, which has left local gas buyers short of supplies at the same time as Australia is set to become the world's biggest LNG exporter by 2019.

    "We are supportive of the federal renewable energy target but we need to make sure that the energy grid in Australia is stable and able to supply electricity continuously to industry. The stability of the grid is dependent on sufficient coal or gas-fired power stations."

    Seeking solutions

    Mr Chellew's comments come ahead of Friday's meeting of federal and state energy ministers in Canberra which will cover potential solutions to the energy supply problems evident in South Australia in June, including new inter-state power interconnectors and boosting gas supply.

    Manufacturing Australia, whose members include Brickworks sand BlueScope Steel, wants LNG imports to be among options under discussion, given government would need to take a lead in aggregating demand and making it happen. It has raised the idea with Federal Energy and Resources Minister Joel Frydenberg and the energy ministers in NSW and South Australia.

    "They are aware that the level of frustration in industry has got to the point where this is on the table," said executive director Ben Eade.

    The concept is based on a project in Lithuania, which started LNG imports in late 2014 to gain independence from Russian gas giant Gazprom. A re-designed LNG carrier, moored permanently at the the coastal city of Klaipeda, is refuelled by LNG tanker and turns the super-chilled fuel back into gas and feeds it into the pipeline network.

    According to consultancy Gaffney Cline, gas could be supplied using a similar vessel at a port in Brisbane, Sydney or Melbourne for as little as $6 a gigajoule assuming demand of at least 100 petajoules a year. That compares to $8-$10 a gigajoule that some manufacturers face in 2018.

    The analysis assumes current low US gas prices and includes processing into LNG, shipping and regasification. The cost of offloading gas from the vessel into the network and piping it to the user would add about $1 a gigajoule.

    "It is something we really do not want to do," Mr Chellew said. "But maybe they've got to seriously look at that as an alternative to where we're at. We would hope there is a lifting of the ban on onshore gas development around Australia. We think that's a better solution."

    The concept is similar to one raised cynically by Shell Australia chairman Andrew Smith in an address in June when he suggested importing LNG into Port Botany could be the only answer to onshore gas moratoria. But he cautioned the benefits were unlikely to outweigh the costs.

    Weak spot prices

    EnergyQuest consultant Graeme Bethune said the outlook for several years of weak LNG spot prices meant the idea was "certainly worth pursuing".

    "The way to do it would be a floating regasification terminal; they can be put in place pretty quickly and pretty cheaply and then it would be a matter of looking at different points and the connections to infrastructure. One of the challenges would be aggregating enough willing buyers."

    In early July spot prices for gas on the east cost approached $45 a gigajoule as an extended cold snap across the eastern states combined with the impact of intermittent renewables generation in South Australia and rising demand for gas from the Gladstone LNG industry. That pushed Adelaide spot prices up to average $13.90 a gigajoule in July, about 65 per cent more than the raw Japanese LNG import price. Prices to Japanese industrial users would be about 30 per cent more than the import price, Dr Bethune said.

    "Gas prices are substantially higher in Australia than they are abroad," Mr Eade said. "You don't just sit back and accept that: if there are other ways you can access the true international price for gas then they need to be looked at."

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    South Korea LNG imports down 15.2 pct in July

    Imports of liquefied natural gas (LNG) by South Korea, the world’s second-largest buyer of the chilled fuel, dropped 15.2 percent year-on-year in July, according to the customs data.

    South Korea imported 1.92 million mt of LNG in July, as compared to 2.26 million mt in the corresponding period in 2015.

    The country paid US$584 million for July imports, down 44 percent on year, the data showed.

    Most of the LNG imports in July came from Qatar (822,265 tonnes), down 25.8 percent as compared to July in 2015.

    The rest of South Korea’s LNG imports in July were sourced from Indonesia, Oman, Malaysia, Australia, Angola, Brunei, and Russia.

    To remind, state-owned Kogas that handles almost all of the LNG imports into South Korea saidlast week its sales volume dropped 2.8 percent in the first half of this year to 16.75 million mt of LNG.

    The company’s sales into the power sector dropped down 8.2 percent in January-June as South Korea used more coal and nuclear for power generation.

    Kogas sold 2.19 million tonnes of LNG in July,  a rise of 15.2 percent on year.
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    Pay dispute, not terrorism behind Malaysian tanker ‘hijacking’

    A “hijacked” Malaysian oil tanker is thought to have been taken in a commercial dispute, a news report said.

    The MT Vier Harmoni vessel was believed to be sailing from the Malaysian port of Tanjung Pelepas when it went missing earlier this week.

    The ship, whose cargo of 900,000 litres of diesel is estimated to be worth £300,000, is now thought to be off the Indonesian island of Batam.

    A Malaysian Maritime Enforcement Agency (MMEA) spokesman told Reuters that there was “no element of terrorism involved in the tanker’s disappearance”.

    The authority said the ship may have been taken following a financial dispute between the vessel’s management and crew, which suggests a mutiny has taken place, not a hijacking.
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    Louisiana’s Sinking Coast Is a $100 Billion Nightmare for Big Oil

    The state can’t pay, so someone has to. And the water keeps rising.

    From 5,000 feet up, it’s difficult to make out where Louisiana’s coastline used to be. But follow the skeletal remains of decades-old oil canals, and you get an idea. Once, these lanes sliced through thick marshland, clearing a path for pipelines or ships. Now they’re surrounded by open water, green borders still visible as the sea swallows up the shore.

    The canals tell a story about the industry’s ubiquity in Louisiana history, but they also signal a grave future: $100 billion of energy infrastructure threatened by rising sea levels and erosion. As the coastline recedes, tangles of pipeline are exposed to corrosive seawater; refineries, tank farms and ports are at risk.

    “All of the pipelines, all of the things put in place in the ’50s and ’60s and ’70s were designed to be protected by marsh,” said Ted Falgout, an energy consultant and former director of Port Fourchon.

    Louisiana has an ambitious -- and expensive -- plan to protect both its backbone industry and its citizens from this threat but, with a $2 billion deficit looming next year, the cash-poor state can only do so much to shore up its sinking coasts. That means the oil and gas industry is facing new pressures to bankroll critical environmental projects -- whether by choice or by force.

    “The industry down there has relied on the natural environment to protect its infrastructure, and that environment is now unraveling,” said Kai Midboe, the director of policy research at the Water Institute of the Gulf. “They need to step up.”

    Every year in Louisiana, more than 20 square miles of land is swallowed by the Gulf. At Port Fourchon, which services 90 percent of deepwater oil production, the shoreline recedes by three feet every month. Statewide, more than 610 miles of pipeline could be exposed over the next 25 years, according to one study by Louisiana State University and the Rand Corporation. Private industry owns more than 80 percent of Louisiana’s coast.

    The land loss exacerbates another natural threat: storm-related flooding, like that affecting Baton Rouge now. About 40,000 homes in southeastern Louisiana have been affected by devastating flooding, and at least 8 people have died. The flooding occurred after some areas received more than 26 inches of rain over a three-day period, causing water to overrun levees along several tributaries.

    Barrier islands, marshes and swamps reduce storm surge and soak up rainfall like a sponge. But as the land erodes, storms advance without a buffer, and Louisiana's flood protection systems become less effective. The state estimates that damage from flooding could increase by $20 billion in coming years, if the coastline isn't reinforced.

    Lots More:
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    OPEC’s Former Head Says Conditions Are Right for Oil-Freeze Deal

    OPEC is on course to strike an output-freeze deal with fellow oil producers in Algiers next month because its biggest members are already pumping flat-out, the group’s former president said.

    While a similar initiative failed in April, an agreement can now be reached as Saudi Arabia, Iran, Iraq and non-member Russia are producing at, or close to, maximum capacity, Chakib Khelil said in a Bloomberg Television interview. Khelil steered OPEC in 2008, the last time it implemented an output cut, which was announced in Algeria in December of that year.

    “All the conditions are set for an agreement,” Khelil said from Washington. “Probably this is the time because most of the big countries like Russia, Iran, Iraq and Saudi Arabia are reaching their top production level. They have gained all the market share they could gain.”

    While oil prices have advanced since OPEC announced it would hold informal talks in the Algerian capital next month, analysts from UBS Group AG to Commerzbank AG doubt any freeze deal will be completed, and comments from Saudi Arabia and Nigeria have kept expectations low. Talks collapsed in April as Saudi Arabia insisted Iran would have to limit its production, a condition the country rejected as it ramped up exports previously curbed by sanctions.

    As producers are almost pumping at full-tilt, the impact of any accord to prevent further increases would essentially be “psychological,” Khelil said. That would nonetheless have a benefit for the market, according to the Algerian, who was also the country’s energy minister from 1999 to 2010.

    The global crude oversupply is already diminishing, and markets will probably reach “complete equilibrium” next year, Khelil said.
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    Iran's crude oil exports above 2.1 mln bpd in July - SHANA

    Iran's crude oil exports in July were more than 2.1 million barrels per day, the oil ministry's news agency SHANA cited a senior Iranian oil official as saying on Wednesday.

    Director of the International Affairs Department at National Iranian Oil Company (NIOC) Mohsen Ghamsari told SHANA the total amount of crude and gas condensate exports by Iran reached 2.740 million bpd in July. He said 600,000 bpd out of that figure were condensate exports.

    "Exports of crude are now at a good level but ... have not yet touched that of the pre-sanction level," he said, adding that Iran used to export 2.350 million barrels of crude per day before international sanctions were imposed.

    Ghamsari did not give a figure for Iran's oil exports in June but a source with knowledge of the country's crude lifting plans had told Reuters exports that month were about 2.31 million bpd.
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    API: Drop in US Crude Oil Stocks, But Surprise Gasoline Build

    U.S. crude oil inventories are down just over 1 million barrels for the week ended 12 August, according to the weekly American Petroleum Institute (API) report, but U.S. gasoline inventories are up over 2 million barrels in the biggest increase in six months.

    Cushing crude inventories were down 680,000 barrels.

    Earlier today, crude oil rallied to a one-month high, but slid back down following the release of the API data. West Texas Intermediate (WTI) for September delivery closed at US$46.58 on the New York Mercantile Exchange, but was down to US$46.41 in electronic trading at the time of writing.

    Analysts expectations, as carried by S&P Global Platts, were for a 200,000-barrel drawdown on U.S. crude oil inventories, with the API figures coming at roughly half that. But for gas, the API figures were unexpected. Analysts were tapping a 1.8-million-barrel drop in gasoline inventories, while the API is showing a nearly 2.2-million-barrel increase. Distillates were also up significantly over the week, with the API data showing a 2.4-million-barrel build.

    This should contribute to further market volatility, though Zero Hedge notes that oil is primarily tracking the dollar right now and not paying as much attention to its own fundamentals.

    More attention will be on the official inventory data coming tomorrow at 10:30am (EST) from the Energy Information Administration (EIA), which could contradict API data, as has been a recent trend.

    Last week, the API reported the opposite—the biggest crude oil inventory build in three months, and a draw on gasoline stocks. That API report had crude inventories up 2.09 million barrels, and gasoline stockpiles down 3.9 million barrels, with distillates at a 1.5-million barrel draw.

    The EIA last week reported a 1.1-million-barrel rise in commercial crude oil inventories for the week to August 5, with the total reaching 523.6 million barrels. The week before that also saw a 1.4-million-barrel build.

    The API data should be good news for oil prices, but the surprise gasoline and distillates build skews the picture.

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    China data: Crude stocks rise by 525,000 b/d in July, half the build on year

    China's crude oil stocks rose by 525,000 b/d in July, half the build seen in the same month of last year due to lower crude supply and higher throughput, although the country is still on its way to raise its stockpiles, calculations by S&P Global Platts based on latest official data showed.

    The stock increase was 8.5% faster than the 484,000 b/d registered in the previous month, and within the range of a relatively stable build level as June, which fell significantly from a sharp build-up of over 1 million b/d each in the months of May, April and March.

    China does not release official data on stocks. Platts calculates China's net crude stock draw or build for the month by subtracting refinery throughput from the country's crude supply.

    The latter takes into account domestic crude production and net crude oil imports.

    Crude supply in July stood at 11.24 million b/d, which was the lowest level since December and also 2.1% lower than that in last July, due to a slowdown in crude oil imports as well as lower domestic crude oil output.

    Crude oil imports fell to a six-month low of 7.35 million b/d as independent refiners' buying cooled from the wave started in December last year.

    Meanwhile, domestic crude oil output hit the lowest level of 3.95 million b/d since October 2011, when was recorded at 3.91 million b/d. Chinese producers have decided to cut domestic production in 2016 to reduce cost amid low crude prices.

    At the same time, crude oil throughput saw a 2.5% year-on-year increase, but fell 2.7% from June.

    Looking forward, China is expected to continue building crude stocks, given that throughput would stay at the July level or lower because of weak oil products demand in August.

    Moreover, the country is continuing to fill its strategic petroleum reserves, including new sites in northeastern China's Jinzhou (18.9 million barrels) and southern China's Yangpu (9.69 million barrels).

    Analysts also expect the new Huizhou storage in southern China and Zhoushan Phase II in eastern China, each 31.45 million barrels in capacity, to start taking in crude oil next year.

    Over January-July, the country's crude stocks grew by an average 778,000 b/d, equivalent to 165.80 million barrels over the period.

    This was 80% higher than the 432,000 b/d, or 91.67 million-barrel build seen in the same period last year. China had built 186 million barrels of crude stocks over 2015, averaging 510,000 b/d.
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    Nigeria Oil Losses Reach 900,000 Bbld Due to Militant Attacks

    Nigeria’s losses in daily oil production due to militant attacks have hit 900,000 barrels, said Petroleum Minister Ibe Kachikwu, speaking to CNN. He added that the federal government is in talks with the militant groups responsible for this cut in production in the Niger Delta, saying that over the next couple of months, the negotiating parties will hopefully reach an agreement that will put an end to the attacks.

    “We are producing some 1.5 million barrels per day and would need on average 900,000 barrels per day to catch up on what we have lost. If we can achieve peace, this will be feasible,” Kachikwu said.

    This, however, would go counter to what other OPEC members are planning, or rather hoping, to do at the next informal meeting of the cartel in Algeria next month. The minister expressed doubt as to the success of such a plan, citing the meeting in Doha earlier this year, initiated by Russia, which was ready to put a cap on oil production in a bid to prop up prices, and the participants’ failure to agree on such a cap.

    Attacks on production and transportation infrastructure in the Niger Delta have taken their toll on Nigeria, which used to be Africa’s biggest exporter of crude. The groups responsible for the attacks insist that local communities are being deprived of their fair share of oil revenues, left to live in poverty and pollution.

    Last week, a former federal minister, Femi Fani-Kayode tweetedthat Nigeria’s President Muhammadu Buhari was basically fed up with the attacks and was ready to split the country if oil was struck in the North.

    “My prayer for Nigeria is that oil is found in commercial quantities in the core north. I am glad that @MBuhari is looking for it desperately. If he finds it he and the north will be the first to call for a break up of the country. If he fails to find it they will continue to be the greatest obstacle to the restructuring of our nation and they will continue to provide the greatest opposition to the peaceful division of our country. Why? Because without southern oil the north is nothing,” the former aviation minister wrote.
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    EIA August DPR: Utica Production Up, Marcellus Down

    Yesterday MDN’s favourite government agency, the U.S. Energy Information Administration (EIA), issued our favourite monthly report–the Drilling Productivity Report (DPR).

    The DPR is the EIA’s best guess, based on expert data crunchers, as to how much each of the U.S.’s seven major shale plays will produce for both oil and natural gas in the coming month.

    The EIA projects natural gas production cumulatively across all shale plays will once again fall in September–the seventh consecutive month it will have fallen.

    However, as was the case in last month’s report, the Utica stands alone and against the trend by showing an increase in production month over month. Last month the EIA predicted the Utica would increase production by 5 million cubic feet per day, or MMcf/d.

    This month’s report shows the Utica is expected to increase production by an average of 9 MMcf/d.

    Also of note, last month Marcellus production was projected to drop by 26 MMcf/d, while this month the production drop is projected to be 33 MMcf/d. That is, the rate of production decline in the Marcellus is accelerating.
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    Halcon’s Market Cap Falls Below $50M, NYSE Threatens to De-List

    The New York Stock Exchange (NYSE) has certain minimum standards if a company wants to continue trading stocks on the exchange:

    The company’s stock price must be trading for at least $1 per share, and the company’s market capitalization must be at least $50 million. Market cap is pretty easy to calculate: it’s the number of outstanding shares times the per-share price. If you have 50 million shares of stock and the price is trading for $1/share, you’re there. You meet the NYSE’s requirements.

    Various companies with operations in the Marcellus/Utica have fallen short and have been warned by the NYSE that unless they get their act together, they would be de-listed. Some turned it around (see Eclipse Resources Dodges a Bullet – Stock Won’t Get De-Listed), and some didn’t (seeMagnum Hunter De-Listed from NYSE; Still Shopping Eureka Hunter).

    Halcon Resources, a driller with 140,000 Utica acres it doesn’t bother to drill on, was warned in June by the NYSE that their share price, trading under $1/share, is too low. In July Halcon filed for bankruptcy. The NYSE has just issued another warning to Halcon: the company’s market capitalization has now fallen below $50 million…
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    Concho Resources announces Midland Basin acquisition

    Concho Resources Inc. today announced it has reached a definitive agreement to acquire approximately 40,000 net acres in the core of the Midland Basin from Reliance Energy, a privately held, Midland-based energy company, for $1.625 billion. The privately negotiated acquisition is consistent with Concho's opportunistic and disciplined portfolio management strategy as it expands its core Midland Basin position to more than 150,000 net acres and production of 30 thousand barrels of oil equivalent per day (MBoepd).

    Acquisition Highlights

    Adds approximately 40,000 net acres with an average 99% working interest to Concho's core Midland Basin position
    Includes approximately 10 MBoepd (67% oil) of current production
    Enhances the Company's drilling inventory with more than 530 long-lateral drilling locations targeting the Middle Spraberry, Lower Spraberry and Wolfcamp B
    Provides expansive development upside across multiple zones

    Tim Leach, Chairman, Chief Executive Officer and President, commented, 'This transaction demonstrates Concho's commitment to the Midland Basin as a core operating area and highlights our continued efforts to consolidate complementary leasehold. In line with the objectives of our southern Delaware Basin acquisition in the first quarter of 2016, these assets not only build scale, but more importantly high-grade our inventory with additional long-lateral locations that compete with the best projects in the Permian Basin. As we continue to enhance our ability to efficiently allocate capital across our four key assets in the Permian Basin, we are uniquely positioned to deliver attractive returns today and build shareholder value over the long term.'

    The acquisition includes 10 MBoepd from 326 vertical wells and 44 horizontal wells, only one of which was completed in 2016. The present value of this stable production base at current NYMEX strip pricing is approximately $0.5 billion, with the remaining $1.1 billion of the purchase price attributable to 40,000 undeveloped acres.

    Estimated proved reserves attributable to the acquisition total approximately 43 million Boe. Proved developed reserves represent approximately 69% of the total proved reserves. The estimate of proved reserves is based on the Company's internal estimates as of June 30, 2016, and utilizes the Securities and Exchange Commission's reserve recognition standards and pricing assumptions based on the trailing 12-month average first-day-of-the-month prices of $39.63 per Bbl of oil and $2.24 per MMBtu of natural gas.

    The acquired acreage is located in Andrews, Martin and Ector counties in Texas with minimal leasehold obligations. The acquisition adds more than 530 long-lateral drilling locations to the Company's inventory. Due to the contiguous nature of the acquired assets, two-thirds of these locations are two-mile laterals, and the remaining locations are 1.5-mile laterals. The engineered locations are based on eight locations per zone in the Middle Spraberry, Lower Spraberry or Wolfcamp B, with two to three of these zones targeted per drilling spacing unit. The Company believes there is substantial development upside from applying optimal drilling and completion methods, testing closer well spacing and delineating other zones.

    Consideration in the transaction includes approximately $1.1 billion of cash and 3.96 million shares of Concho's common stock valued at approximately $0.5 billion and issuable pursuant to a stock payment option that the Company intends to exercise. The Company intends to fund the cash portion of the acquisition through proceeds from a potential equity market transaction, subject to market conditions and other factors. The acquisition is expected to close in October 2016, and is subject to customary closing conditions.
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    Goliat boosts Norway output to five year high

    Norway’s oil production hit a five-year high last month, fuelled largely by output from Eni’s Goliat field in the Barents Sea.
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    Venezuela Oil Exports Seen Falling as Economic Woes Worsen

    The long decline in Venezuela’s oil production is becoming a supply risk for international markets, according to a report by Columbia University’s Center on Global Energy Policy.

    Exports from the holder of the world’s largest crude reserves fell more than 300,000 barrels a day in June, compared with the 2015 average, according to the report written by Luisa Palacios, a senior managing director at Medley Global Advisors LLC. While Venezuela’s output has been declining all year, the impact is only now being felt on international markets because previous losses were offset by slumping domestic oil demand amid anunprecedented economic recession.

    “Venezuela will represent a growing supply risk for oil markets in 2017,” the report said. “While on average crude oil exports in the first half do not yet show an important decline from the same period a year ago, the latest data point to a deteriorating trend.”

    Venezuela has been hit hard by the two-year slump in crude prices. Its economy is expected to shrink 10 percent this year, the largest contraction in more than a decade, while consumer prices rise more than 700 percent, according to the International Monetary Fund. The nation’s output dropped to a 13-year low in July as international oil services companies scaled back their activities after state-run Petroleos de Venezuela SA fell more than $1 billion behind in debt repayments.

    Falling Consumption

    Venezuela’s crude production in July dropped to 2.15 million barrels a day, compared with an average 2.4 million last year, the International Energy Agency said on Aug. 11.

    As the nation’s economy contracted, domestic demand for oil dropped by more than 100,000 barrels a day last year compared with 2014, the Columbia University report said, citing data from the Ministry of Oil and Mining. While it’s possible that Venezuela’s domestic consumption will keep falling, there are signs the lower production is now affecting exports, it said.

    Venezuela’s strategy of focusing on the expansion of oil production in a region called the Orinoco belt is also bringing in fewer dollars. The heavy crude is less desirable to refiners and typically sells for less than lighter grades of oil that are easier to process into fuels such as gasoline.

    The Venezuelan crude basket, based on an average of all crudes handled by the state oil company, widened its discount to West Texas Intermediate, the U.S. benchmark, to about $9 a barrel on Aug. 12, compared with about $1 a year earlier.

    Blending the heavy oil with higher-priced light crudes purchased from other exporters can make it more marketable, but is a costly option for a country that’s on the brink of debt default, the report said. Should credit concerns prevent Venezuela from importing the light oil it needs, net exports could fall by another 300,000 barrels a day, the Columbia report said.

    “The continuation of this strategy will significantly eat into the government’s oil rent, and thus its ability to export its way out of this crisis,” the report said.

    Venezuela’s is renewing efforts to get the Organization of Petroleum Exporting Countries and nations outside the group to cooperate. Oil minister Eulogio del Pino met his Iranian counterpart in Tehran Sunday, although the Persian Gulf nation hasn’t decided if it will attend a meeting of producers to discuss stabilizing prices on the sidelines of an energy forum in Algiers next month.

    “Venezuela was already having economic problems when the oil price was at $100 per barrel,” so a price recovery is unlikely to solve its predicament, according to Columbia’s report.

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    Ecopetrol Group Announces its improved Results

    - In the second quarter of 2016 the Corporate Group reported net income of COP $787 billion, 117% higher than in the first quarter of 2016. For the first half of the year our net income totaled COPS$1,150 billion.

    - With the receipt of Rubiales and Cusiana fields, Ecopetrol achieves a new landmark as a world-class operator with more than 500 thousand barrels per day.

    - We accomplished our target: the startup of the 34 units of Cartagena Refinery. Now moving forward to the stabilization phase.

    In the view of Ecopetrol S.A.'s CEO, Juan Carlos Echeverry G.:

    "April marked my first year leading Ecopetrol. A year characterized by a sharp drop in oil prices, challenging the oil and gas industry. We also witnessed a strong El Niño weather phenomenon, the closure of the border with Venezuela and attacks on transport infrastructure.

    The renewal of the management team, the adjustment and austerity measures, as well as the focus on profitable production and the preservation of both cash flow and leverage metrics have enabled Ecopetrol to navigate the price scenario and present positive operating and financial results in the second quarter of 2016.

    Net income attributable to Ecopetrol shareholders reached COP$787 billion, 117% higher as compared to the first quarter of 2016, thanks to a 34% recovery in Brent crude price, a decrease in our operational costs and structural savings efforts. Our EBITDA margin remained solid at around 39%.

    In the second quarter of 2016 the Company reported savings of COP$392 billion pesos, for a cumulative COP$813 billion pesos for the first semester. The savings target for 2016 is COP$1.6 trillion pesos.

