Mark Latham Commodity Equity Intelligence Service

Wednesday 17th February 2016
Background Stories on www.commodityintelligence.com

News and Views:

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    Macro

    Rolling Thunder: The Military Forces Gather Around Syria.

    JEDDAH: Armed forces from Arab, Islamic and friendly countries started arriving in Saudi Arabia on Sunday for “North Thunder,” a military exercise to be held and commanded by the Kingdom
    The maneuver will be held at the King Khaled Military City (KKMC) in Hafr Al-Batin with participation of 20 countries and the GCC-formed Peninsula Shield forces as well.
    The participating countries are Saudi Arabia, UAE, Jordan, Bahrain, Senegal, Sudan, Kuwait, Maldives, Morocco, Pakistan, Chad, Tunisia, Comoro Islands, Djibouti, Oman, Qatar, Malaysia, Egypt, Mauritania, and Mauritius.
    North Thunder is the biggest military exercise of its kind in terms of the number of participating countries and military equipment, including fighter jets of different models, reflecting the quantitative and qualitative weapons the forces have.
    The exercise will also witness participation of a wide range of artillery, tanks, infantry, air defense systems, and naval forces in a simulation to reflect the highest level of preparedness of the 20 participating countries.
    North Thunder sends a clear message that the Kingdom, its sister, brotherly and friendly countries joining the maneuver are standing together in the face of all challenges to preserve peace and stability in the region and the world at large.

    Feb 14th, Jeddah.

    Saudi Arabia will head into an unprecedented meeting in Brussels next week of defense ministers allied to defeat the Islamic State group with a new offer: to deploy ground troops to war-torn Syria, if the coalition agrees.

    A spokesman for the Saudi military first confirmed the pledge to The Associated Press Thursday afternoon, declining to offer specifics on how many troops it would provide or what kind of mission they would conduct.

    "We are determined to fight and defeat Daesh," said Saudi Brig. Gen. Ahmed Asiri, using the preferred name in the region for the terrorist network, also known as ISIS or ISIL. His remarks follow reports that Turkey is also considering a ground invasion into neighboring Syria.


    ~Feb 16th, Brussels.

    Moscow has already positioned extra air defence systems into northern Syria in the wake of losing its jet last November. It has also introduced extra fighter jets and bombers, and slightly increased its ground troops.

    It has also announced military exercises in the Caspian Sea and the Black Sea. In both instances its forces were put on full combat readiness.  Most reporting of the exercises say they are linked to the situation in Ukraine, and while this is plausible, it is also possible they are in fact linked to the Syrian/Turkey situation.

    Taken as a whole, the picture appears to be one of Russia signalling to Turkey, and therefore to NATO, including the USA, that it is in the driving seat. It is saying that is  pre-positioning  the equipment necessary to escalate if necessary and thus warning others not to get involved.

    For several months now eminent foreign policy analysts have been writing that Russia is looking for an exit strategy in Syria. The evidence suggests otherwise.


    ~Feb 15th, CapX UK. 

    In an unprecedented step the NATO allies are sending their Standing NATO Maritime Group 2 (SNMG2) to the Aegean area to help national and EU authorities stem the flow of illegal immigrants pouring out of Syria and other conflict areas: a first in civil-military operational collaboration between NATO and the European Union.

    "Europe faces its biggest migration crisis since the Second World War and our alliance is responding to the changed security environment," NATO Secretary General Jens Stoltenberg told journalists after the decision by allied defence ministers at their 11 February meeting in Brussels.

    The move came in response to a 9 February request from Germany, Greece, and Turkey for help in stemming Europe's overwhelming illegal migrant flows and the human trafficking networks that facilitate them.


    ~Feb 14th, Janes Defence Journal. 

    5. Little hope for Syrian peace. The major diplomatic development at Munich was the “cessation of hostilities” agreed to by the United States and Russia. It inspired significant pessimism at the conference. Participants pointed out under the terms of the deal, Russia and Assad were permitted to continue their bombing campaign for an additional week; after that they could bomb any factions they designated as al Nusra or the Islamic State. It was unclear what, if any, consequences Russia might face for violating the agreement, or if such transgressions would merely result in pursuit of another deal.

    It is clear that time is now on the side of the Assad–Russia–Iran coalition. As their offensives batter the moderate opposition, and given American reluctance to intervene to shift the balance of forces, there is a diminishing possibility that a diplomatic effort will yield an outcome favorable to the United States and its partners. The current trends demonstrate that the parties America would most like to see prevail are under the most pressure, and are growing weaker by the day. Hence the rush to seek a diplomatic agreement as soon as possible, before Assad and Russia lock in additional gains.


    Feb 16th, Munich.




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    China sends missiles to contested South China Sea island: Taiwan


    China has deployed an advanced surface-to-air missile system to one of the disputed islands it controls in the South China Sea, Taiwan and U.S. officials said, ratcheting up tensions even as U.S. President Barack Obama urged restraint in the region.

    Taiwan defense ministry spokesman Major General David Lo told Reuters the missile batteries had been set up on Woody Island. The island is part of the Paracels chain, under Chinese control for more than 40 year but also claimed by Taiwan and Vietnam.

    "Interested parties should work together to maintain peace and stability in the South China Sea region and refrain from taking any unilateral measures that would increase tensions," Lo said on Wednesday.

    A U.S. defense official also confirmed the "apparent deployment" of the missiles, first reported by Fox News.

    Images from civilian satellite company ImageSat International show two batteries of eight surface-to-air missile launchers as well as a radar system, according to Fox News.

    News of the missile deployment came as Obama and leaders of the Association of Southeast Asian Nations concluded a summit in California, where they discussed the need to ease tensions in the region but did not include specific mention of China's assertive pursuit of its claims in the South China Sea.

    China claims most of the South China Sea, through which more than $5 trillion in global trade passes every year, and has been building runways and other infrastructure on artificial islands to bolster its claims.

