Mark Latham Commodity Equity Intelligence Service

Friday 17th February 2017
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    Oil and Gas

    Steel, Iron Ore and Coal


    Miner South32 swings to profit and unveils maiden interim dividend

    Rising commodity prices have carried mining group South32 into profit for the first half of the year, prompting it to announce a maiden interim dividend.

    South32, a collection of smaller assets that was spun off from FTSE 100 giant BHP Billiton in 2015, reported falling costs and a large jump in free cashflow to $626m (£501m) in the six months to December 31. The company will pay out a dividend of 3.6 US cents a share, or $192m.

    Pre-tax profits of $797m compared to a loss of $1.6bn the year before, when the fledgling company was hit by a $1.7bn impairment due to low prices. Revenue grew 6.8pc to $2.87bn.

    The mining industry was much more “buoyant”, said Graham Kerr, chief executive, in part due to policy decisions in China, the world’s largest consumer of raw materials, which launched a stimulus package for its construction industry last year. This had had a “fantastic impact” on commodity prices, particularly in metallurgical coal, which is used to make steel.

    But he vowed that South32 would ride through ups and downs in the commodities cycle. “These policies come and go. We’ll watch and see how it pans out but our focus is on what we can control.”

    South32 is buying Metropolitan Colliery, a metallurgical coal producer in Australia, for $200m, but has no other “large acquisitions” under way, Mr Kerr said, though he has expressed an interest in buying Anglo American out of its 40pc stake in a manganese ore business that both companies own.

    In the meantime, South32 will pursue expansion at its existing operations, which are spread across South Africa, Australia and Brazil, and include alumina, nickel, silver and lead mines. It is also prospecting for manganese ore, used in stainless steel, in British Columbia, Canada.

    BHP shed South32 in order to focus on its large-scale iron ore and copper mines, as well as its substantial oil and gas operations. Since the demerger South32’s shares have outperformed its former parent, up by 27.8pc compared to a 6pc fall.
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    US Purchasing Managers Love Trump

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    Li Kequiang Index says China economic activity rolling over.

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    The Bloomberg Intelligence Li Keqiang Index, a gauge of electricity use, rail cargo volume and bank loans the Chinese premier said he favored back in his provincial government days a decade ago, got a big boost in recent months as policy makers kept stimulus flowing to support the expansion. Now, after growth picked up in the fourth quarter, China is shifting to prudent and neutralpolicy and focusing more on reducing financial risk -- and Li’s gauge has reversed some of the gains.

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    These 10 companies spend most looking for gold, copper

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    A new report by SNL Metals and Mining on exploration spending by the largest mining companies, documents the shifting sands in the mining industry last year as the sector began to turn around.

    SNL, part of S&P Global, notes that larger players allocated a total of nearly $2.2 billion for non-ferrous exploration during the year. Companies with the 20 largest exploration budgets in 2016 accounted for 31% of the just under $6.9 billion worldwide exploration total.

    The top 10 companies were responsible for over $1 of every $5 spent on exploration worldwide last year with combined budgets of some $1.46 billion.

    Exploration for gold represented 56% of the total budget of the largest players – gold companies usually dominate the top 20 list. Together copper and gold account for 90% of the budgets of the top 10 companies.

    The 12 largest gold miners spending on exploration came to 37% of worldwide gold allocations. Two companies, Canada’s Agnico-Eagle and South Africa-based Gold Fields joined the top ten for the first time spending $111 million and $125 million respectively.

    Last year’s top spender AngloGold Ashanti allocated nearly half its $185 million budget to brownfield projects with the lion’s share going into Colombia.

    Larger players represented 34% of the global total spent on copper exploration. In turn two companies, Rio Tinto and Antofagasta accounted for nearly half of the spending by the top 20 companies delineating and finding copper deposits.

    SNL also notes that Rio Tinto was one of the few major mining companies whose planned exploration spending increased in 2016, up about 19% to $218 million. The Melbourne-based company was also the only large firm to spend money ($20 million) on uranium exploration.

    Despite the weakness on uranium markets, total global spending on uranium was $284 million last year, nearly as much as was spent on diamonds and surpassing exploration dollars for nickel.

    A persistent financing drought has squeezed juniors' budgeting to the point that the majors have become the biggest drivers of early-stage exploration.

    The only other diversified mining company in the top 10 – Vale – spent $51.5 million looking for copper and $41.5 million for nickel. Allocations for other minerals were mostly focused on phosphates and potash in Brazil and Peru.

    Overall diamonds accounted for 8% (with Alrosa and De Beers responsible for about 54%) and other targets, including silver, potash, phosphates and manganese made up 7% of the spending by larger players.

    Considering the stage of exploration, spending patterns in the industry changed last year notes SNL:

    Conventional wisdom holds that the major companies leave grassroots exploration to the juniors. It may therefore be surprising that the larger players contributed 34% of all greenfields allocations in 2016.

    A persistent financing drought has squeezed juniors' budgeting to the point that the majors have become the biggest drivers of early-stage exploration.

    Similarly, the larger players traditionally dominate minesite spending; however, in 2016 they accounted for only 37% of the near-mine work, as their investors demand improved returns over growth.

    It is also interesting to note that the major players were responsible for just 25% of late-stage and feasibility work.

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    'Good Time to Expand'

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    Robust consumer spending, an uptick in factory production and firming inflation are pointing to a healthy start in 2017 for the U.S. economy and another interest-rate increase by the Federal Reserve, potentially as soon as next month.

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    China to launch a new round of air quality inspections

    A new round of air quality inspections will run in China from Feb. 15 to March 15, the Ministry of Environmental Protection said Tuesday.

    Eighteen groups consisting of over 260 inspectors will be dispatched to 18 cities in north China including Beijing, Tianjin and Taiyuan, according to the ministry.

    China has attached great importance to environmental protection in recent years as environmental degradation threatens people's health and undermines the country's long-term growth.

    In inspections last year, the ministry said 720 people were detained and 6,454 held accountable for environment-related offences.

    Moreover, last year, 4.05 million high-emission vehicles were taken off the country's roads.

    Partly due to such efforts, Chinese cities reported less PM2.5 pollution in 2016, with the average density of PM2.5 in 338 cities falling by 6 percent.

    China is aiming for a 10 percent reduction in air emissions from 2012 levels by 2017 in cities at the prefecture level and above. Meanwhile, the PM 2.5 density in Beijing, Tianjin and Hebei Province should drop 25 percent.
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    Fearing pollution, north China residents protest plant despite government warning

    Fearing pollution, hundreds of residents in a northeastern Chinese city on Tuesday protested the building of an aluminum processing plant, ignoring warnings from authorities against disturbing social order.

    Urban Chinese residents, angry about environmental degradation and hazardous smog, have become increasingly concerned about living near polluting factories, occasionally protesting against new projects.

    Tens of thousands of "mass incidents" - the usual euphemism for protests - take place each year in China, triggered by corruption, pollution, illegal land grabs and other grievances.

    In Daqing, residents took part in a protest against the planned building of an aluminum plant by a subsidiary of Zhongwang Holdings Ltd.

    Photos and videos of a large crowd gathering in the car park outside the city government were circulated on Weibo on Tuesday, along with a hashtag asking Zhongwang to "please leave Daqing".

    Protesters shown in the photos held signs saying "Reject pollution, resist Zhongwang" and "Protect our homes".

    Reuters could not independently verify the accuracy of the pictures. Two eyewitnesses confirmed the protests had taken place.

    "There are about 800 to 1,000 people protesting still against the aluminum plant," said one eyewitness who gave his family name as Zhang, speaking by telephone from Daqing.

    The protests took place despite a call by city officials for residents to "rationally" convey demands, warning that "illegal gatherings, defamation, rumors and other acts that disrupt social order" would be dealt by law.

    "Everyone please be assured, if Daqing Zhongwang Aluminum's project does not pass muster on environmental issues, then it absolutely will not advance further," the city government said in a post late Monday on its official microblog.

    Public concern about pollution from the plant would be met with a "scientific" assessment of the plant's environmental impact, the post said.

    A spokeswoman for Zhongwang Holdings said the company was surprised by the protests and did not know why local residents were opposing the project now.

    The company bought the land five years ago but building has not yet started, with a feasibility study still underway.

    "We're still having internal discussions on the next step and will keep an open dialogue with the government and people there," she said, adding environmental protection was a "priority" for the company.

    The protests come as the company, one of the world's top aluminum fabricators, is embroiled in a dispute over U.S. import duties and subsidiary Zhongwang International Group Ltd pursues a $2.3 billion takeover of U.S. aluminum products maker Aleris Corp.

    U.S. lawmakers have called on regulators to reject the takeover.

    The Daqing city government in frigid Heilongjiang province did not answer calls seeking comment. An official reached by telephone at the Daqing police declined to comment.

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    Naptha up, and Bond Proxies over-owned. Real yields too low. Trump/Brexit= Growth. Big stuff.

    The benchmark CFR Japan naphtha price hit a 19-month high on Monday at $528.625/mt, amid growing demand from the petrochemical sector on the back of stronger margins, S&P Global Platts data showed.

    The marker was last higher at $543.375/mt on July 6, 2015.

    Over the last two weeks, a slew of spot buy tenders emerged in the Asian naphtha market for second-half March delivery cargoes.

    Japanese trader Idemitsu, Taiwan's Formosa Petrochemical, South Korea's Hanwha Total and LG Chem, and China's Unipec, had issued the tenders, mainly seeking light-grade naphtha.

    Formosa last Thursday bought 150,000 mt of open-spec naphtha, with a minimum paraffin content of 70%, for H2 March delivery into Mailiao, despite planned maintenance at its residue fluid catalytic cracker from March to April.

    The company has scheduled a turnaround at one of its two RFCCs, each with the capacity to produce 350,000 mt/year of propylene, from March 10 to April 17 while its olefins conversion unit will be taken offline from March 10 to April 26, Platts previously reported.

    Hanwha Total secured an open-spec naphtha cargo Monday for the same laycan for delivery into Daesan.

    LPG, the alternative feedstock to naphtha, has gained strength recently due to limited supplies, market sources said. This has resulted in naphtha being the preferred feedstock for petrochemical production.


    The CFR Northeast Asia ethylene-CFR Japan naphtha spread widened to the highest level in nearly five months at $778/mt last Friday, before dipping to $771.375/mt Monday.

    Asia's ethylene market has been gaining strength since the middle of January, driven by strong spot demand -- especially from China.

    A few heavy full-range naphtha cargoes, which are typically used for gasoline blending, were also diverted to the petrochemical pool due to better premiums, sources said.

    "Heavy full-range naphtha was partly [diverted] to the petrochemical [sector], as it is oversupplied. Open-spec naphtha has more value than heavy full-range naphtha [these days]," a South Korea-based naphtha trader said.

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    China mulls radical output cuts, port coal ban in war on smog - document

    China is considering forcing steel and aluminium producers to cut more output, banning coal in one of the country's top ports and shutting some fertiliser and drug plants as Beijing intensifies its war on smog, a draft policy document shows.

    The Ministry of Environmental Protection (MEP) has proposed the measures in the document seen by Reuters. If implemented, they would be some of the most radical steps so far to tackle air quality in the country's most polluted cities.

    The move comes after China's northeast has battled some of the worst pollution in years as emissions from heavy industry, coal burning in winter and increased transport have left major cities including Beijing blanketed in thick smog.

    The document outlines plans to cut steel and fertiliser capacity by at least half and aluminium capacity by at least 30 percent in 28 cities across five regions from around late November to late February.

    By July, it would stop Tianjin, one of the nation's busiest ports, handling coal, with shipments diverted to Tangshan, 130 kms (80 miles) to the north, which would shift large volumes of coal transport from trucks to rail.

    Tianjin, China's second largest by cargo volume, is the key hub for trading 100 million tonnes a year of seaborne coal and domestic coal that flows south from Inner Mongolia, the report said.

    By September, ports in Hebei province would not be allowed to use trucks to carry coal from railways to ships.

    Based on the cuts over three months, the measures would reduce China's total annual steel output by 8 percent annually and aluminium output by 17 percent, according to Reuters calculations.

    A source with direct knowledge of the proposal said the environmental watchdog has distributed the draft to relevant local governments and companies seeking reaction.

    The Ministry declined to comment on the draft. The Ministry of Transportation did not respond to requests for comment.

    It's not known when the Ministry expects to decide on whether to implement the plan, one of the most extreme since the government launched its offensive on pollution three years ago.


    If introduced, the steps would likely further support rallies in aluminium, steel and coal prices, which have been buoyed by China's efforts to shut excess capacity and clean up polluting sectors.

    Highlighting the difficulties enforcing that policy, Greenpeace said on Monday that China's operational steel capacity actually rose in 2016 after a high-profile closure program concentrated on already idled plants.

    Still, prolonged cuts in capacity will reignite worries about demand for raw materials like iron ore and coking coal.

    The steps will also cause major upheaval for utilities, miners and traders, as they seek alternative routes and storage for their coal.

    "I think these proposals are too radical. (The government) hasn't thoroughly considered the likely consequences and solutions to make it happen," said a coal trader based in China.

    The plans go further than an earlier proposal by Beijing's regional environmental watchdog to ban coal trucks and storage in Tianjin, which it estimated would cost the port 670 million yuan ($97 million) a year in business.


    The five regions affected are some of the most populated and most smog-plagued: Beijing, the port city of Tianjin and the neighboring province of Hebei, as well as Shandong, Shanxi and Henan.

    They account for one third of China's crude steel output, while Hebei, Henan and Shandong are the top three aluminium producing regions accounting for around 70 percent of total output.

    The Ministry also plans to close pesticide and pharmaceutical factories and fertiliser plants that use urea unless the chemicals and drugs are critically needed for the population, according to the document.

    The news comes as the country's northern regions braces for more heavy smog this week. On Monday, state media reported Chinese cities that sit on three pollution "highways" have been told to coordinate efforts to reduce emissions.

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    The Hidden Side to the Reflation Trade Is China's Surging Prices

    Forget about Donald Trump. The global reflation trade may have another driver that proves to be more durable: China’s rebounding factory prices.

    The producer price index has staged an 10 percentage-point turnaround in the past 10 months, posting for January a 6.9 percent jump from a year earlier. Though much of that reflects a rebound in commodity prices including iron ore and oil, China’s economic stabilization and its efforts to shutter surplus capacity are also having an impact.

    For the global economy, it’s the pass-through of China’s rising costs via exports that matters, and Chinese manufacturers long squeezed by increasing wages have been raising their asking prices. For some market participants, it’s China rather than the U.S. that’s provided the main boost to global bond yields from their mid-2016 lows, rather than hopes for reflation from the new Trump administration’s tax and regulatory reforms.

    "The potential of the ‘reflation trade’ constructed around the narrative of a new administration stimulating the U.S. economy looks to be overstated," said Michael Shaoul, chief executive officer at Marketfield Asset Management in New York. "But the alternative version that is based on a solid recovery in the global economy that comfortably beats the muted expectations of investors would still seem to have plenty of time ahead of it."

    And the key to that turnaround is China, says Shaoul.
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    Telecommuting consumer uses less gasoline?

    "Stealth Recession" - The Mystery Of The Teleporting Commuter

    The game is afoot: call it the “Mystery of the Teleporting Commuter”.  Starting in October 2016, the amount of gasoline supplied to the US market started to decline on a year over year basis.  This negative trend accelerated in January, leaving both energy analysts and macroeconomic pundits to wonder if the US has entered a stealth recession.

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     We regularly look at US gasoline production in relation to the Department of Transportation’s “Miles Driven” data, and when you add that variable to the mix the mystery starts to clear.  Even though gasoline supplied was down 1.6% in October and -0.3% in November, the DOT data (November last month available) shows miles driven up 1.6% and 4.3%, respectively.  By this math, imputed fuel efficiency for the US fleet is improving noticeably compared to historical trends that date back to the 1970s – a trend that is worth watching in 2017.

    And while that’s an important piece of the puzzle, the real upshot is the gasoline data alone is not enough to conclude that the US economy has grabbed a lower gear or slipped into reverse.  The miles driven data shows we can (and probably are) still cruising along.

    Are you an American male between the ages of 35-54?  If so, congratulations (of a sort).  According to the US Department of Transportation’s Federal Highway Administration you drive more than any other age cohort/gender demographic.  A lot more, as it turns out: you clock an average of 18,858 miles/year, some 14% more than the national average of 16,550 miles/year.  The group least likely to get behind the wheel:  women over the age of 65, who drive an average of 4,785 miles/year.  If you are in neither camp, you can see how your demographic stacks up here:

    Regardless of where you are on that continuum, Americans do a lot of driving.  In fact, over the last 12 months ending November 2016, we put a collective 3,215 billion miles on the odometer.  That is the equivalent of driving back and forth to the Sun every 3 weeks.  And since most Americans (86% according to a 2009 Census study) commute to work alone in their car, taking an average of 25 minutes door-to-door, driving is closely correlated with employment levels.  All those miles behind the wheel are therefore an important economic indicator.

    It is for this reason that a Goldman Sachs note out this week about the decline of gasoline supplied to the US market caught a lot of attention.  Less gas consumption should, logically, mean fewer people doing the daily commute.  Not to mention shopping, going out to eat, and everything else Americans like to do.

    The upshot is this: implied gasoline supply to the US based on data from the EIA was down 5.2% in January.  These are levels consistent with a recession, even though Goldman is careful to point out that they don’t expect one is in the works.  So what’s going on?

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    Sinochem in early talks to buy stake in Noble Group

    China’s state-owned Sinochem is in early talks with Noble Group to buy an equity stake in the embattled trader, three sources familiar with the matter said, in a move that would help it gain access to the commodity trader’s global supply chain.

    Taking a stake in an internationally active trading house like Noble would help Sinochem, a big oil, gas and petrochemical company, in its ambitions to become a more globally active energy trader, and also develop China’s gas industry.

    The discussions are taking place as Noble looks to rejig its business units, cut debt and boost liquidity to fight a long-term downtrend in commodity prices.

    In November, Hong Kong-headquartered Noble said it had met its capital raising target of $2 billion as it sold assets, completed a rights issue and restructured its operations.

    The sources said the talks have not been completed and there is no assurance that a deal will be finalised.

    They said senior Noble executives visited China in recent months to hold talks with Sinochem’s management, and both sides also met at Noble’s U.S. regional hub in Stamford, Connecticut.

    The sources declined to be identified as they were not authorised to speak to the media.

    Sinochem did not immediately return a request for comment, and an external spokeswoman for Noble declined comment.

    Noble already has the backing of Chinese sovereign wealth fund China Investment Corp. (CIC), which participated in the company’s rights issue last year. The capital raising followed a slump in investor confidence as Noble’s accounting practices were questioned by Iceberg Research.

    CIC has a 9.6 percent stake in Noble, while Noble Chairman Richard Elman holds a stake of about 18 percent.

    The size of the planned stake or the amount to be invested by Sinochem has not yet been finalised, and any deal could face scrutiny in China as authorities there try to control capital outflows, sources said.

    The appeal of Noble for Sinochem is likely to be access to its global supply chain.

    A Sinochem source said the company was still conducting due diligence on Noble, which typically takes six months to a year. He said the company was looking at Noble’s North America energy trading, which could complement Sinochem’s existing portfolio.

    Noble specialises in shipping and storage logistics, rather than owning large production assets or refineries, and is also a major player in gasoline blending in the United States.

    Noble is also targeting Asia’s emerging liquefied natural gas (LNG) market as a core growth area, while Sinochem is likely to play a key role in China’s plans to expand its natural gas sector to reduce the share of polluting coal in its energy mix.

    Access to Noble’s LNG trading network could help with the Chinese plans.
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    Panama detains Mossack Fonseca founders on corruption charges

    The two founders of Panamanian law firm Mossack Fonseca were arrested on Saturday, the attorney general's office said, after both were indicted on charges of money-laundering in a case allegedly tied to a wide-ranging corruption scandal in Brazil.

    Firm founders Jurgen Mossack and Ramon Fonseca were detained because of the risk they might try to flee the country.

    Attorney General Kenia Porcell told reporters on Saturday that the information collected so far "allegedly identifies the Panamanian firm as a criminal organization that is dedicated to hiding assets or money from suspicious origins."

    Porcell said the one-year investigation that led to the arrests has been aided by prosecutors in Brazil, Peru, Ecuador, Colombia, Switzerland and the United States.

    Mossack Fonseca is also at the center of a separate case known as the Panama Papers, which involved millions of documents stolen from the firm and leaked to the media in April 2016.

    The fallout from the leaks provoked a global scandal after numerous documents detailed how the rich and powerful used offshore corporations to hide money and potentially evade taxes.

    On Thursday, prosecutors raided Mossack Fonseca offices seeking evidence, and the homes of the firm's founders were searched on Friday.

    Fonseca, a former presidential adviser in Panama, has previously denied that the firm had any connection to Brazilian engineering company Odebrecht, which has admitted to bribing officials in Panama and other countries to obtain government contracts in the region between 2010 and 2014.

    "This investigation in principle is not related to Odebrecht, but to the Lava Jato case," Porcell said, referring to the probe centered on Brazilian state-run oil company Petrobras.

    Fonseca has also denied any relationship with the Lava Jato case.

    Following the arrests, Mossack Fonseca defense lawyer Elias Solano called the accusations against the firm's founders "weak" and said he would challenge the evidence presented against his clients.

    A source in the prosecutors office told Reuters that an unidentified third lawyer with the firm had also been arrested, while a fourth faces an arrest warrant, but her whereabouts are unknown.

    The two additional lawyers were not named by Porcell.

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    Peru judge orders international arrest warrant for ex-president Toledo

    A Peruvian judge issued an international arrest warrant for former president Alejandro Toledo and said he should spend up to 18 months in jail while prosecutors investigate him for allegedly taking $20 million in bribes from Brazilian builder Odebrecht SA.

    Judge Richard Concepcion said evidence uncovered so far in a graft probe, including testimony from an Odebrecht executive and bank records, warranted putting Toledo in "preventive prison" while charges of influence peddling and money laundering were prepared.

    In issuing an arrest warrant, Concepcion said Toledo appeared to have used the "high office of the presidency" to "make an illegal pact" to sell off a highway project that promised to integrate the region.

    Toledo, who rose to power denouncing the corruption of his predecessor, has repeatedly denied taking bribes from Odebrecht. Toledo was in France last week and absent from the hearing.

    If found guilty, he could be sentenced to up to 15 years in prison, lead prosecutor Hamilton Castro said.

    Toledo "laughed at Peruvian society, he laughed at the expectations Peruvian society had for ... clean public work projects," Castro told the court hearing into the prosecutor's request for "preventive prison" for Toledo.

    Toledo's attorney Heriberto Benitez accused the judge of having a "vengeance" and said he would appeal against the ruling.

    "He can't come back ... I wouldn't recommend it," Benitez told reporters. "With judges like this, careful!"

    The government of President Pedro Pablo Kuczynski, who served as Toledo's finance minister and prime minister a decade ago when the contracts were awarded, said it would offer a reward for information leading to Toledo's capture if he did not turn himself in.

    Odebrecht has been at the center of a growing graft scandal in Latin America since admitting to doling out hundreds of millions of dollars in bribes from Peru to Panama.

    The revelation, made in U.S. courts in December, threatens to implicate presidents and former presidents who once promoted the hydroelectric plants, highways and irrigation canals that Odebrecht has built in the past two decades.

    Toledo, a shoeshine boy turned economist who plays up his indigenous roots, inspired scores of Peruvians to vote for him in 2001 as an antidote to widespread graft in the government of Alberto Fujimori, who is now serving a 25-year prison sentence for corruption and human rights abuses.

    Prosecutor Castro opened his case, that Toledo be jailed while investigations continue, quoting the Incan law "ama sua" or "do not steal."

    He said Toledo met the head of Odebrecht Peru, Jorge Barata, in a luxury hotel in Rio de Janeiro in 2004 and promised to help the firm win two highway contracts in exchange for $35 million.

    Odebrecht only paid $20 million because Toledo did not change the bidding terms to exclude competitors, Castro said, citing testimony from Barata. Toledo did, however, change laws to pave the way for Odebrecht's bid and pressured the tendering committee to pick its proposal, Castro said.

    Some $10 million in transfers from Odebrecht have been traced to offshore companies linked to Yosef Maiman, an Israeli businessman and longtime friend of Toledo tasked with receiving the bribes, Castro said.

    Maiman did not respond immediately to requests for comment.

    The contracts helped pave a highway from the Andes through the Amazon to connect Peru's Pacific ports and Brazil's Atlantic shores. Originally requiring an investment of $658 million, cost overruns pushed the final price tag for the two contracts to $1.34 billion, according to the comptroller.

    Odebrecht and its junior partner on the projects, Peru's biggest construction conglomerate, Grana y Montero, still maintain a 656 km (400 miles) stretch of the highway.
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    Australia heat wave causes firms to power down but blackouts avoided

    Major energy users in Australia shut down on Friday, and the public were asked not to go home and cook or watch television, averting big blackouts amid strained supplies as an extreme heat wave moved from the desert interior to the east coast.

    The temperature climbed to 47 Celsius (117 Fahrenheit) in parts of New South Wales (NSW) state and the Australian Capital Territory on Friday, while Saturday is expected to see a record for the hottest February day on record.

    The extreme heat caused power prices to soar to an unprecedented A$14,000 per megawatt-hour (MWh) as power stations struggle to meet skyrocketing demand for cooling.

    Authorities had been preparing to temporarily suspend power to selected areas of New South Wales late on Friday to prevent overload just days after 40,000 homes and businesses lost electricity in the state of South Australia.

    But the Australian Energy Market Operator (AEMO) said late on Friday tight power supply conditions had subsided for the day, without power cuts to residents.

    "AEMO can confirm that residential load shedding was not required at any point throughout the day ... predominantly due to reduced electricity consumption across the state," it said in a statement.

    Earlier, NSW Energy Minister Don Harwin urged households and businesses to save electricity.

    "Rather than going straight home and turning on the television and cooking, (you might) want to consider going to a movie, going out to a shopping center, keeping the load low, every bit like that helps," Harwin told reporters in Sydney.

    A paper mill, water treatment operations and Australia's largest aluminum smelter, Tomago, were among businesses that halted operations to conserve energy, with many industrial users required to do so under their contracts.

    The Tomago smelter, which exports to Southeast Asia, Japan and China, is the single largest consumer of electricity in NSW and is jointly owned by Anglo-Australian group Rio Tinto and Oslo-based Norsk Hydro.


    Weather forecaster Olenka Duma said a build-up of heat in the vast interior outback was being pushed east across NSW, the country's most populous state.

    "It was like the windows and doors were closed for a long time, and now a weather front has dragged the hot air here," Duma, an official of the Bureau of Meteorology, told Reuters.

    It was even too hot for ice cream.

    "I'm not doing any business today, I'm just sitting in the air-conditioning at home," said Ned Qutami, owner of six mobile ice cream bars in Sydney.

    "People at the beach are either in the water or heading home. No one is hanging around to eat ice cream," said Qutami, who runs Sydney Ice Cream & Coffee in beachside suburbs.

    The intense heat and power outages have sparked debate over energy security, after the market operator told power companies in South Australia state on Wednesday to switch off some customers' power supply for a short spell to manage demand.

    South Australia depends on wind for more than a third of its power supply, and the wind died down at the same time as people started cranking up air-conditioners.

    That was the latest in a string of power disruptions and electricity price spikes to hit the southern state, including a state-wide blackout that forced copper mines, smelters and a steel plant to shut for up to two weeks last September.

    The problems have sparked a review of the national electricity market and energy policy on how to cope with rapid growth of wind and solar power and the closure of coal-fired power plants that have been essential for steady supply.
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    N Korea tests ballistic missile

    The U.S. Army is slated to deploy 24 AH-64D Apache heavy attack helicopters to the Korean Peninsula to better deter military threats from North Korea, United States Forces Korea (USFK) announced in a January 8 statement.

    The heavy attack helicopters will replace 30 OH-58D Kiowa Warrior observation and light attack helicopters. Around 360 U.S. Army personnel are expected to replace a similar number of U.S. troops currently serving with the OH-58D unit.

    “The 1-6th Heavy Attack Reconnaissance Squadron (H-ARS) will begin to arrive to Korea on this month, bringing with them 24 AH-64 Apache helicopters. As part of a scheduled rotation, the Apaches will replace the 30 OH58D’s currently stationed on the Korean Peninsula,” the statement reads.


    A Texas-based squadron of B-1B Lancers has arrived on Guam to assume U.S. Pacific Command’s continuous bomber presence mission at Andersen Air Force Base.

    An undisclosed number of Lancers from Dyess Air Force Base’s 7th Bomb Wing, 9th Expeditionary Bomb Squadron arrived on the island Monday, an Air Force statement said.

    They’ll take over for a Lancer squadron out of Ellsworth Air Force Base, S.D., that arrived at Andersen in August to replace an aging fleet of B-52 Stratofortresses.

    “Since 2004, Air Force bombers such as the B-1, the B-52 and the B-2 Spirit have been in continuous rotations, providing nonstop stability and security in the Indo-Asia-Pacific region,” the statement said.

    Guam-based Lancers conduct “routine strategic deterrence and regional training missions,” the statement said.

    The four-engine supersonic jet was designed for nuclear capabilities but switched to an exclusively conventional combat role in the mid-1990s, according to Boeing’s website.

    US will also dispatch a dozen F-16s to Guam in mid-January.

    US supercarrier USS Carl Vinson and its strike group, alongside nuclear capable B-52 and B-1B bombers are being considered for the massive operation.After a month at sea, sailors aboard the USS Carl Vinson Strike Group were greeted to a warm “Hafa Adai” welcome at the US Guam Naval Base.

    Guam - Sailors from the USS Carl Vinson Strike Group were greeted today with welcome home signs and tears of joy. The sailors have been deployed since January 5, marking this port visit the first for the carrier in their Western Pacific Deployment.

    Image title

    The Zumwalt-class destroyer is a class of United States Navy guided missile destroyers designed as multi-mission stealth ships with a focus on land attack. Futuristic rail guns are also due to be attached to the stealth vessel – which use electromagnets to hurl slugs at speeds of up to 5300mph.

    Feb. 7 (UPI) -- China voiced its opposition to a U.S. proposal to deploy the USS Zumwalt in the waters surrounding the Korean peninsula, a development that Beijing says it is "watching closely."

    Foreign ministry spokesman Lu Kang said on Tuesday "all countries concerned should work toward military cooperation for the sake of peace and stability, and tensions should not be created."

    Lu added China is opposed to any measures that affect China's security interests, South Korean news agency Yonhap reported.

    In January, Adm. Harry B. Harris, Jr., commander of the U.S. Pacific Command, proposed deploying the United States' largest missile destroyer near Korea's southernmost Jeju Island.

    The $4 billion USS Zumwalt is a multi-mission stealth ship with a displacement of about 15,000 tons.

    10 Feb: President Trump told President Xi Jinping of China on Thursday evening that the United States would honor the “One China” policy, reversing his earlier expressions of doubt about the longtime diplomatic understanding and removing a major source of tension between the United States and China since shortly after he was elected.

    In a statement, the White House said Mr. Trump and Mr. Xi “discussed numerous topics, and President Trump agreed, at the request of President Xi, to honor our One China policy.” It described the call as “extremely cordial” and said the leaders had invited each other to visit.

     "Pacific Air Forces will send 12 F-22 Raptor aircraft and approximately 190 airmen to Royal Australian Air Force Base Tindal in early February to conduct combined exercises and training missions with the Royal Australian Air Forces," the official article on the web site stated on Friday.

    The F-22 can also carry air-to-surface weapons such as bombs with Joint Direct Attack Munition (JDAM) guidance and the Small-Diameter Bomb, but cannot self-designate for laser-guided weapons.[151] Internal air-to-surface ordnance is limited to 2,000 lb (910 kg).[152] An internally mounted M61A2 Vulcan 20 mm rotary cannon is embedded in the right wing root with the muzzle covered by a retractable door to maintain stealth.[153] The radar projection of the cannon fire's path is displayed on the pilot's head-up display.[154]

    F-22 with external weapons pylons

    The F-22's high cruise speed and altitude increase the effective ranges of its munitions, with the aircraft having 50% greater employment range for the AIM-120 AMRAAM than prior platforms.[120] While specifics are classified, it is expected that JDAMs employed by F-22s will have twice or more the effective range of legacy platforms.[155] In testing, an F-22 dropped a GBU-32 JDAM from 50,000 feet (15,000 m) while cruising at Mach 1.5, striking a moving target 24 miles (39 km) away.[156]

    The missile, the first test since Mr Trump became president, was launched from Banghyon air base in the western province of North Pyongan, and flew east towards the Sea of Japan, the South Korean defence ministry said.

    It flew about 500km before falling into the sea, a ministry spokesman said, adding the exact type of missile had yet to be identified.

    "Today's missile launch... is aimed at drawing global attention to the North by boasting its nuclear and missile capabilities", the ministry said in a statement.

    "It is also believed that it was an armed provocation to test the response from the new US administration under President Trump," it added.

    Mr Trump responded with an assurance to the visiting Japanese prime minister that Washington was committed to the security of its key Asian ally.

    "I just want everybody to understand and fully know that the United States of America stands behind Japan, its great ally, 100 percent," Mr Trump said, without elaborating.

    Mr Abe denounced the launch as "absolutely intolerable" while top government spokesman Yoshihide Suge told reporters in Tokyo it was "clearly a provocation to Japan and the region.

    The Trump administration had been expecting a North Korean “provocation” soon after taking office and will consider a full range of options in a response to Pyongyang’s missile test, but calibrated to show U.S. resolve while avoiding escalation, a U.S. official told Reuters on Saturday.

    The new administration is also likely to step up pressure on China to rein in North Korea, reflecting President Donald Trump's previously stated view that Beijing has not done enough on this front, the official said, speaking on condition of anonymity.

    “This was no surprise,” the official said. "The North Korean leader likes to draw attention at times like this."

    Trump and his aides are likely to weigh a series of possible responses, including new U.S. sanctions to tighten financial controls, an increase in U.S. naval and air assets in and around the Korean peninsula and accelerated installation of new missile defense systems in South Korea, the official said.

    US commanders plan to execute their strategy to annihilate the threat from North Korea in a massive war games operation dubbed Key Resolve.

    Warships, bombers, fighter planes and soldiers will all be on-hand for the colossal military exercise which will be the largest on record in the Korean Peninsula.

    North Korea's nuclear weapons will be "destroyed" in a simulated scenario designed to test the military strength of the US in the Pacific and its ally South Korea.

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    Oil and Gas

    Oil firms as OPEC floats extended output cut; markets still bloated

    Oil prices edged up on Friday, lifted by a report that producer club OPEC could extend an output cut aimed at reining in a global fuel supply overhang.

    The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia plan to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017, and estimates suggest compliance by OPEC is around 90 percent.

    The cuts are aimed at curbing oversupply that has dogged markets since 2014.

    To help rebalance the market, OPEC sources told Reuters that the supply reduction pact could be extended if all major producers showed "effective cooperation".

    For now, inventories remain bloated and supplies high, especially in the United States.

    Recent price movements reflect this, with Brent and WTI trading within a $5 per barrel price range this year, in what has become the longest and most range-bound period since a price slump began in mid-2014.

    "Despite the headlines, the massive inventory glut in both oil and gasoline continues to thwart any upward momentum," said Stephen Innes, senior trader at OANDA in Singapore.

    In the United States, rising output has helped push up crude and fuel stocks to record highs.

    In Asia, oil flows into the region remain as high as they were before the production cuts, data in Thomson Reuters Eikon shows, as exporters shield their big customers in a fight for market share.

    This comes amid signs of stuttering demand growth in core markets, China and India.

    In India, fuel demand growth fell in January, while in China sagging car sales and soaring gasoline and diesel exports also point to a slowdown in growth.

    That leaves Europe, where OPEC has significantly cut supplies. However, Eikon data shows rising North Sea oil exports to Asia, indicating there is no real supply shortage there either.

    Despite the ongoing glut, analysts expect oil markets to tighten in the longer term.

