Mark Latham Commodity Equity Intelligence Service

Friday 10th March 2017
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    “Energiewende Risks Becoming a Disaster” …As Costs Explode!

    Normally even the German conservative media have been supportive of Germany’s shift from fossil fuels over to green energies, and most leading conservative media outlets accept that climate change is mostly man-made and thus needs to be taken seriously.

    Climate science skepticism is scorned in Germany.

    So it’s all the more surprising that one of Germany’s leading center-right dailies, Die Welt, came out with an article seriously challenging Germany’s Energiewende (transition to green energies).

    Citing a 20-page report by McKinsey, Die Welt writes that the Energiewende risks becoming “an economic disaster” (it in fact already has) and that the opinions on the Energiewende by McKinsey are totally opposite of those held by the German government. This shows two things: the growing chasm between the German government’s view and reality, and 2) the government’s stubborn refusal to acknowledge that their energy policy has become a dismal failure.

    According to Die Welt, a team of McKinsey experts examined 15 criteria and concluded: “The costs will continue to rise“, and thus contradict the German government’s claim of “stable prices”.

    In fact 11 of the 15 criteria that were examined had worsened. According to the report:

    The current figures available show that the previous success of the Energiewende for the most part has come from expensive subsidies. At the same time goals whose fulfilment do not depend on direct financial support are becoming increasingly more unrealistic.”

    Die Welt writes that McKinsey’s conclusion “must be really painful for the government“, which had hoped to see reductions in CO2 emissions. The bitter reality is that CO2 emissions have in fact risen over the past years and today they are more than 13% over the original target.

    Green jobs eroding

    The Energiewende has also failed on the jobs creation front, Die Welt writes. Proponents claimed earlier that renewable energies would lead to a jobs boom. But that too has not materialized in any way, shape or form. Jobs in the sector have fallen “for the 4th year in a row – falling from 355,400 to 330,000“. The leading German national daily adds that the biggest job losses came from the onshore wind and solar sectors where 15,000 jobs were lost.

    McKinsey warns that the number employed in green energy could even fall below 2008 levels!

    And not only “green energy” jobs are being slashed. McKinsey also found that for the first time in 2016 jobs in energy-intensive industries were lost. Die Welt reports:

    In March 2016 there were in total 15,000 jobs less than a half year earlier.”

    Cost of electricity production to jump 40%

    The total cost of producing electricity for the country has also surged due to the Energiewende, McKinsey writes:

    The cost of supplying electricity in Germany will rise from 63 billion euros today to 77 billion euros annually by 2015. In 2010 the cost was 55 billion euros.”

    This means much higher prices for consumers, who have seen their electricity prices rise to 30.38 euro-cents per kilowatt-hour. For the average German household this will translate into 335 euros of more costs every year by 2025.

    Meanwhile the average European electricity price has dropped.

    47.3 percent more expensive than average European power

    Currently German electricity prices are on average almost 3 times more than what consumers in the USA pay.

    The McKinsey report found:

    In the meantime the price level for German household power is 47.3 percent above the European average.“

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    Tax Reform: Dead?

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    EPA Administrator Pruitt says rules must give market certainty

    US Environmental Protection Agency Administrator Scott Pruitt extended a hand of friendship to the energy industry Thursday, expressing his desire to reshape the office he heads into one that cooperates with stakeholders instead of one that creates economic uncertainty through its rulemaking.

    During a speech to global oil, gas and power leaders at the CERAWeek by IHS Markit conference in Houston, the former Oklahoma attorney general who began his new job last month after a bruising confirmation process said he wants to be a partner, not a foe, of the sectors EPA regulates.

    "I want the states to see the EPA as a friend, as a partner, and not an adversary," Pruitt said. "Regulators ought not to use their authority to pick winners and losers."

    After eight years of a sometimes fractious relationship between industry and government under the Obama administration, the message was a welcome one to the utility executives, state economic boosters, grid operators and infrastructure investors in attendance.

    To the environmental advocates and scientists watching, the remarks, and statements he has made seeming to question the extent to which man impacts climate change, were viewed as fighting words that could alter everything from clean power to air and water quality.

    "The arsonist is now in charge of the fire department, and Pruitt wants to let the climate crisis burn out of control," the Sierra Club said in a statement. "The EPA administrator is supposed to protect families and communities from environmental crises, but all Pruitt is willing to do is spewing corporate polluter talking points."

    While Pruitt did not specifically address the fate of the Clean Power Plan and methane emissions rules, and he ignored questions on the subjects from reporters as he left afterward, he suggested at the conference that the old way of doing things are over, that he believes a new day has been ushered in by President Donald Trump. He called his philosophy on EPA's role as "cooperative federalism."

    "As we are being a good steward of our natural resources, there has to be a belief we can do so in a way that is pro-growth," Pruitt said. "There shouldn't be a war on any sector of our economy."

    The Clean Power Plan, which would cut carbon emissions from existing power plants and was lauded by former President Barack Obama as a way to reverse the effects of climate change, would have a significant detrimental impact on the thermal coal industry, so its demise would be roundly celebrated by the industry. However, the EPA still has an obligation to regulate CO2 due to the US Supreme Court's 2006 decision that declared CO2 a pollutant.

    During his remarks at the conference, Pruitt noted that the Supreme Court stayed implementation of the Clean Power Plan last year, which he believes means the court thinks it is likely unlawful. Asked by the moderator about the fate of the Clean Power Plan, Pruitt would not say when the Trump administration may issue an executive order to begin rolling it back. Instead, he seemed to question the EPA's authority to do what the previous administration did.

    "There is a fundamental question," Pruitt said. "Are the tools in the toolbox? I think that is a fair question."


    On methane, Pruitt did not specifically address any plans for reversing the EPA's rule on emissions from new oil and gas operations. He did suggest that he believes methane should not necessarily be viewed as a bad thing.

    Under the regulation, owners and operators of new hydraulically fractured and refractured oil wells would be required to capture methane emissions through green completions that separate gas and liquid hydrocarbons from the flowback that comes from the well. EPA already required green completions for fracked gas wells starting in 2012, and the regulations extend that requirement to fracked oil wells.

    Under provisions of the new rule extending further downstream to the midstream gas sector, emissions from new and modified pneumatic pumps and other equipment used at gas transmission compressor stations and gas storage facilities would be limited. Going beyond an earlier proposed version, the final rule doubled the frequency of leak monitoring of compressor stations to four times a year.

    "It is valuable, it needs to be captured," Pruitt said of methane. "It can be productive in use. It's not waste, per se. It can cause harm to the environment, harm to individuals. There has to be a better conversation about how we capture it."

    The Trump administration and Congress have already gutted the revised Stream Protection Rule, which also was on the industry wish list. Other regulatory issues facing the coal industry include a repeal/scale back of Obama-era rules pertaining to emissions limits for new power plants under the Clean Air Act, which essentially prevents any new coal-fired power plants from being built as they are not be able to physically meet the limits.


    Pruitt did not address other hot-button issues such as renewable fuel and fuel economy standards.

    Trump is expected to move the Renewable Fuel Standard's point of obligation from refiners and importers to blenders at the wholesale rack. Trump also is expected to reopen a midterm review of the 2022-25 corporate average fuel economy standards under pressure by US automakers. The Obama administration upheld the goals a week before Trump's inauguration.

    Taken together, the moves the new administration is making amount to a change in direction that can give industry a clearer road map in making financial and strategic decisions, while also making sure to protect Americans, Pruitt said.

    "You know the saying, 'You can't have your cake and eat it, too.' The person who says that doesn't know what you're supposed to do with cake," he said. "We can be pro-growth, pro-jobs and pro-environment."

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    China to further push restructuring of SOEs

    China will push forward the restructuring of state-owned enterprises (SOEs), while expanding the scope and depth of mixed ownership reform, top state-owned assets regulator said on March 9.

    The SOEs have been taking the lead in restructuring the production capacity of coal, steel and thermal power, said Xiao Yaqing, minister of the State-Owned Assets Supervision and Administration Commission (SASAC), at a press conference on the sidelines of the two sessions.

    SOEs under central government control will be further slimmed down to streamline management and improve administrative penetration and continue with supply-side reform, said Xiao.
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    China admits it still has work to do in war on pollution

    China still has work to do in cleaning up its skies, with poor enforcement of environmental laws and inadequate monitoring in some places, as the country enters its fourth year of its "war on pollution", Reuters reported on March 9, citing the environment minister.

    Minister of Environmental Protection Chen Jining said there had been faster progress in fighting pollution than in developed countries, but China still needed to do more in getting firms and local authorities to toe the line.

    Pollution alerts are common in northern China, especially during bitterly cold winters when energy demand, much of it met by coal, soars.

    Since the middle of December last year, large parts of northern China have suffered successive bouts of heavy smog that put dozens of cities on "red alert" and raised questions about the government's anti-pollution efforts.

    The environment ministry named and shamed dozens of enterprises and local governments for failing to heed emergency restrictions on industrial output and traffic, but Chen said China was still moving in the right direction.

    China's "environmental capacity" was much weaker in winter, he said, adding that measures aimed at resolving winter pollution were now "very clear", with implementation the key factor.

    Chen said on March 8 that governments at the grassroots level were the "weak link" when it came to implementing environmental laws.

    He revealed that 18 inspection teams had already been established to comb the Beijing-Tianjin-Hebei region for evidence of environmental violations during outbreaks of heavy smog.

    He said they were focusing on 400 key "hotspots" responsible for about 40% of the region's emissions, and would aim to tackle "scattered" and small-scale polluters, including small coal-fired boilers, in the region.

    Hebei, China's biggest steel producing region and home to six of China's 10 smoggiest cities last year, has already said that its priority in 2017 would be controlling emissions from "dispersed" coal burning by households and small enterprises.
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    China Feb producer inflation fastest in nearly 9 years as commodities surge

    China's producer price inflation accelerated to its fastest pace in nearly nine years in February and by more than expected as prices of steel and other raw materials extended a torrid rally, boosting profits for industrial companies worldwide.

    Consumer inflation, however, cooled more than expected to its mildest pace since January 2015 as food prices fell, remaining well below the government's 3 percent target.

    China's iron ore and steel prices have been rallying for a year, fuelled by a construction boom, though worries are growing over rapidly rising stockpiles at Chinese ports.

    The country's insatiable demand for resources has helped spur an inflationary pulse in commodities markets and the manufacturing sector worldwide.

    The producer price index (PPI) jumped 7.8 percent in February from a year earlier, slightly more than economists had expected and compared with a 6.9 percent increase in January, the National Statistics Bureau (NSB) said on Thursday.

    But many analysts believe China's producer inflation may peak soon, and do not expect much of a flowthrough into China's consumer inflation data, which unlike some other large economies is mainly driven by prices of food and services.

    In recent months, the People's Bank of China (PBOC) has cautiously shifted to a tightening bias, inching up short-term money market rates, as authorities turn their focus to containing the risk from a rapid build-up in debt.

    Cooling inflationary pressures could reduce the risk that the central bank would have to respond more forcefully.

    "We expect any tightening of policy to be driven by concerns about credit risks rather than efforts to contain inflation," Julian Evans-Pritchard from Capital Economics in Singapore wrote in a note.

    "Given the lack of any meaningful feed through to consumer prices, policymakers aren't likely to be too concerned about the high producer price inflation," he said.

    Evans-Pritchard expects producer inflation to peak within a month or two, as year-on-year price comparisons start to moderate. Prices of many building materials such as steel reinforcing bars began to take off in spring last year.


    Similar to previous months, producer price gains were mainly seen in mining and heavy industry, with a 36.1 percent leap in mining, the biggest jump in that category since early 2010.

    Raw materials increased 15.5 percent, while oil refiners and chemical producers also saw solid increases.

    That has been good news for some producers after years of losses which severely restricted their ability to service their debts.

    Coal and chemical products firm Yunnan Yunwei said on Tuesday it had returned to profit in 2016. Its shares have gained 25 percent in the last three months.

    However, while factory surveys show manufacturers have been able to pass on some of the higher input costs by raising prices of their goods, there has been scant evidence of it filtering down to consumers yet.

    China's consumer inflation rate slowed to 0.8 percent in February from a year earlier as food prices fell following the long Lunar New Year celebrations. The CPI for January and February combined rose 1.7 percent.

    "Although February's CPI slowdown was relatively large, CPI is still relatively steady when food and energy prices are taken out of the equation," statistician Sheng Guoqing said.

    The stats bureau attributed the slowdown in consumer inflation to the Lunar New Year and cold weather.

    Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 1.7 percent, versus a 2.5 percent acceleration in January.

    The government is targeting 3 percent consumer inflation for 2017, unchanged from last year, Premier Li Keqiang said in his annual government work report on Sunday.

    China has cut its economic growth target to a more modest 6.5 percent this year to give policymakers more room to push through painful reforms to contain financial risks.
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    Norway stresses need for unique post-Brexit bilateral trade deals with UK

    Norway and the UK must enter into new bilateral trade deals post-Brexit that goes well beyond a traditional agreement given the "profound" economic integration between the two countries, including in the energy sector, the Norwegian government said in a report published late Monday.

    The UK is increasingly dependent on gas imports from Norway, with pipeline gas supplies in January hitting a new record high, and both countries have stressed that the UK's interest in Norwegian gas is set to grow as the UK looks to phase out coal-fired power generation.

    The UK is expected to trigger Article 50 -- thereby formally notifying its intent to leave the EU -- by the end of this month.

    "The UK is one of our largest trade partners both for goods, services and investments," the government said in the report called "What will Brexit mean for Norway?"

    Gas exports from Norway to the UK via pipeline in 2016 amounted to 29.9 Bcm (an average of 82 million cu m/d), up from 26.7 Bcm the previous year, according to data from Platts Analytics' Eclipse Energy.

    But since the start of 2017, flows have been averaging a much higher level at 129 million cu m/d, underlining the increasing importance of gas trade between the two countries.


    Norway is not an EU member state, but is part of the European Economic Area which allows it to take part in the EU internal market.

    "When the UK exits the EU, the EEA agreement will no longer be the basis for trade between Norway and the UK," it said.

    "Norway must enter into new bilateral agreements with the UK when the country leaves the internal market and the EEA," it said.

    "The scope of our trade, but also more profound economic integration with the UK, suggests that future agreements must be far more comprehensive than the provisions of the World Trade Organization or a traditional trade agreement."

    The government also said it would take time before new permanent agreements can come into force.

    "Any transitional arrangements will therefore be important to avoid any undue discrimination and protectionist measures," it said.

    Oslo also urged the UK and EU to allow it a place at the negotiating table.

    "Negotiations between the EU and UK on any future agreements and any transitional arrangements will have major consequences for...future bilateral relations between Norway and the UK," it said.

    "It is therefore important for Norway to become involved in discussions on joint solutions between EU and UK in areas that affect the internal market."
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    China posts rare trade deficit as February imports surge 44.7 percent in yuan terms

    China unexpectedly posted a rare trade deficit in February as imports surged far more than expected to feed a months-long construction boom, driven by commodities from iron ore and copper to crude oil and coal.

    Imports in yuan-denominated terms surged 44.7 percent from a year earlier, while exports rose 4.2 percent, official data showed on Wednesday.

    That left the country with a trade deficit of 60.63 billion yuan ($8.79 billion) for the month, the General Administration of Customs said.

    Customs has not yet published dollar-denominated trade figures, on which most economists and investors base their forecasts and analysis.

    Apart from currency fluctuations, higher commodity prices and the timing of the long Lunar New year holidays early in the year also may have distorted the data. Most of China's commodity imports grew strongly in volume terms from a year earlier, but dipped from January.

    Still, economists say the upbeat readings reinforced a growing view that economic activity in China and globally picked up in the first two months of the year.

    That could give China's policymakers more confidence to press ahead with oft-delayed and painful structural reforms such as tackling a mountain of debt.

    Containing the risks from years of debt-fueled stimulus and heavy spending has been a major focus at the annual meeting of China's parliament which began on Sunday.

    China's first-quarter economic growth could accelerate to 7 percent year-on-year, from 6.8 percent in the last quarter, economists at OCBC wrote in a note on Monday, while adding that the pace may ease starting in spring.

    "We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient," Julian Evans-Pritchard at Capital Economics said in a note.

    "Looking ahead, we expect external demand to remain fairly strong during the coming quarters which should continue to support exports."

    But he added that it was unlikely the current pace of import growth can be sustained as the impact of higher commodity prices will start to drop out of the calculations in coming months.

    Analysts polled by Reuters had expected February shipments from the world's largest exporter to have risen 12.3 percent in dollar-terms, an improvement from a 7.9 percent rise in January.

    Imports had been expected to rise 20 percent, after rising 16.7 percent in January. Both export and import growth were seen at multi-year highs.

    Analysts were expecting China's trade surplus to have risen to $25.75 billion in February, versus January's $51.35 billion, with growing attention on its large trade surplus with the United States as new U.S. President Donald Trump ramps up his protectionist rhetoric.

    China has not posted a trade deficit in dollar terms since February 2014.

    China has trimmed its economic growth target to around 6.5 percent this year, Premier Li Keqiang said in his work report at the opening of parliament on Sunday. The economy grew 6.7 percent last year, the slowest pace in 26 years.

    As in 2016, China did not set a target for exports in 2017, underlining the uncertain global outlook, but Li said China will take steps to steady exports this year.

    China's shipments to the United States rose 11.5 percent in February in yuan terms, compared to a year earlier. It imports from the U.S. rose 41.0 percent.

    The yuan has lost about 5 percent of its value against the dollar since early 2016.

    In the early days of his presidency Trump hasn't made good yet on his campaign pledges of greater protectionist measures, but analysts say the specter of deteriorating U.S.-China trade and political ties is likely to weigh on confidence of exporters and investors worldwide.

    The U.S. International Trade Commission said last Friday it had made a final finding that the U.S. industry was being harmed by the dumping and subsidization of imports of carbon and alloy steel cut-to-length plate from China.

    A government adviser said last month that China's exports would likely return to growth this year, as commodity prices stabilize and the impact of the appreciation in the U.S. dollar is gradually absorbed.
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    Bitcoin plunges sharply and suddenly

    Bitcoin plunged by more than $100 in a matter of minutes on Tuesday morning. The cryptocurrency was down about 1.5% at $1,260 a coin just after 6 a.m. ET before tumbling below $1,160 within 30 minutes. As of 7:12 a.m. ET it was down 5%, or $62, near $1,218 a coin.

    While no headlines can be directly tied to the plunge, about two hours earlier a Bloomberg headline cited a People's Bank of China official as suggesting the recent bitcoin regulation wasn't temporary.

    The PBOC recently announced it was cracking down on bitcoin trading, and China's largest bitcoin exchanges have since introduced a flat 0.2% fee on each transaction and announced a blockage of withdrawals.

    Tuesday's sell-off could also be tied to nervousness over a coming Securities and Exchange Commission ruling. The SEC is expected to issue a ruling on whether it will approve at least one of the three proposed bitcoin-focused exchange-traded funds by a Saturday deadline.

    The price of bitcoin has rallied 27% in 2017 after gaining 120% in 2016. Bitcoin has been the top-performing currency in each of the past two years.
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    In China’s Rustbelt Towns, Displaced Coal and Steel Workers Lose Hope

    After protests by unpaid coal miners made headlines around the world last year as China's parliament was meeting, a $15 billion assistance fund offered by the ruling Communist Party became a symbol of the government's need to ensure social stability.

    As the National People’s Congress gathers again a year on, the number of protests has dropped sharply and authorities are promising to create more jobs for workers in China’s northeastern belt, where the employment outlook is more grim than in many other parts of the country.

    China is pledging to cut further excess and inefficient capacity in its mining sector and "smokestack" industries this year as part of an effort to upgrade its economy and reduce pollution, but the move threatens to throw millions more out of work.

    Dozens of coal miners and laid-off workers in Shuangyashan, in northeastern Heilongjiang Province near Russia, said they were underemployed and underpaid, sometimes earning only a fifth of what they used to, despite rising living costs.

    They said a heavy police presence was discouraging further mass protests.

    "Security has become much tighter since last year's protests, the police are everywhere, watching everything," said Li, 53, who works at the nearby Dongbaowei coal mine.

    "The government could owe me one year's worth of wages and I wouldn't protest again. It's just not worth it for us miners," said another worker who said he was owed five months' pay. He also declined to give his full name.

    With a twice-a-decade leadership transition looming later this year, Beijing has focused on curbing mass unrest, including the $15 billion fund for retraining, relocating and early retirement of an estimated 5-6 million affected people.

    "We were expecting a lot of possible unrest but it seemed that something happened after Shuangyashan that stopped major waves of protests," said Keegan Elmer of Hong Kong-based China Labor Bulletin (CLB), which tracks workers' strikes in China.

    The number of mining protests in China dropped from a high of 37 in January 2016 to 6 in December, CLB figures showed.

    So far, China has not released any comparison of its success rates with employment programmes nationwide, and analysts say there is little transparency on how the funds are being spent.

    But workers in some other parts of China have similar tales to tell.

    In Hebei province, over 2,000 km (1,200 miles) to the south, a 55-year-old former steelworker said he now makes 1,000 yuan ($145) a month, a quarter of his previous salary, as a security guard.

    But the man, who only identified himself as Wang, said he was luckier than most.

    Other laid-off workers said they had to return to their farms, where they could hope for little more than subsistence.


    This year, new jobs will be found for half a million steel and coal workers as capacity is cut in those industries, China's labour minister said on Wednesday.

    "As overcapacity is cut, we must provide assistance to laid-off workers," Premier Li Keqiang said at the opening of the annual meeting of parliament on Sunday.

    For more on heavy industry in China, watch Fortune's video:

    But unlike the more affluent south, China's rustbelt has few other jobs to offer, prompting some local governments to offer menial work while state firms keep staff on but pay much less.

    Longmay, the state coal producer in northeastern Heilongjiang, received more than 800 million yuan from the new fund last year to help it deal with coal output cuts and reallocating workers to other jobs, according to a government document.

    "This isn't a job, at least not a real job," said Peng Jianting, 51, who used to earn 3,000 yuan a month working in a coal mine and now earns 500 yuan as a street sweeper.

    The company declined to comment.

    In Shanxi province, which accounts for a quarter of China's coal production, the deputy governor says the province's state-owned enterprises owed 5.46 billion yuan in outstanding wages, state news agency Xinhua reported.

    "The state sector acts as a semi-safety net. Rather than lay off a lot of workers, they typically will freeze wage increases, so you don't get the same levels of unemployment as you would in other economies when there's a downturn," said Julian Evans-Pritchard, an economist at Capital Economics.

    China's official unemployment rate—which only accounts for urban, registered residents—has held around 4% for years, despite a slowdown that has seen growth cool from the double-digits to quarter-century lows of under 7 percent.

    "The (assistance) fund was never really big enough to cope with the number of workers that has been shed in these sectors," said Evans-Pritchard.

    "It doesn’t surprise me that a lot of workers aren’t benefiting from the fund. I think they need to increase the scale significantly.”

    Media said last year that more than half a million laid-off workers were now driving for ride-sharing services, in line with a government push for them to become a part of the "new" economy.

    But that option doesn't exist for Wu Yilin, a coal miner in Shuangyashan who moved to an office job after he lost his thumb in a workplace accident.

    "We're told to start our own businesses, but we just become street cleaners instead. You need money, connections to become an entrepreneur. It's not as if everyone can do it."

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    Bitcoin capital leakage $100m a day?

    Integrating the new implied market share into 2016 trading volume gives us a more realistic interpretation of the year's volume than recorded data seemed to show.

    At 35% market share, Chinese exchange volume steps down to $103m of bitcoin traded daily, down from the apparent $1.6bn-worth traded daily before the implementation of fees.

    Amid the shifting regulatory landscape it seems that some traders have decided to stick with these Chinese exchanges.

    Coindesk Research will continue to track exchange volume closely to see how the story unfolds throughout 2017.Image title

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    3D Printing a house for $10000

    This Home Was 3D Printed in Only 24 Hours and for Just $10,000

     Apis Cor
    • A 38-square-meter (406-square-foot) house was 3D printed in 24 hours for a total cost of $10,000.
    • Apis Cor., the Russian company that constructed the house, says that a simpler house could cost only $223 per square meter ($68 per square foot).

    3D printing is incorporating itself into our clothes, our medicine, and, now, even our homes. Apis Cor., a company dedicated to building the world with printing has built its first ever 3D-printed home in Stupino town, a region near Moscow, Russia.

    Construction took only 24 freezing hours during December, 2016, through temperatures of -35°C (-31°F). The home, equipped with a living room, kitchen, bathroom, and a hallway, was made on-site, a world’s first for 3D-printed building constructed in that amount of time.

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    Diversified miners to continue focus on capital discipline despite market upturn – BMI

    With the mining downturn having bottomed out in 2015 and improved performances already achieved in 2016, BMI Research believes the major diversified miners can expect to perform better over the coming years.

    Based on the performance of large diversified miningcompanies, including Anglo American, Glencore, Vale and Rio Tinto, which have posted positive net incomes for the first time in years, BMI Research adjusted its outlook for major diversified miners to positive.

    “Not only did they make profits, they were also successful at debt reduction,” the firm noted, pointing out that Glencoremade a profit of $1.6-billion in the last financial year, while reducing debt from $25.9-billion at the end the 2015 financialyear to $15.5-billion in 2016.

    Similarly, Rio Tinto, Vale and Anglo American posted profits of $4.6-billion, $3.9-billion and $1.6-billion, respectively, following years of losses.

    Rio and Anglo American also managed to reduce their net debt to below $10-billion each. Vale was, however, less successful and only managed a marginal reduction in debt.

    “Miners will remain committed to debt reduction in the year ahead and beyond, along with which their performance will continue on the uptrend. Reduced cost of debt servicing as interest payments decrease with debts paid off will contribute to better balance sheets. Most major miners have decided to restart dividends from 2017 onwards,” BMI pointed out.

    However, BMI further pointed out that commodity prices would not be the main driver of growth in coming years. “Instead, cost reduction and efficiency improvements will be the sources of strong balance sheets, improved cash flows and overall better performance.”

    Meanwhile, despite improvements in operating cash flows across the board, capital expenditures will remain stringent over the next three years in terms of absolute value, as miners will continue to pursue a strategy of great capital discipline.

    “This will ensure miners have greater free cash flow going forward to weather market volatility than in past years. Miners will continue investing in technology – all the more so that technology will help them improve efficiency further – and expand growth assets, but there will be minimal investment in greenfield projects,” BMI stated.
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    Multinationals to heed tax man’s further-reaching hand as transfer pricing disputes come to a head

    With several Canadian miners embroiled in acrimonious standoffs with the Canadian Revenue Agency (CRA) regarding transfer pricing rules, mining companies will have to come to terms with increased levels of uncertainty in their tax profiles and will need to consider the impact of all changes, not only on existing structures but also on new investments and transactions.

    Since the CRA first introduced transfer pricing rules in 1998 to counteract base erosion and profit shifting (BEPS), various Canadian resource firms have been singled out for their purported aggressive tax planning and alleged tax evasion schemes.

    Among the high-profile miners that have filed pleadings with the Canadian Tax Court are Cameco, Silver Wheaton, Burlington Resources, Conoco Funding Company and Suncor Energy. Cameco’s case is the only one that has started hearings.


    According to Fasken Martineau partner in the tax practicegroup Jenny Mboutsiadis, the CRA becomes concerned about transfer prices when multinational enterprises (MNEs) use transfer prices to shift profits from high tax jurisdictions to lower tax jurisdiction.

    “The CRA has been sharpening its assessments of transfer pricing in the last six years, resulting in several MNEs [having their earnings] reassessed and [given] penalties," Mboutsiadis said during a briefing in Toronto on Friday.

    Fasken Martineau’s leader in the tax practice group Christopher Steeves flagged any Canadian corporate structure with a subsidiary in another jurisdiction, any foreign corporate structure with a Canadian component and multinational corporate structures with corporate lines going in and out of Canada as being likely to be tapped by the CRA for closer scrutiny under transfer pricing rules.

    The CRA’s transfer pricing rules are found in Section 247 of the Income Tax Act, which deals with the ‘arm’s length’ principle. This deals with the terms and conditions of a transaction agreed to between non-arm’s length parties that must be equal to what arm’s length parties would have agreed to. The purpose of this principle is to ensure that taxpayers dealing with non-arm’s length parties report substantially the same amount of income as they would have if they had been at arm’s length, Mboutsiadis explains.

    Steeves points out that the result of the application by the CRA of Section 247 could entail any one, or a combination of three outcomes, including an adjustment in the terms and conditions of a transaction to what arm’s length companies would have done; an adjustment or recharacterisation of the transaction or series of transactions to those that would have been entered into by arm’s length parties; and the imposition of penalties.

    This extraordinary power of the CRA to recharacterise transactions is controversial among the Organisation for Economic Cooperation and Development (OECD), whose work ultimately led to the introduction of the transfer pricing rules. “The penalties can be extremely nasty. If a reassessment results in a more than C$500-million adjustment, it can attract a 10% penalty, half of which must be paid or guaranteed by letters of credit while the offending organisation appeals the reassessment,” Steeves stated.


    In November 2012, the Group of Twenty (G20) tasked the OECD with devising an action plan to, besides other things, counter tax planning strategies which they perceived MNEs and wealthy indviduals were using to exploit gaps and mismatches between the tax rules of different countries.

    These strategies include artificially shifting profits to low or no-tax jurisdictions where there is little or no real economic activity.

    The BEPS project was initiated, with more than 60 countries participating, including many of the world’s major miningjurisdictions such as Australia, Brazil, Canada, Chile, Colombia, China, India, Mexico, Peru, Russia, South Africaand the US.

    During the next three years, the OECD considered, consulted and concluded upon 15 BEPS actions, with its findings under each falling broadly into one of three categories: minimum standards to be adopted by all participating countries; desirable but optional best practices; and recommendations for countries to consider.

    Transfer pricing was identified as one of four tax principles that create potential for profit shifting. Mboutsiadis notes that, with the rise of intangible assets in global business, it has become easier to shift profits, because risks and ownership of intangibles are easier to shift.

    Importantly, the analysts point out that Canada introduced country-by-country reporting in the 2016 budget, applicable to reporting fiscal years of MNEs that begin in 2015. This entails a report that MNEs with annual consolidated profit of €750-million or more are required to file with the CRA. This applies to all entities with a relation to Canada.


    “Companies generally follow the letter of the law, but not the spirit of the law,” Mboutsiadis says.

    The CRA tax audit programme brought in more than C$11-billion in taxes, penalties and interest in the 2015/16 fiscal year, of which about two-thirds related to aggressive tax planning by large MNEs or high-net-worth investors.

    Enforcement is set to increase with the 2016 budget appropriating C$44.4-million of additional funding to the CRA to hire 100 more auditors and resources, in the government’s quest to collect C$2.6-billion more over five years.

    The CRA is increasingly using sophisticated analytics to identify high-risk companies for auditing. For companies with yearly revenue over C$250-million, the CRA applies a risk-assessment algorithm that assesses 200 variables, which has significantly increased the amount of tax collected from large corporations.

    The CRA also exchanges selected tax information with tax authorities in other jurisdictions under the exchange of information provisions found in tax treaties, bilateral tax information exchange agreements and the Convention on Mutual Administrative Assistance on Tax Matters. Through the OECD, the international tax community is increasing and expediting the exchange of tax information and can track international money transfers of more than C$10 000 in real time on the FinTrack system.


    One of the most important cases currently before the Canadian Tax Court is that of Cameco, for which the CRA reassessed the 2003 to 2015 tax years. The CRA challenged Cameco Canada’s arrangements with a Swiss uranium aggregating subsidiary, and the price of uranium sold by Cameco Canada to Swiss Cameco.

    Three tax years are currently being tried in court, with Cameco liable for additional revenue, as assessed by the CRA, of C$7.4-billion during this period, which results in C$2.2-billion in additional taxes. This could rise if penalties are also imposed.

    Steeves says the CRA’s primary position is that CamecoCanada was in fact the one carrying the uranium business, not Swiss Cameco. Its first alternative position would be to apply the pricing provisions of paragraphs 247 (2) (b) and (d) of the Income Tax Act, that argues that arm’s length persons would not have carried out the series transactions involving Cameco Canada and Swiss Cameco, and it will recharacterise the transactions to effectively disregard Swiss Cameco, which would be the first tie this provision is used.

    So far, Cameco Canada has paid the CRA C$825-million in cash and letters of credit, which will remain locked until the case is resolved. No decision I expected until 2018.

    The other cases are pending litigation.

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    China targets 3.4 pct cut in energy intensity in 2017

    China aims to cut the energy consumption per unit of GDP by at least 3.4% in 2017, while targeting continued reductions in the emission of major pollutants, according to a government work report available to the media ahead of the annual parliamentary session on March 5.

    China's energy consumption per unit of GDP fell by 5% last year, according to the report to be delivered by Premier Li Keqiang at the opening meeting of the annual session of China's top legislature, the National People's Congress.

    China's total energy consumption will be capped at 5 billion tonnes of coal equivalent by 2020, according to a government plan for the 2016-2020 period. This will translate into a 15% reduction of energy use per unit of GDP by 2020.

    Attached Files
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    Brazil prosecutor plans to investigate ministers, senators for graft: source

    Brazil's top prosecutor will seek authorization from the Supreme Court as soon as this week to investigate senior ministers in President Michel Temer's Cabinet and senators from his PMDB party for corruption, a source familiar with the situation said on Sunday.