    "We discussed the need for tangible steps in the South China Sea to lower tensions including a halt to further reclamation, new construction and militarization of disputed areas," Obama told a news conference.

    http://www.reuters.com/article/us-southchinasea-china-missiles-idUSKCN0VP2VT
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    India and China Have Most Deaths From Pollution


    More than half of the 5.5 million deaths related to air pollution in 2013 happened in India and China, according to a new study.

    About 1.4 million people in the South Asian nation and 1.6 million in its northern neighbor died of illnesses related to air pollution in 2013, researchers at the University of British Columbia in Canada said.

    The Indian and Chinese fatalities accounted for 55% of such deaths worldwide, the study said.

    Researchers studied risk factors for death and disease around the world and found that air pollution, both indoors and outdoors, was one of the leading contributors to global fatalities.

    The inhalation of emissions from power plants, vehicles, the burning of crop stubble before replanting, and wood or open fires in homes are some of the leading causes of deaths from air pollution, the report said.

    The number of premature deaths linked to air pollution worldwide will increase over the next two decades unless more aggressive targets are set to curb it, researchers studying India and China’s air said at a meeting Friday in Washington D.C.

    A major contributor of poor air quality in India is linked to the burning of wood and cow dung for cooking and keeping warm, particularly in the winter months. These methods are popular among India’s rural and urban poor, who don’t have access to electricity or cleaner fuels.

    Household air pollution from cooking with wood “is primarily a problem in rural areas of developing countries of the world,” said Michael Brauer, a professor at the University of British Columbia’s School of Population and Public Health, in Canada.

    Over the past few months, levels of tiny insidious particles, known as PM 2.5, in the Indian capital New Delhi have often exceeded amounts deemed safe by the United Nations World Health Organization.

    Taking their lead from Beijing, Indian authorities in January experimented with restricting cars on roads for two weeks in New Delhi to reduce emission levels. Delhi Chief Minister Arvind Kejriwal said Thursday the city would revive the restrictions for 15 days, starting April 15.

    Scientists said vehicle emissions contribute only 20% to 40% of pollution in Delhi, saying other sources of the particulate matter include the burning of dung, rubbish and leaves and the use of diesel backup generators, which kick in when Delhi’s patchy electricity supply cuts out, as well as emissions from small-scale industries such as brick kilns.

    A federal environmental court in New Delhi said Feb. 4 it wanted officials to improve air quality by asking authorities to reduce the number of traditional cremations that use wood to burn bodies, a widespread practice in majority Hindu India.

    In China, outdoor air pollution from burning coal was found to be the biggest contributor to poor air quality, causing an estimated 366,000 deaths in the country in 2013. Scientists predict 1.3 million premature deaths will take place in China by 2030 if coal combustion remains unchecked.

    “One of the unique things about air pollution is you cannot run, you cannot hide from it. We know that if you improve air quality everybody benefits, so from a health perspective reducing levels of air pollution is actually an incredibly efficient way to improve the health of the entire population,” Mr. Brauer said.

    http://blogs.wsj.com/chinarealtime/2016/02/16/india-and-china-have-most-deaths-from-pollution/
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    Glencore refinances revolving credit facility


    Diversified miner Glencore has signed a new revolving credit facility (RCF) to refinance and replace its existing $8.45-billion facility. In an initial presyndication phase, Glencore received commitments from 37 banks for $8.4-billion, $3-billion above existing commitment levels. 

    Given the high oversubscription level, the miner has scaled back and signed in $7.7-billion of such commitments and will now broaden the refinancing through general syndication to some 30 additional banks in the second quarter of this year. 

    Similar to the current facility being replaced in May, the new RCF remains unsecured, containing a 12-month extension option and 12-month borrower’s term-out option, thereby extending the final maturity to May 2018. Active bookrunners on the deal were ABN AMRO, Bank of Tokyo Mitsubishi, HSBC, ING and Santander.

    http://www.miningweekly.com/article/glencore-refinances-revolving-credit-facility-2016-02-17
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    Oil and Gas

    Iran may be offered special terms in oil output deal - sources

    Iran may be offered special terms in oil output deal - sources

    OPEC member Iran could be offered special terms under a global deal to freeze oil production levels, two sources familiar with the matter said on Tuesday.

    "Iran has its own model and the meeting is taking place in Iran. Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations," said one of the sources, who were not from Iran.

    Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

    Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

    http://www.reuters.com/article/opec-meeting-iran-terms-idUSL8N15V358

    Iran will not give up its appropriate share of the global oil market, the Iranian oil minister was quoted by his ministry's news agency as saying on Tuesday.

    He was commenting on the meeting of oil ministers of Saudi Arabia, Russia, Venezuela and Qatar in Doha earlier in the day, which agreed to freeze output at January levels provided other producers did so too.

    "What is important is that first, the market is facing a surplus, and second, that Iran will not overlook its share," Bijan Zanganeh was quoted as saying by Shana.

    http://www.reuters.com/article/oil-meeting-iran-idUSL8N15V31Q
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    EU takes on national interests in quest to break reliance on Russian gas


    Brussels made a push on Tuesday for new powers to vet EU energy deals, taking on national governments in its drive to create a single EU energy market and curb reliance on Russian gas.

    Under the European Commission's proposal, bilateral gas deals between any of the EU's 28 member states and third countries such as Russia would require its prior approval.

    The EU executive also wants access to gas contracts, currently sealed by commercial secrecy, that account for more than 40 percent of annual gas needs in a member state or are "key to security of supply".

    Both moves are likely to raise the hackles of big EU states.

    "To prevent gas supplies crises, national policies are not enough," European Climate and Energy Commissioner Miguel Arias Canete told reporters.

    The Baltic and southeastern European nations are among the most dependent on Russian gas - paying around 16 percent more for it in 2016 than others in the bloc, according to the EU.

    Germany, however, imports the highest volumes, for which it gets preferential prices from Russia's top natural gas producer Gazprom.