    We raised COP$725 billion from the divestment of part of our stake in Interconexión Eléctrica S.A. E.S.P.(ISA) and Empresa de Energía de Bogotá S.A. E.S.P. (EEB). Further, we launched "Ronda Campos 2016", an initiative to offer our interest in 20 minor oil fields located in Catatumbo, Middle and Upper Magdalena Valley, Llanos and Putumayo regions.

    Ecopetrol received Rubiales and Cusiana fields and now operates more than 500 thousand barrels per day. The Rubiales field gave us 53 thousand barrels per day of additional production, partially offsetting the impact of lower investments in other assets and the temporary suspension of some fields.

    The Company successfully completed the startup process of the 34 units that comprise the Cartagena Refinery.

    In the last sixteen months we have comprehensively renewed our management team, attracting people with broad experience and an important record in major international oil and gas companies.

    It is the case of the Chief Operating Officer, Chief Financial Officer, Chief Transformation Officer; as well as the Vice-presidents of Refining, Social and Environmental Sustainability, Legal Affairs, and most regional Vice Presidents; additionally, new people will soon arrive to lead in Procurement and in Transportation. Finally, two vice-presidencies were created: Engineering and Projects, and Compliance.

    The transformation plan has 500 ongoing tasks. These initiatives have already begun to materialize in Ecopetrol's results. For example, the dilution cost reduction initiative, which is part of the efficiency front, has reduced Ecopetrol's diluent purchases by almost 14 thousand barrels per day. The cumulative savings in 2015 and the first half of 2016 amounted to COP$726 billion pesos. This initiative is crucial for viable production projects in heavy crudes that represent 57% of the Corporate Group's oil production.

    The Company's priority has been the protection of the cash flow. In the second quarter of 2016 the cash balance was strengthened with resources from divestments and the international loan with the Export Development Canada (EDC) for US$300 million as well as the reopening of the international bond due to 2023 for US$500 million, a clear sign of the capital markets' confidence. With these resources Ecopetrol has fulfilled close to 85% of its financing needs for 2016. Moreover, Standard and Poor's and Fitch Ratings reaffirmed the BBB investment grade rating for Ecopetrol.

    The Company's 2017-2020 business plan is being reviewed in line with our forecasted price scenarios and our efficiency gains achieved, these gains could be even greater in the future. We hope to present our updated medium-term goals no later than October of this year.

    Ecopetrol continues its transformation in order to position itself as a competitive player, strengthening its exploration and production portfolio to capture opportunities arising from a fundamental recovery in oil prices, and increasing structurally efficiency in Refining and Transport to ensure financial sustainability and creation of value for its shareholders."
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    Qatar DFC shortage a boon for Asian condensate suppliers: traders

    The impending startup of Qatar Petroleum's new condensate-fed refinery has led to a sharp reduction of deodorized field condensate supply in the spot market, providing a much-needed boost to Asian ultra-light crude suppliers looking to clear October cargoes, market participants said Tuesday.

    Lofty premiums paid for Qatar's Low Sulfur Condensate for loading in October caught some Asian end-users by surprise and the price outlook for both Asia and Middle East ultra-light crudes took a positive turn due to the shortage of DFC cargoes.

    Latest market talk in Asia indicated that Qatar International Petroleum Marketing Co., or Tasweeq, has recently sold two 500,000-barrel cargoes of LSC in pre-tender deals to South Korean end-users at premiums in the range of $1.50-$1.70/b to Platts front-month Dubai crude oil assessments, sharply higher than the $1.10/b premium received for September-loading LSC last month.

    S&P Global Platts assessed LSC at a premium of $1.40/b Tuesday, the highest level since posting a $1.45/b premium on June 29.

    With Tasweeq's sell tender closing late afternoon is Asia Tuesday, trade sources said very little was heard on any pre-tender deals for DFC for loading in October, a possible indication that the vast majority of October DFC supply could have been set aside for the new Laffan Refinery 2.

    "There's no DFC being offered, but I expect to see one done [via tender]," said a Singapore-based condensate trader.

    Qatar Petroleum in its latest annual report said Laffan Refinery 2, or LR2, was expected to be fully operational in the third quarter. Industry sources this week expected this to occur in late September.

    The new facility will be able to process an additional 146,000 b/d, raising Laffan Refinery's total processing capacity to 292,000 b/d, the state-run petroleum company said in the annual report.

    Regional ultra-light crude traders said the number of DFC cargoes in the spot market could drop to as low as one or two per month if the LR2 condensate refinery runs at 50% or more of its capacity early in the startup phase.

    "We are witnessing a severe lack of DFC supply in the market this month. Normally Tasweeq and some term lifters would sell five cargoes at least [in pre-tender deals] but there's hardly any available this time around," said a North Asian crude trader.

    "When you assume LR2 running at maximum capacity of around 146,000 b/d, that would roughly equate to about 9 DFC cargoes... the market impact would be quite substantial if you consider this," the North Asian trader added.

    Construction of LR2 began in April 2014, and the shareholders in the second refinery are QP (84%), Total (10%), Idemitsu (2%), Cosmo (2%), Mitsui (1%) and Marubeni (1%).

    The refinery, with a nameplate capacity of 146,000 b/d, will have the capacity to produce 60,000 b/d of naphtha, 53,000 b/d of jet fuel, 24,000 b/d of gasoil and 9,000 b/d of LPG.


    Market participants said despite the tepid light distillate product margins of late, suppliers of both sweet and sour condensates around the region would likely adjust their selling ideas higher in a bid to take full advantage of the sharp decline in DFC supply.

    "Many had initially anticipated another month of bear market due to the sliding naphtha cracks and the unsold August and September overhang... but I guess the tide could turn," said another Singapore-based crude trader. Last market talk in Australia indicated that Woodside Petroleum could have sold a 650,000-barrel cargo of North West Shelf condensate for loading over October 11-15 to a South Korean buyer at a discount of around $2/b to Platts Dated Brent crude assessments.

    It was said to have sold a NWS cargo for loading in September 2-6 at a discount of around $2.30/b in the previous trading cycle.

    "I think the splitters might pay more if they are really worried about the DFC supply," said another North Asian crude trader.

    However, many traders continued to adopt a cautious stance as tepid naphtha crack values and ample condensate supply from Southeast Asia and Oceania could put a cap on any upside in cash differentials for regional ultra-light crudes.

    Latest Platts data showed the second-month naphtha to Dubai swap crack fell below the minus $4/b mark to minus $4.07/b Monday, the lowest level in more than 15 months. The spread was last wider on May 8, 2015, at minus $4.20/b.

    The crack value has averaged minus $2.37/b to date this month, compared with minus $1.60/b in July and minus $0.77/b in June.

    The last time the average monthly naphtha crack was lower was in July 2015 at minus $2.75/b.
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    China to become world's 2nd largest shale gas producer by 2040, EIA

    China is expected to produce over 20 billion cubic feet of shale gas per day (bcf/d) by 2040, becoming the world's second largest producer after the United States, said the U.S. Energy Information Administration (EIA) on August 15.

    The production will account for more than 40% of the country's total natural gas production by 2040, the EIA predicted.

    In the past five years, China drilled more than 600 shale gas wells and produced 0.5 bcf/d of shale gas as of 2015, said the EIA in its International Energy Outlook 2016 and Annual Energy Outlook 2016.

    The U.S. shale gas production will stay in the first place as it is projected to more than double from 37 bcf/d in 2015 to 79 bcf/d by 2040, accounting for 70% of total U.S. natural gas production, said the EIA.

    Canada is now the world's second largest shale gas producer, producing 4.1 bcf/d in 2015. Its shale gas production is projected to continue increasing and will reach less than 10 bcf/d, accounting for almost 30% of its total natural gas production by 2040.

    Shale gas will also become the major drive of the world's natural gas growth in the next 24 years, said the EIA.

    The world's shale gas production by 2040 is expected to quadruple the level in 2015 and reach 168 bcf/d, accounting for 30% of world natural gas production. The world's natural gas production is expected to increase by about 62% during the same period of time.
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    Wood Group still hostage to depressed oil price

    Wood Group PLC shares were steady in early trade after good and bad news statements cancelled each other out.

    The ‘good’ first and the landing of a US$700mln a field services contract with Tengizchevroil in Kazakhstan.

    This was tempered by the interim results, which revealed the company is still hostage to the depressed oil price.

    As a major supplier to the industry its unsurprising its revenues (down 17% at US$2.6bn) and its earnings (off 26% at US$166mln) have taken a battering.

    Against this backdrop, and with debts of US$351mln, some will be a little surprise Wood Group managed to hike the dividend 10% to 10.8 cents per share.

    The payment is perhaps echoes a sense of cautious optimism detected in the comments of chief executive Robin Watson.

    “Looking further ahead, we see early indications of modest recovery in some areas and believe our customer relationships, geographic footprint, strong financial footing and relentless focus on delivering value through our asset life cycle services and specialist technical solutions, position us well,” he told investors.
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    Cairn Energy raises resource estimate for Senegal oilfields

    Oil exploration company Cairn Energy Plc raised its best estimate of reserves at its oilfields off the coast of Senegal by almost a third on Tuesday, following successful appraisal of the SNE-4 test well earlier this year.

    The company said its 2C resource estimate, or its best estimate of contingent resources, for its Senegal wells had increased to 473 million barrels from its earlier forecast of 385 million barrels in May.

    Cairn Energy also said that independently verified estimates of reserves in its Senegal fields were more than 2.7 billion barrels, with further exploration potential of about 500 million barrels in the region.
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    In appeal of US fracking ruling, arguments center on precedent

    A recent judge's decision that overturned Obama administration rules on hydraulic fracturing on federal and Indian lands ignores more than a century of regulatory precedent, an attorney appealing that decision said Monday.

    "The decision ignores decades of case law," said Mike Freeman, a Colorado-based attorney with Earthjustice. "We respectfully think that the judge got it flat wrong."

    On Friday, Earthjustice, along with the Sierra Club, filed opening briefs with the 10th US Circuit Court of Appeals in an appeal case that may ultimately determine whether the federal government can regulate fracking.

    The US Department of the Interior also filed briefs arguing that a century of legal precedent and federal regulations allow the agency's Bureau of Land Management to regulate fracking.

    "BLM has the authority to oversee resource extraction on federal and Indian leases, including well-stimulation activities, to protect natural resources and the environment," Interior wrote. "BLM and its predecessors have been doing so for nearly 100 years, and modern hydraulic fracturing operations simply are a new version of historically regulated well stimulation techniques."

    In March 2015, BLM finalized new rules that included new chemical disclosure, well construction, and fluid disposal requirements for fracking operations on federal and Indian land. Production on those lands currently accounts for about 5% of total US oil supply, according to the US Energy Information Administration.

    Industry groups, including the Western Energy Alliance, and states, including North Dakota and Wyoming, successfully sued to have the rules overturned.

    In June, US District Court of Wyoming Judge Scott Skavdahl ruled that Interior's fracking rule was "in excess of its statutory authority and contrary to law."

    In his decision, Skavdahl wrote that his decision did not deal with whether fracking is "good or bad for the environment," just whether Interior had authority to regulate the practice.

    Freeman with Earthjustice called Skavdahl's ruling a "legal error," and claimed that BLM was simply updating its regulations for the first time in roughly 30 years.

    "These aren't radical requests," Freeman said. "Most of the requirements are industry best management practices."

    Freeman said that answers from petitioners in the case to the briefs filed last week, including responses from the states and industry groups fighting the rules from taking place, are due by September 16. Replies to those answers are due October 7 and, Freeman said, he expects oral arguments in the case will begin before the end of the year.

    The appeal could be decided in early 2017.
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    Total Lays Off 70 percent Of Its Russian Workforce

    The Russian edition of Forbes Magazine is reporting that French Oil giant Total has laid off 70 percent of its Russian workforce through its office in Moscow.

    The dismissed staff members are said to have two months’ salary in compensation. Russian media reports indicate that 200 out of 600 employees were laid off, and the balance were transferred to the state owned oil company Zarubezhneft.

    Earlier in August, the company transferred 20 percent of its Kharyaga oilfield production-sharing agreement and operator’s functions to Zarubezhneft. As far as the reason behind the transfer, Total CEO Patrick Pouyanne stated: “Amid low crude prices we need optimize our assets as well as put a priority on spending management.” Pouyanne said that an experienced Russian company would be able to establish working relationships with contractors in the area.

    Among the reported reasons for the move by Total was a withdrawal from the Kharyaga project and sanctions from the west that would prohibit Total from delivering equipment to the project.

    The Russian edition of Forbes, citing an unnamed employee, said that Total had planned to attract technology from America and Europe to the project, but that sanctions blocked the plans. Total had been the biggest foreign investor in Russian oil prior to selling its stake in the Kharyaga project. The project itself aims to develop a pair of oilfields in the Nenets Autonomous region, which produced 1.5 million tons of crude in 2014.

    In related news, while Total is in the process of pulling out of the Kharyaga project, Russian oil company Rosneft said last week that its overall hydrocarbon production for the second quarter of 2016 was up due to that country’s drilling boom. Oil production for the second quarter was at 4.1 million barrels per day, which is 0.5 increase from the prior period.
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    Northern Iraq crude oil exports dive on pipeline outages, oil field attacks

    Oil flows through the Kurdistan Regional Government's export system fell sharply in early August due to pipeline outages and production declines following recent attacks on an oilfield in northern Iraqi, a number of sources have confirmed.

    While the recent pipeline outages were due to a technical glitch which may already have been rectified, analysts expect the loss of output from the Bai Hassan oil field, where saboteurs have damaged production facilities and heightened concerns for future security, to last for months.

    The KRG's pipeline to Turkey, which is the only pipeline currently exporting crude from northern Iraq, has been down for about 80 hours so far this month, an international oil company official familiar with pipeline operations said.

    The outages have been caused by an electricity transmission malfunction at the PS-3 pumping station in Silopi, just over the border in Turkey, said the IOC official, an industry official in Erbil, and an industry official at Turkey's Ceyhan port.

    In July, the export pipeline sent 511,000 b/d of crude to market, the KRG Ministry of Natural Resources reported in early August.

    The pipeline first went down on the afternoon of August 5, the Ceyhan official said. He and the IOC official said exports resumed briefly on the morning of August 7, but only for a few hours.

    Exports came back online early August 9, initially flowing at 458,000 b/d, the Ceyhan official said.

    Temporarily bolstered by crude from storage built up at producing fields during the pipeline outages, exports had risen to 573,000 b/d by Thursday but were unlikely to stay at that rate, the official said.

    Assuming the pipeline stays online, KRG exports for the rest of this month are expected to be significantly lower than the July average following a July 31 attack on the 170,000-180,000 b/d Bai Hassan oil field northwest of Kirkuk.


    The field lies outside the semi-autonomous Kurdistan region's official border with the rest of Iraq, but for the past two years has been contributing to export flows through the KRG pipeline, after repeated sabotage attacks by insurgents closed the Iraqi federal government's northern export pipeline. Bai Hassan has been operated by the KRG since late 2014, following the Islamic State group insurgency in much of northern and western Iraq that peaked in summer of that year

    The July 31 attack, which authorities have also attributed to IS, caused the 70,000 b/d southern section of the field to be shut down, several officials familiar with operations said. Bai Hassan South remains offline, industry officials said.

    A subsequent attack August 10 struck a different section of Bai Hassan but had a negligible effect on production. Saboteurs also planted improvised explosive devices along the pipeline connecting Bai Hassan and the Avana Dome of the Kirkuk field to the KRG export system, Kirkuk security officials said.

    In response to the loss of Bai Hassan crude exports, the KRG ministry of natural resources has redirected some crude production previously earmarked for domestic consumption to the export pipeline.

    The 100,000 b/d Kalak refinery near Erbil, the Kurdistan regional capital located less than 100 km north of Kirkuk, has been offline since August 4 due to lack of feedstock, government and industry officials in Erbil said. The refinery had been taking between 30,000 and 40,000 b/d from the KRG-operated Khurmala Dome of the Kirkuk field, but that production has been diverted to the export pipeline.

    The KRG's other major refinery, Bazian, located in the east of the Kurdistan region, is also operating at reduced capacity due to the crude diversions. An industry official briefed on operations at Bazian said the refinery had recently been taking between 20,000 and 25,000 b/d of crude for processing and would likely be operating at that level until Bai Hassan's production recovers.

    Bazian's current capacity is at least 40,000 b/d. In 2014, Qaiwan Group, the local company that owns and operates the refinery, announced plans to increase that to 125,000 b/d by 2018.

    In another setback for the KRG, which depends almost exclusively on crude export revenues to finance government operations, the quality of KRG export crude has suffered following the attacks on Bai Hassan. The IOC official said recent loadings at Ceyhan, the current delivery point for all KRG crude exports, have had a higher API gravity, higher sulfur content and more water than usual.
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    Cheniere files for permit to begin commissioning of Sabine Pass LNG Train 3

    Cheniere files for permit to begin commissioning of Sabine Pass LNG Train 3

    The Houston-based Cheniere Energy filed a request with the United States Federal Energy Regulatory Commission to introduce fuel gas and begin commissioning activities for Train 3 at the Sabine Pass LNG terminal.

    According to the filing, the company requested the approval to introduce gas to Train 3 to be granted no later than August 19.
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    Oil halted below $46 a barrel after the biggest three-day gain since April.

    Futures slid as much as 0.7 percent in New York after rising 9.7 percent the previous three sessions following comments by Saudi Arabia’s energy minister that it’s prepared to discuss stabilizing the market. Nigerian Petroleum Minister of State Emmanuel Kachikwu signaled that production cuts are unlikely from OPEC, according to a Twitter post. U.S. crude stockpiles probably rose for a fourth week, a Bloomberg survey shows before government data Wednesday.

    Oil has gained about 15 percent since closing below $40 a barrel and tumbling into a bear market earlier this month. Russia is open to talks to jointly freeze output “if necessary,” according to a newspaper report. A possible deal on capping production between members of the Organization of Petroleum Exporting Countries and non-member producing countries was first flagged in February but deal discussions in April ended with no final accord.

    “The OPEC comments have caught the market’s attention, but history would suggest that nothing will happen,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “While falling U.S. supply has helped to narrow the surplus, OPEC hasn’t helped. The group has continued to pump. It’s really only disruptions that have reduced supply.”

    West Texas Intermediate for September delivery lost as much as 32 cents to $45.42 a barrel on the New York Mercantile Exchange and was at $45.51 at 12:18 p.m. in Hong Kong. The contract climbed $1.25 to $45.74 on Monday, capping the biggest three-day gain since April 12. Total volume traded was about 32 percent below the 100-day average.

    Output Freeze

    Brent for October settlement slid as much as 37 cents, or 0.8 percent, to $47.98 a barrel on the London-based ICE Futures Europe exchange. Prices added 2.9 percent to close at $48.35 on Monday, the highest settlement since July 12. The global benchmark crude traded at a $1.93 premium to WTI for October delivery.

    Russia sees no signals that Iran will change its position on a production cap and agree to an output freeze, Interfax reported, citing a diplomatic source close to the talks whom the news service didn’t identify. Russian Energy Minister Alexander Novak told Arabic-language newspaper Asharq Al-Awsat that the nation was open to cooperating to stabilize markets after Saudi Arabian Energy Minister Khalid Al-Falih said that talks in Algiers may result in action.

    OPEC members will discuss the market when they gather for the International Energy Forum in Algeria next month, according to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.
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    Libyan Forces Under Haftar Move Closer to Zueitina Oil Terminal

    Libyan forces loyal to eastern-based military commander Khalifa Haftar have entered Zueitina and established a presence about 10 kilometers (6 miles) from the city’s oil terminal.

    Photos on local media websites showed a small number of Haftar’s Libyan National Army troops arriving to cheers. The port is under force majeure and is controlled by the Petroleum Forces Guards linked to the United Nations-backed unity government, or GNA, in Tripoli.

    Haftar spokesman Ahmed Mismari said in a news conference on Aug. 11 that his force wasn’t planning to capture the port and only wanted to protect Libya’s wealth. He couldn’t be reached on Monday to explain why LNA troops had moved from positions they held over the weekend, something Mismari had earlier ruled out.

    Nearly nine months after the unity government was formed in Tunis and four months since Prime Minister Fayez al Serraj arrived in Tripoli, Libya remains divided. In June, UN envoy Martin Kobler told the Security Council that a buildup of armed forces in the so-called oil crescent raised the possibility of conflict between groups that had gathered there to confront Islamic State.

    Six Western countries -- Germany, Spain, the U.S., France, Italy and the U.K. -- on Aug. 8 called for all parties to avoid any damage to oil infrastructure at Zueitina.

    Oil Slump

    Libya’s oil output has dropped 85 percent as factions fought for control of natural resources during the five years since the ouster of Muammar Qaddafi. As a result foreign-currency reserves have plunged, deficits widened and now worsening living conditions are causing unrest.

    Zeid Ragas, an independent analyst based in Benghazi, said any attempt by Haftar to take Zueitina port would be self-destructive.

    “The move was made by Haftar to widen his control on the ground and overcome achievements made by the GNA across the country," he said. “But with warnings by the international community and tribes in the area, any action is going to be suicidal."
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    Atlantic Coast Pipeline Makes Progress, FERC Timing Announced

    More good news for Dominion’s $5 billion, 594-mile Atlantic Coast Pipeline–a natural gas pipeline that will stretch from West Virginia through Virginia and into North Carolina.

    In March MDN reported Dominion has agreements for 96% of the capacity along the 1.5 billion cubic feet per day pipeline. Not only that, but 90% of the landowners along the pipeline’s proposed route have granted Dominion survey access and many of them have signed easements allowing Dominion to build the pipeline across their land.

    The new news is that the Federal Energy Regulatory Commission (FERC) has set June 30, 2017 as the date by which the agency will issue their final environmental impact statement for the project.
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    Did Putin just spoil the Oil party?

    Did Putin just spoil the Oil party?  


    This whole ramp was driven by chatter of Russia and Saudis talking which has now been denied...
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    Rosneft Second-Quarter Profit Falls 34% as Oil Recovery Stalls

    Rosneft PJSC’s second-quarter profit decreased about 34 percent, coming in better than analysts estimated, even as a recovery in oil prices sputtered out at below last year’s price levels.

    Net income fell to 89 billion rubles ($1.4 billion) in the second quarter from 134 billion rubles a year earlier, according to the Moscow-based company. That was higher than the 83 billion-ruble average estimate of nine analysts surveyed by Bloomberg News. Revenue dropped 7.9 percent to 1.23 trillion rubles.

    A rout in commodities prices has Russia facing its second year of recession. The government is considering selling nearly 20 percent of Rosneft, the nation’s biggest company, as early as this year to help fill a gap in its budget. State finances have borne the brunt of oil’s crash. The companies themselves have been sheltered by a progressive tax system.

    Earnings before interest, taxes, depreciation and amortization were 348 billion rubles, according to the statement. That compared with an analyst estimate of 307 billion rubles.

    Free cash flow came in at $1.3 billion, while Sberbank CIB estimated just below $1 billion in an Aug. 9 note. Net debt fell to $23.4 billion from $23.9 billion at the end of the first quarter.

    Rosneft is targeting higher spending this year as higher oil prices boosted the bottom line of the Russian state-owned oil company in the second quarter.
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    Iraq Oil Chief Sees End to Kurd Dispute as War Hurts Output

    Jabbar al-Luaibi, the former head of Iraq’s biggest crude producer who was appointed oil minister on Monday, said that he sees ways to resolve the energy dispute with the self-governed Kurds in the north of OPEC’s No. 2 producer.

    Al-Luaibi’s appointment was approved by parliament on Monday as part of a government reshuffle, according to a statement by deputy parliament speaker Humam Hamoudi. Al-Luaibi is former head of the state-owned South Oil Co. which produces most of the country’s crude. He replaces Adel Abdul Mahdi who had suspended his participation in the cabinet in March, citing disarray in government ministries.

    The new minister told local news service Alsumaria soon after his appointment that there are “various ways to resolve” the conflict with the Kurdish region of Iraq which has split control of the country’s crude exports. He also said that Iraq will seek local investment to develop its natural gas industry.

    Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, holds the world’s fifth-largest oil reserves. The drop in crude prices over the past two years has squeezed state revenue as the government waged a costly campaign against Islamic State militants who have seized parts of northern Iraq. Iraq produced 4.36 million barrels a day in July compared with 4.44 million at the end of last year, according to data compiled by Bloomberg.

    Crippled Exports

    Prime Minister Haidar al-Abadi said the cabinet reshuffle was part of reforms, according to a statement on his website. Al-Abadi’s efforts to shuffle the cabinet have been repeatedly blocked by lawmakers.

    More than 13 years after the U.S.-led invasion that ousted former President Saddam Hussein, Iraq’s finances are being drained by the oil-price plunge and the political bickering that has delayed efforts to tackle graft and sectarian divisions. The country has lost sales and revenue from its northern region as a payments dispute with the Kurds and interruptions to the flow of oil for export through a pipeline to Turkey have crippled shipments.

    Al-Luaibi, who has a bachelor of science in chemical engineering, has worked in Iraq’s oil business since 1973, according to a copy of his resume provided by his office.
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    Hedge funds add bullish positions in oil as short-covering rally starts

    Hedge funds increased their bullish long positions in crude oil by the most for over two months in the week ending on Aug.9.