    Folha de S. Paulo newspaper reported on Sunday that the request by Prosecutor General Rodrigo Janot will include Presidential Chief of Staff Eliseu Padilha and Wellington Moreira Franco, the minister in charge of a major infrastructure and privatization program.

    According to the paper, Janot is also considering whether to include Temer himself in the request.

    The source confirmed the thrust of the Folha report but did not name the ministers and senators involved in the request, which is based on recent plea bargain deals by 77 employees of Brazil's largest construction group Odebrecht S.A. [ODBES.UL]

    The source, who asked not to be identified because he was not authorized to speak publicly, said prosecutors will also ask the Supreme Court to make public the content of the executives' depositions, which are under seal.

    Odebrecht - which agreed to pay a record $3.5 billion to Brazilian, Swiss and U.S. authorities to settle bribery charges in December - is at the heart of a sprawling investigation into illegal political payments by firms in return for contracts with Brazilian state oil company Petrobras.

    The statements by Odebrecht executives are expected to further tarnish the image of Temer's government, which is already struggling with rock-bottom ratings as it seeks to pass austerity measures aimed at curbing Brazil's massive budget deficit.

    However, the slow pace of justice in Brazil would likely allow the government to press ahead with pension and labor reforms in Congress before any impact was felt, analysts say.

    "I don't see a short-term effect on Temer's clout in Congress," said Luciano Dias, partner at consultancy firm CAC, noting the Supreme Court typically takes around 8 months to formally indict suspects and a further year before a trial begins.

    A presidential aide said on Sunday that any minister would only be suspended if prosecutors decided to bring formal charges against them following an investigation, and would only be dismissed if a judge accepted the charges and placed them on trial.

    The departure of Padilha, who is already absent on health leave, would deprive the government of one of its most effective political operators but Congressional leadership could take up the slack in ushering through reforms, said Christopher Garman of Eurasia Group.


    The allegations against Padilha and Moreira Franco stemmed from testimony by Odebrecht's former head of government relations in Brasilia, Cláudio Melo Filho, which was leaked to the media.

    The testimony alleged that Odebrecht cultivated ties with senior members of the PMDB for years and that Padilha received an illicit 10 million real ($3.21 million) payment for the party's 2014 election campaign.

    A spokesman for Padilha declined to comment. A representative for Moreira Franco said he had never talked about party issues or financing with Melo Filho.

    Folha said the prosecutors' list included other senior members of the PMDB, including the government's leader in Congress, Senator Romero Jucá, former Senate head Renan Calheiros, and the current Senate president Eunicio Oliveira.

    Senior members of the allied PSDB party including former presidential candidate Senator Aécio Neves and Senator José Serra, who resigned as foreign minister two weeks ago, are also being targeted by prosecutors, the paper said.

    Former presidents Dilma Rousseff and Luiz Inácio Lula da Silva of the Workers' Party are also among the politicians that Janot intends to investigate, the paper said.

    The Constitution forbids investigating a sitting president for crimes committed before the start of his term, but prosecutors are considering whether they should also seek to investigate Temer.

    The prosecutors are discussing whether his term as a vice-president, before Rousseff's impeachment last year, counts as part of his current term, according to the paper.

    The president has repeatedly denied accusations of soliciting illegal funds and insisted any donations were legal and duly registered with electoral authorities.
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    China reduces growth expectation

    China aims to expand its economy by around 6.5 percent this year, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on Sunday.

    That is lower than the 6.7 percent growth achieved last year.

    China also plans to cut steel and coal output this year in an effort to tackle pollution, its top economic planner said on Sunday, while China's newly appointed banking regulator vowed on to strengthen supervision of the lending sector.
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    Russia tells Libyan PM it is ready to help unify his divided country

    Russia said on Friday it was ready to help unify Libya and wanted to foster dialogue between rival authorities in Tripoli and factions in the east of the country.

    Russian Foreign Minister Sergei Lavrov held talks in Moscow with Fayez Seraj, the head of the U.N.-backed government in Tripoli, on Thursday.

    The Russian Foreign Ministry said in a statement on Friday that the talks had focused on how efforts to unite Libya could best be advanced. Moscow was ready to mediate and wanted to cooperate with all sides in the oil-rich country, it said.

    "Moscow confirmed its readiness to work closely with all sides in Libya with the aim of seeking mutually acceptable solutions to create the grounds for the stable development of Libya as a united, sovereign and independent state," the ministry said in a statement.

    Seraj's visit was seen as part of efforts to overcome a deadlock in the country between the Tripoli government and Khalifa Haftar, a military commander supported by factions in the east of the country.

    A statement from Seraj's office quoted him as saying that Russia could play a positive role in Libya "thanks to its ties with various Libyan parties."

    On Feb. 19, Seraj told Reuters he hoped Moscow might act as an intermediary between him and Haftar.

    "The passage of time does not allow for the political maneuvers that (some) Libyan groups are trying to play," Seraj's office said.

    It said the Libyan political delegation had been accompanied by officials representing the National Oil Corporation and the defense ministry.

    Lavrov and Seraj had discussed the progress of the U.N.-sponsored reconciliation dialogue, the Russian Foreign Ministry said.

    "The Russian side stressed the need for an inclusive intra-Libyan dialogue aimed at setting up unified organs of power, including an army and police force capable of maintaining security and law and order and of effectively countering a terrorist threat," it said.
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    Indian Economy Collapses As 'Demonetization' Crushes Small Business

    The Sales Managers Index (SMI) is one of the earliest monthly indicators of Indian economic activity. February's data shows the catastrophic after-effects of the December demonetization policy which was intended to crack down on corruption and 'black money'.

    The February Headline SMI has fallen to an index level of 60.2 in unadjusted terms, the lowest level in over 3 years.

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    Managers are reporting a big drop in monthly sales for both the consumer and industrial sectors, with small to medium size businesses that predominantly deal with cash transactions, being hardest hit.

    Furthermore, the cash policy has had the effect of forcing up the overall Prices Charged Index (53.6) to levels not seen since spring 2013, when the Rupee was valued at ?53.92 against the USD, it is now trading at ?67.29. Some panel members are expecting the currency to continue to fall.

    Higher inflation in the consumer goods and services sectors, represented by the Prices Charged Index for Services (54.7), is pushing the valuation of the Rupee to even greater levels of undervaluation on the World Price Index (WPI) scale. The WPI under valuation level for the Indian Rupee is currently -41% using February data. Businesses are taking advantage of the situation created by such an undervalued currency, with the majority of panel members feeling that the current FX level is becoming advantageous for their businesses.

    Overall, February SMI data suggests an erratic situation for Indian businesses as they meet market challenges with considerably lower levels of confidence, slower monthly sales and higher prices caused by the currency situation.

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    No debt-to-equity swap plan for zombie companies, regulator

    China will not allow hopeless zombie companies to gain a new lease on life through debt-to-equity swap plans, said Guo Shuqing, chairman of China Banking Regulatory Commission (CBRC) at a press conference on March 2, state media reported.

    Guo said low performing zombie companies will be banned from converting debt into equity if they are believed to be hopeless and have no prospects.

    To date, signed debt-for-equity agreements total debts of more than 400 billion yuan ($58 billion), about 40 billion yuan of it having already been swapped into equity. Regulations and policies will be gradually improved in the process of implementation, the report said.

    Guo said the debt-to-equity program could be helpful for functioning companies to overcome financial difficulties.

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    Bitcoin above Gold

    For the first time ever, the price of one #bitcoin has surpassed the price of one ounce of #gold. While today’s swap can be attributed to a good day for bitcoin (up ~3%) and a bad day for gold (down ~1.3%), the big picture is that bitcoin has more than doubled in the last year (up ~185% from a year ago) while gold is essentially trading exactly at the price it was a year ago.

    Even though bitcoin and gold are both thought of as alternative assets, they don’t usually trade in correlation. Still, it’s notable that bitcoin has (at least temporarily) surpassed the price of gold. Gold is quite literally the “gold standard” of alternative assets, often used by investors to hedge against potential losses in more traditional assets like real estate and the stock market.
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    White Van Brigade buying new vans!

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    Oil and Gas

    Pine Brook, Riverstone to Invest Up to $600 Million in Permian

    Private equity firms Pine Brook and Riverstone Holdings agreed to invest as much as $600 million in a newly created oil and natural gas explorer in Texas’s energy-rich Permian Basin.

    The firms will give Midland, Texas-based Admiral Permian Resources LLC a line of equity to purchase leaseholds and bankroll joint ventures and other deals in west Texas and southeastern New Mexico, Pine Brook co-President Rich Aube said in a phone interview.

    Denzil West, a former president of Midland-based Reliance Energy Inc., which in October sold the bulk of its exploration assets to Concho Resources Inc. for $1.7 billion, is Admiral’s chief executive officer.

    Private equity investing in U.S. oil and gas properties has dropped sharply since a supply glut triggered a free fall in oil prices. Since September oil has ranged from $43 to $55 a barrel, just over half its peak in June 2014. Last year in the sector, North American private equity deal volume was $11.7 billion, 60 percent less than in 2014, according to data compiled by Bloomberg.

    Despite that, private equity firms and oil companies have poured billions of dollars into the Permian over the last year, vying for position in an oilfield so prolific it’s generated profits even during the worst crude-market slump in a generation. The frenzy has pushed lease prices as high as $60,000 an acre in some cases.

    Competitive Basin

    Exxon Mobil Corp. agreed in January to pay as much as $6.6 billion to more than double its holdings in the Permian. On Thursday, Houston-based Marathon Oil Corp. said it would spend $1.1 billion to acquire 70,000 acres in the New Mexico portion of the play.

    “People have focused on the Permian to the exclusion of lots of other basins, because it’s the best resource in the U.S.,” Aube said. “The economics have been working, and they’re getting better.”

    Aube observed that, because of the steep cost of acreage there, making investments work takes substantial operating savvy.

    “It’s a very competitive basin, and you really need to be partnered with the best management teams to be successful,” said Aube.

    New York-based Pine Brook, led by CEO Howard Newman and co-Presidents Aube and William Spiegel, oversees about $6 billion in clients’ capital.

    Riverstone, led by founders Pierre Lapeyre and David Leuschen, has raised more than $34 billion since its start in 2000 for buyout and growth investments in energy and power companies.
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    Libyan faction takes fight to eastern commander, exposes oil port defences

    Early in the morning, small groups of armed pick-up trucks raced across the desert towards some of Libya's biggest oil export terminals.

    A previous attempt by the Benghazi Defence Brigades (BDB) to capture the ports had failed. But the attack last Friday caught the eastern-based Libyan National Army (LNA) by surprise.

    The LNA's withdrawal from the ports of Es Sider and Ras Lanuf has dented its claims to military superiority, dimming the prospects for its leader, Khalifa Haftar, to expand his power.

    It also opens up a new front between factions battling on and off for power in Libya since 2014, throwing efforts to unite the country and rebuild oil production into deep uncertainty. The North African state is exempt from a recent OPEC deal to limit global supply, and had more than doubled its output in recent months to about 700,000 barrels per day (bpd).

    The LNA says it is mobilising for a counter attack, personally overseen by Haftar, against the BDB, the most recent armed faction to contest ports that should account for more than half of the OPEC member's exports.

    The BDB says it is seeking a route to Benghazi, from where many of its members had fled in the face of LNA advances against Islamists and other opponents over the past two years.

    It says it is fighting for families trapped or displaced by the LNA's military campaign, and to save Libya from a return to dictatorship and protect the revolution that toppled Muammar Gaddafi in 2011.

    "Our main goal is to retake our city, we reject injustice and military rule," BDB commander Mustafa al-Sharksi told reporters. "When we rallied against Gaddafi, we wanted freedom, we wanted to build legitimate institutions, and leaders who would rule the country as those in the developed world do."


    Haftar, a former Gaddafi ally who casts himself as the man to save Libya from the chaos of militia rule, received a big boost in September when he took over Es Sider and Ras Lanuf, as well as Brega and Zueitina, two other terminals on the a strip of coast southwest of Benghazi known as the Oil Crescent.

    Peeling away tribal support, Haftar ousted Ibrahim Jathran, a commander of Libya's Petroleum Facilities Guard (PFG) who had become unpopular for demanding money to end a port blockade.

    The National Oil Corporation (NOC) in Tripoli was quickly invited to reopen the ports, and Libya's production more than doubled to 600,000 bpd.

    The BDB has also said it will allow the NOC to operate freely, inviting in a PFG head appointed by the U.N.-backed Government of National Accord (GNA) in Tripoli.

    Because Es Sider and Ras Lanuf were badly damaged in previous fighting and are operating at far lower levels than Zueitina and Brega, the initial impact on production has been limited. Total output stood at about 620,000 bpd on Thursday, NOC Chairman Mustafa Sanalla told Reuters.

    But the BDB advance has put oil back at the centre of conflict and ambitious NOC plans to revive production may be stalled. The NOC had said it hoped to push output to more than 1 million bpd within months, on the way to pre-conflict output of 1.6 million bpd.

    It will now require "pretty adroit footwork" by the NOC to sustain such a message, said John Hamilton, a director of Cross Border Information and an expert on Libyan energy.

    "What this demonstrates is that Haftar is not able to provide security for the terminals," he said. "How can any ship owners or insurers or oil companies be confident of sending vessels to lift crude, even if Haftar regains them?"


    After taking the ports seven months ago, the LNA repelled several attempted counter-attacks with air strikes, and carried out what it said were preemptive strikes against BDB mobilisation in the central desert region of Jufra.

    Guards loyal to the LNA said the ports were well secured, and safe for foreign workers to return.

    But when the BDB advanced again last Friday, LNA defences were quickly breached. LNA ground forces retreated towards Brega, about 115 km (70 miles) east of Ras Lanuf, and lost more than 30 men, according to medical sources.

    There have been daily LNA strikes since, but their impact is unclear.

    Sharksi said the BDB had air defence weaponry, claiming LNA pilots "are scared so they fly at high altitudes".

    Fawzi Boukatef, a rebel leader in Benghazi in 2011 who is in contact with the BDB, said tribal support for Haftar, uncertain in parts of the east, had eroded in the Oil Crescent, and that mercenaries from southern Libya and sub-Saharan Africa who had been operating for the LNA had been bought off.

    "Some were paid to leave the area and some were paid to fight on the other side," he told Reuters.


    The BDB, dismissed as al Qaeda-linked militants by the LNA, in fact have a wide support base, said Anas El Gomati, head of the Sadeq Institute, a Libyan think tank. They are motivated by the desire to get thousands of displaced families back to Benghazi, help those caught in a long siege in the district of Ganfouda, and by recent LNA air strikes in the desert.

    "The attacks in Jufra certainly galvanized support for the BDB and created a rallying call against Haftar," he said.

    Some BDB support comes from Misrata, the western port city that has been a source of military opposition to Haftar and where many displaced families from Benghazi have been living.

    Though moderates in Misrata supported a U.N.-backed Government of National Accord (GNA) in Tripoli and have even been open to a deal with Haftar, fighting in the Oil Crescent risks strengthening hardliners on both sides, analysts say.

    Haftar has shunned efforts to revive the U.N. peace process, while accusing elements within the GNA of supporting the BDB. A group of nearly 40 pro-Haftar members of Libya's eastern parliament voted this week to drop support from the GNA's leadership and withdraw from U.N.-mediated dialogue.

    "From where we're sitting today, a deal looks highly unlikely," said Gomati.
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    China's CEFC courts "teapots" for first domestic refinery acquisition

    Privately-run conglomerate CEFC China Energy has approached several independent Chinese oil processors seeking to acquire its first domestic refinery operation, its next move towards becoming a global integrated oil player.

    New details of CEFC's attempts to buy a refinery in China come less than three weeks after the little-known Shanghai-based firm announced its first major upstream oil investment, a $900 million deal for a 4 percent stake in an Abu Dhabi oilfield.

    Talks with a handful of the small independent refiners known as "teapots" are just getting started, but CEFC's efforts are a rare early example of a private Chinese investor looking to cash in on Beijing's policy encouraging the small operators to venture into the global oil market to take on established state-run majors such as Sinopec Corp (0386.HK).

    Chairman Ye Jianmin told a board meeting last July that CEFC aims to become a second Sinopec - China's second-biggest oil and gas major and Asia's largest refiner - by acquiring global assets and consolidating teapot refineries.

    "CEFC has made it quite clear that it wants to invest in refining and held meetings with us," said one teapot executive who met with CEFC's Ye for such discussions.

    "We'll need some time to deliberate and observe, as the company, ambitious as it is, lacks solid industry experience," said the executive, who declined to be named as the discussions were not public.

    Ye's team has made frequent visits since mid-2016 to Shandong province, China's hub for teapots, courting at least four independent companies, including largest teapot refiner Shandong Dongming Petrochemical Group  and two small plants in the port city of Rizhao, according to three industry executives with knowledge of the meetings.

    More recently CEFC has a new target, local government-backed Shandong Hengyuan Petrochemical Co, which owns a 70,000 barrels-per-day plant in the landlocked city of Linyi and a controlling stake in a refinery in Malaysia.

    All the plants CEFC has approached so far have Beijing's greenlight to import crude oil, part of more than 20 local refiners that began emerging as market players in late 2015, helping to lift China's crude oil purchases to an all-time high last year while mopping up some of a global supply glut.

    A refinery in the world's second-largest oil consumer would add to an asset network CEFC has built over the past two years - a Romanian refinery, service stations in Europe, an oilfield in Chad and the Abu Dhabi oilfield stake - said industry executives familiar with its strategy.


    FACT BOX CEFC China Energy's global energy, finance assets

    "It's part of the company's organic expansion by looking at refining opportunities," a CEFC spokesman said in an email in response to a request for comment.

    Wang Youde, chairman of Hengyuan Petrochemical, confirmed his company was approached by CEFC last year, but said he was not aware of any material progress in discussions.

    Zhang Liucheng, vice president of Shandong Dongming, said his company also held meetings with CEFC for similar discussions, declining to give further details.

    Alongside the talks, CEFC last month joined Dongming in a $566 million venture to build an oil terminal and storage farm in Shandong, facilities that are badly needed to ease logistics bottleneck gripping the teapots sector.
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    Marathon Oil jettisons Canadian oil, buys Permian Basin land

    Marathon Oil Corp. has agreed to sell off its Canadian oil sands business for $2.5 billion, jettisoning an expensive segment that harvested about a tenth of its oil, the company said Thursday.

    The sale to Royal Dutch Shell and Canadian Natural Resources, expected to close in mid-2017, would cut a quarter of the company’s operating expenses this year.

    “Historically, our interest in the Canadian oil sands has represented about a third of our company’s other operating and production expenses, yet only about 12 percent of our production volumes,” Marathon President and CEO Lee Tillman said in a written statement.

    Separately, the Houston driller also agreed to snap up 70,000 net acres in the Permian Basin in West Texas for $1.1 billion in cash. The transaction with private company BC Operating, includes 51,500 acres in the Northern Delaware basin in New Mexico.

    All told, the Texas and New Mexico land has about 5,000 feet of “oil-rich stacked pay,” Tillman said, referring to the multiple subterranean layers of oil-soaked rock that have attracted drillers to the region despite high land prices. That deal is expected to close in the second quarter.

    The transaction puts the value of the Permian Basin land at $13,900 per acre.
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    Energy Credit Risk Soars As Crude Carnage Continues

    Just when you thought it was safe to go all-in on energy stocks, credit, and commodities because, well, what could go wrong; crude's collapse in the last few days (amid record long speculators) has smashed Energy credit markets and sent high-yield bond prices cratering.

    WTI Crude collapsed to a $48 handle at its lows today...
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    Singapore cracking margin rebounds from 18-month low on uptick in regional gasoline

    The Singapore cracking margin against Dubai crude rebounded Wednesday from an 18-month low last week on the back of an uptick in light distillate cracks, S&P Global Platts data showed.

    The Singapore cracking margin against Dubai was at $3.27/b on Wednesday, having rebounded from an 18-month low of $2.19/b on March 2, the data showed.

    The last time the spread was lower was on August 31, 2015 when it was at $1.78/b.

    The Singapore cracking margin in March to-date averaged at $2.75/b, the lowest since July 2015 when it was at $2.25/b. In comparison, the Singapore cracking margin averaged $5.75/b in February.

    The spread widened on Wednesday as Asian gasoline crack rebounded from a record low following a drawdown in US gasoline stocks.

    The spread between physical benchmark FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures rebounded to $9.03/b Wednesday, Platts data showed.

    The crack had fallen to a five-month low of $7.26/b on March 2 on excess supply and a slowdown in demand. It was last lower on October 7 last year at $7.14/b.

    The uptick in the Asian gasoline crack was supported by the more-than-expected draw in stocks in the US.

    US gasoline stocks fell 6.555 million barrels to 249.334 million barrels in the week ended March 3, data from the US Energy Information Administration showed. Analysts were looking for a draw of 2 million barrels.

    Gasoline inventories shrank despite US refineries holding at a stable run rate of 85.9% for the week ended March 3, compared with 86% the week before.

    Platts margin data reflects the difference between a crude's netback and its spot price.

    Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
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    Engie pulls out of UK shale gas with assets sale to Ineos

    French energy company Engie has sold its British shale gas interests to petrochemicals firm Ineos for an undisclosed sum, the companies said on Thursday.

    Engie was one of the first big energy companies to back Britain's nascent shale gas industry when it bought parts of Dart Energy's licenses, a company since then taken over by IGas, in 2013.

    Thursday's deal builds on Ineos' position as Britain's largest shale gas company as it now has access to a shale gas area of more than 1.2 million acres. The company, which recently moved its headquarters from Switzerland back to Britain, wants to invest 1 billion pounds into shale gas which it bets on as a feedstock for its petrochemicals business.

    Engie, on the other hand, said its retreat from British shale gas was in line with its strategy to focus more on energy infrastructure, like gas pipelines, and services.

    "The decision was made following ENGIE Group's strategic review notably in response to commodity price declines," said a spokeswoman. Global oil prices have halved since hitting a peak in mid-2014 and have also weighed on gas prices.

    As part of the deal, Ineos is taking over Engie's entire UK onshore exploration license portfolio, that consists of interests in 15 licenses, including seven in which Ineos had a previous participation.

    "We are always going to be interested in acquiring additional acreage," Gary Haywood, chief executive of Ineos shale, told Reuters on the sidelines of an industry event.

    He ruled out a large deal, however, saying the company's interests were already substantial.

    Large amounts of shale gas are estimated to be trapped in underground rocks and the British government says it wants to exploit them to help offset declining North Sea oil and gas output, create some 64,000 jobs and help economic growth.

    But so far only one shale gas well has been fracked and progress has been slow over the past years due to regulatory hurdles and public protests. Environmental groups are concerned that fracking could contaminate groundwater and that it is incompatible with fighting climate change.

    Shale gas fracking firms IGas (IGAS.L) and Cuadrilla confirmed the changes in license ownership in which they are also involved.
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    Oil bulls blink after months of attempts to push crude prices higher

    Oil bulls trying to push the crude market higher finally waved the white flag on Wednesday, triggering the biggest rout in a year, on concerns that stubbornly high inventory levels would persist despite supply cuts.

    Prices had been locked in the tightest trading range in over a decade as traders and speculators piled into bets that oil prices would rise after the world's top producers cut output.

    For weeks, they shrugged off record high inventories in the United States until on Wednesday, the market finally blinked.

    Global oil benchmark, Brent and U.S. crude's West Texas Intermediate prices plunged more than 5 percent - the biggest drop since February 2016 - an unwelcome reminder of the darkest days of a two-year price war that left many U.S. shale producers with beleaguered balance sheets.

    The move also pushed trading volumes to the highest since early December with over 430,000 contracts in Brent crude for May delivery and more than 911,000 contracts of WTI for delivery in April changing hands.

    Industry players were divided on whether the price slide would continue or be short-lived given producers' adherence to a pledge to rein in output and prop up prices that have languished for over two years owing to a glut.

    "The high level of uncertainty that has kept the oil complex trading in a relatively narrow trading range since late last year has been replaced, at least for the moment, by a bearish market sentiment," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

    "The discussion will now center around whether or not Saudi Arabia is willing to give back market share to U.S. producers ... or are they ready for yet another round of the market share war."

    So far, there has been no indication that Saudi and OPEC would extend the cuts beyond what is announced or allow the U.S. to claw some of its market share.

    Suhail bin Mohammed al-Mazrouei, the energy minister for the United Arab Emirates told Reuters on the sidelines of an industry conference in Houston that the plunge in oil prices was temporary and that prices would rise as OPEC complies with output cuts.

    Still, the rise in inventories was "a worry", he admitted.

    Despite record exports in U.S. crude oil, inventories have ballooned to a new high week after week, threatening a speedy rebalancing of the market.

    Saudi Oil Minister Khalid al-Falih even admitted on Tuesday inventory drawdowns were taking longer than he had expected for the first two months of the year.

    The crash on Wednesday also tested key technical levels of support established this year and dropped below their 100-day moving averages - a key metric for chart watchers - for the first time since the OPEC deal was announced.

    "The move down is in oversold territory, but otherwise, there is very little evidence that it will end," said Dean Rogers, senior analyst at Kase & Company said of WTI.

    A small upward correction might take place first, but odds strongly favor a continued decline toward the next major target at $48, he said, adding that for Brent, the move lower is poised to continue to at least $52.60 and likely $51.60 and lower over the next few days.

    But for the long term, most market participants continue to remain bullish.

    Trade in options - that give the holder the right to buy or sell at a specific price - signaled that the market does not expect prices to move much lower than current levels.

    "Their (OPEC's) response may very well be a continuation of co-operation to limit their oil production, perhaps for a little longer than they had hoped and this should help keep a floor under oil prices," said Fawad Razaqzada, technical analyst at

    "Indeed, despite today's sharp sell-off, I remain bullish on oil and still expect to see $60-$70 a barrel by the year end."
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    Can OPEC and US shale producers cooperate?

    OPEC and the shale industry are interdependent. Both lose if they raise output too much, flood the market with more oil than can be consumed, and cause prices to crash.

    Shale firms need OPEC to succeed in reducing global oil stockpiles and raising prices. And OPEC needs shale producers to be cautious in growing output to avoid undermining its policy of supply restraint.

    The warmer relationship between OPEC and shale firms on display at the CERAWEEK conference hosted by IHS Markit in Houston this week has been building for some time.

    OPEC's secretary-general said at the conference that the organization had "broken the ice" with shale oil producers and hedge funds who have become major players in the market.

    Harold Hamm, head of one of the largest U.S. shale producers, said that industry would need to add output in a "measured way, or else we kill the market", suggesting no new dash for growth.

    OPEC has also been briefing and consulting with hedge funds and physical oil traders to get their views on the supply-demand-price outlook and gauge their likely reaction to various potential supply policies.

    OPEC’s interest in courting hedge funds and physical traders marks a recognition of the powerful role they play in molding expectations and driving futures prices in the short term.

    OPEC, led by Saudi Arabia, has engineered a huge turn around in hedge fund views from bearish to bullish since September 2016 (“Saudi Arabia engineers big shift in oil market sentiment”, Reuters, Dec 14).

    Hedge funds have accumulated a record bullish position in crude oil futures and options equivalent to more than 900 million barrels, which has helped push prices up by more than $10 per barrel since November.

    In the past, OPEC has often blamed speculators for causing price volatility, but the organization is now anxious to cooperate with them to help achieve higher and more stable prices.


    Even more ambitiously, OPEC seems to want some form of understanding with shale producers based on their mutual interest in avoiding another price collapse. The organization says it wants an "energy dialogue" with the United States and sees it as a "strategic partner in the rebalancing process".

    But there are strict limits on how far shale producers can be co-opted into a system for managing the oil market and prices.

    U.S. shale production is dispersed among dozens of companies which makes coordination with them exceptionally difficult because of the free-rider problem.

    More importantly, under U.S. law shale companies are forbidden from attempting to coordinate production and prices among themselves or with OPEC.

    There are severe civil and criminal penalties for sharing information about future output and prices let alone any attempt to divide market shares among producers (“The Antitrust Laws”, Federal Trade Commission, undated).

    Even attempts to reach informal “understandings” among producers about the current and future state of the market are prohibited.

    The Sherman Antitrust Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.

    Shale producers cannot partner with OPEC to help manage oil supplies and prices -- even if both sides were interested in an accord.

    More generally, the same antitrust prohibitions prevent OPEC from partnering with the major international oil companies to manage the development of offshore and other oil supplies.


    OPEC members, shale producers and the rest of the oil industry would all like to see a further rise in oil prices and avoid another crash.

    OPEC members and Russia are loudly extolling the benefits of “compliance” with output cuts agreed in late 2016.

    Shale firms are pledging to maintain their own financial “discipline” in expanding production and avoid flooding the market or developing unprofitable new oil wells.
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    Exxon to buy stake in gas block offshore Mozambique for $2.8 billion

    Exxon Mobil Corp said on Thursday it would buy a 25 percent stake in a natural gas-rich block, offshore Mozambique, from Italy's Eni for $2.8 billion in cash.

    The offshore gas reserves discovered by Eni in Mozambique are large enough to need a giant liquefied natural gas (LNG) export plant.

    The east African nation's proximity to Asian and Middle Eastern growth markets could make it a highly lucrative project.

    Eni will continue to lead a floating LNG project and all exploration and production in the block, Area 4, while Exxon will lead the construction and operation of natural gas liquefaction facilities onshore.

    Eni sold 20 percent of its Area 4 license to China's CNPC for $4.2 billion in 2013, but oil and gas prices have more than halved since then.

    Eni, which operates Area 4, currently holds a 50 percent indirect stake in the block through a 71.4 percent stake in Eni East Africa.

    Galp Energia (GALP.LS), KOGAS (036460.KS) and Mozambique's state-owned energy firm ENH each own 10 percent in Area 4.

    Upon closing of the deal, Eni and Exxon will each own a 35.7 percent stake in Eni East Africa, while CNPC will own 28.6 percent.

    Reuters last year reported that Eni had wrapped up long-running talks to sell a multi-billion dollar stake in its planned Mozambique LNG development to Exxon.
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    Tangguh LNG Train 2 to shut down for maintenance

    UK-based energy giant and LNG player BP will shut down the second liquefaction train at the Tangguh LNG plant in Indonesia for two months.

    Train 2 will be shut down for maintenance, Reuters reports, citing Dharmawan Samsu, BP’s Indonesia country head.

    The production capacity of the second liquefaction train is 3.8 million tons of LNG per year.

    BP, the operator of the Tangguh LNG project, together with other partners reached a final investment decision to build a third train at the facility.

    The third train will add additional 3.8 mtpa of production capacity to the existing facility, bringing total plant capacity to 11.4 mtpa.

    In 2016, the plant shipped a total of 119 LNG cargoes, the highest ever since the production started in 2009.

    The Tangguh LNG facility is located in Papua Barat Province of Indonesia and consists of offshore gas production facilities supplying two 3.8mtpa liquefaction trains that have been in operation since 2009.

    Other partners in the Tangguh production sharing contract are MI Berau (16.30%), CNOOC Muturi (13.90%), Nippon Oil Exploration (Berau) (12.23%), KG Berau Petroleum and KG Wiriagar Petroleum Ltd (10.00%), Indonesia Natural Gas Resources Muturi (7.35%), and Talisman Wiriagar Overseas (3.06%).
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    Permian has room to grow at $40/bbl says Oxy, Pioneer

    Lessons learned from the shale revolution, combined with excellent geology, will allow Permian basin operations to grow and maintain profitability at a mere $40/bbl, according to two of the region’s top operators—Occidental Petroleum and Pioneer Natural Resources.

    “Right now, a lot of producers have significant opportunities that are economical to develop under $40/bbl,” Occidental President and CEO Vicki Hollub the CERAWeek crowd on Tuesday afternoon. She said that Permian production could eventually grow to 5 million bopd. “I just think it is going to depend on oil prices. It will be there one day, it is just a matter of how fast it can get there.”

    Occidental began trimming its business three years ago to focus on five areas that gave the company its best returns. The Permian was one of the five areas, along with five in the Middle East and one in South America. The company considers the Permian one of its core areas, Hollub said.

    “Today, you can grow the company at 5%, at $40-oil,” said Pioneer Executive Chairman and CEO Scott Sheffield. He compared the potential of the Permian to Ghawar field in Saudi Arabia. “You could easily see 8 to 10 MMbpd out of the Permian by 2027.” He went on to say that the Permian could contain an estimated total of 160-170 Bbbl of recoverable oil.

    “People have to realize we are currently going after two to three benches in the Permian. There are 12 to 16 benches we can go after in various price environments,” Sheffield said. “When you have 12 to 16 benches in the Permian, if the service companies can figure out how we can drill six to eight at one time, and frac them all at once, it will take the Permian to a level we can’t believe. Instead of growing 500,000 bpd a year, it could easily reach 1 MMbpd each year.”

    To fully take advantage of the Permian’s resources, he said additional infrastructure requirements would be needed, including many new pipelines, NGL lines, and natural gas lines to Mexico. “It’s the second largest associated gas field, and it’s going to go to 20 Bcfd,” he said. “We have to get our gas out of the Permian, and we have to keep a great relationship with Mexico to be able to do that.”

    Sheffield said Pioneer is growing its Permian business at about 30% annually. “The Permian is going to be a big supplier to the world over the next few years.”

    Attached Files
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    Ophir: Fortuna FLNG remains on schedule for FID in mid-2017

    London-based Ophir Energy on Thursday said it still expects to make a final investment decision on its Fortuna FLNG project in Equatorial Guinea in mid-2017.

    Ophir and its partner, OneLNG, a joint venture between Golar LNG and Schlumberger, had “advanced the Fortuna FLNG project towards FID,” Ophir said in its 2016 results report.