    Germany - already at loggerheads with Poland, Italy and other states over plans to expand the Nord Stream pipeline to pump more Russian gas to Germany, bypassing Ukraine - has and will likely continue to oppose greater oversight of its energy deals.

    The EU executive says it needs the new rules because while one third of 124 intergovernmental agreements in Europe fail to comply with EU law, contesting them has proved challenging.

    It was a lesson learned when Brussels ruled that Gazprom's planned South Stream pipeline under the Black Sea contravened EU competition law but faced a legal headache to untangle a web of deals Russia had cut with eastern European states.

    Under the new proposal, the Commission would be able to take member states to court and slap them with fines, if they signed bilateral accords found to be in breach of EU law.

    Concern in Europe over energy reliance on Russia since pricing spats between Moscow and Kiev disrupted gas supplies has grown in the wake of Russia's seizure of the Crimea region from Ukraine in March 2014.

    The EU has succeeded in increasing renewables and the use of reverse-flow pipelines to allow gas to course east as well as west, maximising available supplies. But some countries are still 100 percent dependent on Russian gas.

    http://www.reuters.com/article/eu-energy-idUSL8N15N1TG
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    Thai PTT to delay LNG purchase from Shell, BP due to weak demand


    Top Thai energy firm PTT Pcl is looking to delay its plans for long-term liquefied natural gas (LNG) purchases from Royal Dutch Shell and BP given the availability of cheaper spot supplies, a senior company executive said.

    Energy prices have tumbled in the past year due to a global oil glut. Spot gas prices have as a result dropped below prices for cargoes on long-term deals, prompting buyers, such as India's Petronet, to renegotiate contract terms or take more gas from the spot market.

    Thailand's PTT wants to buy LNG in the spot market, where prices of $6-7 per million British thermal unit are cheaper than long-term contracts, Noppadol Pinsupa, senior executive vice president for PTT's gas business unit, told reporters.

    PTT is now in talks with BP and Shell to delay the official signing of LNG supply deals, which are being reviewed by the Thai authorities, Noppadol said on Tuesday.

    BP and Shell did not immediately respond to emails seeking comments on the news.

    Last year, PTT won approval from the Thai energy regulator to buy a total 2 million tonnes of LNG annually from Shell Eastern Trading (PTE) and BP Singapore PTE under long-term contracts. The deals, if finalised, would have come into effect from April 2016 with imports of 0.5 million tonnes from Shell Eastern and 0.317 million tonnes from BP.

    Weaker-than-expected domestic demand, however, means Thailand will now need only 2.7 million tonnes of LNG imports this year, Noppadol said, versus a prior estimate for 5 million tonnes and up slightly from 2.6 million tonnes in 2015.

    PTT already has a 20-year contract to buy 2 million tonnes LNG annually from Qatar that came into effect last year.

    http://af.reuters.com/article/energyOilNews/idAFL3N15V2EZ?sp=true

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    Petrobras Equity Value Is Zero Due to Debt, BTG Pactual Says


    Petrobras’s stock is worthless and a growing group of investors believe Brazil’s state-controlled oil company will convert debt into equity in a move that will benefit bondholders over shareholders, BTG Pactual said in a research report.

    Brazil’s three state-controlled banks, Banco do Brasil, Caixa Economica and development bank BNDES, hold an estimated 87 billion reais ($22 billion) in Petrobras debt, and it’s a “genuine possibility” that these securities will eventually get converted into equity and dilute the value of existing shares, BTG analysts led by Antonio Junqueira said in a note to clients dated Feb 15.

    “Such an event is everything equity holders don’t want and bondholders do want to see,” the analysts said. “In the current commodity environment, and despite its quasi-monopoly on the country’s refining, Petrobras has no equity value.”

    Petroleo Brasileiro SA, as the Rio de Janeiro-based producer is known, didn’t immediately respond to an e-mail requesting comment.

    Petrobras’s debt has exploded fourfold in the past five years after the company borrowed heavily to expand production in deep waters of the Atlantic Ocean and subsidized fuel imports during the commodities boom as part of a government policy to contain inflation. The combination of the oil price crash and a widespread corruption scandal has hindered the company’s ability to reduce leverage. As a result, Petrobras is selling assets and slashing spending.

    http://www.bloomberg.com/news/articles/2016-02-16/petrobras-equity-value-is-zero-due-to-debt-btg-pactual-says
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    BP announces start-up of gas fields in Algeria


    BP has announced the start-up of a gas project in Algeria.

    In Salah Gas is a joint venture between the oil giant which has a 33.15% stake and Sonatrach and Statoil which own 35% and 31.85% respectively.

    Their Southern Fields project is the latest stage in the development of seven gas fields in central Algeria.

    It includes the development of four dry gas fields which will maintain planned production at nine billion cubic metres per year.

    The joint venture started production from three fields in the north of the region in 2004.

    Production is expected to ramp up to 14.1 million cubic metres per day as two new wells will be online in the next two months.

    http://www.energylivenews.com/2016/02/16/bp-announces-start-up-of-gas-fields-in-algeria/
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    Rousseff 'to relax' pre-salt rules


    Brazil’s President Dilma Rousseff is ready to allow foreign operators more space in the pre-salt province by easing rules that oblige Petrobras to take a dominant position in production sharing contracts, according to O Globo newspaper.

    http://www.upstreamonline.com/live/1424094/rousseff-to-relax-pre-salt-rules?utm_source=twitterfeed&utm_medium=twitter
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    Awkward! Hydraulic Fracturing Opponent Funds Study Finding It Doesn’t Contaminate Water


    Hydraulic fracturing’s safety record is so good that not even a study funded by an anti-hydraulic fracturing foundation could find evidencethat it contaminates drinking water.

    The technology, which breaks up shale rock thousands of feet below the earth to release trapped oil and natural gas, has driven down energy prices and transformed America’s energy economy.

    In 2012, the University of Cincinnati started testing Ohio wells to see if hydraulic fracturing was causing water contamination. The project was partly funded by a $20,000 grant from the Deer Creek Foundation.