    "In the fourth quarter of 2018, global oil demand will most likely surpass 100 million barrels per day," AB Bernstein said on Friday in a note to clients.

    "If oil prices stay around $60 per barrel and GDP growth over 3 percent per annum, then oil demand growth will be stronger over the next 5 years, than the previous decade. What we are witnessing is a rather surprising renaissance of oil consumption," it added.
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    Santos reports $1.1 bln impairment

    Oil and gasmajor Santos has recorded a net loss of more than $1-billion for the full year ended December, on the back of a $1.1-billion impairment charge on its Gladstone liquefied natural gas (GLGN) asset and lower oil prices.

    Excluding impairments and other significant items, the company reported an underlying profit of $63-million, compared with the $49-million reported last year.

    “In 2016, the Santos leadership team took tough and decisive action to stabilise the business and build the foundations for future growth. We restructured the business, removed substantial cost, all while maintaining safety and delivering record production and sales volumes,” said MD and CEO Kevin Gallagher on Friday.

    “As a result, our turnaround strategy is starting to deliver. In 2016, Santos was free cash flow positive at $36.50 per barrel and generated $370-million in free cash flow over the last eight months of the year. This is pleasing progress, but there is still more to be done.”

    Production volumes for the full year was up by 7%, to 61.6-million barrels of oil equivalent, with sales volumes up 31% to 84.1-million barrels of oil equivalent, resulting in a 6% increase in revenue for the full year, at $2.6-billion.

    The record production came on the back of the start up of the GLNG train 1 in September 2015 and train 2 in May of 2016, as well as strong production from the Papua New Guinea LNG (PNG LNG) operation.

    “Our aim is to transform Santos into a low cost, reliable and high performance business that delivers sustainableshareholder value,” Gallagher said.

    “At the heart of our strategy is a portfolio simplification and focused growth across five core, long life natural gas assets; Cooper Basin, GLNG, PNG, Northern Australia and Western Australia gas. Each asset has significant upside potential.”

    Gallagher pointed out that Santos will continue to focus on exploration, development, production and the sale of natural gas, which he said had a significant role to play in securing Australia and Asia’s energy future.

    “In 2017, we will further refine our operating model to drive costs down, improve cash flow and reduce debt. We now have the strategy, assets, people and growth options to deliver on our future success and provide sustainable shareholder value.”

    For 2017, Santos was targeting a production and sales volume of between 55-million and 60-million tonnes, and between 73-million and 80-million tonnes respectively.
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    Encana delivers strong fourth quarter and full-year 2016 results

    Encana delivered strong performance across its business in the fourth quarter, positioning itself to create value and return to growth in 2017. Throughout 2016, Encana grew quarter-over-quarter non-GAAP cash flow, significantly lowered costs, strengthened its balance sheet and continued to deliver better wells at lower cost in each of its core assets. The company reached its planned 2017 activity level in the fourth quarter to launch itself into 2017, when it expects to deliver strong growth in crude and condensate production and increase its non-GAAP corporate margin. The company is firmly on track with its five-year plan. Fourth quarter and full-year highlights from 2016 include:

    - fourth quarter production from core assets of 237,100 barrels of oil equivalent per day (BOE/d), representing 74 percent of total production
    fourth quarter total liquids production of 108,900 barrels per day (bbls/d) including oil and plant condensate production of 86,300 bbls/d, representing almost 80 percent of total liquids production
    - fourth quarter cash from operating activities of $199 million and non-GAAP cash flow of $302 million
    - lowered full-year average drilling and completion costs by about 30 percent compared to 2015
    - drove further efficiency across the business, delivering more than $600 million of savings compared to 2015
    - reduced long-term debt by $1.1 billion from 2015 and net debt by more than 50 percent since year-end 2014
    - generated full-year cash from operating activities of $625 million and non-GAAP cash flow of $838 million
    - replaced 326 percent of full-year 2016 production on a proved plus probable reserves basis after royalties (Canadian protocols) and 175 percent of full-year 2016 production on an SEC proved reserves basis (U.S. protocols), excluding dispositions

    “We delivered on our 2016 strategic objectives and our performance through the fourth quarter created a powerful launch pad for our five-year growth plan,” said Doug Suttles, Encana President & CEO. “We drove innovation and efficiency into every part of our business to increase margins and returns and we have one of the largest premium return drilling inventories in our industry. Our high quality multi-basin portfolio and leading operational performance positions us to generate strong returns at today’s prices.”

    “We carried considerable momentum into 2017,” added Suttles. “Through innovation and our relentless focus on efficiency and supply chain management, we expect to hold total year-over-year drilling and completion costs flat despite cost inflation for some services. We expect to significantly increase crude and condensate production throughout the year and deliver strong corporate margin growth.”

    Better wells at lower cost

    Encana’s focus on operational excellence, stacked pay zones and developing its premium return well inventory has positioned the company as an operational leader in each of its core assets. In 2016, Encana had 10,000 premium return well locations and the company anticipates growing that inventory through 2017. Already in 2017, Encana has added 50 premium return well locations to its Eagle Ford inventory. Harnessing the competitive advantages of its high quality multi-basin portfolio, Encana rapidly applies technical advancements and efficiencies across its core assets to deliver better wells at lower cost.
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    UK natural gas: NBP curve mixed on Rough storage announcement

    UK natural gas: NBP curve mixed on Rough storage announcement

    The NBP curve went in different directions in early Thursday trade as the market began to price in the fact that Rough storage will not inject gas during the second quarter of the year, lowering demand expectations for the period.

    The Q2 17 contract was seen trading at 44.80 pence/therm Thursday morning, lower than the previous assessment of 45.025 p/th, with the Q3 17 contract climbing to 43.70 p/th, widening the spread between the two contracts.

    Winter 17 was the contract most affected by the news, up 1.07 p/th from the Wednesday close to be dealt at 50.27 p/th.

    "I'm surprised Winter 17 hasn't been impacted more," said one UK-based gas trader, with eyes keenly focused on injection rates during the third quarter for Winter 17 storage level indications.

    Closer in, the near-term NBP was supported by a short gas system, pushing the NBP spot back up to around 50 p/th.

    National Grid figures put the UK gas system short by 10 million cu m at 11:00 am, as physical flows of 270 million cu m/d were behind demand forecasts for the day of 280 million cu m.

    Within-day and day-ahead were seen trading at 50.10 p/th and 50 p/th respectively, compared with Wednesday's day-ahead assessment of 48.70 p/th, with front-month March rising to 50.19 p/th from 49.20 p/th.

    Norwegian flows were lower due to no fewer than three unplanned outages reported by Gassco, running at 117 million cu m/d.

    Withdrawals from storage were running at a mere 3 million cu m/d Thursday morning with only the Hornsea medium-range facility sending gas into the system.

    IUK imports were nominated at 14 million cu m at 10:00 am, with BBL imports flowing at 12 million cu m/d.

    LNG regasification from South Hook was unchanged at 5 million cu m/d.

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    Angola crude oil exports to rise

    Angola crude oil exports to rise to 1.69 mln bpd in April from 1.54 mln in March - loading plan

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    Iraq's February Oil Sales Accelerate Despite OPEC Effort to Cut

    Iraqi crude shipments rose 3 percent in the first half of February even after OPEC’s second-biggest producer agreed to participate in global output cuts to mop up a glut that has put pressure on oil prices.

    Exports increased to 3.93 million barrels a day in the first 15 days of the month, 122,000 barrels a day more than the average for all of January, according to port-agent reports and ship-tracking data compiled by Bloomberg. Shipments from the southern Iraqi port of Basra grew by 10 percent, while sales by the Kurdish Regional Government in the north of the country were up 13 percent, the data show.

    The Organization of Petroleum Exporting Countries is limiting output in the first half of this year to cut global crude stockpiles that are weighing on prices. The group agreed on Nov. 30 to reduce production by 1.2 million barrels a day, with 11 countries outside of OPEC pledging to reduce by about 600,000. Benchmark Brent crude has gained more than 10 percent since OPEC announced the cuts and was 5 cents higher on Thursday at $55.84 a barrel at 11:11 a.m. in London.

    Iraq pledged to decrease production by 210,000 barrels a day from the 3.91 million it pumped in October, the month that OPEC set as a baseline for its agreement.

    Rough Weather

    The February mid-month tally is a sign of how much crude the country is selling, though total shipments for the full month may not end up reflecting this trend due to the high winds and rough seas that often interrupt loadings during Iraq’s winter months. The country plans to export about 3.64 million barrels a day in all of February, according to a loading program.

    Iraq’s March oil exports may decline to a seven-month low of 3.01 million barrels a day, according to loading programs obtained by Bloomberg. Shipments typically slump in March because of weaker seasonal demand. This, together with maintenance at some of Iraq’s biggest fields, may help the producer meet its pledge under OPEC’s deal to restrict supply.

    The International Energy Agency reported this month that Iraq cut output by 110,000 barrels a day in January. OPEC, citing data from so-called secondary sources such as analysts and tanker trackers, said Iraq cut 166,000 barrels in the same month.

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    PNG LNG gets resource boost

    ExxonMobil PNG, a unit of the US-based energy giant and operator of the Papua New Guinea LNG joint venture, said Thursday it has added 2.3 trillion cubic feet (Tcf) to the existing LNG project fields’ resource base.

    The resource addition follows an independent review by Netherland Sewell Associates.

    The recertification study, which included all PNG LNG fields, found that the most likely technically recoverable resource is 11.5 Tcf, a 25 percent increase beyond the earlier 9.2 Tcf assessment.

    “The independent review highlights the exceptional quality of the PNG LNG project resources and the significant increase in resource provides the potential for additional mid or long-term sales,” said Andrew Barry, ExxonMobil PNG managing director.

    A significant contributor to the increase was the Hides field, due to completion of development drilling including previously undrilled areas of the field, completion of optimised long term depletion plans and production performance since start up in 2014, ExxonMobil PNG said.

    In 2016, PNG LNG produced 7.9 million metric tons, an increase of 14 percent from the original design specification of 6.9 million metric tons a year.

    The PNG LNG project is providing long-term supplies of liquefied natural gas to four major customers in Asia as well as spot and short-term supplies to those and other customers.

    In a separate statement, Oil Search’s Managing Director, Peter Botten said the increase in proved gas reserves at the PNG LNG project “is particularly significant for Oil Search and our coventures, as the project only contracts 1P reserves.”

    “At present, 6.6 MTPA of LNG is sold under long term contract, while the project is operating sustainably at rates above 8 MTPA. The increase in 1P reserves, which equates to 2.8 tcf on a gross basis, will provide the co-venture the potential to explore market opportunities to contract this material additional production, which is currently being sold on the spot market,” Botten said.

    Besides ExxonMobil and Oil Search, other JV participants in the PNG LNG project are Santos, National Petroleum Company of PNG, JX Nippon Oil and Gas Exploration, Mineral Resources Development Company, and Petromin PNG Holdings.
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    Marathon Oil beats estimates, doubles 2017 capital budget

    Marathon Oil Corp, a U.S. shale exploration company, on Wednesday doubled its projected capital spending for the full year, as crude prices stabilize following a two-year rout.

    The company, which reported a smaller-than-expected wider fourth-quarter loss on Wednesday, expects to spend more as it ramps up activity in Oklahoma and the Bakken Shale formation.

    Oil producers are betting big on a continued rise in crude prices by buying up acreage and raising capital spending.

    Marathon said it plans to spend about $2.2 billion this year, or roughly double the $1.1 billion it spent in 2016.

    Industry peers Exxon Mobil, Chevron Corp and Hess Corp also boosted their capital budgets for the year.

    Marathon's net loss widened to $1.37 billion, or $1.62 per share, in the fourth quarter ended Dec. 31, from $793 million, or $1.17 per share, a year earlier.

    Excluding items, the company posted a loss of 10 cents per share, lower than analysts' average estimate for a loss of 15 cents.

    Revenue fell 5.8 percent to $1.39 billion, above the Street's estimate of $1.19 billion.

    Marathon shares ended down 0.67 percent at $16.30 in regular Thursday trading on the New York Stock Exchange.

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    Cenovus Energy posts surprise profit as costs fall, output rises

    Canadian oil and gas producer Cenovus Energy Inc reported a surprise quarterly profit as production rose and costs fell.

    Oil and gas companies, battered by a two-year slump in oil prices, have sharply cut costs and are also benefiting from a sharp drop in prices for oilfield services.

    Cenovus Energy, which has laid off nearly a third of its workforce since 2014-end, said its oil sands operating costs fell 12 percent in 2016, while operating costs for its conventional oil assets fell 10 percent.

    The Calgary, Alberta-based company's total crude oil production rose about 10 percent to 219,551 barrels per day in the fourth quarter.

    The company said expansions at its Christina Lake and Foster Creek projects in northern Alberta increased its total oil sands production capacity by 26 percent to an average of 390,000 barrels per day in the quarter.

    Cenovus also said the chairman of its board, Michael Grandin, would retire after the company's annual meeting on April 26. Grandin will be succeeded by Patrick Daniel.

    The company reported net earnings of C$91 million ($69.73 million), or 11 Canadian cents per share, in the three months ended Dec. 31, compared with a loss of C$641 million, or 77 Canadian cents per share, a year earlier.

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    Intesa in talks with 14 banks to syndicate Rosneft deal loan-exec

    Italian bank Intesa Sanpaolo is talking to 14 banks to syndicate a 5.2 billion euro loan it provided to fund the purchase of a 19.5 percent stake in Russian energy giant Rosneft by Glencore and Qatar's sovereign wealth fund, the head of Intesa's operations in Russia told Reuters.

    "We aim to choose 2-3 banks to take up 2.5-3 billion euros," Antonio Fallico said on Thursday on the sidelines of a conference on Italy-Russia cooperation in Milan.

    Fallico, who is chairman of Banca Intesa Russia, said there was no rush in closing the syndication deal. He said none of the banks involved in the syndication talks were Russian.

    Asked about the funding of the stake purchase, Fallico said Intesa Sanpaolo had paid half of the overall amount.

    "The rest was paid by the buyers," he said.

    He added that Intesa had no connection with Russian bank VTB in the deal.
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    Kuwait Boosts Oil Capacity to Open Taps Once OPEC's Cuts Expire

    Kuwait is sticking with plans to add half a million barrels a day of oil-production capacity as it prepares for the eventual expiration of the output quotas OPEC adopted to help drain a global oversupply, the head of Kuwait Oil Co. said.

    State-run KOC plans to raise the Gulf nation’s capacity from its current level of 3.15 million barrels a day, Chief Executive Officer Jamal Jaafar said in an interview in Kuwait City. The company, which is responsible for most of Kuwait’s domestic crude production, will add capacity even if the Organization of Petroleum Exporting Countries decides to extend the supply cuts beyond June, he said.

    “We will continue to increase production capacity because we have a five-year plan to reach 3.65 million barrels a day by 2021, so we can’t stop investing in that,” Jaafar said on Wednesday. “We will take advantage of the OPEC-cut deal to perform maintenance on facilities in the fields.”

    OPEC agreed in November to reverse its strategy of pumping without limits to defend its market share against increased supplies, including oil from U.S. shale deposits. The group won pledges from Russia and other producers to contribute, targeting collective cuts of 1.8 million barrels a day for six months starting in January. Benchmark Brent crude, which traded at more than $115 a barrel in June 2014, has stemmed losses since the deal was announced and was trading down 11 cents at $55.86 in London at 2:41 p.m local time.

    Service Agreements

    “KOC is producing 2.7 million barrels a day now, and we will maintain this under the deal,” Jaafar said. “At the moment we have the capacity to reach 3.15 million barrels a day, but we will stick to the OPEC agreement.”

    KOC has signed three service agreements with Royal Dutch Shell Plc and another with BP Plc to develop exploration and production projects, he said. The company plans to drill its first offshore exploration wells by year-end, including wells near Failaka Island in the Persian Gulf, Jaafar said. Kuwait is OPEC’s fifth-largest producer.

    The company plans to shut facilities and oil fields in the east and south of the country for maintenance, while northern fields will remain open because they produce a higher-quality crude that can be used for blends that are exported, he said.

    OPEC ministers will meet in May to assess the market and decide if they should extend their output cuts into the second half of the year. The group is 92 percent compliant with its pledge to reduce output by 1.2 million barrels a day, Kuwaiti Oil Minister Essam Al-Marzooq told reporters on Monday in Kuwait City. Non-OPEC producers are complying at a lower rate of more than 50 percent, Al-Marzooq said.

    Kuwait’s state company for investing in oil production outside the country has boosted output after spending $900 million on a project in Thailand and an additional $300 million on a deal in Norway, Nawaf Saud Al Sabah, CEO of Kuwait Foreign Petroleum Exploration Co., told reporters on Wednesday. Both projects are providing a “very good’ return on investment, Al Sabah said, without elaborating.

    Kuwait Foreign Petroleum Exploration plans further acquisitions, including in the Middle East, as the drop in crude prices in the last few years makes such deals more attractive, he said.

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    India reaches out to new players in quest to unlock oil, gas potential

    New Delhi approves award of 31 licenses comprising 44 oil, gas fields
    Contract areas to monetize 40 million mt of oil, 22 Bcm of gas
    Awards signal New Delhi's effort to attract new players into the sector

    India has decided to award the bulk of the operating licenses to new players following its first oil and gas fields auction in six years as New Delhi steps up efforts to boost domestic oil and gas production and reduce its dependence on crude oil imports.

    The federal cabinet Wednesday approved the award of operating licenses for 31 contract areas comprising 44 oil and gas field under a revenue-sharing model. The list includes many new private companies that are venturing into the upstream oil and gas sector for the first time.

    These contract areas would monetize 40 million mt of oil and 22 Bcm of natural gas over 15 years for the Indian government, according to an official statement.

    The approved contract areas comprise 28 onshore and 16 offshore oil and gas fields of state-owned explorers Oil and National Gas Corp. and Oil India Ltd.

    While some state-owned oil companies such as Indian Oil Corp. and OIL were on the list, it also figured private companies such as Sun Petrochemicals Pte. Ltd., Mahendra Infratech Pte. Ltd. and Ramayna Ispat Pte. Ltd., signaling New Delhi's intention to encourage the entry of more private participants in the oil and gas industry at a time when India's oil demand is growing at double-digit rates.

    According to Platts Analytics, India's oil demand growth will outpace China's for the third year in a row in 2017. Indian oil demand is expected to grow at about 7% to 4.13 million b/d and Chinese demand by about 3% to 11.5 million b/d.

    Prime Minister Narendra Modi presided over the cabinet meeting to decide the outcome of his government's first auction of oil fields.

    "Single bids were received for 14 contract areas, multiple bids were received for 17 contract areas," finance minister Arun Jaitley said after the cabinet meeting.


    The awarded fields were originally part of 67 small and marginal oil and gas fields offered in May under a revenue-sharing model where the contractor would start payments to the government as soon as production starts at a field.

    The contract areas were discovered long ago, but could not be monetized due to various hurdles such as isolated locations, small size of reserves, high development costs and other technological constraints.

    The final signing of the awarded contracts should take another two months, oil ministry officials said.

    The 67 offered fields were put into 46 contract areas and put on offer through online international competitive bidding July 15.

    A total of 134 were received for 34 contract areas in the bidding process that closed in November.

    Finally, operator licenses were awarded for 31 contact areas as three areas did not qualify in the final round of the bidding process.

    A total of 47 companies submitted bids, of which 43 were Indian.


    Oil minister Dharmendra Pradhan said in May that the award of the offered 67 fields would unlock around Rupee 700 billion ($10.47 billion) worth of oil and gas reserves.

    The fields were estimated to hold proven reserves of up to 625 million barrels of oil and gas equivalent, according to the ministry's assessment.

    In the latest auction, companies were allowed to bid for more than one exploration block.

    Global companies were also allowed to bid for fields without any mandatory domestic participation.

    Since 1999, India has conducted nine auction rounds under the New Exploration Licensing Policy, or NELP, for oil and gas blocks and four rounds for coalbed methane.

    Under NELP IX in 2012, 34 blocks were offered and received 74 bids for 33 of them. Of this, production sharing contracts have been signed for 19 blocks. The Hydrocarbon Exploration Licensing Policy, or HELP, has replaced NELP.

    India is making a concerted effort to lower its reliance on imported crudes with the government focusing on boosting domestic production, promoting renewables, and improving the refining process at a time of increasing demand.

    Highlighting the growing importance of energy security, Modi said in December that India would strive to reduce crude imports by 10% from current levels by 2022.

    For a country dependent on imports for 80% of its crude oil needs, India's oil import bill is subject to wild swings linked to international prices, which in turn has repercussions on the country's current account balance and overall economy.

    Pradhan has said that India would reduce its dependence on crude imports with the help of a five-point plan -- raising domestic oil and gas production, improving energy efficiency, promoting alternative fuels and renewables, demand substitution, and improving the refining process.
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    B.C., First Nations sign PNW LNG benefits agreements

    The Canadian province of British Columbia reached multiple agreements with the Lax Kw’alaams Band and the Metlakatla First Nation securing economic benefits from the proposed Pacific NorthWest LNG project.

    Lax Kw’alaams Band signed LNG benefits agreement, a Coastal Fund benefits agreement and a pipeline benefits agreement, according to the statement by the province.

    Upon final investment decision by the Petronas-led Pacific US$27 billion project, a predetermined amount of funds will be released from the trust, with the remaining balance available once facility construction begins.

    A total of 1,942 hectares of Crown land will also be transferred to the Lax Kw’alaams Band as part of the benefits detailed in the agreement.

    The Coastal Fund benefits agreement defines ongoing benefits for the Lax Kw’alaams Band during export operations, including those linked to PNW LNG and any additional LNG export facilities that may be built in the Prince Rupert area.

    In addition to benefits identified under the LNG benefits agreement and Coastal Fund benefits agreement with the province, PNW LNG has executed an impact benefits agreement with both the Lax Kw’alaams First Nation and the with the Metlakatla First Nation which will serve as the foundation for long-term, mutually beneficial partnerships.

    The agreements include access to employment, training and capacity funding, financing and cultural support, participation in ongoing environmental monitoring, First Nations business opportunities in the construction and operational phases of the project and annual payments based o the production of the LNG facility.

    As well, the Lax Kw’alaams Band signed an agreement related to TransCanada’s Prince Rupert Gas Transmission line, the connecting pipeline for PNW LNG.

    The LNG benefits agreement with the Metlakatla First Nation provides financial benefits including a trust fund and capital for road improvements and infrastructure.

    The agreements provide benefits based on specific steps in the development of a coastal LNG industry. They provide initial funding to the Metlakatla First Nation for community and economic development projects, as well as social initiatives, linked to the construction and operation of Pacific NorthWest LNG

    Previous to the latest agreements, British Columbia, the Lax Kw’alaams Band, the Metlakatla First Nation and the government of Canada signed an environmental monitoring committee agreement which outlines how all parties will collaborate to facilitate environmental oversight over the lifetime of PNW LNG.

    The PNW LNG project, located in the district of Port Edward, is pending a final investment decision by Petronas and their venture partners, Sinopec, Japex, Indian Oil Corporation and PetroleumBrunei.

    Collectively, this partnership is conducting a full evaluation of the PNW LNG project before any final investment decision is made.

    The proposed facility, to be located on Lelu Island within the district of Port Edward, will comprise an initial development of two LNG trains of approximately 6 million tons per annum each, and a subsequent development of the third train of approximately 6 mtpa.
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    Competition for oil services ramping up in Permian; ‘It’s déjà vu,’ says Parsley CEO

    Bryan Sheffield, CEO of Austin-based Parsley Energy, speaks at NAPE Summit in Feb. 2017 at the George R. Brown Convention Center in Houston.

    Bryan Sheffield isn’t worried about a land-price bubble in West Texas’s booming Permian Basin oil field.

    Sheffield, chief executive of Austin-based Parsley Energy, just spent $2.8 billion on Permian land held by Fort Worth’s Double Eagle Energy. It was the second largest deal of the year so far, behind only Exxon Mobil’s $6.6 billion purchase of Bass family land in the Permian’s Delaware Basin.

    Parsley paid about $37,000 an acre and Sheffield says he won’t pay more than $40,000 any time soon. But he argued that Permian sweet spots are so good they’ll make money at $60,000 an acre — which some have paid — as long as the companies get rigs up and running on the land within a few months of purchase.

    Still, he warned, competition for services is now quickly tightening, and that will likely cut into profits. Hydraulic fracturing teams, drilling rigs and truck hauling crews are in such demand they’re firing clients who won’t pay higher prices, or skipping jobs to find higher-paying work, he said.

    It’s almost like 2011 again, he said in an interview after speaking at the winter NAPE conference at the George R. Brown Convention Center in downtown Houston. As the shale revolution was booming, when Parsley was much smaller, he was bringing frack companies breakfast. He even took oil field service executives to a World Series game — Texas Rangers v. St. Louis Cardinals — in Arlington that year, just so he could get on top of their waiting list.

    “It’s déjà vu all over again,” Sheffield said on Tuesday.

    The Double Eagle deal was Parsley’s second of the year. The company spent $650 million in January for about 23,000 acres in the Delaware and Midland basins.

    Parsley is done buying land for the year, Sheffield said. But he’s happy with the company’s purchases.

    “We’re growing so fast,” he said. “I think we’re in the driver’s seat.”
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    Origin Energy misses profit forecasts, hit by weak LNG revenue

    Origin Energy Ltd fell far short of analysts' forecasts on Thursday, reporting a 28 percent drop in half-year underlying profit as weak oil prices hit revenue at its Australia Pacific liquefied natural gas (APLNG) project.

    The blow came a day after Australia's top power and gas retailer flagged it was taking a A$1 billion ($770 million) impairment charge on its 37.5 percent stake in APLNG, which the market shrugged off given that rival LNG projects had been hit by writedowns earlier.

    Still, Managing Director Frank Calabria, reporting his first results since taking the reins last October, said earnings were growing from the company's power and gas retail business, thanks to higher volumes and better profit margins.

    "We continue to focus on accelerating debt reduction and improving returns to shareholders, so we can position Origin for growth in a rapidly changing market," Calabria said in a statement.

    Gas prices have been rising sharply in Australia, as gas has been drained from the domestic market to feed new LNG export plants, including APLNG. At the same time, electricity prices have rocketed on the back of rising use of wind and solar energy.

    Origin said it was on track to go ahead with an initial public offering of its exploration and production assets, excluding gas aimed for exports, in 2017.

    Underlying profit after tax sank to A$184 million for the six months to December from A$254 million a year earlier. That compares with a forecast of around A$332 million from two analysts.

    Weakened revenue from APLNG meant the project was unable to cover increases in interest, tax, depreciation and amortisation, it said.

    Origin paid no interim dividend, as expected. It stopped paying dividends last August to focus on paying down debt to help it weather weak oil and gas prices.
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    Governor orders evacuation of Dakota pipeline protest camp

    The governor of North Dakota ordered protesters on Wednesday to evacuate a demonstration camp near the site of the Dakota Access Pipeline in the latest move to clear the area that has served as a base for opposition to the multibillion dollar project.

    Republican Doug Burgum ordered demonstrators to leave the camp located on land owned by the U.S. Army Corps of Engineers by Feb. 22, citing safety concerns that have arisen due to accelerated snowmelt and rising water levels of the nearby Cannonball River.

    Burgum also said in his executive order that the camp poses an environmental danger to the surrounding area. His order reaffirms a Feb. 22 deadline set by the Army Corps for the demonstrators to clean up and leave.

    Environmentalists and Native Americans who have opposed the pipeline, saying it threatens water resources and sacred sites, have faced a series of set-backs since President Donald Trump took office in January.

    A federal judge on Monday denied a request by Native American tribes seeking to halt construction of the final link of the $3.8 billion pipeline after the Corps of Engineers granted a final easement to Energy Transfer Partners LP last week.
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    Libyan and Nigerian crude oil export loadings

    Libyan and Nigerian crude oil export loadings so far this month are up nearly 600,000 bpd from December's low

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    World's first purpose-built LNG bunkering vessel delivered

    Engie, Fluxys, Mitsubishi Corporation, and Nippon Yusen Kaisha have taken delivery of the ENGIE Zeebrugge -- the world's first purpose-built LNG bunkering vessel -- from Hanjin Heavy Industries & Construction at the Yeongdo shipyard in Busan, South Korea, Fluxys said in a statement Wednesday.

    The ENGIE Zeebrugge, which has a 5,000 cu m LNG capacity, will be based at the Zeebrugge LNG terminal in Belgium and will be able to supply LNG as a marine fuel to ships operating in northern Europe.

    LNG-fueled ships are largely dependent on fixed bunker locations in order to receive the fuel, with a limited bunkering capacity currently available from LNG trailers.

    "LNG is expected to become an important alternative fuel for the maritime industry," Fluxys said, with international regulations on emissions for ships tightening.

    "The challenge in making LNG grow in the bunker market is to develop sufficient supply infrastructure to support the increasing number of LNG- fueled ships that are expected to come into operation," Fluxys said.

    The Zeebrugge LNG terminal recently commissioned its second jetty, where small LNG-fueled carriers with capacities of 2,000 cu m and above are able to berth and receive fuel.
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    France's Total looks further downstream in effort to ease looming supply glut

    France's Total is looking to invest in energy projects further downstream than their upstream and LNG production facilities, the company's President of Gas Laurent Vivier said Tuesday.

    The strategy is a logical change given the current tough environment for final investment decisions for new greenfield LNG production projects, according to Vivier.

    What some industry observers are underestimating is the pace that new buyers can enter the market, as Total's interests in two recently announced LNG import projects in the Ivory Coast and Pakistan would require a combined 9 million mt/year and will start receiving LNG in 2018, Vivier said.

    Both projects would allow for quick entrance into the market, utilizing FSRUs from Golar LNG and Hoegh LNG respectively, he said.

    "We are now ready to invest downstream in the value chain," Vivier added.

    Last November, a consortium led by Total was awarded the rights to build and operate an LNG regasification terminal in the Ivory Coast with a total import capacity of 3 million mt/year.

    The project, planned to receive first gas imports by mid-2018, would require $200 million in capital expenditure and add 2 GW of new power plant capacity to the region, as well as feed connections to neighboring countries.

    More recently, Total was part of a consortium including Qatar Petroleum, Mitsubishi, ExxonMobil and Hoegh LNG, in collaboration with local developer Global Energy Infrastructure Limited, to develop a 6 million mt/year import terminal in Pakistan.

    This terminal would be Pakistan's third FSRU but first private LNG import terminal, and would include a 170,000 cu m FSRU, jetty and pipeline, with gas starting in 2018.

    A final investment decision is expected to be made on the Pakistan project by mid-2017.

    The key to helping absorb a lot of this extra supply is the new demand coming from unexpected areas that were not forecast to require LNG three years ago, Vivier said.

    Over the next three years, he said he expected to see more LNG importers in growing economies to rapidly gain access to the LNG market, which should rebalance any supply-demand imbalance relatively quickly.

    Platts Analytics expects Ivory Coast could begin importing LNG in early 2019.
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    Tokyo Gas sales rise in January

    Japan’s biggest city gas supplier, Tokyo Gas said its natural gas sales rose 3.5 percent in January year-on-year.

    Total gas sales by Tokyo Gas reached 1.63 billion cubic meters in January.

    Volumes sold to the residential market were boosted by the lower average temperature, reaching 486.451 million cubic meters, 6.4 percent up on the corresponding period in 2016.

    In its latest monthly report, Tokyo Gas said the volumes in the business sector was up 8.3 percent, reaching 276.853 million cubic meters while the volumes in the industrial sector rose 3.6 percent reaching 645.704 million cubic meters.

    Volume for wholesale supply to other gas companies totalled 219.868 million cubic meters, dropping 7.4 percent from January 2016.

    Attached Files
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    Summary of Weekly Petroleum Data for the Week Ending February 10, 2017

    U.S. crude oil refinery inputs averaged about 15.5 million barrels per day during the week ending February 10, 2017, 435,000 barrels per day less than the previous week’s average. Refineries operated at 85.4% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.0 million barrels per day. Distillate fuel production decreased last week, averaging over 4.5 million barrels per day.

    U.S. crude oil imports averaged 8.5 million barrels per day last week, down by 881,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.5 million barrels per day, 9.9% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 604,000 barrels per day. Distillate fuel imports averaged 216,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.5 million barrels from the previous week. At 518.1 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 2.8 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 0.7 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 2.6 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories increased by 11.1 million barrels last week.

    Total products supplied over the last four-week period averaged about 19.4 million barrels per day, down by 2.0% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.4 million barrels per day, down by 5.3% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels per day over the last four weeks, up by 7.4% from the same period last year. Jet fuel product supplied is down 3.3% compared to the same four-week period last year.

    Cushing down 700,000 bbls
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    US Oil production unchanged

                                                       Last Week  Week Before   Last Year

    Domestic Production '000.......... 8,977           8,978           9,135
    Alaska ................................................ 511              518              512
    Lower 48 ...................................... 8,466           8,460           8,623
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    Iran berates Total for delaying gas field development deal

    Iran's oil minister has criticised French oil company Total for its decision to delay signing a contract to develop a gas field in southern Iran, saying that the reasons given by Total's chief executive were "unacceptable" to Tehran.

    Total was the first Western energy company to sign a major deal with Tehran since the lifting of international sanctions with its South Pars 11 project in the Gulf to develop a part of the world's largest gas field that Iran shares with Qatar.

    Total's chief executive, Patrick Pouyanne, said last week that it aimed to make a final investment decision on the $2 billion project by the summer, but the decision hinges on the renewal of U.S. sanctions waivers.

    "I don't know why Total has said so," Bijan Zanganeh was quoted as saying by Mehr news agency on Wednesday. "It's been included in the contract that we all follow European Union's policies. Their comments are unacceptable," he added. U.S. President Donald Trump has called into doubt the Western powers' deal with Iran over its nuclear technology development programme and, responding to an Iran's ballistic missile test last month, imposed fresh sanctions on Tehran. The South Pars 11 project aims to produce 1.8 billion cubic feet a day of gas, equivalent to 370,000 barrels of oil. The produced gas will be fed into Iran's gas network.
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    Statoil joins Shell and other foreign companies exiting Canadian projects

    Norway's oil and gas powerhouse Statoil ASA has finalised its exit from the Canadian oilsands and is by no means alone in a list of high-profile internationally-based operators to agree a sale of Canadian upstream assets during the past 12 months.

    Statoil  is selling its interest in the Kai Kos Denseh project to Athabasca Oil Corp. for an initial Cdn$578 million. Analysis of this transaction can be found here.

    Other significant sales agreed upon in 2016 by non-Canadian companies include:

    1) Murphy Oil Corp. sold a 5% stake in the Syncrude project to Suncor Energy Inc. for $937 million in June. Murphy has been a stakeholder in the Syncrude project for 19 years. Murphy also agreed to sell heavy oil assets in Alberta's Peace River area to Baytex Energy Corp. for Cdn$65 million in November. This sale to Baytex closed in January 2017 – Download CanOils' latest M&A review for more details.

    2) Royal Dutch Shell sold Alberta Deep Basin and Northern B.C. Montney assets to Tourmaline Oil Corp. for Cdn$1.4 billion in November. That same month, Shell also parted with interests in five Newfoundland and Labrador exploration licenses in a deal with Anadarko Petroleum Corp. for an undisclosed fee.

    3) Japan's Mitsubishi Corp. sold its 50% interest in its Cordova natural gas joint venture with Penn West Petroleum Ltd. to its partner for an undisclosed fee in November.

    4) Harvest Operations Corp. (owned by South Korea's KNOC) sold assets producing 1,500 boe/d in Southeast Saskatchewan to Spartan Energy Corp. in June for Cdn$62 million. Harvest also sold assets in South Alberta to an unnamed party for Cdn$6.7 million in August.

    CanOils Monthly M&A review for January 2017 is available to download here.

    Despite all of these deals, 2016 was hardly a complete exodus when it came to foreign-based companies and Canadian M&A deals. For example, Calgary Sinoenergy Investment Ltd., a Chinese firm, acquired Long Run Exploration Ltd. in June for Cdn$770 million.