    Ophir and One LNG signed a deal back in November to form a joint operating company to develop the Fortuna FLNG project.

    “Since announcing the JV in November 2016 we have made good progress against the remaining milestones. The Umbrella agreement between the Fortuna JV and the Government of Equatorial Guinea is expected to be signed during the first quarter this year. This defines the legal and fiscal framework for the project,” said Nick Cooper, Chief Executive of Ophir Energy.

    “A term sheet has been signed for the provision of the debt facility with a consortium of Chinese banks. We have now moved to the documentation phase and expect to close the facility during the second quarter of2017,” he added.

    Cooper said that talks with offtakers “remain on-going and are expected to be closed out imminently.”
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    BHP sees massive oil demand ahead

    Mining major BHP Billiton has estimated that some 30-million barrels a day of new oil supply would be needed by 2025, to cater to global demand.

    The company’s president for petroleum operations, Steve Pastor, said in Texas this week that based on the near a near 1% a year global demand growth, and a 3% to 4% natural field declines, the world would need nearly one-third of its current global demand in new supply.

    “Oil shale plays a part in filling the gap, but its not enough,” Pastor said this week.

    “We think the core oil shale positions, the sweet spots, are likely to be developed first and fairly rapidly over the next five to seven years. Away from the sweet spots, oil shale development is inevitably higher on the cost curve and typically a lot gassier.”

    Pastor said that growth from core OPEC was also required, but would not be enough to meet demand on its own.

    Pointing to data from the International Energy Agency, Pastor noted that the call on OPEC countries would rise from 32.2-million barrels of oil a day in 2016 to 34.3-million barrels of oil a day in 2020, to 35.8-million barrels of oil a day in 2022.

    The International Energy Agency concluded that more investment was needed in oil production capacity to avoid the risk of a sharp increase in oil prices towards the end of its 2022 outlook period.

    Pastor noted that while BHP agreed that new conventional production was needed, the most significant opportunity for growth was with the deepwater developments.

    “We believe top tier players who are particularly good at deep-water exploration and development can develop superior margins and value. But being competitive for capital requires not only good geology, geoscience and engineering to de-risk plays and prospects, it also requires attractive, competitive and stable fiscal terms that offer a reasonable, risk considered, return on investment.”

    Pastor said that cost and capital efficiencies were increasingly important, and would play a key role in deepwater as they have in lowering breakeven prices in shale.

    Attached Files
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    Turnbull concerned by impending Australia gas supply cliff

    Australia Prime Minster Malcolm Turnbull on Thursday said warnings of potential shortfalls in gas was “very concerning”, and has called on the CEOs of east coast gas companies to address the threat to customers.

    Turnbull’s comments come after the Australian Energy Market Operator (AEMO) released a report stating that a projected decline in gas production could result in a shortfall of gas-powered electricity generation (GPG) that will impact New South Wales, Victoria and South Australia, from the summer of 2018/19.

    The AEMO’s ‘2017 Gas Statement of Opportunities (GSOO)’ report outlines that gas producers are expecting annual production to decline by 122 PJ, from 600 PJ in 2017 to 478 PJ in 2021.

    Based on this information, AEMO advises that additional production will be required to meet the needs for GPG and residential, commercial and industrial gas consumers.

    “At a time when liquefied natural gas (LNG) export is dominating demand and supply of gas in eastern states, strategic national planning of gas development has never been more critical for maintaining domestic energy supply adequacy across both gas and electricity sectors,” said AEMO COO Mike Cleary.

    He noted that this tightening of the domestic gas market will have flow-on effects to the electricity sector unless there is an increase in gas supplies and development.

    “Without this development to support GPG, modelling suggests average electricity supply shortfalls of between 80 GWh and 363 GWh may be experienced from 2018/19 to 2020/21. The scale of these shortfalls would breach the reliability standard which aims to supply at least 99.998% of electricity demand.”

    Alternatively, Cleary noted that, if GPG gas requirements are supplied, then gas shortfalls of between 10 PJ/y and 54 PJ/y are projected in the residential, commercial, and/or industrial sectors from 2019 to 2024 in New South Wales, Victoria and South Australia.

    “The 2017 GSOO highlights the increasing interdependencies between gas and electricity, and supply and demand, and the need for the Australian energy industry to have a holistic ‘single energy view’ to ensure long-term planning is carried out in the interests of consumers.

    “Gas and electricity markets can no longer be viewed in isolation, as the overall convergence of energy markets in eastern and south-eastern Australia demands a single energy view from a national perspective. It requires holistic planning across the entire supply chain to enable investment decisions to be made in the long-term interests of consumers," said Cleary.

    In the short term, AEMO has identified a range of potential industry responses that could mitigate both electricity and gas supply shortfalls; however, Cleary noted that these responses relied on appropriate market signals, and may be impacted on by considerations such as the retirement of coal-fired generators, and the direction of energy policy such as the existing moratoria on various gas developments across eastern Australia.

    “Energy supply shortfalls could be mitigated in the short term by an increase in coal-fired generation and renewable energy output, combined with an uptake in technologies such as battery storage, together with increased gas production and the possibility of LNG exporters redirecting a small portion of their gas production to the domestic market,” he said.

    “Gas producers have told us that there is potential scope to increase production from existing fields if incentivised, although the size of the increase is unknown and new fields may also need to be developed to meet projected demand," said Cleary.

    The long-term outlook identifies that early investment in exploration and development programmes will be needed to bring uncertain and undiscovered resources to market in time to meet forecast increases in demand for gas.

    Up to 5 500 PJ of additional production will need to be developed to meet projected demand post 2030, although the AEMO acknowledged that climate change policy, and emerging new technologies will influence future demand for GPG and the energy supply mix.

    The Australian Petroleum Production and Exploration Association (Appea) said on Thursday that the AEMO’s warning is the consequence of many years of policy failure by successive state governments in Victoria and New South Wales.

    APPEA CEO Dr Malcolm Roberts said the GSOO was the latest in a long list of credible warnings that eastern Australia was racing towards a gas supply cliff.

    “For years now, politicians in Victoria and New South Wales have wilfully ignored these warnings,” Roberts said.

    “AEMO, the Australian Consumer and Competition Commission, Appea, gas producers and their customers have all been demanding urgent action to increase gas supply.

    “But the response has been policy indecision, restrictive regulations and politically motivated bans and moratoriums that have stymied exploration and development of local gas supplies.”

    Roberts pointed to the Victorian Parliament’s decision this week to pass legislation effectively banning onshore gas development in that state.

    “Clearly, the Victorian government cares more about Greens preferences than it does about jobs and cost of living pressures on families,” he said.

    “Gas customers have watched with dismay as new projects – such as those proposed by Metgasco at Bentley, AGL at Gloucester and Santos at Narrabri in New South Wales, and Lakes Oil and Gippsland projects in Victoria – have been either blocked, withdrawn or delayed.

    “These projects would have added significantly to east coast gas supply. Fortunately, there is activity in other jurisdictions. Project Charlie and the Western Surat project in Queensland, the Sole project in Commonwealth waters offshore from Victoria and the Southern Cooper Basin gas project in South Australia are all moving forward.

    “Several east coast gas producers have also confirmed as recently as today that they have available gas that they can and do sell into the domestic market.”

    Roberts said onshore exploration was at its lowest level in more than three decades. Recent Australian Bureau of Statistics data showed onshore exploration expenditure falling by 64% in the past year.

    “Australia has more than enough gas to meet its export and domestic needs. It just needs the political will to develop it,” he said.

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    Nigeria's recovery could end OPEC oil output cut exemption, Libya further away

    When OPEC agreed to exempt Libya and Nigeria from its oil production cuts, market watchers said the two beleaguered countries' upside potential could complicate its attempt to accelerate the market's rebalancing.

    Both countries have ambitious aims to recover output following months of militant attacks on oil infrastructure that caused their production to plummet last year, as OPEC was negotiating the deal.

    But while Libya has seen a renewal of fighting that threatens to derail its recent fragile oil output recovery, Nigeria appears well on the way to full restoration of its output that could see it pressured by its fellow OPEC members to end its exemption from the production agreement.

    The six-month deal, which expires in June, will be up for review at OPEC's next meeting on May 25, with some ministers saying the production cuts should be extended to continue drawing down global inventories.

    "As things stand at present, potentially the new dynamic that will need to be resolved is if Nigeria's militant attacks die down, there will be a case to bring Nigeria into the quota system," said Richard Mallinson, geopolitical analyst with Energy Aspects. "That's unlikely to be something that Nigeria would welcome, but that would be a part of the negotiations."

    Nigeria oil officials could not be reached for comment, but oil minister Emmanuel Kachikwu, following the last OPEC meeting on November 30 when the production agreement was signed, acknowledged that a fully-recovered Nigeria likely would be asked to share in the cuts.

    "I don't expect that once you reach your volume you are going to have free rein, so we probably have six months to get our act together and then hopefully zoom back out production and then we will be asked to contribute," Kachikwu told reporters. "That is what I imagine."

    The OPEC deal calls for the producer group to lower output by some 1.2 million b/d from October levels and freeze production at around 32.5 million b/d, while exempting Libya and Nigeria from any cuts.

    The latest S&P Global Platts OPEC survey released Monday found the group is about 340,000 b/d above that ceiling.

    OPEC Secretary General Mohammed Barkindo has said the organization is closely monitoring news from the two exempt countries.

    "Every barrel that they can produce and export will be accommodated by OPEC, as well as non-OPEC producing countries, as well as the market," Barkindo said in February at the IP Week conference in London. "By accommodation I mean that both OPEC and non-OPEC...will continue to review developments in Nigeria, as well as Libya, and will take those into account."
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    Water poses problems for the energy industry in the Permian

    Water poses problems for the energy industry in the Permian

    Wastewater injection faces an uncertain future in West Texas’ prolific Permian basin, and companies working there will have to consider how else to dispose of water produced by fracking, said Alex Archila, the asset president of shale at BHP Billiton, a mining and exploration company.

    “Water, as I said of the Permian, will be a huge issue past a certain amount that you can inject,” said Archila. “And then it will be other solutions that the industry will need to figure out.”

    BHP Billiton is a Melbourne-based company with a presence in Houston and land in the Permian.

    Archila, who spoke on a panel at the CERAweek energy conference, said companies working in the Permian face two challenges when it comes to water: getting enough water for fracking and getting rid of underground water released by fracking.

    Typically, companies dispose of so-called wastewater by injecting it back underground, a process that has been linked to earthquakes in some areas of the U.S. In response to concerns about earthquakes, Oklahoma has limited wastewater injection. On Wednesday, Archila said that there might be a limit to how much wastewater can be injected into an area.

    The Permian is the hub of U.S. oil and gas production  in the U.S.. At CERAweek, there is even a word for the energy industry’s enthusiasm for the basin: Permania.
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    Shale Billionaire Hamm Says Industry Binge Can `Kill' Oil Market

    Shale Billionaire Hamm Says Industry Binge Can `Kill' Oil Market

    Harold Hamm, the billionaire shale oilman, said the U.S. industry could "kill" the oil market if it embarks into another spending binge, a rare warning in a business focused on fast growth to compete with OPEC.

    The statement, at an energy conference in Houston on Wednesday, comes as top shale companies announce large increases in spending for this year, and the U.S. government says domestic oil output next year will surpass the record high set in 1970. OPEC ministers have said they are keeping a close watch on shale production to decide in late May whether to extend their oil-supply cuts into the second half of the year.

    Oil prices plunged 5 percent on Wednesday to their lowest level this year, falling just above $50 a barrel, on investor concerns about unbridled growth in America’s shale basins swelling U.S. inventories.

    U.S. production "could go pretty high," Hamm said at the CERAWeek by IHS Markit conference in Houston, one of the largest gatherings of oil executives in the world. "But it’s going to have to be done in a measured way, or else we kill the market."

    Hamm runs Continental Resources Inc., one of the biggest shale producers in the country with drilling operations that run from the Bakken in North Dakota to Oklahoma. He also was an early supporter of Donald Trump’s candidacy, and remains an informal adviser to the president on energy.

    Spending Announcements

    After oil prices doubled over the past year, U.S. shale drillers have announced big increases in spending for 2017. Anadarko Petroleum Corp. this week said it planned to invest 70 percent more this year than in 2016. Last month, EOG Resources Inc., another big shale producer, said it will spend 44 percent more this year than last. Exxon Mobil Corp. plans to spend a third of its drilling budget this year on shale.

    Shale producers are staging the biggest surge in drilling since 2012, with the number of oil rigs rising to more than 600 this month, nearly double the level of June. They are rushing to spend again after the Organization of Petroleum Exporting Countries and Russia agreed last year to cut its supplies, boosting oil above $50 a barrel after a two-year price rout.

    The drilling boom has been led by the Permian Basin, which extends from western Texas and south-east New Mexico, and the Scoop and Stack plays in Oklahoma.

    The Energy Information Administration this week said U.S. production will rise to 10 million barrels a day by the end of next year, more than 10 percent higher than now. If so, shale drillers will capture market share from OPEC, largely filling the increase in global oil demand.

    "We are witnessing the start of a second wave of U.S. supply growth," Fatih Birol, the head of the International Energy Agency, told Bloomberg in an interview on the sidelines of the Houston conference.

    Saudi Arabia Energy Minister Khalid Al-Falih earlier this week warned CERAWeek attendees that what he called the green shoots emerging in the U.S. oil industry were perhaps growing "too fast." ConocoPhillips CEO Ryan Lance quipped afterward that the green shoots looked more like "trees" to him.

    Al-Falih, in a clear message to the U.S. industry, said it would be "wishful thinking" to expect that Saudi Arabia and OPEC "will underwrite the investments of others at our own expense" through production cuts.
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    Saudi to supply full crude contract volumes to Asia

    Saudi Aramco will supply full contract volumes of crude oil to multiple Asian buyers in April, three industry sources with knowledge of the matter said.

    Despite commitments to cut production in an OPEC deal, Saudi Aramco had agreed to supply at least one customer in Asia with incremental crude on top of contracted volumes next month, as it holds to a strategy of maintaining market share in the fastest-growing market, one of the sources said.

    Saudi Arabia led a pact between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers, including Russia, Mexico and Kazakhstan, to cut global crude output by about 1.8 million barrels per day (bpd) from Jan. 1, and bring supply closer to demand.

    The kingdom had cut beyond the level pledged in the agreement and brought its output below 10 million bpd, Saudi Energy Minister Khalid al-Falih said on Tuesday. Suppliers participating in the curbs have cut more than 1.5 million bpd, he said, exceeding what he called the market's low expectations.

    While supplies to Asia have been little changed, Saudi Aramco has been cutting supplies to some major oil companies in Europe and the United States, industry sources have said. Nearly half of Saudi's crude production is exported to Asia.

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    Royal Dutch Shell to sell Canadian oil sands interests for $7.25bn

    Oil giant Royal Dutch Shell is to sell its oil sands interests in Canada and reduce its share in the Athabasca oil sands project to 10% from 60% for a total of $7.25bn.

    Shell will remain the operator of Athabasca’s Scotford upgrader and the Quest carbon capture and storage project so it can focus on its Canadian downstream business and leverage proprietary technology.

    As part of the deal the FTSE 100 explorer will sell its 60% stake in Athabasca and its Peace River Complex asset, which includes undeveloped oil sands leases in Alberta, to a subsidiary of Canadian Natural Resources, which will be the operator of the Athabasca’s upstream mining assets, for about $8.5bn, comprised of $5.4bn in cash and around 98m Canadian Natural shares worth $3.1bn.

    Shell, along with Canadian Natural will also jointly buy Marathon Oil Canada, which holds a 20% stake in Athabasca, from an affiliate of Marathon Oil Corporation for $1.25bn each.

    The sale, which is expected to close mid-2017 and is subject to regulatory approval also includes intellectual property agreements valued at up to $285m and a long-term supply agreement for the Scotford refinery, which could potentially allow for additional cost reductions for Shell.

    Shell chief executive Ben van Beurden said: “This announcement is a significant step in re-shaping Shell’s portfolio in line with our long-term strategy. We are strengthening Shell’s world-class investment case by focusing on free cash flow and higher returns on capital, and prioritising businesses where we have global scale and a competitive advantage such as Integrated Gas and deep water.

    "The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30bn divestment programme.”
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    Healthy LNG supplies weigh on price

    Healthy LNG supplies weigh on price

    Asian spot LNG prices dropped for the eighth consecutive week on healthy supply and subdued demand with recent tender awards confirming the downward trend.

    Spot prices for LNG for April delivery LNG-AS were pegged at approximately US$6.00 per mmBtu, down 20 cents on the previous week.

    May prices dropped to US$5.80 per mmBtu, although some traders had difficulty in assessing the month's value due to a lack of deals.

    Thailand's PTT and Gail India both purchased one April cargo at a price estimated to be slightly above or below US$6 per mmBtu.

    Despite average to warmer weather in Japan from March to May, pockets of demand persist. A Japanese end-user has a requirement for an April shipment while another seeks a May cargo, likely tempted by low prices to refill inventory ahead of the summer cooling season, one industry watcher said.

    Meanwhile, Gail India's time-swap deal with Swiss trader Gunvor to offload some of its US gas volumes will begin with Gunvor delivering 15 cargoes to Gail between April and December this year.

    The deal should significantly cut Gail's demand for spot shipments, potentially contributing to an easing market as new production gets underway in Australia and the US.

    In the Atlantic, Argentina state-run energy firm Enarsa launched a tender seeking 20 cargoes between June and August.

    LNG prices are under pressure amid rising supplies of spot cargoes as projects offer spot buyers volumes that would have otherwise been shipped to term customers.
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    Angola LNG gets more feed gas as Chevron starts production at Mafumeira Sul

    Angola LNG gets more feed gas as Chevron starts production at Mafumeira Sul

    Chevron-led 5.2 million tons per year Angola LNG plant in Soyo is set to get new supply of feed gas as the company’s unit, Cabinda Gulf Oil Company began producing oil and gas at the Mafumeira Sul project offshore Angola.

    Located 24 km offshore Cabinda province in 60 meters of water, Mafumeira Sul is the second stage of development of the Mafumeira field in block 0.

    It has a design capacity of 150,000 barrels of liquids and 350 million cubic feet of natural gas per day. Early production from the project commenced in October 2016 through a temporary production system. Ramp-up to full production is expected to continue through 2018.

    Early production from the project commenced in October 2016 through a temporary production system, while the ramp-up to full production is expected to continue through 2018.

    Chevron said in an earlier statement that the associated natural gas will be commercialized through the Angola LNG plant in Soyo.

    Cabinda Gulf Oil Company is the operator and holds a 39.2 percent interest in Mafumeira Sul. Chevron’s partners are Sonangol E.P. (41 percent), Total (10 percent) and ENI (9.8 percent).
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    US oil production up year on year

                                                 Last Week    Week Before     Last Year

    Domestic Production '000.......... 9,088              9,032             9,078
    Alaska ............................................... 527                   517               . 507
    Lower 48 ....................................... 8,561    .          8,515               8,571
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    Summary of Weekly Petroleum Data for the Week Ending March 3, 2017

    U.S. crude oil refinery inputs averaged 15.5 million barrels per day during the week ending March 3, 2017, 172,000 barrels per day less than the previous week’s average. Refineries operated at 85.9% of their operable capacity last week. Gasoline production increased last week, averaging over 9.8 million barrels per day. Distillate fuel production increased last week, averaging 4.8 million barrels per day.

    U.S. crude oil imports averaged just about 8.2 million barrels per day last week, up by 561,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.9 million barrels per day, 1.7% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 242,000 barrels per day. Distillate fuel imports averaged 266,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.2 million barrels from the previous week. At 528.4 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 decreased by 6.6 million barrels last week, but are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.7 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.1 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 2.4 million barrels last week.

    Total products supplied over the last four-week period averaged 19.6 million barrels per day, down by 1.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 8.8 million barrels per day, down by 6.1% from the same period last year. Distillate fuel product supplied averaged over 4.0 million barrels per day over the last four weeks, up by 12.6% from the same period last year. Jet fuel product supplied is down 7.7% compared to the same four-week period last year.

    Cushing up 900,000 bbls
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    Brazil, Widening the Hunt for Corruption, Finds It Under Every Rock

    RIBEIRÃO PRETO, Brazil—This affluent city in Brazil’s southeastern highlands, famous for its agribusiness, artisanal ales and annual book fair, is usually a tranquil place. Yet in recent months Ribeirão Preto has been rocked by a $65 million alleged bribery and kickback racket at City Hall.

    It is one of hundreds of such scandals coming to light in Brazil. A three-year-old nationwide corruption probe, dubbed Car Wash, is inspiring a frenzy of similar operations by local prosecutors and police, who are uncovering a staggering degree of corruption and sparking turmoil across the country.

    Dárcy Vera, a former cotton picker and maid who swept to victory in 2008 as Ribeirão’s first female mayor, was jailed in December for allegedly masterminding the scheme. She denied wrongdoing and was later released pending a judge’s ruling on formal charges of corruption, embezzlement and criminal conspiracy.

    In the weeks that followed her arrest, tales of dawn police raids, briefcases stuffed with cash and the mysterious suicide of a local businessman in his shower engulfed this Boston-size city. The mayor’s post went unfilled for nearly two weeks—everyone in Ms. Vera’s line of succession was either also in jail, under investigation or refused to take the job.

    Duarte Nogueira, who was sworn in as Ribeirão’s new mayor in January, promised voters a return to normality. But he, too, is now facing suspicion. After construction giant Odebrecht pleaded guilty in the U.S., Brazil and Switzerland to bribing officials in 12 countries in exchange for contracts, a former executive testified the firm made a campaign contribution to Mr. Nogueira. The new mayor says all donations he received were legal and has denied any wrongdoing.

    “We’ve never seen such chaos,” says Gláucia Berenice, a 51-year-old evangelical missionary and one of the few Ribeirão city councilors from Ms. Vera’s administration who authorities say isn’t under investigation.

    For the past three years, Brazil has been gripped by the Car Wash probe, so called because it began as an investigation into money laundering at a gas station. It soon uncovered a scheme to skim an estimated $13 billion from inflated contracts at state-run oil company Petrobras. It has landed swaths of the business and political elite behind bars, implicated more than 20 foreign firms and helped topple President Dilma Rousseff last year, though she hasn’t been personally accused in the scheme.

    It has thrown Brazil’s political class into turmoil and deepened the country’s worst recession on record, which has seen the economy contract two years in a row. At the same time, there is a possible silver lining if the Car Wash investigation can strengthen the rule of law—a key step toward consolidating one of the world’s largest democracies.

    Similar scandals are now unfolding at state and local governments across Brazil, where a surge of anticorruption investigations has landed hundreds of elected officials in jail, from Rio de Janeiro to the far corners of the Amazon rain forest. In the jungle-covered state of Rondônia, on the border with Bolivia, prosecutors have been investigating an alleged scheme to defraud the city’s prison service.

    “The Car Wash Operation has laid everything in Brazil bare, making it clearer than ever that corruption here is both chronic and endemic,” says Gustavo Justino de Oliveira, lawyer and professor of administrative law at the University of São Paulo.

    Corruption isn’t just more evident in Brazil. There is also more of it, says Christopher Garman at Eurasia Group, the consultancy. “Over the past 15 years with the commodity boom, the volumes of investment that policy makers had at their disposal increased tremendously and so the opportunities for corruption grew as well,” he says.

    Brazilian judges handed out as many as 500 convictions involving hundreds of mayors across Brazil in 2016 for misconduct in office, largely related to corruption, according to an estimate from Claudio Ferraz, a professor of economics at Rio’s PUC University, using government data. That compares with 25 such convictions in 2000.

    Every day, new details of corruption probes emerge, paralyzing local governments struggling to deal with severe fiscal crises in the midst of the recession.

    In Rio de Janeiro last month, an electoral court ordered the state’s governor, Luiz Fernando Pezão, to step down, accusing him of trading government contracts for campaign financing, casting further uncertainty over the debt-ridden tourist hot spot. He has denied wrongdoing and plans to appeal.

    More than 600 miles southwest in Piên, a town of around 12,000 people, police accused former Mayor Gilberto Dranka of hiring the gunman who killed his successor, Loir Dreveck, a week before Christmas. Mr. Dranka, who police found hiding in the attic of his mansion, allegedly ordered the killing of the town’s mayor-elect after Mr. Dreveck refused to let him appoint friends and contacts to the new government. Mr. Dranka has denied wrongdoing. His lawyers say he hid because he thought the officers were burglars.

    “If they can discover, investigate and punish such a grandiose corruption scheme at the federal level, why can’t we do the same for smaller cases?” says Marcelo Magalhães, one of the police officers investigating the scandal in Piên.

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    Iraq can produce 5 million barrels a day in second half of 2017, oil minister says

    Iraq will be able to produce 5 million barrels of oil a day in the second half of 2017, the country's Minister of Oil Jabbar Ali Al-Luiebi said Tuesday.

    If Iraq were able to achieve that feat, it would come ahead of the market's expectations and potentially complicate Iraq's commitment to cut production under a deal with the Organization of the Petroleum Exporting Countries.

    "We achieved this great achievement of 4 million barrels per day ... middle of 2016, and now we have climbed up and we are reaching about 5 million barrels per day beginning of second half of this year," Al-Luiebi said during an interview at CERAWeek by IHS Markit.

    OPEC secretary general on Trump administration: So far, so good  11 Hours Ago | 02:25

    Iraq's production was nearly 4.47 million barrels a day in January, according to secondary sources cited by OPEC. Baghdad is supposed to be producing only 4.35 million barrels per day for the first six months of 2017 as part of an agreement by OPEC members to cut output in order to reduce brimming oil stockpiles.

    Asked by CNBC how an extension of the OPEC agreement would affect plans to reach 5 million barrels a day, Al-Luiebi said, "It would premature to comment" because it is too early to tell whether the deal will be extended.

    OPEC officials said they will reassess the agreement — and whether it should be extended by another six months — at their May meeting.

    It is unclear how much oil Iraq is removing from the market at this point. A compliance committee will meet later this month to assess reductions by participating producers.

    Al-Luiebi's comments on Tuesday are significant because the time frame he offered for producing 5 million barrels a day is well ahead of expectations, said John Kilduff, founding partner at energy hedge fund Again Capital. Previous forecasts were for Iraq to hit that production level by year-end at best and perhaps not until 2018.

    "Obviously, it's bearish. They're going to have to show considerable production constraint having that spare capacity. That's the kind of capacity historically only the Saudis have had," he told CNBC.

    It would also make it harder for oil prices to rally on other supply disruptions if Iraq had more spare capacity, he added. Baghdad could presumably tap that spare capacity during such disruptions.

    Iraq, OPEC's second largest producer, has presented obstacles to production cuts. In addition to missing its target in the first month of the deal, Baghdad quarreled with the producer group over how cuts would be measured.

    In November, OPEC agreed to reduce production by 1.2 million barrels a day, and 11 other exporters committed to cutting a combined 558,000 barrels a day.
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    Brazilian crude threatens Oceania, Middle East suppliers' Asian market share

    China's strong appetite for Brazilian crude has set off alarm bells among various producers in Oceania and the Middle East, prompting Australian and key Persian Gulf crude suppliers to slash their selling prices in an effort to remain competitive and protect their market share in Asia, market participants said Wednesday.

    Since late 2016, China saw a dramatic increase in Brazilian crude imports and the trend remained firmly intact with two Chinese state-run oil companies purchasing 5 million barrels or more of heavy sweet crude from the South American state for loading in March, according to a source with direct knowledge of the deals.

    March shipping fixtures seen by S&P Global Platts also showed that PetroChina has fixed the San Jacinto to move 130,000 mt of crude oil for March loading from Brazil to China, while trading company Vitol also booked Suez Hans and Fraternity to move a combined 260,000 mt of crude for loading in the same month for the similar journey.

    In addition, Shell and Repsol fixed Maran Artemis and Aquarius Voyager respectively, to move a combined total of 560,000 mt of crude for March loading from Uruguay to China, according to the latest fixtures.

    Uruguay's Montevideo is a common loading destination for Brazilian offshore producers because of its proximity to several prolific oil fields like those in the nearby Santos Basin.

    The source indicated that the Brazilian crude grades that the state-run Chinese companies had purchased for loading in March consisted mainly of Roncador, Marlim and Lula.


    Taking the biggest brunt of the continued arbitrage flows from South America to North Asia, many of the Australian heavy sweet crude grades that are heavily dependent on Chinese demand, saw their price differentials tumble to multi-month lows.

    Latest market talk indicated that Mitsui could have sold a 550,000-barrel cargo of Australian Vincent crude for loading over April 24-28 to a European trading company at a premium of around $1.50/b to Platts Dated Brent crude assessments on a FOB basis, sharply lower than the premium of around $2.80-$3.10/b heard paid for a March-loading cargo in the previous trading cycle.

    Platts assessed Vincent crude at a premium of $1.75/b to Dated Brent Tuesday, the lowest differential since October 19, 2016 when it commanded a $1.55/b premium.

    In comparison, Brazil's heavy sweet Roncador crude was last assessed at a discount of $4.95/b to Platts Latin American Brent Strip (PLABS), while the country's heavy sour Marlim was assessed at PLABS minus $5.25/b on Tuesday.

    "Far East [and Oceania crude grades] were too expensive," said the source.


    Middle Eastern producers were also taking a cautious stance in recent weeks as they stepped up efforts to curb Asia's appetite for arbitrage barrels and remain competitive amid Dubai's strength against other global benchmarks Brent and WTI.

    Last week, Saudi Aramco announced surprise cuts to the OSP differentials for its Asia-bound Arab Light and Arab Medium crude for loading in April, while Abu Dhabi's Upper Zakum crude also saw its OSP differential for February lowered by 7 cents/b from the previous month.

    The Brent/Dubai Exchange of Futures for Swaps spread -- a key indicator of ICE Brent's premium to benchmark cash Dubai -- has been narrowing sharply this year, making Dubai-linked Middle Eastern and Far East Russian grades less competitive against various grades linked to the European benchmark, traders said.

    "Yes, it is still economical [to buy Brazilian grades]," the source said when asked about the general cost comparison between purchasing South American and Asia-Middle East crude grades including freight rates.

    The source added that the narrow Brent/Dubai spread would likely keep the Brazil-Asia arbitrage window wide open as Roncador and Marlim are priced against Brent.

    The second-month EFS averaged $1.51/b in February, the lowest since August 2015 when it averaged 79 cents/b, Platts data showed. The EFS averaged $1.65/b in January, $2.17/b last December and $2.11/b in November 2016.

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    Anadarko to spend over $1B on Gulf of Mexico and international assets in 2017

    American oil and gas company Anadarko Petroleum Corporation plans to spend around $1.1 billion on its U.S. Gulf of Mexico and international assets during this year.

    The oil company on Tuesday announced its 2017 initial capital program of $4.5 to $4.7 billion. Out of this total amount, Anadarko expects to invest in 2017 approximately $1.1 billion in its deepwater Gulf of Mexico, Algeria and Ghana assets.

    In the Gulf of Mexico, the company plans to continue leveraging its premier infrastructure position and drill approximately seven development tiebacks during the year. In addition, Anadarko expects to benefit from a full year of production from the recently acquired Freeport-McMoRan properties, which doubled Anadarko’s sales volumes to more than 160,000 BOE per day at the end of last year.

    According to the company, minimal capital investments are expected to be required in 2017 to maintain the steady, long-lived, high-margin oil production provided by the company’s cash-generating assets in Algeria and offshore Ghana.

    Also in 2017, the company expects to invest approximately $770 million in its deepwater and international exploration program and LNG project in Mozambique.

    During the year, Anadarko plans to drill up to 10 exploration/appraisal wells in the deepwater Gulf of Mexico, Côte d’Ivoire, and Colombia, where Anadarko recently made a discovery at the Purple Angel prospect.

    The company expects to continue advancing the Mozambique LNG project where it has made progress on the legal and contractual framework, and recently submitted a Development Plan to the Government of Mozambique for the Golfinho/Atum discoveries.

    When it comes to its onshore assets, the oil company plans to invest approximately $820 million in Delaware Basin upstream activities, with an additional $560 million of Anadarko capital allocated toward the expansion of its midstream backbone to enable future growth, and approximately $840 million in DJ Basin upstream activities.

    Al Walker, Anadarko Chairman, President and CEO, said: “Our 2017 initial capital program is designed to leverage our streamlined portfolio and sharpened focus on higher-margin oil production, which is expected to generate stronger returns and substantial cash flow to fund material growth over the next five years.”

    “With a growing lower-risk resource base of more than 6.5 billion BOE (barrels of oil equivalent) in our premier U.S. focus areas of the Delaware and DJ basins, and the deepwater Gulf of Mexico, I believe Anadarko is poised to deliver exceptional value in 2017 and well beyond.

    “In 2017, we plan to allocate approximately 80 percent of our total capital program toward our U.S. onshore upstream and midstream activities, and our expanded position in the deepwater Gulf of Mexico,” added Walker.

    “These investments provide the foundation for our increased five-year oil growth expectations of more than 15 percent on a compounded annual basis at current prices, and we are prepared to be flexible throughout the year if we see the opportunity in the Delaware and DJ basins to accelerate activity to capture additional value. Furthermore, sustained oil production from our deepwater Gulf of Mexico, Algeria and Ghana assets is expected to generate significant free cash flow to support growth and fund future value creation through exploration success and our LNG business.”
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    BP to finish seven new projects in 2017, largest year ever

    After years of stalled growth, British oil major BP will bring more projects online this year than any in the company’s history, CEO Bob Dudley said on Tuesday.