    The Deal Creek Foundation is no fan of hydraulic fracturing. In 2014 it gave $25,000 to the Media Alliance in Oakland, Calif., to help fund a documentary on the “rise of ‘extreme’ oil and gas extraction - fracking, tar sands development, and oil drilling in the Arctic.” In 2009, thefoundation gave $20,000 to the Northern Plains Resource Council, a Montana activist group that falsely claims, “Fracking damages water, land and wildlife.”

    Earlier this month, Professor Amy Townsend-Small, the head of the project, announced her team’s findings to the Carroll County Concerned Citizens, a group of local anti-fracturing activists, The (New Philadelphia) Times-Reporter reports [emphasis mine]:

    “The good news is that our study did not document that fracking was directly linked to water contamination,” said Dr. Amy Townsend-Small of the University of Cincinnati, who presented the findings Thursday at a meeting of Carroll Concerned Citizens.

    Then things got interesting, noted Mike Chadsey with the Ohio Oil and Gas Association:

    It was shortly after Dr. Townsend-Small released that statement that a pin drop on the carpet would have been overheard. The silence was so obvious that even the leader of the group Mr. Paul Feezel said: “You all are very quiet tonight.”

    Then things got really interesting. Back to The Times-Reporter story:

    An audience member asked if the university was going to publicize the results of the study, noting that had the findings been unfavorable to drilling, that would have been national news.

    “I’m really sad to say this but some of our funders, the groups that had given us funding in the past, were a little disappointed in our results,” Townsend-Small said.

    Why? Townsend-Small continued:

    They feel that fracking is scary and so they were hoping our data could point to a reason to ban it.

    The funders quietly slipped away, hoping news of the study’s results remained confined to a local newspaper.

    The University of Cincinnati researchers’ findings match what other experts have found: Hydraulic fracturing, when done properly, is safe for the environment:

    A Yale University-led study didn’t find evidence that hydraulic fracturing natural gas wells contaminates ground water.
    An Energy Department laboratory found that neither natural gas nor hydraulic fracturing fluid traveled upward through the rock in wells tested in Pennsylvania.
    In 2014, Interior Secretary (and former petroleum engineer) Sally Jewell told lawmakers, “I do believe [hydraulic fracturing] can be done safely and responsibly, and has been in many cases.”
    Even EPA has looked at the science and concluded that hydraulic fracturing has not had “widespread, systemic impacts on drinking water.”

    Not even well-heeled opponents of hydraulic fracturing can base their opposition to the technology on science.

    It may have been an awkward moment for fracturing opponents, but it was good news for supporters of safe, effective American energy development.

    https://www.uschamber.com/above-the-fold/awkward-hydraulic-fracturing-opponent-funds-study-finding-it-doesn-t-contaminate

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    Woodside Profit Wiped Out as CEO Coleman Doubts Oil Recovery


    Woodside Petroleum Ltd. reported a 99 percent decline in full-year profit, its worst result in 13 years, and cast doubt on any recovery this year from the energy price crash that forced it to write down the value of its assets.

    Net income at Australia’s second-largest oil and natural gas producer sank to $26 million from $2.41 billion a year earlier, Perth-based Woodside said on Wednesday. Net income excluding one-time items dropped to $1.13 billion, compared with the $1.03 billion median estimate of 12 analysts surveyed by Bloomberg.

    Woodside is among energy companies struggling after the collapse in oil prices due to global oversupply. Brent in 2015 averaged $53.60 a barrel, slumping more than 45 percent from the prior year, and prices last month slid to the lowest level in more than 12 years. Woodside is skeptical oil will recover this year and is planning for a $35 price through 2017, according to Chief Executive Officer Peter Coleman.

    “While there are signs that there may be a strengthening toward the second half of this year, I’d be very wary of that,” Coleman told reporters on a conference call. “I really don’t think the price has anything at the moment underneath it that would suggest you are going to see a firming in the short to medium term.”

    Woodside’s proposed Browse liquefied natural gas project in Australia requires further cost reductions and doesn’t have any firm sales, the company said. The oil and gas producer said last year it intends to make an investment decision on the venture with partners including Royal Dutch Shell Plc in the second half of 2016.

    Woodside may not make a decision on Browse until the first half of next year, Citigroup Inc. analysts in Sydney including Dale Koenders wrote in a report Wednesday. At current oil prices, Browse is “highly unlikely” to make significant progress toward approval, Mark Wiseman, a Sydney-based analyst at Goldman Sachs Group Inc., wrote in a separate note.

    With a relatively strong balance sheet and new projects across the industry in doubt, Woodside may seek acquisitions afterabandoning its pursuit of Oil Search Ltd. at the end of last year, Morgans Financial Ltd. said last month.

    Woodside isn’t looking at “larger opportunities” to acquire assets, seeing a significant spread between buyer and seller expectations, Coleman told analysts on a separate call.

    http://www.bloomberg.com/news/articles/2016-02-16/woodside-full-year-profit-falls-99-after-collapse-in-oil-prices
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    DOE has overwhelming evidence to approve LNG exports


    For years, the Department of Energy has been studying the potential economic effects of U.S. liquefied natural gas (LNG) exports.

    In 2012, DOE commissioned a study that concluded the U.S. economy would experience net gains from exporting a portion of our nation’s abundant supplies of natural gas.

    More recently, as I noted earlier this month, DOE released the findings of another study it commissioned which examined the impact of even higher export volumes of natural gas. This newer report modeled the macroeconomic impacts of global demand for U.S. LNG exports rising from 12 billion to 20 billion cubic feet per day over various scenarios projected out to 2040. It reaffirmed the conclusions of the 2012 report and found that more exports would produce more benefits.

    In comments we submitted last week to DOE, we wrote that “overwhelming evidence [exists] to support expeditious approval of pending LNG export applications.”