    Hedge funds and other money managers boosted net long positions in the three major Brent and WTI futures and options contracts by the equivalent of 48 million barrels.

    The increase in net long positions was the largest since the middle of May and comes after hedge funds cut net long positions by a total of 309 million barrels between May 17 and Aug. 2.

    Hedge fund managers seem to have reacted to the prospect of a short-covering rally after short positions reached exceptionally high levels ("Oil short-selling cycle may be at or near a turning point", Reuters, Aug 10).

    Hedge funds had previously amassed short positions in Brent and WTI totalling 374 million barrels, the third-largest short position on record and only 19 million barrels below the maximum short position ever recorded.

    The scale of short positions made a rally highly likely once prices stopped falling and funds started close some positions to lock in previous profits.

    In the week between Aug. 2 and Aug. 9, hedge funds continued to add an extra 1.5 million barrels of short positions in NYMEX WTI.

    But that was a much smaller increase in short positioning than during the previous weeks, when hedge funds added an average of 35 million barrels of short positions per week.

    And in Brent, hedge funds cut short positions by 19 million barrels, the largest one-week reduction since January.


    With short covering creating a strong bid in the market, other fund managers raced to add fresh long positions to profit from the expected rally in prices.

    Hedge funds added an extra 19 million barrels of long positions in WTI and 11 million barrels of long positions in Brent, according to data published by regulators and exchanges.

    The rise in combined Brent and WTI long positions was the largest one-week increase since the middle of May.

    The short-selling cycle that lasted from May 31 until Aug 2 now appears to have turned.

    Both Brent and WTI prices have increased by more than $5 per barrel, around 13 percent, since Aug. 2, as hedge funds have scaled back short positions and started to turn more bullish.


    The short-covering rally has been accelerated by carefully timed comments from Saudi Arabia and other oil exporters seemingly talking up the possibility of an output agreement at informal talks next month.

    In official comments published on Saturday, after leaking on Thursday, Saudi Energy Minister Khalid al-Falih noted "the large short positioning in the market" which has "caused the oil price to undershoot".

    Al-Falih described current prices as "unsustainable" and said oil prices would have to rise from current levels to reverse the decline in investment.

    He reiterated that Saudi Arabia was watching the market closely and was ready to take action to help rebalance the market in cooperation with OPEC and major non-OPEC producers.

    Al-Falih specifically noted the ministerial meeting in Algeria next month would provide an informal opportunity to discuss the market situation "including any possible action that may be required to stabilise the market".

    While the comments were no different to previous statements made by Saudi officials over the last 12 months, their timing and carefully scripted nature have been interpreted as a deliberate attempt to influence prices.

    By hinting at the possibility of an output agreement, the minister's verbal intervention has added to the short-term risk of holding short positions and fuelled the rally.
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    Forecast FLNG spend of over $41 billion following wave of landmark projects

    Despite challenging market conditions, global capital expenditure (Capex) on FLNG facilities is forecast to increase significantly over the 2016-2022 period. The protracted oil price downturn has impacted the sanctioning of capital intensive liquefaction units over the last 24 months. However, the need to move towards cleaner sources of energy and diversify gas supply has stimulated the floating regasification market - over 14 countries are expected to commission their first floating import unit over the forecast period.

    These are some of the findings from Douglas Westwood's (DW) latest World FLNG Market Forecast with global FLNG Capex expected to total $41.6 billion (bn) during 2016-2022, compared with $11.4bn 2011-2015 - an increase of 264%. Report author, Mark Adeosun, commented, 'Liquefaction vessels will account for approximately 59% of forecast expenditure, with the remaining 41% allocated to import and regasification terminals. Near-term growth in expenditure will be predominantly driven by a number of flagship liquefaction projects sanctioned prior to the oil price downturn.

    'Global expenditure is expected to peak in 2017 as the first wave of sanctioned projects come onstream. Reduced project sanctioning will likely impact the market towards the end of the decade - with expenditure forecast to decline significantly in 2019 - before stagnating over the 2019-2021 period. Long term prospects are positive; a marginal uptick in spending is expected in 2022 driven by the sanctioning of a second wave of capital intensive liquefaction projects. Over the forecast period, Africa and Asia will be key areas for liquefaction and regasification units - with both regions accounting for 54% of total global expenditure. Spend in Australasia is set to decline post 2018 after the installation of the Prelude FLNG.

    'Despite near-term concerns, the long-term viability of FLNG technology is clear. In the decades ahead, natural gas will continue to play an increasingly important role in meeting global energy demand. Furthermore, the rising cost of onshore development terminals and the shorter lead times of floating units make the technology a viable option in the current market environment.'

    Attached Files
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    Only special Russian decree could bar Rosneft from Bashneft sale - ministry letter

    Russia's Economy Ministry has advised Prime Minister Dmitry Medvedev he would have to issue an unprecedented special decree if he wants to bar state-controlled oil major Rosneft (ROSN.MM) from the privatization of a mid-sized energy group, according to a letter seen by Reuters.

    The planned auction of a 50 percent stake in state-owned oil producer Bashneft (BANE.MM) later this year will pit some of Russia's most powerful businessmen, executives and officials against each other if Rosneft and other state-controlled groups are allowed to participate.

    The sale is designed to plug holes in the government budget caused by a slump in oil prices and Western sanctions imposed over Russia's actions in Ukraine.

    However, the interest shown by Rosneft, whose head Igor Sechin is a close ally of President Vladimir Putin, has drawn criticism from some government officials who have said this would essentially involve the state transferring assets from one firm to another.

    Rosneft argues its involvement would boost competition and the price the government can fetch for Bashneft.

    Deputy Prime Minister Arkady Dvorkovich and some other officials have opposed the idea of allowing Rosneft to take part but Putin - who holds the ultimate say-so over such major decisions in Russia - has so far stayed silent on the subject.

    Rosneft has said it is considering a bid for Bashneft, which produces around 20 million tonnes of oil a year. If it goes head, Sechin is likely to be up against Vagit Alekperov, one of Russia's richest men whose private group Lukoil (LKOH.MM) is interested in buying all of the company.

    In its letter to Medvedev, dated Aug. 10, the Economy Ministry said the government has no legal grounds for stopping state-controlled groups such as Rosneft from bidding.

    "It is possible to set additional criteria to limit the participation in the transaction of entities directly or indirectly controlled by the state ... based only on a separate decree by the government," it said.

    The economy ministry was not immediately available for comment.


    The letter gave no indication of Medvedev's views on the issue. But if such a decree were issued, it would be a setback for Sechin and would leave Lukoil, Rosneft's main rival, as the main contender to buy Bashneft.

    Lukoil has said it would not overpay for the company, whose market capitalization is around $10 billion. Lukoil says it values the firm at no more than $4.0-$4.5 billion.

    If the government decided against issuing such an order, it would turn the Bashneft privatization into one of Russia's most hotly contested auctions of the past decade and could allow Sechin to expand his giant firm further.

    Russia also plans to sell a minority stake of 19.5 percent in Rosneft to reduce its budget deficit.

    Sechin argues that Rosneft's participation would increase competition at the Bashneft auction. Rosneft became the world's largest listed oil producer by output in 2013 when it acquired Anglo-Russian oil company TNK-BP for $55 billion.

    The economy ministry's letter to Medvedev cites a letter from Sechin to the ministry from Aug. 5 as saying that if Rosneft were banned from the privatization it could see its shares fall and possibly draw law suits from its minority shareholders.

    Sechin also argues that if Rosneft were allowed to purchase Bashneft, it would create synergies of around 160 billion rubles ($2.5 billion) and result in higher revenues for the government when the Rosneft stake is sold.

    Rosneft declined to comment.

    Russia appointed state-controlled bank VTB Capital (VTBR.MM) as its agent to sell Bashneft. VTB has invited around 10 potential bidders including state-controlled Gazprom, Tatneft and the Russian Direct Investment Fund.

    If the government banned all state firms from bidding, this would leave Lukoil as well as mid-sized firms Russneft, Independent Petroleum Company, Tatneftegas, Energia and the Antipinsky refinery among remaining bidders.
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    Chesapeake arranges $1 billion loan to buy back senior notes

    Chesapeake Energy Corp, the second-largest U.S. natural gas producer, said on Monday that it had arranged a $1 billion 5-year term loan that it would use to buy back senior notes due between 2017 and 2038.

    The company, whose total debt stood at about $8.68 billion as of June 30, said it had commenced tender offers to buy back $500 million of convertible senior notes due 2037 and 2038.

    The company said it also commenced tender offers to buy back another $500 million of senior notes due between 2017 and 2023.

    Chesapeake said Goldman Sachs Bank USA, Citigroup Global Markets Inc and MUFG helped arrange the term loan.

    The company last week announced the sale of its Barnett shale acreage in Texas and said it renegotiated an expensive pipeline contract, steps estimated to save it more than $1.9 billion in future liabilities.
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    Santos flags $1.05 billion GLNG impairment

    Santos flags $1.05 billion GLNG impairment

    Australian LNG operator Santos on Monday said it is writing down the value of its GLNG project in Queensland due to low oil and gas prices.

    Santos expects to recognise an impairment charge against the carrying value for its GLNG project of about US$1.05 billion after tax ($1.5 billion before tax) in its 2016 half-year accounts.

    The impairment outcome is subject to finalisation of the half-year accounts, which will be released on August 19, Santos said, adding it will be a non-cash charge and will “not affect the company’s debt facilities.”

    According to Santos, during the course of this year there has been a slower ramp up of GLNG equity gas production and an increase in the price of third party gas. This has caused the Australian LNG operator to adjust its upstream gas supply and third party gas pricing assumptions for GLNG, Santos said.

    “The expected impairment charge for GLNG is clearly disappointing but it is a consequence of the challenging environment which we now face. We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment,” said Santos chairman Peter Coates.

    “However, we firmly believe in the strong long-term growth of LNG consumption and demand globally. GLNG will continue to be an important part of our LNG portfolio and a key supplier of LNG to the Asian market,” Coates said.

    Santos started producing the chilled fuel from the first GLNG train on Curtis Island in September 2015. The second train at the $18.5 billion GLNG project started producing liquefied natural gas in May this year.

    The company has a 30% interest in Australia’s GLNG. Other co-venturers include Petronas (27.5%), Total (27.5%) and Kogas (15%).

    Santos reported earlier this year a net loss of A$2.7 billion ($1.93 billion) for 2015, after booking A$2.8 billion in impairment charges also blaming low oil and gas prices.

    The impairment charges related to the company’s Cooper Basin gas producing assets, GLNG assets and Gunnedah Basin assets,

    “Low oil and gas prices continue to challenge our upstream business and the entire oil and gas industry,” Santos chief executive Kevin Gallagher said in the statement on Monday.

    “We will continue to maintain a disciplined approach to capital allocation, reducing costs and seek opportunities to optimise our asset portfolio in a manner that delivers value to shareholders.”
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    China's July refinery throughput retreats from record highs

    China's July refinery throughput retreats from record highs

    China's refinery throughput in July retreated from the previous month's record highs as refiners lowered runs because of weak domestic demand, a trend that could extend into August when many state-owned and independent refiners are likely to undergo maintenance.

    After surging to a historical high of 11.02 million b/d in June, China's refinery throughput in July took a breather, easing 2.7% month on month to 10.72 million b/d, although it was 2.5% higher from July 2015, S&P Global Platts calculations based on preliminary data released Friday by the National Bureau of Statistics showed.

    The country processed 45.32 million mt of crude in July, NBS data showed.

    On a b/d basis, throughput in July was slightly lower than the average 10.73 million b/d over the first seven months. China refined 311.86 million mt of crude oil over January-July, up 2.5% from the same period last year, NBS data showed.

    NBS does not release its methodology for the statistics, but market observers said that the data covered throughput from all state-owned refineries as they are required to submit all their operational data to the the bureau, and covers some data from independent refiners which may or may not submit the full data.


    A monthly survey by Platts in July had shown that 26 of China's largest state-owned refineries, operated by Sinopec, PetroChina and China National Offshore Oil Corporation, planned to run their plants at an average 81% of nameplate capacity, up one percentage point from 80% in June, because Sinopec had planned to lift throughput ahead of maintenance at its Tianjin, Qilu and Shanghai refineries.

    But it likely did not happen.

    "The plants have flexibility to adjust their refining plans according to the market situation, which remained weak last month," said a source with a Sinopec refinery.

    The cut in oil product prices also discouraged refining.

    A Shanghai-based analyst said: "The cut in oil product prices in second-half July also discouraged refining."

    China on July 21 announced a cut in guidance retail prices for gasoline and gasoil by Yuan 155/mt ($23.33/mt) and Yuan 150/mt, respectively. It was the first price cut since January 13.

    The country's independent refineries in Shandong also reduced their throughput in July by 7% month on month because of maintenance and poor domestic sales, Platts has reported.

    Domestic sale of gasoline and gasoil from Shandong-based independent refineries registered month-on-month declines of 8.87% and 9%, respectively, in July, Platts calculations based on data from Beijing information provider JYD showed.

    Looking forward, throughput in August is expected to fall further because of additional maintenance plans both at state-owned and independent refineries, analysts said.

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    Brazil’s Petrobras cuts LNG imports by 56 pct

    Brazil’s Petrobras cuts LNG imports by 56 pct

    Brazil’s state-controlled oil and gas company Petrobras said its liquefied natural gas imports dropped by 56% in the first half of this year.

    Petrobras attributed this decline to higher domestic gas supply and lower thermoelectric demand in Brazil.

    LNG imports into Brazil stood at 54 Mbbl/d (thousand barrels per day), as compared to 122 Mbbl/d in the same period a year before, Petrobras said in its second-quarter report.

    Petrobras is aiming to reduce its role in the Brazilian natural gas and LNG industry. The company recently announced it will sell its LNG terminals in Rio de Janeiro and Ceará, along with the thermoelectric power plants associated with these terminals.

    The Brazilian company also said it is selling its LPG distribution unit, Liquigás Distribuidora.

    Petrobras’ net income fell 30 percent to 370 million reais ($118 million) in the second-quarter compared with a profit of 531 million reais a year earlier, according to the report.
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    Oil Bulls Take Heart as OPEC Rekindles Output Freeze Hopes

    All it took was a few words from OPEC to encourage oil bulls.

    Money managers increased wagers on rising crude prices by the most since January as futures rebounded from a three-month low. Prices jumped after OPEC’s president said Aug. 8 the group will hold informal talks in Algiers next month and Saudi Arabia signaled Aug. 11 it’s prepared to discuss taking action to stabilize markets.

    "The statement certainly achieved its purpose," said Daniel Yergin, vice chairman of IHS Markit. "The Saudis saw bearish bets had really driven down the prices."

    Talks between OPEC members and other producers may result in action to stabilize the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said. Members of the Organization of Petroleum Exporting Countries are in “constant deliberations,” according to a statement on OPEC’s website attributed to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.

    Hedge funds bolstered their long position in West Texas Intermediate crude by 17,154 futures and options combined during the week ended Aug. 9, according to the Commodity Futures Trading Commission. WTI rose 8.3 percent to $42.77 a barrel in the report week. Prices gained 0.8 percent to $44.85 a barrel as of 1 p.m. Hong Kong time on Monday after posting the biggest weekly gain since April.

    "The Saudis are very conscious of the financial markets and how they exaggerate price moves," Yergin said.

    Differences between Saudi Arabia and Iran caused the demise of a proposal to freeze production at an April summit in Doha. The kingdom insisted it wouldn’t restrain output without commitments from all OPEC members, including Iran, which has boosted crude production and exports after years of sanctions were lifted in January.

    "A freeze may be on the table, maybe more," said Mike Wittner, head of oil market research at Societe Generale SA in New York. "The Saudi comments leave the door open to anything, as opposed to Doha where they killed the deal. The fact that the Saudis are open to any action is an important signal. The Iranians have pretty much done what they wanted to do, which will make them more open, and the Saudis seem open as well."

    Refinery Demand

    Refiners around the world will process a record 80.6 million barrels a day of crude this quarter to absorb all-time high production from several Persian Gulf producers, the International Energy Agency said Aug. 11.

    "The market is moving towards balance with a huge overhang," Yergin said. "We see supply and demand roughly in balance, and if there are no additional disruptions prices should be in the mid $50s next year."

    Rising U.S. crude stockpiles and weakening demand from the nation’s refineries may weigh on prices. Crude supplies rose 1.06 million barrels million as of Aug. 5, Energy Information Administration data show. Over the past five years, refiners’ thirst for oil has fallen an average of 1.2 million barrels a day from July to October.

    Money managers’ long position in WTI rose to 322,594 futures and options, the highest since May 2015, CFTC data show. Shorts, or bets on falling prices, increased 0.7 percent and were at a record for a second week. Net longs advanced 18 percent, the biggest jump since March.

    "The Saudi statement could mean anything," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "They said that there will be informal meeting of OPEC members on the sidelines. That could be anything from coffee and cake on a terrace to a closed-door meeting to decide on specific production proposals."
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    U.S. oil drillers add most rigs since December in longest streak in two years

    U.S. drillers this week added oil rigs for a seventh consecutive week, the longest recovery streak in the rig count in over two years, even as analysts revise down rig count growth forecasts and energy firms become more cautious the longer crude holds below $50 a barrel.

    Drillers also added the most oil rigs since December with 15 rigs activated in the week to Aug. 12, bringing the total rig count up to 396, compared with 672 a year ago, energy services firm Baker Hughes Inc said.

    That is the longest streak of rig additions since April 2014 when U.S. oil futures averaged over $100 a barrel. Since July 1, drillers have added 66 oil rigs.

    U.S. crude futures were up almost 2 percent to over $44 a barrel, putting the contract on track for a weekly gain near 6 percent, its biggest weekly increase since April, after it fell below $40 last week. [O/R]

    Prices, however, are still far from the key $50 level hit in June that analysts and drillers said would prompt a return to the well pad after nearly two years of severe cuts in the rig count amid the worst price rout in a generation.

    "Consensus among exploration and production companies, service companies, and land drillers is for a 'lower-slope' recovery, with concerns of the direction of oil prices still lingering, especially with the recent dip below $40 after averaging $48 in the middle of summer," analysts at Barclays said in a report this week.

    The bank said it still expects a modest increase in rig additions heading into the end of the year and through the first quarter of 2017, but revised down its total oil and natural gas rig forecast to an average of 480 from the 495 it projected in March.

    That, however, is not much higher than the average 477 oil and gas rigs that Baker Hughes said were active since the start of the year. In 2015, the total rig count averaged 978.

    Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast total rigs would average 489 in 2016, 680 in 2017 and 957 in 2018. That is a slight reduction from last week when Simmons forecast rigs would average 491 in 2016, 683 in 2017 and 961 in 2018.

    Since total rigs fell to 404 in May, the lowest since 1940, Baker Hughes said more than two-thirds of the additions have been in the Permian basin in west Texas and eastern New Mexico, the nation's largest shale oil play.

    Of the 481 total rigs active in the United States, 189 are in the Permian, the most in that basin since January.
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    Saudi Minister hints at market rebalance

    Saudi Energy Minister Kahlid al-Falih made remarks suggesting Saudi Arabia might be willing to revisit talks with members of the Organization of Petroleum Exporting Countries and other producers on limiting production.

    “If there is a need to take any action to help the market rebalance, then we would, of course in cooperation with OPEC and major non-OPEC exporters,” al-Falih said.

    Some analysts remain skeptical that Saudi Arabia would support a collective production cap. An April meeting between OPEC and non-OPEC producers failed to reach any such agreement.

    But future talks on the same topic are being discussed. Qatar’s Energy Minister and OPEC Pres. Mohammed bin Saleh al Sada has said cartel members will participate in such talks Sept. 26-28 on the sidelines of the International Energy Forum in Algeria.
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    Big Dakota pipeline to upend oil delivery in U.S.

    It may seem odd that the opening of one pipeline crossing through four U.S. Midwest states could upend the movement of oil throughout the country, but the Dakota Access line may do just that.

    At the moment, crude oil moving out of North Dakota's prolific Bakken shale to "refinery row" in the U.S. Gulf must travel a circuitous route through the Rocky Mountains or the Midwest and into Oklahoma, before heading south to the Gulf of Mexico.

    The 450,000 barrel-per-day Dakota Access line, when it opens in the fourth quarter, will change that by providing U.S. Gulf refiners another option for crude supply.

    Gulf Coast refiners and North Dakota oil producers will reap the benefits. Losers will include the struggling oil-by-rail industry which now brings crude to the coasts.

    The pipeline also will create headaches for East and West Coast refiners, which serve the most heavily populated parts of the United States and consume a combined 4.1 million barrels of crude daily. They will have to rely more on foreign imports.

    The pipeline, currently under construction, will connect western North Dakota to the Energy Transfer Crude Oil Pipeline Project (ETCOP) in Patoka, Illinois. From there, it will connect to the Nederland and Port Arthur, Texas, area, where refiners including Valero Energy, Total and Motiva Enterprises operate some of the largest U.S. refining facilities.

    "That's a better and cheaper path than going out West and down through the Rockies," said Bernadette Johnson, managing partner at Ponderosa Advisors LLC, an energy advisory based in Denver.


    Moving crude by pipeline is generally cheaper than using railcars. The flagging U.S. crude-by-rail industry already is moving only half as much oil as it did two years ago: volumes peaked at 944,000 bpd in October 2014, but were around just 400,000 bpd in May, according to the U.S. Energy Department.

    Rail transport has become less economical for East and West Coast refiners when compared with importing Brent crude, the foreign benchmark, because declining supply out of North Dakota made that grade of oil less affordable.

    "If you look at the Brent to Bakken arb, it's tight," said Afolabi Ogunnaike, a senior refining analyst at Wood Mackenzie in Houston. "If you look at the spot rate, it's uneconomical to move crude by rail right now."

    Ponderosa Advisors estimated that the start-up of the pipeline could reroute an additional 150,000 to 200,000 bpd currently carried by rail to the U.S. East Coast and Gulf Coast.

    Crude imports into the East Coast are now on the rise, averaging 788,000 bpd this year, with nearly 960,000 bpd in July, the highest level in three years, according to Thomson Reuters data.

    On the West Coast, refiners like Shell, Tesoro and BP may have to commit to some railed volumes for longer because of shipping constraints, although it will largely depend on rail economics. They also face declining output from California and Alaska.

    Tesoro's top executive Gregory Goff told analysts and investors last week he expects rail costs to drop as much as 40 percent from the current $9-to-$10 barrel cost to compete with pipelines, in order to move Bakken to its Anacortes, Washington, refinery.


    Rail companies have been trying to adapt. CSX Corp, which runs a network of lines in the eastern part of the country, said it was evaluating potential impacts of the pipeline. BNSF Railway declined to discuss future freight movements, but said that at its peak, it transported as many as 12 trains daily filled with crude, primarily from the Bakken. Today, it is moving less than half of that.

    In a recent earnings call, midstream player Crestwood Equity Partners said it was working to capitalize on the pipeline and not be dependent on loading crude barrels onto trains. That includes building an interconnection to its 160,000 barrel-per-day COLT crude rail facility in North Dakota.

    As refiners bring in more barrels from overseas, Brent's premium over U.S. crude will eventually widen. On Thursday, December Brent futures settled at a 97-cent premium to U.S. crude, one of its widest premiums this year.

    Separately, Bakken crude, a light barrel, could rise further due to the additional competition, especially as production is still falling. Bakken differentials hit a six-month low earlier this week of $2.65 a barrel below WTI, according to Reuters data, but rose to a $1.80 a barrel discount by Thursday.
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    U.S. oil more resilient than thought

    Some of the oil reserves in the United States may be more resilient to weak oil prices and show slow, but steady, production gains, a federal report finds.

    A review from the U.S. Energy Information Administration finds global tight oil, a lighter grade of crude oil found typically in shale deposits, is expected to double by 2040 to about 10.4 million barrels per day. Most of that, the report found, will come from the United States.

    "United States tight oil production, which reached 4.6 million bpd in March 2015, but fell to 4.1 million bpd in June 2016, has proven more resilient to low oil prices than many analysts had anticipated," the report read.

    In its reference case, EIA estimates total U.S. tight oil production reaches 7.1 million bpd by 2040.

    EIA made a similar conclusion in June regarding shale natural gas. About half of all of the natural gas produced in the United States comes from shale gas reserves or is associated with so-called tight oil basins. Much of that comes from lucrative shale beds like the Eagle Ford basin in Texas and the Bakken play in North Dakota.

    The EIA's analysis found that, through 2040, total U.S. production from shale gas and tight oil more than doubles to 29 trillion cubic feet, accounting for about 69 percent of total output of natural gas in the country.

    Lower energy prices, off about 4.7 percent from this time last year even after recovering 68 percent from this year's lows, have robbed energy companies of the revenue needed for robust exploration and production programs. Nevertheless, most have said they expect to produce more as their operations become more efficient.