    BP will finish seven “massive” projects around the world in 2017, Dudley said, from Egypt to the Gulf of Mexico. In 2011, the company had 8 million man-hours of work on projects under construction around the world, he said. This year, BP will log 88 million man-hours.

    Dudley said BP has been quietly retooling in recent years, as it worked to recover from the 2010 explosion of the Deepwater Horizon drilling rig off the coast of Louisiana, which killed 11 workers and spewed millions of gallons of crude oil into the Gulf.

    Last year, a federal judge approved BP’s $20.8 billion environmental settlement with the Justice Department, wrapping up the main civil case in the disaster.

    “We’ve had our own special problems over the last six or seven years,” Dudley told industry leaders gathered for the CERAWeek conference downtown at the Hilton Americas-Houston. The company had to sell $55 billion in assets, including prime land in West Texas’ Permian Basin, to cover the settlements.

    The two-year-old crash in crude prices then forced BP, among others, to stop or slow big projects. CERAWeek last year had a somber tone, Dudley said. “I don’t think I heard anybody laugh about anything last year,” he said. “It was a very serious group.”

    But as the crash stretched out, oil companies began cutting costs, squeezing contracts and finding efficiencies. Dudley called it a “really tough re-wrenching of the cost structure.”

    Some of those savings will go away as oil prices rise and contractors try to recapture profits. But some will stick, Dudley said, as companies and contractors work through strategic relationships.

    “It feels like we’re heading into a balance point here,” he said.

    Cost estimates for BP’s projects scheduled to come online this year, he said, are coming in under budget.

    The company said the new projects will add 1 million barrels of oil and gas per day to BP’s production totals by 2021.

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    API Reports Large Crude Build

    The American Petroleum Institute (API) reported a build of 11.6 million barrels in United States crude inventories against expert predictions that domestic supplies would see a much kinder 1.4-million-to 1.66-million-barrel build.

    The build in crude oil inventories was almost 10 times what analysts had predicted and marks yet another new high in U.S. inventories.
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    OPEC engages with shale producers and hedge funds

    OPEC held talks in recent days with shale oil producers and hedge fund executives, he said during a media conference at the CERAWeek energy conference in Houston. This is the first time OPEC held bilateral meetings with shale producers and investment funds, Barkindo said.

    "I think we have broken the ice between ourselves and the industry, particularly the tight oil producers and the hedge funds who have become major players in the oil market," he said in remarks on the sidelines of the energy conference.

    OPEC plans to hold an event to consider the impact of oil futures on physical crude markets, he said, without providing details.

    The November deal to reduce output, which was joined by non-OPEC countries including Russia and Kazakhstan, is intended to reduce global output by about 1.8 million barrels per day, and help reduce a glut. The six-month agreement took effect on Jan. 1.

    Compliance among top global oil producers should improve in February from January, he said. Members of the production accord last month reported 86 percent of the reduction target had been met in the early weeks of the agreement.
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    Kurdish official reports agreement to keep Kirkuk crude flowing to Turkey

    The Kurdish group which controls Iraq's Kirkuk oilfields has reached an agreement with Baghdad to keep crude flowing from the region through a pipeline to a Turkish export terminal on the Mediterranean, a Kurdish official told Reuters on Wednesday.

    Kosrat Rasul said the agreement was reached on Tuesday between his group, the Patriotic Union of Kurdistan, and Iraqi Prime Minister Haider al-Abadi.

    "The agreement ended the problem and there is no deadline anymore" to shut the pipeline, said Rasul, who is the PUK deputy secretary general, giving no further details.

    PUK forces seized the Kirkuk facilities last week, briefly suspending oil flows and threatening further action if its demand to have a share in the revenue is not fulfilled.
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    BHP hunts for oilfield stakes to cash in on market rebalance

    BHP Billiton, fresh from signing a joint venture to develop an oilfield off Mexico, remains on the lookout for more oil assets, as it is more bullish on oil than gas over the next few years, its petroleum chief said on Wednesday.

    The global miner, which also has a large petroleum business, has long flagged that copper and oil are its two main targets for growth over the next few years, as it sees potential supply shortfalls emerging for those commodities.

    BHP agrees with the International Energy Agency's outlook, released this week, which warned that world oil demand may outstrip supply after 2020 following a sharp decline in investment in new production.

    "We expect and we're seeing that oil markets in 2017 are really already coming back into balance for the first time in nearly three years," said Steve Pastor, President Operations, Petroleum for BHP Billiton, told reporters on a conference call after speaking at the CERAWeek energy conference in Houston.

    "And as we look ahead to the 2020s we see compelling market fundamentals," he said. That is based on a view that demand will grow around 1 percent a year while production will decline between 3 percent and 4 percent a year as fields are depleted.

    BHP is focused on the $9 billion Mad Dog phase 2 oil development in the deepwater Gulf of Mexico, drilling the Trion prospect with state-owned Petroleos Mexicanos in their side of the Gulf, and exploring off Trinidad and Tobago, while looking for more high quality oil assets, he said.

    "We always are open to and looking at acquisition opportunities," Pastor said.

    "Quite frankly, we're a bit more bullish on oil based on the fundamentals that I described, and we would like to add oil proportionately into the portfolio."

    He all but ruled out acquiring any assets in Southeast Asia, where companies like Chevron are looking to sell or give up assets in Indonesia and Thailand and Malaysia's Petronas is aiming to sell a large stake in a gas block off Sarawak state.

    "Quite frankly, in Southeast Asia, where we've played in the past, the prospects, the potential we see there is not a great strategic fit for us at this time," Pastor said.
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    Shell accelerates plan to boost U.S. shale output: exec

    Royal Dutch Shell is ramping its North American shale output earlier than planned to lock in quick returns from what has become one of its most profitable businesses, the head of Shell's unconventional energy business said.

    The Anglo-Dutch company plans to make shale oil and gas in the United States, Canada and Argentina a key engine of growth in the next decade, targeting output of around 500,000 barrels of oil equivalent per day (boepd), Greg Guidry told Reuters in an interview.

    A drive to cut the cost of producing oil and gas from U.S. shale deposits has proven so effective that Shell has accelerated development plans, Guidry said on the sidelines of the CERAWeek industry conference in Houston.

    It aims to boost output by 140,000 boepd over the next three years in the Permian basin in West Texas and the Duvernay region in Canada, said Guidry, an executive vice president.

    Shell had previously expected to hit that target after 2020.

    Shell produces 280,000 boepd in shale- a tenth of the company's overall output of 2.8 million boepd in 2016. The firm is targeting an increase in global output to around 4 million boepd by 2020.

    The world's top oil and gas companies such as Shell, Exxon Mobil and Chevron have traditionally focused on developing complex projects such as offshore fields and liquefied natural gas plants that are expensive and take years to complete.

    The sharp drop in oil prices since 2014 - a barrel is currently worth around $56 - has pushed boards to increasingly look at shale, which is cheaper and faster to develop.

    Since 2013, Shell has overhauled its shale business, selling assets and streamlining operations to better compete with smaller, more nimble shale-focused producers.

    Shell's shale output is profitable with oil prices at $40 a barrel, with the most productive wells at an even lower breakeven, Guidry said.

    Exxon and Chevron are betting heavily on shale output in the coming years. Shell's short-term growth will mostly come from deepwater production in Brazil as well as LNG projects.

    Further expansion in shale beyond the next three years is a possibility, Guidry said.


    Shell is also developing shale capacity in the Vaca Muerta region in Argentina, where it last month reached a deal with state-run company YPF to invest $300 million.

    The company will decide in around 18 months on whether to go ahead with commercial scale development of the unconventional formation in Patagonia, where it holds around 250,000 acres, Guidry said.
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    Ecopetrol jumps back to black

    Colombian oil and gas company Ecopetrol returned to profit in the last quarter of 2016 compared to a loss in the prior-year quarter.

    The state-run company on Monday posted a net profit of 186 billion Colombian pesos (approx. $62.6M) compared with a net loss of 6.31 trillion pesos ($2.1 billion) in the final quarter of 2015.

    Juan Carlos Echeverry G., CEO of Ecopetrol S.A., commented: “2016 was a year of enormous challenges for Ecopetrol. The oil industry experienced the lowest crude prices in 12 years, thus resulting in cuts in investment.”

    He added: “Ecopetrol focused its efforts on reducing costs, producing profitable barrels, prioritizing investments, strengthening cash flow and, at the same time, maintaining its investment-grade rating.”

    The company’s investments in 2016 totaled $2.5 billion.

    At 718 thousand barrels of oil-equivalent per day, the company exceeded its 2016 production target by 3 thousand barrels despite a drop in production by 25 thousand barrels of oil-equivalent per day for 45 days, due to the closure of the Caño Limón Coveñas oil pipeline; and a 16% drop in Brent prices.

    The company’s fourth quarter closed with a cash position of 14 trillion pesos (approximately $4.7 billion).

    Echeverry also noted that the country’s offshore is a region of high potential. “During the fourth quarter, two wells, Purple Angle (Kronos appraisal well) and Gorgon, were being drilled to have a better assessment of the potential of the Colombian Caribbean,” he said.

    Looking ahead, Echeverry said: “Challenges in 2017 are no less serious. Adding reserves and maintaining the pace of production are the company’s focus. The exploration campaign will be stepped up significantly in regions of high prospectivity. Investment in exploration will rise from USD 280 million to USD 650 million, thus increasing offshore wells from 2 to 6 and onshore wells from 5 to 11 from 2016 to 2017. Enhanced recovery will continue to leverage additional reserves in mature fields.”
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    Growth in Permian Production to Stress Outbound Infrastructure in Late 2017

    As the price of West Texas Intermediate steadies in the $50-$55 per barrel (bbl) range, oil rig counts affirm operator commitments to growing production immensely in the Permian Basin over the next two years. Nearly half of all U.S. drilling rigs returned to service since rig counts hit a low in May 2016 have gone to work in the Permian Basin.

    Total U.S. oil rig counts bottomed at 323 rigs in May 2016, as a result of crude prices falling to below $30/bbl. In contrast, oil drilling activity in the U.S. has trended up in the last year on an uptick in WTI prices and OPEC announced production cuts. Since the low, oil rig counts increased by 313 rigs, close to a 100 percent rise.

    The Permian’s rig count was 295 on February 29, 166 higher than the low of 129 active rigs in the basin in May 2016. The theme of recovery has taken firm root, and drilling activity should increase through at least 2017, based on the current forward price curves for natural gas and oil. Genscape expects an additional 33 rigs to be added between now and the end of the year, bringing the total Permian rig count to 328.

    As ever-increasing amounts of capital flow into robust drilling programs in the basin, Permian production is set to grow from around 2.2 million bpd to 2.8 million bpd by year end 2017, according to Genscape’s Spring Rock Production forecast. This incremental 600,000 bpd growth will be nearly matched in 2018 to the tune of a 500,000 bpd of expansion. Given that supply in the basin could see up to 50 percent growth between now and 2018, the natural question is: Will takeaway infrastructure be adequate to support such significant growth, and how soon might a lack of adequate takeaway become a constraint?

    Permian Pipeline Infrastructure to Expand

    Giving credence to the immediacy of this question, there have been several announcements in recent weeks to expand existing pipeline infrastructure. Magellan Midstream Partners announced plans to expand their 300,000 bpd Colorado City, TX-to-Houston BridgeTex pipeline by 100,000 bpd by Q2 2017, in a press release on January 24. Plain All American Pipeline announced plans to expand the 250,000 bpd McCamey, TX-to-Gardendale, TX, Cactus Pipeline system to 390,000 bpd by Q3 2017, according to a January 18 news release.

    In their 4Q earnings call, Sunoco Logistics announced plans to expand their system by 100,000 bpd with the Permian Express 3 project expected to be in service in mid-2017. According to Sunoco, they also have the ability to add an additional 200,000 bpd utilizing existing infrastructure and can be staged as needed. Currently, Sunoco’s 300,000 bpd West Texas Gulf, 150,000 bpd Permian Express I and 200,000 bpd Permian Express II pipelines transport barrels from the Permian to Longview and Nederland, TX, markets.

    Also in their 4Q earnings call, Enterprise Products Partners said it both expanded and moved up the start date for their new Midland-to-Houston pipeline. The company expanded the capacity from 300,000 bpd to 450, 000 bpd and moved up the start date from mid-2018 to Q4 2017.

    Tightening Balance between Production and Takeaway Capacity

    Based on the consensus evident in these midstream announcements and Genscape’s production outlook, the balance between production and outbound takeaway capacity will be tightening by the second half of 2017. Tighter pipeline capacity will result in a widening crude price differential between Midland and Cushing, which could widen enough to support rail economics to the Gulf Coast. However, the duration and magnitude of the impact to the Midland-Cushing spread will ultimately be determined by the timing of new infrastructure and when incremental production comes online.  

    Permian oil production growth and major outbound takeaway capacity additions from the basin to Cushing and the Gulf Coast. Also included in the takeaway is both local refinery capacity in the Permian Basin, which totals about 350 Mb/d and rail loading capacity estimates. Click to enlarge

    Service Costs Keep Rising

    The other primary, imminent concern on the speed of Permian production growth is rising oil production service costs. Operators continue to push the boundaries in the Permian on both the drilling and completion side. However, rising costs, especially for hydraulic fracturing services, continue to increase with activity. Many operators have been able to neutralize the effect of increased service costs on well economics via gains in both well and rig productivities. However, many operators are reporting between five and 15 percent increases in service costs.

    As evidenced by strengthening rig counts and operator drilling plans, the Permian Basin is the area most poised for production growth in the United States over the next two years. The clearest threats to this production growth are resource constraints (labor availability, equipment availability, and increasing OFS prices) and takeaway infrastructure. Given the announcements by several midstream firms to expand takeaway infrastructure by the end of 2017, as well as productivity gains offsetting rising service costs at the moment, Genscape believes that Permian producers have every incentive to drill their next well.

    - See more at:

    Attached Files
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    Chevron says expects first LNG from Gorgon Train 3 in March

    US-based energy giant Chevron expects to produce first liquefied natural gas (LNG) from the third liquefaction train of its giant Gorgon facility in Western Australia by the end of this month.

    Start-up operations at the third train are fully underway and “first LNG is expected in March 2017,” Jay Johnson, Chevron’s executive vice-president upstream told investors on Tuesday.

    Earlier this year, Chevron’s Chief Executive John Watson said the company was expecting to start LNG production from the third train at the Barrow Island LNG plant early in the second quarter of this year.

    The troubled $54 billion Gorgon LNG project has experienced several production interruptions since it shipped its first cargo on March 21.

    The LNG facility faced five production interruptions in March, July, two in November and the latest one at the end of February.

    Chevron restarted production at the second Gorgon liquefaction train on February 26 after it had been suspended due to “minor maintenance.”

    Johnson told investors that the second Gorgon train reached over 90 percent of its nameplate capacity within a week following the restart.

    He added that 22 LNG cargoes have been shipped from Gorgon since the beginning of this year.

    The LNG project will have a shipment capacity of 15.6 million mt/year once all three trains have ramped up to full production.

    Gorgon is operated by Chevron that owns a 47.3 percent stake, while other shareholders are ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
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    U.S. to open 73 million offshore acres for O&G exploration

    U.S. Secretary of the Interior Ryan Zinke said that the Department would offer 73 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida for oil and gas exploration and development.

    The proposed region-wide lease sale is scheduled for August 16, 2017, and will include all available unleased areas in federal waters of the Gulf of Mexico.

    Secretary Zinke said: “Opening more federal lands and waters to oil and gas drilling is a pillar of President Trump’s plan to make the United States energy-independent. The Gulf is a vital part of that strategy to spur economic opportunities for industry, states, and local communities, to create jobs and home-grown energy and to reduce our dependence on foreign oil.”

    The Proposed Lease Sale 249, scheduled to be live streamed from New Orleans, will be the first offshore sale under the new Outer Continental Shelf Oil and Gas Leasing Program for 2017-2022 (Five Year Program). It will include about 13,725 unleased blocks, located from three to 230 miles offshore, in the Gulf’s Western, Central, and Eastern planning areas in water depths ranging from nine to more than 11,115 feet (three to 3,400 meters).

    The estimated amount of resources projected to be developed as a result of the proposed region-wide lease sale ranges from 0.211 to 1.118 billion barrels of oil and from 0.547 to 4.424 trillion cubic feet of gas.

    Excluded from the lease sale are blocks subject to the Congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006, blocks that are adjacent to or beyond the U.S. Exclusive Economic Zone, and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary.

    Under the new Five Year Program, two region-wide lease sales are scheduled for the Gulf each year, where the resource potential and industry interest are high, and oil and gas infrastructure is well established.

    Walter Cruickshank, the acting director of the Bureau of Ocean Energy Management (BOEM), said: “To promote responsible domestic energy production, the proposed terms of this sale have been carefully developed through extensive environmental analysis, public comment, and consideration of the best scientific information available. This will ensure both orderly resource development and protection of the environment.”

    The lease sale terms include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential conflicts associated with oil and gas development in the region. The Final Notice of Sale will be published at least 30 days before the sale.

    BOEM estimates that the U.S. Outer Continental Shelf (OCS) contains about 90 billion barrels of undiscovered technically recoverable oil and 327 trillion cubic feet of undiscovered technically recoverable gas. The 160 million acres of the Gulf, has technically recoverable resources of 48.46 billion barrels of oil and 141.76 trillion cubic feet of gas.

    According to the Department of Interior, production from all OCS leases provided 550 million barrels of oil and 1.25 trillion cubic feet of natural gas in FY2016, accounting for 72 percent of the oil and 27 percent of the natural gas produced on federal lands. Furthermore, energy production and development of new projects on the U.S. OCS supported an estimated 492,000 direct, indirect, and induced jobs in FY2015 and generated $5.1 billion in total revenue that was distributed to the Federal Treasury, state governments, Land and Water Conservation Fund, and Historic Preservation Fund.

    As of March 1, 2017, about 16.9 million acres on the U.S. OCS are under lease for oil and gas development (3,194 active leases), and 4.6 million of those acres (929 leases) are producing oil and natural gas. More than 97 percent of these leases are in the Gulf of Mexico; about 3 percent are on the OCS off California and Alaska.

    The current Five Year Program [2012-2017] has one final Gulf lease sale scheduled on March 22, 2017 for Central Planning Area Sale 247. The 2012-2017 Five Year Program has offered about 73 million acres, netted more than $3 billion in high bids and awarded more than 2,000 leases.
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    Canada could export 450,000 b/d of heavy crude to Asia by 2021: industry sources

    Canadian crude oil exports from the US Gulf Coast has the potential to grow to some 450,000 b/d over the next five years, as Asian refineries intensify their search for a "diet" of medium-to-heavy crude feedstock, industry participants said Monday.

    New Asian refining capacity is being built to take in medium-to-heavy grades and that's "good" for Canada, Sarah Emerson, president of Energy Security Analysis, said at the CERI 2017 Oil & Gas Symposium in Calgary.

    During a five-year period starting 2016, new investments in coking and desulfurization facilities in Asian refineries will result in incremental demand of a total of 1.2 million b/d of heavy and medium grades, she said.

    For Canadian producers to get a larger share of the new market demand, "pricing will matter," Emerson said without giving any figures.

    Dinara Millington, vice president of research with the Canadian Energy Research Institute, said the first step for Canadian heavy producers will be to find a footing in the Asian market.

    "Our current estimates show that about 30,000 b/d of WCS [Western Canadian Select} grade gets re-exported out of the USGC to foreign markets," Millington said on the sidelines of the event. "The advantage for Alberta's bitumen producers is there is a growing demand for the heavy barrels and the success will be in first finding a footing in that market rather be purely driven by pricing. Subsequently those numbers can grow, as WCS will not be in direct competition with the US light grades or the volumes being offered now by OPEC."


    Besides pricing, new pipeline takeaway capacity from Western Canada will also be another determining factor for exports to markets beyond the US, Emerson said.

    Asian exports will likely to be impacted if no new export pipelines get built by 2023, she said.

    For Western Canadian producers, their first target will still continue to meet growing WCS demand in the USGC which could potentially grow by another 300,000 b/d to 400,000 b/d over the next five years, Emerson said.

    Total throughput from Alberta to USGC -- through a combination of pipelines, rail and barges -- is about 350,000 b/d and Alberta bitumen supplies are set to grow as supplies from Latin America starts declining and WCS finds itself in a competitive position, Millington said.

    The Kinder Morgan-backed Trans Mountain Expansion pipeline project will also offer opportunities for exports of 530,000 b/d for Alberta's producers to foreign markets from the Canadian Pacific Coast, Emerson said.

    Also, the planned Energy East pipeline of TransCanada will provide 590,000 b/d of export opportunities for Alberta and Saskatchewan producers from the Atlantic Coast, Emerson said.

    Lastly, TransCanada's Keystone XL will carry 830,000 b/d of Canadian heavy barrels from Hardisty, Alberta to refineries on the USGC.

    The most advanced on the planned pipelines is the 890,000 b/d Trans Mountain Expansion that received Canadian government approval late 2016 and is due for start up by 2019.

    Energy East is till undergoing regulatory review by Canada's National Energy Board, while a US presidential permit is due end-March on an application refiled by TransCanada to build the Keystone XL pipeline system.

    "Trans Mountain Expansion is very significant. Also after 2022, you will need something?either Keystone XL or Energy East," Emerson said.

    There is interest amongst shippers to export to Asia and it is seen as a major option, Millington said, adding ultimately it will be the market that will determine where those barrels go.

    The Trans Mountain Expansion project is underpinned by firm commitments and has the backing of about 13 oil sands producers that include Cenovus, Imperial Oil, Statoil Canada, Suncor, Total, Husky Oil and Devon Energy.
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    Snam ups investment, eyes small-scale LNG development

    The Italian natural gas transmission system operator, Snam, intends to study the development of small-scale LNG business and to up its investment over the 2017-2021 period.

    The company expects an annual net income growth of 4 percent on average, with investment over the period to reach €5 billion (Approx: US$5.3 billion).

    Out of the €5 billion planned investment, €4.7 billion will be spent on further developing the Italian gas network and its interconnection with the European infrastructure system, while €270 million has been earmarked for the Trans Adriatic Pipeline (TAP) project.

    Included in its plans are the development of small-scale LNG infrastructure as well as CNG infrastructure. In Italy, Snam will evaluate opportunities related to LNG infrastructure, the methanization of Sardinia and the utilization of natural gas for transport.

    Initiatives for the development of the small-scale LNG and CNG business are already being studied, Snam said in its latest financial report. The company plans to support the roll-out of 300 CNG stations throughout the country.

    Speaking of the 2016 operations, the company noted that five cargoes were unloaded at its Panigaglia LNG receiving terminal, with the facility regasifying 0.21 billion cubic meters of liquefied natural gas during the year.

    The facility has two LNG storage tanks with 50,000-cbm capacity each and is capable of receiving LNG carriers with 25,000-cbm up to 70,000-cbm.
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    International offshore rig count goes further down in February

    The international offshore rig count for February 2017 was down both sequentially and year over year, which is the third time in a row, according to Baker Hughes’ monthly rig count reports.

    The report by the oilfield services provider shows that the international offshore rig count for February 2017 was 200, down 6 from the 206 counted in January 2017, and down 25 from the 225 counted in February 2016.

    The international rig count for February 2017, which includes land and offshore units, was 941, up 8 from the 933 counted in January 2017, and down 77 from the 1,018 counted in February 2016.

    The average U.S. rig count for February 2017 was 744, up 61 from the 683 counted in January 2017, and up 212 from the 532 counted in February 2016.

    The average Canadian rig count for February 2017 was 342, up 40 from the 302 counted in January 2017, and up 131 from the 211 counted in February 2016.

    The worldwide rig count for February 2017 was 2,027, up 109 from the 1,918 counted in January 2017, and up 266 from the 1,761 counted in February 2016.

    The worldwide offshore rig count for February 2017 was 222, down 9 from the 231 counted in January 2017, and down 32 from the 254 counted in February 2016.
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    Burning less oil at home will help Saudi exports and Aramco IPO

    Saudi Arabia is likely to reduce the amount of oil it burns to generate power this summer as the kingdom hikes domestic energy prices and uses more natural gas in power stations, industry sources said.

    Burning less crude at home means the world's top oil exporter may not need to push output to the record high of 10.67 million barrels per day (bpd) reached in July last year, even if the Organization of the Petroleum Exporting Countries and other producers end supply curbs in June.

    It may also make the sale of a 5 percent stake in Saudi Aramco more attractive to investors because the national energy giant will have more crude to export, if needed, and can sell fuel at higher prices to the domestic market.

    "Now we are using more and more natural gas, and with the reforms in electricity prices, crude burning will go down," said a Saudi-based industry source. "This summer you will see less crude burning."

    Saudi Arabia's domestic energy reforms aim to rein in waste which threatens to erode the amount of oil available for export.

    The kingdom's energy subsidies have long kept power and fuel at a fraction of cost price, draining the state budget and giving consumers little incentive to buy smaller cars or switch off power-hungry air conditioners -- even when they leave home.

    But a slide in international oil prices to around $55 a barrel now from above $100 in 2014 has left a gaping hole in state coffers, encouraging efforts to wean the nation off cheap energy and use more of its huge gas reserves.

    "That's a national objective. Aramco's been doing this for years, reducing crude burning by increasing use of gas and encouraging the state power generation sector to become more efficient," said another source familiar with the matter.

    In December 2015, the government, which spent nearly 300 billion riyals on energy and water subsidies that year, hiked electricity for the industry and gasoline prices at the pump by about 50 percent. More gradual increases are planned until 2020.



    Exclusive: Mexico cancels sugar export permits to the U.S. in "absurd" dispute
    Exxon to invest $20 billion on U.S. Gulf Coast refining projects

    Under the 2015 rises, 95 octane gasoline rose to 0.90 riyal ($0.24) per liter from 0.60 riyal, a big rise for Saudi drivers but still offering them some of the cheapest fuel in the world. A further 30 percent rise could come as early as July, sources said.

    Cheap fuel prices have helped make Saudi Arabia the world's fifth biggest energy consumer, while its economy is ranked about 20th in size.

    The OPEC heavyweight burned an average of 700,000 bpd of oil for electricity to keep the population cool in the hottest months from May to August, official figures showed.

    Expanding gas usage is helping cut the hefty level of oil consumption. Aramco aims to nearly double gas production to 23 billion standard cubic feet a day in the next decade, supplying more of the fuel to power stations.

    In the wake of the price reforms and gas development plans, domestic demand for crude declined about 3.5 percent year-on-year in December 2016 to 2.21 million barrels per day compared to a year earlier, the lowest total for the month of December since 2013, according to an OPEC report.

    One industry source said Riyadh might not need to raise output to the record high of July last year as a result of the reforms. "Demand internally will not be high," the source said.

    The reduction in domestic oil demand comes with an added bonus as the government plans to sell a 5 percent stake of Aramco, in what is expected to be the world's biggest initial public offering of shares worth $100 billion.

    The sources said that a reduction in oil usage, while not a specific objective for the IPO, is part of Aramco's plan to improve efficiency and secure the best possible listing price.

    "More volume (exported) abroad means more revenue for investors," said another industry source. "That should help Aramco's valuation."
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    LNG developers, equipment manufacturers working more closely on costs

    Developers of LNG export projects are working more closely with liquefaction equipment manufacturers than they have in the past to lower their expected production costs before making a final investment decision, a GE executive said Monday.

    The manufacturers, unwilling or unable to lower their profit margins, face the challenge of coming up with more efficient technology that can drive down their own costs so they can help developers find the right price point for their projects, said Rod Christie, president and CEO of turbomachinery solutions in GE's Oil & Gas unit.

    "There is a lot of due diligence being done right now," Christie said on the sidelines of the annual IHS CERAWeek conference in Houston.

    While 2016 was the year of the first US exporter of LNG produced from shale gas getting off the ground with Cheniere Energy starting up its Sabine Pass facility, 2017 is bringing new entrants and increased competition. There are more than a dozen export projects pending before regulators or being proposed, on top of several under construction.

    GE is a player in many of those projects, supplying heavy machinery used in the liquefaction process and helping service that equipment when plants go into turnaround. It also has taken equity stakes in some of the projects that it is confident will be built.

    The industry has been closely watching to see at what point the market becomes too saturated to support further development. Some final investment decisions that were expected this year have been pushed off to 2018 and beyond. A number of developers with proposals in the permitting queue have announced preliminary offtake agreements with buyers, but firm final agreements have so far been fleeting.

    "There are a handful of suppliers out there who really try to push that price point down," Christie said.
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    New bipartisan bill calls for shipping 30 pct of LNG exports on U.S.-flagged ships

    A bipartisan bill introduced last week is requiring up to 30 percent of U.S. exports of liquefied natural gas (LNG) and crude oil to be transported on U.S.-flagged vessels.

    The bill, introduced by congressman John Garamendi and co-sponsored by John Duncan and Duncan Hunter, aims to help the US maritime industry, that, according to Garamendi “is in crisis-level decline.”

    He added that after World War II, oceangoing fleet of U.S.-flagged ships numbered 1,200 while now it’s fewer than 80.

    Requiring even a minority of strategic energy asset exports to be carried on U.S.-flagged ships will compel the country to rebuild the technical skill to man these vessels, Garamendi said.

    “The legislation would revitalize the maritime industry by creating thousands of seafaring jobs,” said Marshall Ainley, president of the Marine Engineers Beneficial Association.

    Other members of the domestic maritime industry have also voiced support of the legislation.

    Masters, mates and pilots president, Don Marcus said the “enactment of this legislation will ensure that at least some of the jobs associated with the export of LNG will go to American maritime workers.”
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    Hess: Deepwater at rock bottom, but there are exceptions

    Much has been said about the shale revolution and the low oil prices effects during the first day of the CERAWeek conference in Houston. On the other hand, not so much attention was given to the offshore part of the industry.

    This was also acknowledged by John Hess, the CEO of Hess Corporation, a U.S. based independent with assets both in offshore and onshore areas of both in the U.S. and internationally.

    Speaking at the Ceraweek panel in U.S. Hess said while the spotlight has been on shale, most people don’t realize that offshore deepwater makes up about seven percent of world oil supply, while shale is five percent.

    “While shale was the first to go down (during the oil price crash), offshore deepwater has been the last to go down, and is really at rock bottom.”

    Commenting further on the current conditions in the offshore market, Hess said the offshore rig utilization is now at about 50 percent, meaning there’s a lot of equipment lying around that cannot be used.

    “Offshore drilling rates, whether it’s for a drillship or semi-submersible have gone from $600.000 a day in the heyday to $200.000 per day today barely covering operating expenses.

    Also he said that oil and gas exploration investments globally have shrunk from $100 billion to $40 billion this year.

    Hess also highlighted the $40 billion number has been like that for two years.

    “So, in sum, we’re not spending enough money, we’re not investing enough, to keep offshore development pipeline full.”

    Hess said the consequences of this under-investment will start to show in a few years, echoing a statement by IEA made earlier during the day when it said that oil prices might jump after 2020 if no new projects are sanctioned soon.

    John Hess then went on to quote the IEA who said that the industry needs to spend in excess of $600 billion a year to hold global oil and gas production flat. According to Hess, in 2016 the investments were at around $300 billion, while 2017 should be around $410 billion.

    So, he said, as an industry we’re not investing enough to ensure that we have enough supply growth to keep up with the demand growth and offset the annual decline in production.

    Asked about the company’s offshore investments, Hess said that while most people might think the offshore makes no economic sense in the current oil price environment there are exceptions, and “we are very fortunate to have one of those exceptions in offshore Guyana.”

    Hess was referring to the giant Liza discovery recently made by ExxonMobil.

    “We’re very fortunate we have Exxon as partner over there, they’re doing a great job. Two years ago, we had a play opener. The largest oil discovery in the last ten years, great reservoir, massive resource.”

    The Liza development is expected to be sanctioned in mid-2017. According the the Hess CEO, the project offers very attractive returns even at $40 a barrel.

    Hess then again highlighted that the industry needs to invest both in the short cycle and long cycle to avoid the supply crunch that may be looming over the next several years.
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    Novak: Russia’s hydrocarbons industry competitive despite sanctions and downturn

    Despite difficulties posed by international sanctions and the downturn in the past two to three years, the Russian hydrocarbons industry has demonstrated positive results, helped by a very liberal investment regime that incentivizes greenfield developments and further production of brownfields.

    The agreement between OPEC and non-OPEC countries to cut productions helped reduce volatility and prompted investments to return.

    These were the key messages that Alexander Novak, Minister of Energy of the Russian Federation, conveyed at CERAWeek in Houston today.

    “Russia had a lot of foreign investment coming in”, said Novak. “Clearly it was difficult to get investments from the US and Europe but we were able to raise a lot of investments from Chinese, Japanese and Indian companies.”

    According to Novak, the liberal legislation which regulates the repatriation of profits by foreign companies working in Russia, made it possible to bring in investments even in a low oil price period.

    At the same time the Russian government put in place a system of incentivizing the development of greenfields and the further production of the brownfields.

    This made it possible for the Russian industry to “do a good job, to survive and to really be competitive.”

    “In two years the amount of oil output grew by almost 400,000 bbl/day.”

    Production growth v production cuts
    Following the agreement between OPEC members and non-OPEC oil producers reached in December, Russia has reportedly cut between 98,000 and 117,000 bbl/day.

    “In the longer term the market would have solved the price issue”, said Novak,“but that would have led to a chaos for some time at least and the market would have allowed for a shortage of supply.”