    Our submission also highlighted comments by Lawrence Summers, the former U.S. Treasury Secretary and former director of the National Economic Council, in a 2014 speech on energy exports. Mr. Summers concluded:

    The question of whether the United States should have a substantially more permissive policy with respect … to the export of natural gas is easy. The answer is affirmative. The merits are as clear as the merits with respect to any significant public policy issue that I have ever encountered.

    Another credible study has been added to the established body of evidence that we should remove all restrictions on LNG exports. It is long past time to elevate U.S. LNG exports and their benefits from theory to reality.

    http://www.exxonmobilperspectives.com/2016/02/16/doe-has-overwhelming-evidence-to-approve-lng-exports/
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    One Third Of US Energy Companies Could Go Bankrupt Deloitte Warns


    At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.

    Record high US Energy credit risk...

     Image title

    The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.

    The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.

    "These companies have kicked the can down the road as long as they can and now they're in danger of kicking the bucket," said William Snyder, head of corporate restructuring at Deloitte, in an interview. "It's all about liquidity."

    Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.

    "2016 is the year of hard decisions, where it will all come to a head," John England, vice chairman of Deloitte, said in an interview.

    For now, however, there is a corner of the market that offers perhaps a smidge of saefty...

    Of the 53 U.S. energy companies that filed for bankruptcy last quarter, only 14 were service providers, a trend that is expected to continue in the short term, Deloitte found.

    "Service providers tend to be more of a people business with less capital deployed, so it's easier for them to financially flex," Snyder said.

    However, Snyder concludes...

    "Eventually, though, they've got to run out of gas, too."

    http://www.zerohedge.com/news/2016-02-16/one-third-energy-companies-could-go-bankrupt-deloitte-warns-credit-risk-hits-record-

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    Midwest gasoline prices jump as much as 13 cents/gal pn refinery cuts


    Refinery cuts continued to push up US Midwest gasoline prices Tuesday, with the Chicago market climbing 13 cents/gal.

    Chicago CBOB was assessed at NYMEX March RBOB futures minus 8 cents/gal, up from Friday's assessment at minus 21 cents/gal. Platts did not assess US markets on Monday due to a national holiday.

    Although federal Energy Information Administration data showed Midwest gasoline inventories reached a nearly 23-year high during the week that ended February 5, market sources said differentials climbed on refinery maintenance and reduced rates.

    Valero's Memphis, Tennessee, refinery (195,000 b/d), PBF's plant at Toledo, Ohio (160,000 b/d) and Monroe's Trainer, Pennsylvania, facility (185,000 b/d) all started to pull back production last week due to higher stocks and bad economics, according to various sources.

    "Sellers have backed away," a Midwest refined products broker said. "They're not keen on selling into a market where turnarounds and rate cuts are popping up like mad."

    The assessment for Group 3 suboctane gasoline with 13.5 RVP (V grade) rose Tuesday to NYMEX March RBOB futures minus 8.50 cents/gal, 3.75 cents/gal higher than Friday's assessment.

    By contrast, prices in the US Gulf Coast have fallen, likely due to high stocks in the Midwest and Atlantic Coast, brokers said Tuesday.

    Platts assessed Gulf Coast RBOB at a 25-point premium to CBOB, its tightest spread in more than a week and 1.50 cents/gal lower than the last assessment. CBOB was assessed at NYMEX March RBOB minus 10.50 cents/gal, down 2.5 cents/gal.

    "With [the Midwest] stupid cheap...maybe you are seeing barrels come down from there (virtually or actually)," a Gulf Coast trader said. "If so, that would back up RBOB in the GC, making it seem as if demand is lower."

    http://www.platts.com/latest-news/oil/houston/midwest-gasoline-prices-jump-as-much-as-13-centsgal-21942496
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    Meet the team behind this new energy co.'s $910 million acquisition


    It turns out the management team behind Houston-based Terra Energy Partners LLC, which just bought assets from Tulsa, Oklahoma-based WPX Energy Inc. for $910 million, have a common bond — they all used to work for Houston-based Occidental Petroleum Corp.

    • Michael Land became the CEO of Terra Energy Partners in April 2015, according to his LinkedIn profile. Before that, he spent more than 10 years moving up the ladder at Oxy, most recently serving as president of the Permian and mid-Continent business units.

    Before leading the young Houston-based energy company Terra Energy Partners LLC, CEO… more

    • The Terra leader with the longest Occidental tenure is COO Keith Brown, who joined Terra in May 2015 after serving as an asset development manager at Oxy for more than 37 years, according to his LinkedIn profile and bio on the Terra company website.

    • Suzanne Smith, Terra's vice president of human resources, previously worked in human resources at Oxy since 2004.

    • Terra Vice President of Land Tiffany Pollock came on board after serving as land manager at Oxy for three years.

    • Adam Kirk is Terra's controller. Before joining the company in May, he worked in Oxy's accounting department since 2006, eventually serving as director of revenue and regulatory accounting before joining Terra. He worked at Oxy for 15 years.

    • Standing out from the crowd that came directly from Oxy is B.J. Reynolds, Terra's vice president of operations. Reynolds came to Terra from Sanchez Energy Corp., where he oversaw strategy and execution of a growth plan for Sanchez's Catarina asset, which Sanchez acquired from Shell Exploration and Production Company Inc. But the Occidental tie also applies to Reynolds in his time before Sanchez. Reynolds held various roles in engineering, operations and asset development at Oxy.

    • Before becoming Terra's vice president of asset development, Carol Callaway served 15 years as a manager of asset development at Oxy, according to her LinkedIn profile. However, her company bio says she has 35 years of experience in oil and gas with Oxy.

    http://www.bizjournals.com/houston/morning_call/2016/02/meet-the-team-behind-this-new-energy-companys-910.html?ana=lnk

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    Energy XXI to delay interest payment due Tuesday


    Feb 16 Oil and natural gas producer Energy XXI Ltd said it chose not to make an interest payment due on Tuesday, to continue talks with its debtholders related to alternatives to improve its capital structure.