    Continental Resources, one of the largest stakeholders in the Bakken shale oil basin in North Dakota and Montana, said its production expenses were lower than it previously estimated by 11 percent. Based on that, the company said it expects to produce an average full-year production of around 215,000 barrels of oil equivalent per day, an increase of 5,000 boe per day from its previous estimate.

    North Dakota's government said oil production could stay above 1 million bpd through next year if oil prices stay around $45 per barrel. It set a record in December 2014, when oil traded in the $60 range, at 1.23 million bpd.

    Higher production volumes and sluggish global economic growth is keeping oil prices relatively lower. By 2040, EIA in its reference case estimates a price for Brent crude oil at $136 per barrel, a price last reached less than a decade ago.
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    Hike in Saudi Arab Extra Light crude oil supply to weigh on Murban, DFC: traders

    Saudi Arabia plans to increase production of Arab Extra Light crude in coming weeks, which could translate to weaker spot differentials for similar grades in the Middle East, market participants said Friday.

    Industry sources had said earlier this month that the production of Arab Extra Light crude was expected to rise by about 200,000 b/d from September, though Saudi Aramco could not immediately be reached for comment.

    "[Saudi Aramco's] October supply volumes [of Arab Extra Light] to term lifters would be increased... or perhaps some term customers may want to lift additional volumes if the incremental cost is lower than what they would have to pay to grab additional [light sour crude] barrels in the spot market," said a North Asian sour crude trader with knowledge of allocations in Saudi Arabian term crude liftings.

    The talk of higher Saudi output emerged soon after Saudi Aramco slashed the September official selling price differentials for its crudes bound for Asian buyers early in the month.

    At the start of the month, Aramco cut the OSP of its Arab Light crude loading in September and bound for Asia by $1.30/b, making it the lowest price since January. The September OSP of Asia-bound Arab Super Light crude was cut by 80 cents/b from August and Extra Light by $1.60/b.

    Market participants said Aramco's bigger-than-expected OSP cuts and the planned fourth quarter output increase suggested that the major Middle Eastern producer was stepping up efforts to remain price competitive in order to appeal to Asian end-users and fend off competition from Europe's North Sea crude suppliers amid a narrowing Brent-Dubai spread.

    The second-month Brent/Dubai EFS -- which enables holders of ICE Brent futures to exchange their Brent futures position for a forward-month Dubai crude swap -- was assessed at $2.58/b Thursday, close to the eight-month low of $2.27/b reached on July 29.

    Regional sour crude traders said Saudi Arabia could also be aiming to sell additional barrels in order to make up for any losses in oil revenue incurred due to the recent sharp pullback in international flat prices, with front-month ICE Brent futures tumbling to three-month lows late last month.

    "Crude prices around and below $40/b would worry many producers, not just the Saudis," said a crude trader based in South Asia.

    Regional traders said Saudi Arabia's plan to increase the production of Arab Extra Light crude later this month, on top of dismal light distillate margins and the narrow Brent-Dubai spread, would likely deter many Asian buyers from Abu Dhabi and Qatari supplies.

    Trading has remained thin in Abu Dhabi's light sour crude market to date, while very little has been heard on pre-tender deals for Qatar's deodorized field condensate and low sulfur condensate for loading in October, a week before Tasweeq's tender closes on August 16.

    "There are more Arab Extra Light crude [available for Q4]," said a Singapore-based crude and condensate trader, adding: "I think a lot of end-users are rushing to secure incremental Saudi barrels first. After that, focus might just turn to light sour Murban and Qatari condensates, maybe." "Buyers are quiet... it might be a very slow trading month [for Qatari condensates]," said a Tokyo-based crude trader. The gap between offers and buying indications for Qatar's DFC was very wide, with several North Asian end-users looking to buy October-loading DFC at a premium of around $1/b to Platts front-month Dubai crude oil assessments, while some suppliers were aiming to sell above Dubai plus $1.70/b, he added.

    In comparison, most DFC cargoes for loading in September received premiums in the range of $1.70-$1.90/b to Dubai crude last month. The expected increase in the production of Saudi Arab Extra Light crude continued to affect sentiment in the broader light sour crude complex in the Middle East, with end-users across Asia adjusting their buying ideas for Murban and Das Blend lower.

    Asked about the near-term price differential outlook for October-loading Murban crude, several traders said the grade could change hands at a discount to Murban's OSP, indicating that sentiment was deteriorating despite ADNOC's recent cuts in OSPs.

    Four regional traders surveyed by S&P Global Platts last week had tipped Murban to trade at a small premium to the grade's OSP this month. "Arab Extra Light supply will be the key [factor for Murban's price outlook] ... the narrow [Brent-Dubai] EFS will certainly do some damage, too," said a Southeast Asian trader.

    Attached Files
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    Experts Say New Marcellus/Utica Drilling “Imminent”

    We’d never heard this before, but apparently the Marcellus/Utica has been known for some time as the “Beast of the East.” Fitting! However, our region has gone from “Beast of the East” to “Beast on a Leash.”

    Very true. Low prices have suppressed new drilling projects. But according to experts on a recent webinar held by S&P Global Platts, new Marcellus/Utica drilling “is imminent.” Now that’s REALLY good news!
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    Sabine Oil & Gas Emerges from Bankruptcy as Private Company

    Sabine Oil & Gas Corporation has confirmed that its Chapter 11 Plan of Reorganization, which was confirmed by the United States Bankruptcy Court for the Southern District of New York July 27, is now effective and revealed that it has emerged from bankruptcy as a private company.

    In conjunction with its emergence from Chapter 11, the company closed on its new senior secured credit facility, which has commitments of $200 million and an initial borrowing base of $150 million, and on its new $150 million second lien term loan.

    The company completed an effective balance sheet restructuring that involved a debt-for-debt exchange, a debt-to-equity conversion, and the issuance of warrants to purchase stock in the newly-formed parent holding company of the reorganized company. Sabine emerged from bankruptcy with a “significantly stronger” balance sheet and “renewed ability to focus on creating value from its compelling asset base,” according to a company statement.

    “Sabine has successfully restructured its balance sheet, addressing its leverage and liquidity needs,” said Sabine Chief Executive Officer David Sambrooks.

    “Throughout this process we have valued and appreciated the support and guidance of our outgoing board of directors as well as our professional advisors. Above all, I am humbled by the dedication and outstanding effort of our employees, and have great optimism for the next chapter of our organization. We look forward to working under the guidance of our new, remarkably experienced board to create value for our new ownership group.”
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    Turkey wants to buy more gas from Iran, resolve price dispute: foreign minister

    Turkey wants to buy more gas from Iran, resolve price dispute: foreign minister

    Turkey wants to buy more natural gas from Iran and has discussed pricing issues, Foreign Minister Mevlut Cavusoglu said on Friday, adding that Ankara and Tehran should resolve a dispute on gas prices without arbitration.

    Cavusoglu made the comment at a joint news conference with his Iranian counterpart, Mohammad Javad Zarif in Ankara. Zarif is on an official visit to Turkey.
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    China crude output falls to five-year low in July

    China crude output falls to five-year low in July

    China's crude oil production in July fell 8.1 percent from a year ago to the lowest since October 2011 on a daily basis, as low prices limit the incentive to keep some wells operating in the world's fourth-largest oil producer.

    Crude output last month was 16.72 million tonnes in July, data from the National Bureau of Statistics showed on Friday. On a daily basis July's production is about 3.94 million barrels per day (bpd), down from June's 4.03 million bpd and the fifth straight month of declines in terms of daily output.

    For the first seven months of 2016, production was down 5.1 percent versus the same period last year to 118.35 million tonnes, or about 4.06 million bpd.

    Dominant domestic producers PetroChina and Sinopec have both projected output declines this year as many of their fields began to operate at a loss, especially during the first quarter when oil prices sank below $40 a barrel.

    Sinopec said in July that their domestic production in the first half of 2016 was down 12.95 percent to 128.38 million barrels, or about 705,000 bpd.

    In addition to production that is not viable economically, China is also grappling with aging oil fields that are increasingly running out of oil and gas.

    Daqing, China's largest field, which produced first oil in 1960, will decline at a rate of 7.2 percent this year, its fastest pace in the last 20 years, according to consultants Energy Aspects.

    Natural gas output last month fell 3.3 percent compared with the year ago period to 10.3 billion cubic meters, though for the first seven months of the year production rose 3.1 percent to 79.4 billion cubic meters, the stats bureau said.

    Throughput at China's oil refineries rose 2.5 percent in July from a year earlier to 45.32 million tonnes, or 10.67 million bpd, according to the bureau. That was down from June's runs of 10.97 million bpd.

    Crude runs in the January to July period rose 2.5 percent year on year to about 10.69 million bpd, according to the data.
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    Alternative Energy

    EPA has not completed required review of biofuel mandate: report

    The U.S. Environmental Protection Agency has not complied with federal requirements to study the effects of the nation's biofuel use mandate, an agency watchdog said on Thursday.

    EPA's Inspector General concluded that the agency has not issued a report to Congress on the environmental impacts of the Renewable Fuel Standard (RFS) since 2011, even though federal law requires that the agency provide a report every three years.

    The RFS, which is administered by EPA, sets the amounts of biofuels, such as ethanol, that must be blended into U.S. gasoline and diesel supplies annually.

    The IG report also said the agency has not evaluated whether the program is causing any harm to air quality and it has no formal process to initiate an update of its data on the life cycle greenhouse gas emissions of biofuels.

    "Not having required reporting and studies impedes the EPA's ability to identify, consider, mitigate and make policymakers aware of any adverse impacts of renewable fuels," the report said.

    EPA said it mostly agreed with the report's findings. The agency said it has "agreed to a set of corrective actions and timelines" to address the report's conclusions.

    The agency estimated that it would complete a report on the impact of the biofuel mandate by the end of 2017.

    The renewable fuel program has faced intense opposition in recent years from oil companies, who argue that the program places undue financial burdens on refiners.

    A spokesman for the American Petroleum Institute said the oil and gas trade group is still reviewing the IG report.

    Some environmental groups have also questioned whether EPA has properly evaluated the life cycle greenhouse gas emissions of corn ethanol to calculate its global warming potential. They say land-use change associated with its production outweighs the environmental benefits of replacing gasoline.

    But, biofuel backers have strongly pushed back against these claims.

    "We are confident that once EPA conducts these required studies, they will show that biofuels like ethanol are significantly reducing greenhouse gas emissions, even above the threshold reductions," said Renewable Fuels Association President Bob Dinneen in a statement.
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    Demand for renewables helps Vestas breeze past forecasts

    Wind turbine maker Vestas posted much higher than expected second-quarter results and lifted its 2016 revenue and profitability forecasts, showing it can exploit growing demand for renewable energy.

    Wind turbine makers are benefiting from a new focus on renewables, encouraged by the Paris global climate summit last year and the extension of a key U.S. tax credit.

    Vestas faces tougher competition from a planned merger of Gamesa and Siemens Wind Power, while China's Xinjiang Goldwind Science & Technology Co Ltd is another rival for market leadership.

    Vestas shares surged as much as 12 percent after second-quarter operating profit before special items increased 175 percent to 399 million euros ($451.4 million), more than double a forecast for 190 million in a Reuters poll of analysts.

    "Volume had a big impact in the quarter as well as a very good execution," Chief Executive Anders Runevad told Reuters, citing high levels of activity and solid margins on projects as primary drivers behind the 46 percent revenue growth.

    "I think we have a shown a good track-record of scaling up production and we have a flexible production set-up," Runevad told investors. He said turbine blades were the most critical point in production due to needing the most capital.

    Vestas derived nearly 27 percent of its quarterly order intake from the United States, showing the upturn in the American wind power business since the country extended its Production Tax Credit (PTC) last December.

    "We are very happy with the market share gained in the U.S. and we see it as a stable market midterm," Runevad told Reuters.


    On the backdrop of its strongest second-quarter results, the company upgraded its 2016 revenue forecast to at least 9.5 billion euros from a previous minimum of 9.0 billion. It also lifted its earnings before interest and tax (EBIT) margin to a minimum 12.5 percent from a previous minimum 11.0 percent.

    After posting a record high order intake in the last quarter, Vestas' capacity delivery rose 56 percent this quarter amounting to a total of 2,491 MW, testing its production limits.

    "It doesn't worry the investors, because Vestas has "delivered the goods" through so many quarters. They have an organization which works," said Sydbank chief analyst Jacob Pedersen. Ahead of the report Sydbank had a "Buy" recommendation on the share.

    The shares were also supported by the company launching a share buy-back programme of 400 million euros ($453 million). The company said its dividend policy would not be affected by the buy-back programme and would remain at 25-30 percent of the net result of the year.

    Shares traded 9 percent higher at 531.5 Danish crowns by 1020 GMT. It has performed very strongly since it bottomed out in 23.25 crowns in November 2012 but remains a distance from its all-time high of 700 crowns reached in June 2008.

    The industry has enjoyed a turnaround after overcapacity and the withdrawal of some government subsidies during the global economic downturn.

    Britain on Tuesday approved plans to expand an offshore wind farm project that could ultimately have more than 600 turbines spread across an area of the North Sea more than twice the size of London.

    Vestas ousted its CEO Ditlev Engel three years ago after a string of profit warnings, slashed its workforce and shut down some facilities. Engel was replaced by Anders Runevad who made turbines more price competitive.
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    Britain backs expansion of world’s largest wind farm

    Britain on Tuesday approved plans to expand an offshore wind farm project that could ultimately have more than 600 turbines spread across an area of the North Sea more than twice the size of London.

    The Hornsea Two windfarm project, to be built by DONG Energy, is part of Britain's push to invest in new electricity generation capacity needed to overcome a squeeze on power supplies in the next decade.

    All but one of Britain's existing nuclear plants, which produce around a fifth of the country's electricity, are set to close by 2030 as they come to the end of their operational lifespans. And the government plans to close coal-fired plants by 2025 as a part of its efforts to meet climate targets.

    Plans for a new 18 billion pound nuclear power plant, Hinkley C, are currently under review amid spiraling costs and concerns over Chinese investment in the project.

    If built, Hornsea Two, some 89 kilometers off the coast of Yorkshire, will have 300 turbines and is expected to generate around 1.8 gigawatts (GW) of electricity, enough to power up to 1.6 million homes, DONG Energy said in a statement.

    The Danish company has already secured planning permission for the adjacent 1.2 GW Hornsea One development. Earlier this year, DONG Energy made a final decision to go ahead with this project, which it said could begin generating electricity in 2020 and would be the world's largest offshore wind farm.

    "We have already invested 6 billion pounds ($7.79 billion) in the UK, and Hornsea Project Two provides us with another exciting development opportunity in offshore wind," Brent Cheshire, DONG Energy's UK Chairman said.

    The two sites together, at 3 GW, would also have a similar capacity to the Hinkley C nuclear project, which, if it goes ahead would be built by French company EDF with financial backing from a Chinese state-owned company.

    The government said its next round of renewable funding will focus on offshore wind and has said around 10 GW of capacity could be installed by the end of the decade.

    "The UK's offshore wind industry has grown at an extraordinary rate over the last few years, and is a fundamental part of our plans to build a clean, affordable, secure energy system," Business and Energy Secretary Greg Clark said.

    Wind power (onshore and offshore) made up around 11 percent of Britain's electricity production in 2015, up from 9.5 percent the year before.

    DONG, which floated on the on the Copenhagen stock exchange earlier this year valued at $15 billion, also has plans for Hornsea Three. If all three Hornsea windfarms were to be built they could produce as much as 4 GW of electricity, DONG said in a promotional video on its website.
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    Nuclear developers have big plans for pint-sized power plants in UK

    A range of mini-nuclear power plants could help solve Britain's looming power crunch, rather than the $24 billion Hinkley project snarled up in delays, companies developing the technology say.

    So-called small modular reactors (SMRs) use existing or new nuclear technology scaled down to a fraction of the size of larger plants and would be able to produce around a tenth of the electricity created by large-scale projects, such as Hinkley.

    The mini plants, still under development, would be made in factories, with parts small enough to be transported on trucks and barges to sites where they could be assembled in around six to 12 months, up to a tenth of the time it takes to build some larger plants.

    "The real promise of SMRs is their modularization. You can assemble them in a factory with an explicable design meaning consistent standards and predicable costs and delivery timescale," said Anurag Gupta, director and global lead for power infrastructure at consultancy KPMG.

    In a nuclear power plant, heat is created when uranium atoms split. Different reactor designs use this heat in different ways to raise the temperature of water and create steam, which then powers turbines to produce electricity.

    Manufacturing advancements mean SMR developers are only a few years from being able to replicate this technology on a smaller scale, and plants could be ready for deployment by the mid-2020s.

    "From a technical perspective there is no reason why you wouldn't be able to make a smaller version of an already commercially viable nuclear technology such as PWR (pressurized water reactor)," Mike Tynan, director of Britain's Nuclear Advanced Manufacturing Research Center (NAMRC), said.

    There are already more than 100 nuclear plants using PWR technology in operation across the globe.

    NuScale, majority owned by U.S. Fluor Corp, is developing 50 megawatt (MW) SMRs using PWRs which could be deployed at a site hosting up to 12 units generating a total of 600 MW. The 50 MW units would be 65 feet (20 meters) tall, roughly the length of two busses, and nine feet in diameter.

    Rolls-Royce, which already makes components for PWR nuclear submarines, is part of a consortium developing a 220 MW SMR unit which could be doubled for a larger-scale project.

    Rolls-Royce Chief Scientific Officer Paul Stein said the first 440 MW power plant would cost around 1.75 billion pounds ($2.3 billion) but costs would likely fall once production is ramped up.

    "One of the advantages of the SMRs is that they cost a lot less (than large nuclear plants), and it is an easier case to present to private investors," Stein said.


    Critics, however, say there is no guarantee that SMR developers will be able to cut costs enough to make the plants viable.

    "SMR vendors say factory production will save a lot of money, but it will take a long time and a lot of units to achieve what they are calling economies of mass production," said Edwin Lyman, nuclear expert at the U.S.-based Union of Concerned Scientists (UCS).

    "Factory manufacture is not a panacea. Just because you are manufacturing in a factory, it doesn't mean you are certain to solve problems of cost overruns," he said.

    Costs are a sensitive issue and could have played a part in Britain's decision to review the $24 billion project to build the two new Hinkley Point nuclear reactors led by French utility EDF and Chinese partner China General Nuclear.

    Almost half of Britain's electricity capacity is expected to close by 2030, as older, large nuclear plants come to the end of their operational lives and coal plants shut as part of the country's efforts to meet its climate goals.

    The two new reactors at Hinkley Point are supposed to provide around 7 percent of Britain's electricity, helping to fill that supply gap. Nuclear developers are confident SMRs could be up and running by the late 2020s, in time to help bridge the looming electricity supply shortfall.

    A study carried out by the National Nuclear Laboratory, a government owned and operated advisory body, said Britain could host up to 7 gigawatts (GW) of SMR capacity by 2035, more than double the capacity of Hinkley.

    But anti-nuclear green groups such as Greenpeace argue that with advances in renewable technology, such as offshore wind, Britain may not need any new nuclear plants.

    This week Britain approved Dong Energy's plans to expand an offshore wind farm project that could ultimately span an area of the North Sea more than twice the size of London and produce up to 4 GW of electricity, more than Hinkley Point.

    Nuclear power defenders say the intermittent nature of renewable electricity production and lack of grid-scale storage mean nuclear plants are needed to ensure continuous supply of power if the country is to meet its emission reduction targets.

    "Working alongside renewables, nuclear provides the reliable low carbon energy required to balance variable wind and solar generation," said Tom Greatrex, chief executive of the Nuclear Industry Association.


    NuScale's UK and Europe Managing Director Tom Mundy said providing NuScale gets the necessary regulator approvals and partners its first SMRs could be running in Britain by 2026.

    All nuclear power projects need approval from Britain's Office for Nuclear Regulation (ONR), and its Generic Design Assessment (GDA), which tests the safety and design of new reactors and can take around two years to complete.

    The GDA is seen as the "gold standard around the world", KPMG's Gupta said.

    Nuclear power plants in Britain can also only be built on sites licensed by the government, and the first SMRs could be set up at existing nuclear plant sites or at licensed sites where older plants are being decommissioned.

    Britain said this year SMRs could play an important part in the country's energy future, and committed 250 million pounds to research, including a competition to identify the best-value SMR design for the country.

    NuScale, Rolls Royce and Toshiba Corp's Westinghouse were among 33 companies the government has identified as eligible for the competition. The Department for Business, Energy & Industrial Strategy has given no further details and had no further comment on SMRs.
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    Russia’s fertilizer tycoon says potash glut may last a decade

    Russian billionaire Andrey Melnichenko, whose fertilizer company is investing more than $6-billion in potash mining, said it could take at least a decade for the potash market to work off the excess because of the past “disruptive” actions by the largest sellers.

    Potash prices have collapsed since 2013, when a trade pact between Russian and Belarusian producers, which helped prop up the market, fell apart. At the time, Canpotex Ltd., a Canadian potash exporter, and Belarusian Potash Co. controlled about 80% of global exports.

    Their tactics kept prices at high levels, which encouraged new investment from other companies and led to excess supply, said Melnichenko, who owns EuroChem Group AG and isRussia’s eighth-richest man, according to estimates from theBloomberg Billionaires Index. Potash fell to a decade low of about $220 to $230 a ton this year on continued oversupply. In 2008, it reached above $900 a ton.

    Potash Slump

    EuroChem expects to weather the downturn because its potash production, due to start next year, will pay some of the lowest costs in the industry and the company has diversified into other products and more complex services, Melnichenko said.

    “Producing only commodity fertilizers and selling it to a trader doesn’t work anymore,” Melnichenko said in an interview at Bloomberg’s offices in London. “The market is becoming more sophisticated. Farmers are learning to use data and analyze it. That’s why we should offer something smarter.”

    The company sees opportunity to expand in China by selling specialty crop nutrients, which help increase crop yields and quality. It’s planning to begin construction of a new plant inKazakhstan by the start of 2018 to produce specialty fertilizer based on phosphate and potash.

    Field Experiments

    To expand in advanced products, EuroChem is doing hundreds of field experiments per year and widens distribution, Melnichenko said.

    “To be in this business, you have to understand the client’s needs and you can’t manage this process if you do not haveretail and do not have distribution," he said.

    The company will continue making commodity products, such as phosphate, potash and nitrogen, to supply the retailnetwork, he said.

    EuroChem is building two new potash mines in Russia’sVolgograd and Perm regions that jointly will be able to produce more than eight-million tons a year. At first, the mines will be used to create the company’s own complex fertilizers, but it may start supplying other clients after 2020, Melnichenko said.

    Other companies in the industry are considering scaling back. BHP Billiton Ltd. may end up mothballing its Canadian potash project by the end of this decade after spending $2.6-billion, CEO Andrew Mackenzie said this week.

    In fertilizers, the situation may stay tough, Melnichenko said, adding that it’s possible nitrogen prices haven’t reached the bottom yet and the phosphates market is still suffering from oversupply. Because of its low costs and business model that encompasses mining, retail selling and a variety of products, EuroChem still generates profits even in a depressed market, he said.
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    BHP may mothball $2.6 billion Jansen potash project if prices remain weak

    BHP may mothball $2.6 billion Jansen potash project if prices remain weak

    World’s largest miner BHP Billiton, the company behind the massive $2.6 billion (CAD $3.4 billion) Jansen potash project in Canada’s Saskatchewan province, may place it in the back burner if prices for the fertilizer ingredient don’t pick up by the end of the decade.

    The company, which posted Tuesday its worst-ever annual loss, had already cut $130 million from the planned $330 million capital expenditure to develop and study the feasibility of the Jansen project in the current financial year. And while BHP continues looking for a partner to finally take the venture off the ground, it now admits that the ongoing slump in potash prices may make it mothball the project.

    "That might be more palatable to our shareholders than going ahead with a project that's not economically attractive," chief executive officer Andrew Mackenzie told The Telegraph.

    If potash prices don’t pick up by the end of the decade, BHP would be prepared to mothball the project.

    While the Melbourne-based firm is sinking shafts and installing some infrastructure, it has not fully committed itself to the project, nor received board approval for the mine, which is expected to begin operations sometime “in the decade beyond 2020.”

    “Part of what we’re doing is developing a feasibility study for ultimate approval by the board, and if we weren’t serious about potash, we wouldn’t be doing that work,” BHP Billiton Canada’s head of corporate affairs told The Saskatoon StarPhoenix in March.

    The mine is now 60% complete and "shaft excavation is progressing," according to BHP’s results for the year ended in June 2016. A year ago, the project was 46% along and when the work is completed – at the current pace towards the end of 2019 – Jansen would still be nowhere near a producing mine.

    When and if it finally moves into production, Jansen would be a game-changer in the potash industry, as it is expected to generate 8 million tonnes of crop nutrient a year, which would amount to nearly 15% of the world's total.

    To put that figure in perspective, the Mosaic Company’s (NYSE:MOS) Esterhazy mine is forecast to generate around 6.3 million tonnes per year after the completion of an ongoing expansion. In comparison, most of the province's potash operations, which are among the world's largest, have an output of 3 to 4 million tonnes per year.