    “Witnessing this balancing where we see a $50 – $60 for a barrel of Brent, this is the kind of situation that has helped us reduce volatility and see investments return.”

    According to Oil 2017, the IEA’s market analysis and forecast report previously known as the Medium-Term Oil Market Report, production from Russia is forecast to remain stable over the next five years.

    When asked whether Russia will ever join OPEC, Novak responded that Russia is not considering joining OPEC but the level of interaction between Russia and OPEC and the agreement on production cuts demonstrate the need and willingness for a change in cooperation, which in itself dates back to the Soviet Union.

    Attached Files
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    U.S. asks for more information on Baker Hughes-GE merger

    General Electric Company (GE) and Baker Hughes have each received a request for additional information from the United States Department of Justice (DOJ) in connection with the pending combination of GE’s oil and gas business with Baker Hughes.

    The two companies announced their agreement to combine GE Oil & Gas and Baker Hughes to create the second largest oilfield technology provider back in October last year. The “New” Baker Hughes will be an equipment, technology and services provider in the oil and gas industry with $32 billion of combined revenue and operations in more than 120 countries.

    The second requests were issued under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act).

    According to their joint press release on Monday, GE and Baker Hughes have been working cooperatively with the DOJ as it conducts its review of the transaction.

    The second requests were expected and are a normal part of the DOJ review process, the statement further said. The effect of the second requests is to extend the waiting period imposed by the HSR Act until 30 days after GE and Baker Hughes have substantially complied with the requests, unless that period is extended voluntarily by the parties or terminated sooner by the DOJ, the companies said.

    The transaction remains subject to approval by Baker Hughes’ shareholders and other approvals, as well as customary closing conditions. GE and Baker Hughes expect the transaction to close in mid-2017.
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    U.S. Oil, Gas Breakevens are $50 per barrel, $3.35/Mcf: KLR

    U.S. Oil, Gas Breakevens are $50 per barrel, $3.35/Mcf: KLR

    U.S. shale required prices to break even are higher than many are asserting, according to research by KLR Group released today. But if the IEA’s current demand/supply analysis is correct, it’ll be a moot point in three years.

    KLR’s models show U.S. oil and gas breakeven WTI prices are $50/bbl and $3.35/Mcf, significantly above many estimates. Using a standard 10% ROR forces cost of supply much higher, with oil ranging from $71/bbl to $91/bbl and gas from $4.20/mcf to $5.70/mcf.

    Several factors contribute to costs being higher than expected. According to KLR, all-in well costs across a company’s entire drilling program are about 120% above single well estimations.

    Trouble costs double

    Trouble wells can easily cost double expectations. Actual well recoveries are generally 15%-30% below type curves. Almost all anomalous events in a well’s lifetime are negative, and these occurrences are typically not included in forecasts. The higher full-cycle well cost and lower well recoveries make actual industry capital intensity about twice the values given in single well representations, according to KLR.

    Midland and Eagle Ford show lowest oil breakevens

    The Midland basin and eastern Eagle Ford have the lowest required oil costs due to lower capital intensity and higher oil cuts. These basins require a WTI price of $71/bbl-$80/bbl to create a 10% ROR. The Bakken has higher capital intensity than the Midland basin and lower realized oil price, but does have the highest oil cut of major U.S. oil plays. An oil price of about $90/bbl is required for a 10% ROR in the Bakken, according to KLR. The Midland basin is considered the lower bound of the cost of U.S. supply, while the Bakken is considered the upper bound of supply cost.

    Gas: Marcellus is lowest breakeven

    According to John Gerdes and the KLR team, the Marcellus has the lowest breakeven costs of any major U.S. gas play.

    Low capital intensity drives this advantage, but is partially offset by lower realized prices due to transportation bottlenecks. KLR estimates that $4.20/mcf-$4.50/mcf gas prices are required to generate a 10% ROR in the Midland. The Utica sees similar price realizations but higher capital intensity than the Marcellus, driving its 10% ROR cost up to $5.00/mcf.

    Marginal cost:

    “Assuming a 4% unleveraged mid-cycle return, and 5%-10% incremental cost inflation relative to the ’17 industry cost structure, the marginal cost of U.S. gas supply is NYMEX $3.75-$4, while the marginal cost of global oil supply is NYMEX $75-$80,” according to KLR Group.
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    Argentina slashes drilling costs, sees more efficiencies

    Argentina slashes drilling costs, sees more efficiencies

    Argentina's state-run oil company YPF has cut horizontal drilling costs by more than half and slashed the time required to complete new wells, the chairman said on Monday at the CERAWeek energy conference.

    The company cut the cost of horizontal drilling to around $8 million from $17 million a well, while the time required to complete a new well has been shaved to 15 days from 40 days, Miguel Gutierrez told the gathering in Houston.

    Those efficiencies have pushed break-even prices to below $40 per barrel, a significant gain for Argentina, which has struggled to attract capital since crude prices started to decline in 2014.

    Argentina recently has been pushing again to lure energy investment into the country, particularly into its massive Vaca Muerta formation. That reservoir is one of the largest shale deposits in the world.

    In January, Argentina announced changes to its subsidy program to offer producers $7.5 per million BTU of natural gas produced through 2020 - a figure well above U.S. gas prices.

    "It's competitive, especially compared to the United States," Gutierrez said on the sidelines of the conference.

    Despite the vast reserves, lack of production has left the country short on energy, and a bump in production is unlikely to curb imports in the near term. In 2016, Argentina was forced to significantly increase imports of LNG and purchase supplies from Chile, which resells a portion of the gas it receives to its neighbor.

    "For quite a considerable time, Argentina will be importing LNG," Gutierrez added.

    Argentina also is exploring opportunities for deep-water offshore oil production. A process is underway to explore a new area, with work anticipated to begin in April, Gutierrez said.

    Attached Files
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    Exxon to invest $20 bln on U.S. Gulf refining projects

    Exxon Mobil Corp, the world's largest publicly traded oil producer, said on Monday it would invest $20 billion through 2022 to expand chemical and refining plants on the U.S. Gulf Coast.

    The investments at 11 sites should create 35,000 temporary construction jobs and 12,000 permanent jobs, Chief Executive Darren Woods said in a speech at CERAWeek, the world's largest gathering of energy executives in Houston.

    Exxon last month pledged to boost this year's spending by 16 percent to expand operations, especially in shale production, after the company posted a better-than-expected quarterly profit, helped by rising oil prices and lower costs.

    The quarterly report was Exxon's first under Woods, after former CEO Rex Tillerson was appointed as U.S. President Donald Trump's secretary of state.
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    Genscape Cushing 66.782MM

    Genscape Cushing 66.782MM Up +1.171MM from Fri, Feb 24

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    Statoil CEO Says Break-Even Cost Down to $30 Per Barrel

    Statoil CEO Says Break-Even Cost Down to $30 Per Barrel

    Eldar Saetre, president and chief executive officer at Statoil, discusses the market impact of OPEC's output cut, his company’s positions in the U.S., and the decline in their break-even costs. He speaks with Bloomberg's Alix Steel.

    video on:
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    OPEC in February moved closer to full compliance with the landmark
    production cut agreement signed late last year, as output in the month fell
    from January levels to average 32.03 million b/d, according to an S&P Global
    Platts survey released Monday.

    In all, taking an average of January and February production, the 10
    members obligated to reduce output under the deal have achieved 98.5% of their
    total combined cuts, according to the survey, up from 91% in January.

    Saudi Arabia continued to show the strongest output discipline, with its
    February production averaging 9.85 million b/d, the survey found, below its
    allocation under the deal of 10.06 million b/d and its lowest output since
    February 2015, according to the survey archives.

    Its January and February combined average output of 9.92 million b/d was
    140,000 b/d below its deal quota.

    The kingdom's overcompliance, along with Angola's, is helping compensate
    for the overproduction others within OPEC, notably Iraq, Venezuela, and the
    UAE, which have not cut down to their allocations under the deal.

    Iraq remains 91,000 b/d above its quota despite lowering its February
    output, Venezuela is 43,000 b/d above, and the UAE is 42,000 b/d above.

    Saudi Arabia and Angola's output reductions also have mostly offset for
    increases by exempt Libya and Nigeria since the deal began on January 1.

    Libya's January and February average is 140,000 b/d above the agreement's
    reference October levels, while Nigeria is producing 44,000 b/d above the
    reference level.

    Iran, which is allowed to boost production to 3.80 million b/d under the
    deal as it recovers from western sanctions lifted in January 2016, had
    February production of 3.75 million b/d, a 30,000 b/d increase from January.

    Its January and February average is 3.73 million b/d.

    Analysts have said Iranian production is unlikely to increase
    significantly without further investment, much of which has been stymied by
    remaining US sanctions, the threat of reimposing the previous sanctions on
    Iran's oil sector by the US, and Iran's delays in releasing the full terms of
    its revamped petroleum contract.

    Still above ceiling

    Under the agreement, OPEC pledged to cut 1.2 million b/d for six months
    and freeze production at around 32.5 million b/d, including Indonesia, which
    suspended its membership in November and is not included in the Platts survey
    estimates for 2017.

    OPEC as a whole averaged 32.11 million b/d in January and February,
    according to the survey. Adding in Indonesia's typical 730,000 b/d of
    production would take the producer group about 340,000 b/d above its ceiling.

    Since the deal covers an average of January to June output,
    month-to-month fluctuations are to be expected.

    The Platts estimates were obtained by surveying OPEC and oil industry
    officials, traders and analysts, as well as reviewing proprietary shipping

    In concert with OPEC, 11 non-OPEC countries led by Russia have also
    agreed to cut output by 558,000 b/d in the first half of 2017, with many of
    those countries phasing in their reductions or relying on natural declines.

    A five-country monitoring committee formed to enforce the deal is
    scheduled to hold a ministerial meeting March 25-26 in Kuwait City.

    The committee is chaired by Kuwaiti oil minister Essam al-Marzouq and
    also includes ministers from OPEC members Algeria and Venezuela, along with
    non-OPEC Russia and Oman.

    Libya violence restarts

    Angola saw its production rise slightly to 1.66 million b/d, as exports
    rose and the country inaugurated a new grade Olombendo, with its first cargo
    scheduled for lifting in mid-March.

    But its overall average output for 2017 puts the country 29,000 b/d below
    its allocation, second most among the 10 countries required to cut production.

    Among the countries still above their allocations, Iraq saw its
    production fall in February 80,000 b/d from January, as inclement weather
    delayed some loadings from its southern port and an attack at the Bai Hassan
    field slightly reduced output by the Kurdistan Regional Government.

    Venezuela, beset by economic crisis, held its production steady at 2.01
    million b/d. Survey participants said they expected Venezuela's production to
    fall throughout the year, as the country has failed to keep pace with
    necessary investments in declining fields.

    The UAE saw its February output fall 30,000 b/d from January to 2.90
    million b/d. Survey participants say they expect the country to become
    compliance once its key export grade Murban undergoes maintenance starting
    this month.

    Meanwhile, exempt Libya saw production hold steady at 670,000 b/d, as
    gains in the beginning of February were undone by power outages and
    maintenance in fields.

    Renewed violence in the country, as militia forces overran several key
    eastern oil export terminals over the weekend, will impact March production,
    with output as of Monday down to 600,000 b/d, according to state-owned
    National Oil Corp.

    Also-exempt Nigeria showed an increase of 50,000 b/d to 1.70 million b/d
    in February, as production comes back online after recent attacks on
    infrastructure in the Niger Delta, offsetting maintenance of Bonga grade crude
    in the latter half of the month.
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    BHP Billiton, Pemex advance work on deep-water oil discovery in Mexico

    BHP Billiton has advanced its explorationand production interests in the Gulf of Mexico by signing a contract with Pemex Exploration & Production Mexico to complete work on the significant Trion discovery.

    BHP in December successfully bid to acquire 60% of the resource that, once fully appraised, is expected to be in the top ten fields discovered in the Gulf of Mexico in the last decade.

    Through the agreement, BHP will have participating interest in and operatorship of blocks AE-0092 and AE-0093, while Pemex retains a 40% interest in the blocks. Pemex estimates the gross recoverable resource to be 485-million barrels of oil equivalent.

    BHP’s bid for Trion includes an upfront cash payment of $62.4-million and an estimated $320-million initial commitment to deliver a minimum work programme, which comprises drilling one appraisal well, one exploration well and the acquisition of additional seismic data.

    Should BHP Billiton and Pemex agree to progress the projectbeyond the minimum work programme, BHP will be required to fulfil the commitment to pay the remainder of a $570-million minimum contribution.

    BHP Billiton would also carry Pemex for an additional $561.6-million on future project costs.

    Should the project progress to full development and production, both BHP Billiton and Pemex would pay the Mexican government an additional royalty of 4% on revenues.

    The signing ceremony was attended by Mexico President Enrique Peña Nieto, Mexico Energy Minister Pedro Joaquín Coldwell, BHP Billiton CEO Andrew Mackenzie and Pemex CEO José Antonio González Anaya.

    Mackenzie noted at the signing that the partnership was an historic moment for Mexico and the beginning of a new chapter in business relations between BHP and Pemex.

    “It is an honour to be the first foreign company to partner with the people of Mexico in developing their significant petroleum resources for mutual benefit,” he added.

    Nieto thanked BHP for being Mexico’s partner. “I am certain [this journey] will yield greater development for our country,” he highlighted.

    González Anaya further added that the agreement constituted a parting of the waters in the history of Pemex. “For the first time, an area assigned during the Round Zero auction, will be progressed in partnership with a world leading company.”
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    Libya's Waha oil output cut by 35,000 bpd due to unrest - NOC board member

    Production by Libya's Waha oil company has been cut by 35,000 barrels per day (bpd) as a precautionary measure due to clashes near the major oil ports of Ras Lanuf and Es Sider, a senior official at the National Oil Corporation (NOC) said on Monday.

    Jadalla Alaokali told Reuters that national production currently stood at 663,000 bpd, down from an average of about 700,000 bpd in recent weeks.

    "The production of Waha before was about 75,000 bpd and it has been reduced by 35,000 bpd as a precaution due the company's limited storage capacity and fears about the evolution of events in Es Sider," Alaokali said.
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    Platts JKM declines to $5.95/MMBtu on emerging US and Australian LNG supply

    S&P Global Platts JKM for LNG cargoes to be delivered in April ended the week at $5.95/MMBtu, a $0.225/MMBtu fall from last Friday, on greater supply visibility from two large-scale liquefaction projects in US and Australia.

    Train two of the Gorgon project in Western Australia resumed production last week, following a shutdown for "minor" maintenance.

    In addition, Gorgon train three should start-up very soon, according to market sources.

    One source said he was confident it will start producing in "very, very likely to be early Q2."

    A Chevron spokesman declined to comment.

    Higher train two output, as well as an earlier-than-expected train three startup, would pressure prices in Asia, sources said.

    The Cheniere-operated Sabine Pass in the US project is also currently commissioning its train 3 which is expected to start up this month.

    Also, Angola LNG launched a single-cargo DES sell tender on Monday, for early-March delivery, which closed on Thursday.

    But some end-user demand stopped further price losses late in the week with at least two tenders floated by Asian end-users reported awarded this week.

    Buy tenders were floated by Kansai Electric and Indian Oil Corporation this week. Tohoku Electric was heard to be also searching for an April cargo, although this could not be fully verified.

    Both GAIL and PTT were said to have bought a cargo for first-half April each, at close to $6/MMBtu.

    SK was also heard to have done a spot purchase for two cargoes earlier this week for April delivery, with various sources saying the final deal price for both cargoes was in the low-$6s/MMBtu. Sources from SK were unavailable for comment.

    Summer demand for cargoes could also support prices for deliveries further down the curve, sources said.
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    Macquarie to buy Cargill's global oil business -sources

    Australian bank Macquarie Group Ltd is planning on buying Cargill Inc's global oil business, according to people familiar with the matter, marking the second energy business the global commodities trader has shed this year.

    Terms of the deal have been agreed upon, but the integration could take several weeks or longer, one of the sources said.

    The deal comes as Cargill has spent the past year streamlining its business amid a nearly three-year slump in global commodity prices. In January, sources said that Cargill sold its U.S. gas and power business to commodities trader and investor TrailStone Group.

    A Cargill spokeswoman said the company continues to operate its U.S. gas and power business and its global oil business, but declined to comment on the acquisition by Macquarie. Macquarie also declined to comment.

    Macquarie had also bid on Cargill's gas and power business, a source said.

    Privately held Cargill in January reported a higher quarterly profit, buoyed by strong results in its meats and U.S. crops business.

    Many banks exited physical oil trading following the implementation of the Dodd-Frank Act's financial reform. President Donald Trump in February signed an executive order that would scale back the act, potentially creating a better environment for banks to trade physical commodities.
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    Armed faction enters major Libyan oil ports, putting output at risk

    An armed faction entered two major Libyan oil ports on Friday, pushing back forces that captured and reopened the terminals in September, officials and residents said.

    The move risks increasing the fighting around the ports and casts new doubt over Libya's attempt to revive its oil production. The terminals at Es Sider and Ras Lanuf are two of Libya's largest, with potential combined production capacity of about 600,000 barrels per day (bpd).

    It was unclear late on Friday to what extent the faction that attacked, the Benghazi Defence Brigades (BDB), had gained control over the area. There was no statement from the Libyan National Oil Corporation (NOC) in Tripoli, which restarted operations at the ports after the eastern-based Libyan National Army (LNA) took them over seven months ago.

    Since then the LNA's opponents have launched several unsuccessful attacks against the ports in Libya's eastern Oil Crescent, in a campaign linked to a broader conflict between factions based in eastern and western Libya.

    The LNA had said the ports were well secured. But it said the BDB had launched a rapid, three-pronged attack early on Friday that pierced its defenses.

    Air strikes repelled an attack targeting a third port, Brega, but the LNA withdrew men and equipment around Es Sider and Ras Lanuf to avoid a damaging fire fight, LNA spokesman Ahmed al-Mismari said.

    Port engineers, oil sources and residents said the BDB entered both Es Sider and Ras Lanuf ports after the attack.

    The BDB posted pictures of its fighters at Ras Lanuf's nearby air strip, though the LNA later said it had retaken control there.

    At least nine men loyal to the LNA were killed and eight wounded in the fighting, a medical source said.

    The LNA took Es Sider, Ras Lanuf, Brega and Zueitina oil ports in September. All but Brega had long been blockaded. After the NOC reopened them, Libya's oil production more than doubled.

    The Benghazi Defence Brigades are composed partly of fighters who were ousted from Benghazi by the LNA, where LNA commander Khalifa Haftar has been waging a military campaign for nearly three years against Islamists and other opponents.

    The LNA brands its opponents as Islamist extremists, and each side accuses the other of using mercenaries from Libya's sub-Saharan neighbors. Some in the east also accuse elements of the U.N.-backed Government of National Accord (GNA) in Tripoli of backing the BDB and their allies.

    The GNA's leadership strongly condemned Friday's escalation, saying in a statement that it "did not give any order to any forces to move towards that area". It suggested the attack could be an effort to scupper Libyan and international efforts to bring peace.

    Libya has recently been producing about 700,000 barrels per day (bpd) of oil, more than double its output early last year but still far less than the 1.6 million bpd the OPEC member was pumping before the 2011 uprising.

    The Oil Crescent ports suffered major damage in previous rounds of fighting and are still operating well below capacity.

    Tankers have been loading at Es Sider since December, with the Amalthea due to arrive on March 7 to load 630,000 barrels for Austria's OMV, according to shipping sources.

    The NOC has been lobbying foreign firms to return to Libya and invest in the oil and gas sector as it tries to push production to 1.2 million bpd later this year.
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    Onshore Rig Count Increases by Just One,oil rigs up 7

    Eagle Ford adds 5 rigs, Williston adds 3, Permian adds 2 for the week

    Onshore drilling activity remained more or less unchanged for the week ended March 3, 2017, according to Baker Hughes’ (ticker: BHI) weekly report. The number of active rigs drilling onshore in the U.S. increased by just one rig to 734 this week. Total U.S. rigs increased by two to a total of 756, up 267 (55%) from the same period last year.

    The number of rigs drilling for crude oil increased by seven week-over-week, but the total rig count was held back a small decline in the number of rigs targeting natural gas. Rigs drilling for gas fell by five from last week to 146, up 49 (51%) from this time last year.

    Looking at variance by basin, the Eagle Ford saw the largest increase with five additional rigs this week bringing the total number in the play to 69 rigs. The Williston saw the next largest increase with three rigs, while the Permian added two rigs, and the Arkoma Woodford and Granite Wash added one rig each. The Permian remains the most active basin with 308 rigs drilling in the play.

    The Barnett, Cana Woodford, DJ-Niobrara, Haynesville, Marcellus and Utica all reported one fewer rig this week compared to last.

    Attached Files
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    India's GAIL signs first time-swap deal for US LNG

    Reuters are reporting that GAIL India has signed a time-swap deal with Swiss trader Gunvor to sell some of its US LNG, as the Indian company tries to ease the burden of its costly foreign LNG supplies.

    It is the first time-swap agreement by GAIL, which is trying to juggle its LNG portfolio to cut costs for price-sensitive Indian customers after a sharp fall in Asian spot prices made its US gas unattractive.

    The deal equates to around 5% of India's 2015/16 LNG imports and will support a government push to promote use of the cleaner fuel.

    Under the agreement, Gunvor will supply 15 cargoes or about 0.8 million t of LNG to GAIL on India's west cost between April and December this year in oil-linked prices on a delivered basis in India.

    In return GAIL will sell 10 cargoes or about 0.6 million t next year from Sabine Pass on the US Gulf coast in 2018 at a premium to its pricing formula on a free-on-board basis.

    The deal means GAIL could get gas from Gunvor at US$6.50 – 7.00 per million British thermal units.

    GAIL is saddled with long-term contracts to take expensive US gas after embarking on a buying spree between 2011 and 2013 when the fuel was scarce and prices kept rising.

    LNG booked by GAIL under a long-term deal with Cheniere Energy, which owns the Sabine Pass Liquefaction terminal, will cost 115% of Henry Hub prices plus a fixed cost of US$3 per mBtu. At current prices, this equates to a cost of about US$8.50 per mBtu on a delivered basis to India.

    The Indian company has a deal to buy 3.5 million tpy of LNG for 20 years from Cheniere Energy and has also booked capacity for another 2.3 million tpy at Dominion Energy's Cove Point liquefaction plant.

    It has so far sold about 0.5 million t of its LNG from the US projects to Royal Dutch Shell, but has not been able to attract Indian customers despite repeated attempts.

    Attached Files
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    China's largest 'teapot' refiner, CEFC team up in Shandong oil terminal venture

    Dongming Petrochemical, China's largest independent or 'teapot' refiner, has signed a deal with privately run CEFC China Energy and a local port authority to build a crude oil terminal in Shandong province, seeking to ease a logistics bottleneck gripping the country's teapot oil sector.

    The 3.9 billion yuan ($566 million) project with conglomerate CEFC China Energy and Rizhao port authorities comes as China's teapots refiners emerge as a catalyst in the global oil market, ramping up Russian and U.S. imports in frenzied buying that has led to tanker queues and scarce storage space.

    Executives at Dongming, formally known as Shandong Dongming Petrochemical Group, and private firm CEFC said on Friday that publicly owned Rizhao Port Authorities will take 51 percent of the project, CEFC 25 percent and Dongming 24 percent. Plans include a 300,000 deadweight tonnage (DWY) crude terminal, two 150,000-DWT crude berths and a 9.8 million barrel storage farm.

    "With Qingdao port nearly saturated, Rizhao stands out with its ideal location, with easy access to teapots to the north and close also to Lianyungang, one of China's planned future petrochemical hubs to the south," a CEFC executive told Reuters, declining to be named as he was not authorized to speak to media. CEFC has interests spanning finance and travel as well as oil.

    Qingdao port is the country's largest oil port by volume, accounting for 27 percent of China's total crude oil imports last year, with crude shipments into the port up nearly 50 percent over 2015, according to Chinese customs data.

    The Rizhao terminal project will be one of a series in Shandong, as other firms have also planned to add new pipeline and storage facilities in the area to provide much-needed infrastructure.

    Dongming's vice president Zhang Liucheng told Reuters by telephone that construction of the project is slated to start by mid-year. The teapot refiner already operates a crude oil pipeline connecting Rizhao and its 240,000 barrels per day (bpd) refinery in Heze city of Shandong.

    In Lianyungang, a port city in neighboring Jiangsu province, Dongming runs another smaller plant with 60,000 bpd capacity, according to the company website.

    There are two existing crude oil berths in Rizhao able to anchor supertankers, according to the CEFC executive. The project marks the firm's second major investment in storage and terminal facilities in China, after its 17.6 million-barrel tank farm in the country's southernmost Hainan province.
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    Chesapeake delays release of 2016 financial results until Monday

    Chesapeake delays release of 2016 financial results until Monday

    Chesapeake Energy will be forced to delay the release of its complete financial results for the full-year 2016 until Monday as a result of "a material weakness in its internal control over financial reporting," the producer said in a filing with the US Securities and Exchange Commission Thursday.

    "Chesapeake Energy is unable to file, without unreasonable effort or expense, its Annual Report on Form 10-K for the year ended December 31, 2016," the Oklahoma City-based company said in the SEC filing.

    The company said it expects to report a net loss of $4.399 billion for the year, compared with a net loss of $14.635 billion for 2015.

    In the company's February 23 fourth-quarter 2016 earnings call, Executive Vice President and CFO Nick Dell'Osso said the financial reporting weakness causing the delay in the release of the 10-K was an isolated problem and was the result of "an oil basis pricing differential calculation in one region for a discrete period of time."

    Attached Files
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    Asia seen spoilt for choice as more US light oil becomes available

    The recent approval of the Dakota Access Pipeline and rising Permian production is expected to leave Asian refiners spoilt for choice as more US light crude oil from the Gulf of Mexico becomes available to them.

    Once Dakota Access comes online, roughly "couple of hundred thousand barrels per day of US light oil could be available by capacity for exports," said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp.

    Nogami said more US light oil could be available for exports as US refiners in the Gulf generally process medium to heavy grades.

    The delayed 470,000 b/d Dakota Access Pipeline received final federal approval in early February to complete construction, and start up is targeted between March 6-April 1.

    The four-state $3.8 billion pipeline is designed to deliver Bakken and Three Forks crude to Patoka, Illinois, where it will connect with the Energy Transfer Crude Oil Pipeline to Texas, leaving more crude available for export from the Houston terminals.

    The Permian is the US' most active crude play by far and the site of most of rig count increases. Production at the Permian Basin has been climbing steadily since September and is projected to reach 2.25 million b/d in March, according to the US Energy Information Administration.

    A number of refiners in China, Japan and South Korea said that they are closely watching the developments and will consider importing more light oil and possibly sour grades from the US whenever they became competitive against their main sour crude imports from the Middle East.

    "We will definitely watch this [development over the Dakota Access Pipeline and increasing US oil production] and seek more opportunity," said a refiner in South Korea.

    "Our principle has not changed. We intend to buy attractive [crudes] from around the world, regardless of whether they are from the Gulf of Mexico or the pipeline coming onstream," said Jun Mutoh, president of Japanese refiner TonenGeneral, an active buyer of US oil including WTI crude and shale.

    Gaven Chen, a senior refining engineer with China's state-owned Sinopec, said he expected US refiners will need at least five years to complete their infrastructure reform to crack shale oil, which could result in more availability of light oil for exports until around 2022.


    A buildout of pipelines and rising production means that exports of US crudes to Asia will not be limited by infrastructure constraints, said Sandy Fielden, director of oil and products research at Morningstar.

    But Fielden said the volumes will eventually depend on price.

    "You've got a potential for exports into the Asia market, and you're seeing the first talk of exports of offshore Gulf of Mexico sour crude like Southern Green Canyon potentially going to Asia to make up for a lack of barrels due to the OPEC cuts," Fielden said.

    "There's going to be circumstances where the price is right and the arbitrage opens up, but I'm thinking this is kind of a sporadic -- it's based on circumstance, it's not going to be a big, sudden opening up of the market that results in a massive outpouring of crude from the Gulf Coast," he said. "It's all going to depend on the relative price."

    Some of the US light oil production could also be used for blending with heavier grades, said Nobuo Tanaka, former executive director of the International Energy Agency.

    So increasing availability and production of US light oil production may not necessarily lead to a spike in crude exports, although the current crude price is supporting incremental shale oil production, he added.

    Currently, pipelines can transport 1.85 million b/d of crude into the Houston area from offshore Gulf of Mexico and Texas oilfields, including the Permian Basin and Eagle Ford, according to Morningstar. Another 1.55 million b/d of crude can be shipped through pipelines originating at Cushing.

    In the next year, an additional 500,000 b/d of pipeline capacity from the Permian Basin to Houston will come online, including the expansion of the BridgeTex pipeline and a new Enterprise Products Partners project.

    Export capacity is rising at Corpus Christi, where Occidental Petroleum inaugurated its 200,000 b/d Ingleside export terminal in 2016. Plains All American plans to expand its Cactus pipeline by 140,000 b/d to 390,000 b/d this year, supplying more Permian crude to Corpus Christi export terminals.


    Following the December 2015 US Congress decision to lift crude export restrictions, US crude exports to Asia skyrocketed from just 4,000 b/d in 2015 to 54,000 b/d in 2016, according to US Census Bureau data. China received 23,000 b/d of US crude in 2016 and shipments also arrived in Japan, South Korea, Singapore and Thailand.

    This year Chinese independent refiners have started buying US crudes, with 2 million barrels of Mars and Thunderhorse crudes arriving in April, according to market sources. Until last year, only state-run refiners imported US crudes in China.


    A widening Dubai premium to WTI and refinery maintenance season in the US are likely to keep export demand healthy in the near term.

    A significant amount of coking capacity is currently under maintenance in the region, meaning that previously hard to find grades, like Mars and Southern Green Canyon, may be available for export, market sources said, adding that sour grades have departed the USGC for North Asia in recent weeks.

    WTI FOB Houston differentials point to heightened export demand in recent months. The differential rose to average front-month NYMEX WTI plus $2.35/b in December and plus $2.34/b in January, up from plus $1.73/b in November.

    The tightening of the Dubai crude market following OPEC's coordinated supply cuts has led Dubai crude to flip to a premium to WTI in recent months, making US crude more competitive in Asian refineries.

    Dubai's premium to WTI widened to average 95 cents/b in January and $1/b in February, leading many Asian crude buyers to look beyond the Middle East for supply.

    The lack of demand for Middle East sours is reflected in weak forward freight rates.

    Persian Gulf-Far East VLCC rates declined to $10.47/mt in January from $12.96/mt last December as the Dubai/WTI spread widened.

    The market continues to expect weak demand going forward, with February rates to date averaging $8.78/mt.

    By comparison, US Gulf Coast-Asia Suezmax freight has held firm, averaging $23.27/mt and $23.94/mt in December and January, before dipping slightly to $21.39/mt in February.

    A Suezmax fixture is the latest example of increasing inquiries for Asia. Mercuria was reported to have put the Tony on subjects to lift a 130,000 mt crude cargo for a USGC-Singapore voyage loading March 1.

    "USGC to East is the new hot thing," said a shipbroker.

    An industry source said the Suezmax market on Far East runs should continue to firm as tonnage remained tight in the Gulf of Mexico and traders were looking to ship cargo to the East.

    Attached Files
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    730-mile Epic Permian-to-Corpus pipeline in the works

    A trio of companies hope to build a 730-mile-long crude oil and condensate pipeline from West Texas to Corpus Christi.

    The so-called Epic pipeline would have a maximum capacity of 440,000 barrels per day of crude oil and condensates, a form of ultralight crude oil. The pipeline would take crude from points in Orla, Pecos, Crane and Midland in West Texas’ Permian Basin and transport it to an affiliate’s terminal in the Port of Corpus Christi and other drop-off points in the area, according to a news release.

    It is being built by San Antonio-based TexStar Midstream Logistics, Connecticut-based Castleton Commodities International and Texas-based Ironwood Midstream Energy Partners.
    Ironwood maintains its engineering and operations in Dallas while its business development and finance units are based in San Antonio.

    The companies are currently bidding out the first 200,000 barrels of pipeline capacity and have not said how much it will cost to build the pipeline or when they plan to start construction. The companies say the pipeline will be operational by the first quarter of 2019.

    “TexStar and its partners are excited to extend our business into the Permian Basin, where we see tremendous opportunity and continued growth,” said Phil Mezey, CEO of TexStar. “TexStar has a proven track record of building crude oil pipelines in emerging areas and looks forward to expanding upon its relationships with producers to make the project a success.”
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    Occidental’s massive petrochemical plant comes online in Texas

    The first of several new petrochemical plants coming online this year became operational this week when Houston-based Occidental Petroleum opened its new facility near Corpus Christi.

    The $1.5 billion ethylene plant in Ingleside is a joint venture between Occidental’s OxyChem subsidiary and Mexico-based Mexichem. The facility, called an ethylene cracker, takes ethane from natural gas production and converts it into ethylene, which is the primary building block for most plastics.

    The project is the smallest and first of several Texas Gulf Coast ethylene crackers being completed this year. Others are under construction in the Houston area by Exxon Mobil, Chevron Phillips Chemical and Dow Chemical.

    The plant will churn out 1.2 billion pounds of ethylene a year that Occidental will turn into vinyl chloride mononers, which Mexichem will then convert into polyvinyl chloride to make PVC piping.

    While the project included thousands of construction jobs, the plant only created about 150 permanent positions. The facility was built by The Woodlands-based CB&I.