    Since then, Sinoenergy has been one of Alberta's most active operators, according to recent Rig Locator drilling market share data for Q4 2016. Only Canadian Natural Resources Ltd.and Cenovus Energy Inc. drilled more new operated wells in Q4 2016. U.S.-based Devon Energy Corp. also figured prominently in terms of wells drilled.
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    Crude thoughts.

    A mystery is confounding the US oil market: when inventories rise, prices rise, too. That is not the way it is supposed to work. At 508.6m barrels as of early February, stocks of crude sitting in commercial tanks were 8 per cent higher than a year before and close to a record. In theory, the excess supply should weigh on markets. But this year a loose pattern has emerged after the US government releases weekly oil data: surprisingly large increases in crude stocks have prompted spurts of buying. “The mantra is ‘buy the builds’,” said Andy Lebow of Commodity Research Group, a US consultancy. “It seems to be working, week after week, as inventories build.” The midweek petroleum status report of the Energy Information Administration is watched obsessively by traders, shedding light on supply and demand in the leading oil-consuming nation. The next one is due on Wednesday morning Washington time. Over the last five reports US commercial crude oil stocks rose by a total of 29.6m barrels. Each weekly rise surpassed expectations. While declining immediately after each report, the price of the West Texas Intermediate oil benchmark was trading higher 20 minutes later, often accompanied by a burst of volume. WTI prices also settled higher after four of the past five releases. Theories about who is behind the bidding have riveted an otherwise placid oil market. WTI has hewed to a range of less than $5 a barrel, averaging about $53, since the start of the year. Ole Hansen, chief commodity strategist at Saxo Bank, said: “There’s been a lot of head-scratching in the oil market the last few weeks as the EIA data has been consistently bearish, but each week after the initial dip we have rallied. Everyone is talking about it.” Fund managers have been betting that the Opec oil cartel will prop up prices after curtailing supplies since January 1. “There is a very big incentive to support this market both by producers, some of whom have cut output, and by the hedge funds that have built up this very big long position,” Mr Hansen said. Doug King, co-founder of the $229m Merchant Commodity Fund, said he saw “a lot of agendas” behind the buying, from big macro hedge funds defending bullish positions to Opec countries trying to ensure the market rides out excess stocks before the group’s cuts are felt. Mr King said Opec members pumping millions of barrels a day had an incentive to defend the price. “In the greater scheme of things buying a few thousand lots (contracts) is not a big deal,” he said. It is difficult to identify buyers given the anonymous nature of futures markets. A trader at a big US energy merchant said the surge of post-report volume was unmistakable, even as he had “no clue” who it was. “Everybody sees it,” he said. The price swings around the releases may reflect broader tensions in the market, as the data trigger selling by automated trading programs that is then reversed by investors with a longer-term view. Olivier Jakob of Petromatrix, a Swiss-based energy consultancy, said strong buying volumes generally came about 10 minutes after the reports. “It seems clear that someone there is implementing a defined strategy, but we are still in a price range because the strong buying that systematically comes after the release of the weekly report is not followed by continued strong buying on the Thursday and Friday,” he wrote in a note last week. Some traders said that while EIA figures still attracted attention, their importance was overstated. “We have two words to describe it: ‘Stats, shmats’,” said Mark Vonderheide, a veteran oil trader who runs Geneva Energy Markets in New York. “The stats are old news, codifying bits and pieces picked up by 1,000 different people and already discounted in the market.”

    Attached Files
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    CFR China methanol hits 35-month high on tight supply, MTO demand

    The CFR China methanol price has risen 11% since the start of this month to be assessed at $382/mt Tuesday, just short of a three-year high, S&P Global Platts data showed.

    The rally was driven by exceptionally tight supply from the Middle East, as well as expected demand from several methanol-to-olefin plants, according to industry sources.

    The CFR China methanol assessment was last higher on March 12, 2014, when it was at $395/mt.

    Oman's Salalah Methanol Company unexpectedly shut its 1.3 million mt/year plant Tuesday due to a technical problem detected Monday evening, a source from main offtaker Oman Trading International said Tuesday.

    Earlier on February 3, Iran's Zagros Petrochemical Company shut both its methanol plants Friday because of a shortage in natural gas supply, according to a company source.

    The No. 1 and 2 plants have a nameplate capacity of 1.65 million mt/year each, and the gas outage will affect 3.3 million mt/year of total capacity.

    The Iranian government is grappling with cold weather, and is shifting feedstock natural gas away from the petrochemical sector into heating, according to industry sources.

    Similarly, Fanavaran Petrochemical Company's methanol plant has been affected, and operations have fallen to 50% of its 1 million mt/year nameplate capacity, sources said. On the demand side, China's Jiangsu Sailboat Petrochemical, also known as Jiangsu Shenghong, is expected to restart its MTO plant in early March, pending the start-up of its downstream ethylene vinyl acetate unit, industry sources said.

    The MTO plant has capacity to produce 385,000 mt/year of propylene, 315,000 mt/year of ethylene and 100,000 mt/year of C4/C5, consuming about 2.4 million mt/year of methanol in the process.

    Still in China, Zhejiang Xingxing New Energy is expected to restart its MTO plant in the second half of February, according to industry sources.

    The MTO plant consumes 1.8 million mt/year of feedstock methanol, and produces 600,000 mt/year of olefins. Downstream integration includes 300,000 mt/year polypropylene capacity and a swing plant capable of producing ethylene oxide or monoethylene glycol, sources added.

    Attached Files
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    UK LNG stocks fall at 46-month low on weak delivery schedule

    The amount of natural gas equivalent held in tank in the UK's three LNG regasification terminals fell to the lowest since March 2013 over the weekend as a weak delivery schedule led to stocks running low despite poor regas rates, data from National Grid showed Tuesday.

    LNG stocks combined began Monday's gas day at 429 million cu m of natural gas equivalent, below the levels recorded in March/April last year and falling further towards the low seen 46 months ago.

    Stock levels were split between Isle of Grain, South Hook, and Dragon at 187 million cu m (32% of capacity), 171 million cu m (35%), and 71 million cu m (37%), respectively, National Grid data showed.

    Total LNG stock levels were less than half the 2017-to-date high of 918 million cu m from early January and over 200 million cu m shy of the five-year average of 642 million cu m.

    The unseasonably low stock levels have come despite regasification having been at low levels this winter, as deliveries of LNG into the UK have been much lower this winter compared with previous seasons amid higher pricing and firmer spot demand elsewhere.

    Between October 1 and January 31, nine LNG tankers delivered LNG into the UK, with South Hook receiving six vessels from Qatar, Isle of Grain receiving three -- two from Qatar, one from Nigeria -- and Dragon none.

    During the first four months of the Winter 2015-16 delivery period, South Hook received 30 vessels from Qatar alone. Isle of Grain received six -- three from Algeria and one each from Norway, Qatar, and Trinidad & Tobago -- and Dragon two Qatari deliveries.

    This has been countered by regas levels being well down this winter compared with previous winters.

    Regas levels this winter have totaled 1.06 Bcm, more than 75% lower year-on-year and on course for the lowest total for a winter-delivery period this decade.

    Moreover, Isle of Grain has reloaded three LNG tankers this winter -- one each to Belgium, South Korea and Turkey -- after having begun reloading operations last March, further contributing to the weaker regas levels.

    Stock levels at Isle of Grain were expected to be boosted in the short term with the expected arrivals of the Cadiz Knutsen from the Dominican Republic and the Gallina from Peru, though no Qatari LNG tankers are confirmed as UK arrivals for the remainder of the month, meaning South Hook stocks could slide further.
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    Nigeria to launch $1 bil Niger Delta clean-up project to curb unrest in oil region

    Nigeria will this week launch a comprehensive clean-up program for the oil-producing Niger Delta region devastated by years of pollution from oil spills, a government statement on Tuesday said, as Nigeria moves to curb unrest in the region that has long impacted production and exports.

    The clean-up program for Ogoniland in the heart of the Niger Delta region would be undertaken by a special body set up by the government in 2016, and will cost $1 billion, Nigeria's Vice President Yemi Osinbajo announced in southern Rivers state during the second leg of his peace talks with Niger Delta leaders and stakeholders, the statement said.

    Osinbajo said Shell, Nigeria's biggest oil producer, would provide $1 billion spread over five years, while the government has provided a grant of $10 million.

    Shell was not immediately available for comment.

    Niger Delta communities have staged protests against oil spillages that they said, damaged their environment and sources of livelihood, and have often blockade access to production facilities by producers, as well as attacks on pipelines to demand compensation.

    Oil companies said most of the spills in the Niger Delta region were caused by oil theft and sabotage attacks.

    Nigerian oil output plummeted to a near 30-year low of around 1.4 million b/d in May 2016, from 2.2 million b/d earlier in the year, as attacks on oil facilities in the Niger Delta rose at an alarming pace due to resurgent militancy.

    A United Nations report released in 2011 estimated that the clean-up of Ogoniland could take up to 30 years with the initial remediation taking five years and the restoration another 25 years.

    Osinbajo said the government viewed the clean-up project and the restoration of the degraded environment as a major step towards achieving the peace deal in the Niger Delta where attacks on oil installations which began early last year, cost the Nigerian government 60% of its revenues.

    Attached Files
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    Phillips 66 sees strong US export demand reviving midstream opportunities

    Phillips 66 expects a revival in the US midstream space in 2017, as demand for exports of crude, products and LPGs remain strong, President Tim Taylor said Tuesday.

    "We see a resurgence of opportunities in the midstream," said Taylor, addressing attendees at Credit Suisse's 22nd Annual Energy Summit in Vail, Colorado. His comments were webcast.

    Taylor said Phillips 66 and its midstream master limited partnership, Phillips Energy Partners, continues to find ways to deal with the "nature of market changes," particularly around growth in exports of both crude and products.

    Phillips 66 is a stakeholder in the Dakota Access Pipeline, expected to come online in the second quarter of 2017.

    DAPL received its final permit to finish the line in February 2017 following a contentious battle with environmentalists.

    Completion of the pipeline will open cheaper transportation for North Dakota's Bakken crude. The line will carry the light, sweet crude into the Midwest oil hub of Patoka, Illinois, and onward to the US Gulf Coast via the Energy Transfer Crude Oil Pipeline, or ETCOP. Phillips 66 is also a stakeholder in ETCOP.

    This will give the landlocked crude port access, opening the door for exports, as well as lower transport costs for East Coast refiners, who pay high rail costs from North Dakota to the East Coast.

    Phillips 66 is also working on the completing the Bayou Bridge Pipeline, which will bring Texas crude east to Louisiana. The Beaumont, Texas, to Lake Charles, Louisiana, segment is completed and work is underway connecting the line to St. James, Louisiana.

    "We are creating crude options" for us and others, Taylor said.

    While Phillips 66 is bullish on its chemical and midstream segments this year, it sees challenges remaining for the US refining segment, expecting current high product inventories to weigh on margins into the summer.

    Taylor expects the first half of 2017 to be dedicated to "clearing up excess product inventories" and the second half heading back into a balanced supply and demand picture for refiners.

    "This is a transition year," he said.

    Asked about the corporate tax reform being discussed in Washington, Taylor echoed many other refiners saying "it is not completely understood."

    He said a 25% tax on crude imports as being considered would see "Gulf Coast crude rise to parity" to imported grades, raising both crude and product prices.

    The higher costs would be passed through to consumers and likely cause "upsets in the supply chain," he said.

    While it is "way too early to tell" whether it would be a negative or positive for refining, it would be a positive for their chemical segment operations, Taylor said.

    Removal of taxes on exports, as is currently under discussion, would benefit Phillips 66's chemical operations where exports are high and feedstock is domestic.

    Attached Files
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    InterOil shareholders in favour of ExxonMobil bid

    InterOil said its shareholders approved the proposed $2.5 billion takeover by the US-based energy giant ExxonMobil at a special meeting held on Wednesday.

    According to the company’s statement, 91 percent of the votes cast were in favour of the proposed transaction an even greater percentage than the 80 percent that previously voted to approve the original transaction at a special meeting on September 21, 2016.

    The company noted that the court hearing in which InterOil is seeking a final order with respect to the amended and restated plan or arrangements is scheduled for February 20, 2017.

    Upon conclusion of the transaction, ExxonMobil would gain access to InterOil’s resource base, which includes interests in six licenses in Papua New Guinea covering about four million acres. These licenses include the Elk-Antelope field which is the anchor field for the proposed Papua LNG project.
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    Apache reveals new Alpine High results, disappoints analysts

    Shares of Apache Corp. fell in early trading on Tuesday after releasing well results from its new West Texas discovery, Alpine High, which some analysts viewed as disappointing.

    The Houston-based company announced in September the new oil field, which stretches largely across the bottom of Reeves County, near Balmorhea State Park. Apache estimated Alpine High contained at least 15 billion barrels of oil and gas, one of the largest discoveries in recent years. Analysts, however, were skeptical: Several other companies had tried drilling in the region and found little oil.

    On Tuesday, Apache chief executive John Christmann revealed new Alpine High details at the annual Credit Suisse Energy Summit in Vail, Colo. The company has confirmed oil and gas in five geologic formations, each with multiple targets. They’ve drilled new well locations that stretch south and west into Pecos County. And the reservoirs are “over-pressured,” the Christmann said, meaning they will more easily produce oil and gas.

    But analysts pointed out that initial production in the new wells was not as strong as in earlier wells.

    “Overall, we would not be surprised to see shares come under some pressure following the news,” said analysts at the Minneapolis investment bank Piper Jaffray.

    Still, they acknowledged, results may well improve as Apache fine-tunes drilling and completions.
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    Devon Energy beats profit estimates as cost cuts pay off

    Devon Energy Corp reported a bigger-than-expected quarterly profit, as the U.S. oil producer benefited from its cost-cutting initiatives.

    Devon, like other oil and gas companies, has been keeping a tight leash on costs since a slide in global crude oil prices started in mid-2014.

    The company said on Tuesday total operating expenses fell 67.4 percent to $2.71 billion in the fourth quarter ended Dec. 31.

    Total cost savings exceeded $1 billion in 2016, the company said.

    Devon has also sold its non-core assets, completing a $3.2 billion divestiture program in October.

    The shift to higher-margin production helped make oil the largest component of the company's product mix in the fourth quarter.

    The company said it expected 2017 production at between 539,000-561,000 barrels of oil equivalent per day (boe/d).

    Total production was 611,000 boe/d in 2016.

    Devon said it expected to spend $2.3 billion-$2.7 billion this year. The company spent $3.11 billion in 2016.

    Net earnings attributable to Devon was $331 million, or 63 cents per share, for the three months ended Dec. 31, compared with a loss of $4.53 billion, or $11.12 per share, a year earlier.

    The year-ago quarter included a non-cash, asset impairment charge of $5.34 billion.

    On an adjusted basis, the Oklahoma-based company earned 25 cents per share, while analysts on average had expected 21 cents, according to Thomson Reuters I/B/E/S.

    Total revenue rose 16 percent to $3.35 billion.

    Total production, net of royalties, fell 21 percent to 537,000 boe/d in the quarter.

    Up to Tuesday's close, shares had more than doubled in the past 12 months.
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    Alfa to sell oil assets in Eagle Ford, Peru, pauses energy spend

    Mexican conglomerate Alfa said on Tuesday it will sell its energy projects in the Eagle Ford shale in Texas, as well as its energy assets in Peru, while also stalling all energy investments due to lingering low oil prices.

    Alfa's Chief Financial Officer Ramon Leal said at a press conference the company was also looking at selling certain oil service contracts in Mexico.

    "We're focusing our resources in our core businesses and putting a permanent pause on our energy investments," Leal said, adding that he did not see oil prices rising any time soon.

    Last year, Alfa said its energy services unit Newpek suspended some exploration and drilling projects in the United States in the face of the persistent fall in petroleum prices.

    Alfa holds mineral rights in southeast Texas - in the Eagle Ford, Edwards and Wilcox fields - as well as in Oklahoma, Kansas and Colorado. Newpek, which reports on Wednesday, also works in mature oil fields in the eastern Mexican state of Veracruz.

    Earlier on Tuesday, Alfa reported a loss of 889.7 million pesos ($43 million) in the fourth quarter of 2016, hurt by a weak peso and lower operating results.

    The company, which operates petrochemical, car parts and refrigerated food businesses, reported a profit of 162 million pesos in the fourth quarter of 2015.

    Alfa posted revenue of 76.7 billion pesos for the quarter, an increase of 18 percent from the same period a year prior.

    But the performance of its Axtel telecoms business was negatively impacted by the weakness of the peso against the dollar, in addition to cuts in government spending that resulted in fewer projects.

    The peso has been hit by repeated threats by U.S. President Donald Trump to scrap the North American Free Trade Agreement (NAFTA), raising the risk of a major economic shock for Mexico.

    Even so, Alfa said car parts unit Nemak's consolidated earnings before interest, tax, depreciation and amortization (EBITDA) performed well during the quarter, and reached an annual record in 2016, due to solid auto demand in North America and Europe.

    Alfa also said a strong dollar benefited Nemak's sales in the fourth quarter.

    Shares in Alfa closed down 0.67 percent at 26.61 pesos per share before the company reported.
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    Origin Energy to take A$1.9 bln charge on LNG, exploration assets

    Origin Energy to take A$1.9 bln charge on LNG, exploration assets

    Origin Energy warned on Tuesday it will book a A$1.89 billion ($1.45 billion) charge in its half-year results, mostly against the value of its stake in the Australia Pacific liquefied natural gas project.

    At the same time it tweaked up its forecast for underlying earnings before interest, tax, depreciation and amortisation (EBITDA), raising the bottom end to A$2.45 billion but keeping the high end of the forecast range at A$2.62 billion.

    It had previously forecast a 45-60 percent increase in underlying EBITDA from continuing operations for the year to June 2017, which implied a range of A$2.37 billion to A$2.62 billion.

    Origin's shares jumped as much as 2.3 percent to a 17-month high following the announcement, outpacing a 0.8 percent gain in the broader market.

    APLNG, operated by ConocoPhillips, was not immediately available to comment on the full impairment on the project in Queensland, one of three coal seam gas-to-LNG plants which opened over the past two years amid a sharp slump in global oil and gas prices.

    Origin has a 37.5 percent stake in the project.
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    Libyan oil output falls to 691,000 b/d

    Libyan oil output falls to 691,000 b/d, NOC's Sanalla tells PlattsOil on maintenance work at fields in Sirte Basin

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    Nigeria to offer work for illegal refiners in quest for peace

    Nigeria needs to offer work to people who make a living from illegally refining oil in the Niger Delta in order to achieve peace there, the African oil-producing nation's Vice President Yemi Osinbajo said on Tuesday.

    The government has been holding talks with militants to end attacks on oil pipelines which cut the country's output by 700,000 barrels a day for several months last year.

    But a military crackdown on thousands of illegal refineries in the southern swamps, which process crude oil stolen from oil majors and state oil firm NNPC, has raised tensions again.

    Illicit refineries process stolen crude in makeshift, blackened structures of pipes and metal tanks hidden in oil-soaked clearings deep in the Niger Delta's thick bush land.

    "Our approach to that is that we must engage them (illegal refiners) by establishing modular refineries so that they can participate in legal refineries," Osinbajo said during a visit to Rivers state, part of the Delta region.

    "We have recognised that young men must be properly engaged," he said, without giving details.

    He also said the government would make more provisions for an amnesty scheme for former militants who laid down arms in 2009 in exchange for cash stipends and job training.

    Illegal refining is one of the few businesses flourishing in an otherwise desolate region, as petrol is scarce in Nigeria due to the country's derelict state refineries.

    Authorities had originally cut the budget for cash payments to militants to end corruption but later resumed payments to stop surging pipeline attacks crippling vital oil revenues.

    "We have make more provisions for amnesty and provisions for social intervention," Osinbajo told residents of Port Harcourt, the region's major city. He has been visiting the Niger Delta since last month to calm tensions.

    The militants and residents who sympathise with them say they want a greater share of Nigeria's oil wealth to go to the impoverished region.

    Crude sales make up about 70 percent of government revenue and the attacks have deepened an economic crisis brought on by low global oil prices.

    Nigeria last put its crude output at between 1.7 million bpd and 1.8 million bpd, down from the 2.2 million bpd at the start of 2016.

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    Chesapeake Energy Corporation Provides 2017 Guidance And Operational Update

    Chesapeake Energy Corporation today announced additional details of its 2017 guidance outlook. Highlights include:

    -Projected total capital expenditures guidance of $1.9 – $2.5 billion, including capitalized interest
    -Projected total company production guidance ranging from a decline of 3% to growth of 2%, adjusted for asset sales
    - Exit rate oil production projected to grow by 10% in 2017, while exit rate gas production projected to remain relatively flat, adjusted for asset sales
    - Plan to operate an average of approximately 17 drilling rigs, compared to 10 rigs in 2016

    Doug Lawler, Chesapeake’s Chief Executive Officer, commented, “The execution of our 2017 capital program will position Chesapeake for significant production and earnings growth and cash flow neutrality in 2018. As noted during our October 2016 Analyst Day, our 2017 capital program is driven by improved capital efficiencies and profitability from our significant portfolio of high rate of return drilling opportunities. We will maintain our financial and operational flexibility with a relentless focus on driving differential performance.  We look forward to building on our progress, both financially and operationally, in 2017 and beyond.”

    2017 Capital Program and Production Outlook

    Chesapeake is budgeting planned total capital expenditures (including capitalized interest) in the range of $1.9 – $2.5 billion in 2017, compared to total capital expenditures of approximately $1.65 – $1.75 billion in 2016, excluding 2016 proved property acquisitions and the repurchase of volumetric production payment (VPP) transactions. The company is narrowing its range of projected capital as it gains confidence in market conditions supporting a return to projected production growth in the second half of the year. The company is targeting total production of 194 – 205 million barrels of oil equivalent (mmboe) in 2017, or average daily production of 532 – 562 thousand barrels of oil equivalent (mboe), representing a decline of 3% to modest growth of 2% compared to 2016, after adjusting for asset sales. Of the 2017 projected total production, approximately 33 – 35 mmboe is estimated to be crude oil, 18 – 20 mmboe is estimated to be natural gas liquids and 860 – 900 billion cubic feet is estimated to be natural gas.

    Chesapeake plans to operate an average of approximately 17 rigs in 2017, an increase from an average of 10 rigs in 2016. The company intends to spud and place on production approximately 400 and 450 gross operated wells in 2017, respectively, compared to 213 and 428 wells in 2016, respectively. A complete summary of the company’s guidance for 2017 is attached to this release.

    Operations Update

    Lawler continued, “We have a number of operational results we are looking forward to in 2017, including our return to the Powder River Basin (PRB) and our first results from the Turner formation in the 2017 second quarter, along with additional results from the Sussex and Niobrara and a Mowry test later in the year. In total, we plan to place approximately 30 wells on production in the PRB in 2017. In the Mid-Continent area, we plan to place approximately 100 wells on production during 2017, with roughly 60 of those wells planned from the Oswego formation. The Mid-Continent is expected to provide oil growth in 2017 through development drilling in the Oswego and our exploitation of ‘the Wedge play.’ Finally, we plan to operate approximately six rigs and place approximately 165 wells on production in the Eagle Ford Shale in South Texas. Several new tests are planned in the Eagle Ford, which include more than 10 extra-long lateral wells reaching approximately 15,000 feet and we also plan to test the Upper Eagle Ford and Austin Chalk formations. Our increased activity in the Eagle Ford, Oklahoma and the PRB is expected to result in oil growth of approximately 10% from year-end 2016 to year-end 2017, with continued growth in our oil volumes projected to be over 20% by year-end 2018.
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    Russia cuts extraction tax?

    Siberian Oil Giant That Bankrolled USSR May Gush Cash Again (1)
    2017-02-15 07:50:47.444 GMT

    By Stephen Bierman and Andrey Biryukov
    (Bloomberg) -- Russia’s largest oil field, so far past its
    prime that it now pumps almost 20 times more water than crude,
    could be on the verge of gushing profits again for Rosneft PJSC.
    Samotlor, the 25 billion-barrel giant that bankrolled the
    Soviet Union for decades, would be the biggest beneficiary of
    proposals to encourage investment in some of Russia’s oldest and
    largest reservoirs, where output is plunging. One idea being
    debated -- cutting the extraction tax in half for fields
    producing a lot of water with the oil -- could add as much as 90
    billion rubles ($1.59 billion) a year to Rosneft’s earnings,
    said Alexander Kornilov, an analyst at Aton LLC in Moscow.
    “It is a super giant field even today after almost 50 years
    of production, the elephant of elephant fields,” said Ildar
    Davletshin, an analyst at Renaissance Capital Ltd. “There is
    still a lot of oil left,” but production is costly because it
    takes 95 barrels of water to get 5 barrels of crude out of the
    ground, he said.
    Samotlor changed the course of the Russian oil industry
    when it started production in 1969, moving its center of gravity
    to the swampy West Siberian plain from the Volga-Urals region.
    The field will never return to the glory days when it pumped a
    quarter of Soviet crude and funded foreign campaigns like the
    war in Afghanistan, but it still contains billions of barrels of
    Tax support for this and other aging reservoirs could help
    maintain near-record output from Russia -- the world’s second-
    largest oil producer. It would also further cement the dominance
    of state-run giant Rosneft over the oil and gas industry, which
    provides about 40 percent of government revenue.

    Helping Hand

    Russian ministries are still considering the viability of a
    proposal to reduce the tax on deposits that hold more than 150
    million tons of resources, but the oil they produce has a water
    content of more than 90 percent, according to a government
    official who asked not to be identified because the information
    isn’t public. Right now, all the fields that meet these criteria
    belong to Rosneft, said another person.
    Rosneft’s press service declined to comment on the
    potential tax change. Aliya Samigullina, the aide of deputy
    prime-minister Arkady Dvorkovich, who is in charge of oil and
    gas sector regulation, also declined to comment.
    Russian Prime Minister Dmitry Medvedev said in a Dec. 15
    television interview that tax changes could be used to help out
    Rosneft. At the time, the government was in the process of
    selling an almost 20 percent stake in the company to commodities
    giant Glencore Plc and Qatar’s sovereign wealth fund. The deal
    was seen as a major vote of confidence in the Russian economy.
    “If the proposed tax breaks are meant to benefit mainly
    Samotlor, then it is yet another sign that policies are designed
    to favor politically-connected companies” such as Rosneft, said
    Edward Chow, a senior fellow at the Washington-based Center for
    Strategic and International Studies.

    Swiss Cheese

    While the Kremlin may be going out of its way to assist
    Rosneft today, the state’s relationship with Samotlor decades
    ago created many of the problems it faces today.
    As oil prices plunged in the 1980s, Soviet engineers pushed
    the field above 3 million barrels a day, said James Henderson,
    an oil analyst at the Oxford Institute for Energy Studies. Today
    that would beat the United Arab Emirates, the fourth-largest
    producer in OPEC.
    “At its peak, the field was a vital revenue producer for
    the Soviet Union,” Henderson said.
    Samotlor’s importance led to its eventual downfall.
    Injections of water to boost recovery exceeded the pressure the
    reservoir could withstand and blasted cracks into the Swiss-
    cheese-like rock, according to “Oil of Russia,” a 2011 book
    written by Vagit Alekperov, the billionaire chief executive
    officer of Lukoil PJSC, the country’s second-largest producer.
    Instead of sweeping oil through porous traps in the rock,
    the fluids injected into the reservoir migrated into those
    channels. Samotlor was pumping water in circles and there was no
    way to fix the problem. The collapse of the Soviet Union in 1992
    accelerated the decline and production crashed to about 300,000
    barrels a day by 1996, according to Rosneft’s website.

    Renaissance Era

    As the Soviet system gave way to a chaotic market economy,
    the field passed into the hands of a tough set of new Russian
    entrepreneurs -- Mikhail Fridman, German Khan, Viktor Vekselberg
    and Len Blavatnik.
    They formed a partnership with BP Plc that applied
    contemporary methods to enhance recovery of crude and the field
    experienced a renaissance. Production rose as high as 600,000
    barrels a day in 2009, according to Henderson. Rosneft bought
    the entrepreneurs’ joint venture, TNK-BP, for about $55 billion
    in 2013.
    That deal transformed Rosneft into the world’s biggest
    listed oil producer. Igor Sechin, CEO and close ally of
    President Vladimir Putin, further cemented the company’s
    position last year by taking over Bashneft PJSC, a regional oil
    producer. The company now pumps about 4.2 million barrels a day
    of oil, beating Samotlor’s peak.
    Samotlor’s output fell 4.7 percent in 2015 to about 425,000
    barrels a day, according to Rosneft’s website. It declined by
    another 4.1 percent over the first nine months of 2016, compared
    with the same period a year earlier.
    Cutting the extraction tax in half would give Rosneft a
    greater incentive to boost Samotlor’s output. If a lower rate
    had been applied last month, the company would have retained $28
    for each barrel pumped compared with about $18 under the
    existing regime, according to calculations by Aton.
    “Investment to manage the decline rate could be boosted
    with government support via tax cuts,” said Henderson of Oxford
    Energy. “The field will remain a key part of Russia’s West
    Siberian production for many more years.”
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    China Gas to benefit as coal to gas switch brings on millions of new users in northern areas

    China Gas, one of the country’s largest natural gas distributors, expects its annual sales to reach 30 billion cubic metres in five years, thanks to the government’s effort to replace coal with natural gas consumption in northern China in a bid to improve air quality.

    China Gas has targeted annual sales of 11 billion cubic metres for the financial year ended March 31, 2017.

    Kevin Zhu Weiwei, vice president at China Gas, told reporters on Tuesday in Hong Kong that converting from coal to gas will add 40 million to 50 million natural gas users to the potential customer base in northern China.

    The company is seeking to win 10 to 20 per cent of these users into its network and has been in talks with provincial government in northern regions.

    Frank Li Yuntao, general manager of capital market at China Gas, said the company has raised its target for newly connected residential households from 22 million to 24 million for the financial year 2017, and expects 150,000 households of them to come from coal-to-gas projects.

    It has also been in talks with officials in Beijing, Tianjin, Hebei, Henan, Shanxi and Shandong which plan to fully replace coal with cleaner energy in rural areas.

    China Gas is confident to achieve 13 per cent year-on-year sales growth in 2017, Zhu said, noting that its sales growth in recent months rose 15 per cent year on year.

    The company in November lowered its annual sales growth target from 20 per cent to 13 per cent after posting a 6.9 per cent fall in interim revenue for the six months ended September 30, 2016, partly due to the prolonged completion time for the HK$1.53 billion acquisition of 10 distribution projects from its largest shareholder Beijing Enterprises.

    Zhu said that the transaction, initially expected to close at the end of 2016, is in the “final process”.

    China’s natural gas consumption in 2017 is likely to post a double-digit growth from 2016, thanks to the coal-to-gas conversion, Zhu said.

    China’s total natural gas consumption rose 6.6 per cent in 2016 on year to 205.8 billion cubic metres, up from 5.7 per cent annual growth in 2015, according to regulator National Development and Reform Commission.

    The Chinese government has promised subsidies to rural areas for at least three years to offset the higher costs of using gas over coal for heating boilers.

    The conversions have become increasingly important to drive volume growth for gas distributors in China, Deutsche Bank wrote in a research report in November.

    “The conversion mainly involves industrial furnaces and heating boilers, both are more policy driven than economic driven, but the former is more related to industrial activities and the latter is used for winter heating and relies more on the subsidy,” the report said.

    Pressure to make the switch comes as China’s northern cities have suffered from severe smog problems this winter. The report also noted that opportunities also lie in China’s more affluent eastern provinces, as the governments can afford subsidies to make the gas upgrade.
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    Myanmar LNG import tender could launch by end April amid wide interest: law firm

    Myanmar's official LNG import tender could be launched by the end of April, with 8-10 submitters of Expressions of Interest or EOIs potentially selected to receive the tender, Yangon-headquartered legal firm VDB Loi said last Friday.

    The tender could take a year to be awarded, according to the presentation by VDB Loi in Singapore.

    A local partner was not required and LNG imports could begin in 2020, according to VDB Loi Senior Partner Edwin Vanderbruggen.

    In a call with S&P Global Platts Monday, Vanderbruggen said Myanmar's government was also considering further liberalising the country's electricity market and, in particular, allowing 100% foreign ownership of the country's transmission and distribution networks.

    Over 100 EOIs were submitted by the October 28, 2016, deadline to supply LNG to Myanmar, according to VDB Loi.

    Myanmar's Ministry of Electricity and Energy or MOEE LNG Business Sector Implementation and Development Central Committee has authority over the tender process.

    VDB Loi also listed four possible sites for the FSRU to be located, involving an FSRU either moored or at a jetty, on Kalgauk Island, Kyauk Phyu or Ngayok Bay.

    In November 2016, a World Bank workshop featured an FSRU in Myanmar with a 500 MMcf/day regas capacity.

    There will likely be a separate tender issued for a gas-fired power project in Myanmar.

    Platts Analytics expects Myanmar could begin importing LNG in the early 2020s.
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    ‏Barrel count in Singapore on the 14th...

    Barrel count in Singapore on the 14th...
    Dec: 46.3 million (record intake in China)
    Jan: 36.7 million
    Feb: 56.8 million

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    Daffy DUCs - Higher Prices But More DUCs? What's Going On With The DUC Count?

    The latest Drilling Productivity Report from the EIA, released yesterday (February 13, 2017), shows that while the combined rig count in the seven major U.S. shale plays rose about 25% in the fourth quarter of 2016 versus the previous quarter, and the number of wells drilled was up 29%, well completions were up a paltry 1%, leading to an increase in the inventory of drilled-but-uncompleted wells (DUCs). Completions accelerated a bit in January 2017, but DUCs still continued to rise. That certainly seems counterintuitive.  With crude oil prices stable in the low $50’s over the past few months you might think that producers would be pulling DUCs out of inventory, and in fact there have been statements to that effect in several producer investor calls. This is not just an exercise in energy fundamentals numerology. If the DUC inventory is increasing, then production will not be ramping up as fast as the growing rig count would imply. But what if, as some early signs indicate, the historical relationships are out of whack and the DUC inventory isn’t growing but rather declining? In that case, forecast models could be understating the outlook for production growth, and the market could be in for a more rapid and steeper rebound in oil and gas production than many expect. In today’s blog, we delve into the DUC inventory data and its potential upside risk to production forecasts.

    Two years ago, the U.S. oil and gas market and its industry analysts were on high alert for the first signs of declining oil and natural gas supply as oil prices collapsed and rig counts plunged. Now, in recent months, spot oil prices have turned more supportive, rig counts have climbed and many industry models are trained on identifying the opposite trend—the trajectory of rising production in 2017. Predicting how quickly production will ramp up, however, is a tricky business in that it requires knowing not only how prolific producers are in drilling and completing wells but also how producers are using their existing inventory of drilled-but-uncompleted wells (DUCs) to pace production volumes. The EIA, the industry benchmark for tracking production, has in recent years developed a robust methodology for going beyond the rig count to estimate and forecast production. It does so by accounting not only for decline rates of existing wells but also efficiency gains demonstrated by new drilling activity for each of the seven major U.S. shale plays (see Every Rig You Take). And more recently, the EIA added another key dataset: the estimated inventory of DUCs for each of the seven plays, including the number of wells drilled versus completed each month since December 2013 (see DUC, DUC Produce).


    Understanding the DUC inventory trend is critical to forecasting production because it reflects the ability of producers to respond in relatively short order to market fundamentals such as price and demand without a single rig addition. As we noted in “DUC, DUC Produce,” at any given time, there is always a substantial base inventory of DUCs in the market due to the normal delay between drilling and completion activities. But increases or decreases in the DUC inventory can speed or slow the rate of production growth (or decline) in the short- or mid-term.  When crude oil prices crashed in 2014 through early 2016, we saw an increase in DUCs as producers continued to drill, but deferred completing wells due to economics, contractual commitments and other factors.  It was generally expected that as prices increased, many producers would start competing those previously drilled wells (i.e., taking DUCs out of inventory) to start generating cash from their drilling investment.  But as shown in Figure 1, (according to EIA’s DUC inventory and Drilling Productivity Report data) that was not the case, particularly in the most prolific of plays – the Permian. Since June 2016, more than 500 DUCs have been added to inventory, far out of proportion to the increase in the total Permian rig count. 