    Prices for the fertilizer ingredient are not encouraging. It began its decline four years ago as weak crop prices and currency declines pinched demand. They have also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.

    In recent months, potash collapse has picked up speed, putting additional pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.
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    Long-term study links neonicotinoids to wild bee declines

    Wild bees that forage from oilseed rape crops treated with insecticides known as neonicotinoids are more likely to undergo long-term population declines than bees that forage from other sources, according to the findings of an 18-year study.

    The new research covered 62 species of bee found in the wild in Britain and found a link between their shrinking populations and the use of neonicotinoid pesticides.

    Neonicotinoids are used worldwide in a range of crops and have been shown in lab-based studies to be harmful to certain species of bee - notably commercial honeybees and bumblebees.

    The European Union limited use of the chemicals - made and sold by various companies including Bayer CropScience and Syngenta - two years ago, after research pointed to risks for bees, which are crucial for pollinating crops.

    Neonicotinoids were initially licensed for use as a pesticide in Britain in 2002. By 2011, the proportion of UK oilseed rape seeds treated with them was 83 percent, according to the researchers leading this latest study.

    Going back to data from 1994 up to 2011, the scientists analyzed how large-scale applications of neonicotinoids to oilseed rape crops influenced bee population changes.

    The results, published in the journal Nature Communications, found that bees foraging on treated oilseed rape were three times more likely to experience population declines than bees foraging from other crops or wild plants.

    Giving details at a briefing in London, Ben Woodcock, who co-led the study, said the average decline in population across all 62 species was 7.0 percent, but the average decline among 34 species that forage on oilseed rape was higher, at 10 percent.

    Five of the 62 species studied declined by 20 percent or more, he said, and the worst affected declined by 30 percent.

    Woodcock, an ecological entomologist at the Natural Environmental Research Council Center for Ecology and Hydrology, said the findings showed the extent of the impact.

    "Prior to this, people had an idea that something might be happening, but no-one had an idea of the scale," he told reporters. "(Our results show that) it's long-term, it's large scale, and it's many more species than we knew about before."

    Woodcock's team said this should add to the body of evidence being considered in a review of neonicotinoid risks to bees being carried out by the European Food Standards Authority, expected to be completed by January 2017.

    Christopher Connolly, a neurobiologist and bee expert at the University of Dundee, who was not directly involved in this research, said: "The evidence against neonicotinoids now exists in key bee brain cells involved in learning and memory, in whole bees, entire colonies and now at the level of whole populations of wild bees."
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    Precious Metals

    Royal Gold Announces Fourth Quarter Dividend

    Royal Gold, Inc., today announced that its Board of Directors has declared its fourth quarter dividend of US$0.23 per share of common stock. The dividend is payable on October 14, 2016 to shareholders of record at the close of business on September 30, 2016.

    Royal Gold is a precious metals royalty and stream company engaged in the acquisition and management of precious metal royalties, streams, and similar production based interests. The Company owns interests on 193 properties on six continents, including interests on 38 producing mines and 24 development stage projects.
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    Capital Drilling sees signs of recovery in mining sector

    The under-pressure mining sector might be seeing flickers of life, services company Capital Drilling has said, after reporting a rise in revenue for the first time in four years.

    The London-listed company, which provides drilling rigs primarily to gold mining companies across Africa and South America, said the industry was enjoying “increasing interest” on the back of a gradual recovery in metal prices this year.

    “The increasing interest from the mining industry, particularly over the last few months, to invest in assets combined with the firming of selected metal pricing, has injected some momentum in tendering for new contracts as well as higher demand from existing clients for the group's drilling services,” said Mark Parsons, chief executive.

    Capital Drilling reported a 7pc rise in revenue to $41.7m in the six months to June 30, while pre-tax profits rose to $748,000. It slipped to a net loss of $840,000 on the back of a one-off tax charge, although this was an improvement on the $3.2m it lost in the same period a year ago.

    The rising gold price, which has been buoyed by investors seeking safe havens in the wake of the Brexit vote, has been a boon to some of Capital’s clients, which include AngloGold Ashanti and Centamin. As a sign of its confidence in its outlook, Capital raised its interim dividend 36pc to 1.5 US cents a share.

    Capital works mainly with gold miners

    Capital, which listed on the LSE in 2010, has been on the turnaround trail since being hit hard by the downturn in the mining industry that sent its share price tumbling in 2012.

    It has cut costs and paid down debt, and today reported a jump in its rig utilisation rate – the percentage of its 94 drilling rigs that are actually in use – from 34pc to 40pc. However, this remains some way off the 90pc rate it enjoyed in the boom times.

    Attached Files
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    Soros and Jana reduce Gold holdings

    Soros Fund Management slashes gold shares in second quarter -13F

    Aug 15 Soros Fund Management LLC sharply cut its shares in SPDR Gold Trust and Barrick Gold Corp in the second quarter of 2016, 13F-HR filings with the U.S. Securities and Exchange Commission showed on Monday.

    The fund reduced its holdings in SPDR Gold Trust, the world's biggest gold exchange-traded fund, to 240,000 shares worth $30.4 million, from 1.05 million shares in the first quarter.

    It cut its shares in Barrick Gold Corp to 1.07 million shares worth $22.9 million, from 19.4 million shares in the first three months of 2016, the filing showed.

    Jana exits gold in second quarter as price rises to two-year high

    Gold bars are seen at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna, Austria, March 18, 2016. REUTERS/Leonhard Foeger

    Jana Partners dissolved its share stake in the world's biggest gold exchange-traded fund (ETF) in the second quarter of 2016 as bullion prices rose to two-year highs, U.S. Securities and Exchange Commission filings showed on Monday.

    The move came after Jana Partners, led by activist investor Barry Rosenstein, returned to gold in the first quarter along with other investors as spot gold prices saw their best quarterly performance in nearly three decades.

    In the second quarter, Jana Partners dissolved the 50,000 shares of SPDR Gold Trust, the world's biggest gold ETF, that it bought in the first quarter when they were valued at $5.89 million.

    Inflows into SPDR increased by 16 percent to a three-year high in the second quarter.

    Higher gold prices typically attract investment money to bullion, often seen as a hedge against inflation, and spot prices rose around 7 percent in the second quarter to $1,358.20 an ounce, extending on the 16 percent gains of the first quarter.

    It was a choppy quarter, however, with prices down in May but up again in June, when the U.K. voted to leave the European Union.

    "Gold had rallied quite significantly by that point of time so you had people questioning their entry point," said Steven Dunn, executive director, head of distribution for ETF Securities (US).

    Jana may have used the opportunity to take profits, Dunn said.

    Meanwhile, inflows of the eight gold-back ETFs followed by Reuters rose to the highest in nearly three years.
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    AngloGold’s free cash trebles, slashes net debt

    Gold mining company AngloGold Ashantiannounced on Monday that it had more than trebled free cash flow generation in the first half of the year to $108-million and lowered net debt by almost a third, as costs fell and it took advantage of a higher gold price.

    In its presentation of results for the six months to June 30, the company reported half-year gold production of 1.745-million ounces as being in line with the full-year guidance range of 3.6-million ounces to 3.8-million ounces.

    Total cash costs were at $706/oz, a 3% improvement on the $726/oz in same period last year.

    All-in sustaining costs (AISC) were $911/oz, a $13/oz improvement year-on-year.

    Adjusted headline earnings of $159-million were more than double, compared to the same period last year.

    Going forward, CEO Srinivasan Venkatakrishnan(Venkat) made it clear in response to Mining Weekly Onlinethat as its current strategy had been designed to cope with all market conditions, the company would continue to improve cash flows and returns on a sustainable basis and to develop optionality within the business.

    "We will continue to push hard to improve operational and cost performance as well as our overall balance sheet flexibility, regardless of the gold price environment," Venkat said.

    The company’s focus remained to improve margins and grow cash flow and returns on a sustainable basis.

    Production of 1.745-million ounces compared with the 1.878-million ounces in the corresponding period of last year.

    The decrease in production from continuing operations was led by weaker production from Kibali and a planned decrease in head grades at Tropicana.

    AISC improved by $13/oz over the first half of last year, reflecting continued cost discipline, weaker currencies and lower capital expenditure.

    The South African operations reported a 3% drop in production year-on-year to 486 000 oz, alongside a 13% improvement in AISC, which declined to $958/oz from $1 098/oz in the corresponding period last year.

    South Africa’s deep-level Mponeng gold mine delivered the standout performance in the region, with a 25% increase in production and a 28% decrease in AISC year-on-year.

    However, while the weaker rand benefited costs, production continued to be hampered by increased safety-related stoppages, which had become a feature of the country'sunderground mining industry.

    The company complained that the frequent and unpredictable nature of Section 54 stoppages and mass compliance audits by the Department of Mineral Resourceshad created an element of risk to production levels from the region, given the resultant downtime and production ramp-up periods.

    The international operations delivered production of 1.259-million ounces at an AISC of $873/oz, compared with 1.378-million ounces at an AISC of $840/oz in the same period last year.

    These mines, all outside South Africa, accounted for 72% of AngloGold's total production, and benefited from weaker currencies in Argentina, Australia and Brazil.

    There were especially strong cost performances from Sunrise Dam and Cerro Vanguardia, which posted significantefficiency gains during the first half of 2016.

    As indicated at the beginning of the year, production was lower in accordance with the plans at Geita and Tropicana, while Kibali continued to face challenges encountered inmining and processing different ore types, and the first attempt during the first quarter to test the transition to asulphide processing circuit.

    Half-year capital expenditure (capex), including equity accounted entities, was $318-million, compared with $426-million, including discontinued operations, in the same period last year.

    This reduction was partially due to favourable exchange rate movements, impediments in reaching investment targets caused by ongoing safety stoppages in South Africa, and the cessation of work on the underground decline access at Obuasi, in Ghana.

    Capex is expected to increase in the second half of the year in line with past trends.

    Negative working capital movements that inhibited free cashflow are poised to unwind in the second half of the year, specifically $28-million from the sale of metal fromArgentina, which was delayed until the week immediately following the half-year.

    The overall free cash flow improvement was driven by continued efforts to contain costs and improve efficiencies, weaker currencies in key operating jurisdictions, $33-million in interest savings, and a 1% higher gold price received.

    Cash inflow from operating activities decreased by $37-million, or 7%, from $513-million in the corresponding six months last year to $476-million in this half-year, reflecting a 7% drop in production from continuing operations and negative working capital movements, which included timing of gold shipments from Argentina, and movements in value-added tax receivables in South Africa.

    Adjusted half-year headline earnings were $159-million, or 39c a share, compared with $61-million, or 15c a share, in the first half of last year.

    Net profit attributable to equity shareholders during the first half of 2016 was $52-million compared with a net loss from continuing operations of $23-million a year earlier.

    During the six months to June 30, AngloGold settled foreign denominated debt resulting in a recycling of historic foreign exchange losses of $60-million, which was added back for headline earnings.

    In addition, the effective tax rate reduced from 113% to 46% as the tax charges decreased from $115-million to $51-million, largely due to the currency impact on the translation of the deferred tax balance in South America.

    Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased by 2% to $781-million.

    Lower production year-on-year was largely offset by cost improvements over the same period.

    The ratio of net debt to adjusted Ebitda was 1.44 times, compared with the 1.47 times recorded at the end of March 2016, and 1.95 times at the end of June 2015, owing to continued efforts to sustain cash-flow improvements.

    Net debt fell by 32% to $2.098-billion on proceeds received from the sale of Cripple Creek & Victor for $819-million as well as continued strong cost management, which saw improvements across most cost areas.

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    Base Metals

    Indonesia's Medco to invest $500 mln to build copper smelter after Newmont deal

    Indonesian oil and gas producer PT Medco Energi Internasional Tbk plans to invest $500 million to build a copper smelter following its deal to buy control of Newmont Nusa Tenggara (NNT), its president commissioner told Reuters.

    The smelter, which will have an annual capacity of 500,000 tonnes, is expected to start operations in 2021, Muhammad Lutfi said in an interview. Part of the funds to build the smelter will come from bank loans, Lutfi said.

    A consortium consisting of oil and gas tycoon Arifin Panigoro, who founded Medco, and banker Agus Projosasmito announced in late June that it will spend $2.6 billion to buy 82.2 percent of NNT, which operates Indonesia's second-biggest copper and gold mine.

    The Indonesian group is buying 56 percent of NNT from U.S. miner Newmont Mining Corp and Japan's Sumitomo Corp and its partners. It will buy the remaining 26.2 percent from local companies.

    The Jakarta-listed Medco, which will own at least 50 percent of NNT, is targeting a 25 percent increase in copper concentrate production at the mine to 500,000 tonnes by 2019, Lutfi said.

    Copper and gold may contribute 30-50 percent to Medco's revenue in future as part of its diversification, Lutfi said, adding that the company is planning to sell its products mainly to the domestic automotive, electronics and cable industries.

    Oil and gas will nevertheless remain a core business for Medco, which is currently exploring the acquisition of offshore oil and gas blocks in Indonesia, Lutfi said.
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    Chile economy shrinks in second quarter from first as mining falls

    Chile's gross domestic product shrunk by 0.4% in the second quarter of 2016 from the first quarter, asmining in the world's biggest copper exporter contracted, the central bank said on Thursday.

    The fall was the first contraction from one quarter to the next since early 2010, when Chile was hit by a devastating earthquake. The setback followed higher-than-expected 1.3% growth in the first quarter.

    Cooling demand in China and new supply have weighed on the copper price, dragging investment in Chile downwards and leading companies to cut jobs and output.

    Copper mining contracted 6% in the April to June quarter, the bank said, as lower ore grades in Chile's mines and unfavourable weather also took their toll.

    However, domestic consumption and government spending have helped outweigh the mining slide, and the economy is still growing in annual terms. Compared with a year earlier, second-quarter growth was 1.5%.

    That topped the 1.1% expansion forecast in a Reuters poll but was below a revised 2.2% expansion in the prior quarter.

    The bank also revised 2015 growth to 2.3% from 2.1% previously, due to the inclusion of electronic tax receipts. It has forecast growth of between 1.25% and 2% this year.

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    Russian aluminium producer Rusal begins scandium oxide production

    Rusal has produced scandium oxide at a concentration exceeding 99% for the first time at its Urals smelter, the Russian aluminium producer said Thursday.

    The market price of the new product is up to $2,000/kg, Rusal said.

    The new production follows the installation and launch of a 96 kg/year pilot unit for the processing of scandium concentrate into scandium oxide, based on Rusal's carbonization technology for scandium extraction from red mud, which is a byproduct of alumina refining.

    Project investment has so far totalled around Rb64 million ($1 million), and work is in progress on the pilot unit to further improve the technology to reduce product costs, Rusal said.

    The scandium oxide produced will be used for the production of aluminium-scandium alloys at Rusal's smelters, the company said, noting that the use of scandium as a micro-alloying element improves the consumer properties of aluminium alloys, while producing its own raw materials for the production of alloys will allow Rusal to reduce costs associated with raw materials purchasing.

    Scandium has "vast potential" in the aerospace, transport and energy industries, with global consumption of scandium oxide currently estimated at 10-15 mt/year, said Victor Mann, director of Rusal's research and development, in a statement.

    "In this regard, Rusal has plans to develop a modular unit capable of increasing the capacity keeping up with market demand," Mann said. "The production will rely on the company's own raw material base and will fully meet demand not only in Russia, but globally."
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    Kaz Minerals says can maintain profit in weak copper market

    Kazakhstan copper firm Kaz Minerals said it can carry on making profits even if commodity markets stay weak as it steps up low-cost output after achieving a 30 percent increase in core profits in the first half of the year.

    Analysts said Thursday's results were at the top end of the broad consensus, but were cautious about copper demand and said Kaz Minerals' debt levels could become a problem if commodity markets take another dive.

    The company's shares rose more than 12 percent, while the wider sector was 2 percent higher by 0845 GMT.

    Benchmark copper prices are struggling to sustain gains this year as economic data has raised new doubts about the strength of demand from China, which accounts for nearly half of global consumption.

    In a conference call with reporters, Chief Executive Oleg Novachuk declined to be drawn on the outlook for the copper market but said the London-listed company had conservative price assumptions and its low costs would protect its revenues.

    Kaz Minerals has two major copper projects under construction, which it describes as world-class open-pit mines -- cheaper than having to extract from deep underground.

    Bozshakol is on track to achieve commercial output in the second half, while Aktogay, the other, should start production in the second half of 2017 at a reduced budget of $2.2 billion, down $100 million from previous forecasts.

    Bozshakol's gross cash cost guidance for 2016 was cut to 140-160 U.S. cents per pound, while for the group it improved to 190 to 210 U.S. cents/pound from 200 to 220 cents/pound predicted previously.

    First-half core profit (EBITDA) rose to $115 million from $88 million a year ago.

    Kaz Minerals narrowed its 2016 copper output guidance to 135,000 to 145,000 tonnes from previous guidance of 130,000 to 155,000 tonnes.

    The group's net debt at the end of June was $2.5 billion, Kaz Minerals said, adding all repayments to its Chinese lenders were being met on schedule.

    It said it planned to start talks with its lenders in the near future with a view to "putting in place arrangements that are appropriate to the business for 2017 and beyond".

    Jeremy Wrathall, analyst at Investec, said the debt level was "way out of proportion to market capitalisation".

    "If things get bad again, it would be a problem," he said.

    The company's market value is around 800 million pounds.
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    China smelters face lowest fees in 4 years as zinc market tightens

    China's huge zinc smelting industry has slashed its fees for turning ore concentrates into refined metal by 20 percent as competition for dwindling global mine output heats up, industry sources said this week.

    The move could signal an impending squeeze in refined zinc supplies and a further run-up in prices that have already gained 40 percent this year, because smelters typically lower their treatment charges (TCs) to attract raw material when ore supplies decline.

    Spot treatment charges have slipped to $100-$110 a ton, down by about a fifth since February, four industry sources said, nearing a four-year low.

    The fall-off came after huge mines such as Century in Australia and Lisheen in Ireland ran dry. Global commodities giant Glencore and Belgium's Nyrstar also slashed mine output when zinc prices slumped to a 6-1/2-year-low in January due to slowing demand in China.

    "Even if we allow for a major correction in Q1 2017 triggered by Glencore/Nyrstar capacity restarts, we think a 680,000 ton (refined metal) deficit over (2017) will propel prices to an average of $3,900 a ton by Q4-17, on route towards record highs in 2018," ICBC Standard Bank said in a research note this week. That would equate to a 70 percent rally from levels around $2,290 a ton now.

    The mine closures and output cuts have been exacerbated in recent months by a spree of smelter shutdowns by environmental inspectors in China.

    ICBC expects zinc prices to surge more than 20 percent by year-end to $2,750 a ton. The catalyst for the next leg up will be any signs of falling global stocks of the metal, such as rising premiums paid on top of market benchmarks for physical delivery.

    Traders in Asia said, though, that so far there is no issue finding metal, with China zinc premiums wallowing around $115, the weakest in one year.

    That means the recent gains in zinc prices have come mostly on the prospect of smelters producing less and the expectation that no new zinc mines are starting up anytime soon.

    LME stocks surged by 21 percent to around 460,000 tonnes from seven-year lows in early June. But Shanghai inventories have dropped by a quarter to just shy of 200,000 tonnes, still more than double levels seen at the start of last year.


    With treatment fees so low, it is not clear how long smelters can hold out before having to cut output. Analysts estimate they hold some one to two months of concentrate supply and that fees can drop further, especially as mines in the north close ahead of winter.

    "That's when we'll really see the crunch start to hit," said a source at a global trade house in Shanghai.

    Already, environmental mine closures in China's Hunan province since the start of August come to some 150,000-200,000 tonnes of annual refined zinc supply, forcing local smelters in Hunan, to outsource for ore, a China-based fund source said.

    "The smelters should be losing money at these TC levels and should finally start cutting from here," a trader said.

    China's leading zinc smelters vowed in November to reduce 2016 production by 500,000 tonnes, equivalent to almost a tenth of their output. But a large scale cut has yet to appear, China state-backed researcher Antaike said.

    China produced some 6.15 million tonnes of refined zinc last year, although production growth has stalled this year. In July, its zinc output grew just 0.4 percent compared with a year ago to 506,000 tonnes.

    "Refineries are actively seeking for raw materials with the increasingly tight concentrate supply. In the second half, domestic (mine) supply will increase, but refining capacity will also grow, thus those refineries with poor raw material supply might be forced to cut output," Antaike said in a report.
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    Copper - a tale of two South American producers

    The London Metal Exchange (LME) three-month price is this morning trading around $4,840 per tonne, translating to a year-to-date gain of just under five percent.

    And there are plenty of analysts expecting even lower copper prices over the coming months.

    Investors are shunning copper, preferring hotter metallic markets such as zinc, currently showing a year-to-date gain of almost 47 percent.

    But then zinc has an enticing bull narrative of a pending supply crunch, while copper is struggling to absorb a wave of new mine production, much of it coming from projects that were planned years ago when the price was double current levels and the market was characterized by structural supply deficit.

    Famine has turned to feast in the intervening years, extra supply hitting the market just when demand, particularly Chinese demand, is stuttering. Yet another commodities text-book case of bad timing to file alongside iron ore and nickel.

    But what's unusual about this particular copper production surge is where's it's coming from.

    It's coming from South America, but not Chile, the country most synonymous with copper production, but rather its northern neighbor, Peru.


    Peruvian production of mined copper jumped by a staggering 51.5 percent to 1.12 million tonnes in the first half of this year. National output was 741,000 tonnes in the year-earlier period, according to Peru's ministry of energy and mines.

    The core drivers of this surge are two new mines, Las Bambas and Constancia, and the expansion of another one, Cerro Verde.

    Las Bambas, majority owned and operated by MMG, the listed arm of China Minmetals, is the single biggest contributor to rising Peruvian copper output this year.

    The mine only came into production in the fourth quarter of last year but has ramped up extremely quickly to the point that MMG could declare commercial production at the start of July.

    First-half production was 118,600 tonnes of contained copper, compared with zero this time last year.

    Guidance is for full-year production of 250,000-300,000 tonnes and nameplate capacity of 400,000 tonnes next year.

    Constancia, owned by Canada's Hudbay Minerals, is a smaller project and has been ramping up longer since starting production in early 2015.

    But first-half 2016 output of 63,800 tonnes was more than double the 30,700 tonnes generated in the year-earlier period.

    The focus now, according to Hudbay, is on "optimization of plant performance" with the mine expected to produce 110,000-130,000 tonnes this year, which is actually above the anticipated life-of-mine average performance rate.

    Cerro Verde, majority owned by Freeport McMoRan, is now reaping the benefits of a major upgrade that was completed late last year. The expansion will deliver an extra 600 million lb (around 270,000 tonnes) of annual capacity.

    First-half production jumped to 260,000 tonnes from 98,700 tonnes in January-June 2015.

    Significant tail winds to Peruvian production are also coming from Glencore's Antapaccay mine and the joint-venture Antamina mine.

    Production from Antapaccay rose by 22 percent year-on-year to 106,700 tonnes thanks to the restart of a concentration unit in May last year.

    A 31 percent output hike at Antamina, meanwhile, reflects sequencing between copper-rich and zinc-rich parts of this unusual bimetallic ore body.


    It's all a far cry from the trials and tribulations being experienced by South American neighbor Chile.

    Chile is still by some margin the world's largest copper producing nation but output in the first half of this year fell by 5.6 percent to 2.78 million tonnes.

    National production in June itself fell even harder by 7.7 percent year-on-year.

    In part this year's falling output is cyclical, resulting from grade variability at Escondida, the world's largest copper mine.

    Average grades at Escondida slumped to 0.94 percent in the second quarter of this year from 1.32 percent in the year-earlier period, according to operator and majority owner BHP Billiton.

    Copper production, a mix of concentrates and leached cathode, accordingly slid to 267,000 tonnes from 338,000.

    Escondida's output will recover next year thanks to a $180-million expansion project that is targeted to deliver additional capacity of around 200,000 tonnes per year.

    However, Chile's copper woes are also part structural with state operator Codelco in particular having to invest heavily just to maintain historic output levels as it seeks to overcome a long-term decline in ore grades.

    Such investment, of course, has become much harder to obtain in the current weak pricing environment and the company has warned that there will be an incremental impact on production over the coming years.

    There are new mines ramping up in Chile such as Antofagasta's Antucoya, which is expected to hit capacity of 85,000 tonnes per year in the second half of this year.

    But Antucoya in part is only compensating for the company's exhausted Michilla mine, which was put on indefinite care and maintenance last year.

    Others such as Sierra Gorda, owned by Poland's KGHM, and Caserones, owned by a consortium of Japanese entities, are struggling to master complex ore bodies and resulting high production costs.


    These starkly differing South American production trends have some way to run yet.

    There's a bit more to come from Las Bambas and Cerro Verde in Peru before they hit full design capacity.