    The company, which has a grace period of 30 days to make the payment, said it has retained PJT Partners LP and Vinson & Elkins LLP to advise its board in reviewing its debt.

    Crude prices have slumped nearly 70 percent since June 2014, forcing oil and gas producers to restructure debt or seek bankruptcy protection.

    Houston-based Energy XXI had $3.62 billion in long-term debt, excluding current maturities as of Dec. 31.

    Net loss attributable to the company's shareholders widened to $1.31 billion in the fourth quarter, from $278.8 million a year earlier.

    http://www.reuters.com/article/energ-21-debtrenegotiation-idUSL3N15V4E9
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    Oklahoma calls for more disposal wells to shut after quake


    Oklahoma's oil and gas regulator released a wide-ranging plan on Tuesday to scale back use of wastewater injection wells in western Oklahoma, just days after a 5.1 magnitude quake rocked the state.

    Seven counties are affected by the plan, which is the largest push yet in western Oklahoma to curb seismic activity linked to wells to dispose of saltwater, a natural byproduct of oil and gas work.

    Saltwater disposal needs have grown in tandem with the growth in horizontal drilling and hydraulic fracturing, or fracking, in recent years.

    The plan by the Oklahoma Corporation Commission includes a voluntary order that covers 245 disposal wells over a 5,200-square mile (13,468-sq km) area. More than 40 percent of injected volumes will be cut back.

    Tim Baker, director of the commission's Oil and Gas Conservation Division, said the directive had been in the works since October due to a need for a larger, regional response. The counties covered include some that have not yet experienced an increase in earthquakes.

    "This plan is aimed not only at taking further action in response to past activity, but also to get out ahead of it and hopefully prevent new areas from being involved," Baker said in a statement.

    The plan will be phased in over four stages in the next two months, as sudden stoppages could actually create more seismic events, Baker said.

    The disposal wells into the Arbuckle formation are operated by 36 companies, including Sandridge and Chesapeake Energy.

    Oklahoma was struck by a magnitude 5.1 earthquake on Saturday morning, the third-strongest quake ever recorded in the state, which has experienced a surge in seismic activity in recent years, the U.S. Geological Survey reported.

    Concerns about the increase in earthquakes in Oklahoma led to Governor Mary Fallin to use $1.4 million from the state's emergency fund for earthquake research.

    Baker said that money, as well as a grant from the Oklahoma Energy Resources Board and the Groundwater Protection Council, will help fund additional equipment and staff at the Corporation Commission.

    Oklahoma, which has been shutting in some wastewater wells since August, has about 3,500 disposal wells.

    http://www.reuters.com/article/us-oklahoma-quake-oil-idUSKCN0VP2L7

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    Alternative Energy

    Brazil Reaches 9 Gigawatts of Wind Power Installed Capacity


    Brazil has reached 9 gigawatts of wind energy installed capacity with the addition of 268 megawatts to the grid this year.

    In January, eight wind parks started operations in Brazil’s northeast, the wind power association known as Abeeolica said in an e-mailed statement on Monday. In February, three more projects were completed.

    Projects adding more than 10 gigawatts are under construction to be connected to the grid in about four years, according to Abeeolica. More than 15 billion reais ($3.75 billion) were invested in the industry in Brazil in the last two years.

    Brazil trails only China on the ranking of 55 top emerging countries for clean-energy investments, as the government steps up efforts to diversify power supplies, according to Bloomberg New Energy Finance’s Climatescope.

    http://www.bloomberg.com/news/articles/2016-02-15/brazil-reaches-9-gigawatts-of-wind-power-installed-capacity
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    Statoil launches USD 200m new energy investment fund


    Statoil today launches a new venture capital fund dedicated to investing in attractive and ambitious growth companies in renewable energy, supporting its strategy of growth in new energy solutions.

    The new fund, Statoil Energy Ventures, will invest up to USD 200 million (around NOK 1.7 billion) over a period of four to seven years.

    'We are pleased to announce Statoil Energy Ventures: One of the world's largest corporate venture funds dedicated to renewable energy. The transition to a low carbon society creates business opportunities, and Statoil aims to drive profitable growth within this space. Through the new fund, we look forward to investing in attractive and ambitious companies and contribute to shaping the future of energy,' says Irene Rummelhoff, Statoil's executive vice president for New Energy Solutions.

    The fund is established as part of Statoil's new business area New Energy Solutions, reflecting the company's aspirations to gradually complement its oil and gas portfolio with profitable renewable energy and low-carbon solutions. The investments are included in Statoil's overall investment outlook as presented on 4 February.

    'Statoil Energy Ventures aims to be an attractive partner for growth companies. We offer a strong financial muscle and are ready to invest in three strategic areas: Supporting our current operations in renewables, positioning in renewable growth opportunities, and exploring new high impact technologies and business models. We look forward to engaging with ambitious entrepreneurs as an active investor and to build great companies,' says Gareth Burns, vice president in Statoil and managing director of Statoil Energy Ventures.

    Potential investment themes include offshore and onshore wind, solar energy, energy storage, transportation, energy efficiency and smart grids.

    The team initially consists of six investment professionals operating with a global mandate, initially based out of Statoil's offices in London and Oslo.

    The fund will take direct positions primarily as a minority shareholder in growth companies, preferably as a co-investor with other venture firms. Investment in selected fund will also be considered to gain a wider footprint.

    The Statoil Energy Ventures team, focusing on growth-phase investments in renewable energy, will operate alongside Statoil's existing venture entity, Statoil Technology Invest (STI), which focuses on early-phase investments in upstream oil and gas.

    Statoil has a strong track record of successful technology implementations and financial return through exits. STI has since 2000 invested around USD 135 million, achieving a multiple of invested capital on realized deals of 2.5.

    http://www.oilvoice.com/n/Statoil-launches-USD-200m-new-energy-investment-fund/cc54883285b0.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29
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    Precious Metals

    De Beers sees rebound in ‘fragile’ diamond market


    De Beers may have lost some of its sparkle but expects a rebound in the diamond market to boost its performance.