    Figure 1; Source: EIA Drilling Productivity Report

    As rigs and drilling activity have been slower to return to the other shale regions, the DUC inventories in nearly all of the other shale regions are gradually declining. The only other exception to that besides Permian is the Niobrara, which has seen a slight uptick in DUCs. But the DUC additions in the Permian along have far outweighed any declines in the other regions. Figure 2 below summarizes the net rig and wells counts for all seven major U.S. shale plays covered in the Drilling Productivity Report (DPR):  Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica. Overall, as rigs were added over the past several months across all the regions, producers were drilling wells at a much faster pace than they were completing them, resulting in a net increase in the inventory of DUC wells. That’s a shift from earlier in 2016, when overall well completions were exceeding drilled wells, and the total U.S. shale DUC inventory was being worked off. 

    Figure 2; Source: EIA Drilling Productivity Report

    From third quarter 2016 to fourth quarter 2016, the total rig count across the DPR’s seven shale regions (yellow line in Figure 1) rose by 79 (24%) to an average of about 400 rigs. As of January 2017, the rig count was up another 91 (22%) to 498. More than half of these were added in the Permian alone. As you would expect from the rig additions, the total number of wells drilled across the shale regions (gray bars) also rose substantially in the EIA data, up about 430 (29%) from about 1,500 in third quarter of 2016 to about 1,950 in fourth quarter 2016. But of those drilled wells, EIA estimates that fewer and fewer were being completed to production. Thus, the number of wells completed (blue bars) rose considerably slower over that period, up a meager 23 (1%) to about 1,700 in fourth quarter 2016, from about 1,675 in third quarter of 2016. The resulting increase in the DUC inventory (1,950 drilled minus 1,700 completed) was about 250 (5%) from third to fourth quarter of 2016,

    The latest EIA report added January 2017 estimates, which show that the proportion of drilled to completion wells improved last month but that the DUC inventory continued to grow. In January, EIA estimates that 760 wells were drilled, up 32 (4%) from 728 in December 2016, and completions rose by 119 (22%) from 549 to 668 quarter-on-quarter, effectively increasing the DUC inventory by 92 wells (760 drilled minus 668 completed) to a total of 5,381 DUCs across the shale regions.

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    Noble Energy increases revenues, cuts 2016 losses

    Noble Energy deeply cut expenses, increased revenues and reduced losses last year by 60 percent, according to earnings released on Monday.

    Noble, an oil and gas production company based in Houston, posted $252 million in losses in the fourth quarter of 2016, or 59 cents per share, $1.8 billion or almost 90 percent better than the $2 billion in losses over the same period in 2015. The company reported year-end losses of almost $1 billion, $1.4 billion better than the $2.4 billion posted in 2015.

    It cut expenses in the fourth quarter by almost 50 percent to $1.4 billion from $2.6 billion in 2015. Year-end spending dropped 15 percent to $4.8 billion last year from $5.7 billion in 2015.

    At the same time, the company increased revenues by just under 20 percent in the fourth quarter to $1 billion from $860 million in the last period of 2015. Year-end revenues increased 10 percent to $3.5 billion from $3.2 billion in 2015.

    Recent West Texas purchases, such as the $2.7 billion deal for Midland-based Clayton Williams Energy, closed in 2017 and were not included in last year’s earnings.

    Fourth quarter oil volumes and sales were above expectations, the company said.

    Strong natural gas demand in Israel contributed to a 10 percent increase in sales volumes there, driven by strong demand from industrial customers and displacement of coal to natural gas in Israel’s power generation sector.

    And U.S. onshore wells in West Texas Permian Basin and Colorado’s DJ Basin continued to perform at or above expectations.

    “In total, we outperformed our original 2016 plans by 10 million barrels of oil equivalent, with significantly less capital,” said chief executive David L. Stover. “We are positioned for a tremendous year in 2017.”
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    U.S. shale oil output to rise in March by 80,000 bpd: EIA

    U.S. shale oil production for March is expected to rise by the most in five months, government data showed on Monday, as energy companies boost drilling on the back of oil prices that are hovering over $50 a barrel.

    March oil production is forecast to rise by 79,000 barrels per day to 4.87 million bpd, according to the U.S. Energy Information Administration's drilling productivity report. That would be the biggest monthly rise since October.

    In the Permian shale play of West Texas and New Mexico, output is forecast to rise by more than 70,000 bpd to 2.25 million bpd, in what would be the biggest monthly rise since January 2016.

    Meanwhile, Eagle Ford production in Texas is expected to rise by 14,000 bpd to 1.08 million bpd, the first monthly increase since December 2015, EIA data showed.

    In North Dakota's Bakken field, production is forecast to fall by nearly 18,000 bpd to 976,000 bpd, the fifth consecutive month-on-month decrease.
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    Judge denies tribes' request to block final link in Dakota pipeline

    A U.S. federal judge on Monday denied a request by Native American tribes seeking to halt construction of the final link in the Dakota Access Pipeline, the controversial project that has sparked months of protests by activists aimed at stopping the 1,170-mile line.

    At a hearing, Judge James Boasberg of the U.S. District Court in Washington, D.C., rejected the request from the Standing Rock Sioux and Cheyenne River Sioux tribes, who argued that the project would prevent them from practicing religious ceremonies at a lake they contend is surrounded by sacred ground.

    With this decision, legal options for the tribes continue to narrow, as construction on the final uncompleted stretch is currently proceeding.

    Last week, the U.S. Army Corps of Engineers granted a final easement to Energy Transfer Partners LP (ETP.N), which is building the $3.8 billion pipeline (DAPL), after President Donald Trump issued an order to advance the project days after he took office in January.

    Another hearing is scheduled for Feb. 27, as the tribes seek an injunction ordering the Army Corps to withdraw the easement.

    Lawyers for the Cheyenne River Sioux and the Standing Rock Sioux wanted Judge Boasberg to block construction with a temporary restraining order on the grounds that the pipeline would obstruct the free exercise of their religious practices.

    “We’re disappointed with today’s ruling denying a temporary restraining order against the Dakota Access Pipeline, but we are not surprised," Chase Iron Eyes, a member of the Standing Rock Sioux tribe, said in a statement.

    The company needs to build a 1,100-foot (335 meter) connection in North Dakota under Lake Oahe, part of the Missouri River system, to complete the pipeline.

    The line would run from oilfields in the Northern Plains of North Dakota to the Midwest, and then to refineries along the Gulf of Mexico, and could be operating by early May.

    Judge Boasberg ordered Energy Transfer Partners to update the court on Monday and every week thereafter on when oil is expected to flow beneath Lake Oahe.

    The company did not respond to requests for comment.

    Iron Eyes said during an earlier conference call that the pipeline would also cause economic harm to Native Americans.

    In his statement, he said the tribe was still seeking an injunction against the pipeline, which would also be heard in Boasberg's court. They also are continuing to push for a full environmental impact statement that was ordered in the last days of the Obama Administration.

    "We continue to believe that both the tribes and the public should have meaningful input and participation in that process," he said.

    Thousands of tribe members, environmentalists and others set up camps last year on Army Corps land in the North Dakota plains as protests intensified. In December, the Obama Administration denied the last permit needed by Energy Transfer Partners, but with Trump's stated support of the pipeline that victory was short-lived for the tribes.

    The Army Corps has said it would close remaining camps on federal lands along the Cannonball River in North Dakota after Feb. 22.

    Tom Goldtooth, executive director of the Indigenous Environmental Network, one of the primary groups protesting the pipeline, said people would continue to leave the main camp. He said he expected more demonstrations around the country.

    Only a few hundred protesters remained, and crews have been removing tipis and yurts. The Standing Rock tribe has asked protesters to leave.
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    As oil price rebounds labour shortage looms in Alberta’s North

    Despite the high number of layoffs that have occurred in Alberta’s oilpatch the last few years, there happens to be a oilpatch labour shortage taking place at the moment in Alberta’s north according to Bruce Covernton of Big Fish Staffing. Bruce’s firm concentrates on connecting employers with suitable employees in Alberta’s energy industry.

    “Field workers are in short supply right now as the Alberta oil business, from producers to service companies, experiences a much anticipated turnaround,” says Mr. Covernton. “I’ve also seen an increase in temporary office jobs, not only field work.”

    With the prices of both oil and gas on the recent rise, there has been a sharp year over year increase in wells spud. Along with drilling activity comes the need for oilfield services. The oil business is subject to volatile commodity price cycles. The current labour shortage, which may seem hard to believe, is symptomatic of how fast activity can turnaround once projects become economic again.

    “For a field worker, there is tonnes of work right now, already this year, I’ve been approached by four different service companies asking if I have able workers that are willing to work field jobs and have the right certification.”

    However for former oilpatch workers, returning to the industry may be a decision that garners more thought than in previous years. And this would help explain why a shortage is even taking place right now to begin with.

    With wages largely not what they once were prior to 2014, workers have to decide whether they want to leave temporary jobs they may have found since being let go, or if still unemployed, go back to the industry knowing full well how cyclical it can be.

    “Contributing to the challenging shortage is the fact that many people have left the province or  the industry and the sustained downturn is leaving some reluctant to return as people are uncertain how long the uptick with last,” says Mr. Covernton. “What’s more, having the uncertainty of future work  is greater when not hired as a full time employee, and when there are mouths to feed and mortgages to pay, that uncertainty becomes harder deal with.”

    Yet as northern Alberta’s unemployment rate continues to stagnate, despite jobs available, Mr. Covernton thinks this gap will inevitably narrow – provided prices and activity show increased signs of stability and certitude.

    “If there’s anything I have learned over the years is that activity will come back, and once that does on a larger scale, jobs will be filled. Until that time people looking for field work should know that yes, there are plenty of good paying jobs available.”

    Attached Files
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    Petronet LNG’s profit more than doubles

    Petronet LNG, India’s largest importer of the chilled fuel, on Monday reported a 132.5 percent increase in its quarterly net profit.

    The LNG importer said its net profit rose more than two times to 3.97 billion rupees ($59.3m) in the December quarter, as compared to 1.71 billion rupees in the same quarter a year before.

    Petronet LNG’s sales in the December quarter were at 59.77 billion rupees, up 24 percent from 48.21 billion rupees in 2015.

    During the second part of 2016, Petronet commissioned the regasification facilities under the Dahej LNG terminal’s expansion project. The terminal had been expanded from 10 mtpa to 15 mtpa.

    The company also owns the 5 mtpa Kochi LNG terminal in Kerala.
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    Saudi Arabia Tells OPEC It Cut Oil Output by Most in 8 Years

    Saudi Arabia told OPEC that it cut oil production by the most in more than eight years, going beyond its obligations under a deal to balance world markets.

    The kingdom reported that it reduced output by 717,600 barrels a day last month to 9.748 million a day, according to a monthly report from the Organization of Petroleum Exporting Countries. The group’s own analysts, who compile data from external sources, estimated that Saudi Arabia made a smaller 496,000 barrel-a-day cut -- in line with last year’s supply agreement.

    “OPEC has done particularly well, they’ve surprised most analysts,” Spencer Welch, director of oil markets and downstream at IHS Markit, said in a Bloomberg radio interview before the report was published. “Saudi Arabia has made a particular effort to boost compliance.”

    OPEC and Russia are leading a push by global producers to end a three-year oil surplus that sent prices crashing and battered their economies. While prices initially rallied 20 percent in the weeks after OPEC’s Nov. 30 agreement, the gains have since faltered on concern that rebounding U.S. output will fill the gap left by OPEC’s cuts.

    Saudi Arabia’s data indicate it’s pumping about 310,000 barrels a day below its specified target. Saudi Arabian Energy Minister Khalid Al-Falih had said on Dec. 10 that the kingdom was willing to cut even more than was required to demonstrate its commitment to the accord.

    In the same monthly report, Iraq, Venezuela and Iran told the organization they pumped more than allowed by the accord.

    Data Dispute

    The negotiations leading to OPEC’s agreement in November were marked by a dispute over which production data to use. The group’s so-called “secondary sources” numbers -- derived from six external estimates -- form the baseline for the accord, even though Iraq had argued that the figures weren’t accurate and initially insisted that only statistics supplied by member governments should be used.

    Iraq’s own data show that it’s exceeding its target by about 279,000 barrels a day, Venezuela’s show a surplus of 278,000 and Iran’s of 123,000 a day, according to the report.

    OPEC secondary sources estimates indicate a far higher degree of compliance, with the 11 countries subject to the accord complying by more than 90 percent. The group’s output fell by 890,200 barrels a day from a month earlier to 32.139 million in January, the data show.

    OPEC agreed in November to reduce production to 32.5 million barrels a day, although that total included about 750,000 barrels a day from Indonesia, which has since suspended its membership.

    Urging Compliance

    The 11 non-OPEC producers such as Russia, Kazakhstan and Oman who agreed to join in with output cuts haven’t complied as much, implementing a bit more than 50 percent of their pledged reduction, Kuwaiti Oil Minister Essam Al-Marzooq said Monday in Kuwait City. Kuwait, which chairs the committee that oversees compliance, is urging those countries to fulfill their commitments, he said.

    “At the time when producers signed the deal, the initial commitments were to gradually increase cuts until April and May, so we were expecting to see some producers not fulfilling the 100 percent cuts,” Al-Marzooq said. “We understand the circumstances, and in February we are talking to non-OPEC producers to raise their cuts according to their commitments.”

    OPEC’s January output still isn’t low enough to bring the oil market back into balance, let alone clear an inventory surplus the group estimates at about 300 million barrels, data from the report indicate.

    If the organization keeps output at January levels, that would be about 800,000 a day more than it expects the market to require in the first six months of the year -- adding about 140 million barrels to world stockpiles.

    The re-balancing process may be assisted by stronger-than-expected demand, OPEC said. The organization boosted its estimates for growth in world fuel consumption in 2017 by 35,000 barrels a day to 1.19 million a day.
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    LNG-Prices slide as supplies emerge from key regions

    Asian spot prices for LNG delivery in March fell during the week ended Feb. 10 on weak demand and steady supplies despite loading disruptions caused by bad weather at some Australian ports.

    Companies including U.S. LNG producer Cheniere Energy and Royal Dutch Shell were said by traders to be offering several cargoes over coming months, helping accelerate a downward trend in spot prices since January.

    Spot prices for March delivery were seen at around $7.20 per million British thermal units (mmBtu), 30 cents below the last assessment level, while April prices dipped below the $7 per mmBtu mark, traders said.

    In one of the biggest tender awards so far in 2017, Argentina filled requirements for 16 shipments over April-August, awarding 11 to Trafigura, three to Glencore and two to Cheniere.

    The transactions were done at a premium to gas prices at the UK's National Balancing Point (NBP) trading hub, varying in size depending on which of Argentina's terminals the gas would be delivered to, they said.

    Deliveries to Argentina's Bahia Blanca terminal, for example, show a 30-40 cent premium to NBP, some sources said.

    April gas prices at the NBP currently traded around $6.40 per mmBtu.

    Loading of cargoes from Australia's North West Shelf (NWS) liquefaction plant were briefly halted due to bad weather last week, shrugged off by traders as a fleeting hindrance.

    Thailand's state-owned oil and gas firm PTT is seeking an LNG shipment for the second half of March via a tender which will close on Feb. 15. The Thai firm was looking for a "wide spec" LNG cargo that means offers for lean or slightly-rich gas will be considered.

    Meanwhile, Britain is to take in its first-ever LNG from Peru later this month as converging prices between the two global benchmarks - the UK's NBP gas trading hub and Asian spot prices - made it more attractive to offload cargoes in Europe.
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    IRANIAN Floating Storage is now at a new low!

    The IRANIAN Floating Storage is now at a new low! The tanker "DOVER" took off to South Korea just a while ago
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    China’s independent refiners could get regulated away: Fuel for Thought

    China’s regulatory pendulum has swung from supporting independent refiners by encouraging competition and deregulation to favoring state-owned oil companies, which could have the impact of regulating many of the independents out of business.

    In early 2015 China’s independent refiners, or teapots, were set to soar. Beijing’s policy makers gave teapots permission to import crude and export refined products.

    Regulators are now reminding independents that they really are not independent. In 2017, rather than giving teapots full year import quotas, regulators will allot the quotas in several rounds, and the first round was delayed by half a month.

    If the allocation had been further delayed, “we would not have enough feedstock to sustain normal runs in the refinery in addition to having to pay a high demurrage,” said a source at a Shandong-based independent refiner.

    The government has also yet to award refined product export permits to independents, which under what is called the “processing trade route,” allows refiners to not pay taxes on the exports.

    Without the export permits, independents would end up paying taxes on refined products exports, forcing them on the domestic retail market, where they lack a competitive edge.

    Fueling stations, which supply about 80% the road transportation fuel in China, are owned by state-owned companies Sinopec and CNPC’s PetroChina. To be competitive, independents have to sell gasoline at about Yuan 1,000-Yuan 2,000/mt lower than their state-run competitors, an amount they can ill afford to charge and stay profitable.

    Why the about face on teapots?

    China’s government wants to reduce excess refining capacity and clamp down on independent refiners’ environmental non-compliance and tax evasion.

    The state-owned CNPC’s research arm estimated China currently has 15.14 million b/d of refining capacity, with teapots making up roughly 4.5 million b/d of that.

    China processed just 10.83 million b/d of crude oil in 2016, according to data from the National Bureau of Statistics, suggesting nearly one third of the capacity is surplus.

    Independents typically operate well below capacity, but with crude import quotas and product export quotas they were able to boost utilization rates to nearly 60% in 2016 from 30%-40% before 2015.

    But the independents have run afoul of regulators when it was found they were violating certain aspects of the import quota agreement. The refiners were found guilty not only of tax evasion, illegally reselling imported crude to non-quota holders, but also failing to fulfill their promises of phasing out refining capacities or building LNG storage.

    Nearly all of those investigated, big or small, were fined up to Yuan 1 billion ($145 million) in 2016, market sources said, and import rules became more strict.

    It’s difficult for us to make a profit without tax evasion,” said a Shandong-based independent refiner, a sentiment echoed by many of the others in the province. China’s teapots may also have simply lived out their usefulness as a supply stopgap during a widespread anti-corruption campaign against state-run refiners launched a few years ago under President Xi Jinping.

    The campaign resulted in the removal of several high profile senior officials from the three biggest state-owned companies—CNPC, Sinopec and CNOOC.

    While the anti-corruption investigations were ongoing there was a worry that the nation’s energy security could be at risk and independent refiners were given greater liberties in order to maintain China’s growing appetite for oil products.

    But since the purge of top executives, the state-owned firms are found to be running smoothly and the need for independent refiners has come into question.

    Even without permits, independent refiners can still export refined products, but would need to pay taxes, including a VAT and consumption tax. China’s government last month allowed a rebate on the VAT for refined products, and has indicated it may allow a rebate on consumption.

    The VAT rebate may help independent refiners, although even with a consumption tax rebate, independents would continue to have cash-flow issues as they must pay all taxes up front.

    China exported 3.04 million mt of refined products in January, up 1% year-on-year. Exports are expected to rise this year, although that increase will likely come at the expense of the independents.

    Attached Files
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    Williams Making Good on Plan to Double Down in Heart of Shale

    Williams Cos. is following through on a promise to unload assets and double down in a region of the U.S. where natural gas production is still booming: the Marcellus shale formation.

    On Thursday, the master-limited pipeline partnership controlled by Williams Cos. said it had struck a deal with Western Gas Partners LP to exchange its 50 percent stake in a gas-gathering system in Texas for a bigger position in two gathering networks in the northern Pennsylvania area of the Marcellus and a cash payment of $155 million.

    The trade builds on Williams’s efforts to streamline operations and strengthen its position as a pipeline giant in the Marcellus and Utica shale basins of the eastern U.S. — a plan Chief Executive Officer Alan Armstrong laid out in the aftermath of a failed, $33 billion takeover by Energy Transfer Equity LP last year. Gas supplies flowing out of the region have outpaced pipeline capacity, and Williams has heavily invested in projects to bring more of the heating fuel to market.

    In the exchange with Western Gas, “Williams gets more gas right where they want it,” Brandon Blossman, an energy analyst with Tudor Pickering Holt & Co., said by phone. “They want to ‘core down’ to their competency, and their competency is moving gas from the Northeast to end-users in the mid-Atlantic, Southeast and Gulf Coast.”

    While the deal will shrink Williams’s spending in Texas and New Mexico and bring in immediate cash, the company is also giving up “growth potential” in America’s most-active shale basin, the oil-rich Permian, TJ Schultz, an analyst at RBC Capital Markets, said in a note late Thursday.

    “We like the nature of the transaction,” Schultz said, “but do not expect it to be a big near-term needle mover on the stock.”


    Williams said Thursday that it had also reached an agreement with Anadarko Petroleum Corp. to sell its 33.33 percent stake in the Ranch Westex gas-processing plant in the Delaware Basin of West Texas and New Mexico for $45 million in cash.

    Both deals are expected to close by early second-quarter 2017, according to the company’s statement.

    “The Marcellus area hit a record-gathering volume for us in January,” Armstrong said in the statement Thursday, adding that the region stands to further benefit from the construction of its $3 billion Atlantic Sunrise gas pipeline expansion that was approved by federal regulators last week.

    Attached Files
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    Jordan Cove LNG ups project capacity, FERC approves pre-filing request

    Jordan Cove LNG project being developed by Calgary-based Veresen filed a new request for the pre-filing review process for the LNG export terminal at Coos Bay, Oregon, increasing the project’s capacity to 7.8 mtpa.

    The United States Federal Energy Regulatory Commission approved Jordan Cove LNG’s request for the pre-filing review process filed on January 23, after initially rejecting the request for rehearing of its decision to deny a permit for the construction of the 6 mtpa Jordan Cove LNG plant and an associated 232-mile pipeline.

    However, in December 2016, Jordan Cove said it intended to file a new application, after altering the facility’s design. Jordan Cove LNG withdrew its application with the Energy Facility Siting Council to build a 420-megawatt power plant adjacent to the LNG facility, reducing the infrastructure footprint.

    According to the new filing, the terminal would consist of a gas processing plant, liquefying equipment, two storage tanks, a transfer line, loading platform, marine berth, and access channel.

    The project also includes the construction and operation of a 233-mile-long 36-inch-diameter pipeline. It would originate at interconnections with the existing systems of Ruby Pipeline and Gas Transmission Northwest near Malin, Oregon and end at Jordan Cove’s terminal at Coos Bay. It would be capable of transporting about 1.2 billion cubic feet per day of natural gas.

    The filing also shows that the project intends to file the application on August 30, 2017.

    The company also said the preliminary agreements reached with Japan’s Jera and Itochu, both booking at least 1.5 mtpa of LNG, stay in place.
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    Venezuela falls behind on oil-for-loan deals with China, Russia

    Venezuela's state-run oil company, PDVSA, has fallen months behind on shipments of crude and fuel under oil-for-loan deals with China and Russia, according to internal company documents reviewed by Reuters.

    The delayed shipments to such crucial political allies and trading partners - which together have extended Venezuela at least $55 billion in credit - provide new insight into PDVSA's operational failures and their crippling impact on the country's unravelling socialist economy.

    Because oil accounts for almost all of Venezuela's export revenue, PDVSA's crisis extends to a citizenry suffering through triple-digit inflation and food shortages reminiscent of the waning days of the Soviet Union.

    The total worth of the late cargoes to state-run Chinese and Russian firms is about $750 million, according to a Reuters analysis of the PDVSA documents.

    At the end of January, PDVSA was late on nearly 10 million barrels of refined products that the company owes the firms - with shipments delayed by as much as 10 months, according to the documents. It also failed to make timely deliveries of another 3.2 million barrels of crude shipments to China's state-run China National Petroleum Corporation (CNPC).

    Shipments to China and Russia are critical for PDVSA's financial health because firms from the two countries purchase about a third of the PDVSA's total oil and fuel exports. The administration of Venezuela president Nicolas Maduro has for years relied on credit from the two nations, particularly China, to finance infrastructure and social investment in Venezuela.

    PDVSA did not respond to requests for comment. Venezuela's Petroleum Ministry declined to comment.

    During the decade-long oil boom that ended in 2014, Venezuela borrowed nearly $50 billion from China that it agreed to pay back in crude and fuel deliveries to state-run Chinese firms. Venezuela was the seventh largest crude supplier to China in 2016 and the largest in Latin America.

    Russia's state-run Rosneft (ROSN.MM) lent at least $5 billion under similar arrangements, but the details of those deals have not been disclosed.

    Now, PDVSA is struggling to make good on those promises. A total of 45 cargoes bound for Russian and Chinese companies are late for a variety of reasons, according to internal operational reports about shipments of crude and refined products.

    The problems include operational mishaps, such as refining outages and delayed cleaning of tanker hulls, and financial disputes with service providers owed money by PDVSA.

    The backlog of delayed or cancelled fuel cargoes represents about three months of the 88,000 barrels per day (bpd) of jet fuel and diesel that PDVSA must deliver under financing deals to Russia's Rosneft, China's PetroChina (601857.SS) and ChinaOil.
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    Asian gasoline crack to Brent crude hits 13-month high on strong demand

    Strong demand pushed the physical benchmark FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures to a 13-month high of $13.14/b at the Asian close last Friday, S&P Global Platts data showed.

    The crack was last higher on January 27, 2016, at $13.32/b, Platts data showed.

    Demand is being driven mainly by Abu Dhabi Oil Refining Co.'s, or Takreer's, requirements for March-April. Production from its 840,000 b/d Ruwais refinery in the UAE had been reduced to 50% by the closure of its west refinery due to a fire January 11 at its 127,000 b/d RFCC, crimping gasoline production.

    To plug the shortfall, ADNOC is seeking 240,000 mt of 95 RON gasoline in nine 27,000 mt cargoes over March-April delivery in a tender valid until February 19.

    Demand within Asia was also buoyant, with firm buying from Indonesia and Vietnam. Indonesia's March requirements were heard to be around 10 million-11 million barrels, more than February's 8 million-9 million barrels of imports. Recently concluded tenders in Asia also reflected an uptrend in cash differentials.

    Taiwan's CPC sold 30,000 mt of 92 RON gasoline for March 6-22 loading from Kaohsiung at a premium of 30-40 cents/b to the Mean of Platts Singapore 92 RON gasoline assessments on an FOB basis.

    It had previously sold two cargoes of 92 RON gasoline for February loading at premiums of 25-30 cents/b to the MOPS 92 RON gasoline assessments, FOB.

    A source close to the company said there were more bids for the latest tender than for the previous month.

    Supply is also expected to be lower over March-April due to maintenance season.

    Taiwan's Formosa Petrochemical Corp. will partially shut its 540,000 b/d Mailiao refinery for maintenance from mid-March to end April, while refineries in Indonesia have a heavy turnaround schedule over March-April, market sources said.

    The rally in NYMEX March RBOB futures further boosted the market. In the US, Energy Information Administration data showed a surprise draw in US gasoline stocks, which fell 869,000 barrels to 256.2 million barrels in the week ended February 3 after five straight weeks of builds.
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    India’s Oil Demand Plunges Most in 13 Years Amid Cash Ban

    India’s monthly oil demand fell the most since May 2003 as the government’s crackdown on high-value currency notes continued to reverberate through the country’s $2 trillion economy.

    Fuel consumption fell 4.5 percent to 15.5 million tons in January from 16.2 million tons a year ago, the Oil Ministry’s Petroleum Planning and Analysis Cell said Friday. Diesel use, which accounts for about 40 percent of total fuel demand in India, dropped 7.8 percent to 5.8 million tons, the biggest decline since September. Gasoline consumption fell the most since June.

    Expansion in the world’s fastest-growing major economy is under pressure after Prime Minister Narendra Modi in November withdrew high-value currency notes in a country where almost all consumer payments are in cash. Growth in gross domestic product may slow to 6.5 percent in the year through March from 7.9 percent the previous year, according to an Economic Survey presented by the finance minister’s advisers.

    “This decline in demand is due to demonetization,” according to Tushar Tarun Bansal, director at Ivy Global Energy. “I would expect this decline to be a one off and dissipate from February. This should result in a slower demand growth for diesel in the first quarter in 2017.”

    India imports more than 80 percent of its crude requirement and the International Energy Agency expects it to be the fastest-growing consumer through 2040. In most areas people are spending the same amount on fuel that they did before the money crackdown, although some rural areas and small businesses are still affected, according to Bansal.

    Petcoke consumption fell for the first time in more than a year, declining about 9.9 percent to 1.95 million tons. Gasoline consumption fell 0.6 percent to 1.8 million tons. Liquefied petroleum gas use expanded 16.4 percent to 2 million tons, while jet fuel demand increased 17.8 percent to 627,000 tons.
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    Brent spreads imply big draw down in crude stocks after June

    Brent futures prices indicate the crude market is expected to move into a deficit with a significant draw down in stocks from the middle of the year.

    Brent futures are trading close to full contango or full carry through until June but thereafter the calendar spreads are no longer wide enough to cover the cost of storing and financing oil stocks.

    Most stocks are held involuntarily because the oil is in transit from the well to the refinery or because the stocks are needed to meet the operational requirements of refiners.

    But beyond these operational requirements, traders will hold inventories only if prices are expected to rise or they can cover their storage and financing costs by running a short position in the futures market.

    The structure of futures prices therefore determines the profitability of storing oil beyond minimum operating needs, so called “cash and carry” trades.

    On Feb. 9, the structure of Brent futures prices provided around 37 cents per barrel to hold stocks between April and May and around 33 cents to hold stocks from May to June.

    If the cost of onshore storage is around 20-30 cents per barrel per month and the cost of borrowing is around 2 percent per year, storage is just about profitable in May and June.

    But the spread from June to July is just 24 cents and it declines even further to just 15 cents from July to August and 6 cents from August to September. There is no way oil storage can be profitable at such low spreads.

    The economics of storage is very sensitive to assumptions about the cost of leasing tank farm space and borrowing money.

    The figures used above are purely illustrative. Some traders will have access to storage much cheaper (or more expensive) than these figures.

    Both the cost of leasing space and the cost of borrowing is specific to the tank farm and the storage company so will vary.

    Onshore storage is generally much cheaper than offshore storage, and some companies will have access to financing at lower costs than others.
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    Non-OPEC delivers 40 pct of pledged oil curbs in January - OPEC sources

    Eleven non-OPEC oil producers that joined a global deal to cut output to boost prices have delivered 40 percent of promised curbs in January, two OPEC sources said.

    The sources cited OPEC calculations based on data from the International Energy Agency.

    OPEC’s figures, reported earlier on Friday by Reuters, put its own compliance at 92 percent.

    The Organization of the Petroleum Exporting Countries, Russia and other producers agreed to cut oil production by a combined 1.8 million bpd in the first half of 2017 to boost prices and get rid of a supply glut.

    The lower compliance figure for non-OPEC to date is partly due to the phased implementation of the deal by Russia, the largest non-producer cooperating with OPEC.

    Russia said it would phase in its share of the cut gradually rather than in the first month of the agreement and in January lowered supply by 100,000 bpd. Moscow pledged to reduce output by 300,000 bpd in the agreement.

    An OPEC and non-OPEC technical committee due to meet in Vienna on Feb. 22 will look further at how to assess compliance with the deal.
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    Japan's Inpex says Ichthys LNG project still set for Q3 start-up

    Japan's Inpex says Ichthys LNG project still set for Q3 start-up

    Japan's Inpex said Friday its Ichthys LNG project in Australia was still expected to start in the third quarter of this year as planned despite the recent contract cancellation by an Australian company involved in the Ichthys' power plant.

    "We have not changed our schedule of the start up in the third quarter," Masahiro Murayama, director and senior managing executive officer at Inpex's finance and accounting told a media briefing Friday.

    CIMIC Group, a subcontractor for Inpex, said in January it terminated its contract with JKC Australia LNG Pty Ltd for the design, construction and commissioning of the Ichthys Combined Cycle Power Plant (CCPP) project.

    Murayama said JKC would still proceed with construction.

    In 2015, Inpex announced postponement the startup of the Ichthys LNG project until the July-September quarter of 2017 from initially scheduled late 2016 due to a delay in construction of the offshore floating facility.

    Ichthys LNG has a liquefaction capacity to 8.9 million mt/year.

    The project is owned 62.245% by Inpex, 30% by Total, 2.625% by CPC, 1.575% by Tokyo Gas, 1.2% Osaka Gas, 1.2% by Kansai Electric, 0.735% by Chubu Electric and 0.42% by Toho Gas.
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    Total CEO says first Yamal LNG cargo expected by October

    Total Chief Executive Patrick Pouyanne said on Thursday that the first shipment from the $27 billion Yamal LNG project it is developing in Russia with Novatek could be sent before October this year.

    Pouyanne said during a presentation to investors on Total’s 2016 financial results that Novatek’s CEO Leonid Mikhelson told him that the first LNG shipment would leave the facility by October.

    “Mister Mikhelson promised to me that they will deliver LNG by October 2017… I trust him…,” Pouyanne said during the presentation.

    The liquefied natural gas project in the Yamal peninsula in Siberia is expected to produce a total of 16.5 million tonnes of LNG per year. Almost all of the volumes from the project have already been contracted.

    Shareholders in the Yamal LNG project are Novatek, as the operator with a 50.1 percent stake, CNPC and Total with 20 percent stake each and China’s Silk Road Fund with a 9.9 percent stake.
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    Rig count hops up 12; Permian Basin again drives rise

    The number of oil and gas rigs in U.S. fields rose again this week, up 12 or about 170 over the past three months.

    This week’s count marks the fourth increase in a row, and a boom of more than 335 rigs since the count fell to its recent low, last spring.

    U.S. oil drillers collectively sent eight more rigs into the patch this week, the Houston oilfield services company Baker Hughes reported Friday. Gas drillers added four.

    The Permian Basin, in West Texas and New Mexico, again led the rise, adding six.

    The total rig count rose to 741, up from a low of 404 in May, and up 200 rigs year over year.

    The number of active oil rigs jumped to 591 this week, gas rigs to 149. The number offshore rigs dipped again, by one to 21, down four rigs year over year.

    Total rig counts lifted by seven in Texas, four in New Mexico, two in Louisiana, two in West Virginia and one in Pennsylvania. Ohio and Wyoming lost two each.

    Drilling activity has continued to rise despite stagnating oil prices. Since February’s low of about $26 a barrel, prices have stuck above $50 for several weeks now.
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    Gasoline sails away from American drivers as East Coast stocks swell

    Traders are preparing to export cargoes of coveted gasoline from the U.S. East Coast after months of heavy importing and local production swamped the region.

    At least two cargoes of gasoline are lined up to sail to West Africa, according to three market sources, with others eyeing their own shipments.

    The United States consumed more than 9 million barrels per day of gasoline in 2016, accounting for nearly 10 percent of global oil demand. The East Coast accounts for over a third of the national consumption.

    The exports underscore the record stocks of motor fuel on the East Coast, which were overshadowed by an unexpected draw down across the nation as a whole.

    Oil trader Noble sold the cargoes of Nigerian-grade gasoline, one to Mocoh and the other to Glencore, the sources said. The cargoes will load in the coming days for West Africa, though ship brokers said the vessels had not yet been arranged.

    "We have quite high production, and record high stocks in PADD1," Robert Campbell, head of oil products research with Energy Aspects in New York said of the east coast region.

    He added that because gasoline in New York Harbor is, unusually, cheaper than the U.S. Gulf refining centre, "if you're going to lift from the United States, you're going to lift from New York Harbor."

    The cargoes will add to U.S. gasoline exports that hit a record in November, the most recent month of data available, as American-made fuel sailed for Latin America, West Africa and even Asia. The Hafina Andromeda recently carried clean products from the U.S. Gulf to West Africa, while the Grace Victoria has been fixed to load gasoline for Asia.

    The unusual cargo movements out of the U.S. East Coast are not limited to gasoline.

    Other cargoes of distillates also set out for Europe in recent weeks, including aboard the STI Wembley, the Energy Protector and the Torm Thunder.