    The slew of petrochemical plants in Texas are the result of the cheap and ample shale gas supplies that serve as the feedstock for the facilities.

    Attached Files
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    Alternative Energy

    Dutch, Danish grid operators to form offshore power hub in North Sea

    Dutch power grid operator TenneT said on Wednesday it had found the first partner for its plan to create an offshore energy hub in the North Sea, Danish power transmission company

    TenneT's plan, first announced in June, involves the construction of one or more artificial islands around Dogger Bank, roughly at the centre of the North Sea between Denmark, Germany, Britain, Norway and Belgium, with connections to each.

    As the capacity of North Sea offshore wind farms grows, having a central hub will make it easier to apportion the low-carbon power to European nations as needed, and ultimately help the EU meet targets for cuts in emissions, the company says.

    TenneT will formally sign a deal with Energinet on March 23.

    "Discussions with other potential partners are ongoing, which not only include other North Sea transmission system operators, but also other infrastructure companies," TenneT said in a statement. CEO Peder Østermark Andreasen said the project has the potential to lead to a "further reduction in prices of grid connections and interconnections."

    Separately on Wednesday, TenneT said it would invest 25 billion euros in new transmission capacity over the coming decade to support a number of offshore wind and onshore renewable projects currently in the pipeline, as well as to improve interconnections between the Netherlands and Germany.

    The amount is an increase from the 22 billion euros in a March 2016 forecast, after the Dutch government announced plans last autumn for a major acceleration in funding for renewable energy projects, including permitting 5 gigawatts of new offshore turbine farms..

    TenneT will provide infrastructure for the new farms.

    "If we want to exploit all this green electricity in our Northwest European region to the full, we cannot do so without new power transmission links, both onshore and offshore," CEO Mel Kroon said in a statement.

    "The ongoing coupling of the European energy markets will lead to more convergence of electricity prices in the various European countries, and will make electricity more affordable for end users," he said.

    TenneT reported 2016 underlying operating profit of 701 million euros on revenue of 3.23 billion euros ($3.41 billion), both down slightly from 2015, due to lower reimbursements for its services.
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    Fret on Vestas.

    The National Energy Administration (NEA) has issued red alerts, or the highest warning, in six provincial regions where new wind power projects will be prohibited this year, Securities Daily reported, citing a statement published on the NEA's official website on February 22.

    The six restricted regions include northeastern Heilongjiang and Jilin, northwestern Gansu, Ningxia and Xinjiang, as well as northern Inner Mongolia.

    In these regions, new construction approvals and access to grid connections will be put on hold.

    Large amounts of wind power were wasted in these regions last year, an industry analyst told the newspaper, adding that the NEA hopes to urge local governments to more actively solve the problem through administrative measures, which have active significance for the healthy development of the industry.

    According to official data, last year the waste proportion of these regions were Gansu (43%), Xinjiang (38%), Jilin (30%), Inner Mongolia (21%), Heilongjiang (19%).

    China had 149 GW of installed wind power capacity as of the end of 2016, with 19.3 GW added last year, according to the NEA.

    Wind power facilities generated 241 TWh of electricity in 2016, 4% of the country's total electricity production, compared with 3.3% in 2015.

    However, nearly 50 TWh of wind power was wasted last year, up from 33.9 TWh a year earlier, due to distribution of wind resources and an imperfect grid system.

    The three-tier warning system distinguishes the risk levels by green, orange and red and the NEA releases the results annually.
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    US EPA not involved in White House talks on RFS point of obligation: official

    Neither the US Environmental Protection Agency nor its new chief Scott Pruitt are involved in White House talks surrounding a potential major change to the Renewable Fuel Standard, a senior agency official said Thursday.

    The source, who asked not to be named, said the White House was driving the RFS point of obligation debate, which has roiled US oil and biofuel markets this week.

    "This is a big-time issue," the official said. "At some point, just like they did with the 'Waters of the US' [rule], the president is going to say to his agencies, 'This is how we're going to move forward.'"

    Asked whether EPA would then weigh in before a final decision, the official said: "We'll follow the president's orders, that's our job."

    The Renewable Fuels Association, the largest US ethanol trade group, reached a deal with major CVR Energy shareholder and White House adviser Carl Icahn to present a plan to the Trump administration proposing moving the RFS point of obligation from refiners and importers to blenders at the wholesale rack. The biofuels group has embraced the change it once campaigned against in exchange for support on approving year-round sales of gasoline blended with 15% ethanol.

    RFA President Bob Dinneen said moving the point of obligation was presented as "not negotiable."

    Icahn has long railed against the RFS, arguing it has imposed too heavy a burden on merchant refiners like CVR Energy that have to buy Renewable Identification Numbers (RINs) in the market to satisfy annual RFS requirements.

    The apparent deal has fractured the biofuel lobby, with Fuels America -- which represents Archer Daniels Midland, Poet, and other major corn growers and ethanol producers -- immediately severing ties with RFA. "Moving the point of obligation and messing with the RFS in that way is just a bad deal," Chris Hogan, vice president of communications for ethanol trade group Growth Energy, said in an interview Wednesday.

    "It's bad for consumers, it's bad for the retailers who are trying to sell more biofuel. It's certainly not good to have folks speaking for federal policy who shouldn't be doing that and aren't authorized to do so," he added.

    Reports that the White House was poised to accept such a deal and take swift action to move the point of obligation made ethanol RINs and RBOB futures plummet Tuesday. Both regained some ground after the White House said no executive order on ethanol was imminent.

    Ethanol RINs for 2017 compliance were assessed at 38 cents Wednesday, down 20% compared with Monday, before talk of possible White House action on the point of obligation.

    Attached Files
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    Li-ion for grids.

    Stored power from lithium-ion batteries can do the work of a natural-gas peaker plant at an average cost of between $285 and $581 a megawatt-hour, according to a December report by Lazard Ltd. In contrast, electricity from a new gas peaker plant costs between $155 and $227 a megawatt-hour, according to Lazard.
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    China has no plan to build inland nuclear plants by 2020, NEA

    China has no plan to build inland nuclear reactors in the 13th Five-Year period ended in 2020, Nur Bekri, director of the National Energy Administration, said in an interview during the parliamentary sessions on March 5.

    The development of nuclear power is an inevitable choice as China aims to move the world's largest energy market towards cleaner, renewable sources. But no decision was made to kick off the construction on inland nuclear power projects in the next three years, said Nur Bekri.

    China will only continue the preliminary study on nuclear projects and protect nuclear plant sites, according to the energy plan under the 13th Five-Year Plan.

    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.

    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.
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    Australia's 2017-18 wheat production forecast to fall 32% from last season

    Australia is expected to produce 23.98 million mt of wheat in the 2017-2018 (October-September) season, down 31.75% from the previous season's record harvest of 35.13 million mt, a normal yield with average seasonal conditions, the Australian Bureau of Agricultural and Resource Economics and Sciences said in its quarterly report Monday.

    A drier and hotter season in the first half of 2017, with exceptional heat in southeastern Australia in January-February could possibly reduce the yield, traders said. Last week, the likelihood of encountering El Nino in Australia was estimated at 50% by the Bureau of Meteorology.

    Also, the planted area for 2017-2018 is forecast to drop 1% to 12.8 million hectares, as farmers are expected to favor the more lucrative options such as pulses and sheep.

    However, final wheat acreage will depend on weather conditions ahead of and during the planting season, which typically takes place between March and June, the report added.

    Meanwhile, 2017-2018 wheat exports are estimated at 21 million mt, down 8% from the previous season on lower production.

    S&P Global Platts assessed Australian Premium White wheat Monday at $207/mt FOB Western Australia, unchanged from last Friday's buy-sell discussions that were range-bound.
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    ChemChina says Syngenta deal filing accepted by Beijing

    ChemChina said on Monday that Beijing had accepted its application for regulatory approval of its $43 billion takeover of Syngenta last month.

    Earlier Gao Hucheng, who retired as commerce minister less than two weeks ago, said the government had not received a formal filing for China's largest overseas acquisition.

    Speaking to Reuters on the sidelines of parliament's annual meeting, Gao also said the Ministry of Commerce (MOFCOM) would not start considering any submission until regulators in other countries had given the deal the green light.

    Responding to the comments, ChemChina spokesman Ren Kan denied this, saying by phone the company had submitted the application and the ministry had accepted it.

    A second company official who was not authorized to speak to press, said the ministry's anti-trust bureau had accepted the application on Feb 9.  

    It is not clear if Gao, who left his post and was replaced by his deputy on Feb 23, had not been briefed with the most up-to-date information.

    Gao is now a senior member of a largely ceremonial but high-profile advisory body to parliament.

    Press officials at the Ministry of Commerce were not immediately available for comment, while Syngenta did not immediately respond to a request for comment.

    Gao's comments come a month after Syngenta delayed the expected closure of the deal to the second quarter amid scrutiny from U.S. and European regulators.

    His remarks will likely stir fresh speculation among Syngenta investors about the China regulatory process.

    Mergermarket publication PaRR reported in January that ChemChina had previously filed and then withdrawn the filing, a strategy that is sometimes used to give merging parties more time for the deal to clear, or to address potential objections.

    Last month, Syngenta Chief Executive Erik Fyrwald did not confirm if China's Commerce Ministry had formally accepted a filing, but said he was confident the deal would win approval in the world's top agricultural market, without any long delays.

    The process has drawn intense interest from investors as Bayer's  acquisition of Monsanto and the merger of Dow Chemical and DuPont are being examined by regulators across the globe.

    Mario Russo, an analyst at boutique investment bank NSBO said the deal created few overlaps outside Europe and he expected Chinese regulators to approve the deal, which is strategically important to China, once the U.S. and EU had officially cleared it.

    However, investors had concerns over potential domestic political interference that could potentially slow the deal and wanted more transparency on the timetable, he added.
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    Precious Metals

    Gold price dips below $1,200

    In another day of above average trading volumes, gold dropped through the psychologically important $1,200 an ounce level on Thursday as the metal comes under pressure from a strong US dollar and a looming interest rate hike in the US.

    Gold for delivery in April, the most active contract on the Comex market in New York with nearly 23m ounces traded, slumped to a low of $1,199.o0, a more than five week low.  Year-to-date the metal's gains have been trimmed to just over 4%.

    While tighter monetary policy is not bullish, inflation and a range of uncertainties, including European elections and protectionism should support the yellow metal

    Because gold is not yield-producing and investors have to rely on price appreciation for returns, the metal has a strong inverse correlation to US government bond yields.

    The metal also usually moves in the opposite direction of the US dollar thanks in part to the growing effect of physically-backed gold ETFs traded in the US.

    The current weakness may be temporary according to a Bank of America Merrill Lynch  research note released Thursday quoted by CNBC:
    However, if hourly earnings are much higher than expected and the rest of the report is also strong investors may start to worry that the Fed is behind the curve

    "While tighter monetary policy is not bullish, inflation and a range of uncertainties, including European elections and protectionism should support the yellow metal. As such, we see prices at $1,400 (per troy ounce) by year-end".

    Bloomberg points out that it's the worst run for gold since October and quotes Brad Yates, head of trading for Elemetal, one of the biggest US gold refiners as saying there could be more pain ahead:

    “If the data continues to be as good as it was, or improves, we could see the Fed move toward further hawkishness."

    ABN Amro in a research note says strong US payroll numbers on Friday could turn out to be bullish for gold:

    If hourly earnings come in around expectations and the rest of the US employment report is strong, the US dollar will probably profit. However, if hourly earnings are much higher than expected and the rest of the report is also strong investors may start to worry that the Fed is behind the curve. It is likely that this will weigh on the dollar and support gold prices.
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    Indian gold imports said to almost triple on wedding demand

    Gold imports by India, which competes with China for the role of world’s biggest consumer, are said to have risen almost three-fold in February from a year earlier as jewelers increased stockpiles before the festival and wedding period that starts next month.

    Shipments jumped 175% to 96.4 metric tons in February from a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren’t public. Overseas purchases slid 32% to 595.5 t in the 11 months to February. Ministry spokesperson DS Malik declined to comment on the data.

    After a lull in demand exacerbated by Prime Minister Narendra Modi’s move to withdraw high denomination currency notes, jewelers are building up inventories. They expect to see some recovery in purchases ahead of India’s wedding season and on the auspicious Hindu gold-buying day of Akshaya Tritiya that falls toward the end of April this year.

    “We expect some heavy buying in April as a large number of weddings are expected to take place,” Mehul Choksi, chairperson of jewelry store chain Gitanjali Gems, said by phone from Mumbai. “The wedding season runs from April to July, so we are expecting some recovery in demand.”

    While annual Indian demand should recover, year-on-year growth rates will be modest, relative to historical levels, Citigroup said in research report Wednesday. Demand is estimated around 725 t in 2017, similar to levels seen the prior year, it said. Indians buy gold during festivals and for marriages as part of the bridal trousseau or as gifts, and the nation imports almost all the gold it consumes.
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    One of the rarest precious metals is on best run in a decade

    Rhodium’s on the best run in a decade on expectations of more demand for the material that’s used in cleaning toxic car emissions.

    One of the rarest precious metals, it climbed the past seven months and is up 19% this year, outperforming most major commodities. Mostly used alongside palladium in gasoline autocatalysts, prices have rebounded from a 12-year low set in July.

    The spectacular turnaround comes amid stronger demand from industrial users including automakers, which account for the bulk of rhodium consumption. China, which predominantly favours gasoline vehicles, in December raised a sales tax on small cars less than originally expected. In 2016, Chinese consumers bought vehicles at the fastest pace in three years.

    “China is a big part of this story,” said Jonathan Butler, a precious metals strategist at Mitsubishi Corp. in London. “The level of car ownership is still growing, and there are signs that it could get to western levels.”

    The metal is trading at $920/oz, according to Johnson Matthey, which makes about a third of all autocatalysts. This year’s advance compares with a 13% gain for palladium and an 8% increase for platinum, which is also used to curb car emissions. All three metals are mined together, mainly in South Africa.

    One way to buy rhodium is through an exchange-traded product started by Standard Bank Group in late 2015. Money managers account for most purchases in the fund and private investors make up the rest, according to Johann Erasmus, who oversees the fund.

    The product’s assets total about 46 650 oz, he said. That’s about 5% of total annual demand.

    Because rhodium is a smaller market than other precious metals, prices are more volatile, said Grant Sporre, an analyst at Deutsche Bank in London. The metal surged almost 23-fold from 2003 to 2008, when it touched a record $10 100.

    “There’s “currently no reason to expect falling prices in the short or medium term,” Heraeus Metals Germany said in a report emailed Monday.
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    Newmont joins gold 'staking rush' in Canada's once-fabled Yukon

    Newmont Mining on Monday became the latest of the world's biggest gold miners to invest in Canada's Yukon territory, the site of a famous gold rush 120 years ago, as miners hunt for rich, new deposits in safe regions.

    US-based Newmont, the world's No 2 gold producer, unveiled an agreement with small explorer Goldstrike Resources to spend $39.5-million to explore and develop Goldstrike's Plateau property, in the Yukon.

    With this deal, Newmont follows moves by rivals Goldcorp Inc and Agnico Eagle Mines last year into the northwestern Canadian territory at a time when gold miners are loosening their purse strings after five years of belt-tightening when bullion prices fell.

    "It's a stable mining jurisdiction with high-quality goldprospects," Newmont spokesperson Omar Jabara said.

    Goldcorp, the world's fourth biggest gold producer by ounces, started off the mini-stampede last May when it paid C$520-million for Kaminak Gold and its Yukon-based Coffee goldproject. A month later it acquired an almost 20% stake in Independence Gold, which owns a neighbouring property.

    In December, Agnico Eagle, the world's ninth biggest goldproducer, bought a stake in a Yukon-focused miner.

    The Klondike region of the Yukon was the centre of a stampede of some 100 000 treasure seekers between 1896-1899 after gold was discovered in the area. Fortunes were made but many left empty-handed, with some heading on to Alaska after gold was discovered there in 1899.
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    Bafokeng’s Merafe hits high spots with record results

    Black-owned ferrochrome company Merafe Resources on Tuesday reported record production, record revenue and a major jump in headline earnings in the 12 months to December 31.

    Production hit the 393 000 t mark, revenue lifted to R5.7-billion, headline earnings a share soared 53% to 21.2c, safetyimproved and the final dividend of 4c a share amounts to a payout of  R100.4-million.

    Merafe’s revenue and operating income is generated from the Glencore-Merafe Chrome Venture, which has a total installed capacity of 2.3-million tonnes of ferrochrome a year.

    Headed by CEO Zanele Matlala, Merafe shares in 20.5% of the venture’s earnings before interest, taxes, depreciation and amortisation (Ebitda).

    The Bafokeng community-linked company’s share of venture revenue increased by 29% from the prior year to R5 702-million.

    Ferrochrome revenue rose 25% year-on-year to R4 923-million on mainly an 18% increase in ferrochrome sales volumes to 437 000 t and a 15% weaker average rand/dollar exchange rate, partially offset by a 7% decline in net ferrochrome prices.

    The average European benchmark ferrochrome price in US currency fell 11% from 107c/lb in 2015 to 95.5c/lb in 2016.

    Chrome ore revenue increased by 61% year-on-year to R778-million on a 38% increase in chrome ore sales volumes to 372 000 t (2015: 270 kt), a 7% increase in dollar cost, insurance and freight (CIF) prices and the weaker exchange rate.

    Chrome ore revenue as a percentage of total revenue increased from 11% in 2015 to 14% in 2016.

    Merafe’s share of the venture’s Ebitda was R1 176.2-million for the 12 months to December 31, 38% higher than last year.

    Corporate costs fell to R30.2-million in 2016 compared with R34.-million in the prior year. The share based payment expense increased from R1.9-million in 2015 to R12.8-million in 2016 as a result of the significant increase in the share price, a key input to the share-based payment valuation.

    Profit and total comprehensive income for the year was R532.4-million, up from R343.4-million last year, after taking into account depreciation of R329.9-million, net financing costs of R59.4-million, current tax of R147.1-million and deferred tax of R64.5-million.

    The balance of unredeemed capital expenditure is nil compared with R173.8-million last year.

    Depreciation increased year-on-year on mainly the ProjectLion II ferrochrome plant.

    Merafe closed the year with a net cash balance of R263.3-million, down on last year’s R309.6-million.

    Head-office debt fell to R363-million from R559-million last year, and unutilised debt facilities stood at R283-million.

    The interim dividend in August last year was R20-million and a final dividend of R100.4-million has been declared, compared with R30-million last year.

    Sadly there was a fatality at the venture’s Helena mine, in September, when Johan Cronje sustained fatal injuries.

    The company says that all efforts continue to be made to ensure that the highest standards of safety remain.

    The venture’s total recordable injury frequency rate improved slightly from 4.17 at the end of 2015 to 4.15 at the end of 2016 as a result of ongoing programmes.

    Merafe’s ferrochrome production from the venture was 4% higher than the prior year owing to the timing of refurbishments leading to more furnace hours, and the benefits of operating Lion II for the full year.

    Total production cost a tonne increases were well below inflation despite above inflation price increases in electricityand labour, the impact of the weaker rand on imported reductants and higher upper group two (UG2) input costs.

    This was primarily as a result of higher production volumes, the impact of low cost volumes from Lion II and various cost saving initiatives across all operations.

    Global stainless steel production totalled 45.2-million tonnes in 2016, equivalent to 8.8% year-on-year growth.

    A surge in Chinese stainless steel production was the leading influence behind the global increase, as China increased its yearly output to 24.4-million tonnes, which is equivalent to a 13.3% year-on-year growth.

    Other significant stainless steel-producing regions also recorded year-on-year growth. Favourable trade and anti-dumping conditions in Europe, India and the US supported increases of 1.8%, 6.6% and 6.7% respectively.

    Collectively, these regions produced 13.2-million tonnes in 2016, an increase of 3.9% year-on-year.

    In early 2016, ferrochrome prices decreased to the lowest levels seen since 2009 when the second quarter European Benchmark was settled at 82.00 USc/lb, driven largely by destocking of chrome ore, ferrochrome and stainless steel.

    In the same period, the Metal Bulletin said that the imported charge chrome 50% index CIF China had decreased to 54.00 USc/lb, which is the lowest price quoted since the index was introduced in 2012.

    A surge in Chinese stainless steel production positively impacted ferrochrome demand and resulted in global ferrochrome demand increasing 7.6% year-on-year.

    Chinese stainless steel mills were the largest contributors to this increase, with demand growth of 9.4% to seven-million tonnes.

    Chinese mills typically employ lower scrap utilisation ratios compared to global averages and therefore require a significantly larger portion of primary chrome units to meet stainless steel production increases.

    Ferrochrome prices have continued to increase since the second quarter of 2016 on the back of increased ferrochrome demand, lower stock levels and increased chrome ore prices.

    The European Benchmark ferrochrome price for the fourth quarter of 2016 was settled at 110 USc/lb, up 34.1% on the second quarter of 2016.

    The Metal Bulletin imported charge chrome price increased to 135 USc/lb by year-end, a 150.0% increase on the price in March last year.

    Global ferrochrome production increased 4.9% to 11.1-million tonnes with significant increases recorded from Kazakhstan and Chinese producers.

    South African production decreased by 3.2%, which is as a result of multiple producer closures in late 2015 and early 2016.

    China remained the world’s largest ferrochrome producer, with a 2016 output of 4.2-million tonnes.

    The increased demand for ferrochrome, coupled with tightness in global chrome ore supply, resulted in positive price movements for chrome ore.

    Between February and December last year, the Metal Bulletinprice for imported UG2 chrome ore 42% CIF China rose 400% to $400/t.

    Chinese chrome ore importers continued to increase their dependence on South African chrome ore in the 12 months to December 31, as South African material accounted for 73.3% of all imported material.

    Chinese chrome ore imports totalled 10.6-million tonnes.

    Towards the end of 2016, the European Benchmark ferrochrome price for the first quarter of 2017 was announced as 165.00 USc/lb, the highest quoted price since 2008.

    The price increase is indicative of a market still in deficit, and highlights the positive sentiment for 2017.

    Stainless steel production is projected to increase by 3.5% and 3.8% in 2017 and 2018 respectively, indicating strong demand prospects for ferrochrome in the short-to-medium term.

    Merafe reports that the venture is well positioned to take advantage of the increased demand.

    “We remain on track to achieve our strategy of further reducing Merafe debt and increasing the dividend,” Matlala said.

    The company has a hybrid dividend policy that has features of a stable dividend policy and a residual dividend policy.

    A stable dividend of a minimum of 30% of headline earnings is planned at least once a year, based on the yearly financialperformance, expansionary projects and prevailing economic circumstances.

    In addition, special dividends and share buy-backs may be considered.

    Attached Files
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    U.S. extends scrutiny of U.S. miner takeover by S.Africa's Sibanye

    U.S. extends scrutiny of U.S. miner takeover by S.Africa's Sibanye

    The Committee on Foreign Investment in the United States will extend its scrutiny of a $2.2 billion takeover by South Africa's Sibanye Gold of the only U.S. miner of platinum and palladium, Stillwater Mining , Sibanye said on Friday.

    The committee, which examines deals for potential U.S. national security concerns, extended the deadline for its review from February 28 to no later than April 14, 2017.
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    Base Metals

    U.S. aluminium foil producers launch case accusing China of dumping

    U.S. aluminium foil producers have filed petitions with their government accusing Chinese manufacturers of dumping the product in the United States, the first such case since the inauguration of U.S. President Donald Trump.

    The move comes a week before Rex Tillerson makes his maiden trip to China as U.S. Secretary of State, amid festering tensions between the world's top two economies over aluminum and steel trade.

    Responding to the move, China's Commerce Ministry said on Friday that the United States should act with caution.

    "China hopes the U.S.-side will not readily resort to using trade rescue measures," it said.

    The U.S Aluminium Association on Thursday filed anti-dumping and countervailing duty petitions charging that unfairly traded Chinese imports of certain kinds of aluminium foil, used to make packaging for everything from crisps to yoghurts, are causing "material injury" to the domestic industry.

    It said its latest action was part of the industry's broad trade strategy to address overcapacity in top producer China. China produces over half the world's aluminum.

    The U.S. Commerce Department has 20 days to decide whether to launch a probe and the U.S. International Trade Commission will reach a preliminary determination within 45 days. A final ruling is expected in the first quarter of 2018.

    Trump has pledged to reduce U.S. trade deficits with China as a top priority and to impose punitive tariffs on Chinese goods coming into the United States.

    "(The move) reflects both the intensive injury being suffered by U.S. aluminum foil producers and also our commitment to ensuring that trade laws are enforced to create a level playing field for domestic producers," said Heidi Brock, President and Chief Executive of the Aluminium Association.

    Top Chinese foil producers Dingsheng Aluminum Group, Xiashun Holdings Ltd, Jiangsu Dingsheng New Energy Materials Co Ltd and SNTO Group were not available for comment.

    China exported 1.1 million tonnes of foil last year, up 13 percent from 2015 and more than double levels at the turn of the decade.

    The world's top rolled products maker, Novelis, exited the U.S. commodity foil and wrap business, alongside other smaller companies in recent years, targeting higher-margin markets like automotives.

    This is the latest U.S. complaint that China is exporting excess capacity abroad.

    Just before leaving office, the Obama administration launched a new complaint against Chinese aluminium subsidies at the World Trade Organization, accusing Beijing of artificially expanding its global market share with cheap state-directed loans and subsidised energy.

    Washington increased duties on aluminium extrusions in 2015.
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    BHP eyes temporary workers to break strike at Chile's Escondida mine

    BHP Billiton may try to restart production at the world's No.1 copper mine Escondida in Chile using temporary workers once the strike surpasses 30 days, the company told a local radio station on Wednesday.

    If their safety could be assured "there is the option of using contractors' help to try to get production going" and it will be evaluated day by day, Escondida's corporate affairs director Patricio Vilaplana told Teletrece in an interview.

    Local media reported that the company is considering a two-pronged approach as the strike approaches the 30-day mark on Friday - submitting a new contract offer that deals with some of the union's concerns, and restarting output.

    BHP declined to comment.

    The strike is already the longest in Escondida's history, boosting global copper prices on tighter supply expectations and leading smelters to cut fees. The mine produced over 1 million tonnes of copper last year, around 5 percent of the world's total.

    The union is confident the bulk of its 2,500 members will not break ranks and accept an offer from the company, said union spokesman Carlos Allendes. After 30 days, under Chilean law, unionized workers have the right to break from the union position and accept the company offer.

    The two sides still seem far apart after government-mediated negotiations last month failed after a few hours.

    No fresh talks are scheduled, Chile's Mining Minister Aurora Williams told Reuters on the sidelines of a mining conference in Toronto this week.

    "(The government) is available at all times. However, there needs to be the willingness from both parties to sit down and have a discussion," she said.

    The stoppage began on Feb. 9 after contract talks between the company and union collapsed, with the main disagreements centered on the status of new workers and planned changes to shifts and benefits.

    BHP has previously said it would not use replacement labor for the first 30 days, as it has sought to keep a lid on simmering tensions and avoid violent clashes.

    Few striking workers are expected to cross picket lines and work alongside temporary contractors, given that over 99 percent of the unionized workers initially voted to strike, an unusually high level of support.

    The union has built a camp for striking workers complete with cinema and sports arena high in the Atacama Desert on the mine's outskirts, and union leaders have said they have the funds to continue for some time.

    "What's keeping the workers going at the moment? The perception that they're going to lose and job security will be in doubt ... that makes you think twice if you want to go back," said Allendes.
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    Glencore Is on to a Winner With This Obscure Metal

    Cobalt is having a moment in the spotlight. Historically a minor byproduct of copper and nickel mining, the metal is a key ingredient for lithium-ion batteries and now a growing money maker for Glencore Plc.

    In the past eight months, prices more than doubled on speculation that supply won’t keep up with demand for batteries in electric cars. Glencore, the largest cobalt producer, plans to about double output by 2018, and only coal, copper and zinc offer more of an earnings boost when prices rise.

    Cobalt, which has been in oversupply for years, was often treated as an afterthought at the copper and nickel mines where it’s found. Now, demand for the once obscure metal that’s mined largely in the Democratic Republic of Congo is soaring as it graduates from mobiles to larger batteries in electric vehicles and homes.

    At Glencore, cobalt is “starting to make a significant difference to earnings,” and is helping reduce costs in its larger copper mining business, Tyler Broda, an analyst at RBC Capital Markets in London, said by phone. “Glencore’s copper business is now one of the best-placed in the world in terms of cost right now, and byproducts like cobalt have played a big part in that.”

    Every 10 percent change in the cobalt price affects Glencore’s earnings before interest, taxes, depreciation and amortization by about $150 million, according to Barclays Plc analysts including Ian Rossouw. If prices rise another 50 percent and Glencore achieves its output targets by 2019, that would add about $2.2 billion to annual earnings, they said in a March 1 note.

    The producer is also doubling down on its exposure to the metal, with a deal last month to buy full control of the world’s biggest cobalt mine. It will acquire 31 percent in Mutanda Mining in the DRC from billionaire Dan Gertler.

    Glencore shares added 0.7 percent to 322.20 pence as of 11:53 a.m. in London.

    Wider Deficits

    The cobalt market was in a deficit last year for the first time since 2009, according to Darton Commodities Ltd., a cobalt trading house based in Guildford, U.K. The group predicts deficits will widen as annual battery-powered vehicle sales rise from 750,000 currently to an estimated 13 million in 2020.

    LME cobalt has gained more than 50 percent this year, to $50,750 a metric ton on Tuesday.

    Some analysts have cautioned that the cobalt market is in danger of overheating. While deficits will “undoubtedly” support higher prices over the year, there’s a risk that slowing demand and profit-taking by hedge funds could push prices lower in the second quarter, according to Edward Spencer, a senior consultant at CRU.

    That’s not deterring Bob Mitchell, a Tualatin, Oregon-based managing member at Portal Capital, who began buying physical metal for his Green Energy Metals Fund when prices were below $11 per pound ($24,250 per ton). Mitchell still views the market as cheap relative to historical averages and expects prices will be higher this time next year, he said.

    Cobalt is “definitely a commodity that’s enjoying its day in the sun,” Glencore Chief Financial Officer Steve Kalmin told analysts on a call last month.
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    Nickel price is plummeting

    Nickel fell to a 13-year low of $7,725 a tonne ($3.50 a pound) in February last year; then rallied to more than $11,700 by mid-November only to end the year barely above $10,000.

    This year the rollercoaster continued as news from top suppliers Indonesia and Philippines pull the metal in different directions. After a 10% rally in February, the price of nickel has been hammered down this week losing 7% since Monday to end Wednesday's session at $10,200.

    Nickel, mainly used as an anti-corrosive in steel alloys, rallied in 2016 on the back of a clampdown on mines in the Philippines which took over as the main supplier to China following an ore export ban in Indonesia in place since 2014.

    The market was rocked by reports that Indonesia's partial lifting of the export ban may result in higher volumes of ore hitting the market sooner than previously thought

    The weakness this weak is being blamed on news that the Philippines government may have another look at its mining sector environmental review that led to the closure of over half the country's production capacity.

    The market was also rocked by reports that Indonesia's partial lifting of the export ban announced in January may result in higher volumes of ore hitting the market; and sooner than previously thought.

    Indonesian miner PT Aneka Tambang said in February it has 5 million tonnes stockpiled for immediate shipping and Bloomberg reported Wednesday the state controlled company is ready to load the first cargoes destined for China.

    Metalbulletin quotes from a broker note saying that Indonesian miners "with smelters or those that co-operate with smelter owners will be allowed to ship as much nickel ore and bauxite as the input capacity of the smelters".

    In another sign that the Indonesian nickel industry is gearing up again comes from Hong Kong-listed China Hanking Holdings which told shareholders on Wednesday it will restart a low-grade nickel mine it closed in 2014 to supply domestic smelters.
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    Copper smelter fees in Asia cool to four-year lows after mine shutdowns

    Spot processing fees in Asia for copper concentrate have slid to their cheapest in four years as shutdowns at the world's top two mines in Chile and Indonesia grind on longer than anticipated, and it is likely they will drop further in the coming month.

    Treatment and refining charges (TC/RCs) for trader-to-smelter deals for shipments to China in March and April have fallen to around $70 a tonne and 7 cents a pound, according to a smelter and a trading source.

    That is the weakest since around April 2013, according to metals and mining consultancy CRU, and a steep drop from 2017 term rates of $92.50 a tonne. Smelters typically cut fees to compete for concentrate stocks when supplies are short.

    Smelters with low stocks, including in top refined metal maker China as well as India and Japan, are facing narrowing margins as fees slide. Some in China have moved up maintenance to wait out the shortfall, analysts and smelter sources say.

    This is set to eat into 2017 refined copper output, pushing the market into deficit as global manufacturing demand revives, and is likely to drive a rally in prices.

    "We're a bit stumped about why copper prices haven't shot up and we haven't seen (TC/RCs) much sharper in the past week," said a trader at a global company in Asia.

    "My take is they're shuffling the shipments around, diverting some and bringing others forward, and so far there is sufficient concentrate supply," the trader said.

    Even at the four-year low for TC/RCs, smelters have some room to move, consultancy CRU said, with the break even point for Chinese smelters at $55 per tonne and for Japan at $45 a tonne. It did not provide figures for other Asian regions.

    Citi sees nearly 3.5 million tonnes of annual smelter capacity potentially going into maintenance in March given the tight concentrate market. That will "accelerate a tightening metal market trend via falling copper inventory heading into 2Q-17," analyst David Wilson said in a report.