    Chilean production, meanwhile, has been trending lower at an accelerating pace this year and Codelco, the country's top producer, has switched its attention to cutting costs with serious implications for medium-term production prospects.

    Further ahead, though, both countries and indeed just about every other copper producing are going to be hit by the current low price environment.

    Capital expenditure on new projects has been sliding for the last four years and it is becoming ever harder to find what the industry terms "world-class" deposits, witness the multiple teething difficulties of some of the latest generation of mines.

    This withering of the future project pipeline is the light at the end of the tunnel for embattled producers.

    But right now it is still a distant light as the market soaks up the Peruvian mine surge.
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    China must import more ore

    Image title
    China is the leader in extracting gold, zinc, lead, molybdenum, coal, tin, tungsten, rare earths, graphite, vanadium, antimony and phosphate, and holds second place in mine production of copper, silver, cobalt, bauxite and manganese.

    A new report from BMI Research shows the country's domestic mining output growth has slowed dramatically and will average far below levels attained in the last decade. Reasons for the slowdown are plentiful.

    Besides lower prices, increasing costs, depleting grades and low reserves, Beijing's drive to consolidate the country's mining industry as part of its sharpened environmental policies has played an important role in curbing new capacity and forcing production cuts says BMI.

    So far this year domestic copper, nickel, bauxite, iron ore and lead mining output have been curtailed (of course coal too). Tin and zinc mining supply have reacted to higher prices, but production growth is coming off a low base after two years of declines.

    China's of consumption of metals and minerals far outstrip domestic supply – in iron ore its imports constitute nearly 80% of  use and in copper it’s approaching 50% and for nickel it’s already above that.

    Chinese imports of metals and minerals, particularly ores, have hit records recently with bauxite imports jumping nearly 18% year on year, already all-time high levels of iron ore cargoes have continued to grow while copper concentrate shipments are up more than a third.

    Falling domestic production could only accelerate this trend and provide support for seaborne prices.

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    China's MMG posts third straight loss amid shift to copper

    MMG, the miner owned by China's top state-owned metals trader, posted a third straight half-yearly loss as revenue dropped 47 per cent due to lower prices and the closure of a zinc mine in Australia. Its shares fell.

    Its net loss widened to $US93 million ($127.7 million) in the first six months, from $US48 million a year earlier, according to a statement Tuesday. Revenue sank to $US586 million from $US1.1 billion. The closure of the company's Century zinc mine, lower copper output in Laos, and declining metals prices all hit sales. The firm, controlled by China Minmetals, is ramping up its Las Bambas mine in Peru, one of the world's biggest new sources of copper.

    "The challenging global economic conditions we experienced in 2015 continued into 2016, driving persistent commodity-price volatility and low growth rates," chairman Jiao Jian said in the statement. Las Bambas, set to produce between 250,000 and 350,000 tonnes of copper this year, will contribute to earnings from July 1, the company said.

    Zinc has surged 40 per cent this year, reaching its highest in more than a year in August, after mine closures and production cuts curbed supply. Still, average prices remain below last year's levels after a downturn in demand growth in China, the world's biggest buyer. The shuttering of Century after 16 years of operation contributed to a 73 per cent slump in zinc revenue to $US108 million. Copper sales dropped 36 per cent to $US360 million.

    The rally in zinc prices had helped push MMG's shares in Hong Kong to their highest in about a year on Tuesday at $HK2.05 (34?), before it released earnings. They fell as much as 4.4 per cent Wednesday and traded 2.9 per cent lower at $HK1.99 a share by 11:49 a.m.

    MMG's planned Dugald River zinc mine in Australia will start output in 2018 amid a "widely anticipated zinc deficit" that's expected to hit the global market next year, Jiao said. MMG is seeking zinc resources in Peru and elsewhere, chief executive officer Andrew Michelmore said last month.

    Growth in global copper supply will fall significantly short of demand for the remainder of this decade, according to Citigroup in a note Tuesday. Many planned projects won't come to fruition after spending cuts and tighter project financing, it said. The bank's view contrasts with Barclays, which has argued that the copper market faces a surplus up to 2020, which will weigh on prices.

    MMG runs mines in Australia, Peru, Laos and the Democratic Republic of Congo.
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    Aus Tin becomes Australia’s second ASX-listed tin producer

    ASX-listed Aus Tin has started concentrate production at the Granville project, inTasmania, elevating the company to tin producer status.

    Aus Tin, which bought the Granville project less than four months ago, is now the second Australian company listed on the ASX to produce tin, the other being Metals X.

    The milestone was achieved against the backdrop of an improving tin price and declining global tin stocks.

    “The tin price is up 25% year-to-date and we believe the best leverage an investor can have to the increasing tin price is through operating assets. Having now commenced production at Granville, it is our intention to ramp-up production and in due course exploit the high tin grades in the openpit generated from our 2015 drilling programme,” said CEO Peter Williams on Wednesday.

    Aus Tin plans to use the cash flow generated by the Granvillproject to advance its other projects, including the Taronga tin project, in New South Wales, and Mt Cobalt, inQueensland.
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    Major tailings dam burst reported in China

    According to the AZ China blog a major tailings dam failure at an aluminum refinery in Luoyang, Henan Province over the weekend caused a mud slide that partially destroyed a nearby town.

    "According to local newspaper reports, the dam wall suddenly broke and silt mixed with stones from the mountainside rushed down, and the village was totally submerged.  This village is home to around 300 villagers and they were transferred in an emergency evacuation.  No one was killed or injured.

    "The villagers are living in a primary school in Xinan County temporarily.  Sadly, the red mud buried many farm and domestic animals because it was too late to save them.  It has been reported that the dam held about 2 million cubic meters of red mud and was about 1.5 km in length."

    Aluminum Insider reported that the Xiangjiang Wanji Aluminum refinery which has a 1.4 million tonne per year capacity was shut down and villagers evacuated ahead of the dam burst. Authorities have been cracking down on the industry recently, forcing refineries to tackle pollution and shutting down a number of bauxite mines in the province.

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    China shuts all lead, zinc mines in Hunan's Huayuan in effort to clean up mining sector

    China has shut all lead and zinc mines in Xiangxi Tujia and Miao Autonomous prefecture, located in Hunan province's Huayuan county, as part of the government's overall efforts to clean up the lead and zinc mining sector, the prefecture government said in a report on its website Tuesday. Hunan is main lead and zinc mining zone in China.

    Since August 15, the government has halted power supply to all lead and zinc mines in the county -- with all mines now having suspended operations -- in response to the State Administration of Work Safety's, or SAWS, request to clean up the local mining sector.

    The mining reform, which will last until June 2017, aims to prevent mining accidents and ensure safety in mining, the prefecture government said.

    Mines which have exhausted their resources will be asked to withdraw from the market, while those which have mineable industrial resources in place, but are seen to be fraught with danger, will have their reserves assessed, and asked to take preventive safety measures, the report said.

    Mines are only allowed to resume operations following government approval, and the issuance of licenses by SAWS, it said.

    The county has a total of 26 zinc and lead mines, with proven lead and zinc resources estimated at 6.5 million mt, figures from Ministry of Land and Resources showed.

    China is forecast to have a mined zinc deficit of 390,000 mt in 2016, widening from a deficit of 9,000 mt a year ago, state-owned Chinese metals consultancy Beijing Antaike said in its zinc sector report issued in end-June.

    The report attributed the widening deficit to continuous decline in domestic mined zinc supply this year, because of lower operation rates at some mining zones in China.

    China's national mined zinc output is forecast to grow just 3.5% year on year to 4.4 million mt this year, while its net zinc concentrate import volume this year is estimated at 900,000 mt, down 40% from 1.496 million mt last year, according to Antaike.
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    Chile energy prices seen falling after massive auction

    The cost of energy in Chile is likely to fall in the next decade, as an auction aimed at providing around a third of the copper exporter's energy needs had attracted bids priced more competitively than forecast, the energy minister said.

    The winners will be announced on Wednesday of the auction to supply a total of 12,430 gigawatts per hour annually for 20 years from 2021 and 2022, divided into five blocks.

    But the offers ensured that energy prices would be "well below" $60 per megawatt-hour (MWH), less than half the cost of two and a half years ago, Chile's Energy Minister Maximo Pacheco told Reuters on Tuesday, after the envelopes of the bids were opened.

    Share prices in Chilean energy companies fell on fears of an impact to profits. Enersis Chile, the local arm of Italy's Enel, fell 3.6 percent, while Colbun and AES Gener were both down around 3 percent.

    The massive auction - the biggest in the country's history - has attracted 84 bids from home and abroad, including European firms Gas Natural, Ibereolica, Acciona Energia , AustrianSolar, wpd and Solairedirect.

    Demand for energy has risen rapidly in Chile, which has among the highest power prices in Latin America and an energy-intensive mining industry that produces around a third of the world's copper, much of it from remote desert areas.

    It has practically no hydrocarbons of its own, but ample potential for renewable energy. Solar energy generation in particular has expanded quickly in recent years, and many of the bids were from solar and wind power firms.

    "We are very happy with the result price-wise, but also the fact that we are going to have cheaper and cleaner energy," said Pacheco.

    Analysts had agreed that tariffs would probably fall as a result of the auction, pointing to likely aggressive offers from the large number of renewables firms participating.

    "This will be one of the most competitive auctions in Chile's history, with bidders presenting offers almost seven times higher than the amount being auctioned," said ratings agency Fitch.

    But the market had expected values closer to $80 per MWH.

    Chilean state energy firm ENAP, which runs the country's two major oil refineries and which the government wants to expand, took part in the auction, but local newspaper Pulso reported that it bid $72.90, likely too high to be successful.

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    Zinc deficit looms, prices up, but output restarts unlikely

     Zinc's sharp rally and looming market deficit has fed speculation that major producers such as Glencore may reverse output cuts, but analysts caution that is unlikely to happen soon.

    Only when stocks of concentrate and metal sink to levels where higher prices can be sustained will large producers look at restarting capacity, they say.

    Benchmark zinc on the London Metal Exchange has climbed nearly 60 percent from January's multi-year lows to around $2,300 a tonne, its highest since May 2015.

    Many zinc mines have been shut or mothballed over the past couple of years, but prices did not really take off until this year when deficit expectations intensified with the closure of the Century mine in Australia and Lisheen in Ireland.

    Glencore's decision last year to slash 500,000 tonnes of annual zinc production set the ball rolling. Its zinc output in the first half of this year fell 31 percent to 506,500 tonnes from the same period last year.

    "We don't think Glencore will reactivate in response to prices," said Graham Deller, analyst at CRU. "They will wait until the concentrate market runs out of spare material."

    John Meyer, analyst at SP Angel agrees: "Glencore will allow the market to keep rising until stocks fall and it can restart zinc production at sustainably higher prices".

    Glencore declined to comment.

    Analysts estimate about 750,000 tonnes of annual zinc output outside China has been mothballed over the last two years. Of the 600,000 which could be restarted, about 400,000 belongs to Glencore, they say.

    Of the remaining 200,000, analysts say the largest chunk is owned by Nyrstar, which has its mining business up for sale, and while higher zinc prices might make that process easier, the chances of restarts are low.

    Nyrstar declined to comment on the possibility of restarts.

    Chinese output and idled capacity is difficult to estimate, analysts say.

    "Higher-cost Chinese zinc mines often restarted capacity when prices moved towards $2,300/t in the past," Bank of America Merrill Lynch analyst Michael Widmer said in a note, adding that "zinc's rally was driven by a confluence of factors."

    Factors include steady global demand, estimated at around 14.5 million tonnes this year, for the metal used to galvanise steel and forecasts for market deficits, which a recent Reuters poll estimated at 221,000 tonnes this year.

    Falling stocks in LME approved warehouses, which at 457,900 tonnes are down 25 percent since September, are another reason.

    Key to market psychology has been the concentrate market, which has tightened to the extent that treatment charges, fees paid by miners to smelters to process raw material into metal have tumbled towards $100 a tonne from above $200 in April 2015.

    "(Lower treatment charges provide) imminent headwinds for those smelters, many of which are Chinese, that purchase ore on the spot market and not through contracts," Widmer said.

    Shortages of ore have meant top consumer China has had to source more metal overseas. Its imports rose more than 47.8 percent to 291,892 tonnes in the six months to June from a year ago.
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    Citigroup sees no ‘significant wave’ of copper supply looming

    The world is not about to be swamped by copper, according to Citigroup Inc. Growth in supply will fall significantly short of demand through 2020, tempering the bearish sentiment that’s made copper the worst-performing metal this year.

    Global copper mine supply will be one-million metric tons a year higher by the end of the decade, Citigroup analysts including David Wilson said in an e-mailed note Tuesday. That’s less than the 1.6-million tons of demand growth that Citigroup predicts. The metal used in wires and cables has risen only 1.6% this year, much less than its peers on the London Metal Exchange, as mine supply increased in the first half.

    The supply-driven bearish sentiment in the copper market is “likely to be temporary in nature,” the analysts wrote. “We do not believe such growth represents a significant wave of supply.”

    The view contrasts with Barclays Plc, which argued last month that copper will come under pressure as supply outweighs demand every year through 2020. Goldman Sachs Group Inc. sees a “supply storm” brewing with about one-million tons of incremental supply through the first quarter of next year. For Citigroup, mine output won’t grow quickly enough through 2020 after years of spending cuts, constrained project funding and a decline in ore grades.

    Rising supply in the first half has been driven mostly by the ramp-up of mines in Peru, Citigroup said, but growth there is poised to slow and will peak by 2019. On a global basis, “without already agreed funding, copper projects are, in our view, unlikely to reach production this decade given the current low price levels and capital constrainedenvironment,” the analysts wrote.

    Copper has fared poorly this year by comparison with zinc and nickel, which have risen 41% and 18% respectively.
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    Antofagasta's heavy cost cuts lift earnings to counter lower copper prices

    Although first-half revenue was lower for Antofagasta, the Chilean copper mining colossus improved earnings and kept its dividend flat thanks to some heavy cost cutting.

    Revenues of $1.45bn in the six months to 30 June were down 18.5% compared to the last year's due to lower copper prices and production levels, which are expected to be weighted to the second half and towards the lower end of January's guidance.

    Nevertheless, management slashed $124m of operating costs, almost a quarter of the total, and were rewarded by earnings before interest, tax, depreciation and amortisation edging 2.3% higher to $571.6m.

    Chief executive Iván Arriagada said: "Continued management actions to reduce costs and preserve cash contributed to our EBITDA margin strengthening to 39.5%, from 26.2% in the full year 2015. While reducing costs in absolute terms is important we are focused on achieving improved efficiencies in a sustainable manner to ensure long-term shareholder value."

    Operating profit fell 3.4% to $293.8m, while earnings per share slipped 3.3% to 8.9 cents.

    Arriagada highlighted the resolution of the two outstanding court cases concerning Los Pelambres' Mauro tailings dam, with an agreement reached with the Caimanes community in April. Although an appeal is possible, he said it was unlikely to be accepted.

    He said the board remained "cautious in our outlook and remain conservative in our approach to managing capital" given the current economic uncertainty.

    Capital expenditure of $385.4m was $276.9m lower than in the first half of 2015 and for the full year is expected to be lower than original guidance.

    Group copper production for the year is expected to be at the lower end of the 710-740,000 tonnes guided in January.

    For the full year unit costs are expected to be $0.05/lb lower with cash costs before by-product credits of $1.60/lb and net cash costs of $1.30/lb.
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    Cash-strapped Nautilus to lay-off workers, cancel contracts for delayed Solwara 1

    Despite having $51.3-million in its coffers as at the end of June, marine miningpioneer Nautilus Minerals on Monday announced that it would implement several measures aimed at preserving the company’s capital position while it sought to secure further project financing.

    The TSX-listed company advised that following a review of all aspects of its business, it was reducing the workforce, terminating contracts for the construction of any seafloor production equipment that was in the early stages of development and that it would not enter into any newconstruction contracts until it could source additional funding.

    The company had previously planned for the constructionand development of the entire seafloor production system for initial deployment and testing operations at the Solwara 1project, offshore Papua New Guinea (PNG), to be completed by first quarter of 2018, based on the company's projecttimetable and subject to securing additional project funding.

    However, Nautilus had thus far been unsuccessful to secure the required money, resulting in an indefinite delay of production.

    Nautilus advised that the company and its operating subsidiaries was exploring alternatives for securing immediate bridge financing to facilitate the time required to secure the “significant additional project funding” that is needed and/or to explore alternative transactions aimed at maximising shareholder value. There could be no assurances that the company would be able to obtain the necessary bridge financing on acceptable terms or at all, it advised.

    The total capital cost for the system to deliver dewatered ore on board barges to the Port of Rabaul, including a 17.5% contingency, was estimated at $383-million. The operating cost, excluding contingency, was estimated at $237 000/d, or about $64/t of mined ore, transported to the port based on a production rate of 1.35-million tons a year. With a 10% contingency, these operating costs totalled $261 000/d or about $70/t.

    Nautilus had formed a joint venture (JV) company with PNG’s nominee, Eda Kopa (Solwara), in December 2014 to mine high-grade polymetallic seafloor massive sulphide deposits. Nautilus held an 85% shareholding and Eda Kopa 15%.

    The JV had taken delivery of the three main seafloor production tools (SPTs) from British manufacturer Soil Machine Dynamics’ (SMD’s) facility, in Newcastle upon Tyne. They had been moved to Oman, where they were scheduled to undergo extensive wet testing at the Port of Duqm.

    Nautilus planned to use the SPTs to cut and extract high-grade copper and gold from the seafloor at the Solwara 1project site in the Bismarck Sea.

    The proposed project had been met with fierce opposition from environmentalists arguing that the impact of deep seamining on the various levels of marine ecosystems were not fully understood.
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    Protesters in Peru block key road to Las Bambas copper mine

    Residents of Andean communities in Peru have blocked a key road to MMG's Las Bambas copper mine for the past week, forcing the Chinese-owned company to use an alternate route, the country's ombudsman's office said on Monday.

    The residents say the road passes through their lands and want the company to pay them for using it, said Artemio Solar, the head of the ombudsman's office in the region of Apurimac where the mine is located.

    Las Bambas spokesperson Domingo Drago confirmed the company was using an alternate route but said it had not affected its shipments of copper concentrates.

    Three local residents protesting Las Bambas were killed in clashes with police in September last year when the mine was still being built.

    Peru is on track to become the world's second biggest copperproducer this year because of rising production from Las Bambas and other new copper mines that has been driving economic growth.

    The mine, which began production late last year, produced about 32 900 t of copper in June.
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    Chile’s Codelco may slash copper output as it further cuts costs to the bone

    Chile’s Codelco, the world's top copper miner, may soon change its focus from cost reductions to output cuts, as the state-owned miner faces what its chief executive called the “worst crisis ever” since created in 1976.

    Announcing fresh cost-cutting measures to save $242 million this year, CEO Nelson Pizarro said last week (in Spanish) that slumping copper prices, high debt, rising costs and lower productivity have brought Codelco to “an extreme” situation.

    Among the urgent actions proposed by Pizarro, who not long ago said he would rather rein in costs than curb output to navigate the slump in copper prices, there is a further $2.5 billion-cut to the state-owned miner’s multi-billion investment plan.

    The world’s top copper miner reducing investment by a further $2.5 billion.

    The figure, though significant, is minor when taken in the context of Codelco’s ambitious investment plan, originally pegged at $25 billion (now sitting at $18bn), aimed at upgrading its aging mines and dealing with dwindling ore grades.

    While the board has yet to make a decision on the recommended investment cut, sources familiar with the matter told a resolution is likely to be announced after the board meeting scheduled for August 25.

    Output impacts

    Further slashing investment will severely impact Codelco’s production targets, once tallied at 2.5 million tonnes by 2025, but reduced last year to 2 million tonnes by 2020.

    According to’s sources, the company may just decide to keep its current production of 1.7 million tonnes as target, though “scaling down to 1.5 million or lower has not been ruled out just yet.”

    What is clear is that Codelco plans to cut a minimum of $500 million a year, to save a total of $2 billion by 2020. It also expects to increase productivity by 18% at the end of 2018 and 20% by the end of the decade.

    Chile’s government has injected $600 million of capital into the copper giant, which hands over all its profits to the state and has received only 10% of its surplus over the past decade. In comparison, private copper miners reinvest an average of about 40% of their profits.

    The miner’s output amounts to around a tenth of global supply and it has been one of the main forces behind Chile’s transition from one of Latin America’s poorest countries to one of the richest over the past 40 years.

    The red metal climbed just above one-month lows on Monday as slowing economic activity in top consumer China highlighted weak demand growth prospects, with softer US dollar providing some support.

    Benchmark copper on the London Metal Exchange traded at an unchanged $4,761 tonnes in official rings. On Friday, the industrial metal hit $4,750.50 a tonne, its lowest since July 12.

    Attached Files
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    Congo copper deal with China may draw $2bn of investment

    Gecamines, the Democratic Republic of Congo’s state-owned miningcompany, said China Nonferrous Metal Mining Group may invest as much as $2-billion to develop its most prospective copper asset.

    The Congolese miner in June described the agreement, through which CNMC will finance, build and operate acopper-processing facility at the Deziwa concession before transferring full ownership back to the state-owned miner, as a “new type of partnership” designed to increase revenue for the state, but has yet to provide full details of the arrangement.

    “It’s not a partnership, it’s a financing agreement, a loan to be reimbursed,” Kandolo Mafuta, Gecamines’ director of partnerships, told a mining conference Aug. 11 in the capital,Kinshasa. “Total investment could be $2-billion,” he said in an interview at the meeting.

    In June, Gecamines said that CNMC would finance theconstruction of the plant with an initial capacity for 80 000 metric tons of copper a year, in return for a 51% stake in theproject. CNMC will then be reimbursed through an off-take agreement over a fixed period that had not yet been agreed before full ownership is transferred back, Gecamines said at the time. A decision on a second phase of the project, which would increase output to 200 000 tons a year, would be taken at a later date, the company said.

    Repaying Investment

    Kandolo said he could still not confirm how long it may take to repay the investment, or when Gecamines would retake full ownership of the project.

    Gecamines, which currently has $1.58-billion of debt, borrowed $196-million to acquire Deziwa in January 2013, stating that it would provide the reserves needed to reintroduce the company as a major producer. The company produced 18,826 tons of copper last year, compared with peak output of 500 000 in the 1980s. It says Deziwa has the potential to produce five-million tons of copper, placing it among Congo’s biggest metal deposits.

    Local advocacy groups including Patriotes Katangais Aile Radicale have questioned Gecamines’ plan to now give CNMC a 51% share in its “flagship” project, even on a build-operate-transfer basis, and called for more information about the arrangement.

    The Atlanta-based Carter Center and London-headquartered Global Witness have also called on Gecamines to release details of the deal and to publish an initial agreement signed with CNMC in January, in line with Congolese state requirements.

    The company says that talks are continuing and that a January accord with CNMC was designed only to frame negotiations and doesn’t represent a binding contract that needs to published.
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    UBS makes a bugle call for nickel bulls on crackdown, demand

    Rising demand, deficits and a crackdown in the Philippines are combining to make nickel one of its most-preferred commodities, according to UBS Group, which said the full impact of mine shutdowns in the Southeast Asia nation may be felt only next year when exports fail to ramp up as usual.

    The government’s audit of standards in the mining sector is a front-of-mind risk that’s already shut down about 2% of world supply, analysts including Daniel Morgan wrote in a note. Ore shipments from the top supplier could fall to 314 000 metric tons next year from 410 000 tons last year, it said.

    Nickel has been the best-performing base metal in the second half, rallying to its highest level in a year August 10, on speculation that the Philippine crackdown led by PresidentRodrigo Duterte will crimp supplies. Prices have also been supported as rising stainless-steel output boosts consumption, the UBS analysts said in the August 12 report.

    As Philippine supply usually drops from July to January each year, “the real impact may not be felt until early 2017, when exports fail to ramp up as they normally would,” the analysts said. “Our price forecast is a bullish trajectory and nickel remains one of our most-preferred commodity exposures.”

    President Duterte has pledged to shut any mines that don’t comply with international standards, telling miners that “ we will survive as a nation without you” if they are closed. ThePhilippines accounts for about a fifth of world nickel supply, and became China’s main source of ore after Indonesiabanned shipments of unprocessed raw materials at the start of 2014.

    Signs of the crackdown’s impact are mounting. DMCI Miningsaid on Monday that it’s laying off hundreds of seasonal workers from operating companies in Palawan and Zambalesprovinces that have been suspended by the government. The company said it’s cooperating fully with authorities to facilitate the audit and lift the suspension order.

    In China, production of stainless steel, used in kitchen equipment and chemical plants, expanded 7% to 11.6-million tons in the first half, according to Beijing Antaike Information Development Co. Stainless-steel output accounts for about 65% of nickel first use, according to UBS.
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    MMG races to ramp up copper mine

    MMG races to ramp up copper mine

    Melbourne-based miner MMG is going full speed in ramping up its Las Bambas operation in Peru, the biggest copper mine built for more than a decade, beating expectations and sparking a rerating from Macquarie.