    The 110,000 tanker SKS Dee, which trader Trafigura chartered to sail to New York Harbor from India's Jamnagar refinery, has also been waiting for an outlet since Jan. 24, according to Reuters ship tracking, a further sign of the region's limited import needs.

    Distillate exports from the region are not unprecedented. But Europe's refineries rely on drivers in West Africa and the U.S. East Coast to consume their gasoline.

    The East Coast exports for now are of limited threat to global refining margins, as refinery maintenance eases oversupply fears. Other sources said the moves could also be driven by efforts to clear out winter-grade gasoline. But the development casts a shadow on the ability of U.S. consumers to gobble up fuel.

    "Demand is an implied figure and dependant on the export (figure) they use," one trader said of U.S. data. "If exports are higher than they think, then demand is lower than published."
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    February 8 Alberta Landsale Result is Best in Over 2 Years

    The February 8th Alberta land sale has netted the province $35.1 million in Lease and License fees.  That’s the best result since the October 15th, 2014 sale, when the result was $38.2 million for oil and gas and oilsands leases.

    There were a total of 188 parcels with successful bids for this sale.  

    The total area of the 188 parcels in this week’s sale was 86.9 thousand hectares with an average bid price of $403.24 per hectare.  That compares to $229.64 per hectare for the last sale on January 25 and is a 76% increase.

    Forty-nine companies participated, compared to sixty in the last sale.  Two land agents paid $7.9 million for 2 separate parcels in this sale. Both parcels are in the Sylvan Lake area of Central Alberta, an area which is known for Late Cretaceous gas production (Edmonton Group). One parcel is 12 sections while the other is 10.75 sections.

    Attached Files
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    Teck, Suncor up cost of Fort Hills oil sands project

    Canada's largest diversified miner Teck Resources has revealed that its Fort Hills oil sands project could cost up to $1.9 billion more than what it originally anticipated.

    The Vancouver-based company now expects its share of the project to cost $805 million, or about 10% more than forecast, and as a result the miner will record an after-tax impairment charge of $164 million in its fourth quarter results.

    As a result, Teck will record an after-tax impairment charge of $164 million in its fourth quarter results.

    According to Teck’s partner in the venture, Suncor Energy, the cost increase was caused by last year’s devastating wildfires in Fort McMurray, along with construction changes to boost capacity.

    The cost per barrel, however, will remain at about $84,000 per flowing barrel of bitumen because nameplate capacity has been increased to 194,000 barrels per day from 180,000 bpd, Suncor said while delivering fourth quarter results.

    The company, Canada's largest energy firm, added that its share of Fort Hills' remaining project capital was between $1.6 billion and $1.8 billion and most of that would be spent this year, with production expected to gradually ramp up through 2018.

    "Bringing our key major growth projects, Fort Hills and Hebron, to first oil by the end of this year continues to be a top strategic priority for us," Suncor chief executive officer, Steve Williams, said in the statement.

    Both Teck and Suncor said the project was 76% complete as of Dec. 31 and that it remains on track to produce first oil in late 2017.
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    Oxy continues to eye Q1 startup of Texas JV cracker: company

    Occidental Chemical Corporation has nearly completed construction of its joint-venture ethane steam cracker in Ingleside, Texas, and anticipates a first-quarter startup, the company's CFO said during a Thursday earnings call.

    Mexican PVC producer Mexichem is the partner in the 50:50 JV, called Ingleside Ethylene, which is building the steam cracker adjacent to OxyChem's complex in Ingleside, along with pipeline and storage facilities in Markham, Texas.

    Oxy also said that it expects free cash flow from its chemicals business to increase by about $400 million in 2017, due in part to the startup of the JV cracker.

    The steam cracker will have five ethane cracking furnaces capable of producing 544,000 mt/year of ethylene, according to regulatory filings.
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    EQT buys Marcellus, Utica acreage in Stone Energy bankruptcy auction

    EQT buys Marcellus, Utica acreage in Stone Energy bankruptcy auction

    EQT on Thursday said it won a bankruptcy auction that would see the Pittsburgh-based producer expand its Appalachian Basin footprint in West Virginia through the purchase of 85,400 net acres, including 53,400 net acres in the core of the Marcellus Shale play, as well as drilling rights on 44,100 net acres in the Utica Shale.

    Under the deal, which a bankruptcy court is expected to approve Friday, the independent exploration-and-production company will acquire acreage with production of about 80 MMcf of natural gas equivalent per day from Stone Energy for $527 million.

    The acquired acreage -- primarily located in West Virginia's Wetzel, Marshall, Tyler and Marion counties -- is within the core of EQT's liquids-rich development areas and complements the company's adjacent operations, it said in a statement.

    EQT said the assets include 174 Marcellus wells -- of which 123 are developed and 51 are in-progress -- as well as 20 miles of gathering pipeline and 32,000 acres outside the company's core development area.

    The acreage has an average 85% net revenue interest and 86% is either held by production or has lease expiration terms that extend beyond 2019, which means the producer will be able to take its time before it begins developing the acreage.

    In December, Stone and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the Southern District of Texas.

    As part of its pre-packaged bankruptcy filing, the court oversaw an auction that allowed Stone to put its Appalachian Basin assets up for sale to raise additional capital as part of its pre-arranged plan of reorganization. Prior to the bankruptcy filing, in October, Stone had entered into an agreement with TH Exploration III, LLC, an affiliate of Tug Hill, to sell the assets for $360 million in cash. Pursuant to bankruptcy court orders, the auction was held on Wednesday, with the initial Tug Hill bid serving as the stalking horse bid.

    Stone agreed to use a portion of the $527 million purchase price to pay for the break-up fee and expense reimbursement involved in the rejection of the Tug Hill bid.

    The completion of the auction process should allow Stone to emerge from the protection of the bankruptcy court as early as Friday, a Stone spokeswoman said in an interview Thursday.

    "With the successful conclusion of the auction, we are now poised to move forward with our pre-packaged plan, with Stone, its noteholders and the bank group all in agreement on a plan of action," Stone Chairman, President and CEO David Welch said in a statement.

    EQT's acquisition of the Stone assets marks a continuation of a strategy of filling in acreage within its core footprint in the Marcellus and Utica plays outlined by company President Steve Schlotterbeck in a conference call on the producer's fourth-quarter and full-year earnings earlier this month.

    In May, EQT announced it had signed an agreement to acquire 62,500 net acres in Wetzel, Tyler and Harrison counties in West Virginia for $407 million from Statoil USA Onshore Properties. The acreage, which at the time of the announced deal was producing 50 MMcf/d, expanded the producer's Marcellus footprint by 29%.

    EQT's bid to lock up acreage in the Marcellus and Utica plays reflects moves by its rivals last year to acquire assets in the Appalachian Basin.

    In September, Canonsburg, Pennsylvania-based Rice Energy said it would acquire rival Appalachian producer Vantage Energy in a deal valued at $2.7 billion, including the assumption of debt. The deal gave Rice about 85,000 net core Marcellus acres in Greene County, Pennsylvania, with rights to the deeper Utica Shale on about 52,000 net acres, as well as 37,000 net acres in the Barnett Shale of North Texas.

    In June, Antero Resources agreed to acquire from Southwestern Energy about 55,000 net acres in the core of the Marcellus Shale for $450 million. About 75% of the 55,000 net acres contained dry Utica rights.

    Scott Hanold, an analyst with RBC Capital Markets, estimated the EQT deal equates to about $5,400/acre, adjusted for proved developed producing reserves when evaluating only the core Marcellus acreage.

    "There are two goals in EQT's recent acquisitions: blocking up acreage to enable longer laterals and adding new inventory. This transaction falls mostly into the second bucket," Hanold said. "The company likely continues to pursue smaller deals that fit into these categories but only in its core focus area."
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    Tide turns for Asia oil upstream sector as crude's ascent ends somber spell

    After a two-year struggle to stay afloat, upstream activity in Asia's oil sector is finally starting to show signs of revival, as a steady climb in crude oil prices is making the market believe that the sector in the region might have reached an inflection point.

    Even if investors may not rush immediately to pour in millions of dollars into exploration activity, leading players in the region are saying that companies are now beginning to at least test the economic viability of exploration and development projects, and some are even ready to seal deals.

    Shell's late-January agreement to sell its stake of more than 22% in the Bongkot field in Thailand to state-owned Kuwait Foreign Petroleum Exploration Co. has sent a strong signal that the market is starting to become conducive for signing deals -- companies are more willing to buy assets.

    "The worst is over for the E&P industry in Asia," said Gordon Kwan, head of oil and gas research at Nomura. "If oil prices continue to march toward $60/barrel, we should see a gradual increase in E&P spending in Asia, with focus on China offshore and development of previous discoveries in Vietnam, Philippines and Malaysia."

    Shell's $900 million agreement with Kufpec covers sale of subsidiaries -- Shell Integrated Gas Thailand and Thai Energy Co. -- which together hold a 22.222% equity stake in the Bongkot field. This is along with the adjoining offshore acreage for blocks 15, 16 and 17, as well as block G12/48.

    The acquisition of the Bongkot assets provides Kufpec with 68 million barrels of oil equivalent in proved and probable reserves, and approximately 39,000 boe/d of production from 2016.

    Wood Mackenzie said in a recent report that the Asia-Pacific's upstream oil sector holds upto $40 billion worth of opportunities in 2017 as oil majors continue to divest mature and mid-life assets in the region.

    "The decline in upstream activity we have seen since the dramatic fall in oil prices seems to have bottomed out in Southeast Asia," said Richard Lorentz, director of business development at upstream oil and gas company KrisEnergy. "Companies in the region are now beginning to test the economic viability of exploration and development projects using a much lower commodity price than prior to the drop of 2014."


    Activity in the upstream sector may not have surged yet, but the region is certainly seeing pockets where both government and private companies are willing to take risk and boost spending.

    In January, Indonesia started the process of handing out upstream contracts using the new gross split scheme, with the Offshore North West Java block awarded to state-owned Pertamina to develop over 20 years -- the first to be awarded under this system. The ONWJ block contains 309.8 million barrels of crude and 1.114 Bcf of gas.

    The government has also appointed Pertamina to develop eight other blocks that are expiring in 2017-2018. The eight blocks include: Attaka, offshore east Kalimantan; South East Sumatra, offshore South Sumatra; Tengah, offshore East Kalimantan; East Kalimantan block in East Kalimantan; North Sumatra Offshore, offshore North Sumatra; Sanga-Sanga block, onshore East Kalimantan; Tuban, onshore East Java; and Ogan Komering in South Sumatra.

    Thailand's PTTEP aims to focus on accelerating exploration projects in Thailand and Southeast Asia, while actively seeking merger and acquisition opportunities to enhance oil reserves and production. It plans to allocate 64% of its estimated capital expenditure in 2017 to Thailand, and focus primarily on maintaining production levels at existing projects.

    Another 24% will be allocated to projects in neighboring countries, particularly those in production or exploration stage in Myanmar. The remainder 12% will be for projects in Australia, Africa, and North and South America, including the PTTEP Australasia Project and the Mozambique Rovuma Offshore Area 1 Project.

    "Between 2010 and 2016, national oil companies were the main buyers in Asia-Pacific, acquiring over 2 million boe of commercial reserves. This year we expect to see more buying activity from local independents and private equity-backed players," said Prasanth Kakaraparthi, senior upstream research analyst at Wood Mackenzie.

    "Domestic utilities and refiners, Japanese players and Middle-Eastern NOCs looking for growth opportunities are also possible acquirers," he added.

    In China, Chevron is hoping to be able to boost production from its Chuandongbei natural gas project, which would eventually contribute to the company's overall increase in oil and gas production by 4%-9% in 2017.

    "In China, to arrest the decline in crude production and for any E&P activity to be sustainable, we will need to see prices rising beyond $65/barrel," said Tushar Bansal, director at Ivy Global Energy, an independent oil and gas research consultancy.

    In Bangladesh, the government has decided to award South Korean Posco Daewoo Corp. permission to carry out the first hydrocarbon exploration in deep-water block DS-12, after the cabinet committee on economic affairs February 8 approved the signing of a production sharing contract. Currently, no oil and gas exploration is being carried out in Bangladesh's deep-offshore blocks.

    Wood Mackenzie added that Myanmar, which holds some of the last remaining frontier acreage in an otherwise mature region and accounts for the bulk of frontier exploration drilling, would be the brightest spot in Asia-Pacific in 2017.


    However, all these projects are expected to move slowly, as governments and companies keep a close eye on the oil price trend.

    "The macro environment remains challenging, especially in the face of policy uncertainties from Donald Trump's administration and the impact on Asian trade and commodity prices. Oil companies are still very cost conscious," Kwan of Nomura added.

    Some analysts were of the view that Asian countries might speed up work on some of the ongoing E&P projects but were still not keen to look for completely new projects within the region. They are instead looking for projects outside of Asia-Pacific region.

    "Asian E&P activity is falling out of favor among international oil companies. They are diverting capital to resources elsewhere, for example, to the Middle East and the United States," said Virendra Chauhan, senior oil analyst at Energy Aspects.

    "Outside of projects for which investments have already been made in Asia, such as the Malikai project in Malaysia, there are very few large projects which could deliver material growth," he added.

    Malikai is Shell's second deep-water project in Malaysia and is located 100 km off Sabah. It comprises two main reservoirs, with a peak annual production of 60,000 b/d. The field is part of the Block G Production Sharing Contract awarded by Petronas in 1995. Shell, the operator, and ConocoPhillips each has a 35% interest in the development, while Petronas Carigali has 30%.
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    Cheniere close to completing Sabine Pass LNG Train 3

    Cheniere close to completing Sabine Pass LNG Train 3

    U.S. LNG export player Cheniere is progressing construction activities at its Sabine Pass liquefaction and export project in Louisiana.

    The company said in its monthly construction report that the Stage 2 activities, which include the liquefactions trains three and four, have been 95.5 percent complete at the end of December.

    Stage 3 activities, which include the construction of the fifth liquefaction train was ahead of schedule in December reaching 52.4 percent completion.

    During December 2016, the restoration of above ground pipe has been completed at Train 3.

    The majority of the remaining construction work includes pipe insulation, and completion of the lighting system, Cheniere said. Startup activities

    Startup activities continued in Train 3 with the circulation of hot oil, running of the ethylene compressors on nitrogen, high-pressure leak checks, and system defrost. Loading of perlite into the Train 3 cold boxes was also completed during December.

    In January, the third liquefaction train began receiving gas from the Transco pipeline.

    Activities in Train 4 continue with a focus on the installation of above ground piping, pipe testing, pipe restoration and compressor fit-out activities. In the Train 4 compressor area, mineral and synthetic lube oil flushes are ongoing.

    On Stage 3 activities continued with the concrete batch plant subcontract and the award of the equipment insulation material supply subcontract. OSBL firewater pipe installation continued, the reports says.

    Installation of foundations in the ISBL and OSBL areas continued with the last section of the compressor table top, for the methane compressor, and the water treatment building foundations poured. Steel erection continued in the cryo rack, mercury removal, fuel gas facilities, propane

    Steel erection continued in the cryo rack, mercury removal, fuel gas facilities, propane condenser area, AGRU pipe rack, under compressor tabletop, and OSBL main north-south pipe rack.

    Above ground pipe installation continued in cryo rack, AGRU pipe rack, and mercury removal area. Above ground pipe fabrication continued for under compressor tabletop. OSBL structural steel erection continued for the main north-south pipe rack and commenced for the water treatment building pipe rack. Revamp structural steel and above ground pipe installation continued, Cheniere said.

    The OSBL substation was set. OSBL and ISBL sitework continued with roads installation, final grading, and trenches and culverts installation.

    Train 3 substantial completion is estimated to be June 2017 based on actual construction progress realized, Cheniere said, adding that the Train 4 progress will be monitored over the coming months for any potential impact on the August 2017 substantial completion target.

    The Sabine Pass liquefaction facility is the first of its kind to export abundant U.S. shale gas to overseas markets.

    Cheniere is developing and constructing up to six liquefaction trains at Sabine Pass, which are in various stages of development. Each train is expected to have a nominal production capacity of about 4.5 mtpa of LNG. Below is the gallery showing the construction progress at the facility.
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    Alternative Energy

    Drax dividend review puts pressure on shares

    Power producer Drax said it was reviewing its dividend policy after reporting another decline in annual profits on the back of weak energy prices, sending its shares down 6 percent.

    As its core power production business struggled with low market prices, the company more than trebled revenue from providing back-up generation. It saw scope to grow this business significantly as rising renewable energy production requires stand-by plants to fill gaps in output.

    Drax said it would pay a full-year dividend of 2.5 pence per share, down from 5.7 pence in 2015, but in line with a policy of paying out half of underlying earnings.

    However, it plans talks with shareholders in coming months over a review of that payout policy.

    "To us this points to a lower dividend policy long-term than current consensus expectations," said analysts at Jefferies who rate the stock as 'underperform'.

    Drax reported a 17 percent fall in earnings before interest, tax, depreciation and amortisation (EBITDA) to 140 million pounds, just below analysts' forecast of 143 million pounds.

    The company, which is converting Europe's once most polluting coal plant to run on biomass, made 47 million pounds ($59 million) in revenue last year from contracts with National Grid which reward it for providing back-up power. This compares with 14 million made from these services in 2015.

    The contracts mean that Drax has been able to keep its remaining coal-fired power units running. It said a year ago it may have to mothball the coal units that have struggled to compete with cheaper green energy output.

    "We do expect our coal plants to continue to generate at very low levels compared to historic rates but we think they will be needed to keep the system stable and secure," Drax Chief Executive Dorothy Thompson told Reuters.

    Drax's coal generation more than halved last year to 6.9 terawatt-hours as its biomass units produced 65 percent of the company's output, up from 43 percent in 2015.

    The British government has ordered the closure of all coal plants by 2025, a policy that Drax said will lower the value of its coal units by around 30 million pounds a year.

    Drax said it needed further government incentives to convert the last three of six coal units to run on biomass. Its latest conversion, which was approved by the European Commission in December, receives a guaranteed power price of 100 pounds per megawatt-hour (MWh).

    Thompson said further conversions could happen at a "significantly lower" price as costs have come down.

    Drax is also expanding its energy supply business, having earlier this month completed the 340 million pound acquisition of business energy provider Opus Energy.
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    SunPower posts bigger quarterly loss

    SunPower Corp's quarterly loss widened, as the No. 2 U.S. solar panel maker took a bigger restructuring charge.

    The company's net loss attributable to shareholders widened to $275.1 million, or $1.99 per share, in the fourth quarter ended Jan. 1, from $40.5 million, or 29 cents per share, a year earlier.

    SunPower said it recorded a $175.8 million charge related to restructuring expenses in the latest quarter, compared with $31.2 million a year earlier.

    The company, majority owned by French energy giant Total SA , said revenue jumped 40.5 percent to $1.02 billion.

    SunPower said in December it would lay off 25 percent of its workforce and close a plant as it cuts costs to counter the slump in prices.
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    European Parliament adopts draft reform of carbon market post-2020

    European Parliament on Wednesday adopted draft reforms of the EU's carbon market post-2020 that aim to balance greater cuts in greenhouse gases with protection for energy-intensive industries.

    The European Union's emission trading system (ETS), a cap-and-trade permit system to regulate industry pollution, has suffered from excess supply since the financial crisis, depressing their prices and heightening the need for reform.

    But politicians and EU nations are divided over how best to fix the complex system, with industry and environment groups lobbying hard on opposing sides over dozens of amendments to the EU executive's proposal.

    Reform efforts have also been overshadowed by Britain's decision to quit the bloc, raising fears it would also leave the EU's scheme, hammering prices.

    The draft, adopted in tight vote of 379 for to 263 against, rejected a proposal for a faster removal of surplus carbon permits from the EU's emission trading system from 2021. It sticks with the European Commission proposal for the cap of emissions to decrease by 2.2 percent per year.

    Climate campaigners said the reform did not go far enough to meet the EU's Paris climate pledge and help reach the its goal of a 43 percent cut in greenhouse gases from industries and power plants covered by the market compared with 2005.

    The reform proposal will now be referred to the Environment Committee, whose lawmakers will lead the talks with the EU's other two lawmaking bodies - the bloc's 28 nations and the Commission - to hammer out the final legislation.

    The benchmark European carbon contract fell around 2 percent following the vote, hovering around 5 euros/tonne, but Thomson Reuters carbon analysts said that market reaction to the vote will probably be short-lived.

    In bid to shore up prices, the draft proposal doubles the rate at which the scheme's Market Stability Reserve (MSR) soaks up excess allowances to 24 percent per year in the first four years after its entry into force in 2019.

    It also cancels 800 million carbon allowances from the MSR in 2021, with another 200 million unused permits being scrapped if a cap on overall allocations known as the cross-sectoral correction factor (CSCF) is not triggered.

    To protect industry, the draft allows for the share of allowances auctioned to be reduced by up to five percent in order to cushion against the impacts of CSCF on industry.

    A proposed amendment to establish a carbon inclusion mechanism for importers of certain goods, such as cement, was rejected. Such industries will be included on a list receiving free allowances to prevent them relocating abroad to avoid environmental taxes.

    Attached Files
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    Toyota to recall all 2,800 Mirai fuel cell cars on the road

    Toyota Motor Corp said on Wednesday it was recalling all of the roughly 2,800 zero-emission Mirai cars on the road due to problems with the output voltage generated by their fuel cell system.

    Toyota said that under unique driving conditions, such as if the accelerator pedal is depressed to the wide open throttle position after driving on a long descent while using cruise control, there was a possibility the output voltage generated by the fuel cell boost converter could exceed the maximum voltage.

    To date, Toyota has sold about 2,840 Mirai cars in Japan, the United States and some markets in Europe, as well as the United Arab Emirates.

    Toyota dealers will update the fuel cell system software at no cost to the customer, it said. The process will take about half an hour, it said.

    Toyota first began selling the hydrogen-fueled Mirai in December 2014 in Japan, its home market, in a bid to lead the industry in the nascent technology. Toyota has promoted fuel cell vehicles as the most sensible next-generation option to hybrids, although a lack of hydrogen fuelling stations remains a major hurdle for mass consumption.
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    California demand for wind power energises transmission firms

    A firm controlled by Philip Anschutz, the billionaire entertainment and pro sports magnate, will soon build the largest wind farm in the United States to serve utilities in California, where officials have set ambitious green power goals.

    The $5 billion project, however, will be constructed 700 miles away in Wyoming, a state better known for coal mines and oil fields.

    The vast distance between the two states provides a different Anschutz-owned firm with another big opportunity: a $3 billion project building transmission lines to deliver the power - one of a dozen similar power-line projects by other companies across the West.

    In all, about 5,700 miles of transmission lines are in development with the goal of delivering renewable energy to California from other states, according to the Western Interstate Energy Board.

    Such investments are an outgrowth of an emerging paradox of California's well-known political bent toward aggressive environmentalism. Green power advocates and state officials want more wind power - but California conservationists increasingly oppose more wind farms as an environmental blight on the state's pristine desert landscape.

    Those conflicts are pushing wind farm development to other states, creating new opportunities for wind power and transmission firms to deliver electricity to California's nearly 40 million residents.

    "It's the right project, in the right place, at the right time," said Bill Miller, chief executive of the two Anschutz-owned companies - Power Company of Wyoming LLC and TransWest Express LLC.

    Though wind power is surging nationally, the future of wind farms in California suffered a major blow last year when regulators completed an eight-year process designed in part to identify locations for new renewable energy projects.

    The U.S. Bureau of Land Management, the California Energy Commission and state and federal wildlife agencies sought to balance green power development with preservation of scenic vistas, Native American tribal lands and critical habitats for threatened species such as the desert tortoise and the Mohave ground squirrel.

    But the solar and wind power industries have argued that the resulting plan unfairly favors land conservation over projects needed to wean California off fossil fuels and combat climate change.

    The California Wind Energy Association estimates that only 2 GW of additional wind power can be developed here, a figure its executive director, Nancy Rader, called "a stretch." California will need about 15 GW to meet its goal of deriving half of its power from renewable sources by 2030 - and far more if the state succeeds in a separate effort to promote electric vehicle adoption, according to state estimates.
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    Cheap solar ambulances to speed into service in rural Bangladesh

    An inexpensive, solar-powered ambulance that can fit down narrow laneways is set to hit the road in rural Bangladesh this year, its manufacturers say.

    The three-wheeled van, as well-equipped as ambulances used in Bangladesh’s cities, runs entirely on solar power – including solar battery power at night – and can be used in rural areas with no grid electricity, according to the developers.

    A Bangladeshi university, a government organization and a local vehicle manufacturer who are collaborating on the vehicle say it should for the first time bring ambulance service to rural areas without it.

    The vehicle is in the field testing stage and there are plans to launch it by the end of 2017.

    In many rural areas, emergency patients are often taken to hospital in hand-pulled rickshaw vans. But the new, small three-wheeler ambulance will fit along narrow roads in rural areas where it is difficult for larger ambulances to run.

    Zahidul Islam, a farmer in Saturia in Manikgonj district, said that when his first child was born his wife had a difficult delivery and was taken to the nearby clinic in a hand-pulled rickshaw – a trip that took too much time.

    “If I had taken her to hospital a little earlier, she would have had fewer complications,” he said. But larger vehicles could not reach his house, he said.

    He believes that faster, smaller ambulances would be helpful for rural people.


    Kamal Hossain, a driver who has tested a prototype of the ambulance, said that it was safe and comfortable to drive on both smooth and rough surfaces, and went at a good speed.

    A.K.M. Abdul Malek Azad, the project’s team leader and a professor at BRAC University in Dhaka, said that most rural community health clinics cannot afford conventional ambulance services, but that the new ambulance would be cheap to buy and to run.

    “I thought a low-cost ambulance service would be a good idea for these rural clinics. And by using solar power we can reduce operational costs and save the environment,” he said.

    The ambulance is expected to cost $1,900 to $2,500, a fraction of the price of conventional ambulances, which can cost at least $30,000 in Bangladesh.

    BRAC University’s Control and Applications Research Center is running the project in association with vehicle manufacturer Beevatech. Financing comes from the World Bank through Bangladesh’s Infrastructure Development Company Limited, with seed funding from the U.S. Institute of Electrical and Electronics Engineers.


    Azad said that, as far as he is aware, there is no equivalent elsewhere in the world of the solar-powered three-wheeler ambulance his team is developing. The inspiration for it came from solar racing cars in Australia.

    “I thought if researchers can develop a solar racing car, there is potential to develop a solar ambulance,” he said. A vehicle that would not be reliant for power on Bangladesh’s overburned national power grid would be a bonus, he explained.

    The new ambulance can accommodate three people. It has a maximum speed of 15-20 km per hour (9-12 mph), and a range of up to 50 km (30 miles).

    By day it is powered by four 100-watt solar panels on the roof. At night it runs on four 12-volt batteries, which are charged from the solar panels.

    “The last layer of the development includes installation of a battery charging station (at a hospital or other site close by) that is completely fueled by a solar canopy,” Azad said. “This step is taken to ensure complete independence of these electrically assisted rickshaws from the national grid.”

    The ambulance’s battery can recharge in three to four hours, he said.

    Azad said his team has built and tested five prototypes over the past year. The new ambulances are expected to hit the roads at the end of 2017.

    He expects that buyers will include community clinics across the country run by the BRAC non-governmental organization. Azad says officials of the BRAC Health and Nutrition Program have assured the team they will consider using the vehicles in their clinics.

    Dr. Shahana Nazneen of the BRAC Health and Nutrition Population Program said that the vehicles are cost-effective and should be affordable for rural hospitals.

    Habibur Rahman Khan, an additional secretary at the Health Ministry in charge of hospitals, agreed that the low-cost ambulance would help the ministry boost health facilities in rural areas.

    “We will certainly consider purchasing (them) for rural hospitals,” he said.
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    US' SPP sets record 52.1% wind penetration Sunday

    Southwest Power Pool in the US set a new wind penetration record of 52.1% early Sunday morning, it said, which it believes is the first time a North American RTO served more than 50% of its load at a given time with wind energy.

    SPP said that the record was set at 5:30 am EST Sunday (1030 GMT). Total load at the time was 21,919 MW, of which wind made up 11,419 MW, according to SPP.

    In the real-time market, the five-minute SPP North Hub real-time locational marginal price fell to $17.90/MWh at 5:30 am EST, while SPP South Hub LMP dropped to $18.18/MWh.

    Last Thursday, SPP set a new wind peak generation record of 13,342 MW at 10:34 pm EST, surpassing the previous record of 12,336 MW on December 30 by more than 1,000 MW.
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    India optimistic of being coal-free by 2050

    India will not need to build another coal power plant after 2025 if renewables continue to fall in cost at their current rate, according to a report published by the Energy and Resources Institute (TERI) in New Delhi on February 13.

    The reported suggests that as long as renewables and batteries continue getting cheaper, they will undercut coal in less than a decade.

    If that happens, it will reduce the country's carbon dioxide emissions by about 600 million tonnes, or 10%, after 2030, the report said.

    India is the world's fastest growing major polluter, and its ability to curb carbon emissions will be vital in capping the rise in global temperatures. The report suggests that if the Indian ministers get their policies right, they will be able to go much further than they have already promised, and even eliminate coal-fueled power entirely by the middle of the century.

    "This is perfectly achievable if government gets its policies right. India's power sector could be coal-free by 2050," said Ajay Mathur, director-general of TERI.

    India is currently the world's third-largest emitter of carbon dioxide behind China and the US, contributing about 4% of the world's total.

    But its emissions are growing rapidly as its economy expands by more than 7% a year. In 2014, the country became the biggest contributor to global emissions growth after emitting 8.1% more than the previous year. In 2015, it increased by another 5.2%.

    Much of the growth is being driven by the country's increased use of electricity, with Narendra Modi, the prime minister, having made providing reliable power to everyone in the country a priority.

    About 60% of India's electricity is currently fueled by coal, and despite ambitious targets to build more renewables, many more coal-fired power stations are also expected to be built. The country is planning to build an extra 65 GW of coal-fired capacity in the next few years, equivalent to 20 large nuclear power plants.

    There are already disputes about how much of the extra capacity is needed. India currently has 308 GW of capacity, even though the highest amount ever used at once was 156 GW.

    If companies cease building new coal power plants after 2025, the last one is likely to close somewhere around 2050, leaving one of the world's biggest electricity users running its electricity grid almost solely with renewables.
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    Vestas leaps to top spot in U.S. wind market

    Danish wind turbine maker Vestas Wind Systems has leapt to the top spot in the U.S. wind market, overtaking General Electric, data from a wind industry trade group shows.

    Vestas, the world's biggest wind turbine maker, supplied 43 percent of the 8.2 GW of wind power capacity connected to the U.S. power grid last year, the American Wind Energy Association said in a quarterly report released on Friday. That was up from 33 percent in 2015 and just 12 percent in 2014.

    In comparison General Electric's market share fell to 42 percent in 2016 from well over half in 2014, the association said, although GE remains the market leader in terms of overall installed capacity in the United States.

    "It is definitely our ambition to at least keep our market share," Vestas Chief Executive Anders Runevad told Reuters.

    Vestas reported record global revenues for 2016 on Wednesday but warned it would see lower orders in the United States this year and said rapid growth in demand in the industry generally could be coming to an end as the wind market matures.

    The Danish company is set to lose its status as the world's top wind turbine maker as Germany's Siemens and Spain's Gamesa have agreed to combine their assets in the sector.

    Wind energy has surpassed hydropower as the biggest source of renewable electricity in the United States, according to the association, helped by tax credits under Barack Obama's administration. There is uncertainty about government support under President Donald Trump's administration although tax credits already awarded seem safe.

    "How (the U.S. market) will pan out over the years is still very hard to predict," Runevad said.

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    China to build inland, floating nuclear plants by 2020, official

    China has already decided where its inland nuclear reactors will be built and that construction is likely to start in the next four years, Wang Yiren, vice director of the State Administration of Science, Technology and Industry for National Defence, said in an interview with China National Radio published on February 13.

    There are around 400 nuclear power stations in the world, most of which are inland and therefore not usually affected by tsunamis, typhoons or other extreme coastal weather events. "If it is safe to build nuclear power plants in coastal areas, then it is also not a problem to build them inland," stressed Wang.

    China halted all its nuclear power construction projects after the 2011 Fukushima nuclear disaster, but began construction work on several projects in eastern coastal areas in 2015. Although the resumption of the inland nuclear power projects has yet to be officially announced, at least 10 provinces have already proposed developing their own nuclear power industries.

    Three inland nuclear reactors have already obtained approval from the National Development and Reform Commission and are waiting for construction work to begin, including the Taohuajiang nuclear power plant in central China's Hunan province, the Xianning nuclear power plant in central Hubei and the Pengze nuclear power plant in eastern Jiangxi.

    According to the 13th Five-Year Plan, China's nuclear power capacity should reach 58 GW by 2020. The total capacity of the plants currently under construction will be 30 GW.

    Moreover, Wang revealed that China will also develop floating nuclear power stations during the 13th Five-Year Plan and has already organized experts to conduct investigations into how this will be accomplished.

    Floating power stations will aim to promote the exploitation of oil and gas resources and provide a safe and efficient power supply to remote islands in the South China Sea, said Wang.
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    Cameco expects lower revenue for 2017 after market headwinds lead to disappointing 2016 results

    Canadian uranium producer Camecoexpects 2017 revenue to fall further to between C$1.95-billion and C$2.08-billion, based on currently committed sales volumes being weighed down by a decrease in average realised prices in the uranium segment as a result of lower prices under both fixed and market related contracts, a major contract dispute and an expected decrease in sales volumes from subsidiary NUKEM.

    For the 12 months ended December 31, Cameco, the world’s highest-grade uranium producer reported a 12% drop in consolidated revenues to C$2.43-billion.

    Just last week, Tokyo Electric Power, operator of the Fukushima nuclear plant, scrapped its billion-dollar uranium supply contract with Cameco.

    The miner reported a net loss attributable to shareholders of C$62-million, down 195% from the comparable profit of C$65-million in 2015.

    Excluding a C$124-million impairment charge for the full carrying value of the mothballed Rabbit Lake mine and the full C$238-million carrying value of its interest in Australian exploration venture Kintyre, the company reported adjusted profit of C$143-million, which was 59% lower year-on-year.

    Further, cash generated from operations, after working capital changes, fell 31% over the 12 months to C$312-million.

    During 2016, uranium output, which accounts for about 90% of the company’s gross profit, amounted to 27-million pounds, down 5% year-on-year. Realised prices fell 9% to $41.12/lb.

    Cameco said it expects contracting, which generally fetches higher prices over the spot price, to remain “somewhat discretionary”. In 2016, the uranium spot price ranged from a high of $35/lb, to a low of about $18/lb, and averaging about $26/lb for the year. Utilities continue to be well covered under existing contracts, and, given the current uncertainties in the market, the company expects they and other market participants will continue to be opportunistic in their buying, Cameco said.

    During 2016, Cameco had implemented several strategic initiatives intended to strengthen the core business and enhance financial performance over time. These initiatives include suspending production at the Rabbit Lake operation and curtailing its US mining operations, the signing of a collaboration agreement with the aboriginal communities located near its Saskatchewan operations, restructuring of the NUKEM segment and corporate office departments, and office space consolidation.

    This was not enough to sustain profitability in the current environment, prompting Cameco to reduce the workforce at the McArthur River, Key Lake and Cigar Lake operations by about 10%, or 120 employees, by May.

    For 2017, Cameco expects uranium production of 25.2-million pounds, with sales expected to range between 30-million to 32-million pounds.
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    India raises 2016-17 wheat production forecast to record high 96.6 mil mt

    India's wheat production is forecast to hit a record high 96.64 million mt in current marketing season 2016-17 (April-March), the Indian government's latest estimate for major food crops showed Wednesday.

    The estimate has been raised due to "very good rainfall during monsoon 2016 and various policy initiatives taken by the government, [the result of which is] the country has witnessed record foodgrain production in the current year," India's Ministry of Agriculture said in a statement.

    The latest forecast is 790,000 mt higher than record high output in 2013-14 of 95.85 million mt and 4.37% higher than last season's production of 92.29 million mt.