    Citi expects the supply shock to help push refined copper into a deficit in 2017 for the first time in six years, and propel copper prices to nearly $7,000 a tonne before year-end, up 20 percent from $5,800 on Wednesday. [MET/L]


    Smelters in India and Japan are expected to be among the first hit by the tighter supplies since they carry relatively low inventories across their financial year-end on March 31 and typically take shipments from the disrupted mines.

    "The Indians are starting to feel a little uncomfortable," said one concentrate trader at a Swiss trading house in Asia.

    A strike at the world's biggest copper mine - BHP Billiton's Escondida in Chile - is entering its fourth week and has shut concentrate output. Workers at Cerro Verde, one of Peru's largest mines, are also set to start a strike on Friday.

    In Indonesia, concentrate exports have been cut off since January from Freeport-McMoRan's Grasberg site, the world's second biggest copper mine.

    Indian smelter Vedanta Resources said it did not expect any "operational challenges ... (and had) taken all the necessary steps to ensure no impact from this disruption," although provided no details.

    India's other main smelter, Hindalco Industries, did not respond to a request for comment.

    Pan Pacific Copper, Japan's biggest copper smelter, is making some adjustments such as on shipping to secure supplies, a spokesman said.

    Sumitomo Metal Mining said it had not yet been affected by the disruptions from Escondida or Grasberg because it also gets concentrate from other mines. It also did not include the Indonesian mine in its procurement plans for this year because of the potential for disruption.

    "But if the strike continues at Escondida for a long time, we may need to think of other measures," a spokeswoman said, without giving further details.
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    Congo risks 50 percent drop in power output due to low rainfall

    Power production in Democratic Republic of Congo could fall by nearly half in the next dry season as scarce rainfall has left the Congo River at its lowest level in more than a century, the state generating company said on Wednesday.

    In a country dependent on hydropower for nearly all its electricity, the shortfall would affect the dominant copper industry and other businesses.

    Water levels in the Congo - Africa's second longest river, normally its deepest and a vital artery across the center of the continent - have fallen 50 percent compared to last year, said Medard Kitakani, spokesman for national utility SNEL.

    That meant levels for the November-February period were at their lowest in more than 100 years, he told Reuters.

    SNEL currently produces about 850 MW of power, and "if there is not an improvement in the levels of rainfall, there is a risk that we will lose 350-400 MW" during the dry season, Kitakani said.

    The dry season runs from May to September. Kitakani was unable to say how much power production typically falls during that period but said the potential drop was unusually severe.

    The country's environment minister has blamed the fall in the river's level on climate change, Kitakani said.

    Congo is Africa's biggest copper producer, and the region of Katanga where the metal is mined receives only about half the power it needs from the national grid, forcing operators to rely on expensive generators or power imports from neighboring Zambia.

    Charles Kyona, president of the industry-led chamber of mines, told Reuters that miners were concerned about persistent power shortfalls. The chamber has repeatedly called for further liberalization of the energy sector to address the problem.

    "Without electricity, we don't have the means to effectively work," he said.

    Less than 15 percent of the population has electricity, and the existing supply suffers from repeated breakdowns of the generators at the country's main hydroelectric dams and an unreliable distribution network.

    Plans to build a new 4,800 MW, $14 billion dam on the Congo River in coming years as part of an envisioned 44,000 MW Grand Inga project have stalled, with the government yet to select a developer.
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    World's newest copper mine is a loner until prices rebound

    The end of the commodities super-cycle has left just one new major copper mine on the verge of production. Its owner says prices need to recover further before others are built.

    Cobre Panama, a sprawling openpit mine being developed by First Quantum Minerals in the central American nation, is set to begin production as early as next year and reach full output by the end of 2019. Its timing couldn’t be more fortuitous: the market for the industrial metal is set to swing into its first deficit in six years and remain in shortage to 2020.

    The price of copper – often used as a barometer of global economic health – has gained about 25% in the past six months on mine disruptions, Chinese demand and expectations of a US infrastructure build up, making it the top gainer in the Bloomberg Commodity Index. That’s still not high enough to prod a new cycle of investment, says First Quantum President Clive Newall.

    "Good copper projects are scarce at these prices," Newall said in a phone interview Monday from London. "There is an incentive price to build new greenfield sites, which is significantly above the current price."

    Copper prices need to rise another 15% to about $6 700 a ton before mining companies commit to new greenfield projects, meaning the industry is unlikely to boost capital spending until 2019 at the earliest, Citigroup forecast in a February report. Wood Mackenzie estimates a price of around $3.30 a pound ($7 275 a ton) would be sufficient to prompt investment, assuming miners will require a 15% rate of return, mining and metals analyst Chang Khoo said in an email.


    Three-month copper fell 1% Tuesday to $5 858 a ton on the London Metal Exchange. Even with the recent gains, coppertrades at almost half the price reached in 2011. Prices may climb above $8 000 a ton before the end of the decade, Citigroup forecasts. Estimates compiled by Bloomberg predict a median price of $6 414 a ton by 2020.

    “The dramatic capex crunch in the copper mining sector since 2012 has eviscerated the copper project pipeline for much of the remainder of the current decade," analysts led by David Wilson said in the Citigroup report. The market is headed for a shortfall of 327 000 metric tons in 2017, rising to 600 000 tons in 2020, according to David Lilley, co-founder of RK Capital Management and one of the world’s top copperinvestors.

    There’s a reluctance to invest after years of low prices, BHP Billiton CEO Andrew Mackenzie said at a miningconference in Florida last week. Swedish-Canadian commodities entrepreneur Lukas Lundin called the industry “gun shy.” Oscar Landerretche, chairperson of Codelco, the world’s biggest copper producer, said: “It’s going to be very difficult for the industry to respond even if it wanted to."

    Demand for copper – one of the most commonly used metals found in electrical wiring to air conditioners to kitchen utensils – is set to surge, driven by Asia’s growing economies and the spread of electric vehicles, Citigroup said. Yet new discoveries haven’t kept pace with the growth in demand and it can take 25 years from early exploration to bring a new copper deposit into production, according to a study by the World Bank last year.
    Hedging Copper

    Labor disputes have also disrupted exports from the world’s two biggest mines in Chile and Indonesia, helping to drive up prices.

    First Quantum won’t benefit immediately from copper’s recent surge. After narrowly averting breaching loan terms last year, the Vancouver-based company has hedged almost 90% of its 2017 copper sales at an average price of $2.25 a pound, according to Sanford C. Bernstein That’s below the current price of about $2.65 a pound.

    "The 2017 realized price doesn’t matter," Sanford analysts led by Paul Gait wrote in a February 21 report. Miningcompanies tend to hedge near the bottom of the commodity cycle, locking in highly depressed prices and forgoing the upside when the cycle turns, it said. "This is exactly what happened to First Quantum."

    First Quantum will stop hedging, "when we believe that Cobre Panama is sufficiently de-risked," Newall said, declining to elaborate. With the bulk of heavy constructionout of the way, the project is "largely de-risked," Newall said during a February 27 investor call.
    Panama Canal

    The company still needs to arrange $2.5-billion in projectfinancing, which it expects to finalize this year, Newall said. First Quantum is in talks with a group of export credit agencies, which would offer insurance cover to lenders, allowing for loans with longer tenures and lower interest rates.

    The $5.48-billion project sits only 20 kilometers (12 miles) from the Atlantic coast, where it has already built a deepwater dock. Thanks to the Panama Canal, it will be able to ship its concentrate to just about any major smelter in the world.

    “Not many companies have embedded growth,” though First Quantum is one of them, said Chris Beer, a commodity fund manager at RBC Global Asset Management in Toronto.

    At full production, Cobre Panama is expected to yield 320 000 tons a year. That means First Quantum would be producing about 910 000 tons of copper annually by 2020, surpassing producers like Rio Tinto Group and KGHM Polska Miedz SA, according to a February investor presentation.

    "We’d be heading toward becoming a top-five copperproducer," Newall said.

    Even at current prices, Cobre Panama will still be profitable, Newall said.

    "It’s certainly a price where we’d make money," he said. "They’re going to get better, and that’s the ideal time to be bringing something like Cobre Panama into the market."
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    Rusal revises CIF Japan Q2 offer higher at $135/mt plus LME

    Russian aluminum producer Rusal has revised up its offer to Japanese buyers to $135/mt plus London Metal Exchange cash, CIF Japan, for second quarter contracts, after offering at a premium of $125/mt on February 20.

    Two Japanese buyers said a Rusal official informed them of the change in meetings Tuesday.

    The Japanese buyers said they had not reached agreements with Rusal or other producers for the Q2 premiums, as they wanted to study the market before making a decision on the $125/mt premium offer.

    One Japanese buyer said he had counter-bid below $125/mt plus LME cash CIF Japan.

    Rusal Japan could not be reached for comment.

    Rusal supplies to Japanese trading houses, rolling mills and extruders 99.7% P1020 aluminum ingots as well as value added products on long term contracts.

    Rio Tinto Japan and South32 has offered at $135/mt plus LME cash, CIF Japan, for Q2 contracts.
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    Copper breaks down?

    In New York  on Tuesday copper for delivery in May fell as much as 1.7% to $2.6080 per pound or $5,750 a tonne after a surge in warehouse stocks in Asia limiting the impact of supply disruptions at the world's biggest mines.

    Reuters reports copper inventories at facilities controlled by the LME unexpectedly jumped by almost 39,000 tonnes, the biggest inflow in more than a decade and reversing a downtrend in place since mid-December. Shanghai Exchange stocks jumped by 24,000 tonnes to total 320,000 tonnes, an 11-month high.

    In February copper jumped to its highest level since  May 2015 after workers at BHP Billiton's giant Escondida mine in Chile first went on strike, but a slowdown in China which consumes some 46% of the world's copper and diminishing prospects of a bold infrastructure program in the US have shifted market attention to demand strength.

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    Malaysia likely to extend bauxite mining ban for three months or more

    Malaysia is likely to extend its moratorium on bauxite mining for another three months or more as there is still runoff from bauxite stockpiles near a port that is contaminating coastal waters, the environment minister said on Tuesday.

    Natural Resources and Environment Minister Wan Junaidi Tuanku Jaafar told Reuters in a text message he would make a recommendation to the cabinet, although that body would have the final say on the matter.

    Malaysia's largely unregulated bauxite mining industry in Kuantan, port capital of key bauxite producing state Pahang, ramped up output starting in 2014 to fill a supply gap after Indonesia banned exports and to meet demand from top aluminium producer China.

    The frenetic pace of digging, however, led to a public outcry over water contamination and destruction of the environment.

    In January last year, the government imposed its first three-month ban on mining of the commodity, extending it several times.

    Wan Junaidi had said in February that he was not inclined to lift the moratorium yet as heavy rains had caused bauxite runoff and further contamination.
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    Philippine minister asks Duterte to halt second mine review she earlier supported

    The Philippine environment minister has asked President Rodrigo Duterte to halt a second review of 28 mines that she ordered closed or suspended, challenging its legality despite initially supporting it.

    The U-turn by Environment and Natural Resources Secretary Regina Lopez comes as she faces pressure to defend her decision to shut more than half the country's mines, a move that prompted an industry outcry and concerns about lost revenue.

    The government's Mining Industry Coordinating Council (MICC), an inter-agency panel that includes the finance ministry, is conducting a review of the mines following criticism from miners that the original decision was baseless and lacked due process.

    "The MICC is not mandated to do a review of any mining operation. The only agency that can do a review of mining operations is DENR, and that's what we've done," Lopez told Reuters, referring to her environment agency.

    Duterte's spokesman, Ernesto Abella, declined to comment on Lopez's latest move, saying it was not discussed in a cabinet meeting.

    Duterte, who last year warned miners to abide by stricter environmental rules or close down, has so far backed Lopez, a committed environmentalist, in the increasingly contentious dispute.

    She faces a Philippine legislative hearing set for Wednesday to confirm her appointment after an initial hearing was postponed last week. She is among just a few of Duterte's appointees yet to get the green light from lawmakers.

    Lopez on Feb. 2 ordered the closure of 23 of 41 mines in the world's top nickel ore supplier and suspended five others to protect watersheds after a months-long review last year by the environment agency.

    Members of the MICC met a week later and agreed to a second review of the affected mines, issuing a joint resolution signed by Lopez and Finance Secretary Carlos Dominguez who co-chair the mining council.

    "Whether I signed it or not the fact of the law is the law," Lopez said.

    The MICC was created through a 2012 executive order by former President Benigno Aquino and tasked, as part of its duties, to review mining laws and regulations and ensure their implementation.

    Lopez said she's challenging the review after learning that the second assessment will cost 50 million pesos ($1 million). "I've already done the review, what more do you want?" she asked.

    Dominguez said he was surprised by Lopez's about-face, recalling that it was Lopez's lawyer who drafted the Feb. 9 resolution, ABS-CBN News reported, citing Dominguez.

    Miners have contested the closure and suspension orders, which a mining industry group has said would affect 1.2 million people that depend on mining for their livelihood.
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    Striking Escondida copper workers stand firm as pressure builds

    The union leading a 26-day-old strike at the Escondida copper mine in northern Chile, the world's largest, vowed Monday to continue with the protest for as long as it takes, even as pressure builds for them to end the standoff.

    "We have said we will strike for 60 days or longer," No. 1 Workers Union spokesman Carlos Allendes told journalists in Santiago Monday.

    The strike, which has halted production at the open pit operation, is thought to have cost the BHP Billiton-controlled mine more than 100,000 mt in copper production and more than $500 million in lost revenue.

    But the two sides have not met for more than a few hours since the strike began as they clash over what issues should under negotiation.

    The union is refusing to open talks with the company until management agrees to remove three issues from the table: the removal of benefits; changes to workers' rest times; and different conditions for new employees.

    Allendes was in Santiago Monday to meet with government authorities and politicians to explain the union's position.

    Left-wing presidential candidate Senator Alejandro Guillier condemned the company's proposal as discriminatory after meeting with union officials Monday.

    But Allendes said that the union was not being inflexible.

    "If the company agree to these conditions, then it should be quite quick to reach a solution," Allendes said, adding that a Chilean Peso 25 million ($38,000) signing bonus demanded by the union is negotiable.

    The company previously offered workers a Chilean Peso 8 million bonus and no pay rise.

    The 2,500 workers striking workers, among the best paid in Chile's mining industry, have come under criticism for putting the country's economy at risk.

    Escondida, which produces almost a fifth of Chile's copper, is so large that economists fear a strike could scupper the country's economy just as it is coming out of a prolonged period of lackluster growth.

    Figures published Monday by the country's central bank showed the economy grew by 1.7% in the 12 months to January. But Finance Minister Rodrigo Valdes has warned that figures for February, published in a month's time, could show a contraction as the strike bites.

    But Allendes dismissed the criticism, arguing it was Escondida's intransigence that had forced workers to strike. "They have pushed us to this and it is up to them to resolve it," he said.

    The strike has now lasted longer than a 2006 protest at the mine, which ended after 26 days, although strikes at other Chilean copper mines have almost lasted twice as long.

    Many strikes crumble after a month, when Chilean labor law allows companies to make individual offers to striking workers: if more than half accept then the strike is over.

    Allendes said that the union was confident that workers shared its commitment to the issues at stake in the standoff.

    "Our members know what it is at stake. There will be no strikebreaking," he said.

    BHP Billiton owns 57.5% of the Escondida mine. Rio Tinto and two Japanese companies own the balance of shares.

    Attached Files
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    Japan's aluminium smelters switch to Chinese feedstock on rising AK5M2 prices

    Japanese secondary aluminium alloy smelters are switching to Chinese supply as Russian AK5M2 feedstock prices surged on seasonal scrap shortage, market sources said Tuesday.

    Russian AK5M2 was offered at $1,840/mt CIF Japan for 0.1% magnesium material for April loading, and $1,850/mt CIF Japan for March-April loading from Saint Petersburg.

    AK5M2 with 0.3% magnesium was offered at $1,820/mt CIF Japan for March-April loading.

    The prices of auto diecasting alloy ADC12, the final product of AK5M2, was $15-$30/mt lower, traders said.

    "Japanese smelters want to keep the price above Yen 220/kg delivered or ex-warehouse basis ($1,840/mt CIF without local handling costs) but that is hard as there is competition from imported ADC12 from China," a Japanese trader said.

    Another trader said that he had bought several hundred tons of Chinese origin ADC12 at $1,805/mt CIF Japan this week.

    The first trader said he had received requests for off-spec Chinese ADC alloys from Japanese smelters.

    "They are seeking to source feedstock at below $1,800/mt CIF Japan," he said.

    The second Japanese trader said smelters that needed to buy feedstock for the second quarter were turning to Chinese ADC12 to remelt or resell.

    "Those who can wait, are waiting for the Russian prices to come down," he said.

    The country imports 2,000-3,000 mt/month of Russian AK5M2, according to data from the Japan Aluminium Alloy Refiners Association.

    Japanese secondary aluminium alloy smelters also use domestic scrap as feedstock.

    A Japanese scrap trader said they was no rise in inquiries as yet. Engine and machinery scrap traded at Yen 160/kg ($1,404/mt) delivered, for delivery in March, and 6063 extrusion scrap also around Yen 160/kg delivered, flat from two weeks ago, he added.

    Japan's ADC12 production in January was 36,092 mt, down 0.3% year on year, according to JAARA data.
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    Workers at Peru's Cerro Verde mine to strike for five days

    Workers at Cerro Verde mine, one of the largest copper producers in Peru, plan to start a five-day strike on Friday to demand better labor conditions, a union representative said on Monday.

    The representative and the mine's controlling owners said the strike could be indefinite.

    Cerro Verde is controlled by Freeport-McMoRan Inc , which owns a 53.56 percent stake. Sumitomo Metal Mining Company Ltd controls a 21 percent stake and Buenaventura 19.58 percent.

    News of the Cerro Verde strike comes as output at the world's two biggest copper mines has been interrupted. Some 2,500 unionized workers at BHP Billiton's Escondida copper mine in Chile began a strike on Feb. 9 while Freeport's Grasberg mine in Indonesia has stopped due to a dispute over export rights.

    Supply disruptions pushed copper prices to 20-month highs of $6,204 a tonne on the London Metal Exchange last month. Prices have come off these peaks since and were last trading at $5,851.50 a tonne.

    The Cerro Verde union's deputy secretary, Cesar Fernandez, said workers wanted family health benefits and other measures and had not ruled out an indefinite strike. He said the mine's standards for sharing conventional profits with workers were too high.

    A representative of Cerro Verde said the mine would continue abiding by the collective agreement it had forged with workers.

    Cerro Verde produced 1.1 billion pounds (498,951 tonnes) of copper in all of 2016, more than double output in 2015 thanks to a recent expansion.

    Freeport McMoRan said in a statement to Reuters it had been notified on March 2 the miners intended to go on strike for an indefinite period starting on March 10.

    The company said Cerro Verde strictly complies with its obligations by law and under its agreements with the union, paying out amounts owed for conventional profits as required, and providing competitive vacation and healthcare benefits.
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    Environmental review panel nixes proposed Ajax mine

    A prospective copper-gold mine in south-central  British Columbia has been handed a setback by local First Nations who oppose the project.

    An environmental review panel led by the Stk'emlúpsemc te Secwépemc and the Tk’emlups had been deliberating the pros and cons of the controversial $1.3-billion mine, located on the outskirts of Kamloops, for the past few months. On Saturday, in a 200-person ceremony announcing their rejection, one of the indigenous groups said a lake and the land around it where the mine is to be located, holds spiritual significance.

    "The current environmental approval process in British Columbia and Canada uses science but doesn't take into consideration our traditions and our culture," said Stk'emlúpsemc te Secwépemc councillor Janet Jules, quoted by CBC News. "That's what we emphasized with our consultations."

    However the decision isn't the end of the Ajax mine; final word goes to the federal and provincial environmental assessment offices. On January 18 the mine developer, KGHM Ajax Mining, submitted an application to them for an environmental certificate.

    The open-pit mine about 400 kilometres from Vancouver has been under consideration since 2006, but has run into opposition mostly due to its close proximity to Kamloops, a medium-sized Interior B.C. city. A survey done in 2013 showed nearly 75 per cent of respondents opposed the mine. Recently Mining Watch calculated the risk to the proponents, KGHM International (TSX:QUX) and Abacus Mining & Exploration (TSXV:AME), of pushing ahead with the project, saying it could cost them over $100 million in litigation or compensation costs.

    But KGHM says on its website that it has taken local concerns into account by moving the facilities farther from the city, while also increasing the processor throughput by 5,000 tonnes per day (60,000 tpd to 65,000 tpd) in an updated feasibility study released on January 13.

    The Ajax mine has proven and probable mineral reserves calculated at 2.7 billion pounds of copper, 2.6 million ounces of gold and 5.3 million ounces of silver. The 18-year mine would produce an annual 58,000 tonnes of copper and 125,000 ounces of gold.

    CBC quotes KGHM saying the mine would generate 1,800 jobs during construction and 500 when it's in operation.
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    Copper Set to Drop as China's Jiangxi Looks to Boost Output

    Copper is poised to drop this year as higher U.S. interest rates and elections in Europe curb demand, according to the chairman of China’s second-largest refiner of the metal.

    Prices will end the year lower than where they started, Jiangxi Copper Co.Chairman Li Baomin said Sunday in an interview in Beijing as the government announced growth plans for 2017. Jiangxi Copper plans to increase production to the maximum capacity of 1.36 million metric tons, compared with about 1.2 million tons last year, he said.

    Copper got a lift in November on speculation that U.S. President Donald Trump will increase spending on roads, bridges and airports, expanding demand for metals. After a surge in January, copper has slipped on mounting expectations that the U.S. central bank will raise interest rates again just three months after a quarter percentage point increase.

    “There are things worrying us,” Li said, including Trump’s “not clear” policies, higher U.S. rates and uncertainties about who will win European elections. “In addition, some emerging economies’ development is losing momentum.”

    Copper will average 45,000 ($6,524) to 46,000 yuan a ton in 2017, Li said. That’s lower than the year-to-date average of 47,513 yuan. Futures in Shanghai traded at 48,220 yuan at 9:04 a.m. local time on Monday.

    Global demand still looks set to exceed production, with China’s consumption growth at 6 percent this year compared with 5.8 percent last year, Li said. Demand is getting a boost from power grid spending and a push toward more energy-efficient vehicles that use copper, he said.
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    Indonesia won't budge on divestment rule for Freeport: minister

    Indonesia will not back down from new rules requiring Freeport-McMoran to divest a majority stake in its local unit, Energy and Mineral Resources Minister Ignasius Jonan said, in a dispute over rights to the world's second-biggest copper mine.

    Freeport's exports of copper concentrate from its Grasberg mine have been at a standstill since mid-January, when Indonesia introduced rules that are intended to improve revenues from its resources and create jobs.

    The dispute has threatened to cut government revenues and unsettle business sentiment in Southeast Asia's biggest economy at a time when President Joko Widodo's reform agenda has been buffeted by political instability and social tensions surrounding gubernatorial elections in Jakarta.

    The new rules require the U.S. company to give up its 1991 contract before it can resume exports of copper concentrate. They also require that Freeport divest a 51 percent stake in its Indonesian unit, pay more taxes, and build a second copper smelter.

    The government was willing to "sit down and have more beneficial solutions for both sides," Jonan told Reuters in an interview late on Thursday, referring to discussions with Freeport on the new rules.

    However, "the 51 percent is mandatory," he said.

    "Freeport has been here for 50 years," he said, "doing business in the soil of Indonesia."

    The president had proposed that Freeport continue operating the Grasberg mine, while state-owned pension funds would provide finance for the stake, Jonan said.

    "The government will be the silent partner."

    No time frame has been set for the divestment.

    Earlier this week, Freeport Chief Executive Richard Adkerson said Indonesian ministers had been "aggressive" and that the new regulations were "in effect a form of expropriation".

    Adkerson said the attempts to enforce the new rules were in violation of Freeport's contract and he warned that if there were no resolution by mid-June it could go to arbitration.

    Freeport's exports and output have been paralyzed by the dispute. The Phoenix, Arizona-based company this week slashed its Grasberg copper mining target and shelved plans to invest $1 billion a year in a long-term underground expansion.

    Jonan denied that relations between the two parties had deteriorated and said both hoped to conclude negotiations as soon as possible.

    While the government was "more than ready" to go to arbitration, Jonan said: "If we can sit down and discuss this amicably, it would be better."

    Union representatives say more than 1,500 workers have been sent home, work has ground to a halt, and unprocessed ore has begun to pile up.

    "We hope the government and the company can reach an understanding. We don't want this to be a drawn-out process," said Aser Gobai, head of the workers union in Mimika regency.

    The company has brought in billions of dollars of investment to Indonesia's easternmost Papua province, and employs thousands of its people.

    Copper prices moved above $6,000 a tonne to 20-month highs on the London Metal Exchange in mid-February on the back of Freeport's diminished output and a strike at BHP Billiton's Escondida mine in Chile.
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    Rio Tinto aluminium smelter to slash jobs as power prices bite

    Rio Tinto’s Boyne aluminium smelter in Gladstone is set to slash more than 100 jobs and about 80,000 tonnes of annual production — worth $US160 million at current prices — because it has been unable to secure economically-priced power from state power providers.

    The production and job cuts are almost double those flagged in January, when Rio Tinto (RIO) said it would cut 8 per cent of production, or 45,000 tonnes, and about 30 jobs because power price spikes were hitting production cuts.

    The wider cuts are a result of Boyne being unable to negotiate power contracts that will let it run profitably.

    “Gladstone’s Boyne Smelters Ltd will be reducing production by 14 per cent after failing to secure a competitively priced electricity contract,” a Rio spokesman said.

    “There will be a significant number of jobs lost as a result.”

    With about 1,000 workers at Boyne and 14 per cent of production being cut, the job losses are expected to number more than 100.

    In January, Boyne had been saying power prices were way above power costs. But the tone has softened, with Boyne now accepting the generators have tried as hard as they could to provide economic power.

    “Boyne Smelters has been working hard to secure a competitive energy deal. Both parties have been negotiating in good faith but ultimately could not reach agreement,” the spokesman said.

    Aluminium is often called solid electricity because the process of turning its raw material, alumina, into metal requires so much power.

    Boyne gets about 85 per cent of its power from the Gladstone power station, in which it has a 42 per cent stake and 810MW of power supply locked in until 2029.

    The rest of the power needs to be sourced from the market, something Rio now says it is not able to do economically.

    As a result 140MW of power will be dropped from its production circuit, up from a January plan to cut 80MW and 45,000 tonnes of annual production.

    Boyne has total capacity of about 584,000 tonnes of production.

    Rio owns 59.4 per cent of Boyne.

    Boyne made $US12m of profit last year, down from $US40m the year before.

    Attached Files
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    No zinc TC/RC deal struck at IZA, price escalators are sticking point: sources

    Zinc miners and smelters reportedly failed to reach a benchmark agreement on 2017 treatment and refining charges this week at the International Zinc Association conference in Rancho Mirage, California.

    A major sticking point in the negotiations, according to sources, were the price escalators in his year's fee, amid significant uncertainty in zinc price direction going forward.

    Miners and smelters were far apart in their negotiating positions on the fee itself going into the TC/RC talks, sources said, spurring doubts at the outset that the parties would conclude a deal by the end of the three-day IZA forum.

    "They're very behind," an IZA attendee said, referring to the lagging talks. Parties were negotiating in a wide range of $100-$180/mt, according to one source, with a range of $140-$150/mt heard later in the conference.

    The parties particularly clashed over the level of the fee's price escalators, the built-in adjusters that allow for rises in the zinc price during the year. A miner at the IZA meeting was pushing to exclude price escalators from the 2017 fee, a source said, following other markets like copper, which has eliminated escalators in the benchmark TC.

    Another source attending the conference said miners were also pressing for a bigger percentage recovery -- the metal value contained in the zinc concentrates -- to 90% from the current 85%, but he doubted miners would win such a concession in this year's talks.

    A source with one of the negotiating parties said a base price of at least $2,800 was likely in this year's TC/RC, reflecting the substantial rally in zinc prices over the last year.

    The 2016 benchmark fee was reportedly settled at $188, basis $2,000. Miners went into this year's negotiations with a clear edge carried over from the 2016 talks, when major mines like MMG's 500,000 mt Century mine tapped out.

    But a dramatic concentrates squeeze has hit the market during the course of last year, giving miners even more of an advantage in this year's talks, with all signs pointing to a sharply lower fee.

    However, analysts said earlier this year that miners would be unlikely to play too heavy a hand in pushing for a fee reduction, as the zinc market's supply dynamics will eventually shift back to favor the smelters.
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    Steel, Iron Ore and Coal

    Indian state ports' Apr-Feb thermal coal shipments drop 12% on year

    India's 12 major government-owned ports imported 85.06 million tonnes of thermal coal over the first 11 months of the current 2016-17 fiscal year (April-March), down 12% from the same period a year earlier, according to latest data released by Indian Ports Association on March 9.

    Coking coal shipments received by the 12 ports over April 2016 to February 2017 totalled 42.94 million tonnes, dropping 2% year on year, the data showed.

    Paradip port on the east coast handled the highest thermal coal shipments during the 11-month period at 23.65 million tonnes, down 17% year on year.

    Kolkata port, also on the east coast, handled the highest volume of coking coal over April-February at 10.4 million tonnes, down 23% year on year.

    The 12 ports are Kolkata, Paradip, Visakhapatnam, Ennore, Chennai, VO Chidambaranar (Tuticorin), Cochin, New Mangalore, Mormugao, Mumbai, Jawaharlal Nehru Port Trust (JNPT) and Kandla.

    Chennai and JNPT ports did not import any coal cargoes during the first 11 months.
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    NDRC approves 185.3 Mtpa coal capacity in Xinjiang

    The National Development and Reform Commission (NDRC) recently approved the construction of two coal mining areas in northwestern China's Xinjiang Uygur autonomous region, with total coal production capacity at 185.3 Mtpa, local media reported.

    This is the first approval on coal mines construction in the region after the country rolled out production control on coal capacity last year.

    Heshituoluogai coal mining area, located in Hoboksar autonomous county, Ili Kazak autonomous prefecture, is designed with a coal production capacity of 30.3 Mtpa.

    Jiangjunmiao coal mining area, located in Qitai county, Changji Hui autonomous prefecture, is expected to produce 155 million tonnes of coal per annum.

    Coal reserves at Heshituoluogai and Jiangjunmiao stood at 12.5 billion and 68.7 billion tonnes, respectively.
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    Japanese scrap steel prices jump in monthly auction

    The monthly scrap auction held by the Kanto Tetsugen group of scrap dealers around Tokyo saw a jump in bid prices.

    The highest bid received in Thursday's auction for Japanese H2-grade ferrous scrap for export from Tokyo Bay by April 30 was Yen 31,168/mt, or $272/mt, free alongside ship, an increase of Yen 5,117/mt on last month's highest winning bid, the organizer said.

    The auction attracted 17 bids for a total of 160,000 mt of scrap, with the average being Yen 29,764/mt FAS.

    Osaka-based scrap trader, Ohgitani Corp, placed the winning bid for 20,000 mt, according to sources who attended the auction.

    Ohgitani officials in charge of the auction were not available for comments about the award.

    While the winning bid was higher than expected, Japanese scrap export prices as well as domestic prices are expected to rise further because of the result of the tender, a Tokyo-based trader said.

    The trader said he roughly calculates Yen 31,168/mt FAS as equivalent to Yen 32,000/mt FOB, much higher than the latest bid by a South Korean mill for Japanese H2 material at Yen 30,500/mt FOB on Wednesday.

    Another scrap trader in Tokyo said the winning bid was also higher than the prices traders are currently paying to collect H2 material to be exported from eastern Japan.

    Traders are currently paying around Yen 29,000/mt FAS to collect H2 material to be exported, up Yen 1,500-2,000/mt from a week ago and up Yen 500/mt from Wednesday.

    He expected scrap distributors will hold on to their scrap inventory and delay deliveries to export yards and mini-mills.

    "Both traders and domestic mini-mills will have to lift their prices to secure sufficient volume and will cause domestic scarp prices to rise rapidly," he said.

    Japan's leading mini-mill, Tokyo Steel Manufacuring, previously lifted its scrap buying prices by Yen 500-1,000/mt for all grades at all works and its steel service center, effective March 8 arrivals.

    This was the company's third increase in March and totaled Yen 1,500-2,500/mt for this month so far. Its purchase price for H2 truck delivered to its Utsunomiya works in north of Tokyo was lifted to Yen 29,500/mt, as reported.

    S&P Global Platts assessed the H2 scrap export price at Yen 30,000-30,500/mt, or $263-$268/mt, FOB Tokyo Bay on March 8.
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    Daqin Feb coal transport up 29.8pct YoY

    Daqin line, China's leading coal-dedicated rail line connecting Datong City of coal-rich Shanxi province with northern Qinhuangdao port, transported 30.13 million tonnes of coal in February, rising 29.8% on the year, said a statement released by Daqin Railway Co., Ltd on March 9.

    That was a decline of 14.4% on the month, mainly impacted by the Spring Festival holidays in early February.

    The average daily transport through the rail line stood at 1.08 million tonnes in February, down 5.3% from January.

    During January-February, Daqin transported a total 65.32 million tonnes of coal, up 20.1% from the year prior.

    Market sources said that top miners in China including Shenhua Group may consider increasing coal delivery via Daqin to Qinhuangdao port. And over 30 million tonnes more coal is expected to be transported by Daqin this year.
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    Exxaro's profits jump with rise in coal prices

    South African miner Exxaro reported a rise in annual profits on Thursday, thanks to a surge in coal prices, saying it expected the market to continue to strengthen this year.