    Weakness in the rough diamond market weighed on the world’s largest diamond company in the financial year ended December 31 2015. A 36% decline in rough diamond sales pushed total revenue down 34% to $4.7bn. Despite an 8% decline in its rough price index for the year, the Anglo American subsidiary managed a 5% increase in average realised diamond prices to $207/carat (ct). A combination of cost-saving initiatives and favourable exchange rate movements saw consolidated unit costs improve to $104/ct from $111/ct. Still, underlying earnings before interest and tax (EBIT) more than halved from $1.36bn to $571m, but came in 5% higher than forecasts by JP Morgan analysts.

    At the same time, weaker than expected consumer demand coupled with a build-up of stocks and a cash-crunch among diamond traders put downward pressure on the polished diamond prices and the mid-stream industry.

    In response, it cut diamond production by 12% to 28.7m ct from an initial target of 32m ct. “We demonstrated, at that time, that production to demand is working. We saw the demand being a little bit shaky, we started to cut, we saw the perfect storm building up and we cut further and at the end it was the right response to the market,” Phillipe Mellier, CEO of De Beers said in a pre-recorded video.

    Despite tough trading conditions, the company said its Forevermark brand enjoyed double-digit sales growth. Forevermark, which recently relaunched De Beer’s famous “A Diamond is Forever” marketing campaign, increased its footprint by 14% and is now available in more than 1 700 outlets across 35 markets.

    In an attempt to boost holiday gift giving in its key US and Chinese markets, De Beers said it also invested in additional marketing campaigns. “We’re still in the middle of Chinese New Year and if holiday sales are robust, we should expect restocking bydiamantiers soon,” BMO Capital Markets’ Ed Sterck said from London.

    Sterck said initial indications point to a slightly improved diamond market. De Beers and Alrosa, which together make up around two-thirds of the diamond market, sold close to $1bn worth of diamonds in their first sales of the year. However, he expects diamond prices to remain flat from where they ended in 2015.

    De Beers, which expects to produce 26-28m carats in 2016, said it will adjust production in accordance with trading conditions. It also plans to deliver $200m in cash savings through a reduction in production costs, overheads, and capex. It has announced plans to cut 121 jobs at its South African operations and expects natural attrition to impact a further 68 positions across its workforce.

    Describing the market as fragile, Mellier said the company has worked to “close 2015 on the right note” and ensure that stocks were close to normal levels at the end of the year. “We are now in a position to start 2016 and look at 2016 as a new cycle with a rebound,” he said.

    http://www.mineweb.com/news/diamonds-and-gems/de-beers-sees-rebound-in-fragile-diamond-market/?platform=hootsuite

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    Base Metals

    A new conflict brews at Peru's Las Bambas copper mine


    Families in Peru that were relocated to make way for MMG Ltd's huge Las Bambas copper project occupied their former lands inside the mine on Tuesday to press the company for compensation, the country's ombudsman and a local leader said.

    The protest in a remote highland region has not affected operations at the mine, said the community's vice president, Obispo Huamani, and Artemio Solano, the regional representative of Peru's ombudsman.

    The mine's vice president of corporate affairs, Domingo Drago, denied anyone had invaded company property.

    Las Bambas, which recently started production and cost $7.4 billion to build, is expected to become one of the world's biggest mines with annual output of about 400,000 tonnes.

    It is also expected to propel an economic recovery in Peru this year and help the Andean country become the world's second biggest copper supplier after Chile.

    Huamani said former residents of Fuerabamba would remain inside the mine until MMG fulfilled a series of commitments, including paying each family the remaining half of a 400,000 soles ($113,955) compensation pledge and providing teachers for new schools.

    Solano said the Melbourne, Australia-based company had agreed to fully compensate community members only once all families had relocated. But 15 families have refused to move to the new town of Nueva Fuerabamba that MMG built.

    Authorities who talked with protesters on Tuesday reported that 40 former residents were inside the mine and building shelters, Solano said.

    Three people were killed in protests against Las Bambas in September in a dispute with other communities that stemmed from a revision to the mine's environmental plan.

    The current conflict overlapped with a visit from President Ollanta Humala, who praised Las Bambas as a key motor of growth.

    Huamani said the Fuerabamba community was not opposed to the mine but would insist the company deliver more benefits.

    Peru is rife with disputes over mining, especially related to water. Two major projects have been derailed because of local rallies in recent years.

    But no project in Peru at this stage of development has ever been stopped by protests.

    http://www.reuters.com/article/us-mmg-ltd-peru-conflict-idUSKCN0VQ04R

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    Work Stoppages Announced At Rio Tinto Alcan


    Work stoppages to begin next week at the smelter will bring aluminium exports to a stand-still, as workers try to gain leverage for wage increases.

    Vísir reports that the stoppages are to begin on February 24, and will continue indefinitely. The workers involved all belong to the trade union Hlíf, who oversee the export division of Rio Tinto Alcan in Iceland.

    With the start of these stoppages, no aluminium produced at the smelter will be offloaded, distributed, or shipped out to other countries, effectively rendering any aluminium production superfluous.

    As reported, workers at the smelter have been in negotiations with management since at least 2014, where they have been fighting for wage increases. It was forecast that the smelter would be shut down altogether last December, but workers were convinced to continue negotiations with management.

    These negotiations have not advanced; in fact, Rio Tinto CEO Sam Walsh recently issued a statement that employees would not be receiving any kind of pay raise this year – despite the company seeing profits in the billions last year.

    “We are actually going nowhere because there’s nothing to negotiate,” Guðmundur Ragnarsson, the chairperson of The Icelandic Union of Marine Engineers and Metal Technicians (VM), told reporters at the time. “We’ve been waiting to hear what the parent company intends to do in Iceland. So we’re at a stand-still.”