    The Indian government recently released separate data showing an increase in wheat planting from the previous year, which was up 6.92% at 31.781 million hectares as of February 3 from 29.725 million hectares a year earlier.

    Forecasts of favorable weather and higher moisture levels are further boosting expecations of a higher than usual yield.

    Centrally held buffer wheat stocks stood at 13.75 million mt in January, down 42.2% year on year and the lowest in more than a decade, but still above the stocking buffer required in April at 7.46 million mt.

    Nevertheless, traders said there could be some discrepancy in official production and stocks statistics given that domestic prices remained high.

    The US Department of Agricultures recently estimated India's wheat production for 2016-17 at 87 million mt, down 3 million mt from an earlier estimate, on expectations of stock levels being lower than expected due to high domestic prices, traders said.

    The USDA last December also revised up its forecast for India's wheat imports in 2016-17 by 700,000 mt to 3.7 million mt, the highest in almost a decade, on a production deficit due to dry spells over the past two seasons and ongoing firm demand from the food sector.

    Traders surveyed by S&P Global Platts said about 1.8 million mt of Australian wheat has been sold to India since the removal of a wheat import duty on December 8 last year.

    "We are still getting some interest for April but we don't have an adequate shipping stem for that now and Indian importers are unwilling to pay a higher premium with the new crop situation still in the preliminary stage," said an Australian trader.

    Australian Standard White with 9% protein was sold at $195-$196/mt FOB Newcastle in late January and prices have since risen $3-$5/mt due to a stronger Australian dollar, higher US wheat futures, tight shipping stems for prompter months and flooding in Western Australia.

    India's wheat harvest typically begins in late March or April, depending on weather conditions.

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    China to spend US$247B on land consolidation

    China will spend about 1.7 trillion yuan (247 billion U.S. dollars) to increase the quality ofarable land and to promote urbanization.

    The country will divide its land into nine zones for land consolidation over the 13th Five-year Plan period (2016-2020), according to a plan released Wednesday.

    Land consolidation refers to the rational use of land. In the case of farming, parcels of landare consolidated to provide larger holdings.

    Faster development of "high-standard cropland" will be a priority, Zhuang Shaoqin, headof the planning bureau of the Ministry of Land and Resources (MLR), told a newsconference on the blueprint.

    The target refers to large-scale, contiguous plots of land with fertile soil and modern farming facilities. This type of farmland can maintain stable and high yields and has sound ecological condition and strong capacity to resist natural disasters.

    At least 400 million mu (about 26.7 million hectares) of high-yield farmland will be added by 2020, he said. The country has created the same amount of farmland meeting those standards from 2011 to 2015.

    Higher quality arable land will see a 40-billion-kg increase in China's food production capacity, an official with the MLR said.

    Meanwhile, urban and suburban residents will be better integrated and urbanization willbe promoted with improved infrastructure and environment in city outskirts.

    Per-capita annual income of farmers will increase by 750 yuan during the period.
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    Bunge profit beats estimates on improved margins in Brazil

    U.S. agricultural trader Bunge Ltd reported a better-than-expected quarterly profit, helped by higher sugar and ethanol prices and improved margins in Brazil.

    The company also said that it expects its biggest business - the agribusiness unit that buys, stores, processes and sells agricultural commodities - to start the year slow and progressively improve as volumes and margins pick up in South America.

    South American farmers are expected to harvest bumper crops of corn and soybeans this year, which should help Bunge in 2017.

    Brazil is expected to harvest at least 104 million tonnes of soybeans this year and nearly 90 million tonnes of corn, according to government and industry analysts.

    Last year's weather-reduced corn and soybean harvests in Brazil prompted farmers there to hold back supplies. That weighed on processing margins and limited trading opportunities for big grain companies like Bunge.

    Bunge and rival agribusinesses ADM, Cargill and Louis Dreyfus are known as the ABCD companies that dominate global grain trading. They make money buying, selling, storing, processing and transporting crops around the world.

    White Plains, New York-based Bunge said net income available to shareholders rose to $262 million, or $1.82 per share, in the fourth quarter ended Dec. 31, from $188 million, or $1.30 per share, a year earlier.

    Excluding one-time items, the company earned $1.70 per share, beating the average analysts' estimate of $1.57 per share, according to Thomson Reuters I/B/E/S.

    Net sales rose 8.6 percent to $12.06 billion, beating estimates of $11.41 billion.
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    Vale resumes search for Cubatão fertiliser assets buyer - sources

    After Norway's Yara pulled out as a potential bidder, Vale SA has resumed searching for a buyer for four fertiliser plants that were not included in a $2.5 billion sale to Mosaic Co, according to three people with direct knowledge of the matter.

    A reworked sale process for plants located in the southeastern city of Cubatão was launched in recent days, in the wake of Yara International ASA's November decision to withdraw, the people said. Talks between Yara (YAR.OL) and Vale had taken place for several months, said the first person.

    The assets include four plants producing phosphate-based, ammonia and nitrogen byproducts, the people said. Rio de Janeiro-based Vale has put a series of non-core assets on the block over the last 18 months to meet a $10 billion debt-reduction goal set by Chief Executive Officer Murilo Ferreira.

    A spokeswoman for Vale's fertilizers division said in an emailed statement to Reuters that the company "remains in talks to sell the Cubatão assets." Norway's Yara declined to comment.

    The people spoke under the condition of anonymity since the process remains under way.

    Vale preferred shares, its most widely traded class of stock, fell 3.4 percent on Tuesday to 33.23 reais, paring back their gain to 40 percent this year.


    The ammonia and nitrogen production facilities were carved out from the fertilizer assets that Vale sold to Mosaic in December.

    The debt-reduction plan is aimed at helping insulate the world's largest iron ore producer from declining commodity prices. Still, as iron prices recovered late last year, Vale has had room to rethink the pace of an asset sale plan.

    News of Yara's retreat comes in the wake of Vale's Feb. 6 announcement that it would book a $1.2 billion impairment related to the fertilizer unit sale to Mosaic. The company did not specify the reasons for the impairment in the announcement.

    Analysts at Itaú BBA estimated in December that the fertilizer assets in the Cubatão complex could be valued from $400 million to $600 million.

    The Cubatão compound was built in the 1970s and acquired by Vale in 2010. The ammonia plant caught fire and was forced to halt production earlier this year.
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    Precious Metals

    Zinc, lead rally bad news for silver price

    Silver futures prices moved higher again on Thursday with March delivery contracts hitting the highest level since November 11 last year.  At $18.09 an ounce, silver is up 11.4% since the start of the year and trading 32% for the better compared to the same time last year.  Silver is now also close to wiping out all its losses since the US presidential election pulled the floor from under precious metals.

    But a new study suggests the metal's good run may be coming closer to the end. In a research note, Capital Economics, says silver  may fall victim to the rally in zinc (up 94% over the past year) and lead (+45%) due to the fact that silver as a byproduct of mining these base metals is the biggest source of supply.

    Only around 30% of annual supply comes from primary silver mines while more than a third is produced at lead/zinc mines operations and a further 20% from copper mines.

    Zinc's rally from multi-year lows were on the back of major mine shutdowns with total production going offline since 2013 of more than one million tonnes.

    BHP Billiton, Glencore and Nyrstar also lowered output at base metal operations last year which coupled with disruption of production at primary silver mines translated into the first fall in annual mine supply in nearly a decade (down 2% in 2016 according to Capital Economics estimates).

    Commodities economist Simona Gambarini says on paper there could be an even bigger decline in output this year but  "there is a risk that further down the line, some of the production might come back owing to higher prices":

    Indeed, several zinc miners have already announced their intention to restart some of their idled operations over the coming months and with zinc and lead prices having climbed further since the start of the year, we think that other miners might follow suit.

    Capital Economics predicts an end-2017 price for silver of $14.50. That's a nearly 20% fall from today's price. For end-2018 the forecast is for silver trading at $17.50 per ounce.
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    World's largest gold project bulked up again

    Shares in Seabridge Gold were off to the races on Thursday after the Toronto-based company bulked up its already massive KSM gold-copper-silver project in northern British Columbia.

    The KSM project is the world's largest undeveloped gold project based on mineral reserves and on Thursday the company announced expansion of the resource base at the main Deep Kerr deposit of the 100%-owned project.

    By vastly increasing the amount of copper mined life of mine operating costs are now a negative $179 an ounce while all-in costs fall to just $358 an ounce

    According to a statement, the new inferred resource at Deep Kerr now totals 1.92 billion tonnes grading 0.41% copper and 0.31 g/t gold (containing 19.0 million ounces of gold and 17.3 billion pounds or 7.85 million tonnes of copper) constrained by conceptual block cave shapes.

    The updated resource estimate represents an increase of 3.0 million ounces of gold and 2.1 billion pounds of copper over last year's inferred resource estimate which was incorporated into the updated National Instrument 43-101 Technical Report released September last year.

    A  preliminary economic impact study released by Seabridge in October transformed the ambitious project into a much larger operation than originally envisaged  and in the process improved both the environmental impact and economics of KSM.

    An NI 43-101 report filed in November incorporating the PEA and an updated PFS calls for mill throughput of 170,000 tonnes per day, 40,000 tonnes more than the earlier study which Seabridge says can be done without significant redesign of facilities. Initial capital costs have been increased by just less than 10% to $5.5 billion.

    In the study the bulk of the operations are moved underground and using the block-cave method Seabridge says it can reduce waste rock by a whopping 81% or 2.4 billion tonnes over the 51 year life of the mine.

    By vastly increasing the amount of copper mined life of mine operating costs are now a negative $179 an ounce while all-in costs fall to just $358 an ounce.

    Economically viable Proven and Probable Mineral Reserves at KSAM are pegged of 2.2 billion tonnes grading 0.55 grams per tonne gold, 0.21% copper and 2.6 grams per tonne silver (38.8 million ounces of gold, 10.2 billion pounds of copper and 183 million ounces of silver)

    During the first seven years of operation annual gold output would top 1 million ounces and life of mine annual production is estimated at 592,000 ounces of gold, 286,000 pounds of copper and 2.8 million ounces of silver.

    Measured and Indicated Mineral Resources at KSM are estimated at 2.9 billion tonnes grading 0.54 grams per tonne gold, 0.21% copper and 2.7 grams per tonne silver which translates into 49.8 million ounces of gold, 13.6 billion pounds of copper and 253 million ounces of silver.

    KSM received the green light from Canada's federal government at the end of 2014 . The federal and provincial environmental assessment process took nearly seven-years and KSM was only the second metal mine in five years to receive approval.

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    Gold Fields earnings up sharply

    South Africa’s Gold Fields on Thursday announced a rise in profits and a long-awaited plan to make its South Deep mine profitable, with a production target of 500 000 ounces a year.

    Gold Fields’ last South African asset, South Deep is a mechanised mine which has presented operational challenges in an unforgiving geology 3km (2 miles) beneath the surface.

    In 2015, the company scrapped production and cost targets for the operation, with a focus on getting it to break even while finding new methods to mine the rich ore body.

    The aim now is for 500 000 ounces a year, down from previous targets of 700 000 and 650 000 ounces, and the mine generated cash of $12 million in 2016 from 290 000 ounces. Gold Fields’ global output was 2.146 million ounces.

    Chief executive Nick Holland told Reuters that new methods at South Deep meant bigger rigs could be used for multiple tasks, eliminating cumbersome steps and making the operation more efficient.

    “These are bigger drill rigs that do everything,” he said.

    Efficiency is being further enhanced by making bigger cuts in the ore body. “So for every metre advanced, you are getting more tonnes,” Holland said.

    There has also been a drive to get the critical skills needed for deep-level, mechanised mining, and Gold Fields said most of those positions had been filled.

    Growth capital of R2.280 billion will be spent on underground infrastructure at South Deep over the next six years, peaking at R582 million in 2019.

    South Africa, with the world’s deepest mines, has more than a century of experience when it comes to extracting ore far below the surface with a large, unskilled workforce.

    But mechanised mining is almost virgin territory in South Africa’s gold reefs, from which a third of the bullion ever mined in recorded history has been produced.

    Gold Fields posted normalised earnings of $191 million for the year through December 2016 compared with $45 million for the year before.

    This was in line with what the company had flagged to the market, primarily driven by an 8% increase in the gold price, lower net operating costs in local currencies as well as the impact of converting these costs at weaker exchange rates.

    A proposed final dividend of 60 cents per share gives a total for the year of 110 cents.
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    Barrick posts market-beating profit, boosts spending

    Barrick Gold Corp reported better-than-expected profits and ambitious debt reduction plans on Wednesday, saying its balance sheet is now healthy enough to boost dividends and exploration spending.

    The Toronto-based miner, which is hiking its dividend to 3 cents from 2 cents a share, said it will expand its hunt for new gold beyond trusted core districts and projects, to so-called 'greenfield' areas.

    Such uncharted territory represents a higher risk of failure, but bigger potential rewards for sizeable discoveries. Some 80 percent of the $185-$225 million exploration budget is earmarked for the Americas, with much of the remainder for its African unit, Acacia.

    In 2016, it budgeted $125-$155 million for exploration.

    Barrick, the world's biggest gold miner, reported an adjusted profit of 22 cents a share, ahead of the consensus analyst estimate of 19 cents per share, and up from 8 cents a share in the same period last year.

    Revenue increased to $2.32 billion from $2.24 billion.

    Barrick, which has been selling non-core assets to help cut debt, plans to further reduce its debt by $2.9 billion by the end of 2018, decreasing its debt load to $5 billion from $7.9 billion currently.

    Cash flow from operations, non-core asset sales and new joint ventures and partnerships will finance the effort, which reduced debt by $2 billion in 2016.

    Barrick estimates its 2017 all-in sustaining costs, a measure of the effective day-to-day cost of producing gold, at $720-$770 an ounce, below an earlier estimate of $740-$775.

    The cost of fourth-quarter production was $732 an ounce, down from $848 in the same period last year. Barrick has been pushing to improve efficiency and incorporate more technology into its operations.

    Barrick expects to produce 5.6-5.9 million ounces of gold in 2017, up from 5.52 million in 2016, and above its earlier target of 5-5.5 million ounces.

    Production in 2018 is expected to drop to 4.8-5.3 million ounces, and to 4.6-5.1 million ounces in 2019.

    Fourth-quarter gold production declined to 1.52 million ounces from 1.62 million last year. Full-year copper output was 415 million pounds, with fourth-quarter production of 101 million pounds.

    Proven and probable gold reserve estimates fell 6.5 percent, to 85.9 million ounces at the end of 2016, from 91.9 million ounces in 2015. Last year, some 1.9 million ounces was divested and 6.8 million ounces depleted through mining, Barrick said.

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    Agnico Eagle to invest $1.2 bln in Arctic gold mines

    Agnico Eagle Mines said on Wednesday it would invest more than $1.2 billion in building a gold mine in Canada's Arctic and expanding another, making it one of the few gold companies to be constructing mines at a time when industry output is shrinking.

    Toronto-based Agnico said its board had approved mine builds for its Meliadine project as well its Amaruq deposit, which is a satellite deposit of its existing Meadowbank mine. Both Meliadine and Amaruq are in Canada's Nunavut territory.

    Both operations are expected to start production in the third quarter of 2019. As such, production at Meliadine is now forecast to start about a year earlier than previously expected.

    Meliadine's capital cost is roughly $900 million and Amaruq around $330 million, Agnico Chief Executive Sean Boyd said.

    It was a good time to be building mines as there was not a lot of competition for goods and services, making for less pressure on input costs, he told Reuters by telephone.

    "There is not a lot of building activity in the mining sector right now. It is a good time to access high quality contractors," Boyd said.

    The two projects would help expand Agnico's gold production to a forecast 2 million ounces in 2020 from expected annual production of around 1.55 million ounces over the next three years. Depending on the timing of the Amaruq permits and development at both projects, 2019 production could be higher.

    The Meliadine project has received all its necessary permits and licences from Nunavut authorities, while Agnico expects Amaruq to get its final approvals this year and next.

    Global gold mine production fell 1.5 percent to 3,168 tonnes in 2016 from 3,216 in 2015, according to a report in January by GFMS analysts at Thomson Reuters.

    Five years of weak gold prices, a lack of new large finds and miners' focus on slashing debt has reduced the number of gold mine builds around the world in recent years.

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    Investor darling Northern Dynasty shares plunge 40% after short-seller calls it ‘worthless’


    Shares in Vancouver-based Northern Dynasty Minerals, a recent investor darling, plunged as much as 40 per cent Tuesday after a short-seller’s report said its copper-gold project is “worthless.” 

    It had been a hot stock, rising more than 300 per cent since the U.S.  presidential election in November on assumptions President Donald Trump would loosen environmental regulations that have held back its Pebble project in Alaska. 

    “Mining it would require so much upfront investment that it would actually destroy value,” Kerrisdale Capital Management said in a report Tuesday. It also accused the company of hiding a negative project assessment conducted by former partners.

    “All this enthusiasm is misplaced. We believe Northern Dynasty is worthless,” the report said.

    Environmentalists, indigenous people and fisherman have fought the mine’s development and the Environmental Protection Agency halted the project in 2014. 

    “Frenzied investor enthusiasm over the benefits that Trump presidency will bring to the Pebble project overlooks the ineradicable threat of veto from either the Alaskan government or future Democratic White House,” the report said.

    “Though the legal and regulatory problems that will continue to plague the Pebble project even under a Trump presidency are enormous, the project’s Achilles’ heel is more fundamental: economics.”

    The company called the report “a short and distort campaign” and said it would respond to the allegations by the end of the week, promising it would “expose the many inaccuracies and outright misstatements” in the report. 

    “Kerrisdale cites no technical or scientific studies whatsoever and relies on many unnamed persons who were purported to have been involved with the project several years ago,” the company said in its brief statement. 

    Shares in the company gained some ground after the company issued it’s response, trading down 16 per cent at $3.47 in afternoon trading on the Toronto Stock Exchange.

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    Newcrest profits soar in half-year

    Gold miner Newcrest Mining has reported a 333% increase in underlying profits for the six months to December 31, as revenues increased by 17% and operating cash flow increased by 64%.

    “I am please with our operational performance this half. Lihir achieved its target mill throughput rate of 13-million tonnes a year and Cadia achieved significant milestones in cave development and interaction,” said Newcrest CEO and MD Sandeep Biswas.

    Underlying profits for the half-year reached A$273-million, while revenue increased to A$1.8-billion and operating cash flow to A$601-million.

    The higher revenue was attributable to a 15% increase in the gold price during the six months under review, as well as a 2% increase in gold sales volumes, as a result of production from the Cadia operation, in New South Wales, increasing by 31% following higher mill throughput and the impact in the prior period of an extended production outage.

    Earnings before interest, taxes, depreciation and amortisation were up 44% to A$783-million.

    Newcrest produced 1.23-million ounces of gold in the six months under review, at an all-in sustaining cost of A$770/oz.

    “All assets continue to be free cash flow positive before tax and we continue to work to maximise their value potential through productivity efficiencies and cost reductions,” Biswas said on Monday.

    “We remain on track to achieve our annual guidance for the fourth year in a row.”

    Biswas pointed out that Newcrest’s near-, medium- and longer-term growth options remained on track, pointing out a target of 14-million tonnes a year of sustainable mill throughput at the Lihir operation, in Papua New Guinea, by December this year, and an aspirational target of 17-million tonnes a year in the near future.

    “At Cadia, we have achieved plant throughput in the December quarter to above its nameplate capacity and we continue with a prefeasibility study on the plant expansion. We continue to progress Golpu, brownfield exploration at Gosowong and Telfer and the expansion of our portfolio of early-entry exploration opportunities.”
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    Base Metals

    Arconic sells 60 percent stake in Alcoa for $890 million

    Arconic Inc, which is under pressure from hedge fund Elliott Management, said it sold nearly two-thirds of its 19.9 percent stake in Alcoa Corp for about $890 million.

    Alcoa Inc spun off Alcoa Corp, which houses the company's traditional aluminum smelting and refining businesses, in November and renamed itself as Arconic.

    The stake sale comes at a time when Arconic's biggest shareholder, Elliott Management, is campaigning for the ouster of Chief Executive Klaus Kleinfeld.

    Alcoa Corp's shares have surged about 68 percent since it was listed as an independent company on Nov. 1.

    Arconic sold the shares in an overnight block trade, Thomson Reuters publication IFR reported on Tuesday, citing sources.

    Morgan Stanley bought 23.35 million Alcoa shares before reoffering them to institutional investors at $38.25 each, a narrow 0.8 percent discount to the stock's Tuesday close, IFR reported.

    Arconic said the proceeds from the sale would bolster its cash balance and help it pay down debt or pursue share buybacks.

    Shares of Arconic have risen about 30 percent since Jan. 31, when Elliott started a proxy fight with the company after it posted a fourth-quarter loss.

    Alcoa Corp's shares were down about 2 percent at $37.85 in morning trading. Arconic shares were little changed at $29.40.
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    New labour laws in Chile embolden striking miners

    Workers at the world's largest copper mine in Chile are digging in for a long strike, emboldened by new labour laws that are likely to result in tough wage negotiations in the industry in 2017 in one of Latin America's most free-market economies.

    The 2,500-member union at BHP Billiton's Escondida mine has been on strike since Thursday. Labour leaders say they are far from reaching an agreement, and BHP has already said it will not be able to fulfill copper delivery contracts.

    The stoppage at Escondida, combined with export issues at Freeport-McMoRan Inc's Grasberg copper mine in Indonesia, the world's second-largest, have sent prices for the metal to 20-month highs amid supply concerns.

    Workers at mines representing around 12 percent of global output are due to renegotiate contracts in Chile in 2017, with any stoppage likely to affect volatile copper prices.

    Escondida's labour relations have long been fractious, and strikes paralyzed the mine in 2011 and 2006, when previous collective labour contracts were renegotiated.

    This time, negotiations stalled in part because of a freshly minted labor code that aims to return power lost by unions decades ago, people with knowledge of the talks told Reuters.

    The law does not take effect until April, but its provisions and language have influenced the union's negotiating position.

    Last year, the center-left government of President Michelle Bachelet passed the sweeping, complex reform to strengthen the hand of organised labour, which government supporters say never recovered from suppression under the 1973-1990 dictatorship of Augusto Pinochet.

    Union sources say workers broke off wage talks with Escondida in part because they believed the company was using underhanded tactics to dilute the impact of that reform.

    BHP declined to comment on ongoing negotiations.

    But one legal source with knowledge of BHP's negotiating strategy said the reform had effectively narrowed the pay and benefit proposals the company could successfully take to the union.

    The situation at Escondida bodes ill for other mining companies ahead of wage talks expected elsewhere in Chile this year. Anglo American Plc and Glencore Plc's Collahuasi mine and Barrick Gold Corp and Antofogasta Plc's Zaldivar mine are among those on that list.

    Those two mines account for about a half-million tonnes per year of copper output and more than 2 percent of global supply.

    Labour leaders at both deposits said they had good relationships with management. They added, however, they would use the powers granted them in the reform in the coming negotiations.

    "It brings some rather powerful tools to the workers' movement," said Raul Torres, president of Zaldivar's main union.

    An Antofagasta spokeswoman said the company was already working with unions to define what activities a company can perform during a legal strike under the reform. Collahuasi did not immediately respond to a request for comment.

    Escondida, majority-controlled by BHP with minority participations by Rio Tinto and Japanese companies including Mitsubishi Corp, produced about 5 percent of the world's copper alone last year.


    At Escondida, a principal point of contention between the company and workers is a proposal by BHP to offer new workers fewer benefits than those awarded to labourers already at the mine, the union said. The union says this is a BHP ploy to undermine a provision in the new labor code.

    Under that provision, known as the minimum-floor rule, a company will not be permitted during wage talks to offer workers benefits weaker than those afforded in the previous contract.

    If junior workers have fewer benefits than their colleagues, that could lower the negotiating floor for the next round of wage talks, years down the road, union leaders say.

    "It's very probable that the company intends to lower benefits (for new workers) so that the next negotiation starts with what that established," union spokesman Carlos Allendes said.

    "(For us) that's the last straw, the last thrashes of a drowning man."

    Other aspects of the law, such as provisions that give unions greater powers over nonunionised workers, were also affecting negotiations, the legal source said, and workers were adopting the language of the new rules.

    "The words that were put into the labour reform have become the words of the union," added the source, who spoke on condition of anonymity due to the sensitivity of the talks.

    Workers have also said that if the strike stretches into April, when the reform goes into effect, they would need to examine what additional demands to make, if any.

    However, under Chilean law, the negotiation would largely continue under the old regulations, so the concrete benefits of holding out until the reform takes effect would be limited, lawyers say.

    The labour reform passed Congress last April after a bruising battle that opened up divisions within the governing coalition. But a constitutional court struck down several sections of the legislation, leaving lawyers uncertain about how much of the reform can be implemented.

    A government representative was not immediately available to comment for this story, but proponents of the law say more workers' protections are needed to battle Chile's biting inequality.

    Industry analysts are watching negotiations at Escondida and elsewhere for a sense of how the reform will play out throughout Chile's economy.

    "In some respects, this strike is a kind of transition between the old system and the new," said Juan Carlos Guajardo, president of Chilean copper consultancy Plusmining.

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    China's 2016 zinc conc deficit widens to 448,000 mt on environment monitoring

    China's zinc concentrate deficit in 2016 is estimated at 448,000 mt, widening from 9,000 mt in 2015, key Chinese zinc producer Tongling Nonferrous Metals Group's subsidiary Tongguan Jinyuan said in its commodity report issued Tuesday.

    Tongguan Jinyuan said that due to the cold winter back in the first quarter of last year, zinc mines in North China suspended production, thereby limiting domestic mined zinc output in Q1.

    It noted that due to environment monitoring in China, domestic zinc mines' output growth last year was less than expected, as against high Chinese smelters' operation rates, resulting in a continual fall in domestic zinc concentrate stocks.

    The Tongling subsidiary said that increased stringency of environment protection rules in the first half of 2016 caused suspension of operations at zinc and lead mines in Huayuan county, south-central China's Hunan province -- a key Chinese zinc production base -- which affected around 150,000-200,000 mt/year of mined zinc capacity last year.

    Also, some zinc mines that had planned to start commissioning during 2016 have delayed operations, thus limiting China's mined zinc output last year, it said.

    China's zinc concentrate demand in 2016 was estimated to have been 5.798 million mt, up 43,000 mt year on year, while its zinc concentrate output last year was 4.4 million mt, up 150,000 mt year on year, the Tongguan Jinyuan figures showed. Tongguan Jinyuan has forecast China's national zinc concentrate output to rise 200,000 mt year on year to 4.6 million mt in 2017.

    The higher volume is attributed to new mines' output in the Inner Mongolia Autonomous Region, Gansu province in Northwest China, as well as in southwestern China's Sichuan province.

    China's net zinc concentrate imports for 2017 have been forecast to be 900,000 mt, down 50,000 mt year on year.

    Several factors motivated Chinese zinc smelters' operations last year, supporting demand for domestic concentrate, the Tongling subsidiary said.

    It noted that prices of domestic refined zinc have risen greatly since Q4 2016, prices of silver -- a byproduct of zinc mining -- have surged, and that Chinese smelters who source domestic zinc concentrates could be given 20% of the zinc prices, if they were over Yuan 15,000/mt, all supported demand for concentrate.

    Meanwhile, the front-month zinc futures closed at Yuan 20,700/mt ($3,011/mt) on the Shanghai Futures Exchange on December 30, 2016, compared with Yuan 13,320/mt on December 31, 2015.

    SHFE's weekly deliverable zinc stocks totaled 152,824 mt on December 30, 2016, compared with 200,428 mt on December 31, 2015.

    On-warrant inventories stood at 82,785 mt on December 30, 2016, compared with 79,877 mt on December 31, 2015.

    Deliverable stocks are the amount of metal available in the warehouse. On-warrant stocks are the amount of metal which are good for delivery.

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    Malaysia's shooting-star bauxite industry faces burn up

    Already under fire for widespread environmental damage, Malaysia's once lucrative bauxite mining industry is facing a likely death knell from neighbouring Indonesia's move to allow a resumption of exports.

    This time last year, Malaysia was the world's biggest supplier of the aluminium-making raw material to top buyer China, but its exports tumbled after government action aimed at reining in the little regulated industry.

    The latest move could spell the end for a sector that only sprang to life in late 2014 after Indonesia banned ore exports, and illustrates the risks facing miners across Southeast Asia from increasingly uncertain government policy.

    Copper giant Freeport-McMoRan Inc warned last week it could slash output from Indonesia amid a long-running dispute with the government, while the Philippines has ordered the closure of more than half the country's mines on environmental grounds.

    "Policy risk is huge in mining right now," said Daniel Morgan, mining analyst at UBS in Sydney. "In supplier policy, you've got changes to Indonesia's mining policy, the Philippines and Malaysia."

    A host of mining operations sprang up along Malaysia's bauxite-rich east coast to fill a supply gap after Indonesia in 2014 barred exports of mineral ores in a bid to push miners to build smelters.

    In 2015, Malaysia shipped more than 20 million tonnes to China, well ahead of nearest rival Australia and up nearly 700 percent on the previous year. In 2013, it shipped just 162,000 tonnes.

    But the dramatic rise came at a cost as largely unregulated miners failed to secure stockpiles of bauxite. The run-off from monsoon rains turned rivers and coastal seas red, contaminating water sources and leading to a public outcry.

    The government imposed a mining moratorium in early 2016, and shipments to China from existing stockpiles fell to 165,587 tonnes in December, with little indication the government is set to change its mind.

    Malaysia's natural resources and environment ministry said any decision to lift the moratorium would be based on how well miners follow regulations to preserve the environment rather than economic gain.

    Recent rains in Kuantan have caused some bauxite runoffs from existing stockpiles, minister Wan Junaidi Tuanku Jaafar told Reuters.

    "The heavy rains proved that the mitigation was not adequate. Now by having this before me, I am not yet prepared to allow them to start the operations," he said, declining further comment on the topic.

    Indonesia introduced new rules last month that will allow exports of nickel ore and bauxite and concentrates of other minerals in a sweeping policy shift, but did not specify when it would resume exports.

    The announcement could be the final nail in the coffin for Malaysia's industry, as its miners expect China to switch to Indonesia's better quality and cheaper ore, due to lower production costs.

    "Indonesian bauxite miners kept a lot of stockpiles ... They can sell cheap," said a miner from local company based in Kuantan, a key bauxite mining area in the state of Pahang.

    "If the volume coming out of Indonesia is over 10 million tonnes, Malaysia has to say goodbye."

    Unlike recent ructions in nickel supply from Indonesia and the Philippines that pushed up prices, Malaysia's near exit from bauxite has had little impact on the supply chain as new suppliers emerged, particularly in Guinea in West Africa.

    "Some of these commodities are pretty plentiful, like bauxite for instance," noted UBS's Morgan. "When we talk to aluminum companies in China, we haven't detected that they're worried about a bauxite shortage."

    The greater effect may be on Malaysia's export-based economy where bauxite surged to become a key mineral shipped to China, its largest trading partner. At a bauxite price of $50 a tonne, Malaysia's 2015 exports were worth over $1 billion.

    The scandal-tainted Prime Minister Najib Razak's government is pushing to boost revenue as he prepares for a tough election that has to be called by end-2018.

    "There will be less export income," said Ooi Kee Beng, deputy director of Singapore based research centre ISEAS-Yusof Ishak Institute. "The loss of jobs at a time when common people are facing economic difficulties will have political impact that is unwelcomed by the government."

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    Road to Las Bambas copper mine clear after Peru protest ends

    MMG has been transporting copperconcentrates from its Las Bambas mine, in Peru, since late on Friday, when residents of a nearby town called off protests that had blocked the road used by the company, a representative of the ombudsman's office said.

    The five-day protest in Challhuahuacho ended after the government suspended civil liberties with an emergency decree and set dates to start building a sewage system and hospital that had been promised to the town, said Artemio Solano of the ombudsman's office in the region of Apurimac.

    Protests near Las Bambas last year had blocked roads used by the mine and suspended its copper shipments from the portof Matarani.

    The flare-up last week threatened to further constrain global supplies of copper as Chile's Escondida, the world's biggest copper mine, halted output amid a strike and Indonesia's Grasberg, the second biggest, dealt with an export ban.

    There are often conflicts over mining in Peru, the world's second biggest copper producer, especially in far-flung regions where basic services such as running water and paved roads are scant.

    Four protesters from towns near Las Bambas have been killed in clashes with police over the past two years.

    Las Bambas produced some 300 000 t of copper in the first 11 months of 2016, according to the energy and mines ministry.
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    Glencore agrees $960 million copper and cobalt deal with Fleurette

    Glencore has increased its hold on Democratic Republic of Congo's copper and cobalt resources by buying the remaining stake in the Mutanda mine from resource group Fleurette and increasing its share in Katanga for a total of $960 million.

    Company statements said Glencore now owns 100 percent of the Mutanda mine and about 86 percent of Toronto-listed Katanga Mining Limited.

    Taking into account loans it had made to Fleurette, Glencore is paying $534 million in net cash for the assets.

    Copper and cobalt are among the commodity markets with the strongest fundamentals.

    The copper market faces a possible supply shortfall as some of the world's best assets become depleted and cobalt, used in batteries, faces the prospect of a supply surge from electric vehicle demand.

    Israeli billionaire Dan Gertler, senior adviser to Fleurette, said the group was committed to Congo, where it has operated for two decades, but it was the right time to sell its Mutanda and Katanga assets.

    "With the mine now operating at full capacity, we feel now is the right time to exit our investment and to re-invest in further brown and greenfield opportunities," he said.

    Mutanda has been operating at more than 200,000 tonnes of copper per year.

    In addition to selling its 31 percent stake in Mutanda for $922 million, Fleurette said it also sold to Glencore its remaining 11.05 percent shareholding in Katanga for $38 million.

    Katanga announced an 18-month suspension of operations in 2015, when it was producing around 113,000 tonnes of copper, and has been undergoing upgrades aimed at cutting costs.

    Glencore said the mine complex had the potential to become Africa's largest copper producer and the world's largest cobalt producer.

    Many mining companies are keen to acquire good quality copper assets, but have hesitated to move into Democratic Republic of Congo because of political risk.

    Analyst Paul Gait of Bernstein said Glencore had done well to consolidate a leading position in Democratic Republic of Congo.

    "We have long held that the DRC will play a critical role in supplying the world’s future demand for both copper and cobalt," he said.

    "The first mover advantage here will be key. Glencore is prepared to invest in the DRC and will reap the rewards that accrue from being prepared to do so."
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    Freeport halted output at key Indonesia copper mine

    Freeport-McMoRan Inc has halted production of copper concentrate in Indonesia and has begun to send home workers at Grasberg, the world's second-largest copper mine, a spokesman for the company's local unit said.

    Indonesia introduced rules on Jan 12 that restrict copper concentrate exports from the country in an effort to promote the domestic smelting industry. Freeport previously said the suspension of concentrate exports would require that Grasberg reduce output by around 70 million pounds of copper per month.

    "The processing plant has not been producing concentrate since last Friday," Freeport Indonesia spokesman Riza Pratama told Reuters on Tuesday. The world's biggest publicly-traded copper miner has also started sending workers home from Grasberg, Pratama said.

    The company previously said it had warned the government that it would need to slash production to about 40 percent of capacity if it did not get an export permit by mid-February, due to limited storage.

    But a strike at Freeport's sole domestic offtaker of copper concentrate, PT Smelting, expected to last at least until March, has limited Freeport's output options, and Grasberg's storage sites are now full.

    The Grasberg halt come after BHP Billiton said last week that its Escondida mine in Chile, the world's largest, could not meet contractual obligations on shipments after a workers' strike brought production to a standstill. The Escondida strike entered its fifth day on Monday.

    Subsequent supply jitters sent copper prices to their highest in more than 20 months at $6,204 a tonne on the London Metal Exchange on Monday. The prices have dropped to around $6,137.50 a tonne on Tuesday.

    Under Indonesia's new mining rules, Freeport must switch from its contract of work to a special mining permit before it can apply for a new export permit.