    The company, which also has interests in iron ore, said headline earnings per share jumped to 1,302 South African cents last year from 457 cents in 2015.

    On Wednesday the company announced it was selling its 44 percent stake in U.S. listed inorganic minerals and chemicals firm Tronox, worth nearly $900 million, leaving it to focus on its core mining business.

    "Supportive market conditions are expected in 2017 for most of Exxaro's chosen coal market segments compared to 2016, both domestically and internationally," chief executive Mxolisi Mgojo said in a results presentation.

    After half a decade of decline, thermal coal prices have risen by two thirds since the beginning of last year, driven by a sharp cut in Chinese production and strong demand.

    Exxaro produces thermal, semi-soft coking and metallurgical coal for export and for domestic consumption with some of its mines tied to power stations owned by national power utility Eskom.

    A gross final cash dividend of 410 cents was declared, up from the 85 cents per share paid out last year.
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    Japan asks WTO to set up settlement panel in India steel dispute

    Japan on Thursday asked the World Trade Organization (WTO) to set up a dispute settlement panel to examine India's safeguard duties on steel imports which it says may be violating the WTO rules.

    Japan, the world's second-biggest steel producer, usually tries to deal with trade disputes through bilateral talks, but with global trade friction increasing, Japan's defense of an industry that sells nearly half of its products overseas is getting more vigorous.

    Japan in December asked for WTO dispute consultations with India over steel safeguard duties and a minimum import price for iron and steel products.

    India imposed duties of up to 20 percent on some hot-rolled flat steel products in September 2015, and set a floor price in February 2016 for steel product imports to deter countries such as China, Japan and South Korea from undercutting local mills.

    India ended the minimum import price last month, but it kept safeguard duties even after the two sides held talks in early February.

    Tokyo claims India's safeguard duties are inconsistent with WTO rules and contributed to the plunge in its hot-rolled coil exports to India, which dropped to 8th-largest on Japan's buyer list in 2016, down from 3rd-largest in 2015.

    "Indian government determined that local industry has been damaged even though their output and sales have not deteriorated," Osamu Nishiwaki, director of trade policy bureau at the Ministry of Economy, Trade and Industry (METI) told a news conference.

    "We are taking these actions also to avoid other countries from easily imposing these emergency measures," said Takanari Yamashita, director of the METI's metal industries division.
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    Surging China iron ore imports can't stem price decline

    The Northern China import price of 62% Fe content ore fell sharply for a second day in a row on Wednesday, giving up 2.6% to trade at $85.3 per dry metric tonne, the lowest in a month according to data supplied by The Steel Index.

    After a 85% rise in 2016, the price of iron ore is up another 7% in this year and has more than doubled in value since hitting near-decade lows at the end of 2015.

    While worries about supply and rising stockpiles have plagued the market, imports by China continued to strengthen in 2017 after hitting an all-time high last year.

    Trade figures released on Wednesday showed China imported 83.5 million tonnes of ore in February, up 13% compared to last year.

    Total imports for January-February climbed 12.6% to 175.3 million. Iron ore is averaging $84.90 a tonne in 2017, compared to less than $45 during the first two months last year.

    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 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.
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    Optimism pervades US coal industry amid fewer regulations: forum

    Optimism pervaded the coal industry Wednesday as it gathered at the American Coal Council's Spring Coal Forum in Clearwater, Florida, as the early days of the Trump administration have brought regulatory relief for an industry struggling to regain its edge.

    Early signs of the Trump administration's focus on energy-related regulations have been positive for the industry, including a bill signed last month that eliminated the Stream Protection Rule, as well as executive orders on other energy-related issues, said Michael Nasi, a partner with Jackson Walker, a Dallas-based environmental law firm.

    Doing nothing in terms of federal intervention would be a major change for the industry compared with the Obama administration, which issued 57 federal implement plans over eight years. The FIPs are typically reserved for extraordinary circumstances under the Clean Air Act, which attempted to give more control to the states.

    "If all the president does is to stop doing [regulations] like this, he's going to do an amazing job," Nasi said.

    Related Capitol Crude podcast:Sizing up Trump's oil and energy policy initiatives from the Bone zone

    More effort will be needed to "derig the system" and deliver a "regulatory reset," said Nasi, who spoke with others on the broad theme of regulations and their impact on the coal industry in the post-Obama world.

    The first of several steps is expected this week to begin the process of eliminating and potentially replacing the Clean Power Plan, Nasi said. The plan was expected to effectively eliminate construction of new coal-fired power plants.
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    China's four major polluted provinces to set up

    China's major coal producer Shanxi province will make concerted efforts with capital Beijing, Tianjin and Hebei this year to set up "non-coal" areas, in order to combat rampant smog and improve air quality, according to Shanxi delegates of the Fifth Session of the Twelfth National People's Congress on March 7.

    Shanxi will ban use of "San Mei" – a coal variety typically used to heat families, hotels or restaurants or to be burned by industrial boilers – in Taiyuan, Yangquan, Changzhi and Jincheng cities in winter.

    By end of 2016, Linfen, Jinzhong, Luliang, Taiyuan and Changzhi cities each reported over 100,000 households to have replaced natural gas or electricity for burns of "San Mei", while the other six cities each reported 50,000-100,000 households, said Vice Governor Wang Bin.

    The province will complete transformation of 43 large coal-fired power units each with capacity of 18.07 GW to realize ultra-low emissions this year, and finish desulphurization, denitration and dust removal at 82 steel makers and 146 coking plants.

    Attached Files
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    Shanxi reduces 143 mln T coal output in 2016

    Shanxi, a leading coal producing province in northern China, reduced coal production by 143 million tonnes, accounting for some 40% of the country's total decrease in coal output last year,data showed.

    The achievements in its de-capacity campaign, with 25 coal mines closed in 2016, contributed to improved performance and increased profitability for coal producers.

    By December 31 last year, a total of 31,586 workers had been resettled, accounting for 99.76% of the province's total layoffs in coal industry.

    Shanxi planned to cut 20 million tonnes per annum of coal capacity this year, as part of continued efforts to optimize the industry.
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    China's Feb steel exports slump to three-year low, iron ore down

    Chinese steel exports tumbled to a three-year low in February, customs data showed on Wednesday, lower than expectations, as steelmakers in the world's top producer shifted to meeting rising demand at home.

    Shipments for the month were 5.75 million tonnes, the lowest since February 2014, data from the General Administration of Customs showed. It was down 29.1 percent from a year ago and down 22.5 percent from January.

    "We understand that strong prices in the domestic market has lured mills to reduce shipment overseas but we didn't expect they would cut exports so much. If the big decline continues, upside room for domestic prices might be capped," said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.

    The sharp drop in exports could blunt criticism by steelmakers in the United States and other global producers that China is dumping excess material abroad.

    A rally in steel prices has prompted Chinese steelmakers to raise production. Rebar futures on the Shanghai Futures Exchange have risen 18.5 percent this year.

    A senior trader in Hangzhou expected Chinese steel exports to stay at similar levels to February during March given overseas buyers are reluctant to accept rising offers from Chinese exporters.

    Total exports for the first two months, which smoothes out the impact of the Lunar New Year holiday falling at different times, fell 25.7 percent to 13.17 million tonnes, data showed.

    Imports of steel rose from a year ago to 1.09 million tonnes in February, up 17 percent. Total imports for the first two months of 2017 jumped 17.6 percent from a year ago to 2.18 million tonnes.

    China's iron ore imports rose to 83.49 million tonnes in February, up 13 percent from a year ago, as steelmakers increased production and restocked the raw material.

    Total arrivals for the first two months of the year rose 12.6 percent to 175.3 million tonnes from a year ago.
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    India works on formula to regulate iron ore prices - steel secretary on TV

    India is working on a formula that might act like a cap on iron ore prices, the country's steel secretary Aruna Sharma told CNBC TV18 on Wednesday.

    "There needs to be some sharing of the profits. We are working on the end-formula, and maybe we will come up with the logic very soon," Sharma said.

    The price of iron ore "should not move like the sensex" as such price fluctuations make it very difficult for an industry to work, she added.

    Iron ore prices rose to their highest since August 2014 last month in China, the world's top producer and consumer of steel.

    With Beijing expected to boost infrastructure spending, iron ore .IO62-CNO=MB, which is used to make steel, could rally further.
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    Datong Coal Mine Group to cut 3.7 Mtpa of coal capacity

    Datong Coal Mine Group, one major thermal coal producer in northern China's Shanxi province, planned to further close three coal mines in 2017, slashing a total 3.7 million tonnes per annum (Mtpa) of production capacity, said President Zhang Youxi.

    Meanwhile, 5,758 workers will be resettled this year, Zhang said during a group discussion with other delegates at the annual parliamentary sessions on March 5.

    The company had slashed 3.75 Mtpa of coal capacity by shutting three mines last year, and 6,026 layoffs were reallocated, according to Zhang.

    By end of the 13th Five-Year Plan period (2016-2020), Datong Coal Mine Group will shut 13 coal mines, cutting 12.25 Mtpa of capacity, and reallocate 14,209 staff.

    "The coal capacity cut promoted domestic coal industry to upgrade and optimize, reflected by a resurgence of coal prices, enhanced efficiency, capacity replacement and production safety," said Zhang.

    While sticking to policies of eliminating outdated capacity, the group has been seeking to build prolific, efficient and safe coal mines, in line with the model of 1,000 workers and 10 Mtpa of capacity at one mine.

    Tashan Coal mine, owned and operated by the group, is a single underground mine with largest designed capacity of 15 Mtpa in China. It has been ranked advanced coal mine by China National Coal Association last September.

    Datong Coal also gained approval for capacity replacement of four coal mines in November last year, boosting share of advanced coal capacity to 33.2% of its total capacity, according to the Shanxi branch of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

    By 2020, the group is expected to build 11 efficient coal mines each with capacity above 10 Mtpa, and by then production of coal mines with advanced capacity will account for 68% of its total.

    The company's raw coal output dropped 17% from the year prior in 2016, while commercial coal output slid 15% year on year.

    Datong Coal Industry Co., Ltd, its listed arm, expected to swing to profit in 2016, with profit estimated at 180 million yuan or so.
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    China to eliminate small-scale thermal power capacity

    China planned to eliminate, halt or delay construction of small-scale coal-fired power capacity by over 50 GW in total this year, as part of efforts to covert risks of coal power overcapacity and enhance efficiency of the industry, said Premier Li Keqiang while presenting government work report on March 5.

    "The coal-fired power units with installed capacity below 30 KW will be obsoleted during the 13th Five-Year Plan period (2016-2020), but the detailed plans are yet to be released," said Nur Bekri, director of the National Energy Administration.

    "Meanwhile, the government will clamp down on illegal constructions of coal-fired electricity units, and regulate private power plants. But private power plants are no longer allowed in eastern China," he added.

    China's installed capacity of coal-fired power units stands at 940 GW presently, according to a research report. It planned to shed 50 GW of electricity capacity this year, accounting for 5.3% of the total installed capacity.

    The National Development and Reform Commission said previously that China's coal power capacity will be capped below 1.1 TW by 2020, mainly by the way of limiting newly-added capacity, closing coal-fired power units with capacity below 300 MW and eliminating outdated capacity through market transactions.
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    South Africa Jan thermal coal exports hit six-mth low

    South Africa's thermal coal exports reached 5.62 million tonnes in January, hitting the lowest since July 2016, falling 8.8% from a year ago and down 19.1% month on month, showed customs data.

    India remained the largest taker of South African thermal coal in January, importing 1.27 million tonnes, falling 58.1% on the year and down 25.3% from December.

    Exports to South Korea climbed 20.2% from the month prior to 1.16 million tonnes in January, the highest since 2014.

    Shipments to European countries rose 21.3% on the year but slumped 56.4% on the month to 693,500 tonnes, with shipments to Spain up 4.3% from the month before to 346,100 tonnes.

    Thermal coal exports to Israel doubled the year-ago and month-ago levels to 505,600 tonnes in the month, while that to Pakistan surged 55.8% on the year but down 9.8% on the month to 439,200 tonnes.
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    China will not force big coal output cuts if prices reasonable: NDRC

    China will not force coal mines to cut output on a large scale if prices remain within a reasonable range, the country's state planner said on Tuesday, the latest comments from the government on its efforts to tackle excess supplies and smog.

    In a statement, the National Development and Reform Commission said provincial governments and relevant agencies will decide whether to implement cutbacks at mines that are not considered "advanced".

    It did not say what price range it would consider reasonable.
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    Iron ore price drops to 1-month low, coking coal rebounds

    The Northern China import price of 62% Fe content ore fell 2.8% on Monday, to a near-one-month low of $89.00 per dry metric tonne according to data supplied by The Steel Index.

    After a 85% rise in 2016, the price of iron ore has improved by 12% so far this year and has more than doubled in value since hitting near-decade lows at the end of 2015.

    The rise in the price of the steelmaking raw material has flummoxed market observers given supply growth expected in 2017, record-setting inventory levels at ports and an uncertain outlook for demand from China.

    The bears received more ammunition over the weekend after inventories at major Chinese ports jumped to 130 million tonnes the highest since at least 2004 according to Steelhome data.

    However, Reuters reports the bulk of inventories are low to medium-grade material and the availability of high-grade iron ore remains limited as "most Chinese mills are opting for higher grade iron ore to boost productivity in order to push out more steel as prices remain high."

    The bulk of inventories are low to medium-grade material and the availability of high-grade iron ore remains limited

    Iron ore prices should also be supported by news over the weekend that Chinese authorities will enforce crude steel production capacity cuts of 50 million tonnes. The announcement form part of Beijing's efforts to tackle chronic air pollution and restructure the steel industry which for decades have suffered from overcapacity, inefficiency and low-quality steel output.

    The Chines push should favour high-grade ore from Australia, Brazil and other exporting nations over domestic production which is low grade and remains unprofitable even at today's iron ore price.

    On Monday, the market for coking coal continued to rebound with the steelmaking raw material advancing to $163.10 after three weeks of unbroken gains. Met coal prices are being supported by the decision to further cut coal production in China with a goal of eliminating 150 million tonnes this year. While the cuts target coal used in power generation, steelmaking quality coal will also be impacted.

    A reduction in allowable work days at the country's coal mines last year sparked a massive rally in coal prices, lifting  met coal prices to multi-year high of $308.80 per tonne (Australia free-on-board premium hard coking coal tracked by the Steel Index) by November from $75 a tonne earlier in 2016. The price had fallen back to $150 a tonne three weeks ago.

    Outlook murky

    FocusEconomics in its February survey of analysts and institutions shows the price of iron ore averaging $56.70 a tonne during the final quarter of next year. For Q4 2018, analysts expect prices to moderate further to average $55.60 over the three month period.

    None of the analysts foresee iron ore holding at today's prices – Dutch bank ABN Amro is the most optimistic calling for a $76 average towards the end of 2017 while London-based Investec sees an average of $71.50 over the cours of this year.

    BMO Capital Markets see prices correcting sharply from today's levels to average $45 during the first quarter of 2018 while Oxford Economics expects iron ore to average $53 this year and below $50 in 2018. Iron ore averaged $56 last year, a slight improvement over 2015.

    FocusEconomics study of coking coal price predictions do not point to further rallies, but prices should stabilize near current levels. The research firm's panelists expect prices to average $149 per tonne in Q4 2017. Prices are set to remain stable throughout 2018 and average $141 during the final quarter of next year. Coking coal averaged $121 last year and $90 the year before.

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    Hebei to close last 'zombie' steel mills in next two years: governor

    China's biggest steelmaking province, Hebei, will close its eight remaining "zombie" steel mills in the next two years, Governor Zhang Qingwei said on Tuesday at a briefing on the sidelines of the country's annual parliament meeting.

    The province in the north of the country near the capital Beijing is home to 104 mills that account for nearly a quarter of China's total steel output and is home to some of its smoggiest cities. It has pledged to cut steel capacity by 31.17 million tonnes by 2017 and by 49.13 million tonnes by 2020.

    Zhang repeated that the province plans to close all steel mills in the cities of Langfang, Baoding and Zhangjiakou, which will co-host the 2022 Winter Olympics with Beijing, by the end of 2020.
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    German union calls for strikes in steel sector over pay dispute

    German union calls for strikes in steel sector over pay dispute

    A pay dispute in Germany's steel sector intensified on Monday as the IG Metall union rejected an offer for a wage increase of 1.3 percent and called for labor strikes in northwest Germany on Tuesday.

    An estimated 3,000 steelworkers will take part in the strikes on Tuesday, and among the companies affected by the walkouts will be Thyssenkrupp Steel Europe in the western city of Duisburg, an IG Metall spokesman said.

    Vibrant domestic demand has replaced exports as the main driver of growth in Europe's largest economy and strong pay rises would help keep growth in private consumption on track as higher inflation eats into Germans' spending power.

    IG Metall has demanded a 4.5 percent pay rise over 12 months for the 72,000 steelworkers in northwest Germany, where the vast majority of the country's industry is concentrated.

    During the second round of negotiations, employers offered an increase of 1.3 percent over 15 months, the union said.

    German annual inflation jumped to 2.2 percent in February, reaching its highest in 4-1/2 years and surpassing the European Central Bank's target for price stability.

    "An offer that is below the inflation rate and leads to a drop in real wages is out of the question and not negotiable," IG Metall chief negotiator Knut Giesler said, describing the employers' offer as measly.

    "Therefore it's the employers who bear responsibility for the escalation of the labor dispute," Giesler added.

    Under the last deal, which ran out at the end of February, steelworkers got 2.3 percent more pay from January 2016.

    Both sides are expected to resume negotiations on March 16.

    Needing to cut costs and reduce overcapacity, ThyssenKrupp and India's Tata Steel have been in talks since last July about a potential merger of their European steel assets.

    Workers in other industries have been pushing for pay rises.

    In February, Germany's 16 federal states agreed with trade unions a two-stage wage increase of 4.35 percent over two years for more than two million civil servants and other public sector employees.

    Last week, IG Metall and employers agreed a 4.4 percent pay rise for 100,000 workers in the west German textile and clothing industry, the latest sector in Europe's largest economy to grant employees a solid increase.

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    Coal exports of North Queensland in Feb rise 13% on year

    Coal exports from North Queensland in Australia increased year on year in February after particularly low exports during the same month in 2016, data from North Queensland Bulk Ports Corporation showed on March 3.

    The coal terminals, including terminals of Hay Point, Dalrymple Bay and Abbot Point shipped 11.40 million tonnes of coal in February, rose 13.4% from February 2016 — which reached the lowest monthly volume in almost two years.

    According to the data, February's volume was almost stable from the 11.39 million tonnes shipped in January.

    In February, the 50 million tonnes per year capacity Abbot Point Coal Terminal shipped its lowest monthly volume in 35 months with 1.79 million tonnes — down 1.9% year on year and 13.7% month on month, the data showed.

    The 85 million tonnes per year capacity Dalrymple Bay Coal Terminal exported 5.76 million tonnes in February, up 22.5% year on year and rising 8.9% from the previous month, it said.

    With a nameplate shipment capacity of 55 million tonnes per year, Hay Point Coal Terminal saw 3.85 million tonnes shipped in February, which was up 9.2% from February last year, but down 4.3% from January, it said.
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    300 Kt coal-to-EG supporting projects kick off in Shaanxi

    Supporting projects for a 300,000-tonne-per-annum coal-to-ethylene glycol (EG) project have been started in Binxian country, northwestern China's Shaanxi province.

    Construction on the four supporting projects, including gas pressure regulating station and water supply network, marks further advance for the main project, which started construction in November last year.

    The coal-to-EG project, owned by Shaanxi Weihe Binzhou Chemical Co., Ltd. under Shaanxi Coal and Chemical Group, a major coal producer in the province.

    Total investment in the project is estimated at 5.495 billion yuan, of which 444 million yuan would be invested in environmental protection, the company said.

    Upon completion, the project is expected to produce 300,000 tonnes of EG and a variety of by-projects.
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    China's 12 provinces unveils goals to reduce surplus coal capacity

    A total of China's 12 provinces have unveiled goals to cut excess coal capacity in 2017, with Shanxi, Henan and Guizhou pleading the biggest reductions, China Securities Journal reported.

    Both Shanxi and Henan provinces plan to reduce coal capacity by 20 million tonnes per annum (Mtpa) this year, while Guizhou vows to cut production capacity by 15 Mtpa. The remaining regions' goals all stand below 8 Mtpa.

    China will reduce steel production capacity this year by around 50 Mtpa and shut down at least 150 Mtpa of coal production facilities, Premier Li Keqiang said in the Government Work Report at the fifth session of the 12th National People's Congress on March 5.

    At the same time, the government will suspend or eliminate no less than 50 GW of coal-fired power generation capacity.

    The government pledges to make more use of market- and law-based methods to address the problems of "zombie enterprises," encourage enterprise mergers, restructuring, and bankruptcy liquidations, and shut down all outdated production facilities that fail to meet standards.

    In 2016, the country reduced coal capacity by 290 Mtpa and steel capacity by 65 Mtpa, said the premier.

    China will face a tough year to cut coal capacity in 2017, said Jiang Zhimin, vice head of China National Coal Association. Last year, some of the coal mines involved in capacity cut were already idle or operating at half capacity, so it's easy to achieve the goal. However, the coal mines involved this year are all running at normal capacity, said Jiang.

    The country will shut 800 Mtpa of coal capacity over 2016-2020, in order to optimize the bloated industry.
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    Suifenhe border crossing starts to import Russia lignite

    Suifenhe border crossing at northeastern China's Heilongjiang province, one major channel for imports of Russian coal, for the first time ever imported over 10,000 tonnes of lignite from Russia in the first two months this year, showed data from the local government.

    The value of the imports stood at $402,400, data showed.

    Suifenhe started to import Russian coal in 2011 and was the first border crossing in Heilongjiang to import coal from Russia.

    In January 2017, imports of Russian coal through Suifeihe reached 493,000 tonnes. Total value of the imports stood at $2.77 million, 3.95 times higher than the year-prior level, official data showed.

    Major imported coal products via Suifenhe are premium anthracite coal and coking coal which accounted for 72% of the total.
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    Russia Jan-Feb coal output and exports rise YoY

    Coal-rich Russia produced 65.59 million tonnes of coal in the first two months of this year, a year-on-year rise of 2.86%, showed data from the Energy Ministry of Russian Federation.

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    Its coal output in February slid 5.3% from January to 31.9 million tonnes, which, however, was 1.23% higher than the year-ago level, data showed.

    Over January-February, the country's coal exports stood at 27.86 million tonnes, gaining 14.9% from the year prior.

    In February, coal exports of Russia were 13.38 million, increasing 11.26% year on year but falling 7.54% month on month.
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    Indian iron ore shipments up 169%

    The amount of iron ore handled by India's ports has more than doubled in the period between April 2016 and January 2017.

    In a recent report by the Indian Ports Association, quoted by Economic Times, the country's 12 major ports handled 169% more iron ore cargo – a total of 38.61 million tonnes – in the April to January period compared to the same period the year previously, when just 14.37 million tonnes crossed the nation's docks.

    The increase in tonnage can partially be explained by a resumption in production from India's top iron exporting state of Goa in the summer of 2015, led by Vedanta Resources (LON:VED), after an almost three-year hiatus.

    Iron ore output contracted 9.4% every year between 2012 and 2016 following mining bans in Goa, Odisha and Karnataka, Economic Times points out. Those bans are no longer in place, meaning analysts are bullish on Indian iron ore production.

    BMI Research said last month it projects output to increase to 185 MT in the next four years, from 136 MT in 2017.

    The boost is not only due to the spike in the iron ore price, which reached a 30-month high on Feb. 20, but also a surge in global steel production.

    World Steel Association data released in February showed a 7% jump in global steel output in January to 136.5 million tonnes.

    World number three steel producer India recorded the biggest gain of the major producing countries, with output increasing by 12% year-on-year. India's infrastructure push should keep blast furnaces on the subcontinent humming throughout this.
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    Keystone XL builders can use non-U.S. steel, White House says now

    The Keystone XL oil pipeline does not need to be made from U.S. steel, despite an executive order by President Donald Trump days after he took office requiring domestic steel in new pipelines, the White House said on Friday.

    "It's specific to new pipelines or those that are being repaired," White House spokeswoman Sarah Sanders told reporters on Air Force One, when asked about a report by Politico that Keystone would not need to use U.S. steel, despite Trump's order issued on Jan. 24.

    "Since this one is already currently under construction, the steel is already literally sitting there, it's hard to go back. Everything moving forward would fall under that executive order," Sanders said. The southern leg of Keystone is completed and started pumping oil in 2013. Some pipe segments that could be used for Keystone XL, which would bring oil from Alberta, Canada to Nebraska, have already been built.

    Former Democratic president Barack Obama rejected TranCanada Corp's (TRP.TO) multibillion-dollar pipeline, saying it would not benefit U.S. drivers and would contribute emissions linked to global warming.

    Trump's order expedited the path forward for TransCanada to reapply to build Keystone XL.

    In weeks after issuing the order, Trump said in speeches and in meetings, including one with manufacturing CEOs, that Keystone would be required to use U.S. steel. In a speech this week to a joint session of Congress, Trump softened that stance saying new pipelines would have to be made with it.

    Economists told Reuters days after Trump issued the order that the steel requirement had many loopholes, would not be easily enforceable, and could violate international trade law.

    Even if there were no loopholes, U.S. steelmakers would receive negligible benefit from Keystone XL, because they have limited ability to meet the stringent requirements for the project.

    The office of Canadian Prime Minister Justin Trudeau said it welcomes the allowance of non-U.S. steel, calling it a "recognition that the integrated Canadian and U.S. steel industries are mutually beneficial."

    TransCanada said it was encouraged by the White House statement on non-U.S. steel and that its presidential permit application on Keystone was making its way through the approval process.

    Canadian Public Safety Minister Ralph Goodale said on Twitter that allowing non-U.S. steel was "important for companies like Evraz Steel," a local subsidiary of Russia's Evraz PLC, which had signed on to provide 24 percent of the steel before Keystone XL's rejection by Obama.
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    U.S. finds China steel plate imports injure U.S. industry

    The U.S. International Trade Commission said on Friday it had made a final finding that the U.S. industry was being harmed by the dumping and subsidization of imports of carbon and alloy steel cut-to-length plate from China.

    The finding allows for the final imposition of duties by the U.S. Commerce Department.

    The investigation into the imports was prompted by a petition from Nucor Corp and U.S. subsidiaries of ArcelorMittal SA and SSAB AB.

    China's Ministry of Commerce, however, said issues in the U.S. steel industry were not related to Chinese imports, pointing to obsolete equipment and subsequent low yields as the reason for decreased profits.

    In a statement, Wang Hejun, head of China's trade remedy and investigation bureau, called on the U.S. to make "objective" judgments to avoid negative impacts on trade relations between the two countries.

    European Union regulators last month imposed anti-dumping duties of between 65.1 percent and 73.7 percent on imports of heavy plate non-alloy or other alloy steel, spurring concern form China.
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    China vows new steel, coal capacity cuts to make sky blue

    China will cut steel capacity by 50 million tonnes and coal output by more than 150 million tonnes this year, its top economic planner said on Sunday as the world's No. 2 economy deepens efforts to tackle pollution and curb excess supply.

    In a work report at the opening of the annual meeting of parliament, the National Development and Reform Commission (NDRC) said it would shut or stop construction of coal-fired power plants with capacity of more than 50 million kilowatts.

    The pledges are part of Beijing's years-long push to reduce the share of coal in its energy mix to cut pollution that has choked northern cities and to meet climate-change goals while streamlining unwieldy and over-supplied smoke-stack industries such as steel.

    Speaking at the opening of parliament on Sunday, Premier Li Keqiang reiterated the government's plan to ramp up monitoring of heavy industry and crack down on companies and officials that violate air quality rules.

    "Officials who do a poor job in enforcing the law, knowingly allow environmental violations, or respond inadequately to worsening air quality will be held accountable," he said.

    "We will make our skies blue again."

    In its report, the NDRC said it would cut energy consumption per capita by 3.4 percent and curb carbon intensity by 4 percent this year.

    By 2020, the government has said it aims to close 100 million-150 million tonnes of steel capacity and 800 million tonnes of outdated coal capacity.

    This year's targets come after the world's top coal consumer and steel maker far exceeded its 2016 goals to eliminate 250 million tonnes of coal and 45 million tonnes of steel capacity.

    Much of the steel capacity was already idled and output actually rose 1.2 percent to 808.4 million tonnes. Coal output fell 9 percent to 3.64 billion tonnes.

    A new round of capacity cuts was widely expected, although some executives may be disappointed the NDRC did not give an update on the government's policy that sets a limit on the number of days thermal coal mines can operate each year.

    Coal prices have rallied in recent months amid speculation the government would reinstate a limit of 276 days.

    "The smaller target this year is a natural move as the government gradually replaces low-efficiency coal capacity with more efficient ones," said Li Rong, analyst with consultancy SIA Energy.

    Speaking on the sidelines of the annual meeting, industry minister Miao Wei said the government would continue to weed out low-grade steel that uses recycled material, which it says is a major source of smog and a safety hazard.

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    Shaanxi launches half-year crackdown on illegal coal mining

    Five provincial government departments in northwestern China's coal-rich Shaanxi have jointly launched a campaign to crack down on illegal coal mining operations, local media reported.

    The move, start from March and last for half a year till the end of August, is in response to requirement of the state safety watchdog, which ordered a nationwide safety overhaul at a video-conference on March 1.

    The campaign will focus on coal mining beyond the approved area of operation stated on the mining license, mining illegally among other unlawful operations that could give rise to potential safety hazard.

    It will target all the coal mines in the province, particularly those in Shenmu, Fugu, Hengshan and Yuyang of Yulin city, and mines in Yan'an, Weinan, Xianyang and Tongchuan cities.

    Coal enterprises were asked to conduct self-check first, while local safety officials will also conduct inspection regularly.

    Public supervision is also encouraged, and the Department of Land and Resources of Shaanxi Province will award 20,000-50,000 yuan to first informer once the illegal operation is confirmed.
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    Thyssenkrupp eyes Plan B for European steel: report

    Germany's Thyssenkrupp (TKAG.DE) has looked at the option of splitting its European steel business into a separate company that could be floated if a merger with Tata Steel (TISC.NS) assets fails, German weekly WirtschftsWoche reported on Friday.

    The report, which did not cite sources, said a merger was still the preferred option but that investor pressure could force Chief Executive Heinrich Hiesinger to consider another route.

    "There is no new status," a spokesman for Thyssenkrupp told Reuters.

    Thyssenkrupp and Tata have been talking for over a year about merging their European steel units to cut costs and overcapacity, but the plan is complicated by Tata's huge pension deficit in Britain.

    Hiesinger said at the German industrial group's annual shareholders' meeting on Jan. 27 that he would not be pressured to rush a deal with Tata, but there was no "Plan B" for the steel business.

    He also told German daily Handelsblatt on Feb. 23 that the company was prepared to move forward on its own if necessary but would prefer consolidation. He also said that Thyssenkrupp would remain part-owner of the steel business in any merger scenario.
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    Investment in Australian thermal coal to remain subdued unless prices stabilise: CommBank

    There are 12 thermal coal projects featuring on the list of the most expensive upcoming resource projects in Australia, but investments in them may remain on hold unless coal prices stabilise, the Commonwealth Bank of Australia said in a report Friday. Just one thermal coal project was listed among Australia's top 20 highest cost committed projects, while five made the "uncommitted" list -- meaning a feasibility study has been undertaken -- and six have been publicly announced.

    "Producers are still reluctant to invest in new capacity despite the recovery in commodity prices over the last 12 months," the bank said.

    The collapse in prices seen at the end of 2015 is still fresh in the minds of most producers, it said.

    All but two of the listed thermal coal projects are based in Queensland. "While potential job opportunities are opening up in Australia's coal mining sector in Queensland, investors need to commit to these projects for the new jobs to become realised," the bank said.

    "Thermal coal prices though are down almost 30% since late November. We think new investment will remain subdued in Queensland's thermal coal sector until those prices become steady," it added.

    Stanmore Coal's Range Project in Queensland is the only listed committed project, coming in at No. 20 on the list of the 20 most expensive resource projects in the country, with an indicative cost estimate of $599 million. An estimated start date for the project was not available.

    Adani's Carmichael Coal Project, which includes mine and rail, is the most expensive uncommitted project in Australia, estimated at $16,500 million. The Commonwealth Bank expects it to start up this year.

    Waratah Coal's China First, GVK-Hancock Coal's Alpha Coal, GVK's Kevin's Corner and BHP Billiton Mitsubishi Alliance's Red Hill Mining were the other thermal coal projects on the uncommitted list. Their cost estimates ranged from $3,000 million for Red Hill to $8,800 million for China First.

    Alpha Coal and Kevin's Corner are expected to begin in 2018 and 2019, respectively, while China First is expected sometime after 2018 and Red Hill no earlier than 2021, it said.

    MacMines Austasia's Project China Store in Queensland topped the list for Australia's highest-cost publicly announced resource project, estimated at $5,000 million, with an estimated start-up date of 2018, the bank said.

    Also on the list were the Queensland-based Wiggins Island Coal Terminal stages two and three, valued at $2,000 million, with no estimated start-up date given, and Baosteel Resource's Talwood Coking Coal Project at $750 million.

    For New South Wales, MACH Energy's $2,000 million Mount Pleasant Project and POSCO's $750 million Hume Coal Project were listed. Mount Pleasant is expected to start in 2019 while no date was given for the Hume Coal Project.

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