    The $10 billion mine (including purchase and capital costs) in the southern Andes produced 87,142 tonnes of copper concentrate in the June quarter, up from 31,470 tonnes in the previous quarter.

    This puts it an annual production rate of 348,000 tonnes and shows its ramp-up to the 450,000 tonnes that Macquarie estimates the mine will produce at in 2017 is well under way.

    “I think we’ve set a new global benchmark for major copper project commissioning and ramp up,” MMG chief Andrew Michelmore told analysts on a recent call after the company’s second-quarter report.

    The Chinese-controlled, Hong Kong and Australian-listed MMG led a consortium that bought Las Bambas off Xstrata two years ago for $US5.8bn. Xstrata had been told it would need to sell the mine to get Chinese clearance for Glencore’s takeover of Xstrata.

    Macquarie analysts had only been expecting about 75,000 tonnes of copper in concentrate to be produced at Las Bambas during the June quarter.

    “It’s an amazing result, getting Las Bambas up and running that quickly,” Macquarie analyst Ben Crowley said. Last week, Macquarie boosted its target price on MMG’s Australian-listed shares from $3.15 to $5.80 and raised its rating on the stock from neutral to outperform.

    “While liquidity in the stock remains challenging, we believe exposure to Las Bambas is worth the effort,” Mr Crowley said.

    “Even at current copper prices, we estimate the mine will generate annual cash flow of over $US1bn. MMG offers leverage to copper that is second to none.”

    MMG’s thinly traded Australian shares last changed hands at $3.49 on August 3. The previous trade was made on May 9, illustrating just how illiquid the depositary instruments, which first became tradeable on the ASX in March, are.

    MMG operates and owns 62.5 per cent of Las Bambas, which it expects to be the world’s sixth-biggest copper mine next year. China’s Guoxin International Investment owns 22.5 per cent and Citic owns 15 per cent.

    On the call, Mr Michelmore said he believed that copper prices, near six-year lows of $US2 a pound, did not reflect the actual global supply and demand balance.

    “My view on copper is that it is going to be much tighter than the market is projecting,” Mr Michelmore said.

    “But it’s actually manipulated by people who are shorting, running stories of lack of consumption in China, and a pile of other stories,” he said.
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    Congo State miner says to increase copper output 40% this year

    Congo State miner says to increase copper output 40% this year

    Democratic Republic of Congo's state miner Gecamines expects to increase copper production by over 40% this year as new machinery comes online, the company said on Friday.

    Gecamines plans to produce 24 000 tonnes of copper this year and 50 000 tonnes next year, interim director-generalJacques Kamenga told Reuters. This is up from about 17 000 tonnes in 2015, according to central bank figures.

    The increase in production will be driven by a new concentrator at the company's Kambove site, new electrical lines and a machine to crush ore at its Kamatanda mine, Kamenga said.

    "We have all the mechanisms in place to reach that production level," he added.

    The company's output peaked at close to 500 000 tonnes in 1986, but then fell during decades of political upheaval, mismanagement and asset sales. In recent years, investments by companies like Glencore and Freeport-McMoRan have helped make Congo Africa's top copper producer.

    Congo, the world's fifth-biggest copper producer, produced 990 000 tonnes of the metal last year, down from 1.03-million tonnes in 2014.

    In June, Gecamines announced a modernisation plan for 2016 to 2020 that will see the company invest $717-million inoperations in a bid to increase production to over 100 000 tonnes per year.

    However, similar promises have failed to pan out. Gecaminesis some $1.6-billion in debt and Prime Minister Augustin Matata Ponyo sharply criticized the company in May for poor leadership and a lack of transparency, charges the company rejects.

    Kamenga also said negotiations are ongoing with China Nonferrous Metal Mining Company (CNMC) over major investments the company is supposed to make in two factories, including one at Deziwa, Gecamines' flagshipproject.

    Congo's copper production surpassed 1-million tonnes for the first time in 2014 but slumping commodity prices caused output to fall about 20% in the first quarter of this year.
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    Iridium prices press higher on continued industrial interest

    Iridium prices press higher on continued industrial interest

    Iridium prices continued to move higher this week on more inquiries from industrial consumers, though trade sources disagreed about how much metal was actually sold.

    The Platts New York Dealer iridium price moved to $540-$580/oz this week from $528-$575 last week on inquiries and sales to industrial consumers, one of whom requires high-purity material.

    Trade sources cited continued inquiries and buying from three industrial consumers specifically, including one with high purity needs.

    "Because of that, you have to get the high-purity iridium and no one wants to give it away," one PGM dealer/broker said Thursday, referring to the reluctance of some South African producers to release sizeable quantities.

    As a result, dealers and refiners are having to scramble for material, "and no one really has it," said the dealer, putting this week's range of sales at $550-$590.

    Only about 3-4 mt (about 106,000-141,000 oz) of iridium are produced each year. Production by Anglo American Platinum accounts for more than half of total global output.

    The iridium consumers are based in Asia, trade sources said. "There are three solid bids in the market and they keep buying," a second PGM dealer/broker said, putting this week's range of physical deals at $550-$595.

    The dealer/broker and a PGM refiner said the consumer demand was being driven in part by a perceived lack of supply. "Once that price starts moving a little bit you see some fence-sitters jumping in and trying to buy it up," the refiner said, putting this week's range at $540-$590. "It creates a domino effect."

    But other sources questioned how much iridium had actually been sold as opposed to inquiries or negotiations.

    One European dealer/broker who saw the market at $540-$580 said, "There's certainly been a lot of interest, but I don't know how much business has actually been transacted," he said.

    Iridium is used by the electronics industry to produce high-temperature crucibles. The crucibles used to grow synthetic sapphire crystals, which are used in light-emitting diode (LED) displays.
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    Steel, Iron Ore and Coal

    Metallurgical coal poised for biggest weekly price surge since 2011 Queensland floods

    The seaborne premium hard coking coal market is poised to post its biggest weekly gain Friday since the 2011 floods in Queensland, Australia, as a supply shortage in China, the world's largest producer of the steelmaking raw material, prompts end-users to scramble for spot cargoes.

    Platts-assessed spot premium low-vol hard coking coal prices have risen $8.75/mt to date this week to $123.25/mt CFR China Thursday, already the largest weekly increase since February 2011, and to a price level not seen since September 18, 2014.

    Prices of prime hard coals from Australia have risen $8.75/mt to date this week, to be assessed at $117.25/mt Thursday.

    Logistics bottlenecks, including road repairs and slower rail haulage in China's coal producing hub of Shanxi, were responsible for the recent supply squeeze, according to industry insiders.

    As a result, end-users were this week seen scrambling for metallurgical coal cargoes from Australia, Canada and Indonesia, which were priced several dollars above domestic Chinese alternatives.
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    India to tap into Russia’s undeveloped coal, iron ore deposits

    India plans to expand the scope of its current investments in the Russian commodity market by helping the European nation developed its large coal and iron ore reserves, as well as boosting Russia’s fertilizers sector, local media reported.

    During the 5th meeting of the India-Russia Working Group on Modernization and Industrial Cooperation, both sides also identified other fields for potential cooperation, including the modernization of steel manufacturing facilities in India and participation of Indian power equipment supplier in upgrading Russia’s power sector, Economic Timesreports.

    India has stepped up efforts this year to grab major stakes in Russian mining and energy companies.

    New Delhi has stepped up efforts this year to grab major stakes in Russian mining and energy companies. In March, a group of Indian state firms grabbed about 50% of a Siberian oil field run by Russia’s main crude producer, Rosneft.

    Three months later, India’s Oil and Natural Gas Corporation said it would allocate a total of $5 billion this year to speed up its projects in Russia, Sputnik Newsreported.

    India’s total investment in Russia's oil and gas sectors could reach $15 billion over the next four years, Minister of Industry and Commerce Nirmala Sitharaman said last month, RT reported.

    According to Sitharaman, New Delhi injected $8 billion into the Russian energy sector prior to 2015, while Moscow’s investments in India totalled $3 billion.

    Behind the transactions, there is India’s interest in securing supply of coal, liquefied natural gas (LNG), diamonds and fertilizers from Russia.
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    Indian utilities' April-July thermal coal imports down 17.5pct on year: CEA

    Indian utilities imported some 22.6 million tonens of thermal coal over April-July, down 17.5% from the year prior, showed the latest data from the Central Electricity Authority (CEA).

    Of this, some 7.6 million tonnes of thermal coal imported by 27 utilities were used for blending with Indian domestic coal, while around 15 million tonnes imported by 10 utilities were for plants depending on imported coal.

    A total of 16 utilities didn't import any coal during the same period, and data of two utilities was not yet available.

    Adani Power imported the highest volume at some 5.4 million tonnes over April-July, followed by Mundra ultra mega power plant under Tata Group of nearly 3 million tonnes, data showed.

    JSW Energy imported around 1.4 million tonnes, and state-run Tamil Nadu Generation and Distribution Co., Ltd (TANGEDCO) imported 1.2 million tonnes, CEA data showed.

    CEA has not assigned any import targets for utilities for the current fiscal year, as the supply of domestic coal from Coal India Limited (CIL) increased.

    However, they can import coal if they find imported material to be more economical than domestic coal, especially for coastal power plants, even though the government aims to halt coal imports within a couple of years.

    Indian utilities imported some 80.47 million tonnes of thermal coal in fiscal year 2015-16, down 11.8% on year, lower than the targeted 84 million tonnes.

    Of this, 36.98 million tonnes were imported for blending, while 43.49 million tonnes were imported for plants depending on imported coal.

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    China's key steel mills daily output up 4.8pct in early Aug

    Daily crude steel output of China's key steel mills climbed 4.8% from ten days ago to 1.7 million tonnes over August 1-10, according to data released by the China Iron and Steel Association (CISA).

    The increase, reversing three consecutive ten-day drops in July, indicated renewed production enthusiasm from steel mills with the price hike of steel products.

    The average daily crude steel output across the country was estimated at 2.23 million tonnes during the same period, up 3.39% from ten days ago, the CISA said.

    By August 10, stocks of steel products at key steel mills stood at 13.37 million tonnes, up 4.12% from ten days ago, the CISA data showed.

    Prices of China's six major steel products all posted rises in August 1-10, with rebar price up 2.8% from ten days ago to 2,459.2 yuan/t, data from the National Bureau of Statistics showed.

    Warming steel prices had watchdogs on alert for resurgence in production capacity as crude steel output increased 2.6% year on year to 66.81 million tonnes in July. Total crude steel output reached 466.52 million tonnes in January-July, down 0.5% on the year.

    The country's output of steel products rose 1.9% year on year to 657.05 million tonnes over January-July, of which 95.94 million tonnes were produced in July, up 4.9% year on year.

    In the first half of 2016, China reduced steel capacity by 13 million tonnes, about 30% of the planned cuts for the whole year, a figure in line with expectations, according to Feng Fei, vice minister of industry and information technology.

    The campaign apparently gathered momentum in July, when another 17% of the target was finished.

    In the first half this year, work focused on breaking down tasks, so that they could be allocated to provincial-level regions, and the formulation of supportive measures for steel capacity cuts, Feng said.

    In the second half, capacity cuts and supportive measures will gain speed, he said.

    Although four provinces have already met their annual goals, eight reported lukewarm progresses while ten have not taken any substantive measures, according to an inter-ministerial meeting held on August 4.

    The State Council guidelines, issued on February 4, dictated that steel production capacity must be reduced by 100-150 Mtpa over the next five years, with some 45 Mtpa cut in 2016.
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    China Coal Energy July coal sales down 20.2pct on year

    China Coal Energy Co., Ltd, the listed arm of China National Coal Group, sold 10.92 million tonnes of commercial coal in July, sliding 20.2% year on year and 17.9% month on month, the company said in a statement.

    Of the sales, 6.63 million tonnes were self-produced commercial coal, dropping 7.7% from June.

    Analysts attributed the decline to the relatively high sales base in June, which climbed 22.1% month on month to 13.3 million tonnes. Meanwhile, the volume of outsourced coal slumped, due to a lack of supply as more coal was sold locally amid strong demand.

    In the first seven months of the year, the company sold 76.39 million tonnes of commercial coal, falling 1.8% from the year before.

    China Coal Energy posted a 25.7% year-on-year slump in its commercial coal production to 6.72 million tonnes in July, which, however, rose 2% from the previous month.

    The production during January-July reached 47.10 million tonnes, sliding 14.9% from the year prior.

    Thanks to the supply-side structural reform initiated by the central government, thermal coal supply has reduced notably, which also lent support to the rise of coal prices.

    The Fenwei CCI Thermal Index for domestic 5,500 Kcal/kg NAR coal traded at Qinhuangdao port was assessed at 481 yuan/t with VAT on August 17, FOB basis, up 61 yuan/t from a month ago, and up 116 yuan/t from the beginning of this year, showed data from China Coal Resource.

    In July, coal stocks at coastal power plants under the six major power producers dropped 3.9% from June to 11.78 million tonnes on average each day, while their daily coal consumption averaged 652,000 tonnes, gaining 9.6% on the month.

    With the ongoing overcapacity cut, supply of thermal coal is likely to remain tight in the coming months. And the price of 5,500 Kcal/kg NAR thermal coal may rise to above 500 yuan/t at northern ports before the end of 2016.
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    Russian steel firm Evraz's core profits drop 38 pct

    Evraz, one of Russia's largest steel producers, reported a 38 percent fall in first-half core earnings on Thursday, hit by weaker steel prices and missing market forecasts.

    The London-listed shares were down nearly 4 percent at 166.6 pence by 0800 GMT, making them the top midcap loser in the FTSE 250 Index , which was up 0.5 percent.

    Along with its Russian rivals the company, part-owned by Chelsea soccer club owner Roman Abramovich, has been hit by low steel prices and depressed demand which outweighed the benefits of a weaker rouble.

    Evraz said its earnings before interest, taxation, depreciation and amortisation (EBITDA) in the first six months of the year fell to $577 million from $932 million in the same period of 2015. Analysts polled by Reuters had on average expected a result of $593 million.

    Net profit fell to $7 million from $19 million in the same period last year, while revenue fell 28 percent to $3.5 billion.

    Evraz also said in a presentation it expected its capital spending this year would be in a range of $375-400 million, having previously said they would be less than $400 million.

    The company did not provide its financial results for the second quarter but said they were stronger than in the first quarter due to higher steel prices, the trend it expects to continue in the rest of 2016.

    "Global steel producers experienced a positive trend in pricing in the second quarter of 2016 driven by a combination of Chinese government investmentstimulus, low inventory levels and speculative activity on futures markets," it said.

    In the second half of the year, Evraz expects steel prices in the Russian domestic market to gradually increase to the average level of 2015 without, however, any significant improvements in domestic demand.

    In North America, where the Russian company has its own production, it said the market might be negatively affected by delays in approvals of large pipeline projects in the United States and Canada and by weak demand for rail track.

    EVRAZ North America's EBITDA fell by $10 million to $27 million in the first half.
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    Sinosteel debt swap near complete

    Sinosteel Corp, which became one of the first State-owned companies to encounter bond repayment problems in 2015, is in the final stages of completing a debt-to-equity swap plan, financial magazine Caixin reported on Tuesday.

    The plan has been submitted to the State Council for approval and will soon begin in earnest, Caixin said, citing anonymous industry sources.

    Sinosteel may be permitted to swap half of its debt into equity, Caixin noted. The magazine estimates Sinosteel and its subsidiaries had 100 billion yuan ($15 billion) of debt at the end of 2014.

    In October 2015, Sinosteel asked bondholders not to exercise an early redemption option on one of its bonds maturing in 2017 as it would not be able to make full payment.
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    Australia's Whitehaven beats profit forecast amid coal resurgence

    Australia's Whitehaven Coal Ltd on Thursday reported a bigger-than-expected annual profit on the back of higher coal sales in Asia.

    Net profit by the producer of coal used in power generation and to make steel, whose customers are predominantly in Japan and India, reached A$20.5 million ($15.7 million) in fiscal 2016 against forecasts by analysts of around A$14.6 million, according to Thomson Reuters data. The company recorded a A$10.7 million loss in fiscal 2015.

    Whitehaven has seen a dramatic rise in its stock from just A$0.70 in January to Wednesday's close of A$2.04 amid an expansion by the company in eastern Australia.

    Production of coal increased by 30 percent in the year ended June 30, allowing Whitehaven to improve sales margins despite average lower selling prices over the year.

    Whitehaven said buyers of its thermal coal were adding more coal-fired power station capacity.

    After five years of declining prices, coal markets appear to have found a bottom in the current quarter, it said.

    Japan is burning record amounts of the fossil fuel for electricity generation after the 2011 Fukushima disaster shuttered its nuclear sector, while South Korea plans to build 20 new power plants using the cheapest fuel source by 2022.

    Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35 percent since mid-June to more than one-year highs of almost $70 a tonne.

    Prices for metallurgical coal, a smaller component of Whitehaven's sales, have also firmed over the last year, according to the company.
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    U.S. ITC backs steel pipe and tube import duties

    The U.S. International Trade Commission on Wednesday backed duties on imports of certain carbon steel pipes and tubes from South Korea, Mexico and Turkey, saying the imports were harming domestic producers.

    The Commerce Department had already slapped anti-dumping duties of up to 35.66 percent on imports of heavy-walled rectangular welded carbon steel pipes and tubes from the three countries, as well as anti-subsidy duties of up to 23.37 percent on the products from Turkey.

    The ITC's finding, which finalizes those duties, marks the last step in an investigation launched last year after a complaint from Atlas Tube, a division of JMC Steel Group; Bull Moose Tube Co; EXLTUBE; Hannibal Industries, Inc; Independence Tube Corp; Maruichi American Corp, a subsidiary of Maruichi Steel Tube Ltd; Searing Industries; Southland Tube and Vest Inc.
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    Top steel firms' debt level totals record $150 billion: EY

    Debt in the world's top 30 steel companies totals a record $150 billion, international accountancy firm EY said on Thursday, adding governments' action to support the sector would work only if matched with more radical industry restructuring.

    Overcapacity and weak steel prices have piled pressure on firms such as Tata Steel, which is in merger talks with German conglomerate Thyssenkrupp.

    EY said in a report published on Thursday steel firms took on debt as they fought for market share, notably the Chinese steel sector has added about a billion tonnes of capacity since 2000, helping to take global excess capacity to about 700 million tonnes.

    The debt of the top 30 companies is dwarfed by China's steel sector debt, estimated at $500 billion.

    "Many steelmakers are in some form of distress with some teetering on the verge of bankruptcy," Anjani Agrawal, EY global steel leader, said, adding government efforts would only work if the industry had viable business models.

    Reforms are underway.

    Thyssenkrupp, the world's 16th largest steel producer by tonnage, has announced the sale of real estate assets as well as embarking on merger talks with Tata.

    At the end of June, the firm had gearing of 175 percent, versus 124 percent a year earlier, and debt of 4.77 billion euros compared with 4.39 billion the previous year.

    It aims to reduce its gearing to less than 150 percent by the end of September and told an analysts' call last week it should meet that target.

    The world's largest steelmaker ArcelorMittal has tackled its debt with a $3 billion rights issue.

    It also sold a $1 billion stake in a Spanish automotive steel group Gestamp in April. Net debt was $12.7 billion at the end of the first half of 2016, down from $17.3 after the first quarter. The group guides for positive cash flow in 2016.

    China has promised to reduce steel capacity by 45 million tonnes this year, but cuts in the first seven months were only 47 percent of the annual target.

    To protect Western firms from Chinese steel, which the United States and Europe says is sold at less than cost price, Washington and Brussels have imposed duties, prompting criticism from China.

    European steel representatives say Chinese firms should carry out most of the restructuring, given the size of their debts, but they are not assuming that will happen and all measures will be needed for the sector to survive.

    "For the next 5 to 10 years there will be substantial pain. It should be principally in China, but it will be principally here unless we have effective trade measures," Brussels-based lawyer Laurent Ruessmann, a partner at Fieldfisher, said by telephone. He represents steel firms and is specialized in China and trade law.
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    Indian state ports' thermal coal imports drop in July

    India's 12 major government-owned ports handled 7.34 million tonnes of imported thermal coal in July, sliding 22.65% from 9.49 million tonnes in the same month last year, and dropping 18.5% from June's 9.00 million tonnes, according to latest data released by the Indian Ports Association (IPA).

    However, coking coal shipments received by the 12 ports during the month rose 14.13% on the year to 4.27 million tonnes, from 3.74 million tonnes, the data showed.

    Paradip port on east coast handled the highest volume of thermal coal in July at 2.58 million tonnes, falling 6.29% from 2.75 million tonnes a year ago.

    Kolkata port, also on the east coast, received the highest coking coal shipments in July at 1.24 million tonnes, compared to 532,000 tonnes in July of 2015, showing a rise of 132.9%.

    The 12 ports referred to are Kolkata, Paradip, Visakhapatnam, Ennore, Chennai, VO Chidambaranar (Tuticorin), Cochin, New Mangalore, Mormugao, Mumbai, Jawaharlal Nehru Port Trust, or JNPT, and Kandla.

    Cochin port, JNPT and Chennai didn't receive any coal cargoes in July.

    As of the end of July, Indian imports of thermal coal totaled 34.51 million tonnes in the fiscal year of 2016-17 (April-March), slipping 3.2% compared to the corresponding period last year.

    Meanwhile, the Asian country imported 17.32 million tonnes of coking coal, rising slightly by 0.62% on year.

    Attached Files
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    After years of pain, coal becomes one of the hottest commodities of 2016

    Less than a year after the coal industry was declared to be in terminal decline, the fossil fuel has staged its steepest price rally in over half a decade, making it one of the hottest major commodities.

    Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35 percent since mid-June to more than one-year highs of almost $70 a ton, pushed by surprise increases in Chinese imports.

    "Chinese regulators have assumed the role that markets traditionally play in bringing oversupplied commodities back to balance," Goldman Sachs said in a note to clients late on Tuesday, reversing a gloomy outlook it issued last September.

    "Restrictions on domestic production introduced earlier this year have lifted prices globally and turned coal into one of the best performing commodities so far this year."

    Global mining majors like Glencore and Anglo American, but also regional Asian players like Thailand's Banpu, are reaping the benefits.

    All three have seen their shares rise sharply this year, particularly in recent months after China in April cut mine operating days by 16 percent in a bid to help meet its target of reducing capacity by 250 million tonnes this year.

    Banpu, which operates several export mines across Asia-Pacific, said this week that it expects to sell its 2016 coal supplies at an average price of over $50 a ton, up from a previous target of $47 to $48 per ton, thanks to the recent rally.

    The price recovery is an unexpected boon for miners, who were hit hard by a years-long downturn, and stands in sharp contrast to previous calls by Goldman and the International Energy Agency (IEA), who said last year that coal was in terminal decline.

    As a result of China's surprise move, Goldman said there was now "support (for) global prices for the foreseeable future."

    The bank raised its three, six and 12 month price forecasts to $65/$62/$60 per ton for Newcastle coal, up as much as 38 percent from its previous outlook.


    Coal has also been garnering support from Asian industrial powerhouses Japan and South Korea, while demand remains firm in India, Vietnam and the Philippines.

    Japan is burning record amounts of the fossil fuel for electricity generation after the 2011 Fukushima disaster shuttered its nuclear sector, while Korea plans to build 20 new power plants using the cheapest fuel source by 2022.

    China's power consumption has also risen against expectations, jumping 8.2 percent from a year ago in July to reach 552.3 billion kilowatt hours.

    "The biggest improvement in the industrial sector (in China) was power generation,... helping demand for coal over the past month," Australia's Macquarie bank said this week.

    While almost all thermal coal miners were hit by the previous price decline, and most shut or sold assets, those left with the best assets now stand to benefit from the rebound.

    The biggest winners are those with mines in Australia, thanks to the high average quality of its coal.

    Shares of Anglo American, a major thermal coal miner in Australia, have recovered from record lows earlier this year of around 2.2 pounds to around 8.7 pounds.

    Commodity merchant and miner Glencore, the world's biggest thermal coal exporter with huge Australian operations, has also seen its shares soar from around 70 pence early this year to nearly 2 pounds.

    Glencore was not available for comment ahead of reporting its half-year results on Aug. 24. Anglo American in its half-year results in late June pointed to consistent Indian demand and the unexpected pickup in China.

    Other miners, however, have not been able to benefit from coal's 2016 boom.

    Indonesia, the world's biggest exporter of thermal coal, has seen its output fall during the lull, and its miners are unable to raise production due to debt constraints.

    Attached Files
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    China's new thermal power installed capacity falls to 19% of total in June

    China's newly-added installed capacity of thermal power stood at 2.86 GW in June, accounting for only 19% of the total increase of power installed capacity, which was reported to have soared to 14.97 GW in the month, showed data from the National Energy Administration (NEA).

    The decline of new thermal power installed capacity actually started from May this year, with the new thermal power capacity standing at only 2.33 GW or 35.8% of the total.

    The unsatisfactory result in June was also a main factor propelling the share of newly-added thermal power capacity of the total sliding from over 60% to 47.6% over January-June.