    A special mining permit was issued to Freeport on Friday, and includes taxes and royalties from which the miner was previously exempt. The new permit also includes a larger divestment requirement, with up to 51 percent of the Indonesian operation to go to the government, from a previous requirement of 30 percent stake. Freeport has to date divested a 9.36 percent stake.

    The Phoenix, Arizona-based company argues that the export restrictions contravene its legally-binding contract with the government and said it would only agree to a new permit with the same fiscal and legal protection.

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    Philippines' minister extends mining crackdown, cancels 75 contracts

    The Philippines' environment minister on Tuesday ordered the cancellation of 75 mining contracts, stepping up a campaign to stop extraction of resources in sensitive areas after earlier shutting more than half of the country's operating mines.

    The contracts are all in watershed zones, with many in the exploration stage. They cover projects not yet in production and the latest action by Environment and Natural Resources Secretary Regina Lopez suggests she will not allow them to be developed further.

    "You kill watershed, you kill life," Lopez told a media briefing.

    A long-time environmentalist, Lopez ordered the closure of 23 of the Philippines' 41 mines on Feb. 2 for damaging watersheds and for siltation of coastal waters and farmlands. Another five mines were suspended, causing an outcry from the industry.

    The contracts ordered canceled on Tuesday, known as mineral production sharing agreements, include the $5.9 billion Tampakan copper-gold project in South Cotabato province in Mindanao island, the biggest stalled mining venture in the Southeast Asian country.

    Tampakan failed to take off after the province where it is located banned open-pit mining in 2010, prompting commodities giant Glencore Plc (GLEN.L) to quit the project in 2015.

    "We're canceling this as a gift of love to the people of Cotabato," Lopez said.

    Some miners facing a shutdown of their operations have threatened legal action, with some miners saying on Tuesday they have received a formal closure order from the environment agency.

    Top Philippine nickel ore producer Nickel Asia Corp said it "will pursue all legal remedies to overturn the said order because of due process violations and the absence of any basis" that would warrant a suspension or closure of operations of its unit Hinatuan Mining Corp.

    Hinatuan was told that its operation has "impaired the functions of the watershed in the area," according to a copy of the closure order.

    The decision to close or suspend existing mine operations followed a months-long audit of the mines, although a government team that reviewed the audit recommended only suspensions and fines.

    President Rodrigo Duterte on Sunday said he would not stand in the way of Lopez's decision to shut several mines in southern Philippines, the second time he has thrown his support behind the minister he appointed last June.

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    Aluminium's parallel universes are colliding: Andy Home

    There was a time when the global aluminium market could be seen as two parallel universes, to borrow a phrase coined by Klaus Kleinfeld, chairman and chief executive of Alcoa.

    There was China. And there was the rest of the world.

    The great dividing wall was China's 15 percent export tax, effectively preventing the flow of primary metal out of what was already the world's biggest volume producer.

    There was always an element of wishful thinking in Kleinfeld's parallel vision, ignoring as it did the flow of semi-manufactured aluminium products out of China. But in terms of physical and paper trading of commodity-grade aluminium, the analogy just about held, until only a few years ago.

    Alcoa has since divided itself into two separately listed companies but the two parts of the global aluminium market have moved ever closer.

    The physical export flow of "semis" has steadily increased with over four million tonnes leaving China in both 2015 and 2016.

    And, equally significantly, the two main trading venues of London and Shanghai have started to connect, with the eastern universe exerting increasing influence over the western.


    Arbitrage between the London Metal Exchange (LME) and the Shanghai Futures Exchange (ShFE) has been long established in markets such as copper. But in aluminium it's a newer phenomenon dating to the end of 2015.

    That's when the Shanghai aluminium contract experienced a step-change in usage with market open interest and volumes exploding.

    At the time it looked like one of those crowd trades that have roiled other Chinese commodity exchanges at various times over the last couple of years.

    Producers lashed out at "irrational" speculation as prices collapsed under a torrent of short-selling. And maybe it was.

    But Shanghai's new aluminium friends have stayed with it ever since. Volumes almost doubled last year and market open interest remains a multiple of what it was prior to the fourth quarter of 2015.

    That in turn has generated greater connectivity with the London market.

    The clearest manifestation is the higher trading volumes during the overlap between the Shanghai and London trading days, according to the LME's "Insight" team of analysts.

    So-called LME "Asian hours" trading jumped from five percent of the daily total in the third quarter of 2015 to nine percent in the fourth quarter of that year. That ratio held pretty steady last year, averaging eight percent.

    Moreover, "the LME-ShFE arbitrage has swung more aggressively since Q4 2015 and LME prices have been more volatile in Asian hours," particularly during times of high Shanghai turnover, according to the LME. ("LME Aluminium: West to East as Asian influence rises") The precise origin of this liquidity boost is unclear.

    It may well be that the increased flow of semi-manufactured products out of China has generated increased arbitrage between the two markets.

    But as the LME's Insight analysts concede, "a genuine increase in intraday activity suggests the relationship has widened beyond just merchants hedging physical profits."

    "On-screen traders are increasingly trading the aluminium arb or, at least, allowing the direction of one market to influence trading on the other."

    Liquidity, in other words, begets more liquidity. This is true of all exchanges but maybe particularly true of China where speculators hunt in packs.


    Working in parallel, as it were, with this increased trading connectivity has been a steady shift in the location of LME stocks away from the United States and Europe towards Asia.

    As of the end of January over 60 percent of "live" LME stocks, meaning those not in the form of cancelled warrants, were located at Asian locations.

    It's the highest ratio since 2007, although the historical comparison is muddied by the fact that LME stocks were much lower prior to the 2008-2009 global financial crisis.

    This in part may also reflect that steady stream of semi-manufactured product leaving China. If it is displacing primary metal in the rest of the world, it is logical that the hardest impact would be in the closest geographical region.

    But in part it's also down to the LME's own policy of targeting excessive load-out queues at some of its locations in Europe (Vlissingen) and the United States (Detroit).

    Recent tightness in the LME contract's time-spreads have incentivised physical deliveries into the exchange's warehousing network. With some queue-affected operators elsewhere reluctant to take in more metal, the default delivery location has shifted from west to east.

    In terms of physical liquidity of underlying stocks the LME aluminium contract is shifting towards China just as Chinese exchange trading is exerting ever more influence on Western pricing.


    In some ways aluminium is still catching up with other base metals.

    "Asian hours" trading of LME copper accounted for 16 percent of daily volume last year and nickel an even higher 17 percent, according to the LME.

    Copper in particular has been periodically rocked by trading surges on the Shanghai Futures Exchange, forcing LME traders to wake up to the power of Chinese money when it's on the move.

    Aluminium looks set to follow the same path as the two universes collide.

    In November last year "Asian hours" trading on the LME aluminium contract surged to over 14 percent in response to heightened activity in Shanghai.

    "The average price range for aluminium in the London morning more than doubled" to hit a peak of 1.2 percent, according to the LME's Insight team.

    The problem for the rest of the world, which has grown used to aluminium's relatively low level of volatility, is that all this is happening just as the Chinese aluminium market becomes more unpredictable.

    Now accounting for well over half of the world's production of the light metal, future Chinese output trends are in danger of becoming increasingly beholden to government policy.

    Aluminium smelters were included in a proposal to switch off key industrial sectors over the winter months to alleviate Beijing's choking smog.

    This is still a proposal and it remains to be seen whether it translates into smelter cutbacks.

    But if it does, you can be sure there's going to be a reaction in the Shanghai price.

    And increasingly that's going to generate a reaction in the London price.

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    Indonesia's Antam has 5 mln tonnes low-grade nickel ore for export

    Indonesian state-controlled miner PT Aneka Tambang (Antam) has an estimated 5 million tonnes of low-grade wet nickel ore available for immediate shipping, corporate secretary Trenggono Sutioso told Reuters on Monday.

    "Antam is ready in principle to follow government regulations including export taxes," Sutioso said. "The estimated potential low grade nickel ore that can be utilised immediately is 5 million tonnes wet low grade nickel ore."

    Indonesia eased mining export rules last month, allowing export of unprocessed ore under certain conditions.

    A ban on unprocessed ore exports was imposed in 2014 to encourage investment in value-added smelting projects but this restriction hit government revenues, contributing to a hefty budget deficit. The government missed its 2016 revenue target by $17.6 billion.

    Antam is waiting for further guidance from the government before starting to export, Sutioso said when asked how soon Antam could start making shipments.

    Separately, the Indonesian government said on Monday it had set new tax rates for mineral exports, including a flat 10 percent tax for nickel ore with a nickel content of less than 1.7 percent.
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    Australia's Ravensthorpe nickel mine cut off by rains – First Quantum

    Heavy rains have cut access in and out of the Ravensthorpe nickel-producing operations in Western Australia, owner First Quantum Minerals said on Monday.

    The processing of nickel ore into metal was continuing at the site, 250 km from the Port of Esperance on the Indian Ocean, the company said in a statement emailed to Reuters.

    "There is currently no access into or out of First Quantum Minerals' Ravensthorpe nickel operations," First Quantum said. "At this stage we will not declare force majeure but we reserve the right to."

    A protracted delay in shipments would aggravate already tight global supply. Nickel prices are up by 15 percent since late January, following a Philippine government decree that closed more than half the mines there over environmentalconcerns.

    Ravensthorpe was earlier expected to produce 25 000 t of nickel in 2017, according to First Quantum's website.

    Global demand for nickel - used to toughen stainless steel - stands at around two-million tonnes per year, according to the Lisbon-based International Nickel Study Group. Capital Economics in London in a recent note predicted nickel prices would climb to $11 500 a tonne by the end of the year versus just under $10,000 in early January.

    Most of Western Australia state has been belted with heavy rains, with Ravensthorpe one of the hardest hit areas.

    Up to 126 mm of rain fell in areas around the mine, according to the weather bureau.

    Nickel on the London Metal Exchange was up about 0.7% on Monday at $10 740 a tonne, after having gained about 3.7% on Friday.
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    BHP vows legal action at top copper mine after group enters site

    BHP Billiton, the owner of the world’s biggest copper mine known as Escondida, said it will take legal action after a group of more than 300 people entered the mine site during a strike and forced some contractors to abandon the compound.

    People wearing masks entered the mine site at 18:00 Santiago time on Saturday, threatening the staff of contract companies and setting off fire alarms, causing damage, the Melbourne-based company said in an e-mailed statement Sunday. A smaller group cut power to security cameras, it said.

    The union, whose 2 500 members stopped work on Thursday after wage talks broke down, has set up a makeshift camp just outside the mine. Union President Patricio Tapia said while a group of members did enter the mine site, they marched peacefully around the contractor workers’ camp and left. They didn’t trigger alarms or break anything, Tapia said by phone Sunday.

    The incident is the latest in a tense first four days of a strike that helped propel the price of copper to its biggest gain in almost four years on Friday, after Escondida declared force majeure on its shipments and a fire broke out in another dormitory area for contractors. The union denied any involvement.

    Escondida accuses the union of sending fewer workers than authorized for a skeleton crew during the strike, thereby jeopardizing mine safety, as well as blocking access to contract companies. The union says it’s adhering to labor rules governing the skeleton crew and is blocking roads to prevent thieves and strike breakers from entering the site.

    “We categorically reject these acts that not only infringe company values but also the law, and put at risk the safety of our people,” Escondida Corporate Affairs VP Patricio Vilaplana said in the statement. “As a result, the company will use all necessary resources and take the pertinent legal actions to guarantee the safety of all workers.”
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    Trafigura acquires stake in recovering Finnish nickel mine

    Commodities trader Trafigura said it will take a 15.5 percent stake in Finland's Terrafame nickel and zinc mine as part of a 250 million euro ($266 million) deal, which will help the mine ramp up production.

    The mine in northern Finland has been under government control since 2015 following years of losses and production problems but returned to profit in the final quarter of last year, helped by a rebound in metals prices. It has been looking for new investors for some time.

    Trafigura will acquire the stake through its Galena fund and will also finance a new loan as part of the deal.

    "The investment ... will provide the working capital needed to enable the Terrafame mine to reach its potential to become a world-class mine ... Looking forward, the demand side for nickel looks robust," Trafigura Chief Executive Jeremy Weir told a news conference on Friday.

    As part of the arrangement, Trafigura agreed to buy all nickel deliveries and 80 percent of the zinc deliveries for seven years, a deal worth around 3 billion euros, Terrafame said.

    The mine produced 22,575 tonnes of zinc last year and 9,554 tonnes of nickel.

    Global zinc consumption is estimated at 14.5 million tonnes this year and nickel at around two million tonnes.

    The government took over the mine in 2015, and set up a company called Terrafame to build it up after production problems, environmental damage and weak nickel prices pushed former owner Talvivaara into a debt restructuring in 2013.

    The government has so far injected about 500 million euros in the site, seeking to protect jobs and the environment in the rural Kainuu region. Closing the mine would have cost an additional 300-400 million euros, the government estimated.

    "According to our estimate, Terrafame does not need additional funding from the state after this. The financing arrangement will strengthen the economy," economy minister Mika Lintila said.

    Terrafame returned to profit in the fourth quarter on the back of growing production volumes and rising metal prices. Zinc prices at around $2,900 a tonne are more than double the levels seen in January 2015 and nickel is up roughly 25 percent over the same period to around $10,660 a tonne.

    In the fourth quarter of last year, Terrafame's nickel output surged 64 percent from the previous quarter to 3,875 tonnes and its zinc production rose 37 percent to 8,680 tonnes.

    Talvivaara, which developed the mine, had aimed to make it Europe's biggest nickel mine by pioneering an extraction process called bioheapleaching.

    But repeated production problems were compounded when the mine leaked waste water in 2012, causing one of Finland's most serious environmental disasters.
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    Indonesia issues new mining permit to Freeport...But

    Indonesia has issued a new mining permit for the local unit of Freeport McMoRan Inc , government officials said on Friday, signalling the possible end to a month-long suspension of exports from the world's second-biggest copper mine.

    Indonesia halted Freeport's exports of copper concentrate on Jan. 12, a suspension Freeport said would reduce output from its Grasberg mine by around 70 million pounds of copper per month.

    On the same day the government issued rules requiring Freeport to obtain new mining rights before being allowed to resume exports, as part of a broader push to add value to the country's minerals and develop domestic industries.

    The suspension had supported recent gains in copper prices , which initially pulled back from session highs in London on Friday on news that Grasberg shipments may resume. Freeport's shares jumped 4 percent.

    Freeport warned last week that it could be forced to slash Grasberg production and reduce its workforce of more than 30,000 if it did not get a new export permit by mid-February.

    Rio Tinto , in a joint venture with Freeport in Indonesia since 1995, said on Thursday it was considering exiting its interest in the mine as a result of the uncertainties.

    The new permit signed by Energy and Mineral Resources Minister Ignasius Jonan on Friday would be valid until 2021, with an option to extend, Coal and Minerals Director General Bambang Gatot told reporters.

    A similar permit was issued to fellow Indonesian copper miner Amman Mineral Nusa Tenggara, a unit of Medco Energi Internasional, Gatot said.

    The two companies could now apply to resume exports, he added.

    The new mining permit was expected to require Freeport to pay taxes and royalties that it has been exempt from, and divest up to 51 percent of its Indonesian unit, up from 30 percent under current rules. To date, it has divested only 9.36 percent.

    It was not immediately clear if Freeport had agreed to adopt the new provisions or end its 1991 contract of work with the Indonesian government under which fixed tax rates and other guarantees apply.

    "Whether they agree or not, we'll see," Gatot said. "Whether there are incentives, we can work on this."

    Freeport-McMoRan Inc, the world's biggest publicly-listed copper miner, said on Friday that it has not reached an agreement with Indonesia on a new permit for its Grasberg mine and copper concentrate exports remain restricted.

    Indonesia, which earlier on Friday said it had issued a new mining permit to Freeport, halted shipments of copper concentrate exports on Jan. 12, a suspension that Freeport said would reduce output from its Grasberg mine by around 70 million pounds of copper per month.

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    Forged warehouse receipts related to nickel: Access World

    Forged warehouse receipts for metal currently circulating in the market in the name of logistics company Access World appear to be related to nickel in Asia, the company said Thursday.

    "We note that currently all relevant forged warehouse receipts we have seen have been in the name of Access World Logistics (Singapore) Pte Ltd (previously Pacorini Metals (Asia) Pte. Ltd.) and have been solely across nickel," the company said in a statement.

    Access World, formerly Pacorini Metals, is owned by Switzerland-based commodities group Glencore.

    In late January the company said it had "become aware that there are forged warehouse receipts in our name circulating in the market."

    The company encouraged holders of any Access World receipts to seek authentication from the relevant issuing office for any warehouse receipts not issued to them directly by Access World.

    On Thursday, it announced a four-business-day "authentication window" to run from Friday through Wednesday, February 15.

    "At the end of this authentication period it would then be our intention to continue to honour duly authenticated original warehouse receipts in accordance with applicable laws and regulations and on terms to be agreed with the relevant holders," Access World said.
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    Steel, Iron Ore and Coal

    Guizhou coal production capacity at 170 Mtpa by end-2016

    Southwestern China's Guizhou province had 571 coal mines by the end of 2016, with capacity of 170 million tonnes per annum (Mtpa), said the provincial Energy Administration days earlier.

    Guiyang city in the province had 19 coal mines by end-2016, with capacity of 2.73 Mtpa, while Liupanshui and Zunyi cities had 128 and 64 coal mines, with capacity of 59.03 Mtpa and 15.03 Mtpa, respectively.

    The province planned to shut 15.03 Mtpa of coal capacity by closing 120 mines in 2017, said officials of the provincial Administration of Work Safety.

    The province said in March last year it would shed coal capacity of over 70 Mtpa by shutting 510 mines in the next three to five years.

    By 2020, total coal production in the province will be controlled at 200 million tonnes or so, and the number of coal mines will reduce to 750.
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    Indian government likely to divest up to 10% in Coal India

    Indian government plans to divest up to 10% in Coal India by August, a move that will help it earn about Rs 20,000 crore at today's prices and reduce its stake to 69%, the Economic Times reported on February 13.

    The government is likely to divest between 5% and 10%. It already has permission for divesting 10% in the company. At present, the government holds 79.78% in the company, a senior Coal India executive said on condition of anonymity.

    Last year, Coal India offered to buy-back 1.7% (10.89 crore shares) of its fully paid-up equity shares at Rs 335 per share totalling Rs 3,650 crore. After the buy-back, the government's holding in Coal India increased marginally to 79.78% from 79.68%

    If the government divests 10% of its shares, it is likely to help the Centre raise around Rs 20,000 crore and will allow Coal India to conform to holding norms in which a public listed company needs to have at least 25% shares listed on stock exchanges, the executive said.

    The company has been witnessing a fall in production as well as sales due to less than anticipated power demand growth. Against a near 10% growth in 2015-2016, this year the company has not been able to attain a growth of even 2% either in sales or production.

    The timing of the divestment will be crucial because the company has not been able to fulfill its targets. Revenues and profits are likely to be less than anticipated as price realisation from e-auction has been falling due to reduced demand.

    Nevertheless, Coal India share price has been falling from September last year till January, after which it started to rise on anticipation of marginal better performance as coal production picks up after the monsoons every year, said an analyst.
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    Europe's steel industry adds Iranian imports to list of threats

    Iranian steel imports have become the latest threat to European steelmakers, their trade group said on Thursday, after imports from Iran rose by nearly eight times between 2013 and 2016.

    Steel lobby group Eurofer said on Thursday that Iranian exports to Europe had leapt to just over 1 million tonnes annually, putting the country just behind India at 1.9 million tonnes, while China shipped 5.7 million tonnes in 2016.

    "The threat from Iran is new and it's going to be one of the top three issues: China, India, Iran," Karl Tachelet, external relations and trade director at Eurofer, told Reuters.

    Iran has sought to boost its steel sector, with help from foreign partners, as it targeted economic expansion following the 2015 deal to curb Iran's nuclear programme in return for an easing of sanctions.

    But Tehran has said it is considering export duties on iron ore, as India has done, which would increase the availability of cheap raw materials for its own steelmakers.

    Eurofer, which represents an industry that has to import its iron ore, says that amounts to protectionism. Iranian officials contacted by Reuters for comment did not immediately respond.

    On Wednesday, after a two-day conference on steel in Tehran, Iran said it aims to export between 20 and 25 million tonnes annually by 2025 and to increase total output to 55 million tonnes from an estimated 16 million tonnes now.

    That compares with a global market of 1.6 billion tonnes.

    China, the world's top producer and consumer of steel, is a dominant player in Iran, where other countries have struggled with the complexity of political and logistical hurdles.

    And while cutting its own capacity, China has been building steel operations elsewhere, including on the edge of the European Union in Serbia.

    The EU is investigating alleged dumping of hot-rolled steel by producers in Serbia and Iran as well as Brazil, Russia and Ukraine.

    It has already imposed penalties on China, prompting an angry response and a WTO complaint from Beijing.

    Eurofer says EU measures against nations such as China have helped to revive an industry that was deeply in crisis in late 2015 and early 2016 when steel prices were very low.

    Prices have since recovered, but industry officials say the market remains fragile and cannot cope with capacity increases, while politicians in Europe balk at capacity reductions.

    "A European commodity steel business won't be sustainable in the long term unless the external parameters (such as anti-dumping duties or capacity reductions) change," Wolfgang Eder, CEO of Voestalpine, told Reuters on Wednesday.

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    Rio said to seek bank pitches on $1.5bn coal mine sale

    Rio Tinto Group has asked banks to pitch for a role advising on the divestment of its last remaining coal operations in Australia, people with knowledge of the matter said.

    The London-based company has decided to pursue a sale of its Hail Creek and Kestrel mines after receiving unsolicited approaches from potential buyers, according to the people, who asked not to be identified because the details are private. The assets in Queensland state’s Bowen Basin, which mainly produce coking coal used in steelmaking, could fetch as much A$2-billion ($1.5-billion), people familiar with the matter said earlier this month.

    Rio, the world’s second-biggest miner, has been divesting coal assets since dismantling its energy division in 2015 and last month agreed to sell $2.45-billion of Australian mines to a company controlled by China’s Yanzhou Coal Mining Co. The producer is focusing on key divisions including iron ore, which generated more than 60 percent of profit last year, as well as copper and aluminum, according to Chief Executive Officer Jean-Sebastien Jacques.

    There’s no certainty the deliberations will lead to a transaction, and Rio could still decide to keep Hail Creek and Kestrel, the people said. A spokesman for Rio declined to comment.

    Rio shares rose 1.3% to A$69.27 at the close Thursday in Sydney, extending their advance over the past year to about 60%.

    Mine sales appear to be accelerating under Jacques, who took the helm in July, amid a drive to reshape the producer’s portfolio, UBS Group AG analysts including Glyn Lawcock wrote in a February 13 research note. Rio has announced $7.7-billion of assets sales since 2013, according to a filing last month.

    While Rio likes coking coal as a commodity, the producer no longer has a meaningful position in the material, Chief Financial Officer Chris Lynch was cited by UBS as telling analysts Monday in Sydney. The futures of other assets -- including Iron Ore Co. of Canada, a uranium unit and Australian alumina and aluminium operations -- are also the subject of debate, UBS cited Lynch as saying.
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    Shaanxi Jan raw coal production down 6.31pct on year

    Shaanxi province, one of China's major coal production bases, produced 34.12 million tonnes of raw coal in January, dropping 6.31% from the year-ago level and plummeting 54.07% from December, showed the latest data from the Shaanxi Administration of Coal Mine Safety.

    Of this, coal mines owned by the central and provincial governments produced 6.76 million and 9.69 million tonnes of raw coal in January, decreasing 7.67% and falling 11.61% from the year prior, respectively.

    Coal output of the mines owned by municipal and prefecture governments stood at 17.67 million tonnes, falling 2.56% year on year.

    In January, coal sales stood at 33.27 million tonnes or 97.5% of the total coal output of the province, down 5.78% year on year and 54.9% from last December.

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    Nippon Steel expects China steel prices to hold firm this year

    Nippon Steel & Sumitomo Metal, Japan's biggest steelmaker, expects steel prices in top consumer China to hold firm at least until its Communist Party congress late this year, amid solid demand that is underpinning coking coal and iron ore markets.

    Chinese futures contracts for steel reinforcing bars used in construction have already risen 17 percent in 2017, on top of a gain of more than 60 percent last year. Besides sustained demand for construction activity, Beijing is forcing steel producers to cut output as it wages its war on smog, raising worries about supply. 

    "Steel demand and prices in China have been fairly strong on the government's stimulus," Nippon Steel executive vice president Toshiharu Sakae told Reuters in an interview.

    "I expect this trend to continue for a year as Beijing will work hard to support its economy ahead of the Congress," Sakae said, referring to China's 19th Communist Party Congress that is expected to be held late in the second half of 2017.

    To pass on the resulting higher materials costs, Nippon Steel - the world's third-largest steelmaker by output in 2015 - wants to raise product prices in the financial year starting in April.

    "My guess is that coking coal prices will stay at $150-200 a tonne as China is said to be trying to cut market volatility," he said, adding that iron ore prices may move towards $90 a tonne on a free-on-board basis on hopes that China's imports grow.

    China's iron ore futures hit their highest in more than three years this week, amid solid steel demand.

    To offset rising costs, Nippon Steel has sought to increase product prices by around 20,000 yen ($174.73) per tonne this financial year, but will need more hikes next year, Sakae said.

    The high materials costs have squeezed margins and it is difficult to make the capital expenditure needed to maintain high quality and the swift delivery of products, he said.

    The company's iron ore term contracts for April-June quarter are expected to come at around $77-78 a tonne, up from $57 this quarter, Sakae said.

    Raising its product prices would help improve its performance in the upcoming 2017/18 financial year. The company has predicted its recurring profit will likely fall 35 percent in the year to March 31 due to materials price gains that have outpaced the steel price increases.

    Sakae, who has warned that worries over U.S. President Donald Trump's protectionist policies are "growing every day", said the recent friendly meeting between Trump and Japanese Prime Minister Shinzo Abe has not eased his concerns.

    "If the U.S. takes measures that affect the Japanese auto industry, it will indirectly hurt our business," he said.

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    Brazil's Vale produced record 349 mln tonnes of iron ore in 2016

    Brazilian miner Vale SA said on Thursday it produced a record 349 million tonnes of iron ore in 2016, above its own guidance, helped by strong performance at mines in northern Brazil and the successful start of its new S11D mine.

    The world's largest producer of iron ore had forecast that output would be at the lower end of a range of 340-350 million tonnes.

    Vale said it produced 92.4 million tonnes in the fourth quarter, up 4.5 percent on the same period in 2015. Full-year production rose 1 percent on the previous year.

    The company said it had continued to halt or reduce higher cost tonnes from its mines in the southeastern state of Minas Gerais, offsetting them with cheaper production from northern Brazil where its costs are lower and quality higher.

    The S11D mine is Vale's largest ever iron ore project and is located in the Amazon, neighboring the company's other mines in the northern Brazilian state of Para.

    Guidance for 2017 remained at 360-380 million tonnes, Vale said, adding that by the end of 2018 it expected to reach an annual production rate of 400 million tonnes.

    Vale reported nickel production of 311,000 tonnes in 2016, 7 percent higher than in 2015 and a company record, after stronger performance at plants in Canada and New Caledonia.

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    Shandong to control raw coal output within 130 mln T in 2017

    Shandong will control raw coal output in the province within 130 million tonnes in 2017, and expects production of its mines located in other provinces to exceed 120 million tonnes, said officials at a coal work meeting held on February 15.

    Last year, the province produced 128.61 million tonnes of raw coal, falling 11.31% from 2015, due to the government-led capacity cut campaign, showed data from the Shandong Administration of Coal Mine Safety.

    The washing rate of raw coal in the province is expected to be over 66% this year, and it planned to shed 3.51 Mtpa of coal capacity by closing five mines this year, according to officials.

    Coal producers in Shandong made a total profit of 5.5 billion yuan ($800.58 million) in 2016, a year-on-year surge of 233.2%.

    Last year, the province's coal industry realized operating revenue of 311.88 billion yuan, increasing 23.83% from the year-ago level.

    The province closed 66 coal mines in 2016, slashing 19.6 million tonnes per annum (Mtpa) of capacity, completing 120.6% of its annual de-capacity target. The number of coal producers in Shandong reduced to 53 last year.

    It has basically realized diversified development while depending on coal industry. In 2016, value of the province's non-coal businesses totalled 223.9 billion yuan, accounting for 69.2% of its total.
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    Atlas moves ahead with Corunna Downs development

    Iron-oreminer Atlas Iron has approved the development of its Corunna Downs project, in the Pilbara, with capital costs estimated at between A$47-million and A$53-million.

    A definitive feasibility study estimated that the project had the potential to deliver four-million tonnes a year of lumps and fines direct shipping ore over an initial five- to six-year mine life.

    C1 costs for the project have been estimated at between A$37/t and A$43/t, with full cash costs forecast at between A$49/t and A$55/t.

    First ore from Corunna Downs is now expected to be shipped in the March 2018 quarter.

    The company’s lenders have agreed to amend the terms of an existing loan, enabling the project to be funded from operating cash flows.

    “This is a strong vote of confidence in Atlas by our lenders, several of whom are significant Atlas shareholders,” said Atlas MD Cliff Lawrenson.

    “Corunna Downs, together with Mount Webber, will build our production rate of approximately 12-million tonnes a year after Wodgina and Abydos cease production in the first and second half of 2017 respectively.”

    He noted that the amendments to the current loan facility will enable Atlas to capitalise on current and future opportunities provided by the stronger iron-ore price.

    The amendments to the Term Loan B facility will allow Atlas to accumulate up to a further $45-million in cash generated, and the funds will not be subject to the cash sweep through to the end of June 2018.

    After each of the March, June and September quarters of this year, Atlas will be entitled to transfer cash on hand in excess of A$80-million into a dedicated reserve account, subject to a cap of A$20-million a quarter and A$45-million in aggregate.

    Cash on hand in excess of these limits will still be paid to the lenders to reduce the loan balance.

    As consideration for the amendments, Atlas will commit to paying all of its Term Loan B interest in cash, and will issue ordinary shares valued at A$5-million, to support the Term Loan B lenders.

    The Term Loan B principal outstanding will also be increased by A$3-million, unless the facility is refinanced or repaid within 120 days of satisfying the conditions precedent.

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    China may resume 276-working day rule at coal mines

    China may ask coal mines presently operating 330 days annually to produce on a 276-working day basis from mid-March, when the winter heating ends in northern China, in order to prevent the reemergence of excess capacity, market sources said.

    The 276-working day rule may last till the end of August, disclosed sources. The plan has been submitted to the National Development and Reform Commission and is still under discussion, one source said.

    China's advanced coal mines, those with safe and high efficient mines, may still be allowed to continue operating 330 days, as the NDRC tries to regulate production in a more flexible manner.  

    The government may allow northeastern Heilongjiang, Liaoning and Jilin provinces among other seven provinces, which use more coal than produced and have to buy from provinces outside, to decide the working days by themselves, another source said.

    If implemented, there could be some 150 Mtpa of coal production capacity curbed during this period.

    China will continue to press ahead with de-capacity efforts in the coal industry this year, and the expected reduction of capacity will be less than last year's 250 Mtpa, said Jiang Zhimin, vice president with the China National Coal Association, in late January.

    However, China may face greater difficulty in carrying out the de-capacity task this year, he said.
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    Teck shares slide on coal demand woes despite earnings beat

    Canadian miner Teck Resources Ltd reported a better-than-expected quarterly profit on Wednesday, lifted by a surge in the price of coal for steelmaking, but weaker demand at the start of the year spooked investors, sending its shares lower.

    Teck, North America's largest producer of steelmaking - or coking - coal, said that inquiries from buyers had picked up recently and that it expects sales to be weighted toward the second half of this quarter after a slow start.

    "I actually feel much better today than I did three weeks ago," Teck Chief Executive Donald Lindsay said on a conference call.

    Teck blamed the weaker start on customers drawing down coal inventories following a fourth-quarter buying binge, sparked by global supply worries that were ultimately unfounded. The Lunar New Year holidays also crimped demand in Asia.

    Shares of the Vancouver-based company, which also mines copper, gold and silver, were down 9 percent at C$29.70 in mid-afternoon trading. It was the best-performing stock on the Toronto Stock Exchange in 2016.

    Teck has reached agreements with the majority of its coal customers for the first quarter, based on a quarterly benchmark price of $285 per tonne.

    But since that benchmark was set in early December, spot prices have plunged to about $155 per tonne. Teck expects an average realized price this quarter of about 70 percent to 75 percent of the $285-per-tonne benchmark.

    Teck forecast first-quarter steelmaking coal sales of approximately 6 million tonnes, down from 7.3 million tonnes last quarter.

    But Lindsay said the miner's top priority was reducing debt, and it was aiming to get debt levels, possibly this year, below $5 billion from $6.1 billion at the end of 2016.

    A surge in coal prices last year from below $80 a tonne to above $300 had raised expectations of mine restarts. Real Foley, Teck's coal marketing vice president, said less than 15 million tonnes of coking coal had come online globally and that there had been no restarts since last October.

    The company forecast 2017 steelmaking coal production of 27 million to 28 million tonnes, but said output may be adjusted depending on demand. Teck, the world's second-biggest exporter of seaborne coking coal, reported an adjusted profit of C$1.61 per share in the three months to the end of December, ahead of analysts' consensus estimate of C$1.56.

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    Tata Steel UK workers accept cuts to pension benefits

    Tata Steel's British workers voted on Wednesday to accept pension benefit cuts in return for safeguards on jobs and investment, although the Indian company's plan to spin off its entire UK pension scheme still faces regulatory hurdles.

    Wednesday's vote allows Britain's largest steelmaker to close its 15 billion pound ($19 billion) British Steel Pension Scheme (BSPS) to future accrual and replace the final salary scheme with a less generous defined contribution scheme.

    "Steelworkers have made great sacrifices ... Those sacrifices must be repaid by Tata Steel honouring its commitments on investment and job security. Nothing less would be a betrayal and add to the deep mistrust that steelworkers now have for the company," said Tony Brady, national officer of the Unite trade union.

    In return for pension changes, Tata Steel has pledged to guarantee production and jobs at Britain's largest steelworks in Port Talbot, Wales, for five years and to invest 1 billion pounds in its UK business over the next decade.

    The company's new defined contribution scheme will cover its existing 11,000 UK employees. The firm is, however, seeking rare regulatory approval to cut benefits for all 130,000 BSPS members and to spin off the scheme into a standalone entity.

    Tata says its UK unit, which is set this year to post its first profit in five years, will fail if it has to keep ploughing funds into a scheme with 13 times more pensioners than paying employees.

    The company is also seeking to spin off the pension scheme because Germany's Thyssenkrupp, with which it is in merger talks, is not prepared to take on any UK pension liabilities in the event of a tie-up.

    "Steelworkers have taken a tough decision. It is vital that we now work together to protect the benefits already accrued and prevent the BSPS from free-falling into the pension protection fund (PPF)," said Roy Rickhuss, general secretary of the union Community.

    The PPF is a lifeboat for failing UK pension schemes. Tata Steel's UK workers were under pressure to back a deal that secured jobs and investment because if the company fails, they will face deeper benefit cuts under PPF payout terms.

    Stephen Kinnock, member of parliament for Aberavon, Wales, said: "What we have seen today is that the workforce will strain every sinew to save our industry. If fulfilled, the package voted on today should secure the future for Port Talbot."

    Some industry watchers, however, remain to be convinced that the 4,000 or so jobs at Port Talbot are secure for more than five years.

    Thyssenkrupp has said its main goal in merging with Tata's European operations is to combat overcapacity in the steel sector, and many expect this makes jobs at Port Talbot, a vital regional employer, vulnerable in the long term.

    Some pension experts also say Tata faced a battle to spin off the UK pension scheme because it would have to convince the regulator that the UK unit might otherwise go insolvent - something that looks less likely now it is heading for a profit.

    Martin Hunter, principal at pension consultants Punter Southall, said Tata faced a "substantial hurdle" winning regulatory clearance.