    With upper management unwilling to introduce wage increases, and workers unwilling to continue employment under their current salaries, how the conflict will be resolved still remains to be seen.

    http://grapevine.is/news/2016/02/16/work-stoppages-announced-at-rio-tinto-alcan/
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    Norsk Hydro swings to profit on strong dollar


    Norway's Norsk Hydro ASA NHY said Wednesday that it swung to a net profit on the year in the fourth quarter, partly because of the dollar's strength.

    The aluminum producer's fourth-quarter net profit was 478 million Norwegian kroner ($55.4 million), compared with a net loss of NOK370 million in the year-earlier period, partly due to the dollar's strength against the Norwegian krone and Brazilian real. Analysts had expected net profit of NOK435 million.

    Norsk Hydro said it would pay a dividend of NOK1 a share, unchanged from a year earlier.

    The company said it had formally decided to build a NOK4.3 billion pilot plant in Norway to test more efficient production methods

    Underlying earnings before interest and taxes, which strip out one-offs such as derivative effects and rationalization charges and are regarded as a key performance measure, dropped 46% on the year to NOK1.57 billion in the fourth quarter, but beat expectations.

    Fourth-quarter revenue fell to NOK20.37 billion from NOK21.66 billion a year earlier. Analysts expected revenue of NOK20.29 billion.

    http://www.marketwatch.com/story/norsk-hydro-swings-to-profit-on-strong-dollar-2016-02-17-24853332




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    Steel, Iron Ore and Coal

    China Jan steel exports down 5.3pct on year


    China’s exports of steel products dropped 5.3% on year and down 8.6% on month to 9.74 million tonnes in January, showed the latest data from the General Administration of Customs (GAC) on February 15.

    Total value of the exports slumped 36% year on year and down 10.4% month on month to $4.38 billion with an average export price at $450/t, slumping 32.4% or $215.68/t on year and down 1.9% or $8.8/t on month.

    The marked yearly and monthly slumps on steel products exports were in line with estimation.

    In December last year, the relatively high export volume was partly due to enterprises’ efforts to meet their annual targets; and that in January 2015 fell on exporters’ applying for customs in advance, analysts said.

    China’s steel products exports may see a negative yearly growth in 2016, as international anti-dumping activities against China’s low-price steel products intensified.

    After the Lunar New Year, the European Union have initiated anti-dumping investigations against three Chinese steel products, including seamless pipe, medium plate and hot-rolled plate, which is to further hinder China’s steel exports in later period.

    Besides, foreseeable reduction in steel capacity and output in domestic market are also expected to exert a negative impact on steel exports, industry insiders said.

    China imported 0.93 million tonnes of steel products in January, shrinking 19.1% from the previous year and down 21.2% from the month before. The imports value stood at $975 million, down 30.9% on year and down 19.4% on month.

    http://en.sxcoal.com/0/140877/DataShow.html

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    China key steel mills daily output down 0.5pct in late-Jan


    Key steel mills in China saw their average daily crude Steel output post a 0.52% ten-day drop to 1.51 million tonnes in late-January, according to the latest data from the China Iron and Steel Association (CISA).

    It was the second straight ten-day fall and the lowest ten-day level since early-October in 2012.

    China’s daily crude steel output in January was estimated at 2.04 million tonnes, 1.8% lower than the actual output from last month.

    In early February, key steel mills generally kept a low productivity level during the Lunar New Year holidays, when steel market was largely closed.

    Hence, output from key steel mills may slip further in early February, analysts said.

    By end-January, stocks in key steel mills stood at 12.02 million tonnes, slipping 3.3% on month and falling 18.6% from the year-ago level.

    Given the strengthened steel prices and record-low steel stock before the Lunar New Year, a rebound in demand in late-February is expected, when most domestic enterprises increase spot purchasing after the holiday.

    But it won’t last long due to macro economy slowdown pressure and sustained weak demand, predicted the CFLP Steel Logistics Professional Committee.

    Additionally, the Central Bank of China lowered the proportion of down payment to boost real estate sales in early February. This move provided a chance for the new real estate projects which in the meantime may underpin steel prices to some extent.

    Domestic prices of the four major steel products edged down slightly in late-January, with rebar price averaging 1,900.3 yuan/t, down 0.2% from mid-January, showed data from the National Bureau of Statistics (NBS).

    http://en.sxcoal.com/0/140886/DataShow.html
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    Datang estimates a 10-bln drop in 2016 profits


    Datang China Corporation, one of the top five power producers in China, may see a decrease of 10 billion yuan ($1.53 billion) in profits in 2016, said the company’s general manager assistant Wangxin on February 16.

    The decline may largely attribute to Datang’s cut on average on-grid thermal power price by 0.033 yuan/KWh from January 1, 2016.

    That was in response to the National Development and Reform Commission’s announcement to lower on-grid thermal power tariffs by 0.03 yuan/KWh on average, effective January 1, 2016.

    Datang International Power Generation, the listed subsidiary of China Datang Corporation, generated 169.73 TWh of power in 2015, dropping 10.12% on year; in the same period, its on-grid power volume reached 160.83 TWh, down 9.97% from the year prior.

    The declines are mainly due to the decrease of utilization hours of Datang Power’s thermal power generating units amid a surplus power market.

    The utilization hours of thermal power generating units may further slip in the next few years, as China’s power capacity is surging up, while the industry is weakening amid a slowdown in China’s economy, which may post a growth rate of 6.5-7% during 2015-2020.

    In 2016, power consumption in China may edge up 1-2%, said the China Electricity Council in a report on February 2.

    However, the net profit of Datang Power in 2015 was 50-60% higher than that in 2014, according to its primary estimates.

    Obviously, the slump on coal prices contributed greatly to the cost saving of coal-fired power plants, which to some extent offset the effect from the electricity price cut.

    The Fenwei CCI 5500 Index for domestic 5,500 Kcal NAR coal traded at Qinhuangdao port was assessed at 371 yuan/t with VAT on February 16, FOB basis, up 1 yuan/t from a day ago.

    http://en.sxcoal.com/0/140938/DataShow.html

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