    In the first half of the year, China's newly-added power installed capacity totaled 56.99 GW, while thermal power capacity was only 27.11 GW, data showed.

    China Electricity Council (CEC) expected China's installed capacity of power generation to increase 120 GW to 1.64 TW this year, with that of non-fossil energies reaching 600 GW or 36.5% of the total installed capacity by end-2016.

    Of the expectant newly-added capacity for the whole year, the installed capacity of non-fossil energies will be 70 GW or so, while that of thermal power will be some 50 GW.

    The decline of coal-fired power capacity increasingly turns out to be an inevitable trend. However, is a milestone for China to transform its energy mix to a cleaner and more sustainable one.
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    Iron-ore seen back at $40 by Morgan Stanley as seasons shift

    Iron-ore’s 2016 rally may be about to face a challenge from the changing of the seasons. Morgan Stanley has forecast that prices may tumble back to $40 a metric ton this half as the approach of winter in Chinatypically blunts steel demand and output.

    “Our short-term forecast still features a September-October seasonal pullback as China’s steel demand and production rate abates,” analysts including Joel Crane wrote in a report. Over the past 10 years, iron-ore prices have on average dropped in September, October and November, according to the report.

    iron-ore has soared in 2016, snapping three years of declines, as stimulus and a credit-fueled property boom in China lifted demand. The upsurge confounded expectations for further losses, and prompted banks including Morgan Stanley andGoldman Sachs Group Inc. to revise forecasts higher earlier this year. While China’s steel production has been robust so far in 2016, demand may ease as the summer ends, according to Morgan Stanley’s note.

    The “season is mature now; the reliable September-to-October pullback is nigh,” Crane wrote, adding that rising mine production in Australia and Brazil may also help to blunt prices. “Beyond the seasonal pullback, ore prices should also become increasingly capped in the second half by ongoing supply growth.”

    Record Rate

    The raw material with 62% content delivered to Qingdao has risen 38% in 2016 to $60.22 a dry ton on Monday, according to Metal Bulletin Ltd. The gains have come as steel prices surged and daily rates of output in China hit a record, while shipments of steel products held near an all-time high. Futures in Singapore and Dalian gained on Tuesday.

    Construction in China typically slows in the colder, winter months. Asia’s top economy accounts for about half of globalsteel production, and its mills are the world’s largest buyers of seaborne ore. Winter constraints on Asia’s trade and deployment of steel are profound, according to Morgan Stanley.

    The bank maintained its forecasts for the raw material to average $45 a ton this quarter and $35 in the final three months of 2016, with a base-case estimate of $40 for the second half. So far this year, the Metal Bulletin benchmark has averaged about $53 a ton.

    Morgan Stanley flagged prospects for increased output fromBrazil’s Vale SA, which is expected to start output from its S11D project before the year-end. There’s also new supply from Australian billionaire Gina Rinehart’s Roy Hillproject in the Pilbara, which is ramping up production this year.
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    Tashan Coal Mine adopts leaner approach

    Tashan Coal Mine, the world's largest single-entry underground mine, has cut its production capacity by 15 percent over the last four months, in a key feature of the supply-side reform in China's coal industry.

    "The company has been strictly following the 276-working-day limit and the production safety notice issued by the central government and the provincial administration," said Zhang Meiping, director of Tashan Coal Mine, located 15 kilometers to the southwest of Datong, Shanxi province.

    Tashan Coal Mine, which became operational in 2006, has an annual designed capacity of 15 million tons. It is owned by Shanxi Datong Coal Mine Group, the third-largest mining company in China.

    China is the world's largest coal producer and consumer, but the coal industry has long been plagued by overcapacity and felt the pinch even more in the past two years as the economy cooled and demand fell.

    According to the earnings of 2015, the liabilities of seven State-owned mine companies in Shanxi province were 1.1 trillion yuan ($165 billion), a 10 percent increase year-on-year.

    Among those, Datong Coal Mine Group, the largest mining company in the province, has the most liabilities, up to 219 billion yuan.

    In early April, the central government stepped up its efforts to reduce both oversupply and pollution in major cities by reducing the number of working days for its coal miners to 276 a year from 330.

    Since then, Tashan Coal Mine has reduced its annual designed capacity by 15 percent to 12.6 million tons.

    Shi Li, a manager at Tashan Coal Mine, said the biggest benefit from the new regulation was the great improvement in work safety, since workers can rest efficiently and equipment can be repaired properly, Shi said.

    "After the reduction of output, we changed the manufacturing technology, which helps reduce manufacturing costs and improve working efficiency," he added.

    In order to upgrade its regional coal industrial chains and echo the national development priorities, Shanxi province announced plans to reduce its coal overcapacity by 20 million tons by the end of this year, and the reduction amount is expected to reach 100 million tons by 2020.

    Hu Wansheng, deputy director of the province's coal industry department said technological innovation on non-pollution mining and cleaning, low-carbon, and efficient use of coal is the only way forward for the coal industry.
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    Liaoning to cut coal capacity of 30.4 Mtpa by 2020

    Liaoning province in northeastern China planned to cut coal capacity of 30.4 million tonnes per annum (Mtpa) through closure of 140 coal mines by 2020, in response to the government-led supply-side structural reform to tackle the surplus capacity, Liaoning Daily reported, citing a provincial meeting held on August 15.

    A total of 13.27 Mtpa of coal capacity in the province will be shut by the end of this year, and 83 coal mines will be closes by 2018, with capacity combined at 27.31 Mtpa, according to the plan.

    It will be painful for the province to put it into actual practice, as lots of workers depend on the industry for livelihood.

    Data showed that the province has 259 coal companies that run 289 registered mines with total production capacity of 75.42 Mtpa.

    The priority of the capacity cuts falls on coal producers owned by provincial government — Fuxin Mining, Liaoning Tiefa Energy and Shenyang Coal Industry Group. The three producers have cleared coal capacity of 3.5 Mtpa by end-June this year, 29.2% of their 2016 target of 12 Mtpa.

    Meanwhile, Liaoning pledged to cut crude steel capacity of 6.02 Mtpa this year, compared with the current capacity of 86 Mtpa.

    The de-capacity task in steel industry will mainly involve three cities in the province—Anshan, Liaoyang and Chaoyang cities.
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    EU to boost steel trade defences as imports surge

    The European Commission is expected to further strengthen its steel trade defences, possibly as early as October, industry leaders say, as a global trade war in the alloy intensifies and imports keep flooding into the bloc.

    The Commision has ramped up trade defences over the past year, slapping anti-dumping duties on products like reinforced bar, cold-rolled carbon steel and cold-rolled stainless steel, ranging between 18.4 and 25.3 percent for imports from China.

    Despite that, carbon steel imports in the year to May rose 21 percent, with China now representing 27 percent of total imports, while stainless steel imports rose 17 percent over the period, EU data shows.

    "The European Commission know they'll have to act because too many other agents of this planet are fencing off borders," Voestalpine Chief Executive Wolfgang Eder said in a conference call with reporters.

    Eder, also chairman of World Steel Association, expects to see more "efficient and effective" measures in place this autumn, saying that duties in the region of 20 to 30 percent would go some way to helping the industry.

    A European Commission spokesman declined to comment on future trade defences measures.

    China, which produces half the world's 1.6 billion tonnes of steel, has struggled to reduce its estimated 300 million tonne overcapacity, and rising prices have encouraged its firms to ramp up production for export.

    But Beijing denies its firms are dumping or selling steel at below fair value. It says global steel overcapacity is due to the collapse of demand after the 2008 financial crisis.

    Countries from Asia to the Americas disagree. The U.S., in the midst of an election year, has slapped duties of up to 450 percent on some Chinese steels.

    Still, industry representatives say they are not advocating U.S. style protectionism, but that the EU's renewed determination to protect steelmakers is encouraging.

    "A full-fledged war on steel is now ongoing with China," said an EU official familiar with the bloc's steel sector plans.

    The crunch point could come in October, when the EU might cut the time frame for imposing duties from nine to seven months, and water down or scrap the 'lesser duty rule', which severely limits tariff levels.

    "There's been a shift in understanding amongst EU members which we welcome, but we would call on them to do more to efficiently and effectively defend the industry," a spokesman for European steel association Eurofer said.

    The EU is scheduled to rule on preliminary anti-dumping duties on plate and hot rolled coil from China in November.

    Industry representatives expect a positive ruling, adding that besides the renewed EU drive to protect steelmakers, Britain's vote in June to leave the EU should free the bloc's hand.

    Britain was one of a small minority of countries that opposed duties due to concerns about potential retaliation from Beijing.

    "Following (Britain's) EU referendum, we see a very high potential for the EU to politically favour domestic steelmakers," Berenberg analyst Alessandro Abate said.

    The Commission has 37 anti-dumping and anti-subsidy measures in place for steel products, 15 of them concerning China.
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    Hebei clears coal, steel sectors from several cities

    Hebei province in northern China moves to cut overcapacity in its coal and steel sectors, and has ordered these industries to basically withdraw from several of its cities, the Hebei Daily reported on August 14, citing an internal government meeting held two days earlier.

    Zhangjiakou, Chengde, Qinhuangdao and Baoding will speed up pace to become "cities without coal mines," according to the report, citing a plan drawn up by the Hebei Development and Reform Commission. No time frame was given.

    Local governments are making plans for the total relocation of the steel sector from the cities of Zhangjiakou, Baoding and Langfang.

    In total, five cities in Hebei province will bid farewell to coal mines or steel mills, or both.

    "Most of the steel mills in these cities are smaller, privately held companies. The measures will clear the cities of less important industries," said Wang Guoqing, research director at Beijing Lange Steel Information Research Center.

    Wang noted that Zhangjiakou, Baoding and Langfang are close to Beijing, and closing steel mills will bring environmental benefits to the capital, which will hold the 2022 Winter Olympics with Zhangjiakou as a partner city.

    Besides, the province pledged to retain only 40 key coal mines or so owned by Jizhong Energy and Kailuan Group in Tangshan, Handan and Xingtai cities by 2020, with capacity combined at 50 million tonnes per annum or so.

    As part of the nationwide task of cutting China's excess capacity, Hebei province proposed to cut 17.26 million tonnes of iron-making capacity and 14.22 million tonnes of steel-making capacity before end-2016. In addition, it will close 50 coal mines with production capacity of 13.09 million tons.

    Since the de-capacity campaign started in 2013 to the end of 2015, Hebei has trimmed 33.91 million tonnes of iron-making capacity and 41.06 million tonnes of steel-making capacity, the report said.
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    Coal's rally is at risk from lower China imports in August

    If you believe that thermal coal's rally this year has been largely on the back of rising Chinese imports, it follows that any sign of moderation in demand in the world's biggest buyer would raise a red flag of caution.

    That banner may be in the process of being hoisted, with shipping data suggesting August imports of the fuel used mainly for power generation may be the lowest for six months.

    Ship-tracking data compiled by Thomson Reuters Commodity Research and Forecasts estimate that 13.07 million tonnes of coal will arrive in China in August, down substantially from the 18.92 million tonnes in July, which was the most so far this year.

    It's worth bearing in mind that the August figure will likely rise somewhat over the next few days, as ships leaving Indonesia will still have time to reach China by the end of the month.

    It's possible that some vessels could still depart from Australian ports and make China by the end of August, but they would have to leave by today and steam faster than normal, as the usual voyage time from Newcastle port, the world's largest export harbor for thermal coal, to southern China is around 18 days.

    It's also worth noting that the Thomson Reuters data doesn't exactly match up with Chinese customs data, largely because the Thomson Reuters data is for seaborne coal imports and therefore excludes rail and truck cargoes from countries such as Mongolia and North Korea.

    But even allowing for some more cargoes to be added into the August arrivals, it does appear likely that China's seaborne imports will drop substantially in August, possibly by as much as 5 million tonnes from July's figure.

    If this is the case, it will hardly be positive for the main Asian coal price benchmarks, which have enjoyed strong gains this year.

    The Newcastle Weekly Index, the main thermal coal marker, has rallied almost 42 percent since its year-low in late January to end last week at $67.13 a ton, while ICE Newcastle futures have surged 41 percent over the same period.

    The futures curve for the ICE contracts <0#NCFM:> also suggest that Newcastle coal won't suffer steep declines, with the December contract at $63.15 a ton and August 2017 at $64.70, both only slightly below the close of $68.30 on Aug. 12.


    However, much will depend on whether China's imports of coal continue to surprise to the upside, as they have done so far this year.

    Customs data show total coal imports of 129.2 million tonnes in the first seven months of the year, a gain of 6.7 percent over the same period last year.

    Thomson Reuters Commodity Research and Forecasts have pegged seaborne imports at 123.6 million tonnes in the year to end August, up 3.2 percent from the 119.8 million recorded for the same period in 2015.

    This rate of growth, while still positive, is down from 5.2-percent growth in the first seven months of this year compared to the same period in 2015.

    Although too early to call a definitive trend, if final numbers do confirm weakness in China's coal imports in August, it will call into question the sustainability of the rally in coal prices.

    India, the world's second-largest coal importer, is also unlikely to have increased imports in August, with vessel-tracking data forecasting the arrival of 13.96 million tonnes in August, down from 17.14 million in July.

    Again, the August figure may rise slightly in coming days as both cargoes leaving from Indonesia and South Africa could still make it to the South Asian nation by the end of the month if they sail by the end of this week.

    But even if a surge of cargoes does materialize in the next few days, it's still unlikely that India will record an increase in coal imports in August from July.

    India's coal imports in the first eight months of the year are also likely to be lower than for the same period in 2015, with Thomson Reuters data showing 134 million tonnes arriving by the end of August, down 3.8 percent from the 139.3 million recorded in the January to August period last year.

    What the market will have to decide is how well a 40-percent rally in coal prices sits with a much more modest, single-figure gain in Chinese imports and a decline in Indian purchases.
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    $60 iron ore price see Australia, Brazil lose market share

    The import price of 62% Fe content ore at the port of Tianjin jumped back above $60 per dry metric tonne level on Friday according to data supplied by The Steel Index.

    Against most predictions, year to date the price of the steelmaking raw material is up 44% and has surged 63% since hitting near-decade lows in December.

    Trade data released earlier this week showed China, which consumes more than 70% of the world's seaborne iron ore trade, imported 88.4 million tonnes in July, the highest since December and up nearly 3% from a year ago. Shipments for the first severn months are now up 8.1% from 2015's record setting pace and on track to breach 1 billion tonnes for the first time.

    The rebound in prices and Chinese demand for cargoes have encouraged miners to enter or re-enter the market and new research from the Singapore Exchange shows non-traditional players are increasing their share of the seaborne market.
    Non-traditional supply could become stickier if hedging strategies at today's higher price are also adopted

    The global trade of roughly 1.3 billion tonnes is dominated by Australian and Brazilian and low cost producers including Rio de Janeiro based Vale and Pilbara giants Rio Tinto and BHP Billiton have been crowding out not only domestic Chinese miners, but also other exporting nations including number three South Africa where iron ore output is down by more than a fifth in 2016.

    Adrian Lunt, head of commodities research at SGX, says the second quarter "marked the first time in years that Australia and Brazil have seen a collective decline in seaborne iron ore market share."

    Of the 10.7 million tonnes of Chinese iron ore import growth in Q2 relative to the firs three months of the year Australian supply rose by around 7.3 million tonnes, Brazilian supply declined by 5.3 million tonnes while supply from other regions rose roughly 8.8 million tonnes.

    According to the note, regions ramping up iron ore exports in recent months have included India (first half exports were more than three times higher than the whole of last year), Iran, Peru, Mongolia, Russia, Indonesia and Malaysia.

    Lunt adds that some non-traditional supply "could become stickier if hedging strategies at today's higher price are also adopted."
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    China moves to spur slow coal overcapacity cut

    China moves to spur slow coal overcapacity cut
    China's top economic planner ordered local governments to speed up measures to cut excess coal production capacity as progress was slow.

    "Local governments should strive to fulfill their targets by the end of November, while central and provincial state-owned coal producers should complete in the early part of that month," Lian Weiliang, deputy head of the National Development and Reform Commission, said when addressing an internal meeting.

    Lian's remarks followed data that showed that by the first seven months China had only achieved 38 percent of its coal-production reduction goal. Around 250 million tonnes of capacity should be reduced this year.

    "Currently, progress clearly lags behind our official schedule," he said.

    Lian mentioned under-performing regions during the meeting. There has been no practical progress in Inner Mongolia, Fujian, Guangxi, Ningxia and Xinjiang, while Jiangxi, Sichuan and Yunnan have finished less than 10 percent, he said.

    Authorities must strengthen enforcement, Lian said, adding that punitive measures including forced shutdowns can be taken on factories that dawdle.

    China is the world's largest producer and consumer of steel and coal. The two industries have long been plagued by overcapacity and have felt the pinch even more in the past two years as the economy cooled and demand has fallen.

    The government has made reducing excess capacity a top priority, with plans to cut steel and coal capacity by about 10 percent -- as much as 150 million tonnes of steel and half a billion tonnes of coal -- in the next few years.
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    China to use tougher environmental standards to tackle capacity glut

    China to use tougher environmental standards to tackle capacity glut

    China will use the stricter enforcement of environmental, safety and energy efficiency standards as well as tougher credit controls to help fight against overcapacity in key industrial sectors, the government said.

    The world's second-largest economy has identified overcapacity as one of its key challenges and it has already pledged mass closures in the steel and coal sectors, but it has so far fallen behind on its targets.

    The Ministry of Industry and Information said on Friday in a draft policy document published on its website ( it would "normalize the stricter implementation and enforcement of mandatory standards" to tackle overcapacity in sectors such as steel, coal, cement, glassmaking and aluminum.

    It would implement a "differential credit" policy that would allow lenders to extend loans to help firms restructure while cutting off funding for poorly performing enterprises targeted for closure.

    Firms that fail to comply with new energy efficiency targets would be given six months to rectify and would be closed if they fail to make progress. Those that continue to exceed air and water pollution standards would be fined on a daily basis and in serious cases ordered to shut.

    It said authorities would cut off power and water supplies, and even demolish the equipment of firms that fail to meet environmental and safety standards. Facilities could also be sealed off to prevent them from going back into operation.

    The ministry also repeated a previous pledge to implement differential and punitive power pricing policies to force firms to toe the line.

    Beijing is concerned that some local governments have not been acting with enough urgency when it comes to dealing with overcapacity problems. On Thursday, the state planning agency singled out regions such as Inner Mongolia, Fujian and Guangxi for failing to make progress.

    China plans to close 45 million tonnes of annual crude steel capacity this year, and 250 million tonnes of coal production, but only a third of the closures were completed by the end of July, the National Development and Reform Commission said.

    Attached Files
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    Aurizon profit down, 2017 outlook weaker than market tipped

    Aurizon Holdings reported a 16-percent drop in annual underlying profit on a decrease in transported coal and freight and said on Monday it expected operating earnings to grow in 2017 but by less than analysts had been forecasting.

    It also flagged it had stopped a share buyback to shore up funds for growth opportunities, which include a bid for Glencore Plc's GRail coal haulage business potentially worth $1 billion.

    "Our first impression is that the result, outlook commentary and the stopping of the buyback is likely to disappoint market expectations and as a result we expect the shares to be weak," RBC analyst Paul Johnston said in a note.

    Aurizon's shares opened down 6.6 percent following the result.

    Profit before one-offs fell to A$510 million ($390 million)for the year to June 2016 from A$604 million a year earlier, which was slightly better than analyst forecasts around A$498 million.

    It paid a full-year dividend of 24.6 cents, up 3 percent on a year ago.

    Aurizon Chief Executive Lance Hockridge said that while conditions were tough, there were signs that the market had bottomed for its coal customers, with only 10 percent of them now operating at or below breakeven, down from 26 percent six months ago.

    "In coal, we're seeing evidence of some stabilisation in the market, both with respect to the actual numbers, the position of our customers and to the sentiment in that space," he told reporters on a conference call.

    Aurizon has been scrambling to cut costs as tonnages and revenue have been hit by a slump in the coal sector and said it is on track to achieve savings of A$380 million over the three years to June 2018.

    Hockridge said snaring GRail would help Aurizon build on its 25 percent market share in coal transport in New South Wales against Asciano's Pacific National.

    "Yes we're certainly interested, however we're not desperate," he said.

    Aurizon needs a new source of growth after writing off its West Pilbara Iron Ore rail and port project, shelved last December due to a market glut. The write-off, booked in February, dragged annual net profit down 88 percent to A$72 million.

    The company expects underlying earnings before interest and tax to rise to between A$900 million and A$950 million in the year to June 2017 from A$871 million in 2016, based on coal volumes of 200-212 million tonnes.

    That is well below analysts' forecasts around A$970 million for 2017, according to Thomson Reuters I/B/E/S. ($1 = 1.3080 Australian dollars) (Reporting by Sonali Paul; Editing by Alan Crosby and Joseph Radford)
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    Glencore progresses low-emission coal project in Queensland

    The government of Australia has granted A$8.7-million to Carbon Transport andStorage Company (CTSCo), a wholly-owned subsidiary of triple-listed Glencore for its carbon capture and storage project in Queensland’s Suratbasin.

    This funding, provided by the Department of Industry,Innovation and Science, will enable CTSCo to conduct a front-end engineering and design study, the next step in moving the project toward a final investment decision to undertake carbon dioxide (CO2) storage at depths greater than a kilometre.

    “This is an important development for the project and demonstrates the continuing contribution by Glencore and the coal industry to the research and development of low-emission technology solutions for fossil fuels that can be scaled up safely and commercially around the world,” saidGlencore global coal business group executive and WorldCoal Association chairperson Mick Buffier on Friday.

    He added that the project highlighted the important roleAustralia was playing in developing solutions that could significantly reduce emissions from fossil fuels.

    The technology can capture and store CO2 from coal- andgas-fired power stations, as well as a wide range of otherindustrial processes, such as steelmaking and chemical processes. It also plays a vital role in achieving ambitious climate change goals.

    The CTSCo project is located within a single greenhouse-gastenement, granted by the Queensland government in 2012, to be deployed on Glencore-owned land.

    The latest federal government funding builds on significantfinancial contributions to the project made by the coalindustry, the Queensland state government and Glencore.

    The project will be subject to a range of local, state and federal government regulations including environmental, social and technical aspect assessments and approval processes. These will all need to be successfully completed prior to the demonstration project starting in 2019.

    Meanwhile, carbon capture and storage (CCS) projects in North Australia was further bolstered by the Minister for Resources and Northern Australia Senator Matthew Canavan who granted more than A$23-million for the sector.

    The investment will help develop CCS technologies that can potentially reduce emissions by around 90% from fossil fuel electricity generation.

    CCS is already operating commercially with SaskPower’s Boundary Dam project, in Canada, the world’s first coal-firedpower plant with CCS. It’s achieving an emissions reduction of one-million tonnes of CO2 a year.

    The Australian coal industry is a major investor in the research and development of new coal emission reduction technologies.

    Through the Acalet Coal 21 Fund, the industry has made substantial investments in CCS projects and supports the research, development and demonstration of cleaner coaltechnologies. The Coal21 Fund is a joint financier of the CTSCo project and has already invested more than A$9-million in the project.

    Coal accounts for 41% of the world’s electricity generation and 70% of Australia’s grid electricity and is essential in the manufacture of modern infrastructure.
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    Yitai Coal expects a 150pct surge in H1 net profit

    Inner Mongolia Yitai Coal Co., Ltd, the listed arm of Yitai Group, expected its net profit to surge 150% on year in the first half of the year, the company announced in its latest forecast report.

    The company attributed the favorable results mainly to spiking coal prices as the central government had been enforcing the supply-side structural reform during the past six months.

    Meanwhile, the low profit registered last year also gave it more growth room over January-June this year. In the first half of 2015, the company's net profit was 176 million yuan, a slump of 88.3% from the same period of 2014.

    Yitai Coal produced 17.18 million tonnes of coal in the first half of the year, up 1.1% on year, data showed.

    Its coal sales increased 12% from a year ago to 27.83 million tonnes during the same period, with sales in the second quarter rising 30.5% from the previous quarter.

    In the first quarter, the company realized gross profit of 650 million yuan ($97.92 million) in coal sales, dropping 20% on year.

    The gross profit in the second quarter reached 1.21 billion yuan, soaring 86.2% on quarter and up 3% on year, mainly attributed to a quarter-on-quarter increase of 990 million yuan in coal sales revenue during the period.
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    Baosteel lifts September steel price by 10 yuan/t

    Baoshan Iron and Steel Co., Ltd. (Baosteel), China’s largest listed steel maker, would lift prices of its major steel products -- hot- and cold-rolled sheet, thick plates and HDG -- by 100 yuan/t on month in the coming September, according to a notice released by the company on August 11.

    The adjustment indicated that China's steel market is recovering amid the government's capacity-cut policy.

    In August, many steel mills in eastern China and central China's Henan province arranged maintenance amid hot weather and strict environmental protection campaign.

    Industrial analysts said the market may go up in September amid increased demand in the traditional busy season.
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