    "Even if the Pensions Regulator can be convinced that insolvency is inevitable... the cash sum needing to be offered to achieve a separation could be substantial, perhaps even in excess of 1 billion pounds."

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    China iron-ore slips from record high as steel retreats

    Iron-ore futures in China fell more than 1% on Wednesday after reaching a record high in a rapid rally spurred by rising steel prices that some market participants feel may have been overdone.

    Both commodities had started their rally shortly after Chinareturned from the Lunar New Year break this month, with mills replenishing iron ore stocks hoping steel demand would strengthen as construction activity picks up.

    "Margins at steel mills have increased primarily from higher steel prices, but also as metallurgical coal and coke costs have declined," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

    The most-active rebar on the Shanghai Futures Exchange closed down 0.8% at 3 391 yuan ($494) a tonne, after touching a two-month high of 3 458 yuan earlier.

    Iron ore on the Dalian Commodity Exchange dropped 1.3% to end at 697.50 yuan per tonne, after initially peaking at 718 yuan. That matched the highest intraday level for the most-traded contract reached in October 2013, when the exchange launched iron ore futures.

    "As China's activity normalises after the Chinese New Yearholiday period we expect restocking demand to fall and prices to decline," Dhar said.

    "Chinese steel demand expectations have supported steel and iron ore prices this year, but not to the extent that prices suggest."

    Stocks of imported iron ore at China's ports reached 126.95-million tonnes on Febuary 10, the highest since at least 2004, according to data tracked by SteelHome.

    Strong iron ore futures prices had helped boost bids for physical cargoes, pushing up the spot benchmark above $90 a tonne this week for the first time since 2014.

    "While prices looked overvalued at above $90/tonne, we see little on the horizon that can drag prices lower," analysts at ANZ said in a note.
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    China Shenhua Jan coal sales up 59.9pct on year

    China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 33.1 million tonnes of coal in January, gaining 59.9% year on year but down 4.6% month on month, the company announced in a statement late February 14.

    Coal sales in January was impacted by annual contract talks and weak demand, said the statement.

    The company produced 25.5 million tonnes of commercial coal in January, rising 3.2% on the year and up 0.8% on the month.

    In February, Shenhua lowered annual contract price for 5,500 Kcal/kg NAR coal by 7 yuan/t to 569 yuan/t FOB with VAT and cut monthly contract price by 20 yuan/t to 610 yuan/t FOB. Current spot offer prices for the coal grade were at 590 yuan/t FOB.

    The company's power output fell 3.9% year on year to 19.82 TWh in January, and its power sales dropped 4.1% from a year ago to 18.59 TWh in the month.
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    China rejects North Korean coal shipment -Yonhap

    China rejected a shipment of coal from North Korea a day after the country testfired a ballistic missile in violation of international sanctions, South Korea's Yonhap News Agency reported on Wednesday.

    A load of around 16,295 tonnes of North Korean coal, estimated to be worth around $1 million, was not allowed to be unloaded at a seaport in Wenzhou in China's Zhejiang province on Monday, and will be returned to the North Korean western port of Nampo, the agency said citing unidentified sources.

    The rejection was due to a higher-than-permissible level of mercury contained in the coal, the agency said.

    The move came a day after Pyongyang's test of the intermediate-range ballistic missile on Sunday, its first direct challenge to the international community since U.S. President Donald Trump took office on Jan. 20.

    In September, the United Nations imposed new sanctions on North Korea, as part of an effort to deter Pyongyang from pursuing its nuclear weapons programme after the country's fifth and largest nuclear test.

    It set an annual sales cap of $400.9 million or 7.5 million tonnes, whichever is lower, on coal, the isolated country's biggest export, effective from Jan. 1.

    Chinese foreign ministry spokesman Gen Shuang said he was not aware of the case when asked about the rejection at a regular briefing on Wednesday.

    He reiterated the government's stance that the guidelines on coal in the United Nations sanctions are very clear and China is abiding by them.
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    Indonesia thermal coal exports hit 13-month high in Nov

    Indonesia, the world's largest thermal coal exporter, shipped a 13-month high of 20.37 million tonnes in November, up 1% on the year and 8% from the previous month, Platts reported on February 14.

    Sub-bituminous coal made up the majority of the total at 16.41 million tonnes, while the remaining 3.96 million tonnes was bituminous coal.

    During the first 11 months of the year, Indonesia exported 207.52 million tonnes of thermal coal, down 8% from the corresponding 2015 period.

    The largest taker of Indonesian thermal coal in November was India at 5.6 million tonnes, which was down 27% on the year, but 12% higher than October and at a five-month high.

    China took 3.88 million tonnes of thermal coal from Indonesia during the month, jumping 29% on the year but steady on the month.

    Exports to South Korea also climbed 34% on the year and 15% on the month to 2.86 million tonnes.

    Japan was shipped 1.67 million tonnes during November, up 20% on the year and 60% from October, while Indonesia sent 1.44 million tonnes to Taiwan, down 19% from November 2015 but up 18% on the month.
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    Shuozhou coal output drops 20.9pct YoY in Dec

    Shuozhou city in coal-rich Shanxi province produced 12.2 million tonnes of raw coal in December, falling 20.92% year on year but up 3.35% from November, showed data from local Coal Industry Bureau.

    Local mines – owned by governments at the prefecture and lower levels and private operators – produced 4.66 million tonnes of raw coal in December, dropping 15.16% from a year ago but up 19.3% from the month prior.

    Raw coal output from state-owned China Coal Pingshuo Group Co. stood at 5.18 million tonnes, decreasing 17.05% year on year and down 7.83% from November.

    The city's raw coal output stood at 152.87 million tonnes in 2016, dropping 16% from the year-ago level, data showed.

    Raw coal output from local coal mines dropped 20.92% on the year to 49.55 million tonnes during the same period, while that from China Coal Pingshuo slid 6.24% from a year ago to 71.85 million tonnes.

    The city's sales of raw coal totaled 65.6 million tonnes in 2016, down 19.7% on the year, while sales of washed coal dropped 7.99% year on year to 116.65 million tonnes.

    Sales of raw coal in December stood at 6.22 million tonnes, falling 10.9% year on year but surging 186.26% month on month, while sales of washed coal rose 12.48% on the year but down 26.81% from Novemberr to 9.68 million tonnes.

    By end-December, raw coal stocks across the city stood at 5.16 million tonnes, falling 29.89% year on year but edging up 0.12% from November; washed coal stocks were 2.76 million tonnes, increasing 4.88% on the year but down 8.01% from the month prior.
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    Jiangsu to shed 6.5 Mtpa steel capacity in 2017

    Jiangsu province in eastern China planned to shed 6.5 million tonnes per annum (Mtpa) of crude steel capacity in 2017, said Zhao Zhiming, vice director of the provincial Development and Reform Commission.

    The province will eliminate steelmaking capacity by 11.7 Mtpa over 2017-2018, said officials on January 17.

    Last year, it shut 5.8 Mtpa of steelmaking capacity, outstripping its 2016 capacity reduction target.
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    Coking coal resumes sharp decline

    After a pause last week (and even a small move higher) following 12 weeks of non-stop selling, the rout on coking coal markets resumed on Tuesday. The steelmaking raw material fell 4.7% to $154.80 on the day, the lowest since early September.

    Met coal is down more than $150 below its multi-year high of $308.80 per tonne (Australia free-on-board premium hard coking coal tracked by the Steel Index) hit in November despite customs data showing a huge jump in Chinese imports.

    China forges more steel than the rest of the world combined and the country last year imported 59.2 million tonnes of coking coal, an increase of nearly 24% over 2015.

    However, as TSI points out in its latest review of the market Mongolia accounted for 23.6 million tonnes of  total imports as imports from Canada and Russia declined by 9.3% and 19.4% respectively while the US exported no coking coal to China.

    At the height of the price rally Mongolian coking coal went for as little as 75% below the spot price

    Mongolia increased production by 85% last year. With domestic output curtailed by Beijing, so feverish was Chinese demand that Mongolian trucks carrying steam and met coal created the world's longest traffic jam on the border between the two countries.

    But it's not the volume of Mongolian exports that should worry producers in Australia and elsewhere, but price. As a captive supplier (and due to a deal struck by Ulaanbaatar to use coal exports to pay down debts owed to Aluminum Corporation of China, or Chalco) land-locked Mongolia sells its coal for much less than the seaborne price.

    At the height of the price boom in November Mongolian coking coal went for as little as 75% below the spot price (thermal coal sold for less than a third of Australian benchmarks) and nowhere near the benchmark contract prices for the Q1 2017 settled between Australian miners and Japanese steelmakers at $285 a tonne.

    Another low cost supplier to China, North Korea may also impact the price this year. Under UN sanctions the dictatorship's export of coking coal  – all of which goes to China –would be limited to 7.5 million tonnes this year, down nearly two thirds from the 2016 tally. But Beijing has in the past ignored some UN sanctions on the basis that it would hurt the civilian population of North Korea.

    Despite the pullback metallurgical coal is still trading at more than double multi-year lows reached this time last year. Coking coal averaged $143 a tonne in 2016 (about the same as it did in 2013). Consensus forecast is for the price to average about the same in 2017.
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    Kumba applying exploration-to-beneficiation technology

    South Africa’s biggest iron-ore miningcompany Kumba Iron Ore intends maximising the return potential of its assets through productivity initiatives, accompanied by ongoing robust cost management.

    It intends ensuring disciplined capital allocation, prioritising the reinstatement of dividend payments and progressing its project pipeline.

    “I intend to lead the business towards greater technology adoption, as technology will play a very meaningful role in our future,” said new CEO Themba Mkhwanazi.

    He views increasing the productivity of the company’s assets as a powerful driver of financial returns at low risk.

    His aim is to deliver free cash flow that is not dependent on a recovery in the iron-ore price, which was up at $93.05/t on Tuesday but expected to drop back down into the $60/t to $50/t price range.

    Planned are steps to generate value at every opportunity, from mine through to market and reviewing every aspect of the value chain as a means of offsetting mine cost inflation.

    “We aim to achieve a 20% improvement in miningproductivity through optimising shift changes, increasing labour availability and improving mine infrastructure,” Mkhwanazi said at Tuesday’s results presentation attended by Creamer Media’s Mining Weekly Online.

    Plant maintenance is being prioritised, buffer stockpiles built and third-party ore sources used to support production.

    Plans have been drawn up to increase plant yields and improve the ratio between lump ore and fine ore.

    Steps are being taken to opportunistically engage in productblending to enhance grades and thus prices fetched.

    In the 12 months to December 31, Kumba realised increasing value for its premium lumpy product in a rising iron-ore price scenario and at the same time cut controllable costs by 34%, which resulted in strong cash flow generation pushing the company’s net cash position to R6.2-billion.

    The Sishen and Kolomela opencast mines, which both exceeded guidance, produced a combined total 41.5-million tonnes iron-ore and reduced the average cash breakeven price to $29/tonne against an average realised price of $64/tonne free on board – up 18% on last year.
    The strong balance sheet is now supporting a conservative capital structure in the face of an expected moderation in prices and technological steps to increase productivity.

    It is also committed to realising better prices through better negotiations, understanding customer needs and improved two-way communication between marketing and operations.

    Ongoing discussions are under way with suppliers to freeze escalation and steps are being taken to increase third-party volumes, which are expected to be between one-million tonnes and two-million tonnes this year, to mitigate against take-or-pay rail penalties.

    Efficiency improvement spinoff is also expected through the integration of technologies, especially at Kolomela where advanced process control in the plant has contributed to increase plant throughput as well as a 2% rise in the lump-to-fine ratio.

    This is cited as the reason why Kolomela has been able to lift its output to 13-million tonnes without having to spend capital on expansion and the same is now being repeated at Sishen.

    “To achieve these ends, technology will play a major role,” Mkhwanazi reiterated.

    In the 12 months to December 31, Kumba beat production guidance, slashed costs and pumped cash in what was a successful year marred by two fatalities.

    Controlling shareholder Anglo American said in a separate statement that it would report underlying Kumba earnings of $438-million for the year, which would take into account certain adjustments on Kumba’s reported headline earnings of R8.7-billion.

    But there is still no resumption of dividend payouts as the board has deemed it more prudent to use the cash to remain ungeared.

    This year will also see the company having to appointing a new CFO following the resignation of Frikkie Kotzee after five years of service.

    Despite the company’s triumph in challenging and volatile iron-ore markets, controlling shareholder Anglo American is still intent on disposing of the restructured company. Which has settled its tax dispute with South African Revenue Services and had the residual Sishen mining right returned to it by the Department of Mineral Resources.

    “We can now focus on the business,” Mkhwanazi told MiningWeekly Online in a media call.
    The strong balance sheet is now supporting a conservative capital structure in the face of an expected lowering of prices and technological steps to increase productivity.

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    Key Vale partners want to keep CEO to stem political pressure – Valor

    Vale's top non-government shareholders want CEO Murilo Ferreirain the job for another two years to stem pressure from Brazilian politicians to appoint an ally at the helm of the world's No 1 iron-oreproducer, newspaper Valor Econômico said on Monday.

    Valor, which cited unnamed people familiar with the matter, said some members of Vale's controlling bloc were considering voting for the renewal of Ferreira's term when it expires next quarter. Bradespar and Japan's Mitsui & Co are the private-sector members of the bloc.

    Valor said members of President Michel Temer's PMDB party and Senator Aecio Neves of the PSDB party from the mineral-rich Minas Gerais state, where Vale is based, were vying to influence the selection of the new CEO. Such disputes have gone on for months, Valor said.

    In January, Reuters reported that shareholders led by Bradespar and pension fund Previ Caixa de Previdência could propose Ferreira stay on for at least another year as part of discussions over a new shareholder accord. His term expires midway through the second quarter.

    Vale's media representatives declined to comment on the Valor report. Representatives for Neves, Andrade and Temer did not immediately respond to requests for comment.

    Preferred shares, the company's most widely traded class of stock, rallied 4.6% to 32.65 reais, on top of Friday's 6.6% jump, as iron-ore prices soared and on optimism that shareholders will seek to block a political appointee as CEO. The stock is up 40% this year.

    The reported tension over the Vale job is the latest sign of strain between the two biggest parties in Temer's coalition. The PSDB and some in Temer's PMDB have butted heads over a string of ministry posts and may run rival candidates in the 2018 presidential election.

    Vale was partly privatised in 1997, although the government continues to wield influence over it through the investment holding company of state development bank BNDES and state-controlled pension funds. Bradespar, the funds, Mitsui and BNDESPar are all members of Valepar, which has control of the company.
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    Capesize TCE falls below $1,000/day on Australia-China iron ore route

    A build-up of tonnage, coupled with a dip in the cargo volumes, has sharply brought down the time charter equivalent (TCE) or the expected daily returns to a Capesize shipowner below the $1,000/day mark on Monday for vessels plying the key Australia to China iron ore route.

    The Capesize daily returns fell to a three-digit level of $488/day on the Port Hedland, Western Australia, to Qingdao, China route on Monday for the first time since S&P Global Platts started publishing TCE assessments from January 3.

    The TCE rate on this route is calculated basis Shanghai bunker prices published by Platts, which was assessed at $357/mt for 380 CST grade on Monday.

    Currently, the TCE on this route has fallen by close to 90% compared with $4,657/day assessed on February 1.

    Over the same period, the voyage charter freight rate on the Port Hedland to Qingdao route, which is also known as PC5, fell by 17.17% to $4.10/wet mt from $4.95/wmt, while the Shanghai bunker price for 380 CST dropped by only 1.5%.

    A few sources said that a slightly better TCE return could be obtained if the ships deviated to Singapore for bunkering before heading to Western Australia.

    "Not many participants expected the market to weaken further," a shipbroker tracking the Capesize market said.

    The fall in the returns to the Capesize shipowners have happened in the midst of surging seaborne iron ore prices, which went past the $90/dry mt mark on Monday with the Platts 62% Fe Iron Ore Index assessed at $93.05/dmt CFR North China.

    "It's just a simple situation. [There is] ample supply versus weak demand," said a second shipbroker, adding the situation may cause the market to struggle for a few more weeks.

    According to a source with a shipowning company, the tonnage supply was building up in the Pacific market as many of the ships did not get fixed last week as fewer cargoes originated from Western Australia due to the expected threat of Tropical system 15u storm.

    The Platts TCE assessments are derived from voyage charter freight rates, which are largely considered as a leveling factor for the shipping market.

    The calculation factors in the vessel size, port cost, bunker consumption/cost and vessel speed.

    The dry bulk shipping market tracks earnings in $/day and looks at TCE index to compare against time charter and voyage charter rates as well as a tool to hedge freight risk.

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    Russia Jan coal output and exports climb YoY

    Coal-rich Russia produced 33.77 million tonnes of coal in January, a year-on-year rise of 4.72%, showed data from the Energy Ministry of Russian Federation.

    That was the first increase after a fourth straight monthly drop, but it fell 3.93% from December last year.

    In January, its coal exports stood at 14.17 million tonnes, rising 16.01% from the year-ago level but edging down 0.46% from December.

    In 2016, coal output and exports of Russia totalled 384 million and 164 million tonnes, up 3.27% and 8.03% year on year, respectively.
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    Anhui aims for 132.74 Mtpa coal capacity by 2020

    Eastern China's Anhui province aims to reduce coal production capacity to 132.74 Mtpa by 2020, with 37 mines to be in operation, according to a draft plan for coal industry development over 2016-2020.

    By 2020, combined coal capacity of large and super-large mines will reach 130.55 Mtpa or 98.4% of the province's total capacity. Coal output will be capped at 130 million tonnes, and 97% of the raw coal produced will be washed by 2020.

    A total of 7.45 Mtpa coal capacity will be put into operation by 2020, said the plan.

    The province plans to eliminate 32 Mtpa coal capacity from 2016 to 2020, through closure of 18 mines, and reduce 0.2 Mtpa capacity by mines consolidation.

    By 2020, The province will foster one large coal firm with 1 billion tonnes per annum capacity (including capacity outside the province) and one firm with 50 Mtpa capacity, which may together account for 69.7% of the province's total capacity.

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    Henan to ban burning of "San Mei" in 2017

    Henan province will vigorously ban sales and burning of "San Mei" – a coal variety typically used to heat families, hotels or restaurants or to be burned by industrial boilers – by end-October this year, said local officials.

    The move may alleviate air pollution, as "San Mei" is considered one main culprit for the recent smog engulfing large parts of China.

    Many cities in Henan rolled out subsidy plans to encourage substitution of the material for clean energy, and Anyang city set up reporting rewards system to achieve the goal.

    Presently, a total of 26,140 users have completed the substitution, and about 1,360 tonnes of "San Mei" are taken back.

    The substitution amount of "San Mei" for natural gas is likely to reach 80 million cubic meters by the end of this year, with additional 40,000 rural families using natural gas to cook, said Ma Linqing, director of the provincial Administration of Industry and Commerce.
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    Surging iron-ore won’t ‘fall off a cliff,’ says Rio Tinto

    Iron-ore will defy forecasts for a dramatic price collapse as China’s economy remains strong and the top buyer boosts demand for higher-quality imports, according to Rio Tinto Group, the second-largest exporter.

    “I wouldn’t necessarily say that it’s going to fall off a cliff,” Chief Financial Officer Chris Lynch said Monday in an interview with Bloomberg Television’s Daybreak Australia. “I guess the key issue is that we have to be robust in case the price goes up, down or sideways, and that’s what we set out our business to do.”

    Global exporters are benefiting as mills in China, the world’s top steelmaker, increasingly prefer higher-quality raw materials to raise efficiency and cut pollution, according to Lynch. iron-ore, which accounted for about 60% of Rio’s profits last year, soared in 2016 to defy predictions that rising supply would overwhelm demand. Benchmark prices jumped the most in two months on Monday to the highest in more than two years.

    “There’s another fundamental shift going on in China and that’s the preference for the more efficient and less polluting end of the industry,” Lynch said in the interview. The switch by mills to higher-quality imports will support Rio and other exporters, while China’s growth becomes less reliant on commodities as it balances toward consumption and servicesfrom a focus on infrastructure and construction, he said.

    The raw material, which has surged as stimulus in Chinasupported steel output and consumption, is poised to correct sharply in the second half on rising supply from Australia and Brazil, according to Citigroup Inc. Prices will fall each quarter this year to $55 a metric ton in the final three months, according to the median of 13 analysts’ forecasts compiled by Bloomberg.

    iron-ore will plunge back below $50 as an extra 90 million tons of seaborne ore hits the market in 2017 with holdings at China’s ports are already at an all-time high, Liberum Capital analyst Richard Knights said last week in an interview.

    “We like the idea of higher prices, but there’s not a lot you can do about it,” Lynch said. “I can’t give you any justification for why it’s $2 higher today than it was yesterday.”

    China’s imports jumped to an all-time high of more than 1 billion tons last year. Stockpiles rose 2.8% last week to a record 127 million tons, Shanghai Steelhome Information Technology Co. said Monday.

    Ore with 62% content in Qingdao rallied 6.5% on Monday to $92.23 a dry ton, the highest since August 2014, according to Metal Bulletin Rio climbed 1.4% by 10:40 a.m. in London, trading near a four-year high.

    Higher prices are boosting earnings for the top producers including Rio, which last week reported its first annual profit gain since 2013, though the company has maintained its disciplined approached to acquisitions, according to Lynch. It has looked at “a hell of a lot” and a lot more than than “we’ll ever pull the trigger on,” he said.

    “We looked at a lot of things, there was a lot of stress on a lot of our competitors through the early part of last year,” Lynch said. “Notwithstanding the drop in market caps, the enterprise value didn’t change that much given that the debt was still there at 100 cents in the dollar.”

    While London-based Rio sees “a fairly robust future in China,” the producer is no longer focused as exclusively on the nation in its demand outlook, according to Lynch. Higher infrastructure spending under President Donald Trump and faster approvals for projects in the U.S. are both potential positives for Rio, he said.

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    China's Jan steel exports hit a 30-mth low

    China exported 7.42 million tonnes of steel products in January, falling 23.2% year on year and down 8.62% month on month, hitting a new low in recent 30 months, showed the latest data from the General Administration of Customs (GAC).

    China's domestic demand for steel products was proven better than expected, and there was a favorable profit margin s in the spot market.

    Meanwhile, fierce competition at the global market and anti-dumping investigations on Chinese exported steel products also frustrated coal exporters. China's steel exports became less competitive in the world, as cost of domestic steelmaking material – mainly iron ore – stayed high.

    With the Chinese Spring Festival drawing near, more exporter preferred to wait and see, leading to a decline in steel exports.

    A narrowing price gap between domestic and overseas products, which was impacted by domestic capacity cut policy, was mainly responsible for the drop, as it curbed enterprises' enthusiasm to sell products to other countries.

    China imported 1.09 million tonnes of steel products in January, climbing 17.7% year on year but down 1.8% from last December.

    China imported 91.98 million tonnes of iron ore in November, 12% higher than last year and up 0.02% from last December.
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    Indigenous and use agreements moratorium puts Adani's Australian coal mine in jeopardy

    Indian Adani Group's giant A$21.7 billion ($16.63 billion) Carmichael thermal coal project in Galilee Basin in the Australian state of Queensland is facing further potential delays following the country's National Native Title Tribunal last Friday declaring a moratorium on the registration of all indigenous land use agreements, or ILUAs.

    The moratorium followed the federal court in Western Australia on February 1 rejecting a native title deal with local indigenous people because some representatives did not sign off on it.

    "This ruling will affect new projects and has the very real possibility of halting a significant number of projects in Queensland," mining industry group Queensland Resources Council chief executive Ian Macfarlane said Monday.

    Members of the Wangan and Jagalingou Traditional Owners Council said on Sunday that they have not given Adani consent for its proposed mine.

    "We have already put evidence before the National Native Title Tribunal to prove that Adani does not have an agreement with the W&J Traditional Owners for its mine of mass destruction, which will destroy our ancestral homelands and waters, the cultural landscape and our heritage," a spokesman for the W&J Council, Adrian Burragubba, said.

    W&J youth leader and council spokeswoman Murrawah Johnson said: "In April last year, there was a meeting organized and paid for by Adani, at a cost estimated to be in excess of half a million dollars.

    Adani paid for aboriginal people to attend who had never claimed native title on Wangan and Jagalingou traditional country.

    "There were hundreds of people who aren't direct descendants of our W&J ancestors in attendance, to sign up to an ILUA. This meeting was a sham, stacked with a rent-a-crowd," she said.


    QRC's Macfarlane said the country's federal Attorney-General George Brandis has moved to amend present legislation to negate the federal court decision.

    "The Queensland Resources Council today welcomes the federal Attorney General George Brandis' announcement that the federal government will this week present legislation amending the Native Title Act as it related to Indigenous Land Use Agreements," Macfarlane said Monday.

    "Future ILUAs could be at risk, which creates a massive strain on our country's sovereign risk profile and makes foreign investors extremely nervous," he added.

    However, W&J council's Burragubba said: "Any move by the federal Attorney-General to introduce an 'Adani amendment' to the Act, to hand the tools to the mining sector to further divide and conquer aboriginal people, will be actively resisted."

    The Carmichael project -- which has spent around seven years going through the environmental approvals process -- is planned to initially have a production of 25 million mt/year before increasing to 40 million mt/year around five to seven years into the mine's life. A decision is then intended to be made on the timing of an upgrade to 60 million mt/year.

    A spokesman for Adani told S&P Global Platts Monday that the company will watch developments with interest but is not anticipating any delays to the project's start up.

    "We're on time, we're on schedule, we're on track," he said.

    There has been no adjustment made to the plan for construction to begin in the July-September quarter, he added.

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    CIL Q3 profit falls 22.42pct on year

    Coal India Ltd (CIL) realized a consolidated net profit of Rs2,884.4 crore for the third quarter ended December 2016, declining 22.42% compared to the corresponding period a year ago, the company said in a regulatory filing released on February 11.

    However, the company's total income rose to Rs21,531.2 crore in the quarter from Rs20,928.4 crore in the year-ago period. Net sales during the quarter rose to Rs19,704 crore compared to Rs18,971.5 crore in the corresponding quarter of the previous fiscal.

    At the same time, total expenses also increased to Rs17,260 crore as compared Rs15,407.5 crore.
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    Iron ore price hits 2.5-year high

    The Northern China import price of 62% Fe content ore jumped 4.6% on Friday, reaching $87 per dry metric tonne level after data showed imports by China, top consumer of the steelmaking raw material, continued to strengthen in 2017 after hitting an all-time high last year.

    It was the highest level since August 2014 and the iron ore price has more than doubled in value over the past year following near-decade lows of $37 a tonne in December last year according to data supplied by The Steel Index.

    Trade figures released overnight showed China imported 92 million tonnes of iron ore in January, up 12% or just less than 10 million tonnes compared to a year ago. Shipments for January were the second highest on record valued around $7 billion.

    The all-time record for monthly Chinese imports in terms of volume was in December 2015 with shipments totalling 96.3 million tonnes. But the price of iron ore fell to below $40 a tonne, the lowest in nearly a decade during that month, pushing the value of shipments below $5 billion.

    The all-time record in terms of dollar value was set in January 2014, when the country imported $11.3 billion worth of iron ore back when prices were firmly in triple digit territory.

    Forging more than half the world's steel, Chinese imports of iron ore for the full year 2016 topped one billion tonnes for the first time. The 1.024 billion tonnes constitute a 7.5% increase over the annual total in 2015 and is indicative to what extent exporters from Brazil and Australia has been able to displace high-cost domestic producers.

    Because Chinese ore is of such a low quality most Chinese fines require sintering (fines are mixed with coking coal and partially smelted) before being fed into blast furnaces.

    Sintering adds to the environmental impact and costs which does not fit well with Beijing's green agenda. China's steelmakers have been substituting domestic supply and reducing the percentage of fines in favour of pellets and so-called "lump" ore from Australia, South Africa and South America which lowers costs and cut pollution by reducing the need for sintering.

    The government is also pushing to eliminate overproduction in the steel sector by consolidating the industry under a few large companies and shutting down low-quality producers which often use scrap as feedstock.

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    China to control IPO, refinancing of coal, steel cos, CSRC

    China Securities Regulatory Commission (CSRC) announced lately to strictly control IPO (Initial Public Offerings) and refinancing of domestic coal and steel producers, in order to prevent companies from expanding production capacity.

    It was expected to guarantee the implementation of the nation's capacity cut policy in both coal and steel industries, and put the two pillar industries onto a more sustainable and healthy track.

    In 2016, the financing (cash) amount by IPO and refinancing totaled 1.33 trillion yuan, a year-on-year increase of 59%, with financing amount by IPO hitting a five-year high, showed data from the CSRC.

    Meanwhile, the commission allowed fast approval for Tibet, Xinjiang Uygur Autonomous Region and other less-developed areas, in a bid to promote the nation's "Western Development Strategy" and help these regions to prosper.

    Last year, three companies in Tibet completed IPO, raising funds of 1.04 billion yuan; Xinjiang saw six firms complete IPO, raising money of 2.41 billion yuan.

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    Shanxi state-run miners stop hiring new mining staff in 5 yrs

    Shanxi state-run miners stop hiring new mining staff in 5 yrs

    State-run coal producers in coal-rich Shanxi province will not recruit new mining staff in the next five years, Vice Governor Wang Yixin said at a work meeting lately.

    In the next five years, the state-owned coal enterprises will instead adjust employed workers allocation to meet the demand. The move was expected to curb staff surplus, remove company burdens and bring new vitality.

    Meanwhile, Shanxi will also encourage the third party labor services during the period to alleviate personnel burden, Wang said.

    He highlighted the significance of enhancing economics and efficiency of employment, and the necessity to build a recruitment restriction mechanism, which will be directly related with industrial development and profitability.
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    China steel capacity rises in 2016, despite closures - Greenpeace

    China's steel capacity actually rose in 2016 after the country's high-profile closure programme concentrated on already idled plants, environment group Greenpeace said on Monday.

    China announced early last year that it would shut down as much as 150 million tonnes of annual crude steel production capacity over the next five years to tackle a price-sapping glut in the sector.

    But in research conducted jointly with Custeel, a consultancy affiliated with the China Iron and Steel Association (CISA), Greenpeace estimated there was a net capacity increase of 36.5 million tonnes in 2016.

    While a total of 85 million tonnes of annual capacity was shut in 2016, exceeding the national target, the majority was already idled, with only 23 million tonnes still actually in operation.

    And, even though last year's plan banned all new projects, Greenpeace said 12 million tonnes of new capacity went into operation.

    Furthermore, the group estimated another 49 million tonnes of steel production was restarted over 2016 in response to a recovery in prices.

    Greenpeace also said 80 percent of the net increase in capacity took place in the heavily-polluted regions surrounding the capital Beijing, including Hebei province.

    Hebei, China's biggest steel producing region, aims to cut total capacity to less than 200 million tonnes by the end of the decade, down from 286 million tonnes in 2013.

    The province has promised to close 60 million tonnes of "outdated" capacity from 2014 to the end of this year as part of its pledges to improve air quality.

    China's total steel capacity stood at 1.1 billion tonnes last year, according to official figures, lower than some previous estimates but still representing a surplus of around 300 million tonnes.

    Xu Shaoshi, the head of the National Development and Reform Commission, China's economic planner, told reporters last month that China would aim to shut another 45 million tonnes of steel capacity in 2017.
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    China Jan coal imports rise 64.4pct on year

    China's coal imports stood at 24.91 million tonnes in January, surging 64.4% from the year-ago level, thanks to the domestic capacity cut campaign carried out since last year, showed data released by the General Administration of Customs (GAC) of China on February 10.

    However, the volume was 7.19% lower than last December, impacted mainly by slack demand from end users amid the Spring Festival holidays.

    The value of coal imports in January was $2.34 billion, increasing 225.4% year on year and 5.92% month on month. That translated to an average price of $93.97/t, rising $46.5/t on the year and up $11.63/t from the previous month.

    By end-January, coal stockpiles at coastal power plants of six major power companies stood at 10.89 million tonnes, down 2.51% from a month earlier.

    Their coal consumption decreased by 40.2% month on month to 429,000 tonnes by the end of January, which was enough to cover 25 days of use, 10 more days than the month prior.

    China's coal imports were on the decline after a record high of 327 million tonnes in 2013. In 2015, the volume slumped nearly 30% year on year to a new low of 204 million tonnes, while the drop narrowed to 25.2% last year, with coal imports totalling 255.51 million tonnes.

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    Anglo American to sell Kumba despite iron ore rally — experts

    Anglo American, the world's fifth largest diversified miner, will likely go ahead with its planned sale of its South Africa-based Kumba Iron Ore division, even though an ongoing rally in prices for the commodity has increased the asset’s appeal, experts say.

    According to BMI Research, while iron ore prices have climbed 90% in the last year to over $80 a tonne, the sale of Africa's largest iron ore mine would prove prudent for Anglo's long-term outlook, given its elevated debt load.

    “This positive price dynamic, coupled with the 550% rise in Kumba Iron Ore's US share price in 2016 (…) presents Anglo with a strategic opportunity to sell the mine at a premium,” they said in a note released Thursday.

    Hit by a deep rout in commodity prices, and burdened by large borrowings, Anglo last year put its coal, iron ore, manganese and nickel assets up for sale as part of a radical “portfolio restructuring,” which aims to have the group focus only on copper, diamonds and platinum.

    Since the plan was unveiled, however, most commodities have rebounded, boosting Anglo’s cash generation and profitability to such an extent that the miner is now on track to meet its year-end debt-reduction target without more disposals this year.

    Market rumours had indicated that Anglo favoured a spin-off of its iron ore and thermal coal assets in South Africa, rather than selling them one at the time.
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    Indonesia's Bukit Asam to raise 2017 coal output by 26%: CEO

    Indonesia's PT Bukit Asam plans to increase coal production 26% in 2017 to 24 million tonnes, the chief executive of the state-owned company said, amid improved prices and increasing demand for the fuel at home and abroad, Reuters reported.

    "We see Chinese and Indian demand increasing now, (and) new markets like the Philippines and Vietnam are starting to seek our coal," CEO Arviyan Arifin told Reuters in an interview.

    Arifin said he hoped prices remained stable at around $80/t, noting that 2017 was off to a good start compared with the first quarter of 2016 when prices were around $50/t.

    "If demand is high, prices are good, we can invite investors to develop new logistics channels, or to increase our logistics capacity, so production can (improve)," he said.

    Last year Bukit Asam produced 19 million tonnes of coal.

    Other mines were also benefiting from better coal prices, Arifin said. "(Small) mines that were dead have come back to life again," he said, referring to the recent government coal production target of 470 million tonnes for 2017.

    "You can see this in the field. Now that prices are at $80 maybe they're breaking even, or they're making a profit," he said.

    Indonesia's domestic market typically absorbs around 60% of Bukit Asam's output, Arifin said, and several new power stations are expected to start operations in Indonesia this year.

    By 2020, Bukit Asam plans to expand and develop around 1,500 km (932 miles) of rail infrastructure linking its Tanjung Enim mine to ports on the northern and southern coasts of Sumatra Island.

    Bukit Asam is working to transform itself into an energy company and hopes to develop seven power stations around Indonesia with a combined coal consumption of more than 30 million tonnes, among other initiatives to diversify its core business.
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    Ganqimaodu Jan coal imports soar 185pct on year

    Ganqimaodu border crossing in northern China's Inner Mongolia autonomous region imported 1.45 million tonnes of coal from neighboring Mongolia in January, soaring 185.04% year on year, said the local media.

    Coal sales at the border crossing stood at 1.28 million tonnes in January, increasing 45.03% year on year.

    The coal stockpiles at the border crossing were 1.29 million tonnes by end-January, a year-on-year decrease of 47.33%.

    With Mongolian washed coking coal traded at the border crossing has been stable at some 1,000 yuan/t since January, as much as 37 enterprises were engaged in coal import business at the border crossing.

    Ganqimaodu borders resourceful Mongolia, whose Tavan Tolgoi coal mine has coal reserves of 6.4 billion tonnes, with primary coking coal at 1.8 billion tonnes and thermal coal at 4.6 million tonnes. The border crossing has been an important hub of coal trades between the two countries since its opening in 2009.
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