Mark Latham Commodity Equity Intelligence Service

Wednesday 8th July 2015
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    Greece/China/Puerto Rico: CRB acts like a dog!

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    Silver, Copper,Aluminium: break to new lows.

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    Oil and Gas

    Oil markets slide as Great Unwinding resumes

    Oil prices have fallen around $5/bbl, since my suggestion last week that a 'New oil price fall was a matter of 'when', not 'if''. It thus seems increasingly likely they are resuming their fall back towards $30/bbl, as we discussed in last week's pH Report webinar.

    Financial players clearly misread the market when they assumed earlier this year that prices would 'inevitably' move higher, and now we will all suffer for their mistake, as markets continue their Great Unwinding.

    The funds first began to believe in higher prices after the SuperBowl coup back in January, when prices jumped 20% in 2 days. This pushed prices up in very thin trading. But financial players clearly didn't understand this was just a very clever trading move, and instead decided that it marked the repeat of the Q1 2009 rally. As the chart shows:

    Prices then had bottomed below $40/bbl, but moved into recovery as central banks began stimulus efforts
    Fortunes were made as prices moved up to $125/bbl, due to the scale of the liquidity provided
    And clearly many players thought they saw a similar pattern developing in Q1 this year
    As a result, they are storing oil in tanks all over the world, as well as in floating storage

    But this is not 2009 all over again. Central banks are most unlikely to add another $35tn of stimulus to that already supplied. Instead, we are seeing the Great Unwinding of all this stimulus, as China heads in a New Normal direction, and the Eurozone countries start to realise Greece's debt will never be repaid.

    The fundamentals of supply/demand are, of course, of no interest to the commodity funds. As discussed last week, they currently have $69bn to invest in the futures - and $69bn can buy a lot commodities such as oil at today's lower prices.

    The result is that we now have record inventory levels in the US and Europe, plus near-record levels of floating storage. Equally important for Asian markets is that China is probably close to ending its buying to build its strategic oil reserve to cover 100 days of demand.

    Obviously prices will bounce around from day-to-day and week-to-week. But barring geo-political upset, it is very hard to see why they should not continue their fall, now they have begun to slide again.

    Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. title

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    Libya lifts force majeure at Ras Lanuf oil terminal

    Libya has lifted force majeure at the major Ras Lanuf oil terminal, though restarting exports would take at least two days depending on available crude, a spokesman for the National Oil Corporation said on Tuesday.

    Restarting Ras Lanuf would be a major boost for Libya’s crippled oil industry. The terminal, along with another major eastern oil port Es Sider, has been under force majeure since December last year due to fighting between rival factions,

    “The NOC lifted the force majeure on Ras Lanuf yesterday. The port will be ready to restart exporting, but this depends on the amount of available oil and the working fields linked to the port,” NOC spokesman Mohamed Harari told Reuters.

    He said he did not expect any exports for at least the next two days.
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    UAE crude oil exports to fall in Q4 on refining boost -sources

    United Arab Emirates (UAE) crude oil exports are expected to fall in the fourth quarter of 2015 as the Gulf OPEC member upgrades its Ruwais refinery and processes more oil to feed rising domestic demand, industry and trading sources said.

    The UAE's Ruwais refinery expansion, which more than doubles the plant's capacity from 415,000 barrels per day (bpd), was completed late last year and is expected to hit full capacity before the end of the year, traders say.

    The plant will boost the UAE's total refining capacity to more than 1 million bpd, which will help supply the local market and increase the country's oil products exports.

    The added refining capacity, however, will eat into crude available for exports, Gulf-based oil and trading sources said.

    One source familiar with the matter said the fourth-quarter fall in crude exports from state-run Abu Dhabi National Oil Company could be as much as 200,000-250,000 bpd.

    The cuts would not affect the long-term contracts ADNOC has with its clients, but it would limit its short-term deals, the source said. "These (short-term) volumes would go to the local market," the source said.

    Some reductions in exports have already been seen since ADNOC began commissioning work at Ruwais, but the diversions to the refinery have been somewhat muted by a late-2014 increase in the output of ADNOC's flagship crude by 200,000 bpd to 1.6 million bpd, according to a buyer of Abu Dhabi crude.

    Also, a portion of the refinery's throughput is made up of the ultra light oil known as condensate, which is not included in the UAE's crude output and export figures.
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    PIRA: US LNG exports to mark new era

    NYC-based PIRA Energy Group believes that the U.S. as LNG supplier on a large scale is the new era in the global gas industry.

    An initial Asian spot deal for $7.20/MMBtu sourced from Australia is actually a harbinger of a new era in global gas: that of the U.S. as LNG supplier on a large scale. It also strongly suggests that some good deals are available in Australia on FOB cargos to keep the trains operating at a higher capacity, PIRA said in its weekly report.

    In the United States, the release of the EIA’s April Monthly came with a wealth of new supply data as the agency expanded coverage to include monthly production statistics from 10 additional states. The data were retroactive through the first quarter of 2015.

    The third quarter is, by far and away, the lowest period for gas demand during the calendar year in Europe, says PIRA.

    While the year-on-year growth in gas demand seen in the first half of the year will continue in the third quarter, the volume of growth in absolute terms will be so small as to be hardly noticeable in the gas balances. The third quarter is often useful for understanding the outlook for underlying gas demand growth, as the role of weather is severely diminished in most cases.

    The recent heat wave will offer some support to gas demand, as it has already been seen in France, but the focus is on 3Q as a period when more about underlying gas demand in sectors such as industry is revealed.

    The conclusion is that some recovery is occurring in places like Spain and the U.K., but efficiency gains in gas consumption and renewables substitution in emerging lower carbon markets continue to stymie growth in most other places.
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    Chevron's Gorgon faces struggle to offload test LNG

    Chevron's $54 billion Gorgon LNG project - the world's most expensive - may be forced to dump chunks of its early production onto an already saturated global spot market, as some Japanese clients warn they are unlikely to take up test shipments.

    This would be another blow for a project hit by billions of dollars in cost overruns and underscores the difficulties for a raft of Australian liquefied natural gas developments facing subdued demand and competition from U.S. shale gas.

    After nearly five years of construction, test exports of LNG from Gorgon's 15.6 million-tonnes-a-year (mtpa) plant off western Australia are due to begin late this year and last until April 2016, when commercial deliveries will likely start.

    Japanese buyers holding long-term supply contracts have in the past eagerly sought early cargoes, but some could pass on the test shipments with long-term prices well above spot prices languishing at four-year lows.

    "At this point there is no plan," a spokesman at Tokyo Gas said, when asked whether it planned to take the first of the test, or commissioning, cargoes.

    The firm has a contract to take 1.1 mtpa from the project.

    A senior official from another Japanese client also said it was unlikely to buy these cargoes.

    "If there's spot supply that's cheaper than Chevron's offer price, then we'll not take from Chevron," said the official, who declined to be identified.

    Chevron will already have to sell some LNG on the spot market after securing 25-year sales deals for under 70 percent of its share of Gorgon LNG, according to company data, less than the 85 percent a project backer would normally seek to guarantee returns.

    The U.S. firm, which has a 47.3 percent stake in Gorgon, has also signed a five-year deal with South Korea's SK LNG Trading to supply 0.83 mtpa starting from 2017.

    Japanese buyers will take nearly a third of Gorgon's output once commercial sales start, but if test shipments are not taken up then up to 2.4 million tonnes of LNG could hit spot markets leading up to April, Reuters calculations based on company data showed.

    While firms with long-term contracts would normally be obliged to take gas during the test phase, an industry source briefed by a buyer said Japanese clients had built in the right to pass when negotiating their contracts.

    Aside from Tokyo Gas, other Japanese buyers of Gorgon include Chubu Electric Power and Osaka Gas, which also have small equity stakes in the project, and Kyushu Electric Power and JX Nippon Oil.

    Whether or not they take commissioning cargoes will largely depend on how competitively priced they are versus spot.

    Chevron tied long-term contract sales of Gorgon supply to oil prices at an estimated 14.85 percent, or "slope", of a barrel of Brent crude, with a small $0.50-$1.00 premium.

    That translates into an LNG price of $10.10 per million British thermal units (mmBtu) at current Brent prices, compared with spot LNG currently at $7.20 per mmBtu.

    Should oil rise towards year-end, as some analysts expect, the gap between Gorgon LNG supplies and spot prices could be stretched further.

    An Osaka Gas spokesman said no arrangements had been made for taking the first of the commissioning cargoes, though it was possible it could take some before the end of March.

    Chubu Electric and Kyushu Electric said the timing of the first delivery of gas was undecided, while JX Nippon declined to comment.

    Chevron could offer purchasers compensation to encourage them to take test shipments, a source familiar with the industry said.
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    Oversupply leads to fall in China's retail fuel prices

    China's retail fuel prices will be cut slightly starting from Wednesday, reflecting a glut of supply in the market.

    The National Development and Reform Commission, the nation's top economic planner, said that retail prices of gasoline would fall by 95 yuan ($15.35) per metric ton, or 0.07 yuan a liter, while diesel prices will go down by 90 yuan per ton, or 0.08 yuan a liter.

    After the reduction, the benchmark price of 90-octane grade gasoline will be 6.09 yuan a liter.

    Domestic retail fuel prices have seen five hikes and five cuts so far this year. The gasoline price has increased by 365 yuan per ton while the price of diesel is up by 295 yuan per ton.

    Influenced by Greece's rejection of debt bailout terms, the US crude price benchmark West Texas Intermediate fell 7.73 percent, or $4.40, on Monday to $52.53 a barrel, the biggest drop since Feb 4 and the lowest price per barrel since April 13.

    Li Yan, a crude oil analyst at consultancy Shandong Longzhong Information Technology Co, said several factors may further drag down the crude price in addition to Greek crisis.

    "Crude output from the United States and the Organization of Petroleum Exporting Countries continue to increase, which will pump into an oversupplied global market," he said.

    He expects retail prices to falls again at the next adjustment date, scheduled for July 21.

    According to the consultancy, average running capacity at China's refineries was 81.72 percent during the first half, a 1.39 point decline compared with the same period last year, reflecting a weak downstream demand.

    "The number of China's autos has been increasing, resulting in a stable demand for gasoline, but diesel demand is slowing because of a weak economy, especially in the logistics sector," Li said.
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    Parex Resources provides operational update

    Operational Highlights

    Grew Q2 (April 1-June 30, 2015) average oil production to 27,025 barrels of oil per day compared to production guidance of 26,500 bopd and an increase from the prior period production of 26,729 bopd;

    Commenced production at the Rumba exploration discovery from the Mirador Formation on June 20, 2015 (Block LLA-26, 100% WI). The Rumba-1 well is producing at an initial restricted rate of approximately 1,000 bopd of 19 API oil with a water cut of less than 1%;

    Drilled Rumba-2, an appraisal follow-up to Rumba-1 on June 19, 2015. Rumba-2 was programmed to evaluate the Mirador formation approximately 1 kilometer north-east of Rumba-1. Initial interpretation suggests that the primary objective Mirador formation appears to be connected and higher to Rumba-1. The drilling rig has initiated completion operations on Rumba-2 and we plan to use the current drilling rig to drill at least one additional well on the existing pad;

    Abandoned drilling of the exploration Bazar-1 (Block LLA-26, 100% WI) due to mechanical problems in the Leon/C1 formations. Using the same drilling pad as Rumba-1, Bazar-1 targeted the Une Formation with a planned horizontal departure of 2.2 kilometers and a wellbore deviation in excess of 60 degrees. Parex has applied to have Bazar-1 classified as the second and final current phase commitment well on Block LLA-26. The Company has re-designed a new drilling program to target the deeper Une Formation and expects to drill the Bazar-2 exploration well prior to year-end 2015;

    Drilled and abandoned the Zorro Rojo (LLA-20, WI 100%) exploration commitment well. Parex has fulfilled all outstanding work program commitments on Block LLA-20;

    Capachos production contract has been awarded to Ecopetrol S.A. by the National Hydrocarbon Authority, fulfilling a key condition of Parex' farm-in agreement. Subject to regulatory approval, Parex will have 50% working interest and operatorship on the Capachos Block and will pay 100% of the cost of drilling two development wells. The Company is now initiating community dialogue and civil construction with the first well expected to spud in Q4 2015;

    Sanctioned Adalia field (LLA-30, 100% WI) secondary recovery project with water-flood injections commencing in Q4 2015;

    Accelerated 2015 exploration program. Three drilling rigs are currently working on three blocks: LLA-32 (mobilizing), LLA-34 (drilling Chachalaca-1) and LLA-26 (completing Rumba-2);

    Approved a 405 square kilometer 3D seismic program for Lower Magdalena Basin Block VIM-1 (100% WI).

    The work program is to begin in Q4 2015 and is expected to define the 2016 drillable prospects. Accelerating the 3D seismic program into 2015 allows Parex to acquire seismic information at approximately a 50% lower cost on a per unit basis than in 2014.
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    EIA slightly raises 2015 and 2016 oil production forecasts

    The U.S. government on Tuesday modestly raised its 2015 and 2016 U.S. crude oil production forecasts while lowering its price outlook.

    In its short term energy outlook, the U.S. Energy Information Administration raised its 2015 U.S. crude oil production growth forecast to 750,000 barrels per day (bpd) from 720,000 bpd.

    The EIA forecast 2016 production will fall by 150,000 bpd, slightly less than its previous forecast of a 160,000 bpd decline.

    The energy agency also lowered its forecasts for U.S. and global crude oil prices for 2016.

    The average 2016 price for West Texas Intermediate crude , the U.S. benchmark, was forecast at $62.04 per barrel, a 5.4 percent drop from the previous monthly EIA forecast. The global benchmark Brent was forecast to average $67.04 per barrel, a 4.9 percent drop from the previous monthly EIA forecast.
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    Energy Credit Risk Re-Surges As WTI Crude Extends Losses

    Overnight hope has faded and WTI crude prices have retumbled as Iran deal expectations rebuild and China economic collapse fears grow. The last few days have seen crude break crucial support levels and tumble to 3 month lows, down over 12% - the biggest losing streak since November. Credit risk for HY energy names is resurgent, crushing the mal-investment dream in a double-whammy for the industry as cost of capital rises and incomes shrink. As Crude re-tumbles...So credit risk surges...

    Following recent regulatory pressure to reduce exposure to E&P loans, one wonders who will catch this falling knife.

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    In a first, natural gas outpaces coal for US electricity generation

    April was a significant month for the U.S. fuel mix. As SNL Energy points out, it marked the first month – ever – that the United States generated more power from natural gas than coal. Driven by low gas prices and a slew of carbon regulations taking coal plants offline, coal's year-over-year April production declined 18.9%, very similar to gas'  20.6% increase.

    Nuclear generation saw a 6% boost, while solar thermal and photovoltaic rose more than 57%.

    The federal government's Clean Power Plan, which aims to reduce greenhouse gas emissions by 30% by 2030, is predicted to take some 90 GW of coal-fired production offline — more than twice the amount expected by 2040 without the new regulations, according to the EIA. The U.S. Environmental Protection Agency's Mercury and Air Toxics Standards, despite beingremanded by the U.S. Supreme Court last month, has already been responsible for a slew of retirements, and has been estimated to account for about 40 GW of the 90 slated to retire by 2040.

    While gas has been the beneficiary of late, rising from 76,728 GWh generated in April of last year, solar energy is seeing the largest percentage gains. The U.S. April solar output rose from 1,633 GWh in 2014 to 2,567 GWh this year.

    Total renewable generation, on an annual basis, has risen from about 358,000 GWh in 2005 to 540,000 GWh last year.
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    Alternative Energy

    3i Infrastructure, AMP Capital to buy shipping firm Esvagt

    Investment firms 3i Infrastructure and AMP Capital have agreed to buy Danish shipping company Esvagt for 4.1 billion Danish crowns ($607 million), aiming to tap growing demand for servicing offshore wind farms.

    Esvagt is being sold by Danish shipping and oil group A.P. Moller-Maersk, which controls 75 percent of the shares, and a group of individual investors which owns the rest.

    Esvagt has a fleet of 43 vessels and is a provider of offshore safety and support at sea primarily in and around the North Sea and the Barents Sea. It made a record profit of 252 million crowns in 2014 on turnover of 943 million crowns.

    Since 2010, Esvagt has been servicing the Bligh Bank Offshore Wind Farm for Danish wind turbine maker Vestas .

    This year, it has put two specially built service operation vessels for offshore wind turbine farms into operation for Siemens Wind Power.

    A.P. Moller-Maersk has offloaded a string of companies and stakes in subsidiaries in recent years to focus on container shipping, oil, port operations and drilling. It has booked more than $11 billion from divestments since 2009.
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    U.S. government outlines solar power boost for the poor

    The White House took steps this week to boost the installation of solar power and other renewable energy in federally subsidized housing and increase the number of jobs in the industry for poor people.

    The U.S. administration has set a goal of installing 300 megawatts of solar and other renewable energy in affordable housing by 2020, tripling a goal President Barack Obama set in 2013 that has already been surpassed.

    It is "really important for everyone to have access to solar and other renewable energy technologies both for the energy itself and the cost savings there, and also the employment opportunities," Brian Deese, a climate and energy adviser to Obama, told reporters in a teleconference on Monday.

    Solar energy makes up less than 1 percent of the power generated in the United States, but the industry is growing rapidly. The 300 megawatts is enough for about 50,000 homes and is part of a wider White House goal to increase solar energy.

    Asked whether power companies could try to recover costs to the grid of setting up renewable power and undercut any savings for low- to middle-income consumers, Deese said part of the effort is to arm people with more information to make good decisions.

    The administration will offer technical assistance to affordable housing groups to install solar power and make it easier for homeowners to borrow up to $25,000 for efficiency and solar projects. In addition, AmeriCorps will help train 200 poor people to get jobs in the solar industry.
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    France to launch floating offshore wind tender this month-trade group

    The French government plans to launch a pioneering tender for several pilot floating offshore wind farms this month, a French wind industry trade group said on Tuesday.

    Matthieu Monnier, head of offshore wind at France Energie Eolienne (FEE) said he expected two to three floating turbine projects with capacities of 15 to 60 megawatts (MW) each, for a total capacity of maximum 100 to 120 MW.

    The tender will be a major step in the development of floating offshore, a nascent industry with huge potential, as fixed-foundation offshore turbines are limited to coastal waters with maximum depths of around 50 metres.

    Portugal and Norway have pioneered the new technology in the past few years with a single floating turbine each, and Portugal plans to build a 25 MW floating wind demonstration farm. Japan also has floating offshore wind projects.

    "In Europe, the French offshore tender would be the first of this size," Monnier told Reuters.

    FEE is not sure what level of feed-in tariff subsidies the government will offer for floating offshore, but FEE president Frederic Lanoe said this would logically be more than the approximately 200 euros per MW for fixed-foundation offshore.

    The projects will also received a combined 150 million euro investment subsidy.

    Four areas on French shores have already been identified for offshore wind development, including Leucate, Brescou and Fos-sur-Mer on the Riviera, which has year-round strong winds and where the Mediterranean sea floor slopes steeply. A fourth area is around the island of Ile de Groix, off southern Brittany.

    "We expect the tender in coming days," Lanoe said, adding that FEE had had discussion with the government about the issue.

    The French energy and environment ministry was not immediately available for comment. The government has talked about a possible launch in June.

    The tender is expected to test several offshore wind technologies, possibly including turbines with a vertical rotor axis, as opposed to the horizontal axis common in most machines.

    French firm Nenuphar - in partnership with EDF Energies Nouvelles, nuclear group Areva and oil industry engineering group Technip - is developing a 2 MW vertical-axis turbine.

    Another French firm, Ideol, has developed a floating platform for offshore wind turbines which it says is competitive with bottom-fixed turbine foundations at depths from 35 meters.

    In Portugal, utility EDP Renewables has run its prototype WindFloat turbine on a three-legged floating platform for several years.

    In Norway, oil group Statoil has pioneered a turbine mounted on a ballasted vertical steel cylinder that floats upright. It has plans to float several of the turbines in in Scotland.
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    Jun Yang Solar Power Investments Ltd.

    Jun Yang Solar Power Investments Limited  is delighted to announce that, the Group is expected to record a significant rise in profit attributable to owners of the Company for the six months ended 30 June
    2015 as compared to that for the corresponding period in 2014 of approximately HK$121 million.

    Such profit is principally attributable to the gain arising on change in fair value of held-for-trading investments of not less than HK$500 million.

    About Jun Yang Solar Power Investments Limited (SEHK: 397)

    Jun Yang Solar Power Investments Limited is mainly engaged in the business of assets management and investment, money lending, as well as investment in solar PV power generation.

    - See more at:
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    EU politicians set to back carbon market 2019 reform start

    The European Parliament on Wednesday is expected to back a 2019 start to reform of the world's largest emissions market in a step towards deeper change and higher carbon prices.

    The aim is make the EU Emissions Trading System strong enough to spur investment in lower-carbon energy and comes ahead of U.N. talks in Paris at the end of the year over a deal to curb global warming.

    Following a vote expected after 1 p.m. (1100 GMT) on Wednesday in a plenary session of the Parliament in Strasbourg, the reform will require a sign-off from member states to become EU law.

    The planned reform involves setting up a Market Stability Reserve to store surplus carbon allowances that have piled up due to oversupply and economic slowdown.

    The reserve also could release the pollution permits in the event of higher demand.

    Jos Delbeke, director general of the European Commission's climate action department, said as many as 1.6 billion allowances could be removed from the market where a surplus of them has capped carbon prices that currently trade at around 7.50 euros per tonne.

    Prices could rise to around 20 euros by 2020 with the help of the reform, analysts say.

    Parliamentary sources said they expected the vote to be straightforward after a series of turbulent debates forged a compromise.

    Agreement was complicated by Poland, whose economy relies heavily on coal, the most carbon-intensive of the fossil fuels. It led opposition to any action before 2021, the reform date initially proposed by the Commission.

    Energy-intensive industry also raised concerns that reform before then would increase their costs and could drive investment into other areas of the world, a shift known as carbon leakage.

    Dow Chemical, for instance, says energy-intensive industries must continue to receive 100 percent free allowances up to an EU benchmark to cover its exposure to the ETS.

    To reward best practice, the Commission, the EU executive, uses a benchmarking system that gives free allowances to cover 100 percent of emissions costs for top-performing installations.
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    China 2nd largest hydropower station output exceed 80 TWh

    Xiluodu hydropower station, China’s second largest and the world’s third largest hydropower station, witnessed its power output exceed 80 TWh by end-June since its full operation on July 1 2014, state media reported.

    During the first half of the year, Xiluodu generated a total 19.5 TWh of power, official data showed.

    The station, located in the Jinsha River, between southwestern Yunnan and Sichuan provinces, has 18 large generators and a total capacity of 13.86 GW per year.

    By end-June, Xiangjiaba hydropower station – China’s third largest hydropower station, saw its total output exceed 60 TWh since its operation, with H1 output at 11.3 TWh, according to the report.

    Xiangjiaba station, 157 km away from Xiluodu, located in the downstream Jinsha River, has an annual capacity of 6.4 GW.

    Meanwhile, the country’s largest hydropower station – Three Gorges hydropower station, generated a total 35.7 TWh of electricity during the first half of the year, up 4.3% on year, according to a report from the China Three Gorges Corporation.

    The station located in central province of Hubei and has an annual capacity of 22.4 GW.

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    Botswana seeks bids to build solar plants for mines

    Botswana's government launched a bidding process on Tuesday to construct solar power plants near its huge Jwaneng diamond mine and for the nation's northwest, where copper assets are being developed. 

    "This invitation ... is a request for expression of interest to construct, operate, maintain and decommission at the end of its economic life, a scalable solar power plant," the government said in a notice in the State-owned Daily News. 

    The notice did not specify the capacity wanted but the minerals and energy ministry has previously stated the government wanted to place 100 MW solar power tenders which would be equally split between Jwaneng and the north-west mines. 

    Studies have identified Jwaneng as the most suitable place for a solar power plant in the country because of its abundant sunshine. The Jwaneng diamond mine is operated by Debswana, a joint venture between Anglo American unit De Beers and the Botswana government.
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    Massive solar plant planned for Oman

    The largest producer of oil and gas in Oman is to build one the world’s largest solar plants.

    Petroleum Development Oman (PDO) is partnering with GlassPoint Solar, to harness the sun’s rays to produce steam at a 1,021 megawatt solar thermal facility in South Oman called Miraah (meaning mirror in Arabic).

    The new project will generate an average of 6,000 tons of solar steam daily for oil production, dwarfing all other solar EOR installations.

    The steam will be used in thermal Enahnced Oil Recovery (EOR) to extract heavy and viscous oil at the Amal oilfield. Miraah will deliver the largest peak energy output of any solar plant in the world.

    Once complete, Miraah will save 5.6 trillion British Thermal Units (BTUs) of natural gas each year, the amount of gas that could be used to provide residential electricity to 209,000 people in Oman.

    PDO managing director Raoul Restucci, said: “The project will provide a significant portion of the steam demand at Amal and is an important part of PDO’s production plans. It will also displace diesel and higher carbon intensive power generation and oil burning in future thermal projects.”

    Mr Restucci said EOR will account for around a third of PDO’s production by 2023.
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    Base Metals

    Only half of nickel smelters to be built in Indonesia this yr-industry

    Nickel producers in Indonesia may only build half of the 12 new smelters anticipated this year and some may not commence production immediately due to low global prices, a senior industry official said.

    Indonesia, which had been China's top nickel ore supplier, brought in export restrictions last year aimed at forcing mining firms to build smelting and processing facilities so the country could earn more from raw ores and concentrates.

    I.D. Susantyo, chairman of the Indonesian Nickel Association, expected only five or six nickel smelters would be completed by the end of the year. That is half the number anticipated by the mining ministry in April.

    Susantyo said not all of the smelters built this year would start production as global prices drop to six-year lows of around $10,700 a tonne, nearly half of their peak last year.

    "With nickel prices dropping like this, even though they are completed, they may not be able to produce because the market price is lower than the cost of production," he said.

    "Investors must think if their investments can make a return within two or three years. If this won't happen, they won't invest."

    To produce one tonne of nickel in Indonesia, it costs producers around $14,000 a tonne with blast furnace technology and $13,000 a tonne using electric furnaces, he said.
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    Steel, Iron Ore and Coal

    China sets new standards for coal conversion projects

    China's energy regulator has released new draft guidelines for projects that convert coal to oil or gas, aiming to commit the sector to the strictest possible environmental standards, it said on Tuesday.

    Beijing is looking for alternative sources of growth for its struggling coal sector, with more than 80 percent of domestic mining firms making losses as a result of slowing demand and chronic overcapacity.

    Environmental groups have warned that coal-to-gas (CTG) and coal-to-liquid (CTL) projects will do little to cut carbon emissions or reduce pollution.

    In a bid to allay concerns about the environmental risks of the process, projects will only be permitted in regions with sufficient water resources, the National Energy Administration said.

    It said that any new project needed to be consistent with China's overall plans to control coal consumption, and would be encouraged to prioritise the use of low-quality coals with high sulphur and ash content to reduce their use elsewhere.

    CTL plants would be permitted to use a maximum of 3.7 tonnes of coal for each tonne of oil produced, while CTG projects would have to use no more than 2.3 tonnes for every 1,000 cubic metres of gas produced, it said.

    A decade ago, China encouraged miners and oil firms to establish CTL facilities in a bid to ease dependence on imported crude, and dozens of projects were planned.

    But the government went cold on the technology in 2008 after global oil prices retreated, eroding the competitiveness of CTL. The technology also raised concerns about the use of scarce water resources in coal-rich regions like Ningxia and Inner Mongolia.

    China's biggest coal mining firm, the Shenhua Group, launched a CTL project in Inner Mongolia in 2010. The firm aims to bring total capacity at the plant to 11 million tonnes a year by 2020.
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    Iron ore fall continues

    The spectacular collapse in the iron ore price has continued.

    According to Metal Bulletin’s iron ore index the spot price for 62% fines fell by 5.12%, or $2.68, to $49.60 a tonne on Tuesday.

    The index has now fallen for nine consecutive sessions, the longest losing streak seen since August 18 to 29 last year.

    It is also the first time since April 16 that the price has fallen below the $50 a tonne level.

    Read more:
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    Miners paint rosy iron ore picture by skirting tough issues

    Australia's major iron ore miners have had a torrid year so far, battling low prices, engaging in an ugly slanging match with each other and dealing with persistent questions about the wisdom of their expansion strategies.

    The Minerals Council of Australia's report, entitled "Iron Ore: The Bigger Picture", points out the enormous benefits the industry has brought Australia and will continue to provide.

    The major Australian iron ore miners, Rio Tinto and BHP Billiton, are members of the council and sit on the board of directors, but the country's third-biggest producer, Fortescue Metals Group, is absent from the list.

    The report doesn't really make an effort to explain how the major miners got their forecasts on Chinese demand so wrong, and it glosses over whether they really expected the price to fall as low as it has.

    What the report does do is present a positive outlook by highlighting the iron ore sector's contribution to the Australian economy.

    Revenue from the industry totalled more than A$430 billion ($321 billion) in the decade from 2005 to 2014, and this will rise to over A$600 billion in the next 10 years, even assuming no further output growth and prices staying at low levels.

    The report also points out that the bulk of this revenue accrues to suppliers and governments, with suppliers getting 53 percent in the 2010-2014 period, governments taking 24 percent, and the rest for investors.

    The report's other main points include that iron ore is alone among Australia's major commodity exports in increasing market share in the past decade, and that this gain in market share was in the national interest as the extra volume produced was needed to offset the decline in price.

    It's certainly a laudable achievement that Australia's iron ore producers managed to increase their share of the seaborne market from 34 percent in 2000 to 50 percent, while keeping costs at the lower end of the curve.

    The argument is that anybody who thought the high prices that prevailed when iron ore reached a record just above $190 in early 2011 would persist was out of step with sensible analysis.

    The report also makes the case that any form of intervention in the market to regulate supply would most likely end in failure and would be against the national interest.

    What the report does achieve is it sets out a rational economic defence of what Rio and BHP did to lead Australia's iron ore output from 170 million tonnes in 2000 to around 660 million in 2014.
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    China steel prices lowest in over 20 years, squeezing small mills

    Chinese steel prices are at their lowest in more than 20 years as demand in the world's top producer wanes, industry data shows, and some analysts say the free-fall is not even close to an end, threatening the survival of small steelmakers.

    A composite price index of eight steel products compiled by the China Iron & Steel Association (CISA) fell to 65.28 points last Friday. The index is based on 1994 reference prices, meaning that prices are now nearly 35 percent lower than they were 21 years ago.

    While the association did not begin compiling regular data until 2001, current prices are already believed to be lower than 1999, when the industry was hit by the Asian financial crisis.

    Last year, when the index fell to 95, CISA secretary general Liu Zhenjiang said it was already at its lowest ever.

    The stuttering Chinese economy is hitting demand for a range of commodities including iron ore, steel and copper.

    "The biggest problem is poor demand. The worst winter is yet to come and some small steel mills have already shut down, which could become permanent as cash flow will remain a big issue," said an official at a state-owned steel mill.

    The price slide has meant local steel mills have failed to benefit from the rapid decline in iron ore, which remains about a third higher than two decades ago, and the sector is also struggling with surging environmental compliance costs.

    China's appetite for steel is expected to take a further hit as construction eases over the summer, forcing mills to cut production. January-May output fell nearly 2 percent from a year before, with consumption dropping 5 percent, CISA data showed.

    The most traded October rebar futures on the Shanghai Futures Exchange hit 1,948 yuan a tonne - the lowest since the contract's launch in 2009 after losing 27 percent this year.

    Spot rebar in Shanghai has tumbled to 1,930 yuan, 60 percent lower the 4,890 yuan peak in August 2011, Mysteel data showed.

    China's recent stock market turmoil is now threatening to pull the entire commodity complex into the red.

    The majority of Chinese steel mills are still reluctant to cut production in order to maintain cash flow and bank credit.

    "This is the end game for mills. Whoever survives the current crisis could survive permanently, while those who can't will exit the market for good," said Cheng Xubao, an analyst at industry consultancy based in Beijing